Liberal Theories of the Corp and Global Capitalism

Libertarian Theories of the Corporation and Global Capitalism

ABSTRACT. Libertarian theories of the normative core of the corporation hold in common the view that is the responsibility of publicity held corporations to return profits to shareholders within the bounds of certain moral side-constraints. Side-constraints may be either weak (grounded in the rules of the game) or strong (grounded in rights). This essay considers libertarian arguments regarding the normative core of the corporation in the context of global capitalism and in the light of actual corporate behavior. First, it is argued the weak side-constraints view is conceptually incoherent when applied in a global context. Second, it is argued that proponents of the libertarian strong side-constraints view lack an adequate theory of rights. Third, both the weak side-constraints view and the strong side-constraints view are shown to be unsatisfactory insofar as they fail to adequately address the coercive power of corporations. The main conclusion of this essay is that a viable libertarian theory of the corporation has yet to be articulated. KEY WORDS: capitalism, coercion, democracy, Ecuador, Friedman, Gewirth, globalization, libertarian, Lomasky, Multinational corporation, rights, Texaco

Denis G. Arnold is Assistant Professor of Philosophy at the University of Tennessee, Knoxville. He is a past fellow of the National Endowment for the Humanities. His work in ethics and business ethics has appeared in History of Philosophy Quarterly, American Philosophical Quarterly, Business Ethics Quarterly, and other publications. He is co-editor of Rising Above Sweatshops: Innovative Management Responses to Global Labor Challenges (Praeger, 2004).

Denis G. Arnold

Multinational corporations (MNCs) are extraordinary powerful actors on the global stage, and their influence in increasing. During the 1980s and the 1990s, and into the 2000s, there was a remarkable increase in foreign direct investment (FDI) on the part of MNCs. Between 1985 and 1990, FDI increased at an annual rate of 30%; and between 1992 and the late 1990s annual flows of FDI nearly doubled to $350 billion.1 This increase in FDI is one indicator of the steadily growing economic and political influence of MNCs in what political economist Robert Gilpin has termed “the age of multinationals.”2 MNCs frequently conduct business in host nations where it is lawful to engage in practices that most North American and Europeans find morally abhorrent. Frequently the lax regulatory environment stems from a desire on the part of host nation governments to attract FDI. Critics of MNCs abound.3 Nongovernmental organizations (NGOs) lead systematic campaigns to counter what they regard as the disproportionate influence of MNCs over public policy at all levels of government. In addition, NGOs charge MNCs with environmental degradation, disregard for the welfare of home-nation employees, and the exploitation of offshore factory workers. MNCs and their defenders argue that it is both the right and responsibility of MNCs to exert influence over public policy as part of the democratic process. Further, they argue that increases in FDI are improving social welfare in developing nations though technology transfer and job creation. Underlying such arguments are normative claims about how MNCs should conduct themselves in the global marketplace. The question of whether or not there are universal moral norms that should serve as

Journal of Business Ethics 48: 155–173, 2003. © 2003 Kluwer Academic Publishers. Printed in the Netherlands.

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minimum standards for MNC conduct across national boundaries has received a significant amount of attention from ethicists.4 However, libertarian theories regarding the “normative core”5 or “core normative conception”6 of the corporation have not previously been evaluated in the context of global capitalism. According to Thomas Donaldson and Lee Preston, normative theories of the corporation are “used to interpret the function of the corporation, including the identification of moral and philosophical guidelines for the operation and management of corporations.”7 While recent discussions of normative conceptions of the corporation have taken place mainly within the context of debates concerning stakeholder theory, the idea of a normative core of the corporation is fundamental to any theory of the corporation insofar as the theory recommends the pursuit of particular ends. Libertarian theories of the corporation hold in common the view that is the obligation of publicly held corporations to maximize profits for shareholders within the bounds of certain moral side-constraints. The most well-known defender of a libertarian conception of the corporation is Milton Friedman, whose stockholder theory of the corporation remains influential despite having been subjected to significant criticism.8 Theorists such as Elaine Sternberg and Tibor Machan have defended their own distinctive libertarian theories of the conduct of business.9 More recently, Edward Freeman and Robert Phillips have sought to articulate a libertarian stakeholder theory of capitalism.10 While the distinctions between an economic system, such as capitalism, the conduct of business, and the conduct of corporations are important, it is possible to extract from these views a general normative core – more properly, two general normative cores – of multinational corporations.11 The purpose of this essay is to assess these theories.12 The following section of this essay provides an overview of libertarian theories of the corporation and distinguishes between two distinct strands – the weak side-constraints view and the strong side-constraints view – of libertarian thinking about the core normative conception of

the corporation. Later sections explain and critically assess both strands of libertarian thinking regarding the normative core of the corporation. This essay is distinctive in at least two ways. First, libertarian arguments are considered in the light of actual corporate behavior. In particular, libertarian arguments are applied to the case of Texaco’s oil extraction operations in Ecuador. Second, libertarian arguments are analyzed in the context of global capitalism, rather than merely in the context of American capitalism as is normally the case. The arguments of this essay lead to the following conclusions. First, the weak side-constraints view is conceptually incoherent when applied in a global context. Second, proponents of the libertarian strong side-constraints view of the normative core of the corporation lack of adequate theory of rights. Third, both the weak side-constraints view and the strong sideconstraints view are unsatisfactory insofar as they fail to adequately address the coercive power of corporations. As such, the main conclusion of this essay is that a viable libertarian theory of the normative core of multinational corporations has yet to be articulated.

I. Libertarianism A reading of prominent twentieth-century libertarian theorists such as Friedrich A. Hayek, Robert Nozick and Friedman, yields a core set of libertarian doctrines.13 These include individualism, the idea the individual persons, rather than the community, should be regarded as the basic unit of social analysis; self-ownership, the view that individuals should be free to decide what is best for themselves so long as they respect this same freedom in others; free markets, the view that government intervention in market exchanges should be minimized in the interest of freedom and economic prosperity; and the minimal state, the view that the coercive influence of government should be severely restricted so as to ensure that the self-ownership of individual persons is maximized.14 Libertarian theories of the corporation may be derived from the explicit normative theories regarding the conduct of business defended by

Libertarian Theories of the Corporation and Global Capitalism theorists such as Friedman and Machan, in conjunction with an analysis of core libertarian doctrines. Libertarian theories hold in common the view that it is the responsibility of publicly held corporations to return profits to shareholders within the bounds of certain moral side-constraints.15 Moral side-constraints are blocks or restrictions against actions and they may be either weak or strong. A weak side-constraints view will require relatively few restrictions on corporate actions, whereas a strong-side constraints view will require significantly more restrictions. Proponents of weak side-constraints ground these constraints in the rules or norms presupposed by the activity itself. For example, Sternberg maintains that “The principles of business ethics are simply those that are presupposed by the definitive business activity: maximizing long-term owner value by selling goods or services.”16 In this view, moral-side constraints are grounded in notions of fair play. Actions that do not violate the “rules of the game” are permissible whereas actions that violate those rules are not. Proponents of strong side-constraints such as Nozick and Loren Lomasky17 ground side-constraints in fundamental rights. Rights may be either negative or positive. Negative rights constitute shields against the unjust violation of individual freedoms. Positive rights, on the other hand, constitute entitlements to things that are necessary for the exercise of individual freedom. As social institutions whose continued existence is predicated upon stable civil societies, corporations are properly subject to the duty to respect the basic rights that serve as the foundation for such societies. In this view, actions that do not violate basic rights are morally permissible, whereas actions that violate such rights are not. “Multinational corporations” are a subset of the category “corporations,” and as such libertarians theories of the corporation may be taken to apply to multinational corporations. The following discussion of libertarian theories of the corporation is constrained by the fact that such theories have been merely sketched by their proponents. A philosophically sustained, normative libertarian theory of the corporation has yet to be articulated. For this reason, it is necessary

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to draw from works of libertarian moral and political philosophy in order to fill out libertarian views of the core normative theory of multinational corporations. As we shall see, this is especially true with regard to the strong sideconstraints view.

