Since comments to this 2010 post are now inexplicably (but predictably; so many libertarians are totally half-assed about such matters) deleted, here is the whole post and comments thread, from the archive:
David Corn, writing in Mother Jones, takes issue with the popular sentiment:
For many decades, Americans have held negative attitudes toward the titans of industry. … But Americans also don’t fancy the counterbalance to corporate power: government. Since 1965, Gallup has asked survey respondents to choose the biggest future threat to the country: big business, big labor, or big government. Big government always wins — by a lot.
As well it should. The wisdom of the crowd may be imperfectly informed, but it’s spot-on in this case.
Government is not and never has been a “counterbalance” to corporate power. In fact, it’s historically been the primary enabler, the symbiotic partner, and a significant beneficiary of that power. The idea that an institution whose employees keep a revolving door spinning between Capitol Hill and the K Street offices of the corporate lobbies, an institution afloat in a sea of corporate campaign donations, an institution groomed to the express task of transferring money from the taxpayer’s pocket to the corporate bottom line, can act as a “counterbalance” to corporate power is absurd on its face.
A corporation, from its birth, is a creature of the state. Absent the intervention of government on its behalf, no such entity could exist. What we call a “corporation,” stripped of its government-bestowed benefits, is nothing more than a joint stock company — a partnership whose owners can trade their stakes in the company, partially or wholly, as unitized shares. Such a company is certainly an advantageous instrument through which to do business, but its mutation into a “corporation,” courtesy of the state, makes it something more.
With the issuance of a corporate charter, what was once a partnership receives an estimable benefit in the form of “limited liability.” It becomes, in effect, an “artificial person” whose body is composed of its stock shares. Liability for the actions of this “person” — even though those actions are in reality the actions of its owners — is limited to those shares.
Imagine that you and I build a robot, program that robot to murder people at random, and set it loose. Further, imagine that we receive government recognition of that robot not as our creation, but as a “person” in its own right. Finally, imagine that when the robot we built starts offing people as we programmed it to, we’re absolved by the courts of any personal liability beyond the value of our ownership stakes in the robot itself. Hey, we didn’t do it … that “artificial person” over there did!
That’s corporate “limited liability” in a nutshell. Without that second step of getting our creation endowed with “personhood” by government fiat we’d be screwed. Our victims would come after us for everything we had — our bank accounts, our houses, our 1974 Ford Pintos. They’d get their restitution to the full extent of our assets. But with “limited liability,” all they can get their hands on is the killer robot itself.
That’s not to say that most businessmen are inclined to set killer robots on the loose. They aren’t — they just want to sell a product or service at a profit. But “limited liability” reduces their incentive to do so responsibly by insulating them from the consequences of acting irresponsibly. It’s naive to think that that won’t produce unintended consequences.
Furthermore, “limited liability” artificially inflates corporate profits and capitalization by reducing the apparent cost of investment. Not the real cost — the difference merely gets shifted/externalized onto the victims of any prospective future torts — but the apparent cost is reduced by the amount that would have been saved for, or put into insurance against, prospective future liabilities. It may not be that all “Big Business” is big solely due to limited corporate liability laws. But “Big Business” is certainly bigger than it would have been in the absence of those laws.
As a business gets bigger and disposes of more wealth, its natural next step is to deploy that wealth for the purpose of protecting its advantages and gaining even more advantages. And the natural place to do so is with the institution which helpfully inflated it in the first place … government.
This no new phenomenon. Now Treasury Secretary, then New York Federal Reserve president Timothy Geithner’s pressure on AIG to hide bailout payoffs is just the latest visible tip of a status quo iceberg that’s been afloat for 150 years or more (see, for example, the Crédit Mobilier scandal, or the Erie Railroad Ring, or Teapot Dome).
The “counterbalance” to corporate power is not government, it’s separation of economy and state.