A Modest Proposal #2

I previously proposed that we reform of our electoral system by shooting electric shocks into politicians when they lie. I now have another similarly practical suggestion, this one for the reform of our economic system. I say we should do away with corporations.

Corporations are so much a part of our lives – a dominant part – that we take for granted that they probably always existed.  Not at all. While the original corporate form started in the 17^thcentury, it was frequently criticized and not wholly accepted. In fact, corporations were banned in England in 1776 (ironically, the year we thought we could make better rules than England did) and they were illegal there for more than 50 years. Publicly traded corporations were relatively rare in this country until the late 19^thcentury.

Simply put, corporations are sociopaths created to protect wrongdoing.  And that’s not my subjective irrational view. It’s the law. Let me explain

Imagine that there were no such thing as the corporation. Further imagine that you are sitting at a bar with your business partner. It seems that your business is failing. You have unpayable debts and you are being sued by people who got hurt using your product. After a few drinks, suppose the two of you have this conversation:

Partner: Wouldn’t it be nice if we could do business in a way where nobody could hold us responsible for what our business does. Neither of us would have to pay the company’s debts and people couldn’t hold us liable if our company hurts anybody.

You: What the hell are you talking about?

Partner: What if we could get the State to pass a law that says that if we form our business in a certain way then the business would be considered to be a person and it’s only the business that would be responsible for everything we do, not us.

You: Are you nuts? You’ve had a few too many Jack and Cokes. I’ll buy you another one so maybe you’ll forget that bullshit. No legislature is ever going to pass any law that ridiculous.

Well, if you had that conversation, you would have been very wrong. Every legislature has passed that ridiculous law. And those laws create sociopaths that protect wrongdoing.

Why are corporations sociopaths? Because, as Law Professor Joel Bakan points out in his book, “The Corporation,” like people diagnosed with that disorder, they act only to benefit themselves.  They do this not because they are evil. They do this because they have to.  The law requires it. Courts have repeatedly recognized that a corporation’s  officers and directors owe a fiduciary duty to shareholders to maximize profits. The famous economist, Milton Friedman, pointed out that the interests of a corporation are solely the interests of its shareholders and went on to say, “Now, beyond that should it spend the stockholders money for purposes which it regards as socially responsible but which it cannot connect to its bottom line? The answer I would say is no.”  The management guru, Peter Drucker goes further.  He has said, “If you find an executive who wants to take on social responsibilities, fire him. Fast.” If you need another quote, here’s one from Harvard Business School Professor Debora Spar. She said that corporations “are not institutions that are set up to be moral entities . . . They are institutions which really have one mission, and that is to increase shareholder value.”

Enough for the sociopath part. How about the protection of wrongdoing part? That’s easy. 

Corporations provide what the law calls, “limited liability.” Don’t be deceived by the way that sounds. The “limited” part of that phrase, doesn’t apply to the corporation’s liability, it applies to the people who own and run it. If you think a drug manufacturer cut corners and it’s drug killed your husband,  don’t try to get any compensation from any actual people.  Only the fictional person – the corporation – will be responsible.  What’s that you say? The corporation has no  assets and is just a wholly owned subsidiary of a bunch of other corporations that, in turn are all owned by an entity in the Cayman Islands? Sorry. Limited liability has just fucked you.

And don’t get me started on Citizens United.

It is said that the corporate form is necessary to encourage investment.  By providing the protection of limited liability, more people will invest and the economy will grow. I’m sure that’s true. But, why shouldn’t it work both ways. Why in a commercial transaction is it only the corporations that are protected? How about the consumer?  The economy is boosted by how much consumers buy.  Why not create the legal fiction of the  “buyporations”. Then, only those fictional persons would be responsible for misuse of a corporation’s product? Nonsense, right? Nonsense both ways.

Now imagine we do away with the whole notion of the corporation. Imagine an economic system where the people who actually operate a business are held personally responsible for what it does. Wouldn’t that provide an incentive for better products and services? And wouldn’t that serve the interests of society even better than the sociopathic system we have now?

Of course, don’t hold your breath until this happens. Just hold your wallets.