Saturday, September 3, 2011

A Better Business

A new form of business incorporation offers a ray of hope amid the moral darkness.

The limited liability corporation has become an institution of enormous importance. One aspect to appreciate about it is its steadfastly secular nature, organized to make money and little else. Corporations have occupied and expanded the secular space of Western culture, and many imagine that it may do the same in other corners of the world currently under the sway of religous or state ideologies.

A second positive aspect of the corporation is its standing refutation of Chicago-style economic theory. If everyone had perfect knowledge of economic circumstances, and acted in perfect self-interest, then why would we need the apparatus of the corporation? Instead we might have a perfectly free-lance world were workers and capitalists enter into voluntary contracts for each desired task, priced by a perfect market and renegotiated continuously, while each party serves its self-interest perfectly by serving the interest of the other with perfect fidelity. Not realistic? No indeed, thus corporations arose to organize labor on an explicitly non-market basis (i.e. by direct management) so that actual and complex productive activity could take place without the inefficiencies of the market.

Lastly, the corporation has been an important promoter of personal freedom, especially the freedom of capitalists (we'll call them entrepreneurs!) to generate new enterprises, new goods, and forms of productive activity outside state control. The freedom of employees has been less enthusiastically advanced, but depending on the state of the labor market and the diversity of the corporate landscape, workers may have freedom at least to choose among employers, and can exercise some power and gain a significant share of the benefits of this organizational form. At any rate, better that some be free than none.

On the other hand, with the rising importance of the corporation as the scope of productive activity that needs to be shielded from markets grows in complexity, and as individual corporations have grown, numerous flaws have become apparent. One is that corporations have no morals. Their only admissible ultimate goal is to make money, and (formally at least) to obey the law. While it is helpful in many ways to have such philosophical clarity, it also sentences the majority of the population to spend the majority of their waking hours in the bulk of their most productive years in what are often soul-crushing conditions, dedicated to bilking their fellow-citizens of a few dollars by whatever means human imagination can devise, in a never-ending rite propitating Mammon.

A second flaw is that corporations are not properly separated from the state, but rather control enormous pots of money that have been allowed to seep into the political system, buying the ear of the electorate, buying the personal loyalty of leaders, and buying legislation directly. While pure democracy has its problems, and all associations of citizens deserve a hearing in the public square, the combination of amorality and vast wealth with political influence has created a toxic imbalance in the political system, where vast swaths of the citizenry are effectively disenfranchised, both of their intellectual / media atmosphere, and of their vote.

And corporate money doesn't even represent the corporation as a whole- most certainly not its workers- but typically the cozy self-serving ideologies of its management, who have captured, as they have so many other fruits of corporate existence, the political power inherent in the corporation's concentration of wealth.

In some respects, it was ever thus, from our founding by the most wealthy planters, slaveholders, and financiers of the English colonies. Nevertheless, as we have advanced from our founding state in such other matters as slavery, and as the corporation has gained truly prodigious roles in our culture and government, not to mention ever-increasing legal rights of personhood, it is time to give the corporate charter a rethink.

Thus I am happy that my state representative, Jared Huffman, has offered legislation for California to authorise a form of incorporation that restores some small amount of moral sanity to the concept- the benefit corporation. This corporate form has been set up in several other states- California is not plowing new ground- and exists in the continuum from non-profit corporations and public benefit corporations, (like port authorities and other municipal bodies), to mutual benefit corporations (membership organizations, like country clubs, that may be profitable) to the full-out for-profit corporation.

The distinction from the latter is that a benefit corporation can't necessarily be sued for not maximizing profits. It can adopt binding obligations to other goals, such as fair treatment of employees, the environment, or its customers, in addition to making profits and paying taxes. Thus a company like, say, Google, would not have to rely on a putative corporate culture of "don't be evil" to withstand the pressures of the marketplace and the ire of its shareholders, but could write social obligations of various kinds into its charter of incorporation that are equally binding as the profit motive.

Granted, this is a small step. But it recognizes that corporations are the gorrillas of our culture. If they must be legal people, then at least they should be allowed the possibility of being moral people. As we have recognized that Darwinian evolution is not solely the province of rapine and slaughter, but also of social morals and altruism, so we may eventually evolve the corporation into a responsible social entity, by demanding through the competitive market as well as other avenues that it encode moral tendencies a little more deeply.


"And when a major recession comes along Barro and Co explain this by millions of workers making the same calculation together – that leisure is preferred and so they quit. All at the same time."
  • And.. Maynard Keynes, 1936, from Skidelski's "Return of the Master":
"If nations can learn to provide themselves with full employment by their domestic policy ... there would no longer be a pressing motive why one coungtry needs to force its wares on another or repulse the offerings of its neighbor ... with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour. International trade would cease to be what it is, namely a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases which, if successful, will merely shift the problem of unemployment to the neighbor which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage."

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