"He's a snake in the grass, I tell ya guys; he may look dumb but that's just a disguise; he's a mastermind in the ways of espionage." Charlie Daniels, "Uneasy Rider" [Revised] Corporations, the state, limited liability and rent-seeking: Some criticisms of Huebert and Block's criticisms of Long - TT's Lost in Tokyo

[Revised] Corporations, the state, limited liability and rent-seeking: Some criticisms of Huebert and Block's criticisms of Long

[Update:  Items 2 & 3 revised and an item 4 added.]

J.H. Huebert and Walter Block have posted a critique of Roderick Long's recent Cato essay.  Allow me to make a few comments:

1.  Huebert and Long argue that "There Is No Such Thing as Corporate Power", stating that:

"Long writes that "Corporate power depends crucially on government intervention in the marketplace."

But what does he mean by "corporate power"? A corporation is merely a group of individuals who have entered into a particular type of business relationship. The corporate form allows them to be known collectively by their business's name instead of their own names. And it allows them to enter into contracts under which they limit their own liability – something which is perfectly legitimate under libertarianism. (Objectivist historian Robert Hessen has made this point well in his book, In Defense of the Corporation, and see our article, "Defending Corporations," forthcoming in the Cumberland Law Review.)

The corporation, therefore, has no power to speak of.

Instead, only the state has power."

(emphasis added)

This omits something rather crucial - that the corporate form allows owners to sidestep any personal liability for the wrongful acts that their corporation commits, with the result that liability of the corporation is limited by its assets.  Can someone point me to where libertarian principles defend this result?

2.   Huebert and Block further state that:

"sometimes the state uses its power to confer benefits, direct and indirect, on corporations. It also uses its power to confer benefits on partnerships. And sole proprietorships. And individuals. There is nothing special or different about government privileges for corporations – so why does Long single them out?"

I'm sorry, but a state grant of uncontracted-for limited liability vis-a-vis consumers and others IS a special privilege , and the very reason why so much economic activity is concentrated in corporations, as opposed to partnerships, sole proprietorships and individuals.

Further, there is indisputably quite a difference in SCALE of the benefits that the state confers on corporations, particularly larger ones.

3.  Huebert and Block concede that

"There is a kernel of truth in Long’s viewpoint – some larger firms do use the apparatus of the state to steal an advantage over smaller competitors. As a matter of history, things work out this way more often than in the opposite direction."

But they fail to acknowledge the obvious implications of this concession:  the aggregated resources and long lives of larger corporations make it much easier for them, as compared to individuals, other forms of association and smaller corporate rivals, to effectively seek rents from the state by offering bribes of various forms (campaign contributions, lecture fees, junkets and revolving-door employment) .  Consequently, the state very often marches to the tune of large corporate drummers, with lobbyists and politicians acting as entrepreneurs in brokering the rents.  It is readily apparent that in the larger firms, executives are very effective at extracting equity at the cost of investors, and are often likewise effective in socializing costs (via federal and state bailouts) when their firms fail.

The creation and expansion of the corporate form has worked hand-in-glove with a steadily expanding and intrusive state.  Huebert's and Block's statements that "The corporation, therefore, has no power to speak of" and "onlly the state has power" are both obvious rhetorical excess.

4.  While Long argues that "In a free market, firms would be smaller and less hierarchical, more local and more numerous ... and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice."  Huebert and Block take this to mean that Long is making the "unfounded" assertion that "big business needs the state to survive".  Rather than being unfounded, such a view simply cannot be found in Long's essay.

Huebert and Block argue that:

As it is, there are big businesses that don't benefit much from government and there are small businesses that benefit greatly from government. In a fully free market, undoubtedly, large and small businesses would both survive, succeed, and prosper. Long's assertions to the contrary are unfounded speculation.

The first two sentences are unobjectionable, and are not inconsistent with Long's points. 

Of course what a fully free market would look like is pure speculation, all around.  But without the ability of larger firms to use the state to raise barriers to entry, it seems to me axiomatic that there would be a greater percentage of smaller firms.

Published Wed, Nov 26 2008 7:35 PM by TokyoTom