The emergence of the corporate form

An interesting new article from the Journal of Law, Economics and Organisation -- Volume 33, Issue 2 May 2017: 193-236.

The Emergence of the Corporate Form
Giuseppe Dari-Mattiacci; Oscar Gelderblom; Joost Jonker; Enrico C. Perotti

Abstract
We describe how, during the 17th century, the business corporation gradually emerged in response to the need to lock in long-term capital to profit from trade opportunities with Asia. Since contractual commitments to lock in capital were not fully enforceable in partnerships, this evolution required a legal innovation, essentially granting the corporation a property right over capital. Locked-in capital exposed investors to a significant loss of control, and could only emerge where and when political institutions limited the risk of expropriation. The Dutch East India Company (VOC, chartered in 1602) benefited from the restrained executive power of the Dutch Republic and was the first business corporation with permanent capital. The English East India Company (EIC, chartered in 1600) kept the traditional cycle of liquidation and refinancing until, in 1657, the English Civil War put the crown under strong parliamentary control. We show how the time advantage in the organizational form had a profound effect on the ability of the two companies to make long-term investments and consequently on their relative performance, ensuring a Dutch head start in Asian trade that persisted for two centuries. We also show how other features of the corporate form emerged progressively once the capital became permanent. (JEL: G30, K22, N24).

From the comments

In the comments to the previous posting "A brief prehistory of the theory of the firm 2" Mark Hubbard asks,

I have no great problem with the corporation. Like all institutions it comes with advantages and disadvantages. I would argue that the advantages outweigh the disadvantages. For a start note that you don't have to form a limited liability company if you want to set up a firm. You could, for example, form a partnership, but most people don't. So the corporation wins out in the (competitive) market for ownership form. This I assume is because the corporation offers more to people that other forms of organisational form. Is it morally defensible to deny people an organisational form they see as advantageous?

In addition note that countries that did not utilise the corporation until recently suffered because of it. For example, see chapter 6 of Kuran (2011) for a discussion of the consequences of a lack of the corporation in Islamic law. Is it morally defensible to deny people the advantages of development?

Not all people love the corporation, Adam Smith is famous for being being against it, except for a few noticeable large capital cases such as banking, insurance, water supply and construction of aqueducts and canals. If you don't use a limited liability firm how do you amass large amounts of capital? One reason for Smith's opposition to the corporation was moral hazard, the managers of the firm may not act in the interests of the firm's owners. Also given limited liability owners only risk a part of their wealth in any given firm so may not monitor management was well as they would if their whole wealth was involved. Such issues have, to a degree at least, been overcome by developments in corporate governance that Smith had no way of knowing. See Fleckner (2016) for more.

Fleckner's abstract reads:

In 1784, Adam Smith released the third and definitive edition of the Wealth of Nations, the most influential work in economics ever written. Of the eighty pages he added, more than thirty deal with “joint stock companies” and other commercial organizations. While these additions caused many observers to praise Smith as the first to coin the governance problems in firms, a closer examination of his remarks reveals that Smith’s theory of the firm, or the lack thereof, is in fact one of his work’s weaker parts. Smith thought history had shown that joint stock companies cannot compete with smaller firms, attributed this fact to certain organizational deficits, and concluded that joint stock companies should be established only under rare circumstances. Yet, in the following decades, exactly the opposite came to pass, with joint stock companies thriving in almost all fields and markets today. What made Smith so pessimistic about the joint stock company? The answer lies, this paper argues, in the sources Smith consulted, the companies he studied, and the general beliefs he held. Why did Smith’s pessimism turn out to be wrong? Smith probably overestimated the joint stock company’s weaknesses and underestimated developments that helped overcome them, such as technological progress, organizational innovations, and regulatory responses.

