Reforming the "Private-Benefit" Corporation

In “Promoting the Common Good: There's Only One Reason to Grant a Corporate Charter”, David Korten does a good job of explaining the concept of the private benefit corporation, what it is, and why it is so destructive to society and the environment. When reading his account, it is important to note that he uses the common conception of capitalism defined as rule by financial capital, not the fundamental conception defined as re-investment of savings to improve production or engage in innovation. Many people will intuitively grasp what David is talking about, but unfortunately very few are aware that it hasn’t always been this way.

Jonathan Rowe, in Corporations and the Public Interest, delves into the history of corporations, the original purpose of corporate charters, and traces the evolution of corporate charters from public good corporations, to public/private corporations, to private benefit corporations. Reading and understanding this article would go a long way toward helping anyone who wishes to intelligently discuss corporations and free markets.

The modern corporation did not exist when the founders established the scheme of checks and balances in the Constitution. And, individual enterprises – family farms, farmer’s markets, flea markets, family stores, fishing boats, etc – were what Adam Smith meant when he wrote about free markets in the Wealth of Nations in the 1700's. He did not envision the huge corporate agglomerations of capital that modern corporations would become when he worked out his notion of a “benign mechanism that harmonizes the activities of individuals pursuing their own entrepreneurial ends."

But the Industrial Revolution wrought great changes in industry and commerce.  By the mid-1800s, incredible growth in the nation’s economy caused corporations to come under political attack, not to reign them in or to reinforce the original “public good” bargain, but to extend the privileges of incorporation to everyone who want to get in on the action.

Consequently, by the late 1800’s, “free incorporation laws” unshackled corporations from specific activities that served the public. Market ideology based on misunderstanding and misrepresentation of Adam Smith trumpeted the idea that simply seeking gain would, under the “invisible hand”, serve the public good. The fact that Adam Smith envisioned individual enterprises and not the modern corporation was lost in the clamor.

The modern corporation was thus unleashed with all its attendant problems. Socialists believe the solution is to use the power of government to reign in the power of corporations by re-distributing income. But, that is a foolish course. It was government itself that created the modern corporation, in response to public demand to participate in the economy. Who in their right mind thinks that demand no longer exists, or to kill it would be a good idea?

No, the answer is to restructure corporations in such a way that people can still participate in the economy, but tips the balance of power back toward individual enterprises and requires that larger organizations serve some public benefit. Read David Rowe. He has a few ideas, but I’m sure they are not the last word. Ask yourself which candidate for president would provide the best chance bring about the needed changes. I tout no particular candidate here. Although I support Ron Paul for other reasons, I think he is weak on this issue.