How do corporations affect the economy?

Answer 1

A corporation fills a major and important role in a modern economy. Corporations are formed in order to raise capital and spread the risk of a business undertaking. Without a corporate structure, it would be nearly impossible to efficiently raise capital for large or risky ventures.

For example, no one would be able to start or operate an airline or a global delivery service like UPS or FedEx. These require hundreds of billions of dollars of capital, in excess of the net worth of even the richest of the rich. Likewise risky operations like performing R&D work on new medicines or medical devices, or exploring for energy reserves, would not function well if at all without a corporate structure. Who could risk billions a year in R&D and or exploration activities knowing it may take years, if ever, for those investments to pay off? Many avenues explored for drugs or energy exploration never bear fruit and billions are lost. Only a corporation that can fund a PIPELINE of many such projects can effectively pursue these risky ventures, as no one failure will doom the firm. Only a corporation, that spreads the risk fractionally to many smaller investors, can raise enough capital to have tens of not hundreds of billions tied up in a risky pipeline at one time.

Answer 2

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