Corporations are arguably the dominant form of organization in modern society. They make most of what we own, and chances are that you currently work for one or have worked for one in the past. In the modern capitalist economy our fortunes are all to often tied to the fortunes of large corporations. If corporate share holders are not making profit levels they find acceptable, they can disinvest and shut down much of the economy compromising the economic well-being of nearly everyone else.They wield a great deal of power over society, arguably as much if not more than governments, as many of us hear more direct orders from our corporate bosses in a given week than we hear from our government in a given year.
With that said it is amazing the extent to which we take this relatively recent development in our society for granted or natural and as well as the extent to which we look at corporations uncritically. This is especially true of my more conservative, libertarian, and other-wise small government and free- market oriented friends, who almost take it for granted that the modern business corporation is a legitimate part of the free-market as well as product of it. I personally disagree with this view and would venture that it impossible to be consistently pro-free-market and supportive of modern corporations, as they are in fact one of the largest distortions of the free-market in existence today.
This is because corporations are by definition government chartered legal entities that have special government-granted legal privileges that are distinct from those of their individual members or other types of organization operating on the market.If I or some friends owned a small business (a general partnership or sole proprietorship), which did great harm to the persons or property of others, in the course of our business, we would all be legally responsible to the full extent of the damage we have done. If our business was received a corporate charter however there would be a limit on the extent that we could be held responsible. If a corporation is responsible for harm to the persons or property of others, shareholders may lose their investments, and employees (including management, may lose their jobs, but neither will be liable for debts to the corporation’s creditors or damage to other caused by their activities). In other words, corporate law sets up incentives for corporate owners and managers to risk the well-being, health, environmental, or national security of others, with the risks of having to personally deal with the consequences of their actions minimized. You can sue the corporation as an entity, but the people responsible for it’s decision making will often have the wealth they have accumulated protected.
Some may argue that this is not completely a bad thing, since this removal of the risk of doing business is greatly responsible for much of the economic growth sense the onset of the twentieth century. Of course, this comes with knowledge that this growth is a product of special government treatment, and it comes with baggage of giving these entities huge political influence as well as huge amounts of influence over the economy and our individual live. As such, it does strike me as a violation of a truly free-market, where the same liability standards would apply to all organizations.
I tend to view government granted limit liability as problematic. It gives cover to those wishing to enrich themselves, at the expense of concentrating third parties. It has also been pointed out that while contractual liabilities could be limited on voluntary terms with creditors and employees, having the state universally declare them limited removes this as a point of negotiation for all parties involved, as Kevin Carson elaborates here:
“Both Murray Rothbard and Stephan Kinsella have argued that the narrower principle of limited liability for debt could be established by contract, simply by announcing ahead of time that individual shareholders in a firm would be liable only for the amount of their investment. In that case, it would be entirely the voluntary decision of creditors whether or not to accept such terms, and if most creditors found such terms objectionable, the market would punish firms attempting to limit liability by prior announcement in this way…. But the very fact that limited liability can be had, not by negotiating it in a private contract, but simply by filing some standard papers under the general terms of the corporate form provided by statute, distorts the market away from the voluntary nature of limited liability as it would exist under a purely contractual regime. If, under the auspices of the state’s code of laws, the limited liability corporation becomes the dominant form of organization, how “voluntary” can the choice of alternatives be from the standpoint of a creditor?”
Even if contractual liability can be limited in a voluntary manner, it does not seem that this could be for harms to non-consenting third parties. I see no way such a thing could be arranged in a voluntary system and I find it troubling that the government imposes it upon the existing economy. This is not to mention the problem of the government conferring entity status on groups of people to begin with. Generally speaking I believe that if one causes harm to another they should full indemnify that individual to correct what they have done to the greatest extent possible, and the existing law prevents this. As such one does have to ask whether the corporation as a government granted entity with government granted liability limits should exist.