“What good are shareholders?” ask Jay W. Lorsch and Justin Fox in the latest edition of the Harvard Business Review. The authors grapple with some of the most pressing and recurring issues surrounding the relationship between the many people who “own” a given company and the few who actually run it.
“[A]lthough many top managers pledge fealty to shareholders,” the two point out, “their actions and their pay packages often bespeak their loyalties.” So how can we “make capitalism function better,” creating equitable results whereby execs respond to the interests of people who own shares? Market anarchism boldly posits that we simply cannot make “capitalism,” as such, function better — that free markets and capitalism are very different things, and that only the former can produce the fair results that society as a whole ought to strive for.
Most “work” today amounts to not much more than pushing paper through the raveled and shambolic bowels of layered corporate bureaucracy. It’s administrative protocol that doesn’t actually create anything of value. And quite contrary to the corporate economy’s myth of efficiency and logical coherence, its wastes and structural confusions are only allowed to endure on the strength of state-granted privileges that too many champions of “free enterprise” fail to acknowledge. As the non-profit Saving Communities articulates the point, “The idea that big corporations are efficient while big government is inefficient is a glaring example of Orwellian doublethink.”
Market anarchists have long argued that both “Bigs” — government and business — share most of the same operating principles, that they are more similar than different. That ought to come as no surprise, though the reason it is true is most often bedimmed by American political dialogue’s false dichotomy of private sector versus public sector. Because of a vast system of subsidies and barriers to market entry, huge and ungainly corporate actors are immunized from genuine free market competition in the form of smaller, nimbler and more adaptable business models.
Discussing the problems that accompany separation of ownership from control in the contemporary corporation more than ten years ago, economics scholars Franklin Allen and Douglas Gale suggested that more legitimate competition is able to remedy some of the common obstacles to efficiency.
Market anarchists also advocate for decentralized and genuinely open competition, in contrast to the rigged system of monopoly capitalism that prevails today. It isn’t just that law governing the corporate form allows managers to steer companies away from shareholders’ actual goals, but that the incentives that would naturally unite ownership to control are completely undone by the present system.
Without favoritism to big business in the form of, for example, preferential land grants, patent monopolies, energy and transportation subsidies, and regulatory barriers, the multinational leviathans would simply crumble under their own weight, unable to compete with more horizontal competitors.
All of the privileges (amounting to welfare for the rich) removed, the big companies that dominate commerce today just wouldn’t make practical sense from an efficiency standpoint. Instead of blaming competition for corporate dominance, then, market anarchists have attempted to demonstrate that indeed the lack of true competition and free markets is to blame. Whatever “competition” we have now finds the deck stacked from top to bottom for the chosen economic interests, who’ve lobbied hard at the seats of government for their perquisites.
Intellectuals are going to be debating issues of corporate governance, incentives and efficiency for a long time to come while the giant multinationals continue to cozen a profit through global capitalism. Those issues resolve themselves, though, if we find ways to remove or undermine corporate privilege, cultivating real free markets of voluntary exchange and cooperation.
Citations to this article:
- David D'Amato, Dissecting the Corporate Creature, Hernando [Florida] Today, 07/20/12
I bet you're right, David, that most of these corporate giants would collapse without state privileges to prop them up. But I'm thinking some corps that get pummeled via antitrust and other regulations might be able to grow to that enormous size too (not a bad thing, so long as they're serving the consumers).
Do you think there would probably be zero big corps in a freed market?
Man, that’s a tough one, Mike, and I think it’s probably above my pay grade as a theoretician haha, but I do tend to think that — all of the aggravating and mitigating factors (if you will) to largeness accounted for — there are far, far more things propping it up then cutting against it, as it were. I’ve never been one to romanticize one outcome over the other, neither praising big business nor demanding in my own mind a free market of only small market areas and trading artisans. Still, I’m increasingly convinced that economies of scale on the institutional level and market area level have been severely warped by both subsidies and by the lack of forms of competition that would allow people to do many of the things for themselves that they now have to pay a huge company (with even huger costs) to do. What will actually happen in a free market, though, is something that I’m afraid you and I will never actually find out.
Both governments and corporations suffer from the lack of signalling through prices that a free market provides. Even with the best will, corp/gov serfs can't be productive because they lack the information to do so. They also lack the motivation, because they will get paid the same for a barely adequate performance as for a great performance.
It might be that the flash mob is the future of large scale social organization. After a few decades of pervasive cheap information radical change seems almost inevitable.
Mike: The problem is, antitrust law only prevents almost inconceivably gigantic oligopoly corporations from growing into inconceivably monstrous monopolies. It's all the state subsidies and protections for large size that let them get to the oligopoly scale in the first place. In a society where most manufacturing was carried out by thousands of small local operations, antitrust wouldn't be an issue in the first place.
My recent post New Book in the Works
Thanks the explanations, David, Marion, and Kevin. Especially, thanks Kevin for your point that anti-trust only kicks in after other state actions have pumped growth hormones into corporations.
Marion, do you mean that radical (positive) social change will likely occur in our lifetimes? If so, I fervently hope you are correct!
Speaking of Orwellian doublethink, anybody that says this: “The idea that big corporations are efficient while big government is inefficient is a glaring example of Orwellian doublethink", should immediately be discarded as clueless, self-serving blowhards.
This is simply excuse making and enabling of more government boondoggle, masked as some mealy-mouth free market baloney by criticizing American corporation in defense of their own paycheck. Notice it's always academia and invariably in the corner of more government, that makes these calls about efficiency and fairness? I would remind everyone Barack Obama's entire economic advisement has come from academia of Harvard, Yale, Princeton, and Chicago.
Being the entire group of academia left before the end of Obama's first term, I think that says much about the capability of sound judgment – including the abysmal economic failures of Keynesian economics "magic" they proposed in 2009.
The petroleum industry, defined I'm sure by the authors as most economists as an evil, bureaucratic oligopoly, is incredibly efficient at bringing feedstock to finished product to market, with small margins on huge economies of scale concerning production. There would be absolutely no advantage to having hundreds of similar sized, smaller refineries involved in production.
Now I'm sure these "economists" would classify the petroleum industry as evil 'capitalists' and bureaucratic nightmares.
So I have a suggestion to put the argument of the efficiency of big business vs. big government to rest. If these bureaucrats are so sure the downside refiners protected and inept, why don't we base the federal excise tax equal to the profit margin earned per gallon of refined gasoline and see how long before somebody at our beloved government cries foul?
I don't expect it; that doesn't mean I lose hope. I see myself as working for future generations, for those that will come after me. I only stand where I am because of those who have come before. Those were not all well known. Most of them were anonymous, doing the all important intellectual grunt work without credit. Revolution and positive social change is 9/10ths of that. Change is realized in the final act.
It actually makes me happy knowing that people long after I am dead may live in freedom, and that what I do might have something to do with it. Even if it doesn't, I am fine with that.
It is not Orwellian doublethink. It is simply the truth. Any sufficiently large entity is going to experience information problems within itself, and in the market-as they come to displace the market itself. Of course I disagree with their solution, but not their analysis.
Where these economists come from, who they are, etc has nothing to do with whether a given statement they make is correct or not. The Keynesian label also is very broad, covering a wide range of approaches. They're not all the same.
The petroleum industry itself is a by-product of numerous state interventions. I have yet to read it, but I imagine Daniel Yergin's "The Prize" is going to be quite illuminating.
Corporations themselves are creatures of law. Their very existence is a result of government privilege.
Plus, we're on the left. The anti-state left. We're too far to the left for Obama's tastes, and I do not appreciate you insinuating that we are pro-Obama; he's no lefty.