Blairsville, GA. The corporation is a central part of our economy. In fact, some have argued that our economic system is accurately identified as corporate capitalism, for the values and prejudices of the corporate system cast their shadows over the entire structure. If this is the case, is there reason for concern? Could our current troubles be rooted in the inherent weaknesses of corporate capitalism? Although it approaches heresy to touch on this question, it might be worthwhile to consider one aspect of this issue.

The very structure of the corporation reduces the opportunity as well as the inclination for the exercise of virtue. I am not suggesting that virtue is intrinsically incompatible with a corporation, but that they are not natural allies and perhaps they are even in tension with one another. Milton Friedman asserts that “there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” In other words, business (and Friedman is here speaking primarily of corporations) should be judged exclusively according to economic criteria. That is, heads of corporations should seek to maximize profits while avoiding deception and fraud. But while truth-telling is an important virtue, it is by no means the only one. Furthermore, in classical virtue theory, it was argued that one virtue could not exist without the others. They, in an important sense, depend on each other. In this light, one is left to wonder if insisting only upon honesty is sufficient. This becomes a serious question when the “do not engage in deception and fraud” limitation is juxtaposed with the imperative to “maximize your profits.” The former is somewhat squishy, for there are shades of truth-telling and, as we all know, it doesn’t take much work to rationalize the withholding of information or to emphasize one fact in a way that falsely colors the whole. On the other hand, the maximization of profits is indisputable. It is the “bottom line.” It can be quantified, and given the economist’s prejudice in favor of quantifiable facts, maximizing profits will naturally get the primary attention.

Joseph Schumpeter argued that a corporation could be conceived according to three categories of participants. A corporation is owned by share-holders who hire 1) executives to run the corporation. The share-holders can be divided into 2) the large share-holders and 3) the small share-holders. The large share-holders call the shots. They hire and fire the top executives who answer to the share-holders. The small share-holders—today often these shares are held as part of a mutual fund—have very little power to influence the direction of the corporation. With this dynamic in place consider how the exercise of virtue will compete against the imperative to maximize profits. The executive will presumably lose his job if he fails to maximize profits (or doesn’t secure a government bailout). He will, of course, lose his job if he is convicted of a crime, including deception or fraud. But there is a significant gap between outright crime and moral failure, and consistently ringing up a profit can cover a multitude of sins. In other words, there appears to be what Wilhelm Röpke terms an asymmetry in this relationship, and virtue is on the light side of the scale when weighed against profit.

Consider now the small share-holder. A person might, having prudently diversified his portfolio, hold a small amount of shares in a wide variety of corporations. This investor, like all investors, is interested in realizing a profit through share appreciation and/or regular dividends. He is, though, removed from the operations of the corporation. He may receive an annual report and have the opportunity to vote in the election of officers, but the bottom line in the report is his main focus, and his information is generally inadequate to vote wisely. The very scale and remoteness of the enterprise makes careful monitoring difficult. Of course, someone might argue that if this person was really concerned about virtue, he could investigate the behavior of the corporation as well as the background of each of its officers. True. But doing this for a portfolio of investments would be laborious and few are willing to make such an effort. And even if such an endeavor is conceivable, the point is that the structure of the corporation makes it far easier for all involved to focus on profits rather than virtue. The same dynamic is even more pronounced when corporate shares are owned as part of a mutual fund. The investor is one more step removed from the corporation and the quantifiable bottom line of the mutual fund itself—this time abstracted from the individual stocks—is the natural focus. The moral asymmetries are obvious.

Because of the scale and remoteness associated with the modern corporation, virtue is disadvantaged (which is not to say it is impossible or absent). Because of abuse, which is to say the un-virtuous actions of some, the natural response of the public and therefore their elected representatives is to attempt to regulate corporations. Because of the asymmetry between profits and virtue, a regulatory bureaucracy is erected to make up the difference. Regulations become a substitute for virtue. Of course, as regulations increasingly pressure corporate executives, they will naturally find themselves focusing on the bureaucratic minutia of the regulations rather than on the self-imposed moral probity that virtue requires. Regulations, then, can have the unintended effect of distracting from the cultivation and practice of virtue.

