Is the corporation compatible with an Objectivist society?

[musashi]

A while back I found myself on an all day hike with a Marxist.

He was a post-doctoral Economist. I really didn’t fully appreciate how completely pink this profession has become. By his testimony his Profs and fellow students were almost universally Marxist. I guess the only way to earn a graduate degree in the liberal arts is to be a sycophant.

I had great fun, pounding him with all sorts of questions. By end of the day I was chasing him down the trail and he was running for cover! One of our many topics of conversation centered on the concept of the Corporation. He was adamantly against private business ownership, and vehemently opposed to Corporations as a business structures.

(His naivety aside, oh and wasn’t he stepping into traps ALL DAY LONG! ) A question welled up in my mind. In the past I remember some posts in Objectivist threads that also attacked the concept of a corporation. As I though about how philosophically divergent Marxism & Objectivism are; I wondered how both philosophies could hold any common ground.

Is the corporation compatible with an Objectivist society?

I can see issues and benefits from this structure over a partnership and sole proprietorship.

• For one the corp is a perpetual entity, living forever has to confer some differential advantage over mere mortals.
  
  Corps can issue stock to raise capital, where the non-corp is limited to debt financing.
  
  The owner of a non-corp in many cases has a greater asset risk than the individual stock holder of a corp.

What do you think?

[Jaober]

Personally I don't see that the concept of a corportation should, in itself, cause an issue to Objectivist ideals. Ideally, of course, the corporation as an entity should operate on Objectivist values and morals just as the directors and employees should on an individual basis.

A corporation that acts in the interest of the corporation ... that works to trade value for value, that produces, improves, and strives to survive and grow will succeed just as an individual will as well.

[musashi]

Ideally, of course, the corporation as an entity should operate on Objectivist values and morals just as the directors and employees should on an individual basis.

Great point Jaober at a minimum I would think that would a necessity as well. But building consensus among all the employees seems like a challenging task. In the wide world people find themselves along multiple continuums it seems that some people are more committed to Objective standards and morals than others. Uniting the whole group would require each to ascribe to the highest level of philosophical conduct, not even a consensus would due.

Interesting to consider that it is the opposite for the Marxist. Socialism encourages corrupt standards and immorality – the lowest common denominator among men. A bad thing, but would this outcome be easier to achieve, than the ideal state?

Only one right way to succeed, but many ways to fail.

[TRHaz]

In my opinion the concept of a "corporation" itself is not at odds with free market capitalism. The idea of a group of investors getting together to minimize risk and maximize profits may well be the ideal method for many situations.

The problem I see (just like many other things) began when the government stepped in and redefined what a "corporation" is. The government gave corporations a form of citizenship, rights and privileges were granted to the corporation itself and liability was lifted from the people who owned or operated it. Essentially a fictitious entity now has property rights and as any objectivist will tell you all rights are derived from the concept of property rights.

Granting a fictitious entity property rights poses several new problems, since it is fictitious "it" can avoid responsibility for "it's" actions in ways the us non-fictitious entities cannot. It can, for example, declare itself nonexistent, defer some liability, an then redeclare itself existent again only under a different name(these process are called bankruptcy and reconsolidation.) There is only one way to punish it and that is to fine it either though a government agency or the civil court process.

This form of deferred liability has allowed those who own or run a corporation to avoid liabilities that would personally bankrupt them or land them years in prison. Numerous cases of this have cropped up in both recent and distant history. Scandals from Enron's pension raids to Levi Strauss' illegal dumping has shown incorporation to be an effective method of avoiding the full measure of justice that the officers, directors, and yes even some of the owners/investors deserved.

My vision is simple. The fictitious entity should have no "rights", the role of investor and owner should be separate and no one involved in any crime, from CEO to the man actually dumping the barrels, should be able to defer their liability.

[reteo]

A corporation is, at its core, an organization consisting of multiple owners, and multiple members. However, unlike a standard partnership business, a corporation exists as an entity, giving it all the rights and responsibilities of a real person.

This is the cornerstone of the problem, as a corporation is not an entity.

• As a collective, a corporation has no self-awareness.
• A corporation is incapable of reason on its own.

This means that a corporation cannot be a person, as it lacks the two basic characteristics of a rational person. In both cases, a corporation's CEO can have self-awareness and is capable of reason, but they are an entity in themselves, distinct from the corporation, and so cannot be identified as the corporation for these tests.