Also limited liability may not be as important to the corporation as many people think. As Henry Hansmann and Reinier Kraakman have written,

In essence, we argue that the essential role of all forms of organizational law is to provide for the creation of a pattern of creditors' rights-a form of  "asset partitioning" - that could not practicably be established otherwise. One aspect of this asset partitioning is the delimitation of the extent to which creditors of an entity can have recourse against the personal assets of the owners or other beneficiaries of the entity. But this function of organizational law which includes the limited liability that is a familiar characteristic of most corporate entities is, we argue, of distinct!y secondary importance. The truly essential aspect of asset partitioning is, in effect, the reverse of limited liability namely, the shielding of the assets of the entity from claims of the creditors of the entity's owners or managers. This means that organizational law is much more important as property law than as contract law. Surprisingly, this crucial function of organizational law has rarely been the explicit focus of commentary or analysis (Hansman and Kraakman 2000: 390, emphasis added).

Ultimately I don't really see the use of the limited liability corporation as a matter of morals, its more a practical matter, can we more easily achieve ours goals using the corporation than by using other organisational forms?

Refs.

• Fleckner, Andreas Martin (2016). 'Adam Smith on the Joint Stock Company', Max Planck Institute for Tax Law and Public Finance Working Paper, 1 January 2016.
• Hansmann, Henry and Reinier Kraakman (2000). `The Essential Role of Organizational Law', Yale Law Journal, 110(3) December: 387–440.
• Kuran, Timur (2011). The Long Divergence: How Islamic Law Held Back the Middle East, Princeton: Princeton University Press.

Corporations are evil

Or are they?

But before one jumps to the conclusion that therefore corporations should be denied the right to influence political decisions in the interests of efficiency, more must be considered. For example, last month, over one hundred public corporations, most of them high-tech firms, filed a brief opposing the legality of the executive order signed by President Trump barring various immigrants.1) This can be viewed as collective action by firms in defense of capitalism and the free flow of goods and services. Those opposed to firms lobbying regulatory agencies would probably approve this defense by corporations of human rights. Nor was this case unique. Corporations, like Apple, Facebook, and Google, have regularly defended human rights.

The above quote is from John C. Coffee Jr (Adolf A. Berle Professor of Law and director of the Center on Corporate Governance at Columbia Law School) in an interview at the Pro-Market blog. The idea that firms can be defenders of human rights is not an idea that many of our anti-corporation, anti-capitalism, anti-globalisation, anti-free trade warriors have given much thought but it is an idea that deserves more attention than it gets.

Some thoughts on the role of firms and government interference in the market

This is from the third instalment in (oddly named - seems more pro-state than anything) ProMarket's new interview series on the economic theory of the firm. In this instalment, they ask Chicago Booth’s Steven Kaplan how the existing theory should be modified. Kaplan is the Neubauer Family Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business.

Q: The neoclassical theory of the firm does not consider political engagement by corporations. How big an omission do you think this is?

I am a bit confused. Hasn’t the idea of regulatory capture and, implicitly, political engagement, been a subject of economic study since George Stigler’s “Theory of Economic Regulation” in 1971? In other words, it would be a big omission if, in fact, it were omitted. In reality, economists have paid attention to political engagement for a long time.

Q: To what extent is political engagement by corporations responsible for the current populist discontent?

Very little. The biggest source of populist discontent is the dislocation caused by technological change and globalization. That dislocation has made the global economy much better off overall. The global poverty rate has declined substantially. Billions of people now earn a living rather than starving. It is a huge success. As Nobel Prize winner Angus Deaton wrote, “Life is better now than at almost any time in history. More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die.” At the same time, this success has challenged the less skilled in developed countries—particularly the U.S. and Western Europe.

The second biggest source of discontent comes from the policies implemented in those countries that make it more expensive to hire less skilled workers. Raising the minimum wage, licensing rules, and other employment mandates increase the costs of hiring less skilled workers. At the same time, technology and globalization reduce the costs of substitutes. The net effect is fewer jobs. France is the best example. Germany is one of the few countries that moved in the opposite direction and has had less of an employment problem. Immigration policies also have fueled discontent.

Political engagement by corporations would be far down the list of important forces.

The basic issue being discussed is that the standard (economic) theory of the firm is silent on the role firms can play in shaping the rules of the game under which they operate. It is argued that in reality, many firms lobby politicians and try to capture regulators in order to modify the rules of the game in their favour.

