Chad Perrin: SOB

20 March 2006

Collective Capitalism

Filed under: Liberty — apotheon @ 09:28

One of the most dangerous obstacles to individual liberty in the United States today, and in Western first-world nations in general, is the corporation. It applies collectivist concepts to capitalist economics to produce a sort of legal superentity that runs roughshod over individual rights on a fairly large scale. To explain how all this works, I’ll start with definitions. Wikipedia defines corporation as follows:

from A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as “moral persons”; they may also go by the name “AS” (anonymous society) or something similar, depending on language (see below). In colloquial usage, “corporation” usually refers to a commercial entity set up in accordance with a governmental framework. Churches (mainly in US, but not so much in other countries, where Churches have a different status), interest groups (both can form as not-for-profit corporations or can exist as voluntary associations), cities and townships (often chartered as public corporations), among others, may also have historically lengthy corporate identities.

As the American Heritage Dictionary of the English Language puts it, a corporation is:

from 1. A body that is granted a charter recognizing it as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its members. 2. Such a body created for purposes of government.

The key here is that corporations are legal entities, the terms of which are enshrined in enforceable regulation by a governmental framework within a given nation’s economy and body of law. By conferring entity status upon an organization as distinct from its members, government separates responsibility of action from the individuals who make decisions: the acting entity is legally responsible for its action, thus relieving decision makers and individual actors within the organization of culpability for those decisions and acts. Because a corporation as a legally entity cannot be jailed, however, it is immune from criminal prosecution and any wrongdoing can only be applied in the form of civil penalties.

Once you reduce the legal consequences of action to nothing but civil penalties, you turn wrongdoing into a numbers game. A proper system of jurisprudence, ethically conceived and operated, would concern itself with two things: preventing violations of rights, and redressing violations of rights (in each case secondary and tertiary to refraining from violating rights in the pursuit of justice, but that’s not really relevant here). Civil penalties are ineffective in the prevention of violations, as they attempt to prevent only by disincentive, whereas criminal penalties can be used to actually remove rights violators from the system to prevent future violations. Disincentives only work up to the point where the violator decides it is worth the potential consequences to take the chance of violation, even on a third or fourth violation.

Criminal penalties result in at least temporary relief for the general populace from the depredations of those who have proven they are willing to violate the rights of others. Civil penalties only grant one a better metric for comparing the short-term personal benefits against the short-term personal detriments for a given violation so that he or she may better plan later violations. The situation is even worse when the penalized “entity” is not an individual at all, but merely an organization in which individuals have invested. Typically, only small percentages of their personal financial stakes are devoted to the successes of the legal entity in question, thus even further reducing disincentives, to say nothing of providing a personal sense of separation for those individuals from the acts for which they are, in part, ultimately responsible. As such, it’s easier for them to weather the consequences of their action, since those consequences are diffused, and easier to self-justify because of that separation. This, then, eliminates most of the disincentives for irresponsible behavior, in addition to the simple fact of replacing actual prevention of future violations with mere disincentive.

The problem is further compounded by the fact that organizations consolidate the power of individual members, and place that power in the hands of the primary decision-makers. As a result, far greater power can be brought to bear in a far more focused manner by a corporation than by the individuals who constitute the membership of that organization. Because the organization itself is a legal entity built around “self” aggrandizement and operated by a committee (or a proxy thereof, such as a CEO) whose members primarily pursue short- and mid-term personal benefits, that power is ultimately brought to bear to influence the workings of the government that theoretically keeps corporate power in check. This has the consequence of complicating the legal system in general (I’m going to take it as a given for purposes of this entry that all else being equal a more complicated legal system is a Bad Thing) and reducing the checks on corporate power in particular.