II. Weak side-constraints In Capitalism and Freedom, Friedman argues that the normative function of the corporation is to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.18 In “The Social Responsibility of Business,” published seven years after Capitalism and Freedom, Friedman reformulates this position in the following terms: In a free enterprise, a private property system, a corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.19

Friedman’s view has been both dismissed as “Neanderthalism,”20 and criticized for its theoretical shortcomings.21 However, it remains widely influential. Recently, for example, Pfizer Inc. was faced with a shareholder resolution to severely restrict its charitable contributions to “health, educational and community projects, cultural arts entities, etc.” explicitly on the basis of Friedman’s arguments.22 Friedman’s well-known argument in “The Social Responsibility of Business” may be summarized as follows: 01. In a democratic society the majority of citizens determine the laws that govern corporate behavior. 02. Business executives are (or ought to be) agents of the owners of a business. 03. Executives, if running a nonprofit orga-

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Denis G. Arnold nization or a privately held company, as well as in their own personal life, may have responsibilities other than profit making. The only common interest that shareholders have qua shareholders is to make money. Executives of publicly held companies have an obligation to maximize profit while respecting the “rules of the game,” i.e., while engaging in open, free, and lawful competition, without deception or fraud. As an agent any commitment to social responsibly, other than that of providing returns for shareholders within the “rules of the games,” means that the executive is spending money that is not his, whether that is of the customer (through price increases), the employees (by means of lower wages), or the shareholder (through lower ROE). This constitutes taxation and the expenditure of tax proceeds. On the level of “political principle,” the expenditure of corporate resources on ventures not intended to maximize profits constitutes taxation without representation and is unjust. Such activity is unjust because executives are not democratically elected and the uses to which the funds are put are not democratically determined. On the level of “consequences,” corporate executives lack the expertise necessary to properly implement socially important goals. Furthermore, their actions are “suicidal” because shareholders will fire them for illegitimately expending resources; customers and employees will go elsewhere. Corporate executives may legitimately expend resources on social projects that improve corporate profits. However, it would be “hypocritical window-dressing” to refer to these as “socially responsible” actions. Therefore, there is only one social responsibility of business: to increase profits while engaging in open and free competition without deception or fraud.23

While he does not make his claim explicit, it is clear from Friedman’s analysis that he assumes that companies operate in functioning democracies. Corporations that engage in activities other than profit maximization in the name of corporate social responsibility are, according to Friedman, engaged in “fundamentally subversive” activities because executives are not democratically elected and the uses to which the funds are put are not democratically determined. “This is the basic reason,” according to Friedman, “why the doctrine of ‘social responsibility’ involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.”24 In his judgment, illegitimate socially responsible actions are largely the result of individuals trying to obtain by undemocratic procedures what they were unable to persuade a majority of their fellow citizens to enact through democratic procedures. Furthermore, executives who engage in illegitimate socially responsible behavior exhibit a “suicidal impulse” because they reinforce the notion that “the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces,” and in particular by the “iron fist of Government bureaucrats.”25 As we have seen, Sternberg maintains that “The principles of business ethics are simply those that are presupposed by the definitive business activity: maximizing long-term owner value by selling goods or services.”26 She explicitly endorses Friedman’s position, arguing that “managers who eschew maximizing long-term owner value, and direct their firms to any other goal, are as much prostitutes as artists or sportsmen who sell out for financial gain.”27 Nonetheless, she allows for a slightly more expansive account of the normative core of corporations than does Friedman. She argues that the principles of business ethics are a libertarian concept of distributive justice and ordinary decency. The former holds that rewards are justly distributed on the basis of one’s contribution to the goal of profit maximization. The later is to be understood as “fairness and honesty” in relationship to contracts and promises, as well as “refraining from coercion and physical violence,

Libertarian Theories of the Corporation and Global Capitalism typically within the confines of the law.” Because Sternberg maintains that moral side-constraints are grounded in notions of fair play and the “rules of the game” her position falls into the weak side-constraints category.

III. Assessing the weak side-constraints III. view Weak-side constraints theories, such as those defended by Friedman and Sternberg, are distinctive in that they purport to identify the normative core of a corporation without providing a coherent ethical foundation for that normative core. One might, for example, defend a realist, non-cognivitist, constructivist, or Kantian foundation. To her credit, Sternberg acknowledges that the moral status of the primary objective of business itself requires justification. “it requires investigating, among much else, the meaning of merit and desert and entitlement, and the grounds of equality, liberty, and property.”28 However, providing a theoretical justification for the goals of business is not sufficient. It remains necessary to justify the principles that will guide business organizations and the actions of individual business people. Sternberg, like Friedman, is mistaken in presuming that if the goals of business activity can be justified, the only principles that should guide business are those presupposed by the goal of profit making.29 However, providing a theoretical justification for the goals of business is not sufficient. It remains necessary to justify the principles that will guide business organizations and the actions of individual business people. Sternberg, like Friedman, is mistaken in presuming that if the goals of business activity can be justified, the only principles that should guide business are those presupposed by the goal of profit making.29 The foundational question of ethics is “How should we live as rational persons?” It is not, “How should we live as profit makers?” In so far as business is a human activity (and business persons are rational persons as opposed to the Homo economicus of some contemporary economists) it is subject to the same rationally justifiable moral norms as any other

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human activity. These moral norms are to be derived from the moral point of view. The moral point of view may be understood as the point of view of every person. Here the term “person” is used in a technical sense to denote rational, self-governing beings. When we take the moral point of view, we seek to adjudicate disputes rationally; we assume that other persons are neither more nor less important than ourselves; and we assume that our own claims will be considered alongside those of others in an impartial manner. These three components of the moral point of view are respectively concerned with rationality, universalizabiltiy, and impartiality. The moral point of view is rational in the sense that it involves the application of reason rather than feeling or mere inclination. Moral issues frequently invoke a strong emotional response in individuals. The attempt to justify a moral stance by appeal to reasons that may be considered and evaluated by other persons facilitates a process whereby individuals with distinctly different emotional responses to a moral issue may seek mutual understanding and, perhaps, agreement. The moral point of view is universal in the sense that the principles or propositions ascertained there from apply to all persons and to all relevantly similar circumstances. Thus, if a moral principle or proposition is valid, no persons are exempt from its strictures. And the moral point of view is impartial in the sense that principles or propositions ascertained there from apply to persons irrespective of arbitrary considerations. This impartially may involve the application of a specific principle that purposively ignores the circumstances of individual lives, or it may involve an unbiased evaluation of the particular lived reality of individual persons or groups and an assessment of the needs and preferences of individual persons or groups in light of the needs and preferences of others. In any case, it requires that characteristics such as a person’s race, sex, nationality, and economic circumstances, e.g., cannot be regarded as a legitimate basis for treating persons differently from other persons when there are no good reasons for thinking such considerations relevant. However, it is important to note that the moral point of view does not

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exclude partiality. Favoring the interests of one party over another is justified when there are overriding reasons for ranking the specific interests of one party over another. This is especially so when one has familial, professional, or contractual responsibilities. This point is of obvious relevance to MNC managers who have distinct moral and legal obligations to shareholders. A primary challenge for the moral manager is to determine when the interests of shareholders trump those of other stakeholders, and when the interests of those stakeholders override the interests of shareholders.30 Any adequate normative theory of the corporation must be capable of guiding managers in this regard. The weak side-constraints view fails to provide such guidance because its proponents neither provide nor appeal to a coherent ethical foundation. Friedman demonstrates little concern with the ethical foundations of his view of the normative core of the corporation because he assumes the existence of a democratic system of government. He regards a democratic form of government as preferable to others because he views it as the form of government most compatible with political freedom. He appears to assume that all citizens have an equal ability to regulate corporate behavior through the legislative process. Given the power of business described in Section VII below, this assumption is deeply problematic when considered in an American context. However, when considered in a global context this assumption must be regarded as false. Friedman and his supporters also appear to assume that an idealized form of American democracy will be operative wherever MNCs conduct business. Yet MNCs conduct business in China, Burma (Myanmar), Saudi Arabia and numerous other nations where this is not the case. In the next section, the little known story of Texaco’s operations in Ecuador is used to illustrate the deficiencies inherent in the weak side-constraints view when considered in a global context.

