The law makes corporations “persons,” and the law makes them sociopaths. The law can also give corporations a conscience. (More)

Reprise of Corporate Persons, Part II – A Legal Conscience

As we had no guest lecturers, yesterday and today we’ve reprised a Morning Feature series from March, 2009. I condensed the original three-part series into two parts. Yesterday we saw why corporations are legal “persons,” and why those “persons” behave like sociopaths. Today we explore how to give corporations a conscience, and what that implies for business and for We the People.

Externalities plus Economies of Scale equals….

Yesterday we met Larry Legend, widget-maker and Chairman of WigiCorp. Larry inherited his shares from his father, who also made widgets. Larry knows widgets. But when we asked Larry about the public policy, environmental, public safety, and community stability costs of widgets, Larry replied: “I’m not in the policy business, the environment business, the public safety business, or the community stability business. I’m in the widget business.”

Still, the making and selling of widgets may impact public policy, the environment, public safety, and the stability of communities. The law doesn’t require WigiCorp to pay most of those costs. And, as we saw yesterday, Larry can’t choose to pay those costs based on his personal moral code. Corporate assets belong to the shareholders. Unless Larry can show how paying those costs will make WigiCorp more profitable, the shareholders can sue him for breach of fiduciary duty. But those costs don’t disappear simply because WigiCorps doesn’t pay them. They are, in econ-speak, externalities: costs born by people who are not parties to the transaction. We the People pay those external costs, in taxes and in environmental and community losses.

Those externalities also enable economies of scale, where large businesses can have lower per-unit operating costs and under-price smaller businesses while still showing a profit. Economies of scale is usually presented as if it were an immutable economic principle, akin to a physical law such as gravity. But the larger a business grows, the more it impacts public policy, environmental, public safety, and community stability. Those costs often grow faster than the company’s revenues. If WigiCorp can externalize enough of those costs, it can become….

Econosaurus Rex

Externalizing costs while seizing on economies of scale enables the massive corporations that roam our economic, social, and political landscape eating everything in sight. Smaller businesses often can’t compete, and E. Rex usually buys out those that might. E. Rex centralizes more wealth and power in fewer hands … while proclaiming “economic freedom” and complaining about “big government.”

We the People not only allow E. Rex. We the People subsidize E. Rex by paying those external costs. And if all of that isn’t enough, We the People bail out E. Rex because it’s “too big to fail.”

That doesn’t happen because corporations are legal “persons.” It happens because not paying the full costs of doing business – public policy, environmental, public safety, and social fabric – enables and even compels corporations to grow into E. Rex or be eaten by another, bigger E. Rex.

Giving E. Rex a conscience … and a diet.

What would happen if corporations had to pay the full costs – public policy, environmental, public safety, and community stability – of doing business? As a corporation grows, those external costs often increase faster than the savings of economies of scale. Thus, if corporations had to pay the full costs of doing business, many would be too big to be profitable.

There would be exceptions: businesses that need little policy support, are very green, very safe, and help stabilize communities. These “corporations with a conscience” would be businesses we progressives should applaud and want see thrive. And they would thrive.

The rest would have to stay small enough to keep their public policy, environmental, public safety, and community stability costs manageable. Fewer E. Rexes would enable more small businesses to compete and innovate, and encourage more vibrant local economies and communities. It would also reduce 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 WigiCorp should help pay for the new roads, public transportation routes, power and water lines, sanitation, and other public infrastructure its new widget plant will need. WigiCorp should also help pay for its foreseeable environmental and public safety impacts, and help smooth the transition of a widget plant coming to the community. That’s not because your city or state hate WigiCorp or widgets. It’s making WigiCorp pay the full costs of being “in the widget business.”

Paying those costs would make it more expensive for all but the smallest businesses to relocate, and that’s a good thing. It gives businesses a greater stake in their communities, and encourages them to be more responsible for and responsive to those communities. It gives WigiCorp an incentive to help the community thrive, rather than devouring its resources and moving on.

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 Americans stop seeing government as the bogeyman and recognize that unchecked corporatism is a grave threat to our very democracy. We the People subsidize the external costs that enable E. Rex.

The Koch brothers and other plutocrats call that a “free market.”

I call it a “free lunch.” And We the People are the main course.


Happy Wednesday!