So, what we have in short is this:

  1. Corporations are not susceptible to criminal penalties for their actions, and thus are not effectively prevented from pursuing criminal actions — rights violations.
  2. Rights violations for corporations are poorly, if at all, disincentivized and, in addition, corporations provide a shield of self-justification as well as against criminal consequences for corporate decision makers, in addition to which even crivil penalties are reduced in gravity for those decision makers.
  3. Thus slipped from the leash, corporations are then empowered out of proportion with the individuals whose rights are typically violated in the course of doing business for corporations.
  4. Making matters worse, corporations can and do turn that power to the task of influencing government and law for the purpose of increasing the consolidation of power in corporations and reducing checks on the unethical behavior of their constituent decision makers and actors.

In conclusion: refer back to my statement in the first paragraph about the negative influence of corporations on individual liberties.


  1. Interesting perspective. Assuming that we won’t do away with corporations anytime soon, perhaps the answer would be to orthogonally punish their offenses. As we take individual perps “out of the game” when they offend, maybe we should dissolve corporations for grievous crimes, and suspend their operations for smaller offenses.

    Comment by Sterling Camden — 21 March 2006 @ 01:41

  2. What, like freeze corporate assets for a limited period, perhaps until some proof of renewed compliance with the law is available? I’d be okay with that as an addition to the means of penalizing corporations, though really the best way to handle it I think is to begin gradually rolling back protections enshrined in law. Legislatures don’t really know how to repeal laws, though, so fat chance of that.

    Comment by apotheon — 21 March 2006 @ 07:10

  3. In conclusion: refer back to my statement in the first paragraph about the negative influence of corporations on individual liberties.

    I thought that was particularly funny. Normalization works well for code and databases, but not so well in prose. :)

    As for the actual article, it points out some things people should be more aware of. I think the issue could be solved with one simple change to the law, though: do not treat corporations as if they were people. If the individuals running a corporation were liable for its actions, they’d probably behave better.

    Comment by ToyKeeper — 22 March 2006 @ 02:14

  4. If you stopped treating a business as a legal entity (a “person”) it would not be a “corporation” any longer, by definition.

    Comment by apotheon — 22 March 2006 @ 02:47

  5. I share some of these concerns, but what would our legal landscape be like without corporations? Surely they serve various functions that we would find it more difficult to do without.

    For example, how would people share ownership in things like large companies? It seems to make sense not to require that huge undertakings be entirely owned by one person. Also, it’s useful in some cases for entities (incorporated towns, for example) to exist for longer than the lifespan of a certain individual.

    So do you advocate abolition of the corporation or changes to it? Also, have you read Joel Balkan’s book? (I haven’t yet. Hmm, looks like there’s a documentary out now too.)

    Comment by Ratha — 22 March 2006 @ 10:18

  6. It’s likely to get worse rather than better. With increased collaboration between companies and individuals on a global basis, who’s responsible for anything anymore? and who has jurisdiction?

    Comment by Sterling Camden — 22 March 2006 @ 04:41

  7. For example, how would people share ownership in things like large companies? It seems to make sense not to require that huge undertakings be entirely owned by one person. Also, it’s useful in some cases for entities (incorporated towns, for example) to exist for longer than the lifespan of a certain individual.

    It’s very easy to share ownership of things with a contract. The point of a corporation however, was limited liability. Which is basically B.S.

    I wrote a big long thing on the LJ Apotheon_SOB feed, which was silly, but the bottom line of that was: Corporate Decision Makers can and do (Ken Lay: Enron) face criminal prosecution for criminal behaviors they’re believed to decide to pursue for the corporation. It’s the OWNERS of the corporation that are shielded against criminal liability (in the same way their shielded against financial liability). More where I wrote it initially.

    Comment by Scott — 22 March 2006 @ 08:59

  8. a summary of my response, from the last sentence in it:

    decision makers are not actually indemnified against criminal prosecution — but as long as the executives aren’t violating the legal rights and privileges of the people who ultimately control the corporate purse strings, the effect is almost identical to indemnification

    Comment by apotheon — 22 March 2006 @ 11:57

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All original content Copyright Chad Perrin: Distributed under the terms of the Open Works License