A Free-Market Path to Corporate Reform

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On economic issues, libertarians have historically played a supporting role to conservatives, at least in the eyes of the general public. The upcoming election season provides us with an opportunity to throw off this image and craft a public identity of our own.

One of the more contentious disputes in the ongoing political wars is what to do about the substantial power wielded by large corporations in our political, social, and economic lives. On this issue, liberals and conservatives have staked out positions that appear at first glance to be diametrically opposed. Many liberals and far-left “progressives” portray large corporations — especially those in the social media, fossil fuel, and pharmaceutical industries — as rampaging beasts, whose predatory behavior must be curbed by strict government oversight and control. Many conservatives, on the other hand, paint a benign picture of large corporations as consumer-friendly instruments of free markets and prosperity, which must be protected at all costs from further government interference.

By any rational standard, large corporations have acquired too much economic and political power, and most of them are not shy about using this power to undermine the free market when that serves their interests.

To the extent that libertarians deal with this issue at all, we tend to side with conservatives. Although a vocal minority of libertarians oppose specific corporate perks such as limited liability and corporate personhood, most of us view corporations in a favorable light, as essential providers of the multitude of goods and services we use every day. Our lack of political influence, however, makes us marginal players in this debate, and we are perceived as little more than cheerleaders for the mainstream conservative viewpoint.

This need no longer be the case. Our fundamental principle, the nonaggression principle, provides us with a chance to speak in our own voice and introduce a totally new perspective to this debate. Using the nonaggression principle, we can identify specific government policies that enable and encourage corporate dominance, and we can actively promote explicitly libertarian reforms aimed at creating a more level playing field between people and corporations.

Such reforms are way overdue. By any rational standard, large corporations have acquired too much economic and political power, and most of them are not shy about using this power to undermine the free market when that serves their interests. A current example is an all-out effort by many corporate healthcare providers, through lobbying and lawsuits, to block price transparency for consumers, a key feature of the free market that is essential to its functioning.

Unfortunately, all modern economies have specific sets of rules for corporations — rules that are distinct from and often opposite to those for individuals and other types of organizations. These rules violate free-market norms in two major ways: as all libertarians know, they require corporations to submit to intrusive government oversight and regulation of their activities; and as not all libertarians fully realize, they give corporations special privileges that are not granted to unincorporated firms or individuals.

Chief among these special privileges is “limited liability,” designed to shield owners of corporations from financial risk relating to corporate negligence or misbehavior. Although libertarians disagree about the extent to which individual stockholders should be held responsible for corporate misconduct, that is not the issue here. The issue instead is that, by granting limited liability to owners of corporations and denying it to unincorporated firms, the government is creating a double standard in the marketplace, one that favors corporations over individuals.

Unfortunately, all modern economies have specific sets of rules for corporations — rules that are distinct from and often opposite to those for individuals and other types of organizations.

Corporations have additional ways of avoiding the consequences of their wrongful actions. Suing a corporation is a difficult, expensive and time-consuming process — much more so than suing another person. A corporation can easily dissolve or go bankrupt, even as its owners continue to prosper. A judge’s approval is usually needed to “pierce the corporate veil” and sue the owners directly. Such approval can be difficult or impossible to obtain, especially in jurisdictions that advertise themselves as friendly to corporations.

Since corporations can own, buy, and sell one another, a privilege rightly denied to individuals, it is easy to establish a chain of corporate ownership to conceal the identity of the true owners, by setting up the controlling corporations in different domestic jurisdictions or in other countries.

These state-granted corporate privileges come at a steep price — to our economic freedom as well as to corporations themselves. Corporations are brought into existence by legislative permission. They can be snuffed out of existence just as easily through government revocation of their charters. This gives governments tremendous power to regulate corporations as they see fit, and encourages corporate decision makers to seek the “friendship” of powerful government agencies and do their bidding. The result is a toxic blend of crony capitalism and a “mixed” economy, within which the marketplace is anything but free.