What I do find strange is 1) Its not clear what exactly they mean by the "standard economic theory of the firm". At times they seem to talk about the neoclassical theory of the firm as if it is in fact a theory of the firm but has Coase pointed out many years ago it's not. If they are not talking about the neoclassical model then what are they talking about? As I have written,

While the post-1970 theory of the firm literature has began the task of developing a genuine understanding of the firm, and closely related issues, it has yet to coalesce around one model or even one group of models. Even within the contemporary mainstream there are a number of competing models, to say nothing of those we could add into the mix if we were to consider the heterodox literature.

2) I’m not sure what they are talking about is a problem with the theory of the firm, they seem to be talking more about a theory of government or regulation or pressure groups or some such thing. Yes firms can influence government policies but so can churches, trade unions, environmental groups etc as well. So I’m not sure their issue is one to do with the theory of the firm as such. 3) As Kaplan points out economists have been thinking about these issues for a long time, even if not as part of the theory of the firm. But as I say in 2) its not clear to me that it is part of the theory of the firm. It's a wider issue than to do with just firms.

Big corporations are powerful and long lasting?

From Mark Perry at his Carpe Diem blog

What do the companies in these three groups have in common?

Group A: American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics and National Sugar Refining.

Group B: Boeing, Campbell Soup, Deere, General Motors, IBM, Kellogg, Procter and Gamble and Whirlpool.

Group C: Facebook, eBay, Home Depot, Microsoft, Google, Netflix, Office Depot and Target.

And the answer is:

All of the companies in Group A were in the Fortune 500 in 1955, but not in 2016.

All of the companies in Group B were in the Fortune 500 in both 1955 and 2016.

All of the companies in Group C were in the Fortune 500 in 2015, but not 1956.

It turns out that nearly 9 of every 10 Fortune 500 companies in 1955 are gone, merged, or contracted. Only 12% (and fewer than 1 in 8) of the Fortune 500 companies in 1955 were still on the list 61 years later in 2016, and more than 88% of the companies from 1955 have either gone bankrupt, merged with (or were acquired by) another firm, or they still exist but have fallen from the top Fortune 500 companies.

But we so often told about all powerful big corporations are, how the control markets and can force consumer to buy whatever products they sell. John Kenneth Galbraith is perhaps the most (in)famous economist who argued along these lines. He argued that in the industrial sectors of the economy, which are composed of the largest corporations - think Fortune 500 companies, the principal function of market relations is, not to constrain the power of the corporate behemoths, but to serve as an instrument for the implementation of their power. Moreover, the power of these corporations extends into commercial culture and politics, allowing them to exercise considerable influence upon popular social attitudes and value judgements. That this power is exercised in the shortsighted interest of expanding commodity production and the status of the few - the 1% - is, in Galbraith's view, both inconsistent with democracy and a barrier to achieving the quality of life that the "new industrial state" with its affluence could provide to the many. Galbraith argued that we find ourselves living in a structured state controlled by these large and all powerful corporations. Control over demand and consumers is exercised via the use of advertising which creates a never ending consumer "need" for products, where no such "need" had existed before. In addition, as Princeton University Press said in its advertising for a new edition of Galbraith's "The New Industrial State",

The goal of these companies is not the betterment of society, but immortality through an uninterrupted stream of earnings.

If all this is true why is it that so few have survived from 1955 to 2016?

Another hypothesis is that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction over the last six decades. This suggests that no matter what some economists, and competition policy authorities, may want you to think, corporations are not all powerful and consumers are not just feeble minded puppets having their strings pulled by evil corporate executives. Yes, market competition and consumer sovereignty could actually be a thing.

How mandatory shareholder voting prevents bad corporate acquisitions

In a new column at VoxEU.org Marco Becht, Andrea Polo and Stefano Rossi argue that many corporate acquirers impose losses on their shareholders. Conflicted or overconfident CEOs and boards embark on acquisitions that are not in the best interest of the owners of the firm. They go onto argue that the governance tool of shareholder voting can represent a potential solution. Their column shows that in the UK, where bids for relatively large targets require mandatory shareholder approval, shareholders gain when the transaction is conditional on a vote and lose when it is not. The evidence suggests that the vote puts a constraint on the amount the CEO can offer for the target.