• A corporation depends on the investments of shareholders for its existence, and the actions of its employees for its existence.
• A corporation, sans shareholders and employees, can do nothing for itself.

This means that if it were a person, the corporation would be a looter, depending on other peoples actions for its very existence.

Since it's not a person, therefore, it is property, and let's look at its owners for a minute, shall we?

• The owners of a corporation are not responsible for actions taken by the corporation.
• The corporation is obligated to provide its owners profits.

What you have here is another demonstration of looting; the owners of a corporation are not responsible for its actions, but they still receive the benefits of its members' hard work in the form of profits.

[musashi]

Great points, the corporation is distinctly different, and yes it definitely receives a disproportionate advantage over a sole proprietorship. But how would you consider a partnership?

What you have here is another demonstration of looting; the owners of a corporation are not responsible for its actions, but they still receive the benefits of its members' hard work in the form of profits.

If you and I were partners. Lets say I brought some form of expertise & active management to the table and you brought capital & industry connections. We have a limited partnership arrangement. It seems our partnership would run a foul of the difficulty you’ve outlined above. As the general partner I would bear a greater burden of responsibility, than you my limited partner (of course only limited in this example). Would it be one man one business then? Only a sole proprietorship in an Objectivist society?

BTW the Marxist ranted against the concept of surplus capital earning an income. He thought that no one should be able to be rich, and therefore no one should be allowed to save money. What an absolute idiot he was, and somehow he received a PhD. in Economics with these views. If I can create surplus of wealth, to me it becomes just like any other resource to be transformed into an asset that can be sold at increased value. In the Marxist’s narrow view he thought the world could function in the absence of credit and financing. Of course he had student loans, a huge consumer debt and he bought his pre-hike meal with a credit card.

[musashi]

My vision is simple. The fictitious entity should have no "rights", the role of investor and owner should be separate and no one involved in any crime, from CEO to the man actually dumping the barrels, should be able to defer their liability.

The Owner get’s prosecuted criminally, the investor is punished / responsible for damages civilly. As the proprietor, the owner is the investor. The owner is on both hooks, the investor only one. Should the investors have the same responsibility as an Owner?

Without this change it would seem that many of the harmful corporate events you’ve listed above did not have the same impact as they would have had on a sole proprietor. Yet if we did remove the corporate veil for all investors, it would dramatically change the business landscape.

Here's one quick vignette,

• "I own two blocks of Merck. A few years back they got into a bit of trouble related to their Viox product. The company cut some corners, some people died, the civil exposure (actual & punitive damages – still being sorted out) was huge."

Should I as an investor be on the hook for damages in proportion to my ownership stake in Merck? If so I regret ever buying that darn stock.

[TRHaz]

The Owner get’s prosecuted criminally, the investor is punished / responsible for damages civilly. As the proprietor, the owner is the investor. The owner is on both hooks, the investor only one. Should the investors have the same responsibility as an Owner?

Absolutely not. Here's my understanding: Right now 'investors' are considered 'owners'. Example: "Employee Owned" companies claim they are employee owned because each of there employees is encouraged to invest in the company.

My assertion is, and was previously, that the role of owner and investor should be separate, just because you are an investor, that fact should not also make you an owner. Now an owner is also an investor by default.

I believe that this investor=owner concept came about as an argument against prosecuting the true owners of a corporation. Most shares of any given corporation are controlled by relatively few of the investors, ie. Mr. So N. So owns 51% of the company and thus hand picks the entire Board of Directors, which then hires the officers that Mr. So N. So chooses and the company is run as if he is the 'Owner". However since he is one of many owners (though the only one who make decisions that effect the company) he gets to claim the same deferral of responsibility as every other investor/owner.

So I will restate my previous statement more clearly, simple small time investors should cease to be legally considered owners so that the "real" owners can no longer hide behind them.

[musashi]

Absolutely not. Here's my understanding: Right now 'investors' are considered 'owners'. Example: "Employee Owned" companies claim they are employee owned because each of there employees is encouraged to invest in the company.

So I will restate my previous statement more clearly, simple small time investors should cease to be legally considered owners so that the "real" owners can no longer hide behind them.

Actually an investor (by the current rules) is only exposed to the extent of their investment. So I am not on the hook for those damages incurred by Merck, just the few thousand bucks I spent on the stock if they go bankrupt.