But consider what has occurred. Corporations can and do hire lawyers to lobby the federal and state governments on behalf of the corporations that employ them. The voices of those businesses that can afford to retain full-time lobbyists will obviously be heard above the voices of the small farmer in Pennsylvania or the owner of the independent hardware store in Kansas. The result, not surprisingly, is that the bulk of regulations favor the large concern over the small. Even those regulations that appear benign can produce onerous barriers to the small business. If for instance, in the interest of clean meat, USDA regulations require butchering facilities the description of which is well-suited to the corporate meat producer but impossibly expensive for the small rancher, then the small rancher is disadvantaged. Of course, one could say that such regulations are all in the name of public safety. But if a small rancher wants to butcher a handful of steers in his garage or basement and if his neighbors who trust him (know he is a man of virtue) want to buy the meat from him, why should the USDA get in the way? In one instance we have regulations attempting to substitute for virtue (and disadvantaging some) while in the other we have legitimate virtue operating between neighbors. Which alternative serves to create a healthier society?

The regulatory bureaucracy, while ostensibly intended for the protection of the public from corporate abuse, works hand-in-hand with the very organizations they are tasked with policing. They need each other to be what they are. All this can be accomplished under the cover of “public safety.” The need for security (provided by the government) can justify the massive regulatory bureaucracy. The consciences of the regulators can remain clean, for after all, they are serving the public. And if the corporate lobbyists have done their jobs, the regulations will provide the corporations with regulations well-suited to the scale on which they operate and, as a result, the small concern will find itself disadvantaged and less able to compete. Here we come to a surprising possibility. Could it be that many of our economic problems are not the result of insufficient regulations, as many argue, but instead the result of a regulatory structure that creates an unlevel playing field and thereby makes it easier for the large corporation and more difficult for the small concern? Could the internal dynamics of the corporation, itself, lead to this outcome? The implications are, I admit, far-reaching, but at the very least, we should be honest enough to admit that, along with an unprecedented explosion of consumer goods and services, corporate capitalism has nourished powerful forces that may not contribute to the long term health of our society.

Local Culture
Local Culture
Local Culture
Local Culture


  1. Mark, you have highlighted the core of the problem behind corporate governance, which is the dominance of agency theory. Agency theory affirms the maximization of shareholder value as the sole purpose of the firm. As you mentioned, in the case of many corporations, employees are given the opportunity to own shares in the company stock through their retirement funds, or through outright purchase of company stock using pretax dollars. These employee stock ownership plans came into existence during the last 50 years, and have grown in widespread popularity. This practice would seem to be an excellent example of the principle of economic subsidiarity as articulated by Pope John Paul II, proposes that “Each person is fully entitled to consider himself a part owner of the workbench where he is working with everyone else” (Centisimus Annus). By having the employees participate as shareholders of the corporation, the employees become part owners of the corporation’s capital, and also share in the profits of the business.

    In agency theory, the corporate management team can be held responsible by a legal fiduciary responsibility to the employee shareholders. Employees of the corporation invest both their labor, and a portion of their earnings in the corporation in return for a share of the profit and the security and satisfaction of the fruit of their labors. However, in actual practice the reality of the situation falls far short of subsidiarity.

    While workers share in the ownership of company as stockholders, and retain the voting rights of all shareholders, they do not have a direct say in the management decision making. Their say in management decision making is via proxy through the elected board of directors. As you point out, the employee shareholder’s voting rights often represent such a small percentage of the total that they can be considered negligible. Ultimately, those who most influence the direction of a company are the management team, the board of directors, and the large institutional investors that hold and manage the employee shares in mutual funds. Each of these three constituencies are highly incentivized to maximize shareholder value through short term increases in share price, driven by near term corporate earnings per share. As the events of the current economic crisis have illustrated, and several economists have argued governance and management practices built on shareholder value alone have resulted in the unintended destruction of shareholder value on a massive scale, and the purposeful elimination of employees from the corporation.

    Despite much talk about stakeholder value (as opposed to shareholder value) until the corporate governance structure is modified to create a legitimate voice for stakeholders, and the incentive system for management and boards considers more than the stock price, and short term earnings, little will change.

    What is needed is a “stewardship theory” that acknowledges a social covenant (as opposed to social contract) between business corporations and the societies in which they operate.

  2. Mark: The virtue angle is what interests me most about this, mainly on account of my having lived in ignorance of–and indifferent to–bottom lines. (I’ve been in charge of budgets I could neither read nor understand.) It does seem to me, however, that a regulatory bureaucracy will necessarily follow upon increased structural complexity, and that an inevitable consequence of this is that the only offenses anyone will recognize are actionable ones. Bye-bye virtue.

    Your piece puts me to thinking of one of Wendell Berry’s definitions of “corporation”: a pile of money people swear allegiance to.