IV. Texaco in Ecuador The Ecuadorean Amazon, known as the “Oriente,” is an approximately 13 million hectare

region sweeping east from the Andes to the borders of Peru and Colombia. It has a human population of between 350,000 and 500,000 people. Estimated to be home to 5% of the Earth’s species, it is one of the most biologically diverse ecosystems in the world. The Oriente is home to approximately 10,000 species of vascular plants, many of them unique to the region. Animal diversity is remarkable as well. Scientists have identified more than 600 species of birds, 500 species of fish, and 120 species of mammals in one region of the Orient alone.31 Indigenous Indian populations have lived by subsistence in the Oriente for centuries. Presently there are eight indigenous sub-cultures with a total population of between 85,000 and 250,000.32 In addition, tens of thousands of settlers from the highland and coastal regions of Ecuador have colonized portions of the Oriente with the encouragement of the federal government, as well as the logging companies, ranchers, and oil companies for whom they typically work.33 Ecuador’s military maintains a heavy presence in the Oriente and controls access to most of the oil producing regions.34 Petroleum is the single most important element of Ecuador’s economy. In 1986 it accounted for 14 percent of GDP and two-thirds of export revenues.35 From 1964, until it concession ended in 1992, Texaco Petroleum Incorporated, a subsidiary of Texaco,36 maintained a partnership with Petroecuador, the state oil company of Ecuador.37 Texaco was a minority partner in the venture, but as current and former Ecuadorean government officials point out, Ecuador was a novice at oil drilling and proper waste disposal and accepted the company’s practices without question.38 General Rene Vargas Pazzoz, who led Petroecuador in the 1970’s, reports that Texaco operated with “compete autonomy” during the term of the partnership.39 The Texaco consortium constructed hundreds of drill sites, hundreds of miles of roads, and a primary pipeline that extends for 312 miles across the Andes to Ecuador’s coast. Large tracts of forest were clear-cut to make way for these facilities. Indian lands were taken and bulldozed, often without compensation. Oil was sprayed on dirt roads to keep dust down, leaching

Libertarian Theories of the Corporation and Global Capitalism into the groundwater. The Ecuadorean government has recorded nearly thirty major spills on the primary pipeline alone, resulting in the loss of an estimated 16.8 million gallons over an eighteen-year period.40 Spills from secondary pipes have not be recorded, however, it is estimated that smaller tertiary pipelines dump thousands of gallons of oil per week into the Amazon. No equipment was available to clean up oil spills or to lessen their environmental impact.41 In addition to oil spills, approximately nineteen billion gallons of untreated “produced water” containing oil and other chemicals has been released into the Oriente during the same period. Significant portions of these spills have been carried downriver into neighboring Peru. Critics argue that Texaco ignored prevailing oil industry standards by dumping untreated waste into unlined storage pits, and directly into rivers and streams. As early as 1971 Richard Byrd, general counsel of the Interstate Oil Compact Commission and a leading oil industry spokesperson, testified before the U.S. Congress that dumping untreated waste “into unlined pits is not considered to be an acceptable practice.”42 Judith Kimmerling, who conducted much of the initial research into the impact of oil production on the Oriente ecosystem and its inhabitants, describes the pits as follows: The pits are filled with toxic wastes and are almost always topped by a thick layer of petroleum. Rainwater freely enters the pits, swelling the contents and becoming contaminated as it mixes with the wastes. Liquid wastes or thick, oozing petroleum are discharged on an ongoing basis from small pipes that drain most of the pits, accumulating in low areas or flowing down gullies into nearby streams or river. Other wastes spill over the sides of the pits or burst through collapsed walls of poorly constructed pits. Large artificial lakes of spilled petroleum are common near the pits.43

The only treatment these chemicals received occurred when Texaco burned waste pits to reduce petroleum content. Villagers report that the chemicals return as black rain, polluting what little clean water remains in the area. Cattle are found with their stomachs rotted out; crops are destroyed; animals are gone from the forest; and

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fish have disappeared from the lakes and rivers. Health officials and community leaders report adults and children with deformities, skin rashes, abscesses, headaches, dysentery, infections, and respiratory ailments. Researches from the Harvard School of Public Health found water used for drinking, bathing, and fishing contaminated with dangerous levels of carcinogens.44 From 1995–1998 Texaco spent 40 million dollars on “remedial” cleanup operations in Ecuador.45 In exchange for these efforts the then government of Ecuador relinquished future claims against the company. Texaco has cleaned out more than 250 pits, pools, and spill sites, but according to Ecuador’s Under Secretary for the Environment 400 more remain untreated.46 Texaco denies the charges of its critics regarding its actions in Ecuador. Texaco reports that, “We are strongly committed to protecting the environment and the health and safety of all members of the communities in which we operate. Every employee, customer, neighbor and partner is equally important to us.”47 Texaco defends its actions in Ecuador with three main arguments. First, Texaco argues that it “responded quickly and effectively to all spills” and that its activities in Ecuador have had “no lasting environmental impact.”48 Second, Texaco argues that much of the evidence that purports to document the negative impact of its operations on the health of residents of the Oriente is not scientifically credible. Third, Texaco argues that regardless of any alleged wrongdoing, it always operated in full compliance with Ecuadorean law, and with the full approval of the Ecuadorean government.49 This last defense of Texaco’s actions may be regarded as a practical application of the weak side-constraints view of the corporation. By arguing that it was in compliance with Ecuadorean law, and that it acted with the consent of the Ecuadorean government, Texaco executives appear to believe that Texaco should be exculpated from any blame.50 It is this claim with which we are primarily concerned. In order to focus our discussion, assume for the sake of argument that the allegations of Texaco’s critics are generally correct. Does the weak sideconstraints view as articulated by Friedman and Sternberg support Texaco’s position? It does not.

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Friedman’s defense of the normative core of the corporation is premised on the fact that corporations operate in democracies. His conclusion that the only social responsibility of corporations is to maximize profits while engaging in open and free competition without deception or fraud is well known. However, his conclusion is premised on the assumption that the majority of citizens in a nation determine the laws that govern corporate behavior in that nation. Both his critics and his admirers have neglected the significance of this crucial assumption. For if a corporation operates in a non-democratic nation, then Friedman’s conclusion does not follow. Consider the case of Texaco’s operations in Ecuador. Throughout its history Ecuador has been one of the least politically stable South American nations. In 1830 Ecuador achieved its independence from Spain. Ecuadorean politics since that time has been characterized by cycles of republican government and military intervention and rule. From 1948 to 1972 Ecuador’s federal government was marked by instability and military dominance. From 1972 to 1979 – the period in which Texaco began its oil extraction operations – Ecuador was under direct military rule. It was not until 1979 that some semblance of democracy was restored. Nonetheless, even after 1979 corruption remained widespread (e.g., a recent study by George Washington University found that only 16 percent of Ecuadoreans have confidence in their legal system); indigenous Indian tribes remained politically marginalized; and government officials remained fearful of deterring foreign investment by enhancing environmental protection standards. Additionally, the Ecuadorean military continued to play a major role in governmental affairs. Democracy in Ecuador is incipient and must be nurtured.51 Independent of one’s view of Friedman’s position as it applies to ideally democratic nations, these facts lead one to the conclusion that Ecuador lacked the democratic institutions necessary for Friedman’s analysis to be applicable during the period in which Texaco operated in Ecuador. Ecuador is not alone in lacking democracy. Many of the nations in which MNCs conduct business lack important democratic institutions such as equal voting rights, multiple political

parties, democratic elections, politically neutral militaries, and an independent judiciary. According to Freedom House, in 2000 37.5% of the world’s sovereign states and colonial units – home to 41.8% of the worlds’ population – had nondemocratic forms of government.52 Friedman’s view of the normative core of the corporation is conceptually incoherent when applied to MNCs that operate in these nondemocratic nations. It is conceptually incoherent because in order to provide normative guidance it must assume the existence of democratic institutions where they do not exist. Sternberg’s version of the weak side-constraints view fairs letter better. According to Sternberg, Texaco’s actions are praiseworthy if they maximize long-term owner value while adhering to the constraints of “ordinary decency.”53 Texaco’s critics accuse it of acting in complicity with an undemocratic repressive regime; with the unjustifiable exploitation of an impoverished nation that had almost no experience with oil exploration and extraction; with systematic environmental degradation; and with widespread human rights violations. However, if these criticisms are accurate, none of them violate the constraints of ordinary decency as defined by Sternberg. Texaco honored its contractual obligations; appears to have refrained from coercion and physical violence; and thus far has maximized long-term owner value in its Ecuadorean operations. As such, Sternberg should find no fault with Texaco’s actions in Ecuador. However, there are at least two difficulties with Sternberg’s view as it relates to the Texaco case. First, as has been noted, Sternberg explicitly endorses Friedman’s view and uses it to support her own weak-side constraints view. In addition, she acknowledges that “consent is an essential condition of legitimate government.”54 However, she remains silent regarding the relative importance of democracy for her own view of the normative core of business. Since Friedman’s view has been shown to be conceptual incoherent when applied to non-democratic nations such as Ecuador, Sternberg’s view is undermined to the extent that her own position constitutes an extension of Friedman’s position. What additional arguments can Sternberg

