Criticisms of corporations

Criticisms of corporations

The notion of a legally sanctioned corporation remains controversial for several reasons, most of which stem from the granting of corporations both limited liability on the part of its members and the status and rights of a legal person. Some opponents to this granting of "personhood" to an organization with no personal liability contend that it creates a legal entity with the extensive financial resources to co-opt public policy and exploit resources and populations without any moral or legal responsibility to encourage restraint.

Contents

Divisions between labor, management, and owners

Adam Smith in the Wealth of Nations criticized the joint-stock company corporate form because the separation of ownership and management could lead to inefficient management.

The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.... Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

The context for Adam Smith’s term for “companies” in the Wealth of Nations was the joint-stock company. In the 18th century, the joint-stock company was a distinct entity created by the King of Great Britain as Royal Charter trading companies. These entities were awarded legal monopoly in designated regions of the world, such as the British East India Company.

Furthermore the context of the quote points to the complications inherent in chartered joint-stock companies. Each company had a Courts of Governors and day-to-day duties were overseen by local managers. Governor supervision of day-to-day operations was minimal and was exacerbated by the geography of the 18th century.

The sailing time from India to Great Britain was many months and round trip routes often took a year or longer. It was during the interim time period that local managers took advantage of the time delay by plundering the local population at the expense of the interests of shareholders. Bribery and corruption were inherent in this type of corporate model as the local managers sought to avoid close supervision by the Courts of Governors, politicians, and Prime Ministers. In these circumstances, Smith did not consider joint-stock company governance to be honest. [1] More importantly, the East India Company demonstrated inherent flaws in the corporate form. The division between owners and managers in a joint-stock company, and the limited legal liability this division was based on guaranteed that stockholders would be apathetic about a company's activities as long as the company continued to be profitable. Just as problematic, the laws of agency upon which the corporate form was based allowed for boards of directors to be so autonomous from and unconstrained by stockholder wishes that directors became negligent and ultimately self-interested in the management of the corporation.[2]

Psychopathic behavior

Legal Scholar and Professor of Law at the University of British Columbia Joel Bakan describes the modern corporate entity as 'an institutional psychopath' and a 'psychopathic creature.' In the documentary The Corporation, Bakan claims that corporations, when considered as natural living persons, exhibit the traits of antisocial personality disorder or psychopathy. Also in the film, Robert Monks, a former Republican Party candidate for Senate from Maine, says:

The corporation is an externalizing machine (moving its operating costs to external organizations and people), in the same way that a shark is a killing machine.
[3]

Democratic criticisms

Noam Chomsky and others have criticized the legal decisions that led to the creation of the modern corporation:

Corporations, which previously had been considered artificial entities with no rights, were accorded all the rights of persons, and far more, since they are "immortal persons", and "persons" of extraordinary wealth and power. Furthermore, they were no longer bound to the specific purposes designated by State charter, but could act as they choose, with few constraints.
[4]
When the corporatization of the state capitalist societies took place a century ago, in part in reaction to massive market failures, conservatives--a breed that now scarcely exists--objected to this attack on the fundamental principles of classical liberalism. And rightly so. One may recall Adam Smith's critique of the "joint stock companies" of his day, particularly if management is granted a degree of independence; and his attitude toward the inherent corruption of private power, probably a "conspiracy against the public" when businessmen meet for lunch, in his acid view, let alone when they form collectivist legal entities and alliances among them, with extraordinary rights granted, backed, and enhanced by state power.
[5]

Chomsky contends that corporations transfer policy decisions out of the hands of the people and into corporate boardrooms, where public oversight is limited. The extensive financial resources of corporations and the extent to which they're employed to influence political campaigns in the United States has also been implicated as a way in which corporations undermine the democratic institutions in a society.[6]

The Corporation: both a benefactor and a pariah

As a business institution, the corporation plays a crucial and indispensable role in the creation of goods and services.[7]

“No other institution in American history—not even slavery—has ever been so consistently unpopular...with the American public. It was controversial from the outset, and it has remained controversial to this day.”[8]

John D. Rockefeller was one of the first to experience that paradox in a spectacular and personal way.[9] By the last decade of the Nineteenth Century, Rockefeller found that he had become “the most hated man in the world.”[10]

