Saturday, December 20, 2008

Adam Smith Hated Corporations

A lot of supposedly free-market economists revere Adam Smith as one of the foremost proponents of free enterprise. Ironically, these same economists advocate corporate libertarianism, which ultimately allows powerful corporations, through special governmental favors, to make a mockery of the ability of people to freely exchange money, goods, and services. Adam Smith hated what corporations had become in 18th-century England. Today--at best--it's no better.

In today's world, money has become for most the sole measure of market value--civic, social, and environmental responsibility be damned. Without any sense of irony, today's self-proclaimed free marketeers argue that free markets should be completely unrestrained by government. Corporate law is their prominent blind spot, because, as these "economists" apparently haven't noticed, it is government regulation in favor of corporations that has allowed corporations to become 8- and 900-pound gorillas that are slowly choking out their competition. Meanwhile, the rich get richer.

This is not a problem unique to the 21st century.

Without any sense of irony, today's self-proclaimed free marketeers argue that free markets should be completely unrestrained by government. Corporate law is their prominent blind spot, because, as these "economists" apparently haven't noticed, it is government regulation in favor of corporations that has allowed corporations to become 8- and 900-pound gorillas that slowly squash all competition.

Adam Smith recognized corporations in his day for exactly what they are now--charters granted by government that ultimately cause the limitation of competition and the concentration of wealth into the hands of small groups of people. Smith termed corporations as "monopolies granted" by government "that has the same effect as a [trade] secret [which kept] the market constantly understocked." When markets are constantly understocked, products can be sold at prices far above their natural level. Which is not an advantage to the poor, by the way.
It is to prevent this reduction in price, and consequently the...profit, by restraining that free competition which would most certainly occasion it, that all corporations and [corresponding] laws have been established.

Corporation laws enable [corporations] to raise their prices without fearing to be undersold by the free competition of their own countrymen.
Or, as in the case of such paragons of free enterprise as Wal-Mart, it enables them to run their competition out of business first.
...the clamor and sophistry of merchants...easily persuade [governments] that the private interest of a part is...is the general interest of the whole.
Even if a large portion of that corporation's employees can't make ends meet without government assistance. With sophistication far beyond anything that George Orwell imagined in his book 1984, modern

With sophistication far beyond anything that George Orwell imagined in his book 1984, modern television commercials have somehow convinced far more than just governments that private corporate interest is the same as the general interest.

television commercials have somehow convinced far more than just governments that private corporate interest is the same as the general interest. Meanwhile, corporations continue to squash out their competition with greater and greater rates of success. And the rich get richer.

Smith warned that
People of the same trade seldom meet together,...but the conversation ends in a conspiracy against the public.
Which makes me wonder if a "War on K-Street" might not be much more productive than a War on Terror.

Restricted trade causes an agglomeration of companies (and workers) into bigger and bigger cities with bigger and bigger differences between the haves and the have nots, and with the bigger and bigger problems that come with the squeeze of city living. On the other hand, Smith teaches, that, through elimination of unfair governmental advantages to corporations, the
...lowering of profit in the [city] forces out stock to the country, whereby creating a new demand for country labor, it necessarily raises wages.
Corporations are all about maximizing personal wealth through blackmail and the obtaining of special favors, whereas true free enterprise (the free enterprise advocated by Adam Smith) involves service to fellowman in such a way that "all boats" are raised more or less together.

Today, corporations have the ability to uproot and move full operations on a whim and take them elsewhere, and, because of their limited liability, they don't suffer any penalties for the damage they caused to the social fabric they just tore apart, nor are they penalized for the destructive conditions in which their new employees work--employees in actuality nothing more than serfs who are never quite able to rise above the threshold required to actually get their own "piece of the pie". And the rich get richer.
...by restraining the competition...to a smaller number than would otherwise be disposed to enter into [various fields of labor], occasions a very important inequality.
Nearly one-third of all "market" transactions these days are in-house transactions--in other words, one-third of all goods and services are traded within the confines of individual companies. It's a fine way for the rich to get richer, but it does very little to help those who really need it.

