Case Study: Michael Novak: Capitalism and the Corporation Term Paper:
The paper will investigate the contrasting views regarding the meaning of a “stakeholder” in diverse business management philosophies: that of the conventional American view as the “owners” and the people who believe they have a claim against other people’s property from the social democratic view. While one tends towards bondage and slavery, the other tends towards freedom and liberty demanding responsibility and risk.
Corporations – Since When
Corporations have existed for a long time in the history of mankind. Jennings (2009) asserts that earlier business corporations were a mixture of many people coming together to form a single organization for a certain definite cause can be traced into earlier times of towns, universities and monasteries. Majority of businesses into early 19th century were in form of partnerships. Earliest Business Corporation was started the early 15th century in England (Corporation, n.d.). The corporations later took the form of the current corporation. Private corporations later came into being in the 1800s and transformed the UK and the US into what we know them today.
The European and American Corporations:
Among the first corporations in the world is the British East India Trading Company (EIC), started in 1601 and later by the Dutch East India Company (VOC). EIC and VOC were started by the monarch for certain specific purpose. Later, European companies were created especially for merchandising purposes but with the mandate of the crown or parliament. Novak (1997), asserts that the reliance on the support of the state for authority of the pioneer corporations and the reluctance to innovate held corporations from the UK at a disadvantage to the US counterparts. He identifies formation of schools and implementation of railroads as an example of the difference.
Peter Drucker (1954) states that, “business enterprise has two – and only two – basic functions: marketing and innovation” (p.37). Europe countries have for a long time stood the test of corporations. Looking at the history of IEC, then clearly it was the main factor for most of the world’s important events between the years 1750-1870 eventually resulting to the formation of the modern corporation. The IEC had an army, its ships usually carried firepower, and its officers were stopped from conducting other businesses (Rao, 2011).
The difference between American and European businesses was Drucker’s use of the word innovation. The US constitution gave businesses the authority to register businesses to each of its individual states, and during the start of 1800, the states had began to compete for revenues of corporations, loosen the experimentation with formation of corporations and granting the corporations more legal standing. This was further assisted by the freedom and liberty that Americans citizens enjoyed which contributed to the growth of innovativeness of the corporation (Novak, 1997).
Definitions of Stakeholders According to Novak:
Novak (1997) gives two contexts in which the term stakeholder can be held: the social democratic view and the republican view and. The Founding Fathers’ view, also called the republican view is that:
“…all citizens of the republic have a stake in the success and vitality of American corporations. From these derive Americans’ financial independence from government and their practical freedom of action” (Novak, 1997 p.42).
In this kind of view, the American citizen has rights granted by God to protect them from the any government abuses.
The other Novak context of a stakeholder is that of the social democratic view. In this kind view, all rights, all property, and all privileges come from the state and can be granted or abolished by the government. This is all true to how things were done in America before innovation explosions started. Thus, according to this view, the government purpose is to protect people from themselves and from any ‘evil’ corporations. This implies that the greatest good is determined by the government to which all owe all their faith, loyalty and hopes but not by an “invisible hand.” Therefore, Novak (1997) recognizes this by stating that:
“The paradox of socialism is that it actually results in the opposite of its hopes: an unparalleled isolation of individuals from the bonds of personal responsibility and social cooperation” (p.45).
This in turn results to people asking for what is in store for them but without asking what they can do to help bring about change from happening.
The Effects of Social Democracy
Novak (1997) says that it never ceases to amaze that people do not learn from the past. For several years, the monarchs or the state has wielded power to which time there were almost no innovations being made. Until the constitution was signed, people were varied from their predecessor in terms of their farming, transportation and any other craft. For decades, the threat of communism was proclaimed that the system of social democracy and state ownership of property was the economic way of life to capitalism; hence a superior philosophy. Yet, the USSR collapsed some years later. This was seen as the threat above was only real in military weight but not in economics, just but hollow. For example, in China, it is now necessary to allow for individual ownership to be able to feed the people. The European continent is staring as its economies are at the brink of collapse and getting bankrupt because of over extending of obligations that their governments has made to its people, sadly without a sustainable way of meeting the obligations. It is worrying however that in America now, they are making the same choices that track Europe’s way.
According to the author in his discussion of people with a different persuasion, he proposes of a listener who wants something very much, but they do not really need it, the cost of this object is $100. He however offers two situations; the first is where the listener has an obligation of going to work and work really hard to earn the extra $100 having other obligations and the second situation where $100 is offered as a birthday gift from a friend. The author then poses the question, in which of the two situations (or both) would the listener get the object they want, but are not in need of. The listener chooses the situation in which money is just given, but not the one where money is just earned. This clearly shows us that people treat the money they have worked for with more respect than the money that is not theirs.
Communism has been cast as an invalid and unsound lie, nevertheless the modern socialist believes that the government’s obligations is to solve all the world’s problems. However, this modern socialist may speak in capitalist terms but having shifted its meaning to gain moral ground, for the greater good. Unfortunately, it has been shown that when people do not own the value of the money they have tirelessly worked for; their motivation to continue working hard will diminish. As more people’s effort diminishes, the burden will become heavier as more people drop out. Then the economy will ultimately collapse. Hence, it is seemingly unrealistic and unbelievable to the people subscribing to the social democratic view. Slavery (2003) states that the final straw to the social democratic view is that the effect of the government gaining total control of a person’s property – what people earns is not truly theirs. This leads to slavery.
Not a Cold Meteor Fallen From the Sky
Dr. Novak (1997) argues for the case of freedom and liberty requirement for the republican view. He explains that freedom must be fought, responsibility accepted, and work should be enthroned because it is through individual works that businesses are able to grow and provide for jobs, goods, new wealth and independence to continue with the American experiment. This is the form of corporation that made America the defender of human freedom, happened because of the determination, drive, and hard work by responsible people.
We therefore believe that Novak’s statement is just possible. If Americans turn the back on what made the nation the greatest nation on earth, then they will lose the freedom and liberty as we know it today. They should take responsibility and cease from making excuses or else America will become “a cold meteor fallen from the skies” (Novak p.50). This will result to collapsing of her economy and eventually the world economy.
Paper References
Corporation (n.d.). In Encyclopædia Britannica. Retrieved December 16, 2012 from,138409Citations&view=print
Drucker, P. F. (1954). The Practice of Management. New York: Harper & Brothers
Jennings, M. (2009). Business Ethics: Case Studies and Selected Readings, 6th ed. Mason, OH: South-Western Cengage Learning
Novak, M. (1997). Capitalism and the Corporation. In The Fire of Invention: Civil Society and the Future of the Corporation. Lanham, MD: Rowman & Littlefield
Rao, V. (2011, June 8). A Brief History of the Corporation: 1600 to 2100. Retrieved December 16, 2012 from
Slavery (2003) In Collins English Dictionary – Complete and Unabridged. New York: HarperCollins Publishers