The Occupiers’ Corporate Confusion

The Occupy Wall Street protesters are profoundly confused about a number of issues, one of which is who their real enemies are. For the protesters and the left generally, corporations are literally evil personified. The left’s paranoia about corporations is difficult to explain or understand.

A telling and striking difference between liberals and conservatives is this — conservatives fear the government much more than they fear corporations, and liberals fear corporations much more than they do the government. Being more fearful of corporations than government makes no sense.

Virtually all medium and large businesses are organized as corporations. Almost all the consumer products we all, including the protesters, buy are produced and distributed by corporations. Most of us work for corporations. Obviously there are significant benefits to the corporate structure.

A good way to describe and categorize our economy is to look at the two primary ways we interact economically — voluntary exchange or coercion. The market sector of the economy relies on voluntary exchange. The basic purpose of a market, in fact, is to facilitate voluntary exchange. Being restricted by the realities of voluntary exchange is the most effective limit to abuse and tyranny ever conceived.

The difference in the power of corporations compared to the government is profound. What, for example, must Apple Corporation do if it wants your money? It can only get your money by offering a sufficiently appealing product in the context of the wide array of other products available to you. (A challenge Apple is currently meeting extremely well.)

The very nature of voluntary exchange is a continuous reality check. Government agencies have no equivalent check. Their “customers” cannot simply walk away from the relationship when they no longer value the service. The agencies continue to receive funding even though there may be no desire for their services.

How different are corporations from other business structures? A well-known (but not unique) feature of the corporate structure is “limited liability.” This means that if you buy shares in a corporation your risk is limited to the amount you invest. This important feature of the corporate structure has made possible the democratization of ownership. Even people with relatively small amounts of money become more willing to invest when they know their losses are limited. That enlarges the population of potential investors and reduces the challenge of raising large amounts of capital when starting or expanding a business. Dividing ownership into millions or even billions of relatively small shares makes it far easier for investors to diversify their investments and reduce their risk exposure.

There is a widely held belief that corporations can be taxed. Anyone who bothers to think about it, however, recognizes that’s only an illusion. Although corporations can and do write checks to the IRS, some combination of three groups actually bears the “burden” of the tax — customers in the form of higher prices, employees in the form of lower wages, and/or shareholders in the form of reduced earnings. Pretending that corporations can pay taxes is one of the biggest con games in politics. In the real world, corporations can’t pay taxes any more than cows can pay taxes.

A specific problem the left has with corporations is “personhood.” At the Occupy Eureka (California) protest less than a block from my office, one of the signs reads, “I’ll believe corporations are people when Texas executes one.” That one poster takes on three of their despised targets at once: corporate personhood, capital punishment, and Texas.

Liberals, however, confuse a legal fiction with reality. Corporations don’t have emotions; they can’t feel pain or pleasure. They can’t bear what economists refer to as the “burden” of a tax. In that regard, corporations definitely are not persons.

Again there is nothing particularly unique about the legal principle of categorizing corporations as persons. The United States Code states:

In determining the meaning of any Act of Congress, unless the context states otherwise — the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies as well as individuals.

None of these groupings of people are literally persons, of course. Categorizing them as persons is defined as a “legal fiction.” For numerous practical reasons there really is no other alternative. The law also distinguishes between “persons” and “natural persons.” One difference is that natural persons are constitutionally protected from self-incrimination, corporations are not.

If the occupiers are opposed to corporate personhood, why stop there? Are they also opposed to association personhood? If not, why not? How about labor union personhood?

Another specific corporate grievance the occupiers and the left have is the 2010 Supreme Court Citizens United vs. Federal Election Commission decision. That decision ruled that corporate political spending is constitutionally protected, holding that corporations have a first amendment right to free speech. That ruling sticks in the craw of Democrats and the left. Even though they would love to reverse it, so far they have been unsuccessful.

If any grouping of humans wants to give some of the money it’s accumulated to a political campaign, why should it be prohibited? The first amendment says, “Congress shall make no law respecting the establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” Corporations are simply one of the many ways people peaceably assemble. You cannot restrict the rights of corporations without also restricting the rights of the people who own the corporations. That was the logic at the heart of the Supreme Court’s Citizens United majority decision.

The occupiers fervently believe that corporations have far too much political power and that what we’ve got is a “corporatocracy.” If that’s true, why do we have the second highest corporate income tax rate in the world (35 percent)? Why haven’t corporations directed their political puppets to reduce it to zero?

It would be easier to argue that labor unions have too much power. The Democrat party ought to be called what its British equivalent is called: The Labor Party, or better still, the Union Party.

One complaint that has the potential of getting support from both the left and right is “corporate welfare.” (Several specific examples were discussed in the Wall Street Journal‘s lead editorial Monday.) I know of not a single one of the countless subsidies to businesses and industries that can be economically justified. Any business that can’t survive without subsidies should not survive. A broad-based focus on these ill-founded policies would be a welcome addition to the current political season. Maybe the OWS and the Tea Party share some common enemies.

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◼ The Occupiers’ Corporate Confusion November 8, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.