Is it free enterprise when corporations give their CEO's

A "War on K-Street" might be much more productive than a War on Terror.

multi-million dollar salaries even when the company didn't make a profit? Adam Smith didn't think so, yet many economists who reverence Mr. Smith conveniently forget that he abhorred the advantages that had accreted to corporations. Corporate advantages are eerily similar today, except, as far as I know, they never received multi-billion-dollar bailouts. Adam Smith reached the conclusion that
The pretense that corporations are necessary for better government of the trade is without any foundation.
Hear, hear!

Smith talked disapprovingly of trade monopolies that were granted such organizations as the East India company.
The exclusive privileges of the East India companies...which these have procured them from their respective governments, have excited much envy against them. ...great quantities of silver [are] every year export[ed] from these countries...
In a very similar way today, the International Monetary Fund helps western multi-national companies to drain the economies of the countries that they purport to help. And the rich get richer.

I used to think that the rich were getting richer at no expense to the poor and through no fraud on their own part. I've come to discover that that's not true in a multitude of cases. I've also come to discover that those who support the distinct and unfair advantages that large corporations have in today's world had better stop quoting Adam Smith.

Because they would be lying.




14 comments:

  1. Good post Frank
    In most of the cases rich are getting rich not only because they underpay those who create their wealth, not only because of secret speculations and manipulations of the market but also because they devastate and poison the environment of their slaved, thus also robbing them of their health and lives.

    And this not only nationally but mostly internationally, which often brings to total devastation of the habitats and deterioration of living conditions of those poor=defenseless nations. No wonder they become and stay poor.

    Also, the so-called help, provided for their relief is mostly collected from the poor of the rich nations and given to the rich of the poor nations. No wonder poor nation stay poor.

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  2. Frank,

    I'm with you in a lot ways here, but I question the following :

    Today, corporations have the ability to uproot and move full operations on a whim and take them elsewhere, and, because of their limited liability, they don't suffer any penalties for the damage they caused to the social fabric they just tore apart,

    What is it about the legal structure of a corporation that allows them to move operations that a different entity does not enjoy?

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  3. Answer: do you think a church that is worth its salt would pull up stakes and move away from its parishioners? Also, how about a Post Office...wait--don't answer that one.

    We have to look at economics from more than just a money standpoint. No one should tear apart a society on a whim. Just like corporations who have to pay for environmental degradations, there should be laws for societal degradations, from having to pay for the vacancy or dismantling of an idled factory to having to pay severance to the company's employees that are not invited to make the locational transition.

    In nearly every case when a large corporation moves its operations, it is for exploitative purposes.

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  4. But can't any entity do it if they so choose? If I run a sole proprietorship, even a really big one, can't I move it somewhere else just as a corporation can?

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  5. Would you feel good about leaving all your former employees in the lurch?

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  6. I wouldn't feel any different about it if I was a sole proprietor or head of a corporation. And that's the point. You used this point in your argument against the legal makeup of a corporation, but I don't get how a corporation should get any more ire at moving than any other legal setup gets.

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  7. In a free market any entity, either a sole proprietor or a corporation is probably free to move their production wherever they choose inside the country, even globally if the country has joined in with the global free market. Will they feel good or not about leaving their slaves without work, is not an issue in the free market. Free market is not governed by the laws of morality. It is a dog eat dog world. Morality is only an attribute of Zion society.

    If those corporations were moral people, yet they would feel bad about leaving their slaves without means of subsistence. But again why would they sacrifice their MONEY for a bunch of slaves. they easily can find slaves elsewhere, anywhere.

    Wo should rather discuss the corporations' poisoning the environment here and then moving elsewhere to poison, while leaving the already poisoned place to be cleaned by those slaves who have been left behind robbed of their health and without job. Most of the time those corporation do not pay adequately for cleaning up of the mess they had left behind. This is what is unacceptable and must be condemned and stopped.

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  8. Gnostic's latest comment is why I am somewhat wary of the anti-corporation rhetoric, and why I asked the question I did earlier. I think it's important to clarify what makes a corporation different than other entities - and therefore not part of the free market system.

