The Role of Political Economy in Determining the Goals of Firm Laws

Abstract

The emergence of political schools, especially leftist views, created a closer link between economy on the one hand and political views and schools on the other hand. In fact, prior to the advent of economics-based political schools, the relationship between political schools and economics was not clear, and instead, economic tendencies were mostly stressed by scholars and business organizations. Despite the fact that mercantilism did not last long, and survived for almost only two centuries, it exerted a profound impact on the structure of the western economy. Although the classical school, and mainly Adam Smith, played a role in undermining the idea of mercantilism, it lost its position with the rise of nationalist ideas in the 19th century. In fact, the discriminatory implications and issues of the liberal approach led to the boom of socialism. In the field of political economy, the function of corporate governance has long been of interest to scholars, at the core of which are the two shareholder-based and stakeholder-based views. While the former highlights the interests of the ultimate owners of the company, the latter underscores the interests of the community and all stakeholders as the goal of corporate governance, and both pursue different and sometimes conflicting objectives. The basis of such a difference lies in the discrepancy between individualism and socialism, an influential factor in goal determination of firms.