Corporations Cannot Exist in a Free Market

[kerrywins]

The negative impact of big corporations is pretty obvious to anyone who knows a thing or two about economics. What makes them so evil is the special privileges given to them by government.

Corporations have three qualities that are different from other business types: limited liability, personhood, and the perpetual life. I will get you started with the analysis of limited liability.

Limited liability means that an owner or stockholder cannot lose than he or she has paid for the shares of ownership regardless of the firm's debts.

Limited liability cannot be created by a free-market. What is SEEN is that limited liability shields investors from risk, but what is UNSEEN is that the risk is transferred to the other parties, or stakeholders. To some of the stakeholders the acceptance of the risk is an implied contract; employees, creditors, suppliers and customers should aware that by doing business with a corporation they are taking on the risk of the results of actions done in the names of the owners (most corporation special-interest advocates label this government intervention as "efficiency"). However, there is no implied contract with third parties (tort victims). If a corporation goes out of business owing money to third parties no one is held responsible, not owners, not managers. Limited Liability is government granted limited responsibility, or legalized irresponsibility. Government has transferred risks, and the associated costs without the associated benefits, to third parties.

[divideandconquer]

1. There is no such thing as a free market, it's libertarian myth/hoax

Reality is gang warfare under the cover of corporatism. "free markets" only exist in Plato's world of ideals.

[kerrywins]

2. we do not have a free market right now....

that is correct....
we do not have anything close to a free market....

[IrateCitizen]

8. There has NEVER been a "free market"

Those who hold capital and connections to power ALWAYS have used them to leverage themselves advantages over others. Such has been true ever since the early emergence of capitalism during the Renaissance period.

Those who clamor for a return to "free market principles" are no less utopian or deluded than those who clamor for the installation of a communist state in order to enshrine perfect social justice.

[kerrywins]

9. "ALWAYS leverage themselves advantages over others."....correct, using government

"ALWAYS have used them to leverage themselves advantages over others."

yes....and they do that by using government.

[rurallib]

3. Were there ever a truly free market it would degenerate into

a monopoly in about a decade.
Couple assassinations, some intimidation and voila- a chocolate monopoly.

[notesdev]

4. Agreed, the liability shield is the major problem

By its very existence it guarantees an uneven playing field between the liability-shielded and individuals who are not. It permits all sorts of unsavory behavior, they can take risks they would not take if their own asses were on the line, and if TSHTF they can just walk away with everything they managed to convert to personal wealth, leaving their creditors and investors with a big stinky middle finger.

Really it's an open invitation for a lot of fraud, you just need to mask your money laundering enough so that the courts won't pierce the corporate shield, then you can borrow money through the corp, divert it to your personal account, have the corp declare bankruptcy, and walk away with all the money scot-free.

[starroute]

6. I thought it was the investors that limited liability was meant to protect

My understanding is that limited liability corporations were invented so that someone like me could invest, say, $1000 in the corporation's stock knowing that even if the firm crashed out and went bankrupt owing way more than its assets, the creditors couldn't come after me personally and take my house and my firstborn child.

As far as I know, the real problem today is that corporate executives have gamed the system so that they can pay themselves mega-salaries and bonuses and bleed the firm dry, shafting both the creditors and the investors. But that's not a matter of the limited liability function -- it's a result of the divorce of management from ownership, which is something very different.

Management has been taking unacceptable risks -- but it's not because they're shielded by limited liability. It's because they're gambling with other people's money and have learned how to keep the books in such a way that they'll never be called on it.

Part of what's behind this is that the stock market has kept going up over the last few decades, so people have been trained not to care about dividends because they figure the real payoff will come from their stock increasing in value. This lets management skim off the real profits while handing the on-paper-only gains to the stockholders.

[dhpgetsit]

5. I think this is a good line of reasoning.

When debating some Ayn Rand objectivist, how would they react when it is pointed out that the status of "Corporation" and the limited legal liability that comes with it, is a form of government manipulation of the markets. Could they be persuaded to take a position against corporations?

[paulsby]

7. by this logic, individual bankruptcy protection can't exist in a free market either

since it offers similar protections to individuals in regards to debt. third parties ALSO have risks similarly transferred