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Dec. 29, 2011 - Freedomain Radio - Stefan Molyneux
21:59
2064 Corporations in Freedom

What would corporations look like without the State?

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A friend of mine asked a very interesting question.
This would be coming from Jazzy Jeffy Jeff Berwick of The Dollar Vigilante.
Highly recommend it. It's a great newsletter.
Great newsletter.
Thought-provoking, interesting, and fairly good spelling.
Just kidding. It's good.
So he said, well, what would corporations look like in a free society?
It's a very interesting question.
Corporations, as you may or may not know, are monstrous Frankenstein, anti-free market, predatory, eviscerating and emasculating legal fictions created by the state in return for gaining the allegiance of the upper classes by granting them immunity from Prosecution or personal liability for any of the heinous acts that these legal fictions create.
It's like if you have a sock puppet and you hold up a bank with a sock puppet, the sock puppet goes to jail and you get to keep all the money in the world.
And that's what is commonly called the free market.
Anyway, so, I mean, who knows, but this is what I think.
And I say this because this is, as an investor, as an employee, as an executive, I look for what I would like to see or where I would like to work or under what conditions I think it would be the best to work.
Now, the first thing that I would want if I wanted to invest or work someplace is the assurance that senior executives would not be immune from And I would really want to make sure that my,
you know, corporate...
The nut-bolted-necked overlords were even more subjected to negative consequences than I was.
Because otherwise, what would stop them from pursuing negative consequences, that would have even more negative consequences for me.
So the problem is, of course, that if you're the head of Bear Stearns, you pull out millions and millions of dollars in salary and so on, which makes you, I guess, double-plus happy.
And if Bear Stearn goes tits up, as it did, then you walk away with all of that and no one can touch you legally.
No one can take away your house. And those guys do great, but the employees' lives suck harder than a vacuum.
I'm not going to make a Pamela Anderson joke.
I'm tempted, but I really feel we need to class up the show a little, which probably means getting a new host or a host with a better sensor or a sense of propriety whatsoever.
No tangents!
Get back on the tracks, Molyneux.
Back on the tracks! So, yeah, so you want those who are power over you to have more negative repercussions than you do because you already have the negative repercussions of what you do that's wrong and also the negative repercussions of what they do that's wrong.
If they blow up the company, you're out of a job.
And if you screw something up, you're out of a job.
So, if they don't have negative repercussions, you have double or triple or quadruple layers of negative repercussion risk and they reap all the rewards.
Plus, of course, if you have...
No negative repercussions and massive positive incentives.
In other words, if you end up with a ratio of gambling to liquidity of 30 to 1 or 40 to 1, you understand, like a 30 to 1 ratio of investment, like you've got a dollar and you gamble 30, means if you lose 3% or a little over 3%, you're completely wiped out.
And the only reason people would do it is, of course, if you're that kind of leverage, if there's an upswing, you make trillions.
And if there's a downswing, there's a massive smoking money crater where your soul used to be.
Well, either way, there's a smoking crater where your soul used to be because of the harm you've done to others that can't ever be undone.
But you want to make sure that they're going to have lots and lots of negative repercussions.
Otherwise, you're just gaming the system to fail Everyone except the well-connected and politically or economically powerful.
And even then, it will fail them in the long run, too.
So, I mean, you don't have a Gambler's Anonymous meeting in a casino where the gamblers get to keep all the winnings and the house pays all of the losses.
I mean, clearly, that's not—I mean, this is how retarded our society is, that this is what we set up and think, and then we wonder why.
So, wow, there must be something inherently wrong with human nature.
But people love to gamble so much.
Well, you've got a bunch of gamblers and you've had, you win, house pays losses.
Huh, wonder how that's going to go.
It doesn't take anyone over four years old to figure out how that's going to go.
Yet people get all kinds of confused about the modern economy.
You're going to need some sort of collective entity.
I mean, you've got a thousand people working together.
You can't have paychecks.
You can't have customers pay a thousand people according to the salary and bonus, right?
So, something's got to, you know, you've got a million dollar contract and you've got a thousand people that only gets paid a thousand dollars and then break it up.
So, you've got to have one entity which gets paid, which then divvies up the profits among the relevant individuals to the degree that they've contributed according to the senior management's assessment and so on, competitive or market forces.
So, you're going to need a legal collection, an aggregation, a collective of some kind.
