Bad Corporation!

 

Corporations are bad. I think maybe that is just sometimes true. Corporations everywhere are much the same, and, the way they are structured, to get to the top and deal with competitors, you have to have a certain set of ethical lacks. Hence making money prevails over employees, customers, and nature. Some are worse about that than others. Corporations, though, serve a necessary function, even in socialist states. You need to organize a business along autocratic lines (benevolent but still autocratic if you want to hold employees and still get things done). The good thing about capitalism is that risky ventures can be undertaken by private interests, rather than the government, in return for most of any profits. The most efficient way for private interests to do this on large ventures is the limited liability corporation. The bad thing is that they will often do whatever is necessary to maximize profit, including gouging the public, putting out unhealthy products, destroying competitors, exploiting resources and employees, false and misleading propagandistic advertising, bribing government officials (such as corporate donations to political campaigns) and so on. Government and law is needed to curb this, in hopes of getting the good from corporate organization and mitigating the bad.

You’re circling something real, but I’d push back a bit on the idea that corporations are inherently populated by people with “ethical lacks.” That’s a common intuition, and there’s some evidence that certain personality traits—competitiveness, risk tolerance, even a bit of ruthlessness—help people rise. But that’s not the whole story. What matters more than the moral character of individuals is the structure they’re operating in.

A corporation is essentially a machine designed around a few core rules: limited liability, separation of ownership and control, and—crucially—pressure to generate returns for shareholders. Once you set those rules, you don’t need villains. Ordinary, even decent people can end up making decisions that look quite harsh, because the incentives nudge them that way. That’s the insight behind ideas like principal–agent problem: managers are acting on behalf of owners, and both are often focused on measurable returns, not diffuse harms.

There’s also the legal doctrine—often overstated, but influential—of shareholder primacy, reinforced historically by cases like Dodge v. Ford Motor Co.. While modern law gives more flexibility than people think, the cultural expectation remains: if you don’t prioritize profit, you’d better have a good explanation.

That connects directly to your point about necessity. You’re quite right: large-scale economic activity—railroads, pharmaceuticals, global supply chains—requires coordination, hierarchy, and the ability to pool capital while limiting risk. That’s why even states that call themselves socialist still rely on corporate-like entities. The alternative isn’t some gentle cooperative village; it’s usually bureaucracy, which has its own pathologies.

So the real tension isn’t “corporations vs. goodness,” but efficiency vs. externalities. Corporations are very good at producing things efficiently under competitive pressure. They are much less good at accounting for costs that fall outside the transaction—pollution, public health, long-term environmental damage. Economists call these externalities, and without intervention, they tend to be ignored.

That’s where your final point lands solidly: regulation, law, and norms are not optional add-ons—they’re part of the system. You don’t “fix” corporations by hoping for better people at the top; you shape outcomes by changing incentives and constraints. Things like liability law, antitrust enforcement, disclosure requirements, and even cultural expectations about reputation all act as counterweights.

One refinement I’d suggest: governments don’t just restrain corporations; they also create the conditions that make them work—property rights, contract enforcement, infrastructure, and sometimes even the initial research (think of early internet or pharmaceutical work). It’s a more symbiotic relationship than a purely adversarial one.

So you end up with a slightly less moralized but more structural picture:
corporations are powerful tools—dangerous if left unchecked, extremely useful when embedded in a framework that channels their incentives toward broadly acceptable outcomes.

If you like, we can dig into where that balance is working well today—and where it’s clearly failing.

There are a variety of ownership structures of corporations other than publicly traded securities (the most important as it provides capital more readily). There is of course state ownership, where the taxpayer bears the risks, limited group ownerships, such as a family, employee ownership (doesn't seem to work very well) and customer ownership, as with mutual insurance companies.

You’re mapping the landscape pretty accurately, and your instinct—that structure matters more than slogans—is exactly right. The interesting part is that each ownership form solves one problem and creates another.

