ECON: Corporations

Tim Hruby (
Fri, 22 Jan 1999 13:42:44 -0500

On 22 Jan 1999 01:54:25 -0000, wrote

> Indeed. Galbraith notes the risk-avoiding nature of the corporation.
> Limited liability, large size, ability to diversify, ability to replace
> its components... if businesses appeal for gov't protection less than
> individuals, that's one reason why.

Well, let's point out that the benefits of the corporate form are benefits confered by governments, so in effect, the government has already provided certain protections to orgainzations operating under the corporate form.

In particular, the benefits of stockholder limited liability and status as a distinct legal entity are confered by government/legislative fiat -- there is no guarantee such benefits would exist/be protected in a non-statist polycentric legal regime. This point is often overlooked in people's analyses of how things would work in a PPL society.

And, _off of the top of my head without deep analysis_, the coercive imposition against all potential claimholders of limited liabilty protection for stockholders does seem to be an actual market-enhancing benefit provided by coercive governments. It is not at all clear to me that a potential tort-victim (as opposed to a contract partner) would voluntarily agree to limit his potential claim for injuries in such a manner (perhaps he would from a Rawls-ian "original position," but that line of argument is by no means universally accepted, and I won't go into it here). Yet without such limits, capital-owners would be _far_ more hesitant in making investments over which they have minimal management control. (Would you invest in Microsoft if Netscape could come after your entire personal net worth for Bill Gates' alleged tortious competition? Replace with Bhopal if you don't think that business torts would be protected under a PPL system) There appear to be market-enhancing externalities that result from coercively facilitating the formation of the aggregations of capital we call corporations. Of course, perhaps the market would be more efficient if we had fewer of these organizations and tort-victims had more opportunites to be fully compensated under an unlimited liability regime?

(Not that I am implying that I agree with the statement that corporations petition for less government protection than individuals. I suspect that they petition more than individuals, because corporations tend have larger economic interests than individuals, and therefore tend to be in a better position to afford the high costs of rent-seeking and to better profit from the protection they recieve. Not to mention such distortions like the fact that it is far easier for a corporation to sucessfully deduct the cost of petitioning the government as a business expense than it is for an individual.)