The “real” owner distinction is a slippery slope. What portion of the company do I need to have to be considered a real owner? 10%, 20%? Let’s say you decide 10% is the number – beyond 10% you are considered an “owner” and now you no longer have to protection of the corporate veil. All this would do is incentivize investors to keep their exposure below the threshold. So again we are back to the situation where investors benefit from the profits of the corporation w/o the exposure to criminal and civil penalties.

[TRHaz]

Thanks for the clarification by the way

The “real” owner distinction is a slippery slope. What portion of the company do I need to have to be considered a real owner? 10%, 20%? Let’s say you decide 10% is the number – beyond 10% you are considered an “owner” and now you no longer have to protection of the corporate veil.

This is precisely why I believe there should be a separation of the roles, Where investing in a company does not make part owner, part whatever, no voting on the board of directors no influence peddling whatsoever. That is the owner's role and there's alone and they accept all liabilities. Thus if you want to buy ownership stake you must be prepared to shoulder some of the liability and if you simply want to make your capital available for investment then you should expect only the growth or loss of said capital.

I think we are arguing in the same direction here my points simply are not clear enough. But it's fun just the same.

[reteo]

Great points, the corporation is distinctly different, and yes it definitely receives a disproportionate advantage over a sole proprietorship. But how would you consider a partnership?

. . .

If you and I were partners. Lets say I brought some form of expertise & active management to the table and you brought capital & industry connections. We have a limited partnership arrangement. It seems our partnership would run a foul of the difficulty you’ve outlined above. As the general partner I would bear a greater burden of responsibility, than you my limited partner (of course only limited in this example). Would it be one man one business then? Only a sole proprietorship in an Objectivist society?

There's nothing wrong with partnerships in and of themselves. All that is required is for the partners to agree to the split of risks and rewards. The partnership cannot exist without a meeting of the minds and an agreement on all parts.

Okay, so we are partners. In the case of investment, we both bring considerable resources to the table, and so are both responsible for the results of the actions that our resources produce. How that breaks down depends on just how limited a partner I am, and would be determined prior to our agreed partnership. It would be terribly irresponsible not to clarify the share of risk and reward for each partner. This is the basis of partnership contracting.

Now, if a corporation was just a case where a steward was managing the company on behalf of the shareholders, and willingly accepting the lion's share of the responsibility, I could accept this. This would be a much more straightforward argument, and there's no reason why this can't happen. However, the owners of the company would still be responsible for meeting the obligations of the company should the assets not be sufficient upon its dissolution. This would definitely increase their attention to the way business was being run, to prevent just this situation from happening.

However, corporations take the above and add a fiat protection on the owners by pretending the collective is a person in full possession of itself and its assets, which is so completely, patently false that I don't understand why this isn't instantly obvious to anyone (collectives cannot be individual, because they consist of multiple individuals).

Thanks for the clarification by the way

The “real” owner distinction is a slippery slope. What portion of the company do I need to have to be considered a real owner? 10%, 20%? Let’s say you decide 10% is the number – beyond 10% you are considered an “owner” and now you no longer have to protection of the corporate veil.

This is precisely why I believe there should be a separation of the roles, Where investing in a company does not make part owner, part whatever, no voting on the board of directors no influence peddling whatsoever. That is the owner's role and there's alone and they accept all liabilities. Thus if you want to buy ownership stake you must be prepared to shoulder some of the liability and if you simply want to make your capital available for investment then you should expect only the growth or loss of said capital.

Excellent point. If you are taking an ownership stake in the company, you are an owner (sole pro.) or a partner (partnership). If you are offering a loan with expectation of a return, but no ownership stake, then you are a creditor. "Investor" is just a way to blur the lines between the two.

BTW the Marxist ranted against the concept of surplus capital earning an income. He thought that no one should be able to be rich, and therefore no one should be allowed to save money. What an absolute idiot he was, and somehow he received a PhD. in Economics with these views. If I can create surplus of wealth, to me it becomes just like any other resource to be transformed into an asset that can be sold at increased value. In the Marxist’s narrow view he thought the world could function in the absence of credit and financing. Of course he had student loans, a huge consumer debt and he bought his pre-hike meal with a credit card.

Hey, Keynes believed that saving was a dirty habit, and that governments should spend money they don't have. I don't think I have to tell you guys that his bubbles are about to burst.

[musashi]

Where investing in a company does not make part owner, part whatever, no voting on the board of directors no influence peddling whatsoever.
…. if you simply want to make your capital available for investment then you should expect only the growth or loss of said capital.

We do have a system like this right now, its called bond financing.