  3. It seems to me that the primary goal of a bureaucracy, any bureaucracy, is to absolve anyone of responsibility for anything. Bureaucracy seems always to grow, never to shrink, piling abstraction on abstraction and layer on layer until it achieves a sort of life of its own, like Frankenstein’s monster. There may be a figurehead at the top who is notionally “ultimately responsible” for the actions of the bureaucracy, but this person is in fact unable to make any meaningful changes in how things work. There is simply too much inertia. He might be sacrificed for any number of reasons, but there is an air of meaninglessness to this exercise of holding a man accountable for something he could no more change than I can change the direction of a battleship by blowing on it.

    To deal concretely then with the question raised in the post, it seems obvious to me that our regulatory environment is such that it penalizes the small operator for the benefit of the large operator and thereby leads to a general deterioration of the economy. The economy, in a sense, is our shared property, something we all hold in common; we all support it in various ways and participate in it. To avoid the tragedy of the commons, it is necessary that those who hold property in common understand and act upon the responsibility to maintain that property for the common good. This is precisely the responsibility that a bureaucracy dulls and eventually eliminates with its endless delegation and abstraction. Sharon Astyk points out in her meditations on becoming native to your place that in an indigenous culture:

    [t]here is a high value placed on getting along, accomodating others, working together, sharing and resolving conflicts. Traditions are built around these customs of sharing, and evolve for the management of common resources (despite the constant iteration of the “Tragedy of the Commons” commons are often extremely well managed).

    Those who are very much responsible for the operation of their business or farm or enterprise and who must deal more or less directly with their customers in a trust relationship are not benefited at all by the regulatory bureaucracy. Such a responsibility-killing regime eventually removes all incentive for any of us to take responsibility for the economy we have (i.e. to operate, as consumers, at the level of virtue). Price, which is very easily quantified, comes to be the sole determinant of how we allocate our resources. Such an abstracted view necessarily favors the big operators who, above all, can offer lower prices than those small operators who are constrained by respect for their place and the need to maintain the trust of their customers.

    Ultimately, I don’t think we can regulate or legislate our way out of this system. More than anything else, to get back to a more sane, more responsible, more indigenous economy is going to require a sea-change in the attitudes of those of us who support the economy with our resources—a cultural change, if you will. It will require that we take responsibility for our commons, that we operate outside the bureaucracy, that we penalize bigness and abstraction as immoral (as opposed to illegal). In other words, it requires that we reward virtue instead of regulating vice. It may be possible to level the regulatory playing field somewhat, but I suspect that doing so will only enlarge the bureaucracy yet again and insulate us even more from our responsibilities.

  4. What was the name of the law or ruling that allowed corporations to lobby Congress as if they were individuals? I forget. A big way to solving the problem would be to overturn this ruling.

  5. Mark, this is a truly excellent post, with a lot of fine food for thought within it; thanks very much. I’ve done some thinking myself about corporate capitalism and corporate power before (here, in particular), but my thoughts have mostly run in a vaguely Heideggerian (or Luddite) direction, addressing how corporations–as I put it, “[these] legal fictions which we have created that our law grants the legal standing of persons, and yet are fundamentally unable to include within the logic of their actions any kind of human value or moral concern”–enable us to “outsource” hard questions about property and dignity to bureaucratic, acquisitive, technologically-enabled mechanisms, after which most people just throw up their hands and say “well, that’s the way the economy works.” But you’ve added another point to that, a point about the size and power of corporate entities disadvantages the personal practice of virtue as well, and it’s a valuable one. And I like how you tie this concern in with the authority wielded by regulatory agencies. Really, a great post.

    And Thomas, thanks for your long comment as well. The vaguely subsidiarian or egalitarian bona fides claimed by advocated of employee stock options needs to be serious scrutinized, and critiqued where appropriate. There are some employee-owned businesses that, I think, genuinely do strive to operate in accordance with a “social covenant,” but most manifestly do not, for the reasons you and Mark clearly outline.