Libertarian Theories of the Corporation and Global Capitalism bring to bear in defense of her position? As we have seen, she claims that “the principles of business ethics are those enjoining the basic values without which business as an activity would be impossible.”55 However, she does not explain in detail why this is the case. This highlights a second difficulty with Sternberg’s position. The claim that MNC managers must respect the values that are presupposed by the practice of business is best understood as a Kantian claim. As a matter of rational consistency, a person who recognizes that the conduct of business presupposes certain norms to which others must adhere, must also recognize that he or she must adhere to those norms as well. To do otherwise would be irrational insofar as one would be making an exception of oneself on morally arbitrary grounds. Somewhat surprisingly, given her implicit invocation of this Kantian argument, Sternberg dismisses a Kantian approach to business ethics as “incoherent.”56 However, Norman Bowie has persuasively argued that a Kantian approach to business ethics is both coherent and consistent with innovative and successive management practices.57 The principles of business ethics that Bowie defends on Kantian grounds are both more expansive and more demanding than those defended by Sternberg. Thus, Sternberg must either provide an alternative foundation for her view of the normative core of MNCs, or she must more fully embrace the implications of a Kantian defense of the principles of business ethics implicit in her argument. In concluding this section it is worthwhile to consider an objection to the preceding analysis of Texaco’s operations in Ecuador. It might be argued that moral responsibility for the harm caused by the Texaco led operations in the Oriente lies with the government of Ecuador. Two points may be made in response to this objection. First, holding Texaco culpable for the consequences of its operations is not incompatible with holding the leaders of Ecuador’s government during this period responsible for Texaco’s operations as well. Second, it is not clear upon what basis the argument that the government of Ecuador is solely responsible for the consequences of Texaco’s lawful operations in

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the Oriente might be made. It remains open to the proponent of this view to offer such an argument. To hold the government of Ecuador solely responsible for the alleged consequences of Texaco’s operations in the Oriente merely because Texaco operated lawfully is to set an extraordinarily low standard for MNC conduct. This would entail that corporations should not be regarded as morally responsible for any conduct, no matter how reprehensible, so long as the government in power legally sanctioned the conduct. So, for example, corporations that utilized forced or slave labor with the consent of Axis regimes during World War II would not be regarded as responsible for those practices. However, such practices are morally objectionable because they violate basic human rights.

V. Human rights There is yet a further difficulty with the weak side-constraints view, a difficulty that was implicit in the previous section of this essay. The weak side-constraints view altogether neglects the human rights obligations of MNCs.58 The promulgation of the United Nations Universal Declaration of Human Rights, together with the advocacy of nongovernmental organizations, has led to the widespread acceptance of human rights as a basic tool of moral evaluation by individuals of widely divergent political and religious beliefs. The idea of basic human rights is grounded in the Kantian idea that one should always treat other persons as an end unto themselves, and never as a means only. Persons are free and rational creatures and as such, argued Kant, they have intrinsic value that must be respected. This means that the desires, goals, and aspirations of other persons must be given due consideration. It is this Enlightenment idea that serves as a basis for human rights. Human rights are moral rights that apply to all persons in all nations, regardless of whether the nation in which a person resides acknowledges and protects those rights. It is in this sense that human rights are understood to be inalienable. Human rights differ from legal rights in that, unlike legal rights, the existence of human rights

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is not contingent upon any institution. Many nations grant their citizens certain constitutional or legal rights via foundational documents, legal precedent, or legislative action. However, the human rights that are actually protected vary among nations. Furthermore, the human rights of all citizens are not always protected even in ostensible democracies. For example, the government of Ecuador has, historically, failed to concern itself with the rights of indigenous Indians and other marginalized groups. The Texaco lead consortium took advantage of this fact in order to maximize profits as it exploited the oil reserves of the Oriente. One of the basic human rights that Texaco is accused of violating is the right to a clean and healthy environment. A growing body if international accords, including the 1972 Stockholm Declaration signed by more than 100 countries (including the United States and Ecuador) identify the right to a clean and healthy environment as a fundamental human right and prohibits both state and private actors from endangering the needs of present and future generations. The fact that the Texaco lead consortium spilled, sprayed, and dumped millions of barrels of oil into Ecuador’s Oriente is not disputed. If the allegations of critics are correct, and Texaco’s pollution of the Amazon has undermined the health and welfare of present and future generations of Ecuadoreans, as well as present and future generations in neighboring Peru, then Texaco violated what is widely regarded to be a basic human right. At this point proponents of the strong sideconstraints view would likely protest that libertarianism retains at its core the view that the liberty of individuals must be respected. No authentic and consistent libertarian, especially one who adheres to “classical individualism,” would maintain that the violation of certain basic human rights should be regarded as morally permissible.59 If the citizens of the Oriente had a legitimate claim to their land, and if Texaco polluted that land without their permission and without appropriate compensation, proponents of the strong-side constraints view are likely to conclude that Texaco’s actions in this case are to be condemned. However, prior to reaching such

a conclusion it is necessary to consider the libertarian strong side-constraints view of the normative core of the corporation.

VI. Strong side-constraints As we have seen, strong side-constraints are grounded in basic rights. Rights maybe either negative or positive. Negative rights constitute shields against the unjust violation of individual freedoms. If persons’ possess negative rights, then other persons retain correlative duties that require that they refrain from actions that interfere with their individual freedoms. Positive rights, on the other hand, constitute entitlements to things that are necessary for the exercise of individual freedom. If persons’ possess positive rights, then other persons retain correlative duties that require that they provide individuals with those things that are necessary for the exercise of individual freedoms. Libertarians typically defend negative rights, and their correlative duties, while rejecting positive rights and their correlative duties. Libertarians often appeal to the work of Nozick in defending negative rights. In Anarchy, State, and Utopia, Nozick defends the view that all persons have negative rights, but that positive rights come into existence only when people voluntarily agree to undertake the obligations that correspond to such rights (e.g., through valid contracts).60 His arguments for this conclusion are complex, but significantly for the purposes of our discussion, he acknowledges that he “does not present a precise theory of the moral basis of individual rights.”61 Which is to say that Nozick’s theory of rights lacks a moral foundation. He does suggest that Kant’s doctrine of respect for persons may provide the necessary foundation: Side constraints upon action reflect the underlying Kantian principle that individuals are ends and not merely means; they may not be sacrificed or used for the achieving of others ends without their consent. Individuals are inviolable.62

This conclusion is derived form Kant’s second formulation of the categorical imperative: “Act so that you treat humanity, whether in your own

Libertarian Theories of the Corporation and Global Capitalism person or in that of another, always as and end and never as a means only.”63 The popular expression of this principle is that morality requires that we respect people. Kant provides a sustained defense of the doctrine of respect for persons, and specifies in detail its practical implications. Nozick does not himself undertake to determine whether or not Kant’s analysis is successful in establishing a foundation for strong libertarian side-constraints such as negative rights, although he recognizes the necessity of providing such support. Rather, he notes that an adequate defense of libertarian rights can be established in one of two ways: either by working back from the view, step by step, or by starting at the very foundations of moral philosophy and working forward. If this latter course, pursued without too much glancing ahead, does succeed in linking up with the specified rights, then it will provide them with independent support. There also is the risk, however, that this forward motion from the foundations will lead to a completely different view, as the construction of a transcontinental railroad starting from both coasts could fail to link up, instead leading to two full railroad lines.64