This does raise the question that if this is true, why do we not see more shareholder activism on this issue? Also if this is true and activism is low, ie "voice" is not used, then why do we not see more "exit" occurring? That is, why do we not see disgruntled shareholders selling their shares?

Becht, Polo and Rossi write,

One of the most striking empirical regularities in finance is that many acquirer shareholders earn negative abnormal returns (Andrade et al. 2001, Bouwman et al. 2009), and that the losses from the worst performing deals are very large (Moeller et al. 2005). Why is this the case?

The finance literature has pointed to two non-mutually exclusive explanations. First, in line with the traditional ‘separation of ownership and control’ problem, managers who control widely held corporations may have private goals – such as empire building – that conflict with those of shareholders, particularly in the case of acquisitions (Morck et al. 1990). According to this view, managers know what they are doing and deliberately take excessive risks. Second, managers may be overconfident or suffer from ‘hubris’, thereby paying too much relative to rational managers (Roll 1986, Malmendier and Tate 2008).

Can shareholders address these issues and prevent negative abnormal returns in acquisitions from materialising in the future? In principle, shareholder voting can provide a potential solution in both of the cases described above. Rational shareholders can veto actions driven by overconfidence, while vigilant or active shareholders can halt transactions motivated solely by empire building or private benefit purposes. If shareholder voting is effective in deterring CEOs’ behavior, CEOs will not overpay relative to the median shareholder and will not propose projects the shareholders are unlikely to support. As a result, in equilibrium all acquisition proposals will be approved.

In the conclusion Becht, Polo and Rossi ask, given the above results, why is mandatory voting on relatively large acquisitions not adopted more widely among issuers? In their answer to their own question they write,

Acquirer shareholders could be better off by writing a mandatory voting provision into the corporate charter. In some jurisdictions this might be difficult because the board and the management can get in the way and want to guard their autonomy. Under Delaware law in the US, for example, shareholders could potentially make the necessary charter amendment but this would require the approval of the board. The same frictions that explain the large value destruction in acquisitions - self-dealing and overconfidence - might explain why we do not see such charter amendments. In other countries company law and listing rules simply do not foresee the possibility of mandatory voting on acquisitions. Acquirer shareholders would have to lobby more effectively to get the tools that would allow them to protect their wealth.

Corporate power? (updated)

In the past I have written,

Many commentators, even today, argue that the economy and the nation are controlled by powerful, large, very long lived corporations. John Kenneth Galbraith is perhaps the most (in)famous economist who argued along these lines. He argued that in the industrial sectors of the economy, which are composed of the largest corporations - think S&P 500 companies, the principal function of market relations is, not to constrain the power of the corporate behemoths, but to serve as an instrument for the implementation of their power. Moreover, the power of these corporations extends into commercial culture and politics, allowing them to exercise considerable influence upon popular social attitudes and value judgements. That this power is exercised in the shortsighted interest of expanding commodity production and the status of the few - the 1% - is, in Galbraith's view, both inconsistent with democracy and a barrier to achieving the quality of life that the "new industrial state" with its affluence could provide to the many. Galbraith argued that we find ourselves living in a structured state controlled by these large and all powerful corporations. Control over demand and consumers is exercised via the use of advertising which creates a never ending consumer "need" for products, where no such "need" had existed before. In addition, as Princeton University Press said in its advertising for a new edition of Galbraith's "The New Industrial State",

The goal of these companies is not the betterment of society, but immortality through an uninterrupted stream of earnings.

I have always thought that an implication of these ideas is that large firms, e.g. those in the S&P 500, would be very long lived. After all given the amount of control that these firms apparently have over their markets and the economy at large its hard to see how they could ever go bankrupt or be taken over. They are, after all, able to ensure "immortality through an uninterrupted stream of earnings." Thus these firms would have a long life.

Part of the idea here is that large corporations have power over markets and their consumers. When "corporate power" get mentioned I sure people think of companies like Microsoft, Google, Coca-Cola, Pepsi, and McDonald’s etc and the control these firms are said to have over their sectors of the economy. One aspect of this power is the control these corporations are claimed to have over their consumers, but if these "powerful" firms produce spectacular failures, then perhaps consumers are not as docile as some would suggest and we overestimate the extent of said corporate "power".

