Markets and the Good   /   Fall 2023   /    Thematic: Markets and the Good

Profit, Power, and Purpose

Rethinking the Modern Corporation

Michael Lind

Illustration of debt and borrowing, 1937; photograph © GraphicaArtis/Bridgeman Images.

Americans of the left, right, and center are increasingly hostile to big corporations—but not for the same reasons. Many on the left are deeply uncomfortable with capitalism as such—that is to say, with corporate profit. In contrast, the populist right has turned against “woke” corporations that support transgender ideology, affirmative action, and other public policies conservatives oppose. But this is an objection not to corporate profit but to particular exercises of corporate power. Finally, as a response to US deindustrialization and the rise of China’s industrial and military power, there is growing bipartisan support for economic nationalism and industrial policy, particularly among national security experts in both parties. Here the criticism involves corporate purpose: Should American corporations, by investing or manufacturing in China, build up the economy of a country that is increasingly seen as America’s major rival in the world?

On examination, none of these three critiques can be limited to big corporations. Critics of capitalism are even more likely to disapprove of small businesses, which tend to pay their workers less than big firms and tend as well to be among the fiercest opponents of minimum wage increases, unionization, and other proworker measures. For their part, conservatives are no more likely to approve of progressive virtue signaling and policy advocacy when it is done by small firms instead of large ones. And when it comes to economic nationalism, small- and medium-sized companies as well as national and global behemoths often outsource their manufacturing or service jobs to China and other low-wage countries. Many small businesses, especially in resource-intensive industries such as construction, depend on cheap imported intermediate goods. In other cases, they act as suppliers in global supply chains orchestrated by multinational corporations.

What, then, explains the widespread uneasiness toward big business in today’s America? In 2017, only 21 percent of respondents to a Gallup Poll said they had “a great deal” or “quite a lot” of confidence in big business. Contrast that finding with a 1950 poll in which 60 percent of Americans said they had a favorable view.11xCited by Robert D. Atkinson and Michael Lind in “Is Big Business Really That Bad?,” The Atlantic, April 2018,

Clearly, nostalgia for a preindustrial America of small farms and small shops cannot explain these changing numbers. The pro–big business Americans of 1950, many of whom had grown up on farms, were much closer to the world of rural production than today’s American skeptics of big business. Nor is big business an unfamiliar, alien force. Most Americans in the private sector today work for firms with more than 500 employees. In 2022, small businesses (defined as firms with fewer than 500 workers) employed only 46.4 percent of all private sector workers. And of these, only 16 percent were small businesses as most people might define them, with 1 to 19 employees. The rest were “small” only in a statistical sense, with 20 to 499 employees.22xKelly Main, “Small Business Statistics of 2023,” Forbes, December 7, 2022, See generally Robert D. Atkinson and Michael Lind, Big Is Beautiful: Debunking the Myth of Small Business (Cambridge, MA: MIT Press, 2018).

Americans in the private sector workforce, then, are much more likely to be employed by large firms today than they were in the 1950s, when the popularity of Big Business peaked. Could it be that big firms treat their employees worse today than they did in the mid-twentieth century?

There is no doubt that since the 1980s, big American firms have sought to cut costs at the expense of labor. Such efforts, supported or tolerated by politicians in both parties, have undermined private sector unions, whose members have declined as a proportion of the workforce from around 33 percent to 6 percent. One result has been the end of wage compression brought about by collective bargaining, in which newer workers’ pay often equals or even surpasses that of more senior workers, and, in general, greater wage inequality within firms and across industries. Another cost-cutting measure that has been resorted to by many employers is to forsake employee pensions in favor of 401(k) private savings accounts, thereby shifting the risk of insolvency or low income in retirement from firm to worker.

At the same time, American companies of all sizes have used techniques such as replacing employees with outside contractors, imposing noncompete agreements that prevent workers from going to work for rivals of a former employer, moving facilities to antiunion right-to-work states or to other countries, and taking advantage of low-wage legal immigrants, nonimmigrant “guest workers” (who in effect are indentured servants), and illegal immigrant workers.33xMichael Lind, Hell to Pay: How the Suppression of Wages Is Destroying America (New York, NY: Portfolio/Penguin, 2023).