To me it seems like history and the markets have already sorted this option out. We used to do it this way back before people started auctioning ownership stakes in companies at the city wall.

There are several problems with bond financing as a sole means of raising capital. For starters usually loans require collateral. And in general business spend most of their money on stuff other than fixed assets which could serve as collateral (non-salable inventory, wages R&D, operating funds). Without collateral investors would be foolish to lend. Heck with Obama as President, bond holders loose out even when collateral is promised.

Another problem with bonds (which Michael Milkin illustrated so clearly) is risk. Start-ups, small and mid-size companies have numerous & a high degrees of risk. To obtain buyers of their bonds they would have to pay extremely high yields. With all companies competing for capital via bonds, I could imagine that the cost of capital would be too great for many companies, in essence strangling these young companies in the womb of their life cycle.

In both those instances equity financing fills and important role. Another problem is purchasing equity exposes my entire personal wealth, why would I want to do that?

• For instance say I’m worth 10 million bucks, and have the opportunity to buy 40% of a company for $100 K. It’s a guaranteed home-run opportunity that will quadruple my money in a few years. Then down the road due to one of those risk elements, instead of succeeding the company does $100 million in damages, and every bit of my wealth is consumed by 3rd party creditors. This stock deal would be an absolute non-starter.

Any ideas for how we fix the bond system to work in for an Objectivist society?

[musashi]

Where investing in a company does not make part owner, part whatever, no voting on the board of directors no influence peddling whatsoever.
…. if you simply want to make your capital available for investment then you should expect only the growth or loss of said capital.

We do have a system like this right now, its called bond financing.

To me it seems like history and the markets have already sorted this option out. We used to do it this way back before people started auctioning ownership stakes in companies at the city wall.

There are several problems with bond financing as a sole means of raising capital. For starters usually loans require collateral. And in general business spend most of their money on stuff other than fixed assets which could serve as collateral (non-salable inventory, wages, R&D, operating funds). Without collateral investors would be foolish to lend. Heck with Obama as President, bond holders loose out even when collateral is promised.

Another problem with bonds (which Michael Milkin illustrated so clearly) is risk. Start-ups, small and mid-size companies have numerous & a high degrees of risk. To obtain buyers of their bonds they would have to pay extremely high yields. With all companies competing for capital via bonds, I could imagine that the cost of capital would be too great for many companies, in essence strangling these young companies in the womb of their life cycle.

In both those instances equity financing fills and important role. Another problem is purchasing equity exposes my entire personal wealth, why would I want to do that?

• For instance say I’m worth 10 million bucks, and have the opportunity to buy 40% of a company for $100 K. It’s a guaranteed home-run opportunity that will quadruple my money in a few years. Then down the road due to one of those risk elements, instead of succeeding the company does $100 million in damages, and every bit of my wealth is consumed by 3rd party creditors. This stock deal would be an absolute non-starter.

Any ideas for how we fix the bond system to work in for an Objectivist society?[/quote]

[redhotrebel]

BTW the Marxist ranted against the concept of surplus capital earning an income. He thought that no one should be able to be rich, and therefore no one should be allowed to save money.

This guy is an idiot. I’m not making that statement as an ad hom, rather merely an observation.

[musashi]

BTW the Marxist ranted against the concept of surplus capital earning an income. He thought that no one should be able to be rich, and therefore no one should be allowed to save money.

This guy is an idiot. I’m not making that statement as an ad hom, rather merely an observation.

I thought so too. And I wondered how he could get a PhD with such dysfunctional perspectives (the guy was a post-doc). The types of perspectives this guy held would not fly on Wall Street or main street…. Well maybe that main street at Disneyland…

As I probed it, he made it seem as if the majority of faculty and students held similar views. The situation was sickeningly familiar to the Ellsworth Toohey character. This guy had zero net worth, and yet politically he was attempting to mold economic policy. The best one was when he said

Very soon the poor will go on strike

I laughed so hard I nearly made water! It still makes me laugh thinking about it.

[redhotrebel]

The best one was when he said

Very soon the poor will go on strike

I laughed so hard I nearly made water! It still makes me laugh thinking about it.

Oh noes! How will we ever survive?!?!?! - I laughed so hard when I read this tea almost came out of my nose.