At this blog Ordinary Business Art Carden looks at the power of corporations by asking, Do they produce spectacular failures?

Carden writes,

I suspect you’re not reading this on your Zune.

Why not? Because the Zune failed. That the Zune failed in spite of backing by one of the world’s most powerful companies should give us pause when we think about “corporate power.” Products succeed and fail, ultimately, because consumers vote for them or against them with their hard-earned dollars. The Zune is just one of many products consumers have voted out of the marketplace over the objections of corporate boards of directors.

Consider what happened with soft drinks in the 1980s and 1990s. In the 1980s, Coca-Cola introduced New Coke, which they had reformulated based on extensive market research. It was one of the greatest marketing disasters in American business history, and the company corrected its mistake by reintroducing the old formula as Coca-Cola Classic.

In the 1980s, Pepsi introduced Crystal Pepsi. I was sort of captivated by it: a clear cola that totally wasn’t like Slice or Sprite or now Sierra Mist? Mind-blowing. Now all that remains of Crystal Pepsi is a suite of memories set to the tune of Van Halen’s “Right Now.”

There’s a McDonald’s song that starts “Big Mac, McDLT, a Quarter Pounder with some Cheese…” McDLT? Come again? If you remember getting one of these, they came in a two-sided container with the lettuce and tomato—the “LT”—on their own side, presumably for freshness. Now again all that remains of the McDLT is a memory and jingle—and probably some vintage containers and toys you can get on eBay.

Also the older of you may remember the infamous Ford Edsel. Not a glowing recommendation for corporate power.

If we really do live in the Galbraithian world of the all-powerful corporation how can failures such as these occur. The corporation with power overs its markets and consumers surely can get consumers to buy their products no matter what. Isn't this the very definition and purpose of market power?

And yet we see many examples of product failures, situations where consumers determined the markets outcome rather than the corporation. Perhaps, therefore, we need to be more skeptical of those who tell us that corporations have overwhelming corporate "power".

Update: Tim Worstall adds Microsoft's dismal record with Nokia to the list of failure for supposedly all powerful companies.

The firm in classical economics

On twitter Per Bylund wrote:

I'm increasingly convinced that the social sciences need to be reintegrated. Its universal framework should be based on classical economics.
— Per Bylund (@PerBylund) March 7, 2014

This is an interesting idea but I would ask Per, as theory of the firm man, what the theory of the firm would look like if it is to be based on classical economics. Mark Blaug when so far as to write that the classical economists "had no theory of the firm". Micheal H. Best writes, "Adam Smith did not elaborate a theory of the firm." Smith famously opens The Wealth of Nations with a discussion of the division of labour at the microeconomic (pin factory) level but quickly moves the analysis to the market level. When discussing Smith's approach to the division of labour McNulty comments,

“[h]aving conceptualized division of labor in terms of the organization of work within the enterprise, however, Smith subsequently failed to develop or even to pursue systematically that line of analysis. His ideas on the division of labor could, for example, have led him toward an analysis of task assignment, management, or organization. Such an intra-firm approach would have foreshadowed the much later−indeed, quite recent−efforts in this direction by Herbert Simon, Oliver Williamson, Harvey Leibenstein, and others, a body of work which Leibenstein calls “micro-microeconomics”. [ ...] But, instead, Smith quickly turned his attention away from the internal organization of the enterprise, and outward toward the market and the realm of exchange, perhaps because he found therein both the source of division of labor, in the “propensity in human nature ...to truck, barter and exchange” and its effective limits”

A quick search of the second edition of Edwin Cannan's "History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848" showed that the only time the word firm appears is when Cannan says that an author "would have been on firm ground". The use of the world company or corporation seems to only appear when Cannan is talking about the meaning of the word capital as being the "funds of a trader, company, or corporation".

What this suggests to me is that Blaug is right. As Foss and Klein have noted classical economics was largely carried out at the aggregate level with microeconomic analysis acting as little more than a handmaiden to the macro-level investigation,

“[e]conomics began to a large extent in an aggregative mode, as witness, for example, the “Political Arithmetick” of Sir William Petty, and the dominant interest of most of the classical economists in distribution issues. Analysis of pricing, that is to say, analysis of a phenomenon on a lower level of analysis than distributional analysis, was to a large extent only a means to an end, namely to analyze the functional income distribution”.

