Corporations: Incentive to Harm
September 19th, 2013 Submitted by Sima Qian
CorpAs left-anarchists are often quick to point out, corporations have a bloody history. During the colonial era corporate structures were some of the most effective tools of conquest, and today that legacy lives on with “security” firms like G4s, or weapons manufacturers like Lockheed Martin, Northrop Grumman or BAE Systems. On the other hand, “corporation” can also refer to your corner bakery, a small manufacturer, or farm. Most businesses these days have some form of limited liability, and corporate “personhood.”
These two different expressions of what a corporation “is” (an arm of the state, or a firm engaged in voluntary exchange) often make it difficult for right-anarchists and left-anarchists to discuss corporate structures with each other. The left often assumes that “corporation” refers to massive systems of power that dumb-down and spy on the masses, while distracting people to keep them in line. The right often assumes that “corporation” refers to a group of people doing their best to provide their customers with the goods and services that people most intensely want.
Both these stories are true.
Corporations as arms of the state:
The first corporations were created as extensions of monarchical power. These corporations (like The Company of Merchant Adventurers, which has the greatest name ever) were often created in order to establish trade routes with foreign governments. It was required at the time that they have some “official” backing by their native government. These corporations were essentially outgrowths of feudal power, to the extent that it may be more clear to think of these legal fictions, the corporate bodies, as Noblemen. The corporate person was a vassal of the monarch (and eventually of the republic), except the power was vested in a group of “adventurers” rather than in a single person. Many of these companies held their own armies, most notably the East India Company and the Dutch East India Company. The East India Company was an extension of the British state to the point that it was eventually officially subsumed back into its folds.
Early corporations literally conquered new lands in the name of their respective states, and were essential in colonization. However, they not only served as tools for invasion, but also served for the “public good,” as the state calls anything that it would like to grant as a monopoly privilege to the well-connected. Recourse to a corporate form of governance (and the related limited liability) was not only allowed to trading firms, but also allowed by states for certain capital-intensive projects, like railways and banking. The theory was that these functions were so important to the general good that it would be acceptable for normal rules concerning liability to be waived (obviously, as long as the corporation followed the rules and guidelines, created with the most honorable of intentions, set down by the state.)
Early corporate structures were “obviously” arms of the state. This continues today with banks reporting to the government about money flows, telecommunications companies reporting to the government about phone calls and texts, ISPs and Email providers reporting to the government about web activity, the multitude of companies related to the wars, etc. etc. The left is clearly correct about corporations being arms of the state.
Corporation as firms in the market:
By the mid-1800’s the small amount of liberty that had been wrested from the state (I say “small” because there was still slavery, and women weren’t “persons,” but the property of their husbands) had lead to an explosion of wealth. Shares in the most liquid partnerships were traded almost daily and there were partnerships comprised of hundreds of “partners.” Partners could, and did, write almost whatever they liked in their contracts, and one of the clauses written in some partnership agreements was limited liability for one or more of the partners. This made a lot of sense in many cases.
Suppose Bob wants to sell molasses, so he talks to his buddy Bill. Now, Bill understands the molasses business and knows Bob is an experienced molasses salesman. Bill expects them to make a large return on his investment. But Bill’s already busy managing his widget factory, and he knows that the molasses making business can be risky. What if there’s a problem, and the molasses floods the town? Bill doesn’t want to be liable for that. So, Bill agrees to be a partner, and puts up money for the business on the stipulation that he’s not expected to do any work for the company, and assumes no liability for the company’s debts. They sign a contract and everyone’s happy.
Unless something went wrong.
If people were damaged by the operations of the molasses business they would have had a hell of a time suing. For one thing, except in extreme circumstances, a suit had to be brought against each partner individually. When there were hundreds of partners, and who was a partner was changing every day, this was almost impossible. And then there was a question of contract law. On one hand, under common law, people could generally make whatever contracts they’d like, but on the other, there were damages. If Paul was harmed by Bob’s company, clearly he should receive restitution, but if Bob didn’t have enough money, should Bill, who only became a partner on the stipulation that he wouldn’t be liable, have to pay?
Eventually governments attempted to solve the problem by allowing a much broader application of corporate forms. Corporate personhood allowed for one “person” to be sued when a corporation caused damages, while a wider application of limited liability, granted by the state, settled many questions that otherwise might have been negotiated through private contract.
After these reforms, corporations (the business of which used to be almost exclusively managed through partnerships) were “obviously” just trying to sell goods and services to willing customers. This continues today with all the particular businesses that you interact with, many of which you’re probably not even aware of, and that will be different for every person, because markets are incredibly diverse.
Analysis of the Modern Corporation:
Just as the state likes to divide people over race, gender, religion and other ways, it also divides people over definitions. Corporations provide people with goods and services that are useful and in demand. Corporations are also arms of the state. To the extent that a corporation serves some government(s) (regulations, taxes, reporting to the state etc.) it will be more an arm of the state. To the extent that a corporation serves various people, it will be a business providing useful goods and services. These two things are not mutually exclusive.
Corporations are often required to have certain hierarchical structures by law. We see historically this has been based on feudal military chains of command. Many positions in these structures have “objectives” that incentivize the people filling the positions to go after a single goal without groking the fullness of their actions. This, combined with the limited liability granted by the state, in many cases creates perverse incentives for corporations and people working for corporations. Along with certain tax codes that encourage “bigness” in order to be able to discount expenses and receive certain tax credits, these things mean that there is an incentive for corporations to become authoritarian and bureaucratic in structure and form generally.
The existence of these bureaucratic structures are then used for Statist ends, giving a hand-out to favored groups (almost all labor laws fall under this category), checking the power of certain unfavored groups (child labor laws, licensing requirements) and doing work that directly benefits the state (spying on the populous, keeping people distracted etc). These things are done through regulations and subsidies, and are the bulk of what historically the libertarian right has argued against in reference to the state and corporations. Clearly, yes, there would be more prosperity and freedom without these regulations, but the left is correct that the very structures underlying corporate forms, as they exist today, tend to create bureaucratization and authoritarianism. Unfortunately, these structures of power have been identified with the “free market” even though under a truly free market there would be no limited liability and organizations could be organized in whatever way the people in the organization thought best. This causes confusion that results in disagreement where there should be agreement.
When it comes to corporations, I think anarchists on the right and left agree about more than we disagree about. Corporations, today, are used by the state and this should stop.
Would corporations exist in a stateless society? I suspect something like them would exist, but it would perhaps allow people to choose their own “boss” instead of a strictly hierarchical, almost feudal set up. Instead of having strictly limited liability for shareholders, there might be tranches for shares, where different tranches had different liabilities and paid different dividends. Also, regulation would be done by the market through customers buying the best goods at the lowest prices and by The Sword of Damocles of potential lawsuits hanging over tranche owners’ heads.
If you’re ever in an argument with someone on the left and their argument is assuming you support corporate power as an arm of the state, point out that this is not the case, find common ground, and gripe about the state together.
Tags: Corporations, East India Company
https://dailyanarchist.com/2013/09/19/corporations-incentive-to-harm/
= new reply since forum marked as read
