ABSTRACT. Libertarian theories of the normativecore of the corporation hold in common the viewthat is the responsibility of publicity held corporationsto return profits to shareholders within the boundsof certain moral side-constraints. Side-constraints maybe either weak (grounded in the rules of the game)or strong (grounded in rights). This essay considerslibertarian arguments regarding the normative core ofthe corporation in the context of global capitalismand in the light of actual corporate behavior. First, itis argued the weak side-constraints view is concep-tually incoherent when applied in a global context.Second, it is argued that proponents of the libertarianstrong side-constraints view lack an adequate theoryof rights. Third, both the weak side-constraints viewand the strong side-constraints view are shown to beunsatisfactory insofar as they fail to adequately addressthe coercive power of corporations. The main con-clusion of this essay is that a viable libertarian theoryof the corporation has yet to be articulated.

KEY WORDS: capitalism, coercion, democracy,Ecuador, Friedman, Gewirth, globalization, liber-tarian, Lomasky, Multinational corporation, rights,Texaco

Multinational corporations (MNCs) are extraor-dinary powerful actors on the global stage, andtheir influence in increasing. During the 1980sand the 1990s, and into the 2000s, there was aremarkable increase in foreign direct investment(FDI) on the part of MNCs. Between 1985 and1990, FDI increased at an annual rate of 30%;and between 1992 and the late 1990s annualflows of FDI nearly doubled to $350 billion.1

This increase in FDI is one indicator of thesteadily growing economic and political influenceof MNCs in what political economist RobertGilpin has termed “the age of multinationals.”2

MNCs frequently conduct business in hostnations where it is lawful to engage in practicesthat most North American and Europeans findmorally abhorrent. Frequently the lax regulatoryenvironment stems from a desire on the part ofhost nation governments to attract FDI. Criticsof MNCs abound.3 Nongovernmental organiza-tions (NGOs) lead systematic campaigns tocounter what they regard as the disproportionateinfluence of MNCs over public policy at all levelsof government. In addition, NGOs chargeMNCs with environmental degradation, dis-regard for the welfare of home-nation employees,and the exploitation of offshore factory workers.MNCs and their defenders argue that it is boththe right and responsibility of MNCs to exertinfluence over public policy as part of thedemocratic process. Further, they argue thatincreases in FDI are improving social welfare indeveloping nations though technology transferand job creation. Underlying such arguments arenormative claims about how MNCs shouldconduct themselves in the global marketplace.

The question of whether or not there areuniversal moral norms that should serve as

Libertarian Theories of the Corporation and Global Capitalism

Denis G. Arnold

Journal of Business Ethics

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

Denis G. Arnold is Assistant Professor of Philosophy atthe University of Tennessee, Knoxville. He is a pastfellow of the National Endowment for the Humanities.His work in ethics and business ethics has appeared inHistory of Philosophy Quarterly, AmericanPhilosophical Quarterly, Business Ethics Quarterly,and other publications. He is co-editor of Rising AboveSweatshops: Innovative Management Responses toGlobal Labor Challenges (Praeger, 2004).

minimum standards for MNC conduct acrossnational boundaries has received a significantamount of attention from ethicists.4 However,libertarian theories regarding the “normativecore”5 or “core normative conception”6 of thecorporation have not previously been evaluatedin the context of global capitalism. According toThomas Donaldson and Lee Preston, normativetheories of the corporation are “used to interpretthe function of the corporation, including theidentification of moral and philosophical guide-lines for the operation and management ofcorporations.”7 While recent discussions ofnormative conceptions of the corporation havetaken place mainly within the context of debatesconcerning stakeholder theory, the idea of anormative core of the corporation is fundamentalto any theory of the corporation insofar as thetheory recommends the pursuit of particularends.

Libertarian theories of the corporation hold incommon the view that is the obligation ofpublicly held corporations to maximize profitsfor shareholders within the bounds of certainmoral side-constraints. The most well-knowndefender of a libertarian conception of thecorporation is Milton Friedman, whose stock-holder theory of the corporation remainsinfluential despite having been subjected tosignificant criticism.8 Theorists such as ElaineSternberg and Tibor Machan have defended theirown distinctive libertarian theories of theconduct of business.9 More recently, EdwardFreeman and Robert Phillips have sought toarticulate a libertarian stakeholder theory ofcapitalism.10 While the distinctions between aneconomic system, such as capitalism, the conductof business, and the conduct of corporations areimportant, it is possible to extract from theseviews a general normative core – more properly,two general normative cores – of multinationalcorporations.11 The purpose of this essay is toassess these theories.12

The following section of this essay provides anoverview of libertarian theories of the corpora-tion and distinguishes between two distinctstrands – the weak side-constraints view and thestrong side-constraints view – of libertarianthinking about the core normative conception of

the corporation. Later sections explain and crit-ically assess both strands of libertarian thinkingregarding the normative core of the corporation.This essay is distinctive in at least two ways. First,libertarian arguments are considered in the lightof actual corporate behavior. In particular,libertarian arguments are applied to the case ofTexaco’s oil extraction operations in Ecuador.Second, libertarian arguments are analyzed in thecontext of global capitalism, rather than merelyin the context of American capitalism as isnormally the case. The arguments of this essaylead to the following conclusions. First, the weakside-constraints view is conceptually incoherentwhen applied in a global context. Second, pro-ponents of the libertarian strong side-constraintsview of the normative core of the corporationlack of adequate theory of rights. Third, both theweak side-constraints view and the strong side-constraints view are unsatisfactory insofar as theyfail to adequately address the coercive power ofcorporations. As such, the main conclusion ofthis essay is that a viable libertarian theory of thenormative core of multinational corporations hasyet to be articulated.

I. Libertarianism

A reading of prominent twentieth-centurylibertarian theorists such as Friedrich A. Hayek,Robert Nozick and Friedman, yields a core setof libertarian doctrines.13 These include individ-ualism, the idea the individual persons, ratherthan the community, should be regarded as thebasic unit of social analysis; self-ownership, theview that individuals should be free to decidewhat is best for themselves so long as they respectthis same freedom in others; free markets, theview that government intervention in marketexchanges should be minimized in the interest offreedom and economic prosperity; and theminimal state, the view that the coercive influ-ence of government should be severely restrictedso as to ensure that the self-ownership of indi-vidual persons is maximized.14

Libertarian theories of the corporation may bederived from the explicit normative theoriesregarding the conduct of business defended by

156 Denis G. Arnold

theorists such as Friedman and Machan, in con-junction with an analysis of core libertariandoctrines. Libertarian theories hold in commonthe view that it is the responsibility of publiclyheld corporations to return profits to share-holders within the bounds of certain moralside-constraints.15 Moral side-constraints areblocks or restrictions against actions and they maybe either weak or strong. A weak side-constraintsview will require relatively few restrictions oncorporate actions, whereas a strong-side con-straints view will require significantly morerestrictions. Proponents of weak side-constraintsground these constraints in the rules or normspresupposed by the activity itself. For example,Sternberg maintains that “The principles ofbusiness ethics are simply those that are presup-posed by the definitive business activity: maxi-mizing long-term owner value by selling goodsor services.”16 In this view, moral-side constraintsare grounded in notions of fair play. Actions thatdo not violate the “rules of the game” are per-missible whereas actions that violate those rulesare not. Proponents of strong side-constraintssuch as Nozick and Loren Lomasky17 groundside-constraints in fundamental rights. Rightsmay be either negative or positive. Negativerights constitute shields against the unjustviolation of individual freedoms. Positive rights,on the other hand, constitute entitlements tothings that are necessary for the exercise ofindividual freedom. As social institutions whosecontinued existence is predicated upon stablecivil societies, corporations are properly subjectto the duty to respect the basic rights that serveas the foundation for such societies. In this view,actions that do not violate basic rights are morallypermissible, whereas actions that violate suchrights are not.

“Multinational corporations” are a subset ofthe category “corporations,” and as such liber-tarians theories of the corporation may be takento apply to multinational corporations. Thefollowing discussion of libertarian theories of thecorporation is constrained by the fact that suchtheories have been merely sketched by theirproponents. A philosophically sustained, norma-tive libertarian theory of the corporation has yetto be articulated. For this reason, it is necessary

to draw from works of libertarian moral andpolitical philosophy in order to fill out libertarianviews of the core normative theory of multi-national corporations. As we shall see, this isespecially true with regard to the strong side-constraints view.

