Do Corporations Have Natural Rights?
by Fred E. Foldvary, Senior Editor
On Tuesday, June 15, the city council of Berkeley, California, unanimously passed a 'Resolution on Corporate Constitutional Rights.' It directs the city manager to send the resolution to government representatives. The resolution calls for amending the U.S. and California constitutions to declare that corporations are not granted the protections or rights of persons, including constitutionally protected speech.
A corporation is basically a contract among co-owners under rules set by government. The shareholders own rights to the property and profits of the organization. To limit the rights of the corporation is to limit the rights of the owners. As human beings, the owners have natural rights, and these human rights extend to any contract they create. The shareholders of corporations delegate to their governing boards the authority to act as their representative, so any limitation on the speech and other rights of the directors of corporations is a limitation on the human rights of the owners. Special restrictions on the freedom of corporations have no justification.
The resolution states that since 'corporation' is not mentioned in the United States Constitution, the founders did not grant corporate rights. This proposition is wrong on two counts. First, it completely misunderstands the function of the U.S. Constitution. The Constitution constrains the power of the federal government. The U.S. federal government only has the powers specifically enumerated or listed in the Constitution. So if something is not mentioned, the federal government has no power over it. The fact that corporations are not mentioned therefore implies that the federal government has no authority over corporations as such, rather than, as implied by the Berkeley resolution, giving the federal government unlimited power.
Secondly, the rights expressed in the U.S. Constitution, such as freedom of speech, are not 'granted rights,' as the resolution wrongly states. The Constitution recognizes natural and common-law rights that exited prior to the Constitution; indeed the 9th Amendment declares that rights not enumerated are also retained by the people. Thus, the U.S. government did not grant rights to corporations, but only respects moral and legal rights they already had.
The resolution states that corporations are created as artificial entities. But a corporation is no more artificial than any other form of organization. Is a partnership artificial? Suppose you and a friend create the 'Choochoo' partnership to operate a train. The property owned by the partnership has signs saying 'Choochoo.' The partnership is artificial in that it was created by human action, but then in that sense any human act is artificial. Natural rights apply to artificial agreements, contracts, and organizations, because all human action is artificial.
The resolution states that historically, corporations have been chartered by state governments to serve the public interest. And what is the public interest? The greatest public interest is liberty, the right of each person to do as he wishes so long as he does not coercively harm others. So long as a corporation does not harm others, or compensates them when there is a liability rule, it serves the public interest. There is no moral obligation to do anything beyond that.
The fact that the U.S. states have historically chartered corporations does not imply that corporations morally or economically require such chartering. Corporations could exist without government charters. A corporation as such is just a type of organization.
A partnership does not inherently require any government charter. There are limited partnerships that have two classes of partners. The general partners run the company and have unlimited liability, while the limited partners invest funds and have rights to a share of the profits, but have no personal liability for the debts of the partnership. Without any special government laws on partnerships, the limited partners would have common-law limited liability if their status is that of a lender rather than owner. In effect, they lend funds to the partnership, and are paid returns not at a fixed rate of interest but as shares of the profits. Lenders have no more liability than the fund they loan.
Likewise, without any corporate laws or charters, the shareholders would be contractually lenders who, like partners, are paid shares of profits rather than fixed rates of interest. The shareholders vote for the board, but this is no different from a contract between a bank and a partnership enabling the bank to be a general partner with a say in running a company. The main governing difference between a partnership and a corporation is that in a partnership, the general partners are fixed by contract, whereas in a corporation, the general partner-directors are elected. That the bondholders may vote for the board is simply a contractual agreement.
Government charters that treat corporations as persons actually make outcomes worse for corporations, because their profits are taxed twice, once as corporate profits, and then again as dividend income by the shareholders. If American corporations are so powerful, why have they not eliminated this double taxation?
The Berkeley resolution states that 'corporations dominate the political process' and spend vast amounts of money to influence elections. But other organizations also dominate and influence: labor unions, trial lawyers, farmers, churches, and real-estate owners. These special interests do dominate government policy, but only because the voters let them. Voters keep electing the candidates of the major parties which receive campaign funds from the dominant interests. The minor parties that oppose corporate welfare and other privileges get only a tiny vote.
The remedy for the privileges and rent-seeking by corporations and other moneyed and landed interests is to restructure democracy into small-group voting where the demand for campaign money would evaporate. But the Berkeley anti-corporation resolution does not call for this. It seeks only to treat the effects of dysfunctional mass democracy rather than cure the cause.
The ultimate legal privilege is not a corporate charter but a land charter legally enabling the title holder to obtain the wealth created by the human action of other persons. State-granted land charters let the title holders collect rent from tenants, rent which is pumped up by government-provided public works and services, financed by the tax-theft of the wages of labor. This force redistribution from wages to land rent is the ultimate privilege, and much of corporate profit is really land rent disguised as interest and profit.
The truly progressive policy would be a call to eliminate this deeper state-granted land-rent privilege and the statist theft of earned income. The obsession with corporations reflects ignorant reactions to what is superficial and visible, rather than an understanding of the deep and unseen reality. The Berkeley anti-corporate crowd does sees the dog rather than the cat. They know not and know not that they know not. Their hearts may be in the right place, on the left side of the body, but like other misled progressives, they need to get their minds on the right track, which is 'share rent and trade freely.' That's the only corporate policy we need.
-- Fred Foldvary
Copyright 2004 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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