On Thursday we explored the legal theory of why corporations are treated as legal “persons.”  Yesterday we looked at why corporations are so often sociopathic – current law essentially requires them to be so – and how the law could be changed to make corporations be more responsible.

Today I’ll explore how enacting sensible, responsible business practice regulation that makes corporations pay the full costs of doing business would change the mathematics of economies of scale, and help end what Robert Reich describes as Supercapitalism.

Scaling Down Corporate “Persons”

As we’ve explored, the legal doctrine of corporate personhood has deep roots in our national history.  It is not, as some critics allege, an outgrowth of interstate corporations like railroads.  It traces back to one of the earliest acts of Congress, Title I, Section 1 of the U.S. Code, and the 1819 Supreme Court decision in the Dartmouth College case.  The doctrine does not give corporations all of the rights afforded to human persons, but it does confer individuality – a corporation exists independent of its owners and/or operators – and guarantee due process of law under the Fifth and, later, Fourteenth Amendments.

But as we’ve also explored, corporate persons too often behave in ways that, were they individual human beings, would be sociopathic.  Officers of a publicly-held, for-profit corporation are not permitted to be noble at shareholders’ expense, as the Michigan Supreme Court held in the 1919 case of Dodge v. Ford Motor Company.  Relying on such doctrines, too many corporations behave like ravenous predators: devouring individuals, other corporations and, when they can, even governments.

Yesterday I proposed that government should enact sensible, responsible business practice regulation that makes corporations pay the full costs of doing business, including environmental, public policy, public safety, and social fabric costs.  I did not explain that as well as I might have, and it led some to comment that I was papering over the problem, or even buying into corporatist propaganda.

Perhaps, but I doubt corporatists would like my proposals one iota.  Many corporations, especially multinational corporate giants, would have to break themselves up into smaller, independent businesses, or rework their business models from the ground up, or go bankrupt.  And that is not an oversight, or an unintended consequence.  Indeed it’s my primary intended consequence.

Why corporate giants exist: economies of scale.

Last Saturday we explored why rising energy costs may change the mathematics of economies of scale.  And it is those economies of scale that enable corporate giants.  Under present laws, large businesses can have lower per-unit operating costs, allowing them to under-price smaller businesses while still showing a profit.  This is usually presented as if it were an immutable economic principle, akin to a physical law such as gravity.  In fact, I suggest it is true only when larger businesses can externalize many of their operating costs: when they can argue “I’m in the widget business” and make We the People pay all costs not directly associated with producing and selling widgets.

The problem is that WigiCorp is not only “in the widget business,” because that business may impact the environment, public policy, public safety, and the social fabric of the communities where WigiCorp produces and sells widgets.  Under present law, WigiCorp doesn’t have to consider most of those costs.  They are, in econ-speak, “externalities.”  But they are only “externalities” because corporations don’t want to pay them and have decided that We the People should pay them instead.  And our paying them enables economies of scale that in turn enable corporate giants to trample on our lives, our liberty, and our property.

Jurassic corporatism

Sensible, responsible business practice regulation is not about the government seizing management control over business.  It is not, as is commonly argued, “socialism.”  It’s about making businesses pay the full costs of doing business, and those costs should include all of the foreseeable consequences of business: how it impacts the environment, public policy, public safety, and the social fabric of communities.

To say “I’m in the widget business,” but refuse to pay for foreseeable consequences of producing and selling widgets, is not “capitalism.”  It is “corporatism,” or at least that’s what we call it in the early 21st century.  In early 20th century Italy, it was called “fascism.”  And to paraphrase the Bard, a turd by any other name would smell as horrid.

When we let corporate giants roam the landscape, and not only allow it but subsidize it by paying their “external” costs, we are like John Hammond in the film Jurassic Park.  We release Econosaurus Rex in our community, and they devour everything in sight.  That might be a fun movie, but as we’re all learning, it’s not a fun reality.  And if that were not enough, some in our government would stake more of us goats out as food, because E-Rex is “too big to fail.”

That doesn’t happen because corporations are legally classified as “persons,” or because they’re given due process rights.  It happens because not paying the full costs of doing business – environmental, public policy, public safety, and social fabric – enables and indeed compels corporations to grow into E-Rex or be eaten by another, bigger corporate E-Rex.

Paying their full costs will starve E-Rex

The larger a business grows, the more likely that it will have greater impacts on the environment, need more policy assistance from government, create more public safety concerns, and more stress on the social fabric of the communities where it operates.  Those costs – the full costs of doing business – increase faster than the cost savings of economies of scale.  If corporations have to pay the full costs of doing business, many would find their business is too big to be profitable.

There are and will be exceptions, businesses that are very green, need little policy help, are very safe, and are inherently beneficial to their communities.  As it happens, those are the very businesses progressives tend to applaud and would like to see thrive.  And they would thrive.

The rest would have to stay small enough to keep their environmental, public policy, public safety, and social fabric costs manageable.  And that not only brings benefits like those we explored last Saturday: more localized business, more vibrant and connected communities, etc.  It also greatly reduces the political clout of corporations.  “Small enough to be profitable” will usually mean “too small to dominate the body politic.”

This is not “socialism.”  It’s ending corporate welfare.  It says your city should not have to subsidize the building of the new widget plant.  Indeed, the subsidies should go the other way.  WigiCorp should have to pay for the ways its new widget plant will impact your environment, the ways it will need help from your government, the public safety issues a widget plant will create, and the ways it will change the social fabric of your community.  Not because your city hates the widget business, but because all of that is part of being “in the widget business.”

Paying those costs would make it more expensive for all but the smallest businesses to relocate.  I don’t see that as a bad thing.  Quite to the contrary, I think it would give businesses a greater stake in the health of their communities.  That would encourage them to be more responsible for and responsive to those communities.  It gives WigiCorp an incentive to help the community thrive, rather than devouring it and moving on to devour another.

And I want government to require that of any corporation doing business in the U.S., no matter where that corporation is chartered, and wherever it does business.  If a foreign-owned company wanted to do business in the U.S., it would have to show that it is paying and will pay the full costs of doing business, not only in here but in every country where it operates.  If it refuses, we can’t shut it down in other countries, but we can deny it permission to operate here in the U.S.  I suggest there aren’t a whole lot of corporations who would want to be shut out of the U.S. market.

Could this be done?

Yes, it could, but only when Americans decide we’re tired of paying for corporate welfare.  Reforms of this scope cannot and will not happen unless and until, as a commenter noted yesterday, Americans stop seeing government as the bogeyman and recognize that unchecked corporatism is a grave threat to our very democracy.  It’s not because corporations are legal “persons,” but because We the People subsidize the “external” costs the corporations don’t want to pay.  That enables and indeed compels them to act on economies of scale and grow into E-Rex, but those economies of scale only hold if they can “externalize” so many of their costs.

Corporatists call that a “free market.”

I call it a “free lunch.”  And we’re the main course.

Happy Saturday!