Indeed, as Nozick’s critics have argued, once the moral foundations have been established they may result in the derivation of substantially more expansive set of rights than those intuited and analyzed by Nozick.65 Thomas Nagel has provided a succinct summary of the implications of Nozick’s failure to provide “a precise theory of the moral basis of individual rights” for political philosophy. To present a serious challenge to other views, a discussion of libertarianism would have to explore the foundations of individual rights and the reasons for and against different conceptions of the relation between those rights and other values that the state may be in a position to promote. But Nozick’s book is theoretically insubstantial: it does not take up the main problems, and therefore fails to make the kind of contribution to political theory that might have been hoped for from someone of his philosophical attainments.66

These same theoretical deficiencies will undermine any effort to use Nozick’s account of strong

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side-constraints to support a libertarian theory of the corporation. Without this moral foundation, a Nozickian libertarian theory of the normative core of the corporation is untenable. More recently, other libertarians have sought to provide the moral foundation that Nozick’s account of rights lacks. One of the most sophisticated libertarian defenses of the foundations of individual rights is that provided by Loren Lomasky in Persons, Rights, and the Moral Community. Lomasky’s arguments are grounded in classical liberalism, Kantian moral philosophy, and in the work of the contemporary moral philosopher Bernard Williams. Following Williams, Lomasky grounds his analysis in a conception of human beings as project pursuers. He characterizes projects in the following terms: Some ends . . . persist throughout large stretches of an individual’s life and continue to elicit actions that establish a pattern coherent in virtue of the ends subserved. Those which reach indefinitely into the future, play a central role within the ongoing endeavors of the individual, and provide a significant degree of structural stability to an individual’s life I call projects. Beyond the three characteristics of persistence, centrality, and structure, projects assume variant forms and are pursued by both saints and sinners.67

Projects provide agents with reasons for valuing the advancement of certain ends over the advancement of other ends; they provide meaning to our lives. Each agent qua project pursuer has reason to value the liberty necessary for project pursuit. Because the situation of agents with respect to project pursuit is symmetrical, every agent also has reason to value the liberty of other project purser. Rights take the form of side-constraints that bound the moral space in which agents may pursue projects without unjustified interference by other agents or institutions. Lomasky defines basic rights as those moral constraints that impose minimal demands on the forbearance of others such that individuals can pursue projects amidst a world of similar beings, each with his own life to lead, and each owing the same measure of respect to others that they owe to him.68

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A minimal moral requirement of all agents and organizations is that they respect basic rights. This is not so because rights are the highest human good, rather this is so because respect for rights is a necessary condition of leading good lives in civil society. Significantly, Lomasky defends certain positive rights as well as negative rights. Most libertarians follow Nozick in rejecting positive rights that are not mutually contracted. “Such a libertarianism,” argues Lomasky, “is defensible.”69 This is because it is disconnected from the grounding of basic rights in the rational capacity of agents to recognize the value of their own pursuit of projects. It is conceivable that some agents will lack the goods necessary for the satisfactory pursuit of projects. Under such circumstances those individuals may be entitled to welfare goods as a matter of right. If a person is otherwise unable to secure that which is necessary for his ability to live as a project pursuer, then he has a rightful claim to provision by others who have a surplus beyond what they require to live as project pursuers. In that strictly limited but crucial respect, basic rights extend beyond liberty rights to welfare rights.70

Civil societies comprised of rational agents who gain meaning and purpose via the pursuit of projects will, if Lomasky’s arguments are correct, guarantee the provision of both liberty rights and welfare rights. However, because of the contingencies of history, culture, and geography what counts as a proper respect for basic rights will vary significantly. The instantiation of respect for basic rights is culturally relevant modes constitute “moral rights.”71 For example, if no causal connection is understood to exist between dumping untreated “produced water” into the community water supplies, then there could be no justifiable claim to have a moral right not to have such dumping occur. However, if such a causal connection is known, then according to Lomasky citizens have a moral right not to have such dumping occur. Lomasky has provided one defense of the philosophical foundations of basic rights. However, as we have seen, he defends both negative and positive rights. The acknowledge-

ment that individuals have positive rights is a major concession for a libertarian. Significantly, Lomasky’s view is similar in may respects to the much more influential theory of rights articulated by Alan Gewirth in Reason and Morality and defended by Deryck Beyleveld in The Dialectical Necessity of Morality.72 Gerwirth has articulated what is arguably the most influential contemporary theory of rights.73 For this reason, it is necessary that we consider Gewirth’s theory of rights prior to assessing the plausibility of the libertarian strong side-constraints view. Gewirth begins with the idea that every person regards his or her purposes as good according to his or her own criteria. The pursuit of particular ends by individuals provide a practical demonstration of the things that those individuals value.74 Such actions are possible only insofar as the necessary conditions of one’s acting to achieve one’s purposes are satisfied. In other words, via the act of pursuing their individual aims, individuals demonstrate that they value the necessary conditions of action. The necessary conditions of action are freedom and well-being. Without freedom and well-being, one cannot pursue the things that one values. Freedom is here understood as controlling one’s behavior by one’s unforced choice while having knowledge of relevant circumstances. Possessing well-being entails having the general abilities and conditions required for a person to be able to act in a manner consistent with his or her considered, or second-order, preferences. Anyone who pursues a particular good must, on pain of contradiction, claim that they have a right to freedom and wellbeing. As such, all persons must accept that others have rights to freedom and well-being. Gewirth puts the matter this way: Since the agent [or person] regards as necessary goods the freedom and well-being that constitute the generic features of his successful action, he logically must hold that he has rights to these generic features, and he implicitly makes a corresponding rights claim.75

Gewirth’s argument is properly understood as a transcendental argument in the Kantian tradition. A transcendental argument is one that establishes

Libertarian Theories of the Corporation and Global Capitalism the truth of a proposition by appealing to necessary conditions of human experience. Gewirth’s argument holds that, as a matter of rational consistency, a person must acknowledge that he or she is a purposive being, and that the pursuit of his or her ends requires freedom and well-being. Hence he or she must claim a right to freedom and well-being. To do otherwise would be irrational. Because all other persons share these qualities, he or she must – again, as a matter or rational consistency – ascribe these rights to all other beings. To deny that persons have the right to freedom and well-being is to deny that one is a purposive being. Since the denial is a purposive act, it contradicts the proposition begin asserted. In this way, Gewirth provides a deep and satisfying justification for both negative and positive rights.76 There is then a strong case to be made for a theory of rights that includes both negative and positive rights, and little theoretical support for a theory of rights that includes negative rights but not positive rights. For this reason it is surprising that libertarians theorists who promote strong side-constraints, such as Machan and Freeman and Phillips,77 continue to insist that multinational corporations must respect negative rights but not positive rights. In order to challenge other normative theories of the corporation, libertarian theorists must provide a thorough discussion of rights.78 If they wish to deploy negative rights, and to deny the existence of positive rights, they must respond to the arguments of libertarians such as Lomasky, as well as to Kantians such as Gewirth and Beyleveld, all of whom defend positive rights. It is not obvious how such arguments might proceed, nor is it obvious that they would be successful. However, unless that important work can be accomplished, it is reasonable to conclude that any strong side-constraints view must invoke both negative rights and positive rights. This conclusion has significant implications for both libertarian theories of the corporation, and libertarianism in general. This is because one standard distinction between libertarianism and liberalism is that the latter appeals only to negative rights, while the former appeals both to negative rights and to positive rights. If

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libertarians are incapable of defending a theory of rights that includes only negative rights, then one important distinction between libertarianism and liberalism is eliminated.