I guess we call that a corporation.
I personally would not use the word corporation in the same way that I would not set up an international church of Satanhood.
I would not use that.
It's just, you know, here's a wonderful German doll for children called Freddy Krueger Hitler.
It just, you know, wouldn't sell, except to those who wouldn't want to buy it.
So, yeah, there's going to be some sort of legal aggregation, there's going to be some sort of legal collective, but that is merely going to be for administrative purposes.
Right? So that one entity can get paid and then the payroll can divvy it up and then there'll be some way to aggregate profit and losses.
I mean, you need profit and loss centers in businesses.
You need profit and loss centers so that you can figure out who's making money and who's not making money so that you can allocate your funds accordingly.
And there's no aspect of a business that I can think of that would be exempt from profit and loss.
Even apps like things like marketing and R&D. Measurement is key.
Measurement is key in everything.
If you cannot measure it, you cannot measure it.
If you cannot measure it, you cannot manage it.
And so the measurement is the key when it comes to business.
So yeah, you need the measurement of the company as a whole called the Corporation Mark II. And then you need, of course, within that, you'll have subdivided entities that you can measure the profit and loss based on that.
Anyway, you understand. Because everyone always says they're doing a great job.
But the key thing is It's the actual measurement.
Measurement is everything.
I would suggest that there is going to be corporations in the future of the free market, but they're not going to be any particular legal shields to this.
And I would also argue that there will be competitive corporate charters.
And obviously, right? I mean, I should say obviously, it may not be obvious, but there will be competitive corporate charters.
Because when something is not defined under the law in one central manner, then you get this wonderful kind of creativity that occurs in what is the best corporate charter?
What is the best way for a corporation to self-organize?
I don't know.
I may have some ideas now, but obviously the collective wisdom of the market under changing conditions and the innovation of lots of different people would be well worthwhile.
I can't imagine that some stodgy old-ass corporation would want to organize itself in the same way as some brash, crazy-ass, jolt-fueled startup.
It wouldn't make any sense. So, there would be competing corporate charters, I would imagine, that would provide a variety of costs and benefits, and they, you know, you would tout that.
And those themselves would be measurable, right?
So, A, B, and C are various ways of organizing your corporation, and then there would be some entity that would gauge the success of this kind of incorporation based upon the long-term stability, the ROI, cash in the bank, ROA, return on assets, like lots of different ways of measuring it.
But you would have competing charters in the same way that you have competition in everything.
And as new business models, right?
So there's this freemium business model.
You give away stuff for free and then you charge for a premium.
Those business models would be subject to, I think, a very different kind of corporate charter.
I mean, you have some of this now where you have a corporation and you have sort of a charity or not-for-profit charity or a non-profit charity and so on.
So there would be lots of ways of organizing these things to get the best mix.
You know, everything is a mix.
Everything is a blend of costs and benefits.
Like once you take away the sort of gun in the room, then lots of things become a sort of cost-benefit analysis.
So, if your corporation gets too complicated, then it's going to be too hard to administer and no one can figure it out and everyone's going to get suspicious.
You know? Everyone's going to get suspicious.
Like, why is my corporate charter 250 pages of dense legalese?
That can't be good.
That can't be right. That can't make any sense.
You want it to fit on a page.
You want to have a clear explication of the costs and benefits and a clear explication of the safeguards Because, I mean, investors and even employees, they don't have a freaking clue what's going on at the top level.
I remember I worked at a company in the 90s, and the executives had their own floor with really plush carpeting and great artwork and the inevitably gorgeous receptionists, and it was like locked away from the employees.
You could not, for the life of you, get up there.
And there was like a tiny little window in this big, massive, gray, sort of semi-iron door that you could maybe peer through.
I had to go up there sometimes for a variety of reasons.
And I mean, it's just beautiful. It's completely out of the planet.
And nobody knows what the hell is going on up there, of course, right?
I mean, freaking clue.
So they don't know.
Employees don't know. Shareholders don't know.
And mutual funds may have some more of an idea.
But basically, you don't publish your whole business plan.
And so there's a lot of secrecy.
Around business plans, particularly if you're doing something innovative, which is supposed to make you lots of cash and stuff like that.
And so the question is, well, how do you safeguard against executive ripoffs when it comes to a corporation?
Well, there's obviously a lot of different ways you could do it, and those different ways are going to be competing in the free market for better or for worse.