II. Weak side-constraints

In Capitalism and Freedom, Friedman argues thatthe normative function of the corporation is touse its resources and engage in activities designedto increase its profits so long as it stays within therules of the game, which is to say, engages inopen and free competition, without deceptionor fraud.18 In “The Social Responsibility ofBusiness,” published seven years after Capitalismand Freedom, Friedman reformulates this positionin the following terms:

In a free enterprise, a private property system, acorporate executive is an employee of the ownersof the business. He has a direct responsibility to hisemployers. That responsibility is to conduct thebusiness in accordance with their desires, whichgenerally will be to make as much money aspossible while conforming to the basic rules of thesociety, both those embodied in law and thoseembodied in ethical custom.19

Friedman’s view has been both dismissed as“Neanderthalism,”20 and criticized for its theo-retical shortcomings.21 However, it remainswidely influential. Recently, for example, PfizerInc. was faced with a shareholder resolution toseverely restrict its charitable contributions to“health, educational and community projects,cultural arts entities, etc.” explicitly on the basisof Friedman’s arguments.22

Friedman’s well-known argument in “TheSocial Responsibility of Business” may be sum-marized as follows:

01. In a democratic society the majority ofcitizens determine the laws that governcorporate behavior.

02. Business executives are (or ought to be)agents of the owners of a business.

03. Executives, if running a nonprofit orga-

Libertarian Theories of the Corporation and Global Capitalism 157

nization or a privately held company, aswell as in their own personal life, mayhave responsibilities other than profitmaking.

04. The only common interest that share-holders have qua shareholders is to makemoney.

05. Executives of publicly held companieshave an obligation to maximize profitwhile respecting the “rules of the game,”i.e., while engaging in open, free, andlawful competition, without deception orfraud.

06. As an agent any commitment to socialresponsibly, other than that of providingreturns for shareholders within the “rulesof the games,” means that the executiveis spending money that is not his, whetherthat is of the customer (through priceincreases), the employees (by means oflower wages), or the shareholder (throughlower ROE). This constitutes taxation andthe expenditure of tax proceeds.

07. On the level of “political principle,” theexpenditure of corporate resources onventures not intended to maximize profitsconstitutes taxation without representationand is unjust. Such activity is unjustbecause executives are not democraticallyelected and the uses to which the fundsare put are not democratically determined.

08. On the level of “consequences,” corporateexecutives lack the expertise necessary toproperly implement socially importantgoals. Furthermore, their actions are“suicidal” because shareholders will firethem for illegitimately expendingresources; customers and employees willgo elsewhere.

09. Corporate executives may legitimatelyexpend resources on social projects thatimprove corporate profits. However, itwould be “hypocritical window-dressing”to refer to these as “socially responsible”actions.

10. Therefore, there is only one social respon-sibility of business: to increase profitswhile engaging in open and free compe-tition without deception or fraud.23

While he does not make his claim explicit, it isclear from Friedman’s analysis that he assumesthat companies operate in functioning democra-cies. Corporations that engage in activities otherthan profit maximization in the name of corpo-rate social responsibility are, according toFriedman, engaged in “fundamentally subversive”activities because executives are not democrati-cally elected and the uses to which the funds areput are not democratically determined. “This isthe basic reason,” according to Friedman, “whythe doctrine of ‘social responsibility’ involves theacceptance of the socialist view that politicalmechanisms, not market mechanisms, are theappropriate way to determine the allocation ofscarce resources to alternative uses.”24 In hisjudgment, illegitimate socially responsible actionsare largely the result of individuals trying toobtain by undemocratic procedures what theywere unable to persuade a majority of theirfellow citizens to enact through democraticprocedures. Furthermore, executives who engagein illegitimate socially responsible behaviorexhibit a “suicidal impulse” because they rein-force the notion that “the pursuit of profits iswicked and immoral and must be curbed andcontrolled by external forces,” and in particularby the “iron fist of Government bureaucrats.”25

As we have seen, Sternberg maintains that“The principles of business ethics are simplythose that are presupposed by the definitivebusiness activity: maximizing long-term ownervalue by selling goods or services.”26 She explic-itly endorses Friedman’s position, arguing that“managers who eschew maximizing long-termowner value, and direct their firms to any othergoal, are as much prostitutes as artists orsportsmen who sell out for financial gain.”27

Nonetheless, she allows for a slightly moreexpansive account of the normative core of cor-porations than does Friedman. She argues thatthe principles of business ethics are a libertarianconcept of distributive justice and ordinarydecency. The former holds that rewards are justlydistributed on the basis of one’s contribution tothe goal of profit maximization. The later is tobe understood as “fairness and honesty” inrelationship to contracts and promises, as well as“refraining from coercion and physical violence,

158 Denis G. Arnold

typically within the confines of the law.” BecauseSternberg maintains that moral side-constraintsare grounded in notions of fair play and the“rules of the game” her position falls into theweak side-constraints category.

III. Assessing the weak side-constraints III. view

Weak-side constraints theories, such as thosedefended by Friedman and Sternberg, are dis-tinctive in that they purport to identify thenormative core of a corporation without pro-viding a coherent ethical foundation for thatnormative core. One might, for example, defenda realist, non-cognivitist, constructivist, orKantian foundation. To her credit, Sternbergacknowledges that the moral status of theprimary objective of business itself requires jus-tification. “it requires investigating, among muchelse, the meaning of merit and desert and enti-tlement, and the grounds of equality, liberty, andproperty.”28 However, providing a theoreticaljustification for the goals of business is not suf-ficient. It remains necessary to justify the prin-ciples that will guide business organizations andthe actions of individual business people.Sternberg, like Friedman, is mistaken in pre-suming that if the goals of business activity canbe justified, the only principles that should guidebusiness are those presupposed by the goal ofprofit making.29 However, providing a theoret-ical justification for the goals of business is notsufficient. It remains necessary to justify the prin-ciples that will guide business organizations andthe actions of individual business people.Sternberg, like Friedman, is mistaken in pre-suming that if the goals of business activity canbe justified, the only principles that should guidebusiness are those presupposed by the goal ofprofit making.29 The foundational question ofethics is “How should we live as rationalpersons?” It is not, “How should we live as profitmakers?” In so far as business is a human activity(and business persons are rational persons asopposed to the Homo economicus of some con-temporary economists) it is subject to the samerationally justifiable moral norms as any other

human activity. These moral norms are to bederived from the moral point of view. The moralpoint of view may be understood as the pointof view of every person. Here the term “person”is used in a technical sense to denote rational,self-governing beings. When we take the moralpoint of view, we seek to adjudicate disputesrationally; we assume that other persons areneither more nor less important than ourselves;and we assume that our own claims will beconsidered alongside those of others in animpartial manner. These three components of themoral point of view are respectively concernedwith rationality, universalizabiltiy, and impar-tiality.

The moral point of view is rational in the sensethat it involves the application of reason ratherthan feeling or mere inclination. Moral issuesfrequently invoke a strong emotional response inindividuals. The attempt to justify a moral stanceby appeal to reasons that may be considered andevaluated by other persons facilitates a processwhereby individuals with distinctly differentemotional responses to a moral issue may seekmutual understanding and, perhaps, agreement.The moral point of view is universal in the sensethat the principles or propositions ascertainedthere from apply to all persons and to all rele-vantly similar circumstances. Thus, if a moralprinciple or proposition is valid, no persons areexempt from its strictures. And the moral pointof view is impartial in the sense that principlesor propositions ascertained there from apply topersons irrespective of arbitrary considerations.This impartially may involve the application of aspecific principle that purposively ignores thecircumstances of individual lives, or it mayinvolve an unbiased evaluation of the particularlived reality of individual persons or groups andan assessment of the needs and preferences ofindividual persons or groups in light of the needsand preferences of others. In any case, it requiresthat characteristics such as a person’s race, sex,nationality, and economic circumstances, e.g.,cannot be regarded as a legitimate basis fortreating persons differently from other personswhen there are no good reasons for thinking suchconsiderations relevant. However, it is importantto note that the moral point of view does not

Libertarian Theories of the Corporation and Global Capitalism 159

exclude partiality. Favoring the interests of oneparty over another is justified when there areoverriding reasons for ranking the specific inter-ests of one party over another. This is especiallyso when one has familial, professional, or con-tractual responsibilities. This point is of obviousrelevance to MNC managers who have distinctmoral and legal obligations to shareholders. Aprimary challenge for the moral manager is todetermine when the interests of shareholderstrump those of other stakeholders, and when theinterests of those stakeholders override theinterests of shareholders.30 Any adequate norma-tive theory of the corporation must be capableof guiding managers in this regard. The weakside-constraints view fails to provide suchguidance because its proponents neither providenor appeal to a coherent ethical foundation.