With no real emphasis on microeconomics how can a theory of the firm develop? Thus it is not clear what a theory of the firm would look like if based on classical economics.

CEO pay

Greg Mankiw points us to this paper on CEO pay:

Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges

Steven N. Kaplan The abstract reads:

In this paper, I consider the evidence for three common perceptions of U.S. public company CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for their performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s although they remain above their long-term historical average. The ratio of large-company CEO pay to firm market value is roughly similar to its level in the late-1970s and lower than its pre-1960s levels. These patterns suggest that similar forces, likely technology and scale, have played a meaningful role in driving CEO pay and the pay of others with top incomes. With regard to performance, CEOs are paid for performance and penalized for poor performance. Finally, boards do monitor CEOs. The rate of CEO turnover has increased in the 2000s compared to the 1980s and 1990s, and is significantly tied to poor stock performance. While corporate governance failures and pay outliers as well as the very high average pay levels relative to the typical household undoubtedly have contributed to the common perceptions, a meaningful part of CEO pay appears to be market determined and boards do appear to monitor their CEOs. Consistent with that, top executive pay policies at over 98% of S&P 500 and Russell 3000 companies received majority shareholder support in the Dodd-Frank mandated Say-On-Pay votes in 2011.

Another thing about CEO pay and performance worth considering isn't the relationship between the current CEO's performance and pay but the relationship between the next CEO's performance and the CEO's pay. That is, what effect does CEO pay have on the performance of the guys who want to replace the current CEO? A decent remuneration package for the CEO may well increase effort on behalf of those who want to be the next CEO.

A country is not a corporation (updated)

In a way this statement is obvious and yet as Brennan McDonald points out many people still seem to think that a country is in fact like a corporation. McDonald asks MFAT Please Kill The Phrase NZ Inc. He writes

The phrase NZ Inc is so nauseating. Please stop using it. New Zealand is a collection of individuals, firms, government agencies, councils, charities, families, iwi and a whole lot of other fluid groups that change their composition and goals frequently.

A country is not a corporate. New Zealand is not some sort of business enterprise that can be called “NZ Inc”.

And he is right, a country is not a corporation. Hayek made the distinction between the "economies" of the small-scale entities such as firms, farms or family units and the "economy" of a nation state, that is the "economy" of a corporation and the "economy" of country. In the case of a firm's (or household's) economy, Hayek argued, the ends around which decisions are made are generally known in advance and decisions about resource allocation are therefore relatively uncomplicated. In this sense then the economy of a household or firm or farm, is the economy of an organisation, or "taxis". But, Hayek goes on to say, the same does not hold for the economy of a large-scale complex society. Society is not an organisation. Owing to its size and the indirect nature of the social relationships within it, Hayek contends that the Knowledge Problem that the economy of such a society consequently faces means that it is not immediately apparent to what use resources should be put. For this reason, Hayek employs the term "catallaxy" to describe the economic aspect of the complex spontaneous order, or cosmos, of a large-scale society.

Another way to see why countries are not corporations is to turn to Paul Krugman's essay entitled, funnily enough, A Country Is Not a Company. A distinction made in the essay is about competition between firms and countries. Firms complete while countries do not, an important distinction. Consider, for example, Coke and Pepsi, they do compete. One of them gains at the others expense, management in each company spends a lot of time and energy trying to out do the other. But what about New Zealand and Australia, do they compete? Of course they don't, Australia's loss is not New Zealand's gain and vice versa. International trade is not a zero-sum game. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia "out of business".

Why? Well in the Coke/Pepsi case, Coke gains a lot, in terms of sales and profits, from not having Pepsi to complete with and lose little since Pepsi doesn't buy much , if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sales if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they "went out of business", they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.

Countries do a lot of trading, but they don't compete. Corporations do little trading but a lot of competing.

Update: Matt Nolan notes that NZ Inc: Good marketing, bad for society