  6. The insights of Matthew Crawford, of Shop Class As Soulcraft fame, are apropos to this discussion. For instance, consider this from his NYT essay The Case For Working With Your Hands:

    Contrast the experience of being a middle manager. This is a stock figure of ridicule, but the sociologist Robert Jackall spent years inhabiting the world of corporate managers, conducting interviews, and he poignantly describes the “moral maze” they feel trapped in. Like the mechanic, the manager faces the possibility of disaster at any time. But in his case these disasters feel arbitrary; they are typically a result of corporate restructurings, not of physics. A manager has to make many decisions for which he is accountable. Unlike an entrepreneur with his own business, however, his decisions can be reversed at any time by someone higher up the food chain (and there is always someone higher up the food chain). It’s important for your career that these reversals not look like defeats, and more generally you have to spend a lot of time managing what others think of you. Survival depends on a crucial insight: you can’t back down from an argument that you initially made in straightforward language, with moral conviction, without seeming to lose your integrity. So managers learn the art of provisional thinking and feeling, expressed in corporate doublespeak, and cultivate a lack of commitment to their own actions. Nothing is set in concrete the way it is when you are, for example, pouring concrete.

  7. “[C]orporate capitalism has nourished powerful forces that may not contribute to the long term health of our society[.]”

    Nicely understated. 🙂

  8. Spengler/Goldman talks about the rise of mediocrity and corruption in corporate America, essentially the same subject as this posting, in his recent posting:


    I agree with him that the only solution to the problem is the creative destructive dynamism of true free market entrepreneurial capitalism. Any kind of regulatory approach will simply entrench the problem further.

  9. Here’s an astonishing post by Goldman/Spengler:


    It is required reading for anyone who cares about the future of the U.S. and Western culture. Here’s what I said in response to it:

    Once again, Goldman is 100% spot on. It is well-known that the East Asian countries, including Japan, have a certain amount of political corruption and what the Japanese euphemistically call “money politics”.

    Since the Wall Street earthquake in September of last year and the resulting response to it by the political elites, I have been saying that “we are all Japanese (Chinese) now”.

    I lived in East Asia up until 2001 and go there often on business. It is very clear to me that East Asia (and more of the rest of the world) is developing the free market economic system and infrastructure that we take for granted here in the U.S. It is also very clear that there are many bright people who live there as well. Further, all of the personal life style freedoms we take for granted in the U.S. (everything from deciding who to marry to other recreations that I will not mention here) are just as available in East Asia as here in the U.S. Singapore no longer torments gays like they used too (but Muslim Malaysia may).

    This is no longer the cold war where the U.S. was the bastion of liberty and free markets surrounded by a sea of communism and tyranny. That era is long gone.

    Given all of this, the one thing I thought the U.S. had that everyone else did not that made it special was objective rule of law. Now it appears we no longer have this as well.

    So, what exactly do we have that makes the U.S. special?

  10. Ambrose Bierce’s Definition of the “Corporation” in his Devil’s Dictionary is short and to the point:

    …”n. An ingenious device for obtaining individual profit without individual responsibility”

    The recent Sub Prime debacle shows his definition encompassing the loss of profit as well.

    Meanwhile, as Empedocles points out, Congress has sanctioned this “individual right” in how they are lobbied by the Corporation and so once again, this faceless entity that is given the protections and opportunities granted the individual with a significant relaxation of the responsibilities …it subsumes and replaces the citizen as the entity who is served by Representative Government. There were perhaps fundamental good reasons behind the development of the Corporation in the American and now global economy but the Corporation is allowed the ability to have it both ways…individual opportunities and protections without individual responsibilities. It seems to be the commercial apogee of the triumph of Reason and Method over the Moral Strictures of Religious Faith and it would appear to be wanting.

    The only abnegation a Corporation appears interested in is limiting the imposition of law upon it. When the individual identity is a bankrolled packaged logo , the rule of law is easily manipulated.

    One can sense the mongrelization of the government in its preferential relationships with the Corporation and this kind of institutional lack of responsibility would appear to be metastasizing.
    The Corporate Titan and Major Politician become glib boosters in a Frick and Frack tag team of fooling all the people all the time.

  11. Empedocles, the decision was Santa Clara County vs. Southern Pacific Railroad 118 US 394, (1886), as fine a piece of legislating from the bench as has ever been seen.

  12. John and Empedocles,
    As I understand it, Santa Clara County v. S.P.Railroad did not officially establish corporate personhood. The official court reporter added this bit to the introduction to the case but it was not the substance of the decision. Apparently, one of the justices began by saying something to the effect that “we all agree on the personhood of the corporation but that is not the issue we are addressing.” To establish the context, the official reporter included this in his report. The doctrine was from then assumed to be the ruling of the court even though it was not officially part of the ruling.

    Question: if corporate personhood was eliminated, what would the consequences be?