Friedman demonstrates little concern with theethical foundations of his view of the normativecore of the corporation because he assumes theexistence of a democratic system of government.He regards a democratic form of government aspreferable to others because he views it as theform of government most compatible withpolitical freedom. He appears to assume that allcitizens have an equal ability to regulate corpo-rate behavior through the legislative process.Given the power of business described in SectionVII below, this assumption is deeply problematicwhen considered in an American context. How-ever, when considered in a global context thisassumption must be regarded as false. Friedmanand his supporters also appear to assume that anidealized form of American democracy will beoperative wherever MNCs conduct business. YetMNCs conduct business in China, Burma(Myanmar), Saudi Arabia and numerous othernations where this is not the case. In the nextsection, the little known story of Texaco’s oper-ations in Ecuador is used to illustrate the defi-ciencies inherent in the weak side-constraintsview 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 theborders of Peru and Colombia. It has a humanpopulation of between 350,000 and 500,000people. Estimated to be home to 5% of theEarth’s species, it is one of the most biologicallydiverse ecosystems in the world. The Oriente ishome to approximately 10,000 species of vascularplants, many of them unique to the region.Animal diversity is remarkable as well. Scientistshave identified more than 600 species of birds,500 species of fish, and 120 species of mammalsin one region of the Orient alone.31 IndigenousIndian populations have lived by subsistence inthe Oriente for centuries. Presently there areeight indigenous sub-cultures with a total pop-ulation of between 85,000 and 250,000.32 Inaddition, tens of thousands of settlers from thehighland and coastal regions of Ecuador havecolonized portions of the Oriente with theencouragement of the federal government, aswell as the logging companies, ranchers, andoil companies for whom they typically work.33

Ecuador’s military maintains a heavy presence inthe Oriente and controls access to most of theoil producing regions.34

Petroleum is the single most importantelement of Ecuador’s economy. In 1986 itaccounted for 14 percent of GDP and two-thirdsof export revenues.35 From 1964, until it con-cession ended in 1992, Texaco PetroleumIncorporated, a subsidiary of Texaco,36 main-tained a partnership with Petroecuador, the stateoil company of Ecuador.37 Texaco was a minoritypartner in the venture, but as current and formerEcuadorean government officials point out,Ecuador was a novice at oil drilling and properwaste disposal and accepted the company’spractices without question.38 General ReneVargas Pazzoz, who led Petroecuador in the1970’s, reports that Texaco operated with“compete autonomy” during the term of thepartnership.39 The Texaco consortium con-structed hundreds of drill sites, hundreds of milesof roads, and a primary pipeline that extends for312 miles across the Andes to Ecuador’s coast.Large tracts of forest were clear-cut to make wayfor these facilities. Indian lands were taken andbulldozed, often without compensation. Oil wassprayed on dirt roads to keep dust down, leaching

160 Denis G. Arnold

into the groundwater. The Ecuadorean govern-ment has recorded nearly thirty major spills onthe primary pipeline alone, resulting in the lossof an estimated 16.8 million gallons over aneighteen-year period.40 Spills from secondarypipes have not be recorded, however, it is esti-mated that smaller tertiary pipelines dumpthousands of gallons of oil per week into theAmazon. No equipment was available to cleanup oil spills or to lessen their environmentalimpact.41 In addition to oil spills, approximatelynineteen billion gallons of untreated “producedwater” containing oil and other chemicals hasbeen released into the Oriente during the sameperiod. Significant portions of these spills havebeen carried downriver into neighboring Peru.

Critics argue that Texaco ignored prevailingoil industry standards by dumping untreatedwaste into unlined storage pits, and directly intorivers and streams. As early as 1971 RichardByrd, general counsel of the Interstate OilCompact Commission and a leading oil industryspokesperson, testified before the U.S. Congressthat dumping untreated waste “into unlined pitsis not considered to be an acceptable practice.”42

Judith Kimmerling, who conducted much of theinitial research into the impact of oil productionon the Oriente ecosystem and its inhabitants,describes the pits as follows:

The pits are filled with toxic wastes and are almostalways topped by a thick layer of petroleum.Rainwater freely enters the pits, swelling thecontents and becoming contaminated as it mixeswith the wastes. Liquid wastes or thick, oozingpetroleum are discharged on an ongoing basis fromsmall pipes that drain most of the pits, accumu-lating in low areas or flowing down gullies intonearby streams or river. Other wastes spill over thesides of the pits or burst through collapsed wallsof poorly constructed pits. Large artificial lakes ofspilled petroleum are common near the pits.43

The only treatment these chemicals receivedoccurred when Texaco burned waste pits toreduce petroleum content. Villagers report thatthe chemicals return as black rain, polluting whatlittle clean water remains in the area. Cattle arefound with their stomachs rotted out; crops aredestroyed; animals are gone from the forest; and

fish have disappeared from the lakes and rivers.Health officials and community leaders reportadults and children with deformities, skin rashes,abscesses, headaches, dysentery, infections, andrespiratory ailments. Researches from theHarvard School of Public Health found waterused for drinking, bathing, and fishing contam-inated with dangerous levels of carcinogens.44

From 1995–1998 Texaco spent 40 million dollarson “remedial” cleanup operations in Ecuador.45

In exchange for these efforts the then govern-ment of Ecuador relinquished future claimsagainst the company. Texaco has cleaned outmore than 250 pits, pools, and spill sites, butaccording to Ecuador’s Under Secretary for theEnvironment 400 more remain untreated.46

Texaco denies the charges of its criticsregarding its actions in Ecuador. Texaco reportsthat, “We are strongly committed to protectingthe environment and the health and safety of allmembers of the communities in which weoperate. Every employee, customer, neighbor andpartner is equally important to us.”47 Texacodefends its actions in Ecuador with three mainarguments. First, Texaco argues that it“responded quickly and effectively to all spills”and that its activities in Ecuador have had “nolasting environmental impact.”48 Second, Texacoargues that much of the evidence that purportsto document the negative impact of its opera-tions on the health of residents of the Oriente isnot scientifically credible. Third, Texaco arguesthat regardless of any alleged wrongdoing, italways operated in full compliance withEcuadorean law, and with the full approval of theEcuadorean government.49 This last defense ofTexaco’s actions may be regarded as a practicalapplication of the weak side-constraints view ofthe corporation. By arguing that it was in com-pliance with Ecuadorean law, and that it actedwith the consent of the Ecuadorean government,Texaco executives appear to believe that Texacoshould be exculpated from any blame.50 It is thisclaim with which we are primarily concerned.In order to focus our discussion, assume for thesake of argument that the allegations of Texaco’scritics are generally correct. Does the weak side-constraints view as articulated by Friedman andSternberg support Texaco’s position? It does not.

Libertarian Theories of the Corporation and Global Capitalism 161

Friedman’s defense of the normative core ofthe corporation is premised on the fact thatcorporations operate in democracies. His con-clusion that the only social responsibility of cor-porations is to maximize profits while engagingin open and free competition without deceptionor fraud is well known. However, his conclusionis premised on the assumption that the majorityof citizens in a nation determine the laws thatgovern corporate behavior in that nation. Bothhis critics and his admirers have neglected thesignificance of this crucial assumption. For if acorporation operates in a non-democratic nation,then Friedman’s conclusion does not follow.Consider the case of Texaco’s operations inEcuador. Throughout its history Ecuador hasbeen one of the least politically stable SouthAmerican nations. In 1830 Ecuador achieved itsindependence from Spain. Ecuadorean politicssince that time has been characterized by cyclesof republican government and military interven-tion and rule. From 1948 to 1972 Ecuador’sfederal government was marked by instability andmilitary dominance. From 1972 to 1979 – theperiod in which Texaco began its oil extractionoperations – Ecuador was under direct militaryrule. It was not until 1979 that some semblanceof democracy was restored. Nonetheless, evenafter 1979 corruption remained widespread (e.g.,a recent study by George Washington Universityfound that only 16 percent of Ecuadoreans haveconfidence in their legal system); indigenousIndian tribes remained politically marginalized;and government officials remained fearful ofdeterring foreign investment by enhancing envi-ronmental protection standards. Additionally, theEcuadorean military continued to play a majorrole in governmental affairs. Democracy inEcuador is incipient and must be nurtured.51

Independent of one’s view of Friedman’s positionas it applies to ideally democratic nations, thesefacts lead one to the conclusion that Ecuadorlacked the democratic institutions necessary forFriedman’s analysis to be applicable during theperiod in which Texaco operated in Ecuador.

