Re: Corporations

["Devine, James" <jdevine@xxxxxxx>]

I wrote:
> > the limited liability law means that a
> > corporation is much more than a bunch of voluntary
> > contracts amongst individuals. The power of the
> > state means that the whole is more than the sum of
> > its parts, so that the corporation is a "legal
> > person." (A legal person that's like an actual
> > person in many ways, with the obvious exception with
> > respect to the right to vote.  But I doubt that
> > corporations -- especially the bigger ones -- need
> > the power to vote. They dominate government anyway.)

JKS wrote:  
> I agree that "metaphysically" a corp. is more than a
> series or collection of contracts among individuals --
> it has to be. Individuals could not contract to limit
> their liability to the parties. The state has to allow
> them to do that. The corporation's existence depends
> on the sufferance of the law.

exactly. 

> However, the while the corp is collective entity, like
> a state or a union or any group that is more than the
> sum of its parts, t make a corp. a person within the
> meaning of the law required a specific _further_ legal
> act by a body (in the US the S.Ct.) with the power to
> say, as the S.Ct did, that a corp. is a "person"
> within the meaning of the 14the Amendment. I don't
> think is thsi is true in other countries. If its is,
> it requiresa  specific legal act by a competent
> authority.

yes.

...

I wrote: 
> > it's the share-holder's greed -- as organized by
> > stock markets -- that drives the company to
> > accumulate power in order to maximize profit, which
> > in turn puts people outside the company at risk in
> > this situation. Why should the taxpayers pay for the
> > clean-up? why should the neighbors of the company
> > pay for the medical costs of the company's
> > malfeasance? According to limited liability laws,
> > they should (after a point). Even though they never
> > made the decision to act in the way that caused the
> > damage.

JKS: 
> But first, is not a specific problem with
> corporations. All capitalist enterprize externalize
> costs, whether or not they are corporations.

true, but the financial set-up of a corporation encourages them to maximize profits to satisfy external stockholders who don't care about environmental destruction and the like. So financial markets reinforce the normal behavior of any decentralized bodies (unions, worker-owned co-ops, etc.), encouraging corporations to embrace aggressive accumulation of external benefits and dumping of external costs. 

JKS:
> Second, the short answer to your question is that the
> corporate form is permitted to limit liability because
> that's been determined by the legislature or the
> competent authorities to encourage investment, promote
> economic growth, and generally have benefits that
> exceed their social costs. 

The legislature that set up the corporate laws -- along with the 19th century Supreme Court ("competent authorities"?) -- was bought and paid for by the up-and-coming corporation-owners (the "Robber Barons") and similar rich groups. How can we assume that these people made the right decision? The Laborites, Populists, Socialists, Wobblies, etc., of the time were very critical of the way that the US government was dominated by the rich. How did you miss this fact? 

Similarly, the current legislators and "competent authorities" who determine corporate law are dominated by capitalist interests, especially in light of the shrinking power of labor and other countervailing powers. Why should we trust the legislature and authorities to do our thinking for us?

The cost/benefit decision of the granting of limited liability (and other corporate rights) is not something that can be made objectively, since every individual and class would put different weights on the different costs and benefits that are added up, while interpreting as benefits what others see as costs, etc. It's not some apolitical decision that can be made by "technocrats."

JKS:
>The following is therefore
> false:
> 
> > The limited liability law is a free benefit given to
> > corporations (at their own behest, basically, since
> > they have influenced the courts in their favor since
> > the 19th century), allowing them to shift risk to
> > others. In theory, there is some compensation in
> > that corporations are supposed to pay the corporate
> > income tax. But in practice, that tax is very low
> > and rapidly going away.

JKS: 
> Unless you think that the consequences for economic
> growth involved in abolsihing the corporate form, and
> requiring all investors to expose themselves and all
> their assets to potentially runious liability would
> not be as serious as many suppose.

It's important to remember that the official definition of "economic growth" is the growth of Gross Domestic Product, i.e., the growth of the commodity-producing (market-oriented) part of the economy. This misses out on the non-market costs and benefits. Measures such as the Genuine Progress Indicator (http://www.redefiningprogress.org/projects/gpi/) try to measure "economic growth" in a way that avoids this kind of pro-capitalist bias. The GPI indicates that the economy hasn't been delivering the goods very well at all during the last 30 years, despite greater and greater corporate domination of the economy and government. 

In a socialist economy where workers' democracy is the rule (instead of aggressive profit-seeking), not only would the liability rules be different, but the definition of "economic growth" would be different. It wouldn't be in turns of commodity output even if a commodity-producing sector persists. 

The argument that limited liability promotes "economic growth" as measured by GDP is saying that corporations are the best way of organizing capitalism, when seen from a capitalist point of view. 

> > which is true in the case of big disasters. But the
> > limited liability law is always in the background,
> > allowing the stockholders to ignore the morality or
> > immortality and the non-financial risk of their
> > financial holdings. The taxpayers are acting as the
> > cost-payers of the last resort, so that corporations
> > don't have do act "without a net."
> > why? shouldn't those people who hired him -- the
> > stockholders, through their agent, the Exxon
> > corporation -- pay attention to who they hire?

JKS writes: 
> Uh, that's silly. It would be irrational to demand
> that sort of due diligence for every stock purchase.
> No one could do it.

thus, we should think outside the capitalist box and get rid of stock-holding. 

> > Because they're not held responsible, the
> > stock-holders are able to ignore the risks they
> > impose on others (external costs). This encourages
> > corporations in their malfeasance. If stockholders
> > knew ahead of time about their responsibilities,
> > they'd avoid investing in such companies.
> 
> Or any companies.

no, it's quite possible that companies would be forced to compete to provide complete information about their good deeds to stockholders if they want equity funding. 

>  > Example: if Arthur Anderson, LLP hadn't had limited
> > liability protection, the top management (the
> > owners) would have been much more careful in
> > watching the actions of their "agents" in their
> > dealings with Ken Lay and the Enron gang.

JKS:  
> A friend here at my firm told me that AA was organized
> under an old LLP law (Texas, I think) that offered
> really limited protections, and that they really got
> socked when the firm went under.

but all they lost was the money they invested, right?

Jim D.