The competitive advantages conferred by government permit corporations to grow larger than they would in a free market, “crowding out” other types of business organizations in the process. Eventually we arrive at an economic landscape dominated by corporate executives and their regulators, at the expense of everyone else’s freedom.

These state-granted corporate privileges come at a steep price — to our economic freedom as well as to corporations themselves.

Should libertarians regard this state of affairs as incompatible with the proper functioning of a free economy? If so, what should be done to fix it?

The answer to both these questions can be found by applying the basic principle that guides our political philosophy. The nonaggression principle declares that governments should not interfere with anyone’s peaceful activities, provided those activities do not violate the rights of others. For libertarians, this principle applies not only to individuals, but also to groups of individuals — and a corporation, at its root, is simply a group of individuals who share an interlocking set of contractual relationships.

The nonaggression principle logically leads to this conclusion: any activities that are legally and morally legitimate for corporations should be equally legitimate for all other private, voluntary groups of people. Conversely, activities that violate the rights of others should be prohibited to all such groups. When it comes to legal rights and responsibilities, a free society should not treat corporations any differently from the way it treats any other privately organized groups, such as labor unions, religious and charitable organizations, foundations, and political parties.

This leads to a further conclusion that some will consider radical: there is no need or justification for “corporation” as a legal concept at all. An unincorporated business should have exactly the same standing under the law as an incorporated business in matters such as taxation, liability, reporting requirements, and recognition of contracts. Aside from protecting the rights of third parties, governments should have no say regarding any firm’s form of organization, purpose, or method of operation. Legal protections extended to corporations should be equally available to all other groups.

Any activities that are legally and morally legitimate for corporations should be equally legitimate for all other private, voluntary groups of people.

Such a set of reforms, if applied consistently, would have far-reaching effects. It would do away with any reason to treat corporations as privileged legal entities.It would remove the need for a body of corporate law, separate from individual and contract law. It would render irrelevant the legal fiction of corporate personhood, along with the torturous logic needed to justify such a concept. It would create a more level playing field between people and corporations. It would bring more consistency and fairness to government policies regarding liability and secrecy. It would ensure that any legal protections given to corporate owners and agents would also extend to unincorporated individuals and groups. Taken together, these reforms would constitute a major step toward a freer economy.

As a means of generating favorable publicity for libertarianism, promoting such reforms has much to recommend it. These proposals derive directly from our fundamental principles. They are straightforward and easy to explain. They stand in stark contrast to the spurious “reforms” dished out by the mainstream Left and Right. They appeal to people’s sense of fairness. And by promoting both economic liberty and equality before the law, they have the potential to gain support from people on both sides of the mainstream political divide.

But advocating such reforms should be more than just a strategy to improve our public relations, burnish our image, and promote our brand. A more important consideration is at stake here. As principled champions of the free market, we libertarians should actually be defending the free market, not the flawed simulation that we see around us. As principled champions of individual rights, we should be defending these rights not only against the government but also against any corporations that violate them with the government’s blessing.

As the 2020 political season heats up, the issue of corporate power will increasingly command the public’s attention. This presents us with a clear choice. We can continue playing second fiddle to the conservative-led campaign to further deregulate large corporations, while doing little or nothing to take away their unfair advantages in the marketplace. Or we can strike out on our own, and boost our credibility as champions of individual rights, by leading the charge to put an end to corporate privileges and make the marketplace more free.




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Comments

Michael F.S.W. Morrison

Since I met Charles Barr 'way back in 1972, I am not surprised at the brilliance of his presentation. If I am surprised at all, it's that his (to me) obvious explanation of how libertarians should in turn present our ideas about corporations would be argued against.
I expect some possible Randroids might object, responding knee-jerkily and missing Charles Barr's actual point.
He has not called for more state intervention in a free market, but less, and a freer and fairer playing field.
Some left-collectivists might complain that he doesn't want more intervention, but they tend to see "corporation" and just "business" as the same phenomenon, and all such need to be shackled, they feel.
Never mind all of them. As usual, Charles Barr has done a masterful job of leading the rest of us to that proverbial light. And I thank him. And I thank editor Stephen Cox and Liberty for the wisdom in publishing this important essay.