Ecuador is not alone in lacking democracy.Many of the nations in which MNCs conductbusiness lack important democratic institutionssuch as equal voting rights, multiple political

parties, democratic elections, politically neutralmilitaries, and an independent judiciary.According to Freedom House, in 2000 37.5% ofthe 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 thecorporation is conceptually incoherent whenapplied to MNCs that operate in these non-democratic nations. It is conceptually incoherentbecause in order to provide normative guidanceit must assume the existence of democraticinstitutions where they do not exist.

Sternberg’s version of the weak side-con-straints view fairs letter better. According toSternberg, Texaco’s actions are praiseworthy ifthey maximize long-term owner value whileadhering to the constraints of “ordinarydecency.”53 Texaco’s critics accuse it of acting incomplicity with an undemocratic repressiveregime; with the unjustifiable exploitation of animpoverished nation that had almost no experi-ence with oil exploration and extraction; withsystematic environmental degradation; and withwidespread human rights violations. However, ifthese criticisms are accurate, none of them violatethe constraints of ordinary decency as definedby Sternberg. Texaco honored its contractualobligations; appears to have refrained fromcoercion and physical violence; and thus far hasmaximized long-term owner value in itsEcuadorean operations. As such, Sternbergshould find no fault with Texaco’s actions inEcuador. However, there are at least two diffi-culties with Sternberg’s view as it relates to theTexaco case. First, as has been noted, Sternbergexplicitly endorses Friedman’s view and uses itto support her own weak-side constraints view.In addition, she acknowledges that “consent is anessential condition of legitimate government.”54

However, she remains silent regarding the relativeimportance of democracy for her own view ofthe normative core of business. Since Friedman’sview has been shown to be conceptual inco-herent when applied to non-democratic nationssuch as Ecuador, Sternberg’s view is underminedto the extent that her own position constitutesan extension of Friedman’s position.

What additional arguments can Sternberg

162 Denis G. Arnold

bring to bear in defense of her position? As wehave seen, she claims that “the principles ofbusiness ethics are those enjoining the basicvalues without which business as an activitywould be impossible.”55 However, she does notexplain in detail why this is the case. This high-lights a second difficulty with Sternberg’sposition. The claim that MNC managers mustrespect the values that are presupposed by thepractice of business is best understood as aKantian claim. As a matter of rational consistency,a person who recognizes that the conduct ofbusiness presupposes certain norms to whichothers must adhere, must also recognize that heor she must adhere to those norms as well. Todo otherwise would be irrational insofar as onewould be making an exception of oneself onmorally arbitrary grounds. Somewhat surpris-ingly, given her implicit invocation of thisKantian argument, Sternberg dismisses a Kantianapproach to business ethics as “incoherent.”56

However, Norman Bowie has persuasively arguedthat a Kantian approach to business ethics is bothcoherent and consistent with innovative andsuccessive management practices.57 The princi-ples of business ethics that Bowie defends onKantian grounds are both more expansive andmore demanding than those defended bySternberg. Thus, Sternberg must either providean alternative foundation for her view of thenormative core of MNCs, or she must more fullyembrace the implications of a Kantian defenseof the principles of business ethics implicit in herargument.

In concluding this section it is worthwhile toconsider an objection to the preceding analysisof Texaco’s operations in Ecuador. It might beargued that moral responsibility for the harmcaused by the Texaco led operations in theOriente lies with the government of Ecuador.Two points may be made in response to thisobjection. First, holding Texaco culpable for theconsequences of its operations is not incompat-ible with holding the leaders of Ecuador’s gov-ernment during this period responsible forTexaco’s operations as well. Second, it is not clearupon what basis the argument that the govern-ment of Ecuador is solely responsible for theconsequences of Texaco’s lawful operations in

the Oriente might be made. It remains open tothe proponent of this view to offer such anargument. To hold the government of Ecuadorsolely responsible for the alleged consequences ofTexaco’s operations in the Oriente merelybecause Texaco operated lawfully is to set anextraordinarily low standard for MNC conduct.This would entail that corporations should notbe regarded as morally responsible for anyconduct, no matter how reprehensible, so longas the government in power legally sanctionedthe conduct. So, for example, corporations thatutilized forced or slave labor with the consentof Axis regimes during World War II would notbe regarded as responsible for those practices.However, such practices are morally objection-able because they violate basic human rights.

V. Human rights

There is yet a further difficulty with the weakside-constraints view, a difficulty that was implicitin the previous section of this essay. The weakside-constraints view altogether neglects thehuman rights obligations of MNCs.58 The pro-mulgation of the United Nations UniversalDeclaration of Human Rights, together with theadvocacy of nongovernmental organizations, hasled to the widespread acceptance of human rightsas a basic tool of moral evaluation by individualsof widely divergent political and religious beliefs.The idea of basic human rights is grounded inthe Kantian idea that one should always treatother persons as an end unto themselves, andnever as a means only. Persons are free andrational creatures and as such, argued Kant, theyhave intrinsic value that must be respected. Thismeans that the desires, goals, and aspirations ofother persons must be given due consideration.It is this Enlightenment idea that serves as a basisfor human rights.

Human rights are moral rights that apply to allpersons in all nations, regardless of whether thenation in which a person resides acknowledgesand protects those rights. It is in this sense thathuman rights are understood to be inalienable.Human rights differ from legal rights in that,unlike legal rights, the existence of human rights

Libertarian Theories of the Corporation and Global Capitalism 163

is not contingent upon any institution. Manynations grant their citizens certain constitutionalor legal rights via foundational documents, legalprecedent, or legislative action. However, thehuman rights that are actually protected varyamong nations. Furthermore, the human rightsof all citizens are not always protected even inostensible democracies. For example, the gov-ernment of Ecuador has, historically, failed toconcern itself with the rights of indigenousIndians and other marginalized groups. TheTexaco lead consortium took advantage of thisfact in order to maximize profits as it exploitedthe oil reserves of the Oriente.

One of the basic human rights that Texaco isaccused of violating is the right to a clean andhealthy environment. A growing body if inter-national accords, including the 1972 StockholmDeclaration signed by more than 100 countries(including the United States and Ecuador)identify the right to a clean and healthy envi-ronment as a fundamental human right andprohibits both state and private actors fromendangering the needs of present and future gen-erations. The fact that the Texaco lead consor-tium spilled, sprayed, and dumped millions ofbarrels of oil into Ecuador’s Oriente is notdisputed. If the allegations of critics are correct,and Texaco’s pollution of the Amazon has under-mined the health and welfare of present andfuture generations of Ecuadoreans, as well aspresent and future generations in neighboringPeru, then Texaco violated what is widelyregarded to be a basic human right.

At this point proponents of the strong side-constraints view would likely protest that liber-tarianism retains at its core the view that theliberty of individuals must be respected. Noauthentic and consistent libertarian, especiallyone who adheres to “classical individualism,”would maintain that the violation of certain basichuman rights should be regarded as morallypermissible.59 If the citizens of the Oriente hada legitimate claim to their land, and if Texacopolluted that land without their permission andwithout appropriate compensation, proponentsof the strong-side constraints view are likely toconclude that Texaco’s actions in this case are tobe condemned. However, prior to reaching such

a conclusion it is necessary to consider the lib-ertarian strong side-constraints view of the nor-mative core of the corporation.