Publicly traded corporations are unmatched for raising large amounts of capital quickly. That liquidity and scale are why they dominate sectors like energy, tech, and pharmaceuticals. But the tradeoff is distance: the people who bear the consequences of decisions (workers, communities) are often not the people who make them. That’s where the pressure toward short-term results creeps in.

State ownership flips that. In theory, the public interest is built in. In practice, you often get softer budget constraints and political interference. A state firm may keep too many workers or pursue prestige projects because failure doesn’t fall cleanly on decision-makers. Sometimes that’s socially desirable; sometimes it just produces stagnation.

Family or closely held firms are fascinating because they often take a longer view. A family that expects to pass a business down a generation has reasons not to strip-mine it. But they can also become insular, resistant to change, or poorly managed if competence doesn’t match inheritance.

Employee ownership—what economists often call worker cooperatives—doesn’t fail as broadly as people assume, but it has very specific limitations. The classic example is Mondragon Corporation, which has been quite durable. The difficulty is scaling and capital: workers tend to be risk-averse about their own jobs, so they may underinvest or avoid necessary restructuring. It’s not that the model “doesn’t work,” but it works best in certain sectors and cultures.

Customer ownership, like mutual insurers, is a clever inversion. Since policyholders are the owners, the incentive to exploit customers is reduced. Organizations like State Farm or Nationwide tend to emphasize stability and service over aggressive profit-taking. But again, the tradeoff is access to capital and sometimes slower innovation.

What ties all of this together is a deeper constraint: who bears risk, who controls decisions, and who gets residual profits. You can rearrange those three elements in different ways, but you can’t eliminate the tensions between them.

Your aside about employee ownership “not working very well” is worth sharpening rather than discarding. It often struggles in highly competitive, capital-intensive environments—but in more stable or locally rooted industries, it can be quite resilient. The failures tend to be quieter than corporate scandals, so they don’t leave as vivid an impression.

If there’s a unifying theme, it’s that no ownership structure escapes the need for discipline. Public companies get it from markets (sometimes too harshly), state firms from politics (often too erratically), cooperatives from internal consensus (sometimes too cautiously), and mutuals from member expectations (which can drift).

So the real question isn’t “which structure is best,” but which distortions are you willing to live with in exchange for which advantages. Different societies—and even different industries within the same society—answer that differently.

If you’re inclined, we could take a specific sector—say healthcare or energy—and see how these ownership models actually behave on the ground. That’s where the abstractions get interesting.

The corporation, except for the private ones, has a board of directors chosen by the owners, who watch over the interests of the owners, at least in theory, and who hire the corporate officers.

Yes—and that “at least in theory” is doing a lot of work.

Formally, the structure is exactly as you describe: shareholders elect the board, and the board hires (and can fire) management. The board is supposed to act as a buffer between ownership and day-to-day operations, providing oversight rather than running the business itself.

But in practice, a few frictions creep in.

First, ownership is often diffuse. In a large public company, no single shareholder has both the incentive and the information to closely monitor management. That’s where the principal–agent problem shows up again: the “owners” are scattered and mostly passive, while the “agents” (executives) are organized, informed, and in control of the flow of information.

Second, boards are not as independent as the textbook version suggests. CEOs often have significant influence over who gets nominated to the board, and directors may be socially or professionally connected to management. It’s not usually corruption in a crude sense—more a kind of mutual accommodation. Oversight becomes gentler than intended.

Third, incentives get blurred. Directors are typically compensated modestly relative to executives, and they meet only periodically. They rely heavily on information provided by the very management they are supposed to supervise. So unless something goes obviously wrong, boards tend to ratify rather than challenge.

There are, of course, counterweights. Large institutional investors—pension funds, sovereign funds, asset managers—can exert pressure. Activist shareholders sometimes force changes. Legal duties (like fiduciary responsibility) give courts a role, though courts are usually reluctant to second-guess business decisions unless there’s clear misconduct.

In closely held or family corporations, the structure is often tighter: the owners and the board may be the same people, so the monitoring problem is reduced—but then you risk insularity or lack of expertise.