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  9. What makes corporations anti-free-market are the special favors that they receive, the only most obvious of which are the bailouts for the automobile and financial sectors.

    I'd still like to know whether you would feel comfortable leaving your employees in the lurch (regardless of the size of your company).

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  10. But what about corporations specifically allows them to be granted special favors that any other business entity can not get? Lacking that difference, your post changes from being anti-corporation to being anti-business.

    As to my comfortableness in relocating my company -

    It depends. Certainly there are serious ramifications of leaving so many people unemployed. So to me it depends on the details. What are the motivations behind the move?

    I recently wrote about a layoff in my company. Though not a complete relocation, it actually parallels this discussion pretty well.

    A division of our company is losing money. We looked at the data and found we could cut costs significantly through a layoff so we let one person go.

    For this person, we may as well have relocated. So how do I feel about my role in the decision? Conflicted. It sucks to be unemployed; I've been there. But without changes in this division it could very well be shut down. And we're not a big enough corporation to ask for a bailout.

    We looked at the data and made a very sound business decision - one that could save dozens of people their job. However, Gnostic likely views it as just another example of the slave-slave owner relationship that the free market perpetuates.

    So I ask, should business be allowed to have layoffs or relocate?

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  11. The tenor of my post is regarding the large corporation that pulls up and starts a maquiladora in Mexico or a sweatshop in Asia someplace. It's not right to destroy a social fabric, and the larger the corporation the greater destruction of the social fabric when they pull out.

    I think you've stumbled on to my main point with your comment "we're not a big enough corporation to ask for a bailout." Those are some of the special favors that I'm talking about. Yours is a company that is NOT too big to fail, but others get special governmental favors by being so big. Income is also redistributed to the corporations big enough to diversify their headquarters off shore. They pay less in corporate taxes and are thus able to give big salaries and dividends, while those poor enough to not be able to get a piece of the pie pay more in taxes. And the rich get richer...

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  12. That's kind of where I was headed. The stated reason for the bailouts is that these companies are so large that their failure would have catastrophic ripple effects across the entire economy. That's also your argument as to why they shouldn't be allowed to relocate.

    (Incidentally, it seems that labor laws put in place to prevent the upheaval of which you write play a large role in the Big 3's failure and resulting bailout. Unintended consequences and all.)

    So it seems to drill down to the fact that these corporations are so huge.

    So to me the question then becomes, would they be so huge if they weren't corporations?

    Then, secondarily, even were all business to be small or medium, is it ok for them to layoff workers or relocate to other areas? If they're small enough it wouldn't destroy the social fabric of an entire town, but it still seriously affects the social fabric of the person being let go.

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  13. The so-called Free Market is actually capitalism. Free Market is only another, more obscure term for capitalism. Capitalism in its turn is another form of slavery. Actually it is worse than slavery. Slaves do not have a fear to loose their job. They are fed, clothed, sheltered and provided with medical service. And why? Because the slave owner has paid, often a considerable amount, to obtain them. Again, slaves do not have fear of loss. Whereas 'free' workers do have a fear of loss. Additionally they have to take care of all their essential expenses. Why? Because the capitalists do not pay anything to obtain them. Workers usually beg to be employed. So, capitalism is worse than slavery.

    The debate though, whether it is moral or not to lay off or to close and to move elsewhere is a futile endeavor. You are trying to find a flaw on an entirely wrong fabric. Again, the fabric of free market, capitalism with its love of money is inherently and completely unjust, vicious. Therefore it is futile to look for any morality in it.

    My argument was that since it is inherently immoral and unjust, it is necessary for the people, the slaves (actually worse than slaves) to control it via pro-people=socialist government, thus bringing a balance into the system. Otherwise the system will go out of balance resulting in wrecked lives and environmental devastation.

    There is of course, a fear that the people's government will be hijacked by the monopolies (of any form) thus turning the government from being pro-people to pro-monopolies. When people fall asleep, monopolies take over their government. Which has already happened. What next? Hard to tell. Either an economic meltdown, or a more powerful pro-monopolies government.

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  14. corporation: A group of persons formed for individual profit without individual responsibility.

    - Esar's Comic Dictionary (1943)

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