VII. The coercive power of corporations There is a further objection to libertarian theories of the normative core of the corporation, one that holds for both the weak sideconstraints view and the strong side-constraints view. Libertarian theorists are typically deeply mistrustful of governments. Indeed, as we have seen, one of the core principals of libertarianism is that the coercive power of governments should be severely restricted in the interest of individual freedom. It is remarkable, therefore, that libertarians theorists of the corporation should remain silent regarding the coercive power of corporations.79 A major deficiency of all libertarian theories of the normative core of corporation is that they fail to address the coercive power that corporations exert over governments, foreign and domestic. A recent poll conducted by Business Week demonstrates that a majority of Americans believe that corporations exert far too much political influence. The poll found that 72% of Americans believe that corporations have too much power over many aspects of American life.80 The same poll found that between 74% and 84% of Americans believe that corporations have too much political influence.81 As we shall see below, the beliefs of these Americans are well supported by empirical research on the political influence of corporations. In his important and influential book Politics and Markets Charles Lindblom argues that businesses in democracies exert considerable power over governments.82 First, business exerts ideological power by shaping public preferences. Second, business exerts political power through its political action committees and paid lobbyists.83 Lindblom’s arguments are largely theoretical, but recently Neil Mitchell has argued that Lindblom’s arguments are well supported by empirical research.84 In The Conspicuous Corporation Mitchell defends Lindblom’s claims regarding the power of business institutions in

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democracies by appealing to social science data complied in the United States and Great Britain. First, Mitchell argues that “Business interests’ incentives and resources to influence public preferences generally exceed those of other interests” while falling short of a monopolistic position.85 The media play the leading role in shaping public preferences in the U.S. and Great Britain. Business interests, in turn, play the leading role in determining what issues the media covers, and whose opinions are heard. Business interests influence the media in several ways. First, by funding conservative think thanks such as the Heritage Foundation and the Institute for Economic Affairs, who in return provide expert commentary on news programs. Second, business interests influence the media via advertising content. Third, business interests influence the media by refusing to advertise on specific programs or networks. Forth, by the direct ownership of newspapers, magazines, radio stations, and television networks through which they may exert varying degrees of influence. Mitchell notes that business interests may be persuasive in their arguments. And people swayed by such arguments may be lead to act in their own interests. Nonetheless, he concludes, we should also concede that at times the individual may have “false preferences.” This concession may seem a large one . . . All that is required, however, is the admission that the individual would be unlikely to hold certain preferences if he or she knew more or could calculate better.86

Mitchell’s research thus supports the claim that business interests’ exert considerable ideological influence over public policy preferences. Second, Mitchell argues that business interests retain formidable resources that allow them to exert more influence over public policy decisions than any other group. Business influences public policy by two principle means: political financing and interest representation. Political financing maybe legal or illegal. In the area of legal political financing the role of business interests is preeminent in the U.S. and U.K. In the U.S., for example, business PAC’s and trade groups consistently outspend labor organizations by

more than two to one.87 In the area of illegal financing through bribes, kickbacks, and undisclosed gifts, business interests also appear to dominate over other interest groups.88 Critics of Lindblom have pointed out that one cannot assume that a disproportionate expenditure of resources leads to a disproportionate exercise of political power.89 However, Mitchell argues that available evidence supports the conclusions that a disproportionate expenditure of resources by business interests has resulted in special benefits for business. He argues that it is difficult to imagine why such expenditures would continue if they were not effective in securing special benefits for business. Money from corporate PACs in the U.S. tends to flow to certain types of candidates who share . . . membership of specific congressional committees, was well as incumbent status. For example, General Motors (including its defense industry subsidiaries) was one of the top twenty financial contributors to members of the Senate Budget Committee, the House Appropriations Committee, and the Senate Armed Services Committee . . . Targeting members of the powerful committees that can make decisions affecting the contributor’s industry is consistent with a strategy of seeking specific benefits from policymakers . . .90

Defense contractors are leading contributors of the U.S. House of Representatives Armed Services Committee; agriculture related corporations and trade associations are the leading contributors to the House Agriculture Committee; banking, finance, and realty corporations and trade associations are the leading contributors to the House Banking and Finance Committee; and so on. Mitchell conclusions are supported by the work of other scholars. For example, Dennis Quinn and Robert Shaprio have shown that U.S. business tax rates are significantly influenced by business PACs and the electoral success of the Republican Party.91 Finally, the illegal expenditure of corporate resources on corrupt politicians is both expensive and fraught with risk. Nonetheless, the fact that it continues to take place indicates that despite the risks it is deemed a prudent use of corporate resources. This in turn provides further

Libertarian Theories of the Corporation and Global Capitalism evidence that corporations are prone to exercise undue power over public policy. Detailed empirical research concerning the coercive influence of multinational corporations on the policies of developing nations has not been as extensive.92 However, it is implausible to believe that a corporation that is successful at exercising coercive influence over domestic policy in the U.S. or U.K. would refrain from exerting similar coercive influence over public policy in developing nations in which it has a significant financial interest. Indeed, there are reasons for thinking that MNCs are more likely to exert such influence over public policy in developing nations. For example, in nations where there is little pretense of democracy, where entrenched elites determine public policy, and where corruption is widespread, MNCs are likely to find it less problematic to influence public policy decisions. If such corporations have the will to use bribes or threats to counter policies and practices that are contrary to their interests, the low probability of negative repercussions is likely to make such practices attractive to the MNC. Historically libertarians have been legitimately concerned with the protection of individual liberties against the coercive power of the state. The failure of libertarians to acknowledge the coercive power of business, and individual corporations in particular, is therefore troubling. Libertarians favor free markets and a minimal regulatory framework regarding transactions between citizens. The combination of a deep mistrust of governments, together with a deep faith in the benefits of free markets, may have lead libertarian theorists to become blind to the coercive power of corporations. However, a world in which corporations do not seek to shape the laws governing their behavior, but instead readily respond to the will of the people as expressed democratically, does not accurately describe the world as we know it. Libertarians must make a choice. Either they must explain why the coercive power of corporations should be understood as different in kind from the coercive power of governments with which they are rightly concerned, so as to be regarded as morally and politically acceptable, or they must

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acknowledge, analyze, and address the coercive power of corporations. Given the significant power that corporations and their trade organizations wield in the economic, political, social spheres of societies throughout the word, such a project will surely constitute a major undertaking.

VIII. Conclusions Proponents of libertarian theories regarding the core normative conception of the corporation may allow that the theory has not be adequately defended in a single theoretical discussion while maintaining that the theory is defensible by appealing to a variety of libertarian arguments that appear in the literature. The arguments of this paper indicate that such a view constitutes wishful thinking rather than a realistic appraisal of the literature. In particular, it has been argued that the weak side-constraints view has been shown to be conceptually incoherent when applied in a global context. Additionally, strong side-constraints views that invoke negative rights, but not positive rights, lack an adequate theory of negative rights. Without an adequate theory of rights, libertarianism cannot be understood as a viable normative theory of the corporation. Finally, both the weak side-constraints view and the strong side-constraints view are unsatisfactory insofar as the proponents of those views have assailed the coercive influence of government while remaining silent regarding the coercive influence of corporations. It remains possible that some libertarians may wish to argue that corporate coercion is not different in kind from government coercion, and to argue for limits on the coercive influence of both governments and corporations. It is also possible that libertarians may wish to invoke both negative rights and positive rights as sideconstraints by appealing to a theory of rights such as that of Gewirth. However, such theorists will then have the difficult task of explaining why the resulting theory is properly understood as libertarian rather than liberal.93