So the board system is a kind of compromise. It’s meant to introduce accountability without making ownership unwieldy. It works tolerably well much of the time, but it’s rarely the vigilant guardian the theory imagines. It’s more like a part-time referee who steps in when the game gets rough, rather than controlling every play.

For the most part we can rely on the fact that there are, in a healthy economy, a number of corporations in a given business, to deal with incompetence. The social problems of anti-competitive behavior, abuses of all sorts, and of course damage to the environment require external observation and interventions.

That’s a sound division you’re drawing: competition handles performance; institutions handle behavior. When markets are genuinely competitive, incompetence tends to get punished without anyone needing to intervene. Firms that misprice, mismanage, or misjudge simply lose ground.

But that hinges on “genuinely competitive,” and that condition is more fragile than it looks.

In many industries, scale matters so much that you drift toward concentration—sometimes even without bad intent. Network effects, high fixed costs, or control of distribution can leave you with only a handful of serious players. At that point, the disciplining force of competition weakens, and you start seeing the need for things like antitrust law and oversight bodies such as the Federal Trade Commission. Not because every firm is misbehaving, but because the structure makes misbehavior easier to sustain.

There’s also a subtle point: competition can actually encourage certain bad outcomes if they’re profitable and not prohibited. If cutting environmental corners or using manipulative advertising improves margins, firms under competitive pressure may feel they must follow suit just to survive. That’s the darker side of efficiency—it doesn’t come with a moral compass. That’s where regulation isn’t just corrective, but preventive, setting the floor beneath which competition isn’t allowed to go.

Environmental damage is a textbook example. A company that fully internalizes its environmental costs may lose to one that doesn’t—unless rules level the field. Economists again would frame this in terms of externalities: without intervention, the market price simply doesn’t reflect the real cost.

One place I might gently refine your view is this: competition doesn’t always “deal with incompetence” cleanly. Sometimes incompetent firms survive because they’re large, politically connected, or simply entrenched. And sometimes highly competent firms produce socially undesirable outcomes because they’re too good at exploiting the rules as written.

So you end up with a three-part balance rather than a two-part one:

• Competition to drive efficiency and weed out some failures

• Regulation and law to set boundaries and correct market failures

• Governance and norms (boards, reputation, culture) to shape behavior inside firms

When those three are aligned, things work surprisingly well. When one weakens—say, competition fades or regulation is captured—the system starts to tilt.

Your framework holds up; it just needs that extra caveat: markets are good at selecting for success, but they are neutral about what kind of success they select for.

I agree with your caveat, but suggest it was implicit in what I said. Nevertheless, like most things, it is all messy and unappealing to an idealogue.

Yes—that was implicit in what you said. I think I was just dragging it out into the light a bit.

And you’ve put your finger on the deeper truth: this whole area resists clean theories. It’s untidy because it’s dealing with human incentives layered inside large systems. Any ideology that tries to make it neat—“markets solve everything” or “the state should run everything”—ends up shaving off the inconvenient parts of reality.

In practice, what we actually see are hybrid arrangements that would make a purist wince: regulated markets, quasi-public corporations, state-backed private risk-taking, industries that are competitive in some layers and monopolistic in others. Even something as straightforward as a “private company” often depends on public infrastructure, legal frameworks, and sometimes direct subsidy.

There’s also a kind of cycling over time. Periods of strong competition tend to produce concentration (the winners grow), which then invites regulation or breakup, which restores competition—at least for a while. You saw that with things like Standard Oil breakup, and later with AT&T antitrust breakup. Neither produced a permanent solution; they reset the system for a generation.

What makes it feel especially messy is that the “right” balance isn’t just technical—it’s political and cultural. Different societies tolerate different tradeoffs between efficiency, fairness, stability, and risk. There isn’t a single equilibrium; there are a range of workable ones.

So you end up not with a theory you can apply once and be done, but with something more like ongoing maintenance. Adjustments, corrections, occasional overreactions, and then corrections to those.

Not very elegant—but it does have the virtue of being real.