In Defense of Corporations, Tax Breaks, and Wal-Mart

by Jacob H. Huebert and Walter Block
November 24, 2008

Do big business and big government team up to rip you off? Of course they do. All the time.

Unfortunately, Roderick Long has taken that important insight and, in a new essay for the Cato Institute, twisted it into a misguided attack on “corporate power,” tax breaks, and Wal-Mart.

Let’s set the record straight on the correct libertarian view of these matters.

Before we do, we should note that Roderick Long is a leading libertarian theoretician. He was for several years editor of the flagship libertarian publication, the Journal of Libertarian Studies, and did a wonderful job in that capacity. He has written the best short defense of the libertarian anarchist position ever written. And not only is he a pure libertarian, he has made important contributions to technical philosophy

Still, with all due respect, we cannot agree with him on this occasion. Indeed, his importance as a libertarian philosopher makes his comments all the more alarming.

There Is No Such Thing as Corporate Power

Long writes that “Corporate power depends crucially on government intervention in the marketplace.”

But what does he mean by “corporate power”? A corporation is merely a group of individuals who have entered into a particular type of business relationship. The corporate form allows them to be known collectively by their business’s name instead of their own names. And it allows them to enter into contracts under which they limit their own liability – something which is perfectly legitimate under libertarianism. (Objectivist historian Robert Hessen has made this point well in his book, In Defense of the Corporation, and see our article, “Defending Corporations,” forthcoming in the Cumberland Law Review.)

The corporation, therefore, has no power to speak of.

Instead, only the state has power.

And, yes, sometimes the state uses its power to confer benefits, direct and indirect, on corporations. It also uses its power to confer benefits on partnerships. And sole proprietorships. And individuals. There is nothing special or different about government privileges for corporations – so why does Long single them out?

Maybe he just means that he doesn’t believe big businesses would succeed but for the state – he says as much elsewhere in the piece. If so, he should say so, because he appears to be attacking the corporate form in particular for reasons that aren’t clear.

In any event, his apparent view that big business needs the state to survive is unfounded. As it is, there are big businesses that don’t benefit much from government and there are small businesses that benefit greatly from government. In a fully free market, undoubtedly, large and small businesses would both survive, succeed, and prosper. Long’s assertions to the contrary are unfounded speculation.

There is a kernel of truth in Long’s viewpoint – some larger firms do use the apparatus of the state to steal an advantage over smaller competitors. As a matter of history, things work out this way more often than in the opposite direction.

But Long appears to assume that big firms should always gain at the expense of their smaller rivals. For example, when government sets up policies such as the Food and Drug Administration, or the meat inspection acts, which are ostensibly aimed at promoting consumer safety, but actually have the purpose, and the effect, of shielding large pharmaceutical and meat packing companies from competition by smaller firms. Or, when government imposes complex tax policies on business; large businesses have a competitive advantage in dealing with mountains of paper work, vis-à-vis their smaller competitors. (On this historical record, read Gabriel Kolko, Butler Shaffer, and Robert Higgs.) However, Long’s “big bashes small” is by no means a necessary facet of the mixed economy. There are numerous cases of relatively small businessmen bribing members of the state apparatus for favors, which put them at an advantage vis-à-vis all their competitors, large and small.

In the purely free-enterprise economy, only the market, that is, the decisions of producers and consumers, determines the size of firms. From the fact, however, that tiny grocery stores exist cheek by jowl with large corporations in this industry, we can deduce that there cannot be advantages for the latter that are so strong as to drive into bankruptcy the former, even in our mixed economy. Similarly, there are small restaurants that continue to serve the public, in the face of gigantic chains and franchises such as McDonalds, Wendy’s, Burger King, etc. Long gives us no compelling reasons why McDonald’s would go away but local hamburger stands would thrive if the state were to disappear. Presumably consumers will still value the convenience and consistent quality that entrepreneurs like Ray Kroc and Dave Thomas made possible – as far as we know, with minimal help from the state.

Tax Breaks Are Not a Government Privilege

Long goes further astray when he writes:

Tax breaks to favored corporations represent yet another form of government intervention. . . . [W]hen a firm is excepted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.

Later in his piece, Long even refers to tax breaks as a “government intervention.”

Long thus appears to share the leftist view that tax breaks for businesses or the wealthy are a “subsidy” – and he couldn’t be more wrong.

The libertarian view on taxation is that it is theft committed by the government. That means, when a person or a business avoids paying taxes, they avoid being stolen from. How can that ever be wrong?

If Jones installs a security system on his house, a thief who sees this will likely be deterred and will go next door to steal from Smith instead. Is Jones responsible for the theft of Smith’s stuff? Of course not – the thief is still the only guilty party.

So it is for corporations, other businesses, or individuals who avoid taxes. They are not morally responsible for the taxation of others.

