Strengths and Weaknesses of Corporations
Corporations serve the public in many ways. They have been the driving force in the development of new products and services that have led to a steady increase in the quality of life over the past two centuries. They have increased the amount of capital available for investment. They have provided millions of jobs, and a comfortable retirement for many, employees and investors alike. In addition to creating economies of scale and raising capital from a large number of investors, corporations off global perspectives and more easily transcend social prejudices.
Freeing themselves from parochial perspectives, the leaders of large corporations can think in global terms both about the present and the future. Their global interests often favor international cooperation and peace rather than ethnic and national rivalries. In South Africa, transnational corporations sometimes led in breaking down apartheid policies. Today in the United States, some corporations treat their gay and lesbian employees more justly than do most churches and government agencies, providing them medical insurance coverage and family benefits for their partners.
But corporations also have weaknesses. Most firms seek to exploit limited resources in the short term, trusting future generations to find alternatives. The short-term perspective and the failure to invest for the long term derive from understandable personal considerations as well. Many executives and managers are in their positions of power and influence for a very short time—perhaps 3-5 years. They are unwilling to make investment decisions whose payoff will occur after they have left their positions.
Corporations additionally tend to deify the market, with many Americans believing that “the market”—the “invisible hand”—will correctly synthesize a proper “public interest” from the self-interest of millions of individuals, though many economic thinkers recognize the need for some regulation in assuring the proper operation of markets.
Corporations almost universally displace or externalize costs. At present, the cost of producing a product is figured on the costs of the raw materials and labor that go into it, plus its share of capital investments and overhead. The cost does not include depletion of the raw materials, the product’s effects upon the environment, its disposal, or the effect upon people of producing and using the product. Life cycle costing takes all of these additional factors into consideration. The price of the product has to be higher, but the taxes that would be based on these costs to society would be used to ameliorate the long-term negative effects. This would be a realistic way of making a corporation’s activities pay their own way.
Finally, in the past few decades the gap between the rich and the poor in the United States has grown greater. Stockholder corporations have led in creating this gap. The widening of the gap accelerated in the late nineties. In 1995, average corporate CEO received compensation 141 times as great as the average factory worker. By 1999, that ratio had increased to 475.
Governmental Responsibility for Corporations
Although corporations have increasingly influenced government in its exercise of its powers, government agencies still affect corporations extensively. The Security and Exchange Commission regulates the stock market. The Justice Department enforces anti-trust laws. There are many laws designed to protect health and safety and the environment that restrict what corporations can do.
In principle, governments have a still more fundamental role in relation to corporations. Governments charter them. They have the legal power to modify or revoke those charters when corporate actions work against the common good. They are reluctant to do so because the charters lead to benefits for the governments as well as for investors in the corporations. Further, if one state revokes a charter, the corporation will find another that will grant it.
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