Bruce Ramsey

You write, "Although libertarians disagree about the extent to which individual stockholders should be held responsible for corporate misconduct, that is not the issue here." It kind of is, though, isn't it? If I have stock in Boeing, and some Boeing jets fall out of the sky and kill people, and it is argued that this is because of the mistakes made by some Boeing executives, are the families going to sue the Boeing executives or sue me? There are 563 million shares of Boeing stock outstanding, so there are probably hundreds of thousands of shareholders. Are we all going to be sued? How would that work? And what would be the long-term consequences for Boeing's ability to design and build airplanes?

You write, "When it comes to legal rights and responsibilities, a free society should not treat corporations any differently from the way it treats any other privately organized groups, such as labor unions, religious and charitable organizations, foundations, and political parties." But there are special rules for those things, too. The Service Employees International Union is not subject to all the same rules as your dentist. There are distinctions between various human associations, and what rights, responsibilities and liabilities they have. The distinctions have been made over a long time in recognition of particular reasons. Maybe some of the distinctions need to be changed — I'm not a huge fan of the National Labor Relations Act, for example — but let's not just say, "Hey, we're libertarians, and we're going to throw out all these distinctions, because doing so accords with our basic principle." It WOULD distinguish us from conservatives.

And also from the Left, which wants to end "corporate personhood" but not "labor union personhood" or "activist group personhood" or "personhood" from any groups that they favor. I used to write for a newspaper, which had freedom of the press under the umbrella of corporate personhood. It wasn't my freedom of the press that protected me — I had no RIGHT to work there — but the company's. I explained that to the lefty, and he said, "Oh, no, we don't want to take away the media's right" (unless you're Fox News).

Getting rid of "personhood" means getting rid of legal rights. Let's be careful before we jump into that pool.

Charles Barr

Bruce Ramsey has brought up some fair points that deserve a response, so here goes:

First, I agree that special rules currently exist for labor unions, religious and charitable organizations, foundations, and political parties, as well as for corporations. In a libertarian society, however, these special rules should not exist for these or any other private associations. According to the nonaggression principle, people do not acquire new rights or responsibilities by forming or becoming members of voluntary groups. If a free society is unable to function without creating such legal distinctions, then the nonaggression principle needs to be revisited and perhaps abandoned.

As to freedom of the press, it applies – as it should - to everyone from an occasional internet blogger to a multinational media company. It doesn’t require the “umbrella of corporate personhood” to be exercised – nor should any other right be subject to such a requirement.

Lastly, there is the issue of product liability. The airline industry, along with many others, would have evolved in a different manner if corporations had not been given the special privileges they now enjoy. How the issue of product liability would have been dealt with in a non-corporate economy is beyond the scope of my article. All I am saying is that, to the extent that owners of corporations are legally protected from personal liability, the exact same legal protection should also apply to owners of an unincorporated firm, regardless of how few or how many stockholders it has.

Visitor

The issue of potential liability is easily addressed. Culpability for negligence rests on the shoulders of those actively responsible for the management of the business... NOT on those who merely finance the overall endeavor "from a distance."

Investors who do not exercise control of a business entity should NEVER be held accountable for the actions of other individuals associated with that business, regardless of the form that entity takes. Passive shareholders in a non-corporate entity should have the same shield from liability as shareholders in a corporate entity. Those who actively manage a business are solely responsible for the actions of that entity.

Visitor

The ironic thing about the free market is that it shares something with communism: nonexistence.

Michael F.S.W. Morrison

However, quite UNlike communism, the free market SHOULD exist. And could.

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