In the United States the statement is often heard, that “corporations are private businesses, so they can do whatever they want.” This assertion is particularly false when referring to entities like Facebook, Amazon, Exxon, and Pfizer, because…
the phrase goes directly against a basic knowledge of the history of incorporation — corporations were originally designed and granted special legal privileges by government, only because they were expected to serve a pubic good.
the phrase goes directly against the dictionary definition, and investment industry terminology — a public company is defined as a company whose shares are traded freely on a stock exchange, hence the term IPO (initial public offering).
the phrase ignores real-world government involvement—many large corporations are state and federally sponsored (e.g. subsidized, bailed out, and given perks), by money which ultimately comes from the tax-paying public.
In reality, all big corporations are some combination of state-chartered, publicly-traded, and government-sponsored. By definition many are public companies, while others have complicated hybrid characteristics.
Public company (also public corporation): “a company whose shares are traded freely on a stock exchange.” Oxford American Dictionary
DEFINING BASIC TERMS
First, we must pedantically review basic business world vocabulary, because these terms are being manipulated and used in corporate propaganda, which the uneducated public then mindlessly parrot…
THE PRIVATE SECTOR: “the part of the national economy that is not under direct government control.” Oxford American Dictionary.
A private company (also private corporation) is one which the owners have not sold to the public, and so they retain more control over the business. For example Cargill, Koch Industries, Bloomberg (corporations) and the coffee shop down the street (sole proprietorships) are private companies. These are state regulated. They are not required to disclose financial information to the public, since the public do not have ownership in them. See this list of America’s largest private companies, as well as an overview of the term on Investopedia.
A public company (also private corporation) is one which the owners have sold to the public, and in doing so do not retain full control over the business. For example Apple, Goldman Sachs, and Chase are public companies. These are state regulated, and required to submit financial statements federally to the SEC which are made available to the public. See this list of America’s largest public corporations, as well as an overview of the term on Investopedia and Wikipedia.
A quasi-public corporation (also public service corporation) is a hybrid entity, it may have started as a government agency, and still has a public mandate to provide a certain service, but it has spun off from government management and may now have publicly-traded shares. For example Sallie Mae, Fannie Mae, and the U.S. Postal Service. See an overview of the term on Investopedia and here.
THE PUBLIC SECTOR: “The part of an economy that is controlled by the government.” Oxford American Dictionary.
A government agency is part of government workings, like the FBI, SEC, or USPS. See an overview of the term on Wikipedia.
A statutory corporation (also state-owned enterprise) is state or federal chartered business, with the government holding significant ownership. For example Boy Scouts of America, FDIC, and Federal Reserve Banks. See an overview of the term on Wikipedia.
Note that just because a corporation is in the private sector, meaning not directly controlled by the government, does NOT mean it is a private company—because although not owned by the government, it may be owned by the public. And with this, we get into an analysis of the disinformation…
The real definitions we just reviewed are straight forward enough, so where does this made-up definition come from? The fact is, this peculiar idea that public corporations are “private companies” is found nowhere — not in the dictionary, not online in Investopedia nor Wikipedia, and certainly not in industry. In my 20+ years experience in the corporate world, I’ve never heard those of us on the inside refer to an Amazon or Boeing as “a private company,” rather this misnaming seems to echo around the general public space. So how did it get started?
It’s propaganda, dating back to Friedman corporatism of the 1970s, which altered the view of public corporations—from serving a public good—to being thought of as “private entities” only serving shareholder profits (while coyly ignoring that the public are shareholders). Today the phrase comes from corporate and political activists (e.g. Coke public relations, corporate media brands like CNN/FOX, and corporate propagandists like Ben Shapiro) looking to fool the more economically uneducated members of society, particularly those without corporate-world experience. From there, these false ideas spread throughout the disinformation sphere (i.e. the internet), and get parroted by liberals and conservatives alike, apparently without anyone thinking to check the basic logic of the assertion.
Strategically speaking, the propaganda works by conflating corporatism with capitalism — that is, by mixing up large state-sponsored public corporations wielding massive oligopic market control, with small private companies operating in competitive free-markets. It often uses a false-binary word game, where it claims “if a corporation is not in the public sector,” then “it must be a private company,” and thus “can do whatever it wants.” It then adds-on more false-binary nonsense; that “if the corporation cannot do whatever it wants,” then “it must be socialism.” But in economic reality, we are talking about public companies operating in the private sector, and it’s neither capitalism nor socialism but corporatism.
Like all good propaganda it is “sticky,” a thinking person can easily falsify it, as I have done, yet people will continue parroting it. In fact, even those who are direct victims of corporatism—e.g. members of the public censored off the internet by public corporations, which they own shares in, and contribute tax dollars to subsidize—will defend the corporation’s “right” to “do whatever it wants, because it is a private company.” This really illustrates the power of propaganda, and why corporations invest so heavily in it.
WHAT ACTUALLY ARE S&P500 CORPORATIONS?
A corporate charter gives birth to a legal entity, and certain special privileges granted by the state that come along with that personhood, such as limited liability and a perpetual lifespan. Charters used to also come with heavy restrictions, although not so much anymore.