[TRHaz]

And I wondered how he could get a PhD with such dysfunctional perspectives

I do not perceive most degrees as a measure of anything practical, especially of one's intelligence, rationality, or even of one's understanding of the subject they claimed to have studied (ie., most university faculty, or Mr. Obama's constitutional law background.) Rather degrees are a confirmation by others with the authority to give degrees that you have met their standards for that degree. You've passed a number of prescribed classes and agreed publicly with our stance on this subject or that, you've payed enough of your parents money and spent enough time reading the books we tell you to read. Most degrees are a stamp of indoctrination, nothing more, especially those advanced degrees that aren't dedicated to an advanced technical career.

Good advance degrees(in my not so humble opinion) may include but are not limited to Medical Doctor, engineering, architecture, and a number of sciences.

Lame advance degrees may include but are not limited teaching degrees in any subject that only teaches more teachers of that subject (ie woman's studies, native american studies, ancient french poetry, Namibian history, PhD's in English), also advance degrees in "soft" sciences sociology, psychology, and theology.

I think my point is getting lost somewhere in my massive heap of examples so I'll stop now.

[musashi]

Education certainly is totemic. But I had higher hopes for someone at the PhD level since the degree requires a significant amount of original academic research. These candidates not only pontificate and parrot back what they read and are told, they are supposed to extend and improve the field.

I guess you’re right though… things are not the way they are supposed to be in Econ. Gee who is setting monetary policy in our world? Oh yeah it is PhD economists!

[Kushan]

What, you're saying my phd in creation science doesn't make me a geniose?

[redhotrebel]

What, you're saying my phd in creation science doesn't make me a geniose?

I think it does. You are a special snow flake and desserve to be petted and hugged for your nice thoughts and dreams... psst, God loves you...

Okay, I'm gonna go throw up now.

[musashi]

That's the thing... I don't think you can get any type of degree in Creation Science, let alone a PhD. So yeah I’d expect every single student of the subject to be a tree-waling crackpot. But Economics? I expected much more objective and original thought from an Economist. All this guy could do was parrot Karl Marx.

• It must be that my standards are too high for Economics…
  Perhaps it is time to cancel the Nobel Prize...
  I should lower my expectations about Economics…

Maybe the poor really will go on strike. Maybe somehow their shiftless idleness and hunger will negatively impact me.

[redhotrebel]

Maybe the poor really will go on strike. Maybe somehow their shiftless idleness and hunger will negatively impact me.

The dictionary definition for "strike" is:
41. to leave off (work) or stop (working) as a coercive measure, or as at the close of the day.
42. (of a union or union member)
a. to declare or engage in a suspension of (work) until an employer grants certain demands, such as pay increases, an improved pension plan, etc.
b. to declare or engage in a suspension of work against (a factory, employer, industry, etc.) until certain demands are met.
(http://dictionary.reference.com/browse/strike)
So if working people STOP working as a show of strike, wouldn't it logically follow that poor jobless losers would have to get a job to effectivley be on "strike"? If that is the case then yes, by all means I encourage a strike. I fail to see how a moocher could get any worse, if your friend has an explanation of how they would go on strike and what they think that would accomplish that would be interesting to hear.

[Torrstar]

So if working people STOP working as a show of strike, wouldn't it logically follow that poor jobless losers would have to get a job to effectivley be on "strike"? If that is the case then yes, by all means I encourage a strike. I fail to see how a moocher could get any worse, if your friend has an explanation of how they would go on strike and what they think that would accomplish that would be interesting to hear.

You are making the assumption that the only poor person is a "jobless loser".

In fact, I'm sure the guy was referring to the "working poor", people who go to one (or more jobs) every day and barely manage to scratch out a living while many in society benefit greatly from their sacrifice.

I think he was suggesting that the migrant workers, restaurant employees, and all the other have nots go on strike to show society how important they are and how they deserve to be more fairly treated.

[redhotrebel]

I think he was suggesting that the migrant workers, restaurant employees, and all the other have nots go on strike to show society how important they are and how they deserve to be more fairly treated.

Ahhh, the jobs meant for 16 year olds...

[Kushan]

while many in society benefit greatly from their sacrifice.

What exactly are they sacrificing? They weren't willing to sacrifice their comfort enough to complete high school. They weren't willing to pursue a higher degree, or at least go to a vocational school. Or actually look for a better job, and vote with their feet if they feel their skills are worth more in a free market.

It has never ceased to amaze me how those on the bottom of the job ladder ceaselessly complain about their jobs, yet they stick with the same company year after year. If they hate it so much, you'd think it would be incentive enough to try to improve their lot in life.