VI. Strong side-constraints

As we have seen, strong side-constraints aregrounded in basic rights. Rights maybe eithernegative or positive. Negative rights constituteshields against the unjust violation of individualfreedoms. If persons’ possess negative rights, thenother persons retain correlative duties that requirethat they refrain from actions that interfere withtheir individual freedoms. Positive rights, on theother hand, constitute entitlements to things thatare necessary for the exercise of individualfreedom. If persons’ possess positive rights, thenother persons retain correlative duties that requirethat they provide individuals with those thingsthat are necessary for the exercise of individualfreedoms. Libertarians typically defend negativerights, and their correlative duties, whilerejecting positive rights and their correlativeduties.

Libertarians often appeal to the work ofNozick in defending negative rights. In Anarchy,State, and Utopia, Nozick defends the view thatall persons have negative rights, but that positiverights come into existence only when peoplevoluntarily agree to undertake the obligationsthat correspond to such rights (e.g., through validcontracts).60 His arguments for this conclusion arecomplex, but significantly for the purposes of ourdiscussion, he acknowledges that he “does notpresent a precise theory of the moral basis ofindividual rights.”61 Which is to say that Nozick’stheory of rights lacks a moral foundation. Hedoes suggest that Kant’s doctrine of respect forpersons may provide the necessary foundation:

Side constraints upon action reflect the underlyingKantian principle that individuals are ends and notmerely means; they may not be sacrificed or usedfor the achieving of others ends without theirconsent. Individuals are inviolable.62

This conclusion is derived form Kant’s secondformulation of the categorical imperative: “Actso that you treat humanity, whether in your own

164 Denis G. Arnold

person or in that of another, always as and endand never as a means only.”63 The popular expres-sion of this principle is that morality requires thatwe respect people. Kant provides a sustaineddefense of the doctrine of respect for persons,and specifies in detail its practical implications.Nozick does not himself undertake to determinewhether or not Kant’s analysis is successful inestablishing a foundation for strong libertarianside-constraints such as negative rights, althoughhe recognizes the necessity of providing suchsupport. Rather, he notes that an adequatedefense of libertarian rights can be establishedin one of two ways:

either by working back from the view, step by step,or by starting at the very foundations of moralphilosophy and working forward. If this lattercourse, pursued without too much glancing ahead,does succeed in linking up with the specifiedrights, then it will provide them with independentsupport. There also is the risk, however, that thisforward motion from the foundations will lead toa completely different view, as the construction ofa transcontinental railroad starting from both coastscould fail to link up, instead leading to two fullrailroad lines.64

Indeed, as Nozick’s critics have argued, once themoral foundations have been established theymay result in the derivation of substantially moreexpansive set of rights than those intuited andanalyzed by Nozick.65 Thomas Nagel hasprovided a succinct summary of the implicationsof Nozick’s failure to provide “a precise theoryof the moral basis of individual rights” for polit-ical philosophy.

To present a serious challenge to other views, adiscussion of libertarianism would have to explorethe foundations of individual rights and the reasonsfor and against different conceptions of the relationbetween those rights and other values that the statemay be in a position to promote. But Nozick’sbook is theoretically insubstantial: it does not takeup the main problems, and therefore fails to makethe kind of contribution to political theory thatmight have been hoped for from someone of hisphilosophical attainments.66

These same theoretical deficiencies will under-mine any effort to use Nozick’s account of strong

side-constraints to support a libertarian theory ofthe corporation. Without this moral foundation,a Nozickian libertarian theory of the normativecore of the corporation is untenable.

More recently, other libertarians have soughtto provide the moral foundation that Nozick’saccount of rights lacks. One of the most sophis-ticated libertarian defenses of the foundations ofindividual rights is that provided by LorenLomasky in Persons, Rights, and the MoralCommunity. Lomasky’s arguments are groundedin classical liberalism, Kantian moral philosophy,and in the work of the contemporary moralphilosopher Bernard Williams. FollowingWilliams, Lomasky grounds his analysis in aconception of human beings as project pursuers.He characterizes projects in the following terms:

Some ends . . . persist throughout large stretchesof an individual’s life and continue to elicit actionsthat establish a pattern coherent in virtue of theends subserved. Those which reach indefinitelyinto the future, play a central role within theongoing endeavors of the individual, and providea significant degree of structural stability to anindividual’s life I call projects. Beyond the threecharacteristics of persistence, centrality, and struc-ture, projects assume variant forms and are pursuedby both saints and sinners.67

Projects provide agents with reasons for valuingthe advancement of certain ends over theadvancement of other ends; they providemeaning to our lives. Each agent qua projectpursuer has reason to value the liberty necessaryfor project pursuit. Because the situation ofagents with respect to project pursuit is sym-metrical, every agent also has reason to valuethe liberty of other project purser. Rights takethe form of side-constraints that bound themoral space in which agents may pursueprojects without unjustified interference by otheragents or institutions. Lomasky defines basicrights as

those moral constraints that impose minimaldemands on the forbearance of others such thatindividuals can pursue projects amidst a world ofsimilar beings, each with his own life to lead, andeach owing the same measure of respect to othersthat they owe to him.68

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A minimal moral requirement of all agents andorganizations is that they respect basic rights.This is not so because rights are the highesthuman good, rather this is so because respect forrights is a necessary condition of leading goodlives in civil society.

Significantly, Lomasky defends certain positiverights as well as negative rights. Most libertar-ians follow Nozick in rejecting positive rightsthat are not mutually contracted. “Such a liber-tarianism,” argues Lomasky, “is defensible.”69 Thisis because it is disconnected from the groundingof basic rights in the rational capacity of agentsto recognize the value of their own pursuit ofprojects. It is conceivable that some agents willlack the goods necessary for the satisfactorypursuit of projects. Under such circumstancesthose individuals may be entitled to welfaregoods as a matter of right.

If a person is otherwise unable to secure that whichis necessary for his ability to live as a projectpursuer, then he has a rightful claim to provisionby others who have a surplus beyond what theyrequire to live as project pursuers. In that strictlylimited but crucial respect, basic rights extendbeyond liberty rights to welfare rights.70

Civil societies comprised of rational agents whogain meaning and purpose via the pursuit ofprojects will, if Lomasky’s arguments are correct,guarantee the provision of both liberty rights andwelfare rights. However, because of the contin-gencies of history, culture, and geography whatcounts as a proper respect for basic rights willvary significantly. The instantiation of respect forbasic rights is culturally relevant modes consti-tute “moral rights.”71 For example, if no causalconnection is understood to exist betweendumping untreated “produced water” into thecommunity water supplies, then there could beno justifiable claim to have a moral right not tohave such dumping occur. However, if such acausal connection is known, then according toLomasky citizens have a moral right not to havesuch dumping occur.

Lomasky has provided one defense of thephilosophical foundations of basic rights.However, as we have seen, he defends bothnegative and positive rights. The acknowledge-

ment that individuals have positive rights is amajor concession for a libertarian. Significantly,Lomasky’s view is similar in may respects to themuch more influential theory of rights articu-lated by Alan Gewirth in Reason and Morality anddefended by Deryck Beyleveld in The DialecticalNecessity of Morality.72 Gerwirth has articulatedwhat is arguably the most influential contem-porary theory of rights.73 For this reason, it isnecessary that we consider Gewirth’s theory ofrights prior to assessing the plausibility of thelibertarian strong side-constraints view.

