The 14th amendment to the United States Constitution states: All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. This amendment was put in place to protect the rights of newly freed slaves in post-Civil War America; however, it expanded the rights of corporations which previously could not own land, capital, or any other means of production. On May 10, 1886 the United States Supreme court ruled that corporations were “persons” under the law and thus protected under the Bill of Rights and the 14th amendment. Of the 307 cases brought before the court between 1890 and 1910; 288 were brought by corporations, 19 by African-Americans. Now land, capital, and labor can be owned, bought and sold by corporate entities (which is essentially capital itself).
What does this mean from an economic standpoint? The role of government is to issue the charter a business which serves as a model of how it will operate. The role of the corporation is to push profits to make as much as possible in any given time frame. One way to accomplish this is through externalities which Nobel-Prize winner Milton Friedman describes as “the effect of a transaction between two individuals on a third party who has not consented to, or played any role in that transaction.” The practice of externalization can be seen in the parts of the world that are promised economic growth by international companies that seek to gain profits and new markets, but what if there are no roads to the shopping centers? No actual capital in the form of buildings or skilled labor force? Does the corporation use its resources to put these things in place? In most cases the answer is no. They rely on the demand for economic growth to facilitate negotiations in supplying an infrastructure.
Sam Walton’s Wal-Mart is infamous for the practice of economically strangling communities across America. Aside from gender discrimination and union busting, they began putting up superstores. These warehouse facilities are huge plots that if Wal-Mart backs out would be next to impossible to lease or rent out as not many businesses have uses for buildings that size. Why would they back out? Some communities began to ask for more in the form of employee benefits and increases in local revenue streams via sales taxes. The places that have allowed these megastores to set up shop have been, by contract, kicking some of the sales tax back to the stores essentially charging customers a fee to shop there. So, why would a community agree to such terms? If Sam’s Club or Wal-Mart can’t set up in Long Beach, they will open a store in Lakewood. The effect of this is that Long Beach loses out on all sales tax while all of its citizens that are consumers of Wal-Mart products will shop in the neighboring city of Lakewood which would then boost its economy.
In this age of corporate bailouts maybe the role of government should be redefined to suit the shift of our economic system. Since it is a mixed system we can’t expect the mixture to remain constant if we want there to be change in the form of growth (even though there are times of recession). Socializing Social Security doesn’t seem like an all too terrible idea, nor does nationalizing banks, especially in consideration of what a free market is supposed to be. When a business is set up all hopes is that it prospers and if that for some reason fails to happen, the business fails and the people involved move on with experience and knowledge. These bailouts are turning out to be the external effects of a deregulated free market. Banks that have failed and are now asking our National government for assistance should be nationalized banks.