I have always found something inherently creepy about Mitt Romney — indeed, in a choice between Obama and Romney with a gun to my head, the gun looks like an increasingly attractive proposition. Most puzzling is his defence of corporate personhood:
Corporations are people, my friend… Everything corporations earn ultimately goes to people
Do corporations breathe? Do they eat, sleep, feel and think? Do they require housing? Do they have families? Or medical care? Do they pay income tax? Do they have DNA? Eyes? Ears? Teeth? Has Texas ever executed one?
No. Corporations are not people. Corporations are composed of people, and for a very good reason. From Wikipedia:
Limited liability is a concept whereby a person’s financial liability is limited to a fixed sum, most commonly the value of a person’s investment in a company or partnership with limited liability. In other words, if a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company.
Corporations essentially exist to allow groups of people to act collectively, without taking personal responsibility if the entire thing goes down like a lead balloon. Sure, if an employee of a corporation behaves in a criminal manner, they are sometimes jailed. Yet corporations — ever since the birth of the modern corporation through Standard Oil — have created what is known as the agency problem. Corporations allow their owners to win, without the possibility of deep losses. And what does this mean in terms of responsibility? It means that things like the BP Oil spill are much, much more likely. Because if you can’t get hurt, you’re not going to exercise diligence in the same way you would if you could get more hurt. This is why the juggernauts of global industry — the titans of Wall Street in particular — blow up so frequently and so violently. Corporations are firewalls, spinning mammoth profits through risky bets, but allowing management and shareholders to hide behind them when their risky behaviour comes home to roost. And what happens if the house falls down? The creditors — or more frequently in recent years since we adopted this perverse bailout culture, the taxpayer — take the hit. The philosopher Nassim Nicholas Taleb wrote on his Facebook page:
Hammurabi’s code, ~3800 years ago, removed the agency problem as a condition for transaction: “If a builder builds a house and the house collapses and causes the death of the owner – the builder shall be put to death. If it causes the death of the son of the owner , a son of that builder shall be put to death.” Everything in past 100 years has been to shield managers from liabilities. Think of Fukushima.
Either limited liability should be abolished — corporations could still exist, but their owners and management are personally responsible for any debts and destruction incurred — or their behaviour should be taxed punitively to encourage individual and small business initiatives — the real wealth creators, job creators and innovators — over large scale destructo-juggernauts. At the very least, we should completely stop bailing them out when they blow up. That’s responsibility.
Corporations are certainly not free market entities. Their very reason for existence — limited liability — is created through government fiat. Capitalism and markets existed long before the creation of limited liability, and surely will exist for a long time after its demise.