Essay on Corporations and Bad Externalities

(From T. Machan, The Morality of Business, A Profession of Human Wealth Care [Springer 2009])

In the controversial documentary, The Corporation, a good deal is made of the fact that corporations often produce what are called in economics “negative externalities.” These are objectionable side effects of productive activities, best exemplified by pollution but not restricted to such obvious cases. The narrators of this program include among such externalities the cost of military actions they consider required to keep Middle Eastern oil flowing, the expense of building and maintaining public highways that are used for driving the vehicles that companies produce or use to transport their wares, etc. There are many other allegedly negative features of corporate commerce the program identifies but let’s just focus for a moment on negative externalities. In many cases of such externalities they can be internalized – companies can install equipment that treats waste so it doesn’t become pollution. They can pay, via taxes or fees, for the military operations that may be required to keep secure the sources of oil. They are also paying for the roads on which they transport their products, via taxes, tolls, or fees of some kind. Nor are corporations unique in producing negative externalities. (By the way, the program did not deal with the fact that business corporations also pro- duce a good many positive externalities, such as information and, of course, the beneficial impact of the products and services people purchase from them.) We all produce bad side effects as we live our lives. Individuals, just as companies (of individuals), drive about and pour soot into the air mass. They dispose of waste routinely in such ways that it becomes a burden on others, too, as when public water treatment facilities are used to clean the water which has become contaminated by people.

In short, once some of the historical accidents have been dispensed with, business corporations turn out to be nothing more than people who have united to pursue certain economic objectives and in that pursuit produce some positive as well as negative side effects, just as we all do as we go about carrying out our various tasks in life. Only, of course, corporations act in ways that have bigger, more obvious effects than individuals produce in their disparate fashion. Such concentration of impact is easy prey for complaint, lament, and ascription of insidious conduct. And abuse. But in a free society, where no special privileges may be obtained from government by anyone or any group, a business corporation is no more than the united efforts of millions of people who have assigned the responsibility of professionally managing their investments for purposes of prosperity to a few people in such a way that it is these few people who are liable for any malfeasance, not the “silent partners.” So long as this is publicly known to all who deal with the corporation, there is nothing amiss in the arrangement.
In The Corporation, for example, several comments are made about how such organizations are like killer sharks because they, like the sharks, have innate attributes to make them act aggressively. In other words, according to the producers of the program, corporations are innately driven to harm people with the bad side effects they produce. This isn’t done intentionally, deliberately. No, that is just the nature of the beast, or so the producers contend, thus condemning them en masse.

In a way they are right but not as they would like to have us take it. Just as we, human individuals, go about our various tasks in life and produce bad side effects that we could dump on other people – I could take my trash and instead of paying a company to dispose of it or treat it, simply deposit it on my neighbor’s lawn or some other place where others, not I, would be burdened by it – so companies often do go about their activities in ways that dump burdens on others. But they need not do so. It is the function of a sound, just legal system to identify clearly enough each individual’s and each corporation’s legitimate sphere of authority, wherein acting with impunity would be unobjectionable but outside of which permission to act and dump would be required and would have to be paid for. We all, individuals and groups of them, need to know our sphere of sovereignty and this is part of what a legal order helps to identify and protect. Negative externalities need to be identified and no one may be empowered to inflict them on others. Unlike the killer shark, which has no choice but to kill, individuals and companies of them do have a choice to perpetrate dumping or abstain from it. It may be difficult at times but it is not impossible. Contending that business corporations have it in their very nature to dump their negative externalities on unwilling others is to mischaracterize them quite unjustly.

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2 Responses to Essay on Corporations and Bad Externalities

  1. A Reader says:

    They can pay, via taxes or fees, for the military operations that may be required to keep secure the sources of oil.

    The moral and intellectual flaw of this particular, and common Libertarian argument, is that simple direct economic costs of a military operation is just a total fraction of the costs. That assertion does not give proper value to the much larger real costs in human lives and injuries, and the long-term indirect costs, of those military operations. The problem is that the theory presented here actually rests on an impoverished value system and therefore does not do genuine justice to liberty and freedom.

    Contending that business corporations have it in their very nature to dump their negative externalities on unwilling others is to mischaracterize them quite unjustly.

    In fact, this is a category error of the first degree. The author has NOT demonstrated here, and our knowledge suggest quite the opposite, that individuals in a group act the same as individuals on their own. Or that a group as an entity behaves in the same way and has the same values of an individual. The author has not provided any affirmative argument here demonstrating that the value system of corporations does not include dumping negative externalities on society. Instead he has presented an cunning argument in which he induces the reader to engage in the fallacy of false generalization: He has, in reality, argued that it is not particularly in the character of individuals to do that and therefore it must not be in the character of individuals joined together for a purpose (in this case to pursue a single value of economic gain in the notion of corporation under consideration here) to do that.

    • szatyor2693 says:

      I didn’t set out to demonstrate anything, only to affirm it. It takes much work to defend one’s assertions but making them can stimulate thinking.

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