Background
In economics and business, a corporation is a form of organization for conducting commercial or industrial enterprises. Corporations are legally recognized entities distinct from their owners and employees, characterized by their ability to own property, sue and be sued independently, and pay taxes.
Historical Context
Corporations have evolved significantly since their inception during the Roman Empire, where they were established for public works. The modern form of corporations began to develop in the late Middle Ages, particularly in the 17th and 18th centuries, with the founding of chartered companies such as the British East India Company. The Industrial Revolution later spurred widespread corporate growth, essential to modern economic structures.
Definitions and Concepts
A corporation is a collective entity recognized by law that is engaged in economic activities. It can:
- Sue and be sued
- Pay taxes independently of its members
- Exist beyond the lifetimes of its founders or current management
Public corporations are government-owned entities, often established to manage public utilities or infrastructure, while private corporations are businesses owned by private individuals or shareholders. Notably, not all companies qualify as corporations, a distinction primarily seen in different forms of business ownership and structures worldwide.
Major Analytical Frameworks
Classical Economics
Classical economists like Adam Smith recognized the profit-driven motive driving corporations, emphasizing their operation under free-market principles with minimal state interference, which led to wealth generation through efficiencies and innovations.
Neoclassical Economics
Neoclassical frameworks analyze corporations through the lens of production functions, profit maximization, and market structures (monopolies, oligopolies, etc.), focusing on optimizing allocation of resources and minimizing costs while maximizing shareholder value.
Keynesian Economic
Keynesian economics underscores the role of governmental oversight and regulation in ensuring corporations contribute effectively to economic stability and growth. It also considers the long-term impacts of corporate activities, including employment and investment in the economy.
Marxian Economics
From a Marxian perspective, corporations are viewed critically as instruments of capital accumulation and class stratification, perpetuating the divide between capitalists (owners) and workers, leading to inherent systemic inequities.
Institutional Economics
Institutional economists study corporations as integral parts of economic institutions affecting and being affected by social, political, and legal systems. This school explores how corporations evolve and adapt shaped by formal and informal regulations.
Behavioral Economics
Behavioral economists analyze corporate behavior through psychological theories, understanding organizational decision-making. They consider corporate governance structures and the ways cognitive biases can affect corporate strategies and policies.
Post-Keynesian Economics
Post-Keynesian perspectives focus on corporations in financial, labor markets, and broader economic environments, advocating government roles in stabilizing these spheres and addressing sometimes speculative and hazardous behaviors of large corporations.
Austrian Economics
Austrian economists champion individuals’ entrepreneurial activities within the corporate framework, where corporations are viewed as facilitators of innovation and market dynamism, essential for economic growth and value creation.
Development Economics
In development economics, corporations are often perceived through their potential contributions to macroeconomic growth, poverty reduction, job creation, and bringing in foreign investments, particularly in developing countries.
Monetarism
Monetarists focus on the influence of corporate transactions in the broader monetary system, highlighting their roles in influencing money supply, inflation rates, and aggregate demand within the economy.
Comparative Analysis
Different corporations’ structural variances (private versus public) influence their operational objectives and governance. Public corporations often emphasize policy goals and public welfare, whereas private corporations prioritize shareholder profits.
Case Studies
Evaluating instances like the transformation of General Electric into a multinational or the privatization of state-owned enterprises illuminate varied dynamics and outcomes in corporate functioning across sectors and geographies.
Suggested Books for Further Studies
- “The Modern Corporation and Private Property” by Adolf Berle and Gardiner Means
- “Corporation Nation” by Charles Derber
- “Giant Corporations in Major Transition” by Jeffery A. Smith
Related Terms with Definitions
- Multinational: A corporation operating in multiple countries, managing production or delivering services across borders.
- Public Corporation: A company whose shares are traded publicly, typically listed on stock exchanges, and subject to regulatory standards for corporate governance and disclosure.
- Private Corporation: A company owned by private individuals or entities, not traded publicly, often having different reporting and governance structures compared to public corporations.