Around the middle of the Twentieth Century, the economist John Kenneth Galbraith noted that the corporate businesses which foreign visitors came to see and marvel at, as “showpiece[s] of American industrial achievement,” were the very same ones that government attorneys scrutinized in their search for monopolistic wrongdoing.[11]

Corporate law

Influential scholars Frank Easterbrook and Daniel Fischel argue that corporate law serves the general welfare by mimicking, without the heavy cost of negotiation, the contractual agreements that would be reached by shareholders, managers and employees. For example:

Limited liability decreases the need to monitor agents. To protect themselves [in its absence], investors could monitor their agents more closely. The more risk they bear, the more they will monitor. But beyond a point extra monitoring is not worth the cost. Moreover, specialized risk bearing implies that many investors will have diversified holdings. Only a portion of their wealth will be invested in one firm. These diversified investors have neither the expertise nor the incentive to monitor the actions of more specialized agents. Limited liability makes diversification and passivity a more rational strategy and so potentially reduces the cost of operating the corporation.
[12]

References

  1. ^ Adam Smith The Lost Legacy.com
  2. ^ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 741 (Clarendon, Oxford 1776).
  3. ^ Bakan, Joel (writer) The Corporation (2003) (Documentary)
  4. ^ Robert Barksky, Noam Chomsky and the Law [1]
  5. ^ Chomsky, Noam (1999). Profit Over People: Neoliberalism and Global Order. New York, New York, United States: Seven Stories Press. pp. 175. ISBN 978-1-888363-82-1. 
  6. ^ Ned Resnikoff. 2007 Corporations Versus Democracy. The Nation. [2]
  7. ^ Jack Beattie. Colossus. NY, 2001.
  8. ^ Irving Kristol. Reflections of a Neoconservative. NY, 1983. p. 204.
  9. ^ Charles Churchyard. “The Corporation and John D. Rockefeller’s Bewilderment.”
  10. ^ David F. Hawke. John D. NY, 1980. Ch. 36.
  11. ^ John Kenneth Galbraith. American Capitalism. NY, 1956. p. 91.
  12. ^ The Economic Structure of Corporate Law (1991).

External links

  • CorpWatch, a corporation watchdog organisation

Wikimedia Foundation. 2010.

Игры ⚽ Нужно сделать НИР?

Look at other dictionaries:

  • Criticisms of neoclassical economics — Neo classical economics has come under critique on the basis of its core ideologies, assumptions and other matters. Contents 1 Normative bias 2 Assumptions of rationality 3 Equilibrium theory 4 Incomplete …   Wikipedia

  • Corporation — This article is about business corporations. For other uses, see Corporation (disambiguation). Corporate redirects here. For the Bollywood film, see Corporate (film). A corporation is created under the laws of a state as a separate legal entity… …   Wikipedia

  • Anti-corporate activism — Anti consumerism Ideas and theory Spectacle · Culture jamming · Corporate crime · Media bias · Buy Nothing Day · Alternative culture · Simple living · …   Wikipedia

  • Anarcho-capitalism — Part of the Politics series on Anarchism …   Wikipedia

  • Critique of capitalism — Capitalism has been critiqued from many perspectives during its history. Criticisms range from people who disagree with the principles of capitalism in its entirety, to those who disagree with particular outcomes of capitalism. Among those… …   Wikipedia

  • United Kingdom — a kingdom in NW Europe, consisting of Great Britain and Northern Ireland: formerly comprising Great Britain and Ireland 1801 1922. 58,610,182; 94,242 sq. mi. (244,100 sq. km). Cap.: London. Abbr.: U.K. Official name, United Kingdom of Great… …   Universalium

  • Citizens United v. Federal Election Commission — Supreme Court of the United States Argued March 24, 2009 …   Wikipedia

  • Anti-globalization movement — Anti consumerism Ideas and theory Spectacle · Culture jamming · Corporate crime · Media bias · Buy Nothing Day · Alternative culture · Simple living · …   Wikipedia

  • Fair trade debate — Fair trade s increasing popularity has drawn criticism from both ends of the political spectrum. Different arguments are used by those who favour and by those who oppose fair trade, or feel that more strict standards and higher fair trade prices… …   Wikipedia

  • Anti-globalization — is a term that encompasses a number of related ideas. [ No Logo: No Space, No Choice, No Jobs by Canadian journalist Naomi Klein.] What is shared is that participants stand in opposition to the unregulated political power of large, multi national …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”