Opinion and Economic Analysis

HICKS: Corporate greed an easy target for criticism

September 15, 2012

A reader recently suggested that I write a critique of corporations akin to that offered for unions. That is a fine idea, so I will begin with a couple of points:

My observation about private-sector unions was that their declining membership marked them for imminent irrelevancy. Whatever mischief private-sector unions engage in, it is a private affair. That makes it ripe for political, not policy, action. I write about the latter.

In contrast, public-sector unions have left many American municipalities on the brink of bankruptcy. That is a policy matter, and I will continue to remark upon it.

The point is that I have little to say about private unions and public policy. The same goes for corporations, whose ill behavior is a matter among consenting adults who either own or work for corporations. Still, it is useful to inventory some of these critiques and assess their causes.

Corporations differ from other business in that their ownership is diffused across people who have purchased shares of the company. Karl Marx referred to these owners as capitalists.

It is a sweet and satisfying irony that now more than 60 percent of U.S. households own stock at some point. Most of these capitalists are like me and simply buy retirement mutual funds. We own tiny portions of hundreds of companies.

This diffuse ownership offers the only coherent criticism of modern corporations. Writing in the 1930s, economists Adolph Berle and Gardiner Means noted that the divergence of interests between owners of corporations and their management led to decisions that enriched the management team at the expense of owners.

In another irony, that led to executive compensation reforms that linked CEO pay to stock performance, enabling the wild bonuses of corporate executives. This may be a problem, but not for government.

Corporations, like business and labor in general, lobby for special tax breaks and government favors. And corporations sometimes cause pollution, treat employees poorly, and make poor products.

Markets—and, on rare occasions, government—can help control some of this, but singling out corporations is silly. Real-life company presidents are never as heartless as their faceless “corporate” brethren.

The Occupy Wall Street movement is especially fond of criticizing corporations, mostly for greed. Ironically again, a common source of youthful outrage among the Occupy crowd is that corporations are treated like people by the tax and legal codes (a simplifying measure in a tax and legal code that revels in false complexity).

What strikes me is the childlike simplicity of these folks who cry against corporate greed, then howl against the trivial legal treatment of corporations as people. In isolation, either argument has merit, but greed is a wholly human sin.

So if corporations are truly greedy, we must treat them like people.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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