Corporations did not evolve

At the 3:30 mark, Rep. Barney Frank, in arguing for the recently passed act giving shareholders the right to have a (non-binding) say on executive compensation, responds to a Republican's claim that the government has no right to regulate corporations in this way. As Frank says: "God made no corporations. No corporations evolved--I'll be neutral on that subject." Corporations, as he claims, are artifices of positive law, given special priveleges by the government. Therefore, the government has the power to regulate them.

I had a similar argument in mind during a discussion that took place in my State and Society class at the Yale School of Management. In the course of discussion about a Merck case and an exhibit that showed pharmaceutical companies' return on equity averaging around twice that of the average industry, I claimed that that level of return was socially suboptimal. If we could achieve the same quality while the pharmaceutical companies received lower profits, most all of us would be better off. Certainly the risks of the pharmaceutical industry justified higher profits, I said, but a risk-premium of 100%? Unlikely.

My professor responded with: "First, I want to congratulate you on your astute analysis ... but you're a communist." Apparently, to argue that the government--whose regulations guarantee the pharmaceutical industry high profits, thanks to the FDA drug approval process, and, more importantly, patent laws--could alter those regulations to enhance competition and reduce profits makes me a communist. I'm not arguing for government ownership of ... anything. I'm arguing that the pharmaceutical companies, granted legal monopolies over molecules by the government, make fewer, or no, economic profits. Let them have profits--let the best companies succeed and earn their shareholders an above-average market return. But don't let an entire industry earn exorbitant profits at the expense of the we whom the government is entr