Gewirth begins with the idea that everyperson regards his or her purposes as goodaccording to his or her own criteria. The pursuitof particular ends by individuals provide a prac-tical demonstration of the things that those indi-viduals value.74 Such actions are possible onlyinsofar as the necessary conditions of one’s actingto achieve one’s purposes are satisfied. In otherwords, via the act of pursuing their individualaims, individuals demonstrate that they value thenecessary conditions of action. The necessaryconditions of action are freedom and well-being.Without freedom and well-being, one cannotpursue the things that one values. Freedom ishere understood as controlling one’s behavior byone’s unforced choice while having knowledgeof relevant circumstances. Possessing well-beingentails having the general abilities and conditionsrequired for a person to be able to act in amanner consistent with his or her considered, orsecond-order, preferences. Anyone who pursuesa particular good must, on pain of contradiction,claim that they have a right to freedom and well-being. As such, all persons must accept thatothers have rights to freedom and well-being.Gewirth puts the matter this way:

Since the agent [or person] regards as necessarygoods the freedom and well-being that constitutethe generic features of his successful action, he log-ically must hold that he has rights to these genericfeatures, and he implicitly makes a correspondingrights claim.75

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

166 Denis G. Arnold

the truth of a proposition by appealing to nec-essary conditions of human experience. Gewirth’sargument holds that, as a matter of rational con-sistency, a person must acknowledge that he orshe is a purposive being, and that the pursuit ofhis or her ends requires freedom and well-being.Hence he or she must claim a right to freedomand well-being. To do otherwise would be irra-tional. Because all other persons share these qual-ities, he or she must – again, as a matter orrational consistency – ascribe these rights to allother beings. To deny that persons have the rightto freedom and well-being is to deny that one isa purposive being. Since the denial is a purpo-sive act, it contradicts the proposition beginasserted. In this way, Gewirth provides a deep andsatisfying justification for both negative andpositive rights.76

There is then a strong case to be made for atheory of rights that includes both negative andpositive rights, and little theoretical support fora theory of rights that includes negative rightsbut not positive rights. For this reason it is sur-prising that libertarians theorists who promotestrong side-constraints, such as Machan andFreeman and Phillips,77 continue to insist thatmultinational corporations must respect negativerights but not positive rights. In order to chal-lenge other normative theories of the corpora-tion, libertarian theorists must provide athorough discussion of rights.78 If they wish todeploy negative rights, and to deny the existenceof positive rights, they must respond to thearguments of libertarians such as Lomasky, as wellas to Kantians such as Gewirth and Beyleveld,all of whom defend positive rights. It is notobvious how such arguments might proceed, noris it obvious that they would be successful.However, unless that important work can beaccomplished, it is reasonable to conclude thatany strong side-constraints view must invokeboth negative rights and positive rights. Thisconclusion has significant implications for bothlibertarian theories of the corporation, andlibertarianism in general. This is because onestandard distinction between libertarianism andliberalism is that the latter appeals only tonegative rights, while the former appeals bothto negative rights and to positive rights. If

libertarians are incapable of defending a theoryof rights that includes only negative rights, thenone important distinction between libertarianismand liberalism is eliminated.

VII. The coercive power of corporations

There is a further objection to libertariantheories of the normative core of the corpora-tion, one that holds for both the weak side-constraints view and the strong side-constraintsview. Libertarian theorists are typically deeplymistrustful of governments. Indeed, as we haveseen, one of the core principals of libertarianismis that the coercive power of governments shouldbe severely restricted in the interest of individualfreedom. It is remarkable, therefore, that liber-tarians theorists of the corporation should remainsilent regarding the coercive power of corpora-tions.79 A major deficiency of all libertariantheories of the normative core of corporation isthat they fail to address the coercive power thatcorporations exert over governments, foreign anddomestic. A recent poll conducted by BusinessWeek demonstrates that a majority of Americansbelieve that corporations exert far too muchpolitical influence. The poll found that 72% ofAmericans believe that corporations have toomuch power over many aspects of Americanlife.80 The same poll found that between 74% and84% of Americans believe that corporations havetoo much political influence.81 As we shall seebelow, the beliefs of these Americans are wellsupported by empirical research on the politicalinfluence of corporations.

In his important and influential book Politicsand Markets Charles Lindblom argues that busi-nesses in democracies exert considerable powerover governments.82 First, business exerts ideo-logical power by shaping public preferences.Second, business exerts political power throughits political action committees and paid lobby-ists.83 Lindblom’s arguments are largely theoret-ical, but recently Neil Mitchell has argued thatLindblom’s arguments are well supported byempirical research.84 In The ConspicuousCorporation Mitchell defends Lindblom’s claimsregarding the power of business institutions in

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democracies by appealing to social science datacomplied in the United States and Great Britain.

First, Mitchell argues that “Business interests’incentives and resources to influence publicpreferences generally exceed those of otherinterests” while falling short of a monopolisticposition.85 The media play the leading role inshaping public preferences in the U.S. and GreatBritain. Business interests, in turn, play theleading role in determining what issues the mediacovers, and whose opinions are heard. Businessinterests influence the media in several ways.

First, by funding conservative think thankssuch as the Heritage Foundation and the Institutefor Economic Affairs, who in return provideexpert commentary on news programs. Second,business interests influence the media viaadvertising content. Third, business interestsinfluence the media by refusing to advertise onspecific programs or networks. Forth, by thedirect ownership of newspapers, magazines, radiostations, and television networks through whichthey may exert varying degrees of influence.Mitchell notes that business interests may bepersuasive in their arguments. And people swayedby such arguments may be lead to act in theirown interests. Nonetheless, he concludes,

we should also concede that at times the individualmay have “false preferences.” This concession mayseem a large one . . . All that is required, however,is the admission that the individual would beunlikely to hold certain preferences if he or sheknew more or could calculate better.86

Mitchell’s research thus supports the claim thatbusiness interests’ exert considerable ideologicalinfluence over public policy preferences.

Second, Mitchell argues that business interestsretain formidable resources that allow them toexert more influence over public policy decisionsthan any other group. Business influences publicpolicy by two principle means: political financingand interest representation. Political financingmaybe legal or illegal. In the area of legal polit-ical financing the role of business interests ispreeminent in the U.S. and U.K. In the U.S.,for example, business PAC’s and trade groupsconsistently outspend labor organizations by

more than two to one.87 In the area of illegalfinancing through bribes, kickbacks, and undis-closed gifts, business interests also appear todominate over other interest groups.88 Critics ofLindblom have pointed out that one cannotassume that a disproportionate expenditure ofresources leads to a disproportionate exercise ofpolitical power.89 However, Mitchell argues thatavailable evidence supports the conclusions thata disproportionate expenditure of resources bybusiness interests has resulted in special benefitsfor business. He argues that it is difficult toimagine why such expenditures would continueif they were not effective in securing specialbenefits for business. Money from corporatePACs in the U.S.

tends to flow to certain types of candidates whoshare . . . membership of specific congressionalcommittees, was well as incumbent status. Forexample, General Motors (including its defenseindustry subsidiaries) was one of the top twentyfinancial contributors to members of the SenateBudget Committee, the House AppropriationsCommittee, and the Senate Armed ServicesCommittee . . . Targeting members of the powerfulcommittees that can make decisions affecting thecontributor’s industry is consistent with a strategyof seeking specific benefits from policymakers . . .90

Defense contractors are leading contributors ofthe U.S. House of Representatives ArmedServices Committee; agriculture related corpo-rations and trade associations are the leadingcontributors to the House Agriculture Com-mittee; banking, finance, and realty corporationsand trade associations are the leading contribu-tors to the House Banking and FinanceCommittee; and so on. Mitchell conclusions aresupported by the work of other scholars. Forexample, Dennis Quinn and Robert Shapriohave shown that U.S. business tax rates are sig-nificantly influenced by business PACs and theelectoral success of the Republican Party.91

Finally, the illegal expenditure of corporateresources on corrupt politicians is both expen-sive and fraught with risk. Nonetheless, the factthat it continues to take place indicates thatdespite the risks it is deemed a prudent use ofcorporate resources. This in turn provides further

168 Denis G. Arnold

evidence that corporations are prone to exerciseundue power over public policy.

Detailed empirical research concerning thecoercive influence of multinational corporationson the policies of developing nations has notbeen as extensive.92 However, it is implausible tobelieve that a corporation that is successful atexercising coercive influence over domesticpolicy in the U.S. or U.K. would refrain fromexerting similar coercive influence over publicpolicy in developing nations in which it has asignificant financial interest. Indeed, there arereasons for thinking that MNCs are more likelyto exert such influence over public policy indeveloping nations. For example, in nationswhere there is little pretense of democracy, whereentrenched elites determine public policy, andwhere corruption is widespread, MNCs are likelyto find it less problematic to influence publicpolicy decisions. If such corporations have thewill to use bribes or threats to counter policiesand practices that are contrary to their interests,the low probability of negative repercussions islikely to make such practices attractive to theMNC.

Historically libertarians have been legitimatelyconcerned with the protection of individualliberties against the coercive power of the state.The failure of libertarians to acknowledge thecoercive power of business, and individual cor-porations in particular, is therefore troubling.Libertarians favor free markets and a minimalregulatory framework regarding transactionsbetween citizens. The combination of a deepmistrust of governments, together with a deepfaith in the benefits of free markets, may havelead libertarian theorists to become blind to thecoercive power of corporations. However, aworld in which corporations do not seek toshape the laws governing their behavior, butinstead readily respond to the will of the peopleas expressed democratically, does not accuratelydescribe the world as we know it. Libertariansmust make a choice. Either they must explainwhy the coercive power of corporations shouldbe understood as different in kind from thecoercive power of governments with which theyare rightly concerned, so as to be regarded asmorally and politically acceptable, or they must

acknowledge, analyze, and address the coercivepower of corporations. Given the significantpower that corporations and their trade organi-zations wield in the economic, political, socialspheres of societies throughout the word, such aproject will surely constitute a major under-taking.

