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It has long been a standard criticism of large economic enterprises organized as separate and autonomous legal persons, usually corporations, that their autonomy is at the root of their dysfunction. "When important decision agents do not bear a substantial share of the wealth effects of their decisions, incentive conflicts exist between residual claimants (owners) and decision agents (managers)." (Hay & Summer 2006; Berle & Means 1932; Jenson and Meckling 1976). This separation implies both a necessary bureaucratization and a functional differentiaiton among actors within a large communal enterprise in which increasingly complex decisions might be developed by ever larger groups of agents with decreasingly direct connection with ultimate decision makers. The result is the creation of loosely functioning empires rather than tightlyy organized entitioes.

But this problem of separation and control applies in equal measure to the state. And like the large enterprise from the 1930s, the state has increasingly developed complex systems of effectively autonomous organs for the implementation of directives from more and more remote centers of ultimate control. Even within the most directly responsible organs of control--the executive and legislature--control activities have become largely residual and symbolic. Large and complex directions are generated by staffs of officials incapable of reading through much less understanding its implications and with little chance of great oversight. The spectacle of the passage of the recent stimulus package bill by Congress, a measure over 1000 pages long, by elected officials many of whom neither read nor were capable of understanding its provisions is a case in point. But that is to say nothing more than that they mimic the behavior of the executive of large corporations that come begging for assistance from the state.

The crisis of the corporation, then, is also the crisis of the state. Yet the solution is not simple. Return to the days of simple organization and simple systems is impossible is a world bent on development and the maximization of the welfare of the individual (at least in the aggregate). The crisis of corporation and state, then, is also a crisis of values, and of the conformity of those values to the institutions that have arisen despite them.

References

Berle, A. and G. C. Means (1932). "The modern corporation and private property." New York: Macmillan Publishing Co.

He, Enya He and David W. Sommer (2006) Separation of Ownership From Control: Implications for Board Composition, ARIA Annual Meeting Papers 1-43.

Jensen, M. C. and W. H. Meckling (1976). "Theory of the firm: Managerial behavior, agency costs and ownership structure." Journal of Financial Economics 3(4): 305-360.

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