For example, startups often want to be C-corporations to shield themselves from liability and to gather investors, and so they need a state charter. Later, if the startup is successful, it can either remain a private company, or IPO and become a public corporation. Eventually some small number of these startups will become big S&P500 public corporations like Apple, or big private corporations like Koch Industries.
But wether public or private, corporations were originally only granted special legal privileges by government, conditional on them serving some PUBLIC good. With special rights came special restrictions, and their operations were periodically reviewed for compliance with their stated purpose. However, over time the system of incorporation has been altered by corporations themselves, such that the benefits of state-grants have been kept, while the responsibilities discarded.
The point is, even when discussing private corporations, they are still operating by permission of the state, and in no sensible society would the local government grantor allow these entities to “do whatever they want” to the public (who in turn fund the government). The stakeholders are hit with the negative externalities (i.e. costs passed off to the public such as environmental destruction, privacy violations, censorship, pharma addiction, and metabolic diseases), which are the exact opposite of a public good.
Once a state-chartered corporation sells itself to the public (IPO), we refer to it as publicly-traded, and thus a public corporation. The corporation sells equity (i.e. ownership of itself) to the PUBLIC, in exchange for cash to pay off early investors and fund operations, and in doing so gives up some control.
Or at least that is how it’s supposed to work under functional capitalism. But today’s public corporations have cunningly maneuvered to create a bizarre reality where they are able to “eat their cake, and have it too”—they take money from the public, 50% of whom own stock in the S&P500, often via their retirement plans—yet these owners get no control. It has become an absurd situation where the corporations hit their own owners, the public, with negative externalities, while these owners are unable to do anything about it.
For example, the public owners get banned off media platforms by the tech industry, sold bogus products by the banking industry, and extorted by the healthcare industry…all to “maximize shareholder value.” The shareholding public then receive both a negative externality, and a financial return that was generated on that externality. But the financial payout can not buy back what was lost. The public are told if they don’t like the situation they should “vote with their wallet,” but they already did, by owning these public corporations! The whole thing; cannibalization of the public, who are investors, for profit maximization to investors, makes no sense.
While this gets into the complexities of corporate governance (e.g. controlling interest, dual-class shares with different voting rights, and minority shareholder rights), the point is calling publicly-traded corporations “private companies,” when they have sold themselves to the public, is absurd and simply false.
The largest corporations are often government-sponsored. After all, these entities are chartered by a state, with a “dotted line” to the federal government, and so they can receive special treatment from both. This happens because state governments compete to lure big corporations, the federal government offers support to make them competitive abroad, and with time both state and federal government can end up captive of corporate power.
Government subsidizes corporate operations using direct cash transfers, and indirect methods such as tax exemptions and welfare for low-wage employees. Examples of subsidies include tax preferences for the oil and renewable energy industries (Exxon, Tesla), direct agricultural subsidies (Archer Daniels Midland), wage subsidies (Wallmart, McDonald’s), and cash bailouts during the Great Recession (AIG, General Motors, Bank of America).
Estimates vary depending on how subsidies are calculated, but some estimate the annual “corporate welfare” at $50B state-level, plus $100B federal-level, making these large corporations financially supported by PUBLIC tax dollars. If we include items such as the 2008 bailouts, and 2017 corporate tax cuts, both of which were funded by pubic debt, we get much larger numbers.
Government also sponsors big corporations using complicated financial schemes such as quantitative easing, zero interest rate policy and corporate tax cuts, all of which have ballooned corporate profits and valuations, while also ballooning public debt.
The government also looks the other way, or even assists in the establishment of, oligopolies and monopolies. These are found in many industries within the S&P500; traditional media, social media, internet search, banking, auto, airline, pharmaceutical, cellular, oil and gas. The government can be persuaded to look the other way (e.g. with the tech oligopoly), if it receives a benefit from the concentrated market structure (e.g. access to data on the citizenry).
The point is, these mega corporations receive significant state and federal government support, which is funded by the public via tax payments. Yet the propaganda says these are “private” entities, and the public get no say.
SUMMARY—CORPORATIONS ARE COMPLEX ENTITIES, WITH CONNECTIONS TO GOVERNMENT AND OBLIGATIONS TO THE PUBLIC
Putting it all together, we see that large corporations, both the public and private varies, are complex entities with obligations to the public and connections to both state and federal governments.
In summary, all corporations are state-chartered; given special privileges by the state, which used to be conditional on them serving some public good. Public corporations are directly owned by the public via equity shares. And large corporations are the beneficiaries of both state and federal sponsorship, which includes subsidies funded by the tax paying public.
Yet these state-chartered, publicly-traded, and government-sponsored entities tell the public they “get no say” because they are “private companies.”
Hockett et al. (2018, August 15). Letter on the Original Purpose of the Corporate Privilege. Cornell Law School. [Note this is not my endorsement of Warren, it’s just a good summary of the history of incorporation law]
Rosenthal, S. Austin, L. (2016). The Dwindling Taxable Share Of U.S. Corporate Stock. Tax Notes. [Note figure 1, the largest holders of public corporate stock are retirement accounts]
Wikipedia contributers. Corporate Welfare. Wikipedia, the Free Encyclopedia.
Wikipedia contributors. America’s Largest Public Corporations. Wikipedia, the Free Encyclopedia.
Forbes contributors. America’s Largest Private Companies, Forbes.