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Corporate Cap

Legal company size limit.
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I just watched "The Corporation", which humorously wonders about the personality of corporations, since a company, from a legal standpoint, is a person. They find that a typical large corporation's profile fits all the diagnostic criteria of a psychopath.

While I believe in the fundamental correctness behind the capitalistic approach to economy, I also think that governments have a strong responsibility to intervene when a company's greed (which is good) has predatory effects on the population. It's odd that while many precautions are taken to split political power between (supposedly) mutually independant institutions in order to prevent tyranny from taking hold, little thought is given to bridling the power in the private sector.

Large companies that post numbers in the hundreds of billions of dollars wield comparable power to that of governments of mid-sized countries, and yet their sole leaders are undemocratic elites, and their only responsibility is to their shareholders (who incidentally often happen to be the elites themselves).

In my mind, there is no single industry that truly requires such massive sizes, and huge companies are a menace to society rather than a benefit. Hence my proposal for the Corporate Cap: a set of financial metrics which a company may not exceed at any given time. A company reaching the CC would have to segment its activity among several new, *mutually independant* companies.

By itself, the CC would encourage companies to stagnate at levels just beneath the cap, and thus be detrimental to global economic growth. This effect can however be counteracted by giving the cap economic incentives, for instance by granting newly "capped" daughter companies a competitive advantage for a limited period of time, in terms of taxes.

placid_turmoil, Apr 12 2007

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       But this cap would have to be agreed by all countries as the really big companies (who are big because of the advantages of scale) are all multinationals.
hippo, Apr 12 2007
  

       // this cap would have to be agreed by all countries // Yes, ideally it would, but a top-down, one-shot approach is not required. This could work as a grassroots initiative, where first a group of countries say that they only allow companies under the cap to operate within their borders. If the approach proves beneficial to those countries, others will follow suit.   

       I might add that while scale is certainly an advantage up to a point in terms of production etc, the largest companies are way past this justification, and are using their size for pressure on governments to obtain favorable conditions. Now that is one advantage of scale I would not want any company to have.
placid_turmoil, Apr 12 2007
  

       As much as global corporations are widely believed to be more powerful than local governments, that is not the case. As long as the governments retain control of their armies, they will retain the upper hand.   

       Witness the humbling of Citigroup (then the biggest corproation in the world) by Japan, or the seizure of corporate assets by numerous tinpot tyrannies around the world. Even the US government was not above destroying Arthur Andersen when it got ticked off by the firm.
DrCurry, Apr 12 2007
  

       The corporate menace is indeed a scary one - but the checks and balances inherent in government are also available to protect us from corporate greed.   

       1) Anyone can own shares, and as such, potentially gets a vote.
2) These companies have customers, who can choose to, or not to buy their products.
zen_tom, Apr 12 2007
  

       // the US government was not above destroying Arthur Andersen when it got ticked off by the firm // You mean after AA supported (thanks to their size) what was arguably the biggest financial fraud in history? The Enron debacle sent shockwaves through the world economy, and affected tens of thousands directly. Now, if those companies had been capped...
placid_turmoil, Apr 12 2007
  

       // own shares // I think that most shareholders are in it for the money and will trade shares without emotional attachment.   

       // not to buy their products // Well, it's true that fair trade products are popular with some middle and upper class customers, but on the whole they remain a niche, and at the end of the day it's the product quality or price, and not your agreement with the company's practices, that seals the sale.
placid_turmoil, Apr 12 2007
  

       Re owning shares - imagine if, at the end of each year, every citizen spent $50 on shares - purchasing shares in those companies they felt they had an interest in - yes it would be dispassionate share trading, but for those who were passionate, having purchased those shares, or even acting as a proxy for other share owners, would be able to create a notable voice within the boardroom.   

       And re products, customer boycotts and other emotion-driven buying behaviour have been shown to have real results.   

       The success of VHS over Betamax had little to do with product, quality or price (ok, it didn't have much to do with ethical behaviour either) but another example might be McDonalds who, after having lost millions in custom since the whole obesity thing, have switched to selling brightly coloured salads. Other companies regularly go through the investigative mill, and are (somewhat) curtailled from going too far overboard in coorporate excess due to fear of losing their customers.
zen_tom, Apr 12 2007
  

       Too many ways to beat the system. Corp. Z owns Corp. Y, which owns Corps. X and W, which own ..., etc. Either that or just cook the books.   

       I say tax the hell out of them instead.
nuclear hobo, Apr 12 2007
  

       [zen tom] your point about McDonald's is well taken, but it's easy for people to understand the relationship between unhealthy food and obesity. But for most industries, their actions aren't that public or easy to trace. I'm all for something inexorable like this. And the taxes too, per [nuclear hobo]
pigtails_and_ponies, Apr 12 2007
  

       The history of governments taking on the private sector before events force them to does not inspire me.
wagster, Apr 12 2007
  

       //a company, from a legal standpoint, is a person// Except of course when it comes time to find somebody responsible for wrongdoing, in which case the corporation becomes a nearly impenetrable defensive shield that protects the 'persons' behind it.
nuclear hobo, Apr 12 2007
  

       Actually, this is a good way to prevent monopoly/oligopoly. Plus in an ideal free market there is a large number of participants each with a small share of the market.   

       The downside of course is we lose large economies of scale. Or do we? Couldn't companies cooperate with each other to achieve these? Funnily enough this might well make capitalism more efficient, although whether thats a good thing or not is another issue..
DrWotsit, Jun 15 2007
  

       Seems like a good time to resurrect this idea :)
placid_turmoil, Feb 16 2009
  

       Hmmm, interesting timing!   

       What would the difference have been if this had been in effect over the last 3 years or so? (Assuming we're linking the concept of the idea with banking crisis etc)   

       Would a whole bunch of smaller banks have fared (faired?) better than a more select number of massive banks?   

       On a tangential note, I'd like to see figures of how much of the world's banking power is currently under State control.
zen_tom, Feb 16 2009
  

       There would for instance not have been the bombshell of the collapse of Bear Stearns. Smaller banks specialising in housing markets would still have gone bust of course, but there would not be a sudden panic-ignited illiquidity after, say, a Lehman sized implosion.   

       The main advantage in my opinion, though, is that bankers would have less massive influence on government and parliament, who are being suspiciously lenient with the greedy clique leading us to societal collapse.
placid_turmoil, Feb 16 2009
  

       Maybe companies should be allowed to grow until they become large enough to support lobbyists, and then -- whack -- time for a little trim.
colorclocks, Feb 16 2009
  

       But in order to make microchips, or cars, or skyscrapers, a huge amount of capital is needed. If you have that kind of money, hiring lobbyists is pocket change. So is making electoral campaign contributions.   

       //The downside of course is we lose large economies of scale. Or do we? Couldn't companies cooperate with each other to achieve these?//   

       But once multiple businesses are on the same project, they are effectively the same business. They collectively have the same incentives for rent-seeking as a single business. And they are already working together.
Bad Jim, Feb 16 2009
  

       // But once multiple businesses are on the same project, they are effectively the same business //   

       Not exactly. They would each have their own balance sheet. They could review each others' finances to see if they can trust each other. And they would, because they know that if one partner gets shut down by a regulator, the entire group is be in trouble.   

       // in order to make microchips, or cars, or skyscrapers, a huge amount of capital is needed //   

       You're right. The CC would have to be industry-specific. In the semiconductor industry, the cap would be much higher than in, say, the syrup industry.
placid_turmoil, Feb 17 2009
  
      
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