The Corporation

When it becomes clear in the late 1600s that partnerships cannot raise the kind of funding needed by the growing businesses of the post-Renaissance era, the concept of the corporation attracts interest. A corporation is owned by its shareholders, and the number of possible investors is unlimited, allowing such a firm to raise huge amounts of capital.

A chief problem faced by corporations is trust: Investors can’t be sure the managers won’t spend capital on unrelated or frivolous things. Worse, the corporation could take actions that cause harm, and resulting lawsuits might bankrupt investors. To remedy these concerns, laws are passed to limit the liability of investors as well as upper management; the corporation and its assets become the property at risk. Corporate officers are also held to a strict standard: Their activities must always and only be directed toward the financial benefit of the investors.

With these stipulations in place, corporations grow wildly; today they constitute a large percentage of worldwide economic activity. Unfortunately, those same stipulations—limited liability and activities directly solely toward profit—cause corporations to make decisions and take actions that can cause harm to others. These “externalities” are a chief issue of complaint among modern activists who deplore the sweatshops, pollution, manipulative marketing, and dangerous products that emerge from the corporate obsession with the bottom line.