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Notes 1

Robert Gilpin, The Challenge of Global Capitalism: the World Economy in the 21st Century (Princeton: Princeton University Press, 2000), 169. 2 Ibid., 193. 3 See, for example, John Gray, False Dawn: the Delusions of Global Capitalism (New York: The New Press, 1998); Edward Luttwak, Turbo Capitalism: Winners and Losers in the Global Economy (New York: HarperCollins, 1999); and Noreena Hertz, The Silent Takeover: Global Capitalism and the Death of Democracy (New York: Free Press, 2001). 4 See, for example, Thomas Donaldson, The Ethics Of International Business (New York: Oxford University Press, 1989); Richard T. De George, Competing With Integrity in International Business (New York: Oxford University Press, 1993); Thomas Donaldson and Thomas W. Dunfee, Ties That Bind: A Social Contracts Approach to Business Ethics (Boston: Harvard Business School Press, 1999), chap. 8; Denis G. Arnold and Norman E. Bowie, “Sweatshops and Respect for Persons,” Business Ethics Quarterly 13: 2 (April 2003): 221–242; Denis G. Arnold “Human Rights and Business: An Ethical Analysis,” in Business and Human Rights: Dilemmas and Solutions, Rory Sullivan ed., (Sheffield, U.K.: Greenleaf Publishing 2003); and Denis G. Arnold, “Moral Reasoning, Human Rights, and Global Labor Practices,” in Rising Above Sweatshops: Innovative Management Approaches to Global Labor Challenges, Laura P. Hartman, Denis G. Arnold, and Richard Wokutch, eds. (Westport, CT: Praeger 2004). 5 R. Edward Freeman, “The Politics of Stakeholder Theory: Some Future Directions,” Business Ethics Quarterly 4: 4 (1994): 409–421, 414. See also, R. Edward Freeman, “Divergent Stakeholder Theory,” Academy of Management Review 24: 2 (1999): 233–236. 6 Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” Academy of Management Review 20: 1 (1995): 65–91, 74. 7 Ibid., 71. 8 Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1982); and “The Social Responsibility of Business,” in The Essence of Friedman, ed. Kurt R. Leube (Stanford, CA: Hoover Institution Press, 1987), 37. 9 Elaine Sternberg, “The Universal Principles of Business Ethics,” in Business Ethics in the Global Market, ed. Tibor R. Machan; Just Business: Business Ethics in Action, 2nd ed. (New York: Oxford University Press, 2000); and Tibor Machan, “Business Ethics in a Free

Society,” in A Companion to Business Ethics, ed. Robert E. Frederick (Malden, MA: Blackwell, 1999). 10 R. Edward Freeman and Robert A. Phillips, “Stakeholder Theory: A Libertarian Defense,” Business Ethics Quarterly 12 ( July 2002): 331–349. 11 This paper does not attempt to assess in detail libertarian conceptions of capitalism; libertarian concepts of the conduct of business in general (which includes the operations of sole-proprietorships, partnerships, and privately held companies); or libertarian conceptions of the normative core of not-for-profit corporations. 12 Not all libertarian theorists explicitly identify their views as libertarian. Theories of the normative core of the corporation identified as libertarian in this essay are those that, according to their authors, are based on principles consistent with the core libertarian principles identified below. 13 Fredrich A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960); Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974); and Friedman, Capitalism and Freedom. 14 As with adherents of any category of political philosophy, libertarians frequently disagree about important political and social claims. So, for example, libertarian theorists disagree about the relative importance of democratic governments, the existence of natural rights, and the merits of decentralized governments. 15 The obligation to return profits to shareholders is grounded in the fiduciary responsibility of managers to serve the interests of shareholders. For a helpful discussion of this fiduciary relationship see John R. Boatright, “Ethics and Corporate Governance: Justifying the Role of Shareholder” in Norman E. Bowie, The Blackwell Guide to Business Ethics (Malden, MA: Blackwell 2002). 16 Elaine Sternberg, “The Universal Principles of Business Ethics,” 16. See also, Sternberg, Just Business, 79–90. 17 Nozick, Anarchy, State, and Utopia; Loren E. Lomasky, Persons, Rights, and the Moral Community (New York: Oxford University Press, 1987). See also Jan Narveson, The Libertarian Idea (Philadelphia, PA: Temple University Press, 1992). 18 Friedman, Capitalism and Freedom, 133. 19 Milton Friedman, “The Social Responsibility of Business,” in The Essence of Friedman, ed. Kurt R. Leube (Stanford, CA: Hoover Institution Press, 1987, 37. John Boatright has provided a penetrating critique of the agency view of the relationship of management to shareholders. See his “Fiduciary Duties and the Shareholder-Management Relation: Or, What’s so

Libertarian Theories of the Corporation and Global Capitalism Special About Shareholders?,” Business Ethics Quarterly 4 (1994): 393–407. 20 Donaldson, The Ethics of International Business, 45. 21 Thomas Mulligan, “A Critique of Milton Friedman’s Essay ‘The Social Responsibility of Business Is to Increase Its Profits,” Journal of Business Ethics 5 (1986): 265–269; Richard Nunan, “The Libertarian Conception of Corporate Property: A Critique of Milton Friedman’s Views on the Social Responsibility of Business,” Journal of Business Ethics 7 (1988): 891–906; John R. Danley, “Polestar Refined: Business Ethics and Political Economy,” Journal of Business Ethics 10 (1991): 915–933; Colin Grant, “Friedman Fallacies,” Journal of Business Ethics 10 (1991): 907–914; and Thomas Carson, “Friedman’s Theory of Corporate Social Responsibility,” Business & Professional Ethics Journal 12 (1993): 3–32. 22 Pfizer Inc./Warner-Lambert Company Joint Proxy Statement/Prospectus, March 10, 2000, V-15. 23 This outline of Friedman’s position is based on his arguments in “The Social Responsibility of Business.” All words and phrases in quotation marks are quotes from Friedman taken from that essay. 24 Friedman, “The Social Responsibility of Business,” 39. 25 Ibid., 41–42. 26 Sternberg, “The Universal Principles of Business Ethics,” 16. 27 Sternberg, Just Business, 42. 28 Sternberg, “The Universal Principles of Business Ethics,” 13. 29 Friedman, of course, is assuming that the context of business is a democratic society and that managers who operate with profit maximization as a goal will be supporting democracy. This strand of Friedman’s thinking is discussed in detail below. Sternberg allows for a slightly more expansive libertarian account of moral norms than does Friedman. She argues that the principles of business ethics are a libertarian conception of distributive justice and ordinary decency. The former holds that rewards are justly distributed on the basis of one’s contribution to the goal of profit maximization. The later is to be understood as “fairness and honesty” in relationship to contracts and promises, as well as “refraining from coercion and physical violence, typical within the confines of the law.” Ibid., 19–20. These ideas are discussed below. 30 For a more detailed discussion of moral reasoning see Arnold, “Moral Reasoning, Human Rights, and Global Labor Practices.” 31 Ibid., 33–34. 32 Ibid., 34–40.

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Ibid. Joe Kane, Savages (New York: Vintage Books, 1996), 23. 35 Dennis M. Hanratty, ed. Ecuador: A Country Study, 3rd ed. (Washington D.C.: Library of Congress, 1991), 130. 36 In October 2001 Texaco completed a merger with Chevron Corporation. Chevron and Texaco are now know as ChevronTexaco Corporation. 37 “Texaco and Ecuador,” Texaco: Health, Safety & Environment, 07 March 2000, <www.texacocom/she/ index.html> (03 April 2000). 38 Diana Jean Schemo, “Ecuadoreans Want Texaco to Clear Toxic Residue,” New York Times, February 1, 1998, sec. 1, p. 12. 39 Ibid. 40 Judith Kimerling, “Disregarding Environmental Law: Petroleum Development in Protected Natural Areas in Indigenous Homelands in the Ecuadorian Amazon,” Hastings International & Comparative Law Review 14 (1991): 872. By comparison, the Exxon Valdez spilled 10.8-million gallons of oil into Alaska’s Prince William Sound. 41 Ibid. 42 Eyal Press, “Texaco on Trail,” The Nation, May 31, 1999, 15. 43 Kimerling, “Disregarding Environmental Law,” 869. 44 ”Texaco and Ecuador,” New York Times, February 19, 1999, sec. A, p. 20. 45 ”Texaco and Ecuador,” Texaco: Health, Safety & the Environment, 07 March 2000, (03 April 2000). 46 Schemo 1998, “Ecuadoreans Want Texaco to Clear Toxic Residue,” and “Texaco and Ecuador,” Texaco: Health, Safety & the Environment, 07 March 2000, <www.texaco.com/she/index.html> (03 April 2000). 47 ”Texaco and Ecuador,” Texaco: Health, Safety & the Environment, 07 March 2000, <www.texaco.com/ she/index.html> (03 April 2000). 48 Ibid. 49 Elements of this description of Texaco’s actions in Ecuador originally appeared in Denis G. Arnold, “Texaco in the Ecuadorean Amazon,” in Tom L. Beauchamp and Normal E. Bowie (eds.), Ethical Theory and Business (Upper Saddle River, NJ: Prentice Hall, 7th ed. (2003). 50 Ecuadorean and Peruvian plaintiffs, including several indigenous tribes, filed billion-dollar classaction lawsuits against Texaco in U.S. court under the Alien Torn Claims Act (ACTA) (the lawsuits were 34