All of these strategies by employers have reduced the ability of workers in the United States to bargain for higher wages. But none of these techniques are limited to big firms. On the contrary, small businesses tend to be the worst offenders. Small farmers and ranchers, and households employing maids, for example, are much more likely to employ illegal immigrants than Fortune 500 companies. And whenever higher minimum wages, universal paid leave, vacation time, or prounion reforms are proposed, advocates of small business are their most vehement opponents.

In other words, it is true that, compared to the 1950s, big firms overall are worse places to work in the 2020s—but precisely because big firms have become more like the often-bad small firms of both eras. Big Business may have gotten worse over the last seven decades, but many small firms are as ungenerous as ever, from the point of view of workers seeking high wages, generous benefits, and time off for family.

None of this is meant to suggest that the corporation does not pose real challenges for twenty-first-century American democracy. But the challenges come not from big corporations only but from the nature of the modern American corporation itself, whether it is large or small.

The corporation in its present form is only a century and a half old. From the Middle Ages up to the nineteenth century, most corporations in Europe and European lands of settlement like North America were government-chartered monopolies that usually had a single public purpose—for example, a toll bridge, canal, or municipal waterworks. These early corporations were like modern public utilities, and for the most part they were restricted to pursuing a single line of business by the language of their royal or legislative charters.

In the first half of the nineteenth century, a populist movement led by President Andrew Jackson opposed widespread political corruption involved in purchasing charters from state legislatures in the United States. Jacksonians adopted, at the state level, “general incorporation” statutes, which required that a new corporation merely register with the state government rather than obtain “special incorporation” by means of a bill passed by a state legislature or Congress.

At the same time, corporations in general were granted the right of limited liability—traditionally a privilege reserved to governments. In the business context, limited liability means that creditors can be compensated only out of the assets of the corporation, not out of the personal assets of shareholders or managers. Without limited liability, companies would have tended to remain closely held, cautious partnerships among small groups of people who trusted each other. The enormous agglomerations of capital, often from anonymous, far-flung investors and bold, risk-taking by entrepreneurs—the very actors who made the US economy into the capitalist system we know today—would not have taken place.

The benefits of general incorporation and limited liability have been most evident in manufacturing, characterized by increasing returns to scale (in which output outpaces increases in input), and telecommunications and infrastructure, from railroads to electric and water utilities, characterized by network effects (in which a service grows in value as more people use it). Because larger enterprises or networks are more efficient in industries such as these, there is a natural tendency toward monopoly or oligopoly, even in the absence of conspiracies against commercial rivals.

The growth of monster industrial corporations and infrastructure corporations has helped consumers, who have benefited from falling prices as a result of mass production, as well as governments in wartime, when national manufacturing can be converted to military use. But the prevalence of natural monopolies or oligopolies in some of the richest sectors was, for many years, a problem for workers, who as individuals had little or no bargaining power when it came to setting the terms of their employment with giant firms. In the mid-twentieth century, the solution in the United States was what economist John Kenneth Galbraith called “countervailing power”: a system in which different groups checked one another’s power. Helped by the need for labor peace during World War II and the early Cold War, and exploiting the vulnerability of centralized manufacturing and infrastructure corporations to strikes, labor unions compelled employers to engage in collective bargaining over wages and benefits. As a result, many corporations were compelled to share more of their profits with their employees for a generation after 1945.

The question of corporate political and social power remained—as it does today. In the United States, federal courts have opposed efforts to limit corporations’ spending on political campaigns or media propaganda on the grounds that such efforts are compatible with free speech—in this case, the free speech of corporations considered as artificial legal persons. Yet the fact that corporations are creations of government charters and beneficiaries of the government privilege of limited liability should make them subject to, not immune from, governmental oversight, particularly as it concerns the public good. Governments, in other words, should be able to impose any regulations on corporations that they see fit, including restrictions on corporations’ role in politics and public debate.

