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Are Corporations People?

August 13, 2011

Recently Mitt Romney put his foot in his mouth when trying to deal with a heckler in Iowa. He said, “Corporations are people, my friend.” He’s gotten plenty of backlash since then, even though he attempted a softer follow-up with, “Everything corporations earn ultimately goes to people. Where do you think it goes?”

It makes me wonder two things. First, why is it viscerally repulsive (to me) that he should say that, and second, beyond the gut reaction, to what extent does this statement make sense?

The New York Times summed up the feeling pretty well with the statement, “…he seemed to reinforce another image of himself: as an out-of-touch businessman who sees the world from the executive suite.” Another way to say this is that the remark exposed a world view that I don’t share, and which goes back to this post containing the following:

Conservatives, for example, see business as primarily a source of social and economic good, achieved by the market mechanism of seeking to maximize profit.  They therefore think government’s primary duty regarding businesses is to see that they are free to pursue their goal of maximizing profit. Liberals, on the other hand, think that the effort to maximize profit threatens at least as much as it contributes to our societies’ well-being.  They therefore think that government’s primary duty regarding businesses is to protect citizens against business malpractice.

Fair enough- Mitt Romney doesn’t claim to be a liberal, after all. He was really doing us a favor by admitting how he sees things; heck, I wish all politicians would be susceptible to heckling and would go off-script and say what they actually mean every now and then.

In this way I can come to terms with the fact that Romney is essentially protective of corporations and their “human rights,” at least as an emotional response (like when discussing tax increases). But is he factually right? Are corporations equivalent to people in a legal or ethical way?

I’m no lawyer but it seems that, in certain ways, corporations are legally treated as persons, and that this has been an ongoing legal question for 200 years. In terms of political contributions, which is somehow easier to understand but maybe less systemically important, they are certainly treated like persons, in that there is no limit to the amount of money they can contribute politically (although this issue has gone back and forth historically).

Ethically, however, there seems to me to be a huge obstacle in considering corporations equivalent to people. Namely, it seems to be much easier to ascribe the rights of people to corporations than to ascribe the responsibilities of people to corporations. In particular, what if corporations behave badly and need to be punished? How do we follow through with that in a way that makes sense? Is there a death penalty for corporations? (This question originally came to me by way of Josh Nichols-Barrer, by the way)

The most obvious direct punishment we have for corporations is fines for accounting fraud or whatever, and the most obvious indirect punishment is market capitalization loss, i.e. the stock price goes down, if it’s a publicly traded company, or if not, reputation loss, which is vague indeed. However, in those cases it’s mostly the shareholders that suffer- the corporation itself, and its management, typically lives on.

Rarely, there is direct legal action against a decision maker at the company, but that certainly can’t count as a death penalty for the corporation itself, since the toxic culture which gave rise to those decisions is left intact. Even if we got serious and closed down a company, it’s not clear what effect that would have since a new legal entity could be re-formed with similar ideals and people (although the nuisance of doing this would be pretty substantial depending on the industry). But maybe that’s the best we can do: “moral bankruptcy” proceedings. Another problem with that idea is that many of the people who were in charge of the bad decisions would be the first to jump ship and go to other corporations to try again with more stealth; that’s certainly what I’ve seen happen in finance.

From my perspective, none of the punishments described above actually deter bad behavior in a meaningful way. If we treat corporations as people, then they would be people with a permanent diplomatic immunity; this doesn’t sit well with my sense of fairness or my sense of how people respond to incentives.

Categories: news, rant
  1. August 13, 2011 at 12:06 pm

    There is also the remedy of forcing a company to divide, as sometimes happens with monopolies.

  2. August 13, 2011 at 12:20 pm

    Regulation is a very good tool to correct market failures and enforce “moral” behaviour. An example is to force infrastructure owning companies to wholesale. This is not a punishment but is aimed at a greater common good, a more dynamic and transparent market — and in fact often leads to more profits for the companies because more dynamic markets can grow faster (cf. cell phone providers in Europe).

  3. Anonymous
    August 13, 2011 at 3:03 pm

    I am _not_ a Romney supporter. However, I think everyone is taking his words out of context. What he meant is what he went on to explain: that taxing corporations is really just taxing people associated to those corporations (shareholders and employees). You can argue about this as a policy, but I don’t think he meant that “corporations and people are moral equals” or any of the other meanings critics are assigning to the statement. Moreover, I don’t believe that his critics that are implying these things really believe that is what he meant (anymore than the republican critics who implied Obama was a secret Muslim really believed that).

  4. Robert Smart
    August 13, 2011 at 4:22 pm

    The Australian High Court has been, at times, a facilitator of tax avoidance. They ruled, long ago, that corporations share the individual right to privacy. I would like to see the opposite extreme: if you want “limited liability” you forego privacy (on an FOI-like basis).

  5. isotropy
    August 13, 2011 at 10:57 pm

    I think people get overly hung up on the money aspect of this question. There are two basic issues to deal with here:

    1) what rights and responsibilities of individuals flow through to groups of people acting together in a formal way, and do those rights and responsibilities depend on the purpose that led to forming the group? This is why “corporate personhood” (which also applies to charities, unions, political action committees, religious groups, etc.) as a concept exists at all.