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later consolidated into a single case). In May 2001 U.S. District Judge Jed Rakoff rejected the applicability of the ACTA and dismissed the case on grounds of forum non conveniens. In August 2002 the U.S Court of Appeals for the Second Circuit upheld Judge Rakoff ’s decision. 51 This account of Ecuador’s recent political history is based on the following sources: Hanratty, ed., Ecuador: A Country Study, 3rd ed.; Anita Isaacs, Military Rule and Transition in Ecuador, 1972–92 (Pittsburgh: University of Pittsburgh Press, 1993); and Ecuador Poverty Report (Washington D.C.: The World Bank, 1996). 52 Freedom House, Democracy’s Century: A Survey of Global Political Change in the 20th Century (New York: Freedom House, 2000), 2–4. 53 As we have seen above, Texaco must also adhere to the constraints of distributive justice. However, distributive justice as defined by Sternberg is not applicable in this context. See Just Business, 80–82. 54 Ibid., 39. 55 Ibid., 79. 56 Ibid., 3. 57 Norman E. Bowie, Business Ethics: A Kantian Perspective (Malden, MA: Blackwell, 1999). 58 Interestingly, Sternberg does appear to allow for the existence of “natural rights.” However, according to Sternberg, natural rights have limited force against business “Because if the ‘right’ is violated, all that happens is that the organization disqualifies itself from being deemed ethical.” This is an odd claim, for the point of articulating a normative theory of the corporation is, in part, to recommend an ethically praiseworthy set of policies and practices. See Just Business, 131. 59 See Machan, “Business Ethics in a Free Society.” 60 Nozick, Anarchy, State, and Utopia, chap. 3. 61 Ibid., xiv. See also, Robert Nozick, Philosophical Explanations (Cambridge, MA: Harvard University Press), 498–504. 62 Nozick, Anarchy, State, and Utopia, 30–31. 63 Immanuel Kant, Foundations of the Metaphysics of Morals 1785, (New York: Macmillan, 1990), 46. 64 Nozick, Philosophical Explanations, 499. 65 Samuel Scheffler, “Natural Rights, Equality, and the Minimal State,” In Reading Nozick: Essays on Anarchy, State, and Utopia, ed. Jeffrey Paul (Totowa, NJ: Rowman & Littlefield, 1981). 66 Thomas Nagel, “Libertarianism Without Foundations,” in Reading Nozick: Essays on Anarchy, State, and Utopia, ed. Jeffrey Paul (Totowa, NJ: Rowman & Littlefield, 1981), 193.

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Loren Lomasky, Persons, Rights, and the Moral Community, 26. 68 Ibid., 83. 69 Ibid., 127. 70 Ibid., 126. 71 Ibid., 102. 72 Alan Gewirth, Reason and Morality (Chicago: University of Chicago Press, 1978). Gewirth’s arguments have been subjected to careful scrutiny and criticism by a number of scholars including Machan. See Douglas J. Den Uyl and Tibor R. Machan, “Gewirth and the Supportive State,” in Gewirth’s Ethical Rationalism ed. Edward Regis Jr. (Chicago: University of Chicago Press, 1984) and Tibor Machan, Individuals and Their Rights (La Salle, IL: Open Court, 1989). Beyleveld has provided a sustained and masterful defense of Gewirth’s arguments that includes convincing replies to the criticisms of Machan, Uyl, Lomasky and others. See Deryck Beyleveld, The Dialectical Necessity of Morality: An Analysis and Defense of Alan Gewirth’s Argument to the Principle of Generic Consistency (Chicago: University of Chicago Press, 1991). 73 A the end of his exhaustive study Beyleveld concludes that Gewirth has provided “the best theory on this subject that has yet appeared.” See The Dialectical Necessity of Morality, 396. 74 One might object to this view on the grounds that some people pursue goals that they themselves do not regard as valuable. Such an objection fails to undermine Gewirth’s point since, on his account, one demonstrates that one regards a goal as valuable insofar as one pursues that goal. Here Gewirth’s position is consistent with social scientists who are interested in studying not what people say they value, but what people demonstrate that they value though their actions. 75 Gewirth, Reason and Morality, 63. 76 For a more detailed discussion of Gewirth’s theory of rights see Arnold, “Human Rights and Business: An Ethical Analysis.” 77 Machan, “Business Ethics in a Free Society,” 89; and Freeman and Phillips, “Stakeholder Theory: A Libertarian Defense,” 336. 78 To his credit, Machan has done this to a certain extent in Individuals and Their Rights. However, his arguments falter in light of the work of Lomasky, Gewirth, and Beyleveld. 79 Significantly, not all libertarians agree about the meaning of coercion. For example, Nozick defends a moralized account of coercion. The moralized view maintains that the truth conditions of coercion claims

Libertarian Theories of the Corporation and Global Capitalism rest on prior moral claims. Hayek, on the other hand, defends an empirical account of coercion. The empirical view maintains that the truth conditions of coercion claims are empirical. In this view, coercion typically involves psychological pressure backed by the threat of force or by an irresistible inducement. The concept of coercion employed in this essay is generally consistent with the empirical view defended by Hayek. See Robert Nozick, “Coercion,” in Philosophy, Science and Method, eds. Sidney Morgenbesser, et al. (New York: St. Martin’s Press, 1969); and Hayek, The Constitution of Liberty, esp. chap. 9. 80 Business Week, September 1, 2000, 145. 81 Ibid., 149. 82 Charles E. Lindblom, Politics and Markets: The World’s Political-Economic Systems (New York: Basic Books, 1977). Other influential discussions of corporate power in America include Edwin M. Epstein, The Corporation in American Politics (Englewood Cliffs; Prentice Hall, 1969); and James Q. Wilson, “Democracy and the Corporation,” in Does Big Business Rule America?, ed. Robert Hessen (Washington D.C.: Ethics and Public Policy Center, 1981.) 83 Lindblom also develops a third argument regarding corporate power. This argument, frequently referred to as the structural dependence thesis, holds that corporations exert structural power by virtue of their ability to affect others’ assessment of government. This in turn, leads governments to prefer policies that are advantageous to business. This argument is not discussed below, primarily because it does not appear to be well supported by empirical data. For an empirically based discussion of the structural dependence thesis with respect to corporate power over taxation in the U.S., see Dennis P. Quinn and Robert Y. Shaprio, “Business Political Power: The Case of Taxation,” American Political Science Review 85 (1991): 851–874.

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Neil J. Mitchell, The Conspicuous Corporation: Business, Public Policy and Representative Democracy (Ann Arbor: University of Michigan Press, 1997). 85 Ibid., 59. 86 Ibid., 55. 87 For example, in 1994 U.S. Corporate PACs and trade associations spent $211 million while labor PACs spent $82.2 million. Ibid., 79. 88 This assessment is based only on illegal political financing that has actually been discovered and reported. 89 See, e.g., Wilson, “Democracy and the corporation.” 90 Mitchell, The Conspicuous Corporation, 81. 91 Quinn and Shaprio, “Business Political Power: The Case of Taxation.” 92 Bribes and kickbacks are a notable exception as these have been well documented by Transparency International. See, for example, Transparency International, Global Corruption Report 2003 (London: Profile Books Limited, 2003). Available at <www.globalcorruptionreport.org>. 93 Early versions of this essay were presented to audiences at the Second World Congress of Business, Economics, and Ethics, Sao Paulo, Brazil, and Georgetown University. I am grateful to audience members for their comments on those occasions. Special thanks to Normal Bowie, Jan Narveson, and an anonymous reviewer for detailed written comments on a previous draft of this essay.

University of Tennessee, Department of Philosophy, 801 McClung Tower, Knoxville, TN 37996-0480, U.S.A. E-mail: [email protected]