VIII. Conclusions

Proponents of libertarian theories regarding thecore normative conception of the corporationmay allow that the theory has not be adequatelydefended in a single theoretical discussion whilemaintaining that the theory is defensible byappealing to a variety of libertarian argumentsthat appear in the literature. The arguments ofthis paper indicate that such a view constituteswishful thinking rather than a realistic appraisalof the literature. In particular, it has been arguedthat the weak side-constraints view has beenshown to be conceptually incoherent whenapplied in a global context. Additionally, strongside-constraints views that invoke negative rights,but not positive rights, lack an adequate theoryof negative rights. Without an adequate theoryof rights, libertarianism cannot be understood asa viable normative theory of the corporation.Finally, both the weak side-constraints view andthe strong side-constraints view are unsatisfactoryinsofar as the proponents of those views haveassailed the coercive influence of governmentwhile remaining silent regarding the coerciveinfluence of corporations.

It remains possible that some libertarians maywish to argue that corporate coercion is not dif-ferent in kind from government coercion, and toargue for limits on the coercive influence of bothgovernments and corporations. It is also possiblethat libertarians may wish to invoke bothnegative rights and positive rights as side-constraints by appealing to a theory of rights suchas that of Gewirth. However, such theorists willthen have the difficult task of explaining why theresulting theory is properly understood as liber-tarian rather than liberal.93

Libertarian Theories of the Corporation and Global Capitalism 169

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: theDelusions of Global Capitalism (New York: The NewPress, 1998); Edward Luttwak, Turbo Capitalism:Winners and Losers in the Global Economy (New York:HarperCollins, 1999); and Noreena Hertz, The SilentTakeover: Global Capitalism and the Death of Democracy(New York: Free Press, 2001).4 See, for example, Thomas Donaldson, The EthicsOf International Business (New York: OxfordUniversity Press, 1989); Richard T. De George,Competing With Integrity in International Business (NewYork: Oxford University Press, 1993); ThomasDonaldson and Thomas W. Dunfee, Ties That Bind:A Social Contracts Approach to Business Ethics (Boston:Harvard Business School Press, 1999), chap. 8; DenisG. Arnold and Norman E. Bowie, “Sweatshops andRespect for Persons,” Business Ethics Quarterly 13: 2(April 2003): 221–242; Denis G. Arnold “HumanRights and Business: An Ethical Analysis,” in Businessand Human Rights: Dilemmas and Solutions, RorySullivan ed., (Sheffield, U.K.: Greenleaf Publishing2003); and Denis G. Arnold, “Moral Reasoning,Human Rights, and Global Labor Practices,” in RisingAbove Sweatshops: Innovative Management Approaches toGlobal Labor Challenges, Laura P. Hartman, Denis G.Arnold, and Richard Wokutch, eds. (Westport, CT:Praeger 2004). 5 R. Edward Freeman, “The Politics of StakeholderTheory: Some Future Directions,” Business EthicsQuarterly 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, “TheStakeholder Theory of the Corporation: Concepts,Evidence, and Implications,” Academy of ManagementReview 20: 1 (1995): 65–91, 74.7 Ibid., 71.8 Milton Friedman, Capitalism and Freedom (Chicago:University of Chicago Press, 1982); and “The SocialResponsibility of Business,” in The Essence of Friedman,ed. Kurt R. Leube (Stanford, CA: Hoover InstitutionPress, 1987), 37. 9 Elaine Sternberg, “The Universal Principles ofBusiness Ethics,” in Business Ethics in the Global Market,ed. Tibor R. Machan; Just Business: Business Ethics inAction, 2nd ed. (New York: Oxford University Press,2000); and Tibor Machan, “Business Ethics in a Free

Society,” in A Companion to Business Ethics, ed. RobertE. Frederick (Malden, MA: Blackwell, 1999). 10 R. Edward Freeman and Robert A. Phillips,“Stakeholder Theory: A Libertarian Defense,” BusinessEthics Quarterly 12 ( July 2002): 331–349. 11 This paper does not attempt to assess in detaillibertarian conceptions of capitalism; libertarianconcepts of the conduct of business in general (whichincludes the operations of sole-proprietorships, part-nerships, and privately held companies); or libertarianconceptions of the normative core of not-for-profitcorporations.12 Not all libertarian theorists explicitly identify theirviews as libertarian. Theories of the normative coreof the corporation identified as libertarian in this essayare those that, according to their authors, are basedon principles consistent with the core libertarian prin-ciples identified below. 13 Fredrich A. Hayek, The Constitution of Liberty(Chicago: University of Chicago Press, 1960); RobertNozick, Anarchy, State, and Utopia (New York: BasicBooks, 1974); and Friedman, Capitalism and Freedom.14 As with adherents of any category of political phi-losophy, libertarians frequently disagree about impor-tant political and social claims. So, for example,libertarian theorists disagree about the relative impor-tance of democratic governments, the existence ofnatural rights, and the merits of decentralized gov-ernments.15 The obligation to return profits to shareholders isgrounded in the fiduciary responsibility of managersto serve the interests of shareholders. For a helpfuldiscussion 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 ofBusiness 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 alsoJan Narveson, The Libertarian Idea (Philadelphia, PA:Temple University Press, 1992).18 Friedman, Capitalism and Freedom, 133.19 Milton Friedman, “The Social Responsibility ofBusiness,” in The Essence of Friedman, ed. Kurt R.Leube (Stanford, CA: Hoover Institution Press, 1987,37. John Boatright has provided a penetrating critiqueof the agency view of the relationship of managementto shareholders. See his “Fiduciary Duties and theShareholder-Management Relation: Or, What’s so

170 Denis G. Arnold

Special About Shareholders?,” Business Ethics Quarterly4 (1994): 393–407.20 Donaldson, The Ethics of International Business, 45.21 Thomas Mulligan, “A Critique of MiltonFriedman’s Essay ‘The Social Responsibility ofBusiness Is to Increase Its Profits,” Journal of BusinessEthics 5 (1986): 265–269; Richard Nunan, “TheLibertarian Conception of Corporate Property: ACritique of Milton Friedman’s Views on the SocialResponsibility of Business,” Journal of Business Ethics7 (1988): 891–906; John R. Danley, “PolestarRefined: Business Ethics and Political Economy,”Journal of Business Ethics 10 (1991): 915–933;Colin Grant, “Friedman Fallacies,” Journal of BusinessEthics 10 (1991): 907–914; and Thomas Carson,“Friedman’s Theory of Corporate Social Responsi-bility,” Business & Professional Ethics Journal 12 (1993):3–32.22 Pfizer Inc./Warner-Lambert Company Joint ProxyStatement/Prospectus, March 10, 2000, V-15.23 This outline of Friedman’s position is based onhis arguments in “The Social Responsibility ofBusiness.” All words and phrases in quotation marksare 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 BusinessEthics,” 16.27 Sternberg, Just Business, 42.28 Sternberg, “The Universal Principles of BusinessEthics,” 13. 29 Friedman, of course, is assuming that the contextof business is a democratic society and that managerswho operate with profit maximization as a goal willbe supporting democracy. This strand of Friedman’sthinking is discussed in detail below. Sternberg allowsfor a slightly more expansive libertarian account ofmoral norms than does Friedman. She argues that theprinciples of business ethics are a libertarian concep-tion of distributive justice and ordinary decency. Theformer holds that rewards are justly distributed on thebasis of one’s contribution to the goal of profitmaximization. The later is to be understood as“fairness and honesty” in relationship to contracts andpromises, as well as “refraining from coercion andphysical violence, typical within the confines of thelaw.” Ibid., 19–20. These ideas are discussed below. 30 For a more detailed discussion of moral reasoningsee Arnold, “Moral Reasoning, Human Rights, andGlobal Labor Practices.”31 Ibid., 33–34.32 Ibid., 34–40.