So, another thing that I would like, and this is sort of a foundational justice thing that probably comes from my, I don't know, Richard Dawkins-like emergence from the primordial pool of the lower classes, but I would really like for there to be some sort of recognition of a reality in a corporate charter that You must hold those who made the decisions responsible, and not those who, in a sense, were following orders.
It's sort of a Nuremberg principle, where the average foot soldier was not held accountable for the crimes of the Nazi Empire, but those who made the decisions and had some sort of more choice.
And again, I know it's an extreme example that corporations in the future are like Nuremberg trials, but everybody wants power, But nobody wants responsibility.
That's the sort of basic reality.
If you look at political power, this is one of the fundamental problems with it, is that it is power disconnected from responsibility.
So, if you are a politician and, like, Barack Obama just got $12 trillion of extra debt to get the U.S. into, well, is he responsible for that?
No, of course not, right?
He's not personally responsible for any of the government debt.
He's not personally...
George Bush said, let's go to war because of WMDs.
Is he personally liable for any of the losses if those WMDs aren't there?
Well, yeah.
Of course he's not. That's not what people want.
People want power, but they don't want responsibility.
And so many human structures, if you sort of look at it, the drive, the desire, the thirst for power, but in avoidance of responsibility, that is...
So, a priest wants the power to tell you what to do with your life, but he doesn't face any negative repercussions if you turn out to be some bad guy.
And furthermore, he's in this amazing world of non-verifiable anti-empiricism in that he says, listen, you do what I say, my friend, and you will get to a magical place called heaven and avoid a fiery place of despair, doom, and destruction called hell.
And how is that checked?
Right? I mean, how is that checked?
He's telling people what to do their whole lives and to give him money.
And in return, he provides them this benefit called heaven, which can never, ever be conceivably verified in any way whatsoever.
So that's power, but without responsibility.
Like, if I put a million dollars on a stock and that stock goes down, then I have to take my lumps, right?
Because I have the power to make money, I have the power to allocate my own finances, and I have the obvious responsibility of...
Having to either get the gains or absorb the losses based upon my decisions.
So that power, that authority over my money comes with responsibility.
I have, you know, this power called free will, which gives me authority over my own life, gives me power over to control my own decisions as best I can.
And with that comes the responsibility that if I do something bad, then I'm held to account for that, and rightly so.
That's inevitable, right? I mean, it would be ridiculous and insane, no matter how common it may be, for me to say, well, I take pride in every decision I make that is good, that turns out well.
But every decision that I make that turns out badly is the responsibility of something else, or someone else, or some environmental factor.
I mean, people do a lot of that, but it's kind of nutty.
You take the good with the bad when it comes to free will.
And... That is something that I would want any corporate charter or any organizational charter to tell me how you're going to deal with this.
Everybody wants power.
Nobody wants responsibility.
Everybody wants the benefits of authority.
Nobody wants the consequences of bad decisions, which are magnified, of course, by authority, right?
So if you have a $10 budget and you make a mistake, that's not the end of the world.
If you have a billion dollar budget and you make a mistake, well, that's pretty catastrophic.
And the reason you get paid more for having a billion dollar budget is because of the downside, right?
Everyone wants the pay of the billion dollar budget and no one wants...
The reason you get paid so much is because of the downside.
It doesn't take a lot of brains to lobby governments to give you beneficial regulations, to borrow from the Fed at almost no interest and then charge a couple of points to loan it out and call yourself a business genius.
It doesn't take any brains at all.
And it doesn't take a lot of brains to cash a bailout check and say, look, what a great businessman I am.
So everybody wants all these major benefits, but the reason you get paid a lot is because you're taking a lot of risk.
That's why you get paid a lot, because you're taking a lot of risk.
But if you're not taking any risk, then why on earth would you get paid a lot?
What happens then is you raise barriers to entry.
You become a rent seeker.
So if you are being paid a lot, but you are not taking much risk, then everybody would want to do what you do.
So then you have to raise these barriers of entry by having a monopoly on stock trading or developing relationships with politicians that are so nefarious and underhanded that other people aren't really going to be able to replicate them.
It's one of the things that happens in a democracy is that You know, like if you want to buy milk in Canada, if you want to buy milk in Canada that's not pasteurized, in other words, that tastes good, at least so I've heard, then you have to develop a relationship with a farmer.
