“It’s no good. You’re a person and I’m a people.” Jerry Lewis in Cinderfella (1960 film)
Massachusetts senatorial candidate Elizabeth Warren takes Mitt Romney to task over a statement he alleged made that “corporations are people.” Ms. Warren’s complains that “People have hearts. They have kids. They get jobs. They get sick. They love and they cry and they dance. They live and they die.” She wants Mitt to “learn the difference.”
Actually, she’s partially right. Most corporations don’t die natural deaths, but they all can be killed.
Well, Jack and Suzy Welch have published an interesting rebuttal to Ms. Warren’s diatribe demonstrating the corporations are indeed people, and that what she really means that those of us who do business, and I mean employees, employers, and contractors are not really “people” but some kinds of monsters or inhuman villains. I, for example, have been the owner of corporations for my own business and professional purposes, and invest in many public held corporations. I didn’t need the droids to rebuild me as Darth Vader did.
I have no doubt that Ms. Warren knows better – she is a lawyer and a law professor – about corporations. She is merely pandering to the left’s “useful idiots.” (Yes, the right has idiots too, but they don’t want to confiscate my property – their main concern are social issues that don’t much matter in the grand scheme of things.) I am also confident that those who read my posts have at least a pretty good idea of what corporations are and how the function in our economy. There are a surfeit of woefully ignorant folks out there, however. So I believe it is appropriate to articulate the issue.
Humans have conducted business from the earliest times as individual proprietors and together as partners. It doesn’t matter how large or small the enterprise is. There are a number of sole proprietors in the United States who have over $100 million in revenues, but nowadays that is an exception. The primary disadvantage of doing business as a proprietor or in a partnership is that the business owners have unlimited liability for both tort and contact debts. Because most humans are risk adverse, this tends to discourage investments in start-ups and stifles growth.
With the improvements in navigation technology in the 15th Century and the demand for commodities that could only be produced in far off places, many opportunities for expanded commerce and consequent acquisition of wealth appeared. Trouble was, such a voyage was also risky. Bad weather, tropical disease, and piracy could cause a venturer to lose everything in one expedition. Furthermore, outfitting an expedition to sail from, say, England, to the Orient, was expensive. Few merchants had sufficient funds to invest in such a voyage. A group might be willing to invest enough money if the return for the risk was great enough. If they joined in the venture to share profits they became partners under the law, and they would be individually liable for each others’ debts. Many were not willing to take such exposure without direct control. Thus, a facility was needed where individuals would become owners of the enterprise and stand to share profits commensurate with their interest but risk only what they invested, and no more. In order to accomplish this, the state would create, or charter, an entity to be the nominal owner of the business. The joint-stock company, or corporation, was born.
Over the subsequent half-millennium, commerce and industry grew to what would have been a unbelievable size. Commercial and industrial development fed on each other. Once the principle of individual liberty – a symbiotic product – was established where men could inquire freely and say publicly that 2 plus 2 equals 4 without being burned at the stake, science and technology flourished and opened up new vistas for enterprise. This continues to this very day.
Without corporations, our economy as we know it today could not have been possible, and it would disappear tomorrow if the legal status of corporations was abolished.
But are corporations people? Of course they are. The corporate form is a legal fiction, and has no practical existence apart from the individuals who invest in and own it. Every business corporation is ultimately owned by real live human beings. They participate in the profits made, and yes, the risk incurred, by enterprise. Corporations can have one owner, like me; or can be owned by millions, either directly, or through retirement or other investment accounts, also like me and many, many others. Publicly held corporations are an aggregate opportunity for everybody to participate in productive enterprise.
Corporations are also a vehicle for individuals who want to be entrepreneurs but minimize their risk of losing everything by failure, which can, and does happen. It is true that no lenders and few vendors will give start-up businesses credit, corporations or not, without individual guarantees, but there is some shield from other contract and tort liability. Accidents and force majeures will occur.
And so, to answer Ms. Warren, corporations do have hearts, kids, and get jobs. They do get sick, love, cry, and dance. If she were to descend from her ivory tower in academia and look at the real world perhaps she would understand that.
In the meantime, I am grateful for her giving me the impetus to write this. I also thank her for reminding me to share some of my wealth, such as it is. I will share some of my corporate investment profits with Warren’s opponent Senator Scott Brown, with the fervent hope that it will help him convince a sufficient number of the good people in Massachusetts to keep both of them where they belong.