Large Corporations Are the “Flower of Capitalism”

The rapidly changing economic environment brought about by the Industrial Revolution fundamentally reorganized the old status system centered on royalty and aristocrats. No matter how humble one’s origins, individuals could seize opportunities to rise in status through their own efforts. A leading example was the emergence of a new class: the “capitalists.”

The capitalists who fully benefited from the exceptional conditions of the Industrial Revolution were not, in fact, people granted special power. Rather, they were entrepreneurs who moved more quickly than others to embrace innovation and succeeded in securing an advantage in efficiency in market competition. While most people still remained at the level of cottage industries, horse-drawn carriages, and sailing boats, these new entrepreneurs focused on factory machinery, steam locomotives, and steamships.

By boldly taking on uncertain possibilities, they were able to earn enormous profits. The income entrepreneurs generated was reinvested in technology and equipment, creating a virtuous cycle that produced even greater profits and soon led to the accumulation of vast capital.

In a capitalist society, the power of large-scale capital is astonishing. That is because the larger the scale of capital, the broader the range of things that can be done. An entrepreneur with vast capital can build larger factories, hire more employees, and expand into more areas of business than before. It is only natural that such an entrepreneur occupies a superior position in market competition compared with one who does not possess large-scale capital.

The accumulation of large-scale capital served as a bridge in the early Industrial Revolution, allowing the transition from individually owned factories to organizations with greater systemization and scale. Technological innovation, by its nature, tends to spread throughout society over time. In the early stages of the Industrial Revolution, the prosperity enjoyed only by a small number of entrepreneurs who paid attention to technological innovation gradually spread across society as a whole.

As diverse economic actors entered the market, competition intensified and profits became more dispersed. This could be a crisis for entrepreneurs. However, the question that filled their minds—“How can we effectively outpace competitors and gain an advantage in market competition?”—led to the need for organizations that were more efficient and superior in market competition. In other words, the corporation emerged as the optimal organizational form for pursuing the efficiency and superiority needed to compete well.

Corporations receive capital, technology, labor, resources, and more from various stakeholders through contracts and share the benefits together. This became possible as the joint-stock company expanded the scope of the corporation to the greatest extent. Even today, many companies create an era in which anyone can possess wealth by sharing profits with ordinary investors through the joint-stock company model.

We now live in a capitalist age in which every member of society can create wealth through corporations and enjoy it together. Corporations are social entities that help move everyone toward a better condition. The corporations that emerged in this way undergo fierce competition in the capitalist economic environment, and only the strongest are selected. The firms that survive earn profits in the market, accumulate capital, gradually expand their systems and scale, and grow into large corporations. That is why large corporations are both the result of capitalist large-scale expansion and proof of success in market competition. This is precisely why countries with more highly developed capitalism tend to have more large corporations.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

---

Original title: 대기업은 '자본주의의 꽃'

Author: Sung-no Choi

Date: 2018-06-04

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=26&idx=11094