Corporate capitalism: the product of government interventionby News WeeklyNews Weekly
, January 13, 2001
Modern capitalism should be defined as "corporate capitalism", not "free market capitalism". Large corporations dominate the capitalist production system.
Today the top 500 US corporations account for 75 per cent of all non-agricultural sales in the US, yet these 500 corporations account for only one-tenth-of-one-per cent of all firms in America (Economics Explained, Heilbronner and Thurow, 1998).
These corporations are the product of the greatest act of government intervention in the history of capitalism, the legal privilege of incorporation and limited liability.
This privilege means that shareholders are liable only to the value of their shares, not to the value of their corporation's debts. If shareholders invest $1 million in a company and it goes broke owing $10 million, then the shareholders lose $1 million, but it is the creditors who lose $9 million. Limited liability shifts risk from shareholders to creditors.
Without this legal privilege, modern corporations would not exist. The capital needed to build the railways, steel mills, car factories and mass produced consumer products could not have been accumulated. The world would still be dominated by workshops and small craft industries, like the motor vehicle industry at the turn of the 20th century.
As society has granted the privilege of limited liability and incorporation to corporations, corporate managers have responsibilities not only to shareholders, but also to the citizens who granted their corporations these privileges in the first place.
Citizens and families have the right to have their governments intervene in the economy to ensure economic justice for workers, so that families can thrive without depending on the welfare system.
Those free market advocates who argue for more and more deregulation are in fact arguing for fewer restraints on the corporate sector.
Further, as corporate capitalism's financial system is prone to instability and massive market failures, then governments and the international community have a moral responsibility to regulate the system to prevent or lessen the impact of market failures.
It was the gross 19th century injustices and the massive market failure that was the Great Depression that made corporate capitalism the midwife of both Marxism and Nazism.Contents of this Special Issue