The greatest challenge presented by modern corporations, small as well as large, involves purpose—specifically, the alignment of their activities with one or another public purpose. In premodern corporations, this alignment was inescapable.44xFor a discussion of the history of the public purpose of corporations, see David Ciepley, “Wayward Leviathans: How America’s Corporations Lost Their Public Purpose,” The Hedgehog Review 21, no. 1 (2019): 68–85, A chartered turnpike monopoly existed to build and operate a public toll road; the private profits of its operators were clearly subordinate to its public mission, as spelled out in its charter.

Today, by contrast, for the price of registering and paying fees online, in most states anyone can create a corporation. There are no limits on what the new company can do. Today its directors might decide to sell umbrellas, tomorrow they may decide to go into the automobile or movie industry. If the company is a publicly traded corporation, then many of the shares will be held on behalf of individuals by mutual funds and the like, and the managers of such funds will be solely interested in the rate of return of particular firms, not their contributions to society. If it is more profitable for the corporation to get out of automobile manufacturing and go into an unproductive industry like online casino gambling, then most of its shareholders and lenders may approve, even if the price of profit is derelict manufacturing towns haunted by fentanyl addicts and lives around the world wrecked by gambling. And remember, this no mere ephemeral partnership; it is a potentially immortal legal entity enjoying the privilege of limited liability.

The problem with trying to align the profits and power of our hypothetical corporation with some public purpose by means of regulation is that corporations can easily evade regulations by means of geographic arbitrage, choosing a different state or country for a more permissive incorporation charter or a more lenient legal environment. It is difficult to overcome a “race to the bottom” in corporate regulation among the US states, because many state governments make “smokestack chasing”—luring corporate facilities or headquarters with low taxes and light regulations—central to their economic development strategies, as do many foreign countries in a globalized economy.

Another approach is to do a workaround of the modern corporation (as described in our example) by fostering alternative models of enterprise. In recent years, dozens of US states have authorized a benefit corporation, or B Corporation, a type of for-profit entity that includes benefits to its workers, the community, or the environment as part of its legally stated purpose. (The Patagonia apparel company and the Guardian Media Group are two examples of large B Corporations.) A related trend is the rise of the stakeholder theory of the corporation, which holds that even traditional corporations have obligations to workers and communities and not merely to their shareholders.

The problem with this approach is evident in the controversy over environmental, social, and governance (ESG) criteria used by some banks and mutual funds to screen potential investments in various companies. What are viewed by progressive bankers and investors as salutary practices—for example, subjecting all employees to “diversity training,” giving preference in jobs and promotions and board memberships to “underserved” races, genders, and sexual minorities, or promoting energy policies favored by environmental advocacy groups—appear to many conservatives and others to be the illegitimate hijacking of “woke” corporations and “woke” finance to impose policies on society that could never pass in democratically elected legislatures.

A more radical approach is to abandon the for-profit corporation altogether and rely on nonprofit or low-profit entities that resemble the government-chartered monopolies of the eighteenth and nineteenth centuries to carry out public purposes. In the United States, progressives and New Deal liberals were particularly creative in executing this strategy. As a legacy of “sewer socialism,” some cities have government-owned water or energy utilities, while nonprofit cooperatives manage others. The federal government has always had the power to create federal corporations, from the first and second Banks of the United States to the Post Office Department and the Tennessee Valley Authority and the Export-Import Bank, as well as government-sponsored enterprises such as Fannie Mae and Freddie Mac in the mortgage underwriting industry. Like the chartered monopolies of the past, publicly owned or chartered entities such as these tend to be limited to a single public purpose. And because that public purpose is clear, there is no danger that partisan ideological interpretations of the public good will be smuggled in via vague terms, as in the case of the B Corporation and ESG movements.

Having escaped the leash that restrained it for most of history, the corporation, large or small, is unlikely to be whistled back into the kennel. But modern societies can make general-purpose corporations less important by adopting different organizational breeds with a stronger alignment of private profit and power with public purpose.