33 Ibid.34 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 withChevron Corporation. Chevron and Texaco are nowknow 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 Texacoto Clear Toxic Residue,” New York Times, February1, 1998, sec. 1, p. 12.39 Ibid.40 Judith Kimerling, “Disregarding EnvironmentalLaw: Petroleum Development in Protected NaturalAreas in Indigenous Homelands in the EcuadorianAmazon,” Hastings International & Comparative LawReview 14 (1991): 872. By comparison, the ExxonValdez spilled 10.8-million gallons of oil into Alaska’sPrince 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, February19, 1999, sec. A, p. 20.45 ”Texaco and Ecuador,” Texaco: Health, Safety & theEnvironment, 07 March 2000, <http://www.texaco.com/shared/position/docs/aquind-jota.doc>(03 April 2000).46 Schemo 1998, “Ecuadoreans Want Texaco toClear Toxic Residue,” and “Texaco and Ecuador,”Texaco: Health, Safety & the Environment, 07 March2000, <www.texaco.com/she/index.html> (03 April2000).47 ”Texaco and Ecuador,” Texaco: Health, Safety & theEnvironment, 07 March 2000, <www.texaco.com/she/index.html> (03 April 2000). 48 Ibid.49 Elements of this description of Texaco’s actions inEcuador originally appeared in Denis G. Arnold,“Texaco in the Ecuadorean Amazon,” in Tom L.Beauchamp and Normal E. Bowie (eds.), EthicalTheory and Business (Upper Saddle River, NJ: PrenticeHall, 7th ed. (2003).50 Ecuadorean and Peruvian plaintiffs, includingseveral indigenous tribes, filed billion-dollar class-action lawsuits against Texaco in U.S. court under theAlien Torn Claims Act (ACTA) (the lawsuits were

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later consolidated into a single case). In May 2001U.S. District Judge Jed Rakoff rejected the applica-bility of the ACTA and dismissed the case on groundsof forum non conveniens. In August 2002 the U.S Courtof Appeals for the Second Circuit upheld JudgeRakoff ’s decision. 51 This account of Ecuador’s recent political historyis 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); andEcuador Poverty Report (Washington D.C.: The WorldBank, 1996). 52 Freedom House, Democracy’s Century: A Survey ofGlobal Political Change in the 20th Century (New York:Freedom House, 2000), 2–4.53 As we have seen above, Texaco must also adhereto the constraints of distributive justice. However,distributive justice as defined by Sternberg is notapplicable in this context. See Just Business, 80–82. 54 Ibid., 39.55 Ibid., 79.56 Ibid., 3.57 Norman E. Bowie, Business Ethics: A KantianPerspective (Malden, MA: Blackwell, 1999). 58 Interestingly, Sternberg does appear to allow forthe existence of “natural rights.” However, accordingto Sternberg, natural rights have limited force againstbusiness “Because if the ‘right’ is violated, all thathappens is that the organization disqualifies itself frombeing deemed ethical.” This is an odd claim, for thepoint of articulating a normative theory of the cor-poration is, in part, to recommend an ethically praise-worthy 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, PhilosophicalExplanations (Cambridge, MA: Harvard UniversityPress), 498–504. 62 Nozick, Anarchy, State, and Utopia, 30–31. 63 Immanuel Kant, Foundations of the Metaphysics ofMorals 1785, (New York: Macmillan, 1990), 46. 64 Nozick, Philosophical Explanations, 499.65 Samuel Scheffler, “Natural Rights, Equality, andthe Minimal State,” In Reading Nozick: Essays onAnarchy, State, and Utopia, ed. Jeffrey Paul (Totowa,NJ: Rowman & Littlefield, 1981).66 Thomas Nagel, “Libertarianism WithoutFoundations,” in Reading Nozick: Essays on Anarchy,State, and Utopia, ed. Jeffrey Paul (Totowa, NJ:Rowman & Littlefield, 1981), 193.

67 Loren Lomasky, Persons, Rights, and the MoralCommunity, 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 argu-ments have been subjected to careful scrutiny andcriticism by a number of scholars including Machan.See Douglas J. Den Uyl and Tibor R. Machan,“Gewirth and the Supportive State,” in Gewirth’sEthical Rationalism ed. Edward Regis Jr. (Chicago:University of Chicago Press, 1984) and TiborMachan, Individuals and Their Rights (La Salle, IL:Open Court, 1989). Beyleveld has provided a sus-tained and masterful defense of Gewirth’s argumentsthat includes convincing replies to the criticisms ofMachan, Uyl, Lomasky and others. See DeryckBeyleveld, The Dialectical Necessity of Morality: AnAnalysis and Defense of Alan Gewirth’s Argument to thePrinciple of Generic Consistency (Chicago: University ofChicago Press, 1991). 73 A the end of his exhaustive study Beyleveld con-cludes that Gewirth has provided “the best theory onthis subject that has yet appeared.” See The DialecticalNecessity of Morality, 396.74 One might object to this view on the grounds thatsome people pursue goals that they themselves do notregard as valuable. Such an objection fails to under-mine Gewirth’s point since, on his account, onedemonstrates that one regards a goal as valuable insofaras one pursues that goal. Here Gewirth’s position isconsistent with social scientists who are interested instudying not what people say they value, but whatpeople demonstrate that they value though theiractions. 75 Gewirth, Reason and Morality, 63.76 For a more detailed discussion of Gewirth’s theoryof 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: ALibertarian Defense,” 336.78 To his credit, Machan has done this to a certainextent in Individuals and Their Rights. However, hisarguments falter in light of the work of Lomasky,Gewirth, and Beyleveld. 79 Significantly, not all libertarians agree about themeaning of coercion. For example, Nozick defends amoralized account of coercion. The moralized viewmaintains that the truth conditions of coercion claims

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rest on prior moral claims. Hayek, on the other hand,defends an empirical account of coercion. The empir-ical view maintains that the truth conditions ofcoercion claims are empirical. In this view, coerciontypically involves psychological pressure backed by thethreat of force or by an irresistible inducement. Theconcept of coercion employed in this essay is gener-ally consistent with the empirical view defended byHayek. See Robert Nozick, “Coercion,” in Philosophy,Science and Method, eds. Sidney Morgenbesser, et al.(New York: St. Martin’s Press, 1969); and Hayek, TheConstitution of Liberty, esp. chap. 9. 80 Business Week, September 1, 2000, 145.81 Ibid., 149.82 Charles E. Lindblom, Politics and Markets: TheWorld’s Political-Economic Systems (New York: BasicBooks, 1977). Other influential discussions of cor-porate 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 BigBusiness Rule America?, ed. Robert Hessen(Washington D.C.: Ethics and Public Policy Center,1981.)83 Lindblom also develops a third argument regardingcorporate power. This argument, frequently referredto as the structural dependence thesis, holds that cor-porations exert structural power by virtue of theirability to affect others’ assessment of government.This in turn, leads governments to prefer policies thatare advantageous to business. This argument is notdiscussed below, primarily because it does not appearto be well supported by empirical data. For an empir-ically based discussion of the structural dependencethesis with respect to corporate power over taxationin the U.S., see Dennis P. Quinn and Robert Y.Shaprio, “Business Political Power: The Case ofTaxation,” American Political Science Review 85 (1991):851–874.

84 Neil J. Mitchell, The Conspicuous Corporation:Business, Public Policy and Representative Democracy (AnnArbor: University of Michigan Press, 1997). 85 Ibid., 59.86 Ibid., 55.87 For example, in 1994 U.S. Corporate PACs andtrade associations spent $211 million while labor PACsspent $82.2 million. Ibid., 79.88 This assessment is based only on illegal politicalfinancing that has actually been discovered andreported.89 See, e.g., Wilson, “Democracy and the corpora-tion.”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 asthese have been well documented by TransparencyInternational. See, for example, TransparencyInternational, Global Corruption Report 2003 (London:Profile Books Limited, 2003). Available at<www.globalcorruptionreport.org>.93 Early versions of this essay were presented toaudiences at the Second World Congress of Business,Economics, and Ethics, Sao Paulo, Brazil, andGeorgetown University. I am grateful to audiencemembers for their comments on those occasions.Special thanks to Normal Bowie, Jan Narveson,and an anonymous reviewer for detailed writtencomments 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: darnold1@utk.edu

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