  13. Kurt 9 says it well “I agree with him that the only solution to the problem is the creative destructive dynamism of true free market entrepreneurial capitalism.” but in saying it he perhaps inadvertently points to the “inherent weakness” is some very vague assumptions that tend to pervade this subsidiarity debate with regard to improvements to economic justice via distributism.

    Why feel the need to qualify “free” with “true”? The structure of a market is defined by its being a free exchange of agents who determine for themselves the value of the goods being exchanged. The version of the market economy we are living through right now has not been free for decades. Government interference has warped our social exchanges through its manipulation of the money supply in favor of subsidized imprudence. Capital is not money, banks are not the arbiters of wealth, it is the subsidiarity of personhood that makes possible the creative sacrifices of prudence that enable us to save up the means (assume risks, eliminate costs via the mortification of self-abnegation) to apply to purposeful ends (expend self via time, talent or treasure in sacrifice for the good of others).

    When the State or other impersonal authority privileged by the State (e.g. the banks via the Fed) abrogates to itself the right to determine (coerce) for others what is to be the outcome of that mortification and sacrifice, based on a utilitarian calculus of maximum good at maximum participation, we have lost any liberty to exercise simple cardinal virtues, heck we surrender the human dignity endowed by our Creator, such that we may not practice our faith via the theological virtues.

    Consider subsidiarity from the Austrian viewpoint here:
    Those who do not understand budgets (Jason Peters) have no business meddling in them, fiduciary trust is vital to public administration of the common good. Without it, corruption of goods is enabled as generation of goods is disabled. For example. persons should not delegate to a pension fund activities they themselves are not versed in, ie the entrepreneurial virtues required to be active in the financial markets. If you cannot afford to lose your savings, you should not be invested in intangible assets, nor should you delegate that to an “association” or “union” you should put your capital in assets for which you have the understanding to manage or can delegate to family members who do: a plot of land, some chickens, a dairy cow. And buy whatever tools you need to defend the asset from depradation (a fence at minimum, a gun perhaps). Hedge funds are tools to defend assets from depradation, they are not “inherently weak”. The great weakness in the American economy is the American currency and how it is produced, ‘creata ex nihilo’ by the State and the institutions it favors with the primary access to new “funds”, the banks, of great concern to international security, see Maurizio d’Orlando at

    Members of Congress who do not understand how the fiduciary world works should not be in the business of overseeing the Treasury. Voters who do not understand why they have a vote in who gets to control how the interest rate gets set do not deserve the privilege. The moral responsibility for personal wealth has for too long been abrogated, by a process of moral hazard, to the public administration of prosperity. We are now paying the price for our sloth!

  14. Clare Krishan,

    I qualified “free” with “true” because many people, including some here, fail to understand the difference between free markets and corporate socialism. It also seems to me that to many people “capitalism” means the crap we’ve seen on Wall Street for the past 15 years whereas “free markets” means a bunch of guys starting a new company out of their garage.

  15. Kurt9 – so glad to see you recognize the confusion, and the need to clarify terms of our thread’s debate.

    Now for those who advocate socialism (or its kin, distributism) as the default position for Catholic teaching on Social Justice, consider this: fascist corporate socialism (aka state-mandated distributism: corporate assets expropriated(*) by judicial FIAT and awarded to retired UAW workers health funds at the expense of the present bond holders in other pension funds who put their savings in the safe keeping(**) of a car company on the brink of collapse) has exploded, and personal autonomy has been quashed as the fiscal arm of our State, the US Treasury has enslaved us private citizens, the US taxpayers, by indenturing $9.7 trillion in not-yet existent “revenue” equivalent to $1,430 for every human on the planet!

    “The Bloomberg report on the $9.7 trillion in pledges that would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.”

    And yet, the lady bureaucrat charged with auditing this vast sum, Elizabeth Coleman
    has NO IDEA where it is, what is being done with it, a date due for repayment, who will do the repaying and what collateral will be held in security if the account balance for repayment is insufficient…

    N.B. the Chinese are asking those questions too… and, sorry to say it, but our defense of Taiwan may not be sufficient to trade in as collateral… and those poor Christian souls in Sudan? They’ll just have to fend for themselves, China is the oil hegemon of of that neck of the woods in Africa

    * well no, an investment is NEVER safe, that’s the point of moral hazard, risk is rewarded (or not) depending on performance backed up by prudent (or not) acts

    ** expropriation of private property is commonly called theft, or an offense against the 7th commandment “Thou shall not steal”

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