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A comment on corporations

from Peter Radford and the current issue of RWER

There is a continuum between the abstraction of economics theory and the practice of business. The two, after all, coexist in the same domain. The one seeks to explain phenomena which are consequences of the other. In the past few decades the highly stylized version of the firm that exists in economic theory has deeply influenced the way in which business is practiced. This is despite the detail excluded in theory, and the evident mischaracterization of the main vehicle of business – the corporation. Economics cannot theorize correctly about the firm until it absorbs the reality of the corporate form that dominates business.

Mainstream economics is very good at explaining what might happen with respect to economic transactions in an idealized world. That idealized world is created by expunging all manner of irritants that might make it difficult to model or teach. The entire resultant edifice is the tour de force of abstraction that has dominated economic theorizing for many decades. Unfortunately, it is the irritants, the very things removed in the process of abstraction, that are of most importance and interest to those of us trying to explain the real world. And amongst those the modern corporation stands out as a prime example.  read more

  1. Econoclast
    January 14, 2019 at 5:18 pm

    I agree with much here and in the full article., particularly this from the latter:
    “The attraction of the language of modern micro to our business and investment class is consequently its ideologically convenient cover for wealth accumulation and protection rather than for its explanatory power. Real business, especially the corporation, represents an impossible challenge to economic theory.”

    I would add that perhaps this is understated: “Economics cannot theorize correctly about the firm until it absorbs the reality of the corporate form that dominates business.” It seems to me that now the corporation is the dominant institution in all sectors, including governance. In my view economics orthodoxy is the emperor’s clothes, the “ideologically convenient cover” for the power of capital that is presently expressed in the global corporation.

    I see these as issues that command further research if economics is to be taken seriously, all characteristics of the power of corporate capital, which I call the “elephant in the room” in discussions of diverse subjects in current affairs: the corporation is the dominant institution of our time, is inherently irresponsible, is inherently unstable, is dominated by short-term vision, fosters income and wealth inequality, seeks to turn everything into commodities in service to profit, and is undemocratic.

    And about “shareholder primacy”, an ideology addressed and criticized in the article, Milton Friedman’s (and others’) advocacy of this ideology completely disregards the long history of the corporation as a government-chartered institution — a creature of the state — which charters often explicitly stated the public responsibilities that went with the charter. As the author discusses:

    “[The corporation] is unowned. In this sense it is akin to a nation state, the church, most universities, and, at least here in the US, most towns. It would be odd to describe any of those bodies as being owned by the people who animate them. Yet we routinely talk of firms being owned by stockholders. It is this misattribution of ownership that leads most economists astray in their theorizing.”

    Agreed and worth repeating again and again until we can construct a new orthodoxy in the field of economics. Radford’s is an informative article that I recommend to all.

    • Craig
      January 14, 2019 at 7:04 pm

      “[The corporation] is unowned. In this sense it is akin to a nation state, the church, most universities, and, at least here in the US, most towns. It would be odd to describe any of those bodies as being owned by the people who animate them. Yet we routinely talk of firms being owned by stockholders. It is this misattribution of ownership that leads most economists astray in their theorizing.”

      Indeed. And the best way to remedy this mis-attribution is to vouchsafe and directly GIVE/GIFT the most potent factor in a monetary economy, i.e. money, “into the many hands of the individual” ….at a point in time in the economic/productive process (retail sale) where it will have maximum problem resolving and beneficial effect.

  2. Mike Ryan
    January 14, 2019 at 5:49 pm

    An Economist is an unknowing participant in the war between the corporate life form and the human race. Economists are trained similar to priests when it comes to their faith. They suspend all rational thought in order to think like an economist – just like how shamans think like a witch doctor who’s primary role is to confuse the common person and hold power over society. They have become part of corporate group think thought police work force, filling people’s minds with confusion.

    Micro economics is honestly about balance sheets and income statements. Why don’t economists ever weigh in on why intellectual property is on a balance sheet? Because corporations like intellectual property valuations. These entries hide the fact that the corporation is in a negative net equity position. Look at Mylan’s balance sheet. After cannibalizing other firms through re-capitalizations ala leveraged buy outs, their balance sheet shows a sick puppy with billions of dollars of “goodwill”. You can see it in Mylan’s annual report when they talk about “Adjusted Earnings” instead of real earnings. What a bunch of crap. Goodwill has financial value as it is a projection of future earnings. Projections do not belong on a balance sheet. If you don’t have a contract that is enforceable in court – future items do not belong on the balance sheet. Bonds are based upon an enforceable contract, that is why they are on the balance sheet as liabilities.

    Orwell would be surprised that the thought police exist in democratic societies. Between economists, conservative think tanks and opinions hiding in your news broadcast, most people don’t stand a chance. Wake up America – your deficit is going to kill the golden goose for the temporary benefit to the corporate life form and the symbiotic management team.

    Corporations are to the executive as horses were to the Comanche Indians that owned the west. If you ride your horse too hard you will kill it. We see this happening when the firms bloated with take overs fall over and die. Remington, Toys R Us, WorldCom, etc..

  3. EDWARD K ROSS
    January 14, 2019 at 8:31 pm

    As I have often stated my only education was a humble B A and life in the real world of real people. Somehow as an earlier supporter of the French students revolt in 2 000 in PAE I was invited to the Economics for the Future conference at Cambridge U.K. At the conference on the one hand I met some great people such as Geoff Harcourt, Tony Lawson and Deirdre McClosky who made an awful lot of sense to me. On the other hand I found it disappointing to find two themes constantly regurgitated they were that poor productivity was the result of uncooperative shirking workers, without any criticism of management. T he other was constantly repeated mantra that sole responsibility of management was to reward shareholders.

    From this background I find Peter Radford and the comments something like a breath of fresh atr on an otherwise questionable dismal science.Ted

  4. Helen Sakho
    January 15, 2019 at 1:35 am

    Mainstream Economics has failed to acknowledge that it is slightly related to other social sciences. It acts as if it has nothing to do with society or real experience. So, any comments and analyses that make the big elephants in rooms (globally) to vanish forever and free all the horses for good, and let us all live without destroying others (the earth and what it contains) are deeply welcomed by me. Perhaps the more progressive Economists can get together and develop a new beginner’s text book.

  5. January 25, 2019 at 10:19 am

    The main problem with economics isn’t, as some of its critics suggest that it depicts a make-believe economy mostly unrelated to the “real” economy. Rather, the main problem with economics is that it depicts a make-believe economy that is not consistent with the multiple make-believe economies and parts of economies actors create. It’s not a real-unreal problem, but a struggle over which make-believe economy ought to be “in charge.” The creators of banks, firms, charities, oil drilling, wind turbines, textiles, etc. have not shown themselves willing to disrupt their lives and status in favor of a few thousand economists and their silly theories. They pretend they respect and work with economists. But it’s only pretense.

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