It might be otherwise if corporations avoided taxes while actively urging the government to tax its competitors – but Long doesn’t mention that. Instead, he seems to believe that a tax break is per se a subsidy and therefore untoward. He’s wrong.

Wal-Mart (Mostly) Deserves Its Success

Long next suggests that Wal-Mart does not deserve its success – apparently because its success has occurred in our mixed economy instead of a hypothetical libertarian utopia.

At the outset, we will concede that Wal-Mart has been guilty of some serious wrongdoing over the course of its existence. For example, it sometimes has used eminent domain to take land for its stores, which is inexcusable. Also, it for a time favored the minimum wage law. See here Lew Rockwell’s incisive critique of Wal-Mart’s fall from grace in this regard.

But that’s not Long’s main problem with Wal-Mart. First, he criticizes Wal-Mart because its products are transported on public roads. He writes:

The funding of public highways through tax revenues, for example, constitutes a de facto transportation subsidy, allowing Wal-Mart and similar chains to socialize the costs of shipping and so enabling them to compete more successfully against local businesses; the low prices we enjoy at Wal-Mart in our capacity as consumers are thus made possible in part by our having already indirectly subsidized Wal-Mart’s operating costs in our capacity as taxpayers.

Apparently Long is blaming Wal-Mart for profiting from selling goods that were transported over government roads that already existed and were not built for Wal-Mart’s benefit. It is not at all clear what Wal-Mart could do to avoid criticism for this. What method of transporting goods isn’t subsidized?

Also, it’s not clear why government roads give Wal-Mart an advantage over local businesses. Perhaps Long is arguing that Wal-Mart wouldn’t be able to deliver goods to its stores but for the roads, and then local businesses (selling locally produced goods?) would remain in business.

But there is no reason to think that Wal-Mart – or some other big business – wouldn’t find other ways of delivering goods over long distances in a free market. Indeed, but for government intervention in the market for roads and transportation generally, it is entirely possible that there would be better, cheaper means for Wal-Mart to get goods to its stores. (We hope there would be – we admit we like the global division of labor and the cheap goods it brings.)

We hate to commit the tu quoque fallacy, but do not Roderick Long and his leftist confreres also use these vehicular thoroughfares? If so, this charge of his against Wal-Mart comes with particular ill grace from that source. And while there might be a hermit or a Rip Van Winkle who does not utilize statist streets and roadways, virtually everyone is “guilty” of this behavior – and the market for everyone’s products (even philosophy lectures) is distorted by the roads’ presence. It is surely a bit much to blame the long-suffering colossus from Arkansas for this policy. For an argument that Wal-Mart, and everyone else, would be better off, not worse off, if roads and highways were privatized, see here.

Long also claims Wal-Mart benefits from government intervention that keeps workers’ pay low and stifles would-be competitors:

[W]hat makes those low salaries possible is the absence of more lucrative alternatives for its employees – and that fact in turn owes much to government intervention. The existence of regulations, fees, licensure requirements, et cetera does not affect all market participants equally; it’s much easier for wealthy, well-established companies to jump through these hoops than it is for new firms just starting up. Hence such regulations both decrease the number of employers bidding for employees’ services (thus keeping salaries low) and make it harder for the less affluent to start enterprises of their own.

It is true that government regulations make life harder than it otherwise would be for new businesses. But Wal-Mart, of course, began as a small business, and prospered primarily because Sam Walton was more effective at serving consumers than his competitors – including established “big business” competitors, many of whom are now long gone – despite government regulations that disadvantaged him.

Long therefore is criticizing Wal-Mart for surviving despite government’s attacks upon it. We find this morally obscene.

Those Poor Unions

Long also laments that our hampered free market doesn’t give unions enough power. He writes: “Legal restrictions on labor organizing also make it harder for such workers to organize collectively on their own behalf.”

Given that the law allows some workers to not only organize themselves but also coercively organize others, it’s not clear what Long is talking about. To support his claim, he cites a blog post which laments that U.S. labor laws do not go far enough. We should support current labor laws, says Long’s source, but ideally we will return to the days of more “militant” unions.

You remember “militant” unions – the kind that used to (and, well, still do) beat and kill workers who do not cooperate with them. Long and his “comrade,” of course, make no mention of the unions’ bloody history.

Unions are like a tapeworm on the economy, sucking sustenance out of businesses. The entire rust belt is a result of unions demanding wages higher than worker productivity. The present problems of the Detroit Three (Ford, Chrysler, General Motors) are mainly dues to their foolishness in not withstanding the unwarranted demands of the United Auto Workers. But, Long can rejoice: under an Obama administration, these economic scourges are likely to obtain even more power.

Conclusion

It is highly unfortunate that some libertarians align themselves with the right; it’s no better that Dr. Long apparently wants to adopt the ideas and rhetoric of the left. Libertarians should win with their own ideas, on their own terms, and avoid pandering to statists of any stripe.