    2) in a democracy how do you deal with the fact that, all else being equal, coordination effects mean that a group of people is inherently more powerful than an individual, and also more powerful than the entire set of unaffiliated outsiders who don’t care about the underlying issue as much as the group cares. This is the real issue, and it’s irritating to see people focus on the abstract legal concept (one which *cannot* be simply wiped out without seriously damaging the rights of all those other “good” organizations above) when something a lot more practical and real is the actual problem.

    The fact that a profit motive is involved for corporations is basically a big distraction from these questions. The money is a conduit for the flow of power, but there are other non-monetary ways to have undue influence – and undue influence is the real problem. How do you make it easy for the “good guys” to organize and influence politicians and voters, but hard for the “bad guys”? How do you make it easier for individuals to avoid being taken advantage of or hurt by organized, knowledgeable, influential groups? That is the problem that needs to be solved – money is just a tool.

  6. August 14, 2011 at 1:55 pm

    The origins of corporations as people and many other things are explored in a great documentary – The Corporation http://www.thecorporation.com/ . Well worth a watch and pretty cheap on DVD these days.

    In the US the personhood derives from a note made by the court reporter in a Supreme Court case http://en.wikipedia.org/wiki/Legal_personality#United_States not anything that was included in a ruling or law. That said there was probably a body of case-law before that along those lines that didn’t explicitly state it.

  7. FogOfWar
    August 19, 2011 at 5:29 pm

    I could rant for days on this one…

    First (and foremost), the Supreme Court decided long ago to allow the legal *fiction* of treating a corporation as a person for purposes of a technical issue of standing. The operative word in that sentence is “fiction”–a corporation is clearly not a person, but you are allowed to sue Wall Mart as if it were a person. Absent that ruling, you would not be able to sue Wall Mart (and they would not be able to sue you). Since then, the Supreme Court has extended that ruling to grant rights given to individuals to corporations.

    By the way, the state can, in theory, give a corporate “death penalty” to a corporation by revoking it’s right to be incorporated. Every corporation (and every LLC and LLP, etc.) exists pursuant to state statute, and the state law can take away that corporation’s right to exist. It’s almost never done.

    On the economic side, rather than saying “corporations are people”, one might say “there is no such thing as a corporation, it’s merely a collection of decisions and consequences made by different people playing different roles in relation to the “corporation”–owners, workers, board members, customers, injured parties, vendors, etc. There’s something to be said for thinking of the world in this way, but there are also limitations.

    In particular, on the tax side, there’s a lot of discussion amongst academics along this line. If corporations exist to earn profits and their profits are for the benefit of their owners, then corporations can be thought of as really just a proxy for the economic interests of their owners. This has an element of truth, and can be somewhat useful.

    For example, you might ask what “natural person” (the legal name for a real flesh and blood person, rather than a definition of “person” that includes corporations, etc.) bears the cost if corporate taxes are higher or lower? The answer is, overwhelmingly, the very rich. Don’t have the charts handy, but stock ownership is *extremely* concentrated in the top 1%/top 10% of the population on an absolute percentage basis, even when you factor in 401(k)’s etc.

    Lastly, if corporations are “just a collection of people”, then why don’t those people (the owners) have to pay the liabilities of a corporation if it goes bankrupt owing more money than it has?

    Going to stop myself and take a blood pressure pill…

  8. human mathematics
    August 30, 2011 at 3:30 pm

    I think you’re setting up a false dichotomy here. Not only do people subscribe to a convex combination of the “liberal view” and the “conservative view”, but some of us are off the simplex to a greater or lesser extent. The more time one spends thinking about these issues, the more sophisticated one’s views tend to become.

  9. human mathematics
    August 30, 2011 at 3:35 pm

    I think a more useful place to take this debate would be: what good, and what ill, has the advent of limited liability done for people/society? What improvements could be made to the limited-liability framework, or to bankruptcy laws?

    As I understand it, LLC’s could be formed by act of Parliament (Dutch East India Co) in 16th century Britain, and by the 18th century the Americans allowed a normal person to fill out forms and create a separate legal person. Trusts, charities, reit’s, and a few other types of organisations can do this as well.

  10. human mathematics
    September 3, 2011 at 5:24 pm

    http://en.wikipedia.org/wiki/Corporate_personhood

    In the United States, corporations were recognized as having rights to contract, and to have those contracts honored the same as contracts entered into by natural persons, in Dartmouth College v. Woodward, decided in 1819. In the 1886 case Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394, the Supreme Court recognized that corporations were recognized as persons for purposes of the Fourteenth Amendment.[

    So 125 years of experimentation with the idea of corporate personhood.

  11. December 13, 2011 at 4:17 pm

    In the UK, if corporations are people (and legally they are) why has every prosecution for ‘corporate manslaughter’ failed? By the way I think that human mathematics’ question,”what good, and what ill, has the advent of limited liability done for people/society?” is very deep and probably more fundamental than “are corporations people?” If the shareholders had full financial responsibility for the misdeeds of the corporations that they owned, they would have to pay careful attention to what those corporations were doing.

  1. August 29, 2011 at 6:31 am
  2. December 13, 2011 at 6:22 am
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