Nothing new here. If you read The Big Short (a readable must read if you are even remotely interested in finance and economics) you will see how that was achieved. What caught my attention was the characterization of Goldman Sachs as a kind of city-state. This city as a corporate state is hardly new. Most of the geography of Europe in the middle ages was made up not so much of countries as they were of cities that governed as sovereign states. These cities had viable economies, armies and many of the amenities of larger political units. Why did the city-state fall? Trade was one reason. These unites required a larger market than could be provided by the city itself. In order to enter into larger trading associations, alliances were required to allow commercial relations to grow. If you are going to settle promissory notes, bills of lading, insurance contracts and the like with neighbors outside the city walls you had better know them pretty well. Soon cities were enlarged to encompass larger areas that later became political entities in their own right (see Italy and Germany). These larger areas had a commonality of race, culture and other factors that allowed city-states to give up some if not all of their power to a larger geographic entity.
What’s this have to do with corporations? City-states were the first corporations. They had an entirely corporeal (like a person) existence as a governing body. They were more than the local war lord defending his turf. The first corporations known as joint stock companies were more partnerships than modern day corporations. When the corporation came of age was when shareholders were insulated from the liabilities of the corporation. Its separate existence was now enshrined in law. A corporation is now, for most legal purposes, a person.
So, how does this relate to Goldman Sachs? I am reminded of the old scary movies where Frankenstein is created as a sort of man-zombie that wreaks havoc on the citizenry. Frankenstein was created in good faith in order to demonstrate that life could be created other than through normal channels. So, corporations have been created that reach out to every corner of the earth and sometimes wreak havoc too. They are fast becoming entities that are beyond the reach of any one country. At a stroke of the pen they can exit and economic and enter another so as to minimize its world tax burden. They can also do immeasurable good by providing employment and products that can raise the standard of living throughout the world. But they are fast becoming a law unto themselves. While the United Nations and the International Criminal Court have far reaches as regards individuals it has very limited reaches in reigning in corporations. Corporations are rarely charged with crimes and even if their senior executives are, they are charged with crimes committed personally while in the employ of the company. Some corporations such as AGI and General Motors are too big to fail.
Don’t mistake this as a rant for big business. It is not. But society has to create a way to deal with large corporations so that they are the servant not the master of the governments that house them. Otherwise they continue to be Frankensteins with the power to wreak havoc.
That is why Goldman Sachs continues to grow in the face of what amounts to predatory commercial practices. A corporate Frankenstein.
Bernie
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