And now, not any Joe Blow is going to come, a farmer is going to say, hey, give me some milk.
They're going to say, hey, here you go. Hey, I'm from the government.
I'm from the Canadian milk board and you're going to jail or prison or get a fine or something like that.
And so, nefarious relationships, or relationships that are shady at best, are relationships that are very hard to replicate.
You've got to be vouched for by someone, you've got to develop a long-term, right, so the guy knows that you're not an ARC, or you guys know you're not a government representative, or something like that.
And so, when you're getting a lot of benefits, without taking on a lot of risk, well, It's real easy for everyone.
Everyone's going to want to do that. And so, what you have to do is raise the barrier to entry.
With licensing and monopolies and all that kind of stuff.
But relationships with politicians are great ways to raise the barrier to entry for people.
And... This is another reason why democracy is just so shady and nasty and ugly and predatory.
So I want a corporate constitution, so to speak, that's going to deal with that and say, look, these guys, yeah, they have a lot of power.
And here's how we balance out that power.
We're going to come after their houses.
We're going to come after their children's kidneys.
I'm kidding, right? You're going to come after their houses, their personal assets, and so on.
If they screw the company, they're the first in line to pay creditors.
They are the first in line to hide behind.
Corporate incorporation. They can't hide behind Chapter 11.
They can't run all this sort of stuff.
They're going to be the first. And I say, okay, well, so then they make a lot of money, but if they screw things up, then they're going to be personally liable.
There's no shield for them. Well, that seems to me like a pretty good balance because then I don't have to watch them.
Because the creditors are going to watch, the consequences are going to watch people for them, right?
The reason we have regulation in the government is because there are no consequences or limited consequences or few consequences.
The reason we need regulations for corporations is because corporate executives are not personally liable for pollution.
I mean, I know there's some laws that have changed that a little bit now, but the court system is so ridiculous and onerous that they are, in effect, not liable.
I mean, things go on for decades, right?
Superfund sites for cleanup, 90% of the money in the U.S. 90% of the money went to lawyers, not to cleaning things up.
It's terrible. So if there are negative consequences to people, if they can't hide behind stated shields, then you don't have to watch them.
Because the negative consequences are going to do the watching for you.
You don't have to double check and have all of these Sarbanes-Oxley regulations and all this kind of crap.
Because you know that if they screw up the company, they're going to lose everything that they built their entire lives, which they're hoping to leave to their kids.
They're going to lose their prestige.
They're going to, right? I mean, it's just going to be toast.
They're going to be toast. And so you don't need to watch because consequences, right?
And that is the regulation that works, which is consequences.
Once you take away consequences, so people will start doing bad things because they're not bad in terms of consequences.
And very few people guide themselves by some sort of intrinsic sense of ethics.
People are just pragmatic. So the moment you take away consequences is what happened in the financial system.
It used to be that if you made a gamble that blew up a company, you were the one who had to sit down in the, as I say, Generation Zero.
You were the one who had to sit down in the executive room and say, listen, I have now blown everyone's, we're all liable and we're all either going to go to jail or lose everything we own or both.
Well, it's a pretty uncomfortable conversation.
It's not something that people really want to do.
And so... There's this old saying that when you get rid of the big laws, you don't get no laws.
You get a huge and infinite and ever extrapolating amount of tiny laws.
And when you get rid of consequences for the executives of corporations, which has been the progress of corporatism over the past 200 years, when you get rid of consequences but retain the benefits, then they'll start doing really bad things.
And then people say, well, let's not get rid of the laws that shield them from consequences.
Let's add more laws.
To regulate them.
And that of course never works because they simply absorb, right?
They bork, they just absorb the regulators.
And you get this sort of revolving door and it simply doesn't work.
In fact, it makes things worse because now people think, oh, there's regulation, so I don't have to worry as much.
But without consequences, the constant vigilance that is supposedly required never works.
There's nothing better than natural consequences.
You know, it's like saying to someone, you will never, ever get sick from smoking.
I guarantee you will never, ever get sick from smoking.
And then wondering why people don't quit smoking.
Well, it's because they're never going to get sick from smoking.
You're guaranteed that. So if they like smoking, why would they have an incentive?
You'll never suffer any negative consequences.
In fact, if you smoke, you will be healthier.
No, that doesn't work. So anyway, that's how I think it will work.
I hope that's of use to you. Best wishes and best life for 2012.
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