Corporations and Bad Externalities
Tibor R. Machan
In the controversial documentary The Corporation, a good deal is made of
the fact that corporations often produce what are called in economics
?negative externalities.? These are objectionable side effects of
productive activities, best exemplified by pollution but not restricted to
such obvious cases. The narrators of this program include among such
externalities the cost of military actions they consider required to keep
Middle Eastern oil flowing, the expense of building and maintaining public
highways that are used for driving the vehicles that companies produce or
use to transport their wares, etc.
There are many other allegedly negative features of corporate commerce
the program identifies but let?s just focus for a moment on negative
externalities. In many cases of such externalities they can be
internalized?companies can install equipment that treats waste so it
doesn?t become pollution. They can pay, via taxes or some other means, for
the military operations that may be required to keep secure the sources of
oil. They are also paying for the roads on which they transport their
products, via taxes or tolls or fees of some kind.
Nor are corporations unique in producing negative externalities. (By the
way, the program doesn?t deal with the fact that business corporations
also produce a good man positive externalities, such as information and,
of course, the beneficial impact of the products and services people
purchase from them.) We all produce bad side effects as we live our lives.
Individuals, just as companies (of individuals), drive about a pour soot
into the air mass. They dispose of waste routinely in such ways that it
becomes a burden on others, too, as when public water treatment facilities
are used to clean the water which has become contaminated by people.
In short, business corporations are nothing more than people who have
united to pursue certain economic objectives and in that pursuit produce
some positive as well as negative side effects, just as we all do as we go
about carrying out our various tasks in life. Only, of course,
corporations act in ways that have bigger, more obvious effects than
individuals produce in their disparate fashion. Such concentration of
impact is easy prey for complaint, lament, and ascription of insidious
In The Corporation, for example, several comments are made about how such
organizations are like killer sharks because they, like the sharks, have
innate attributes to make them act aggressively. In other words, according
to the producers of the program, corporations are innately driven to harm
people with the bad side effects they produce. This isn?t done
intentionally, deliberately. No, that is just the nature of the beast, or
so the producers contend, thus condemning them en masse.
In a way they are right but not as they would like to have us take it.
Just as we, human individuals, go about our various tasks in life and
produce bad side effects that we could dump on other people?I could take
my trash and instead of paying a company to dispose of it or treat it,
simply deposit it on my neighbor?s lawn or some other place where others,
not I, would be burdened by it?so companies often do go about their
activities in ways that dump burdens on others. But they need not do so.
It is the function of a sound, just legal system to identify clearly
enough each individual?s and each corporation?s legitimate sphere of
authority, wherein acting with impunity would be unobjectionable but
outside of which permission to act and dump would be required and would
have to be paid for. We all, individuals and groups of them, need to know
our sphere of sovereignty and this is part of what a legal order helps to
identify and protect. Negative externalities need to be identified and no
one may be empowered to inflict them on others.
Unlike the killer shark, which has no choice but to kill, individuals and
companies of them do have a choice to perpetrate dumping or abstain from
it. It may be difficult at times but it is not impossible. Contending that
business corporations have it in their very nature to dump their negative
externalities on unwilling others is to mischaracterize them quite