Bryan Caplan  

A Question of Organizational Literacy

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What fraction of Americans can correctly explain the difference between a business and a corporation?

Please show your work.

COMMENTS (14 to date)
Fonzy Shazam writes:

Very few, and this holds regardless of what context you mean. I assume you don't mean partnership vs sole proprietorship vs corporation in its many forms. I assume you do mean line of work/industry/goods or services supplied vs legal form of organization. People tend to sloppily categorize al this together. A business is the life blood of what a corporation does.

F. Lynx Pardinus writes:

@Fonzy I've heard two commonly used definitions of "business": 1) your line of work (We're in the business of...), 2) the organization to carry out the aforementioned line of work (I started a business to...).
The answer someone will give to Caplan's question depends on which definition they're using (though I'd lean to definition #2 because he used "a business").

Vivian Darkbloom writes:

I would say that the fundamental difference between a "business" and a "corporation" is that the former describes an activity (incorporated or not) the purpose of which is to generate a profit for its owners. A corporation may also have this purpose, but the intention to generate profit is not required of a corporation. Profit motive is the essence of a business.

This distinction is often lost in the debate over the Supreme Court case of Citizens United. Those who believe that the decision is bad law often forget that it applies to corporations that are not businesses, such as unions, the Sierra Club, etc and such not-for-profit corporations not have capital stock. Almost all organizations taking advantage of the provisions of section 501 of the Tax Code are organized as "corporations" even though they are not, or at least their main purpose may not be, to operate a "business".

Philo writes:

Eighteen percent.

If I had wanted to do any "work," I would have made a survey. Instead I just guessed.

Glen Smith writes:

The term corporation and business have many meanings when used. In terms of productive organization, most of the time, corporation seems to be used when a speaker wants to convey a negative spin on certain businesses, usually large. Business, as a term identifying a productive organization, is used when the speaker wants to convey a more positive, hard-working image to such a business, usually a small one. The terms used here are technically correct, so I'd say that nearly 100% of Americans know the difference but like so many words, they have multiple meanings that allow the speaker to manipulate emotions and basically lie to his/her listeners.

Steve S writes:

I don't quite understand the question, business seems a pretty broad term.

This is either a "all squares are rectangles but not all rectangles are squares" situation (a corporation is a business but there are many other types of businesses as well), or it is like asking someone to describe the difference between fruit and a banana.

Unless you are trying to get at the fact that a corporation can exist without the need to conduct any business, it is just a legal framework for defining rights, liabilities, etc.

In either case I would say the number is

Work: I consider myself in the 95th percentile of intelligence and even I don't think I could answer your question without further explanation.

Steve S writes:

Sorry that should say less than 5%.

Jeff writes:

I suspect it will be news to many people that most non-profits are organized as corporations. I think the previous commenters are correct...less than 10%. Maybe less than 5%.

Thomas Sewell writes:

I would have posted a higher percentage before reading the previous comments on the post.

So, leaving aside the question of correlation between each term, I'll go with:

Percent who know what a business is
percent who know what a corporation is
percent who have the skills to explain legal and/or economic types of concepts
diminishing every recent generation due to worse and more biased education and mass media.

Dick Cornflour writes:

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Highmesa writes:

Better question...

What percentage of academics can correctly explain the difference between a business and a corporation?

MingoV writes:

I agree with Steve S. Here's another point:

You own a business for years, and then incorporate it. All that changed was some paperwork filed in a government office and your insurance policy. Is your business now a corporation?

Richard writes:

I think it's great that the very first comment flunks the test. As the second commenter points out, the first commenter defined a "line of business" rather than "a business."

Being smart is harder that it looks! Be here are the right answers:

A business: an undertaking designed to turn a profit by producing goods or services and selling them at a price that exceeds the cost of the resources used in producing them.

A corporation: a legal entity that can hold property, enter into contracts, and be held liable like a natural person.

jpa writes:


1,225,452 (lawyers in the US) / 313,900,000 (US Pop)

any other population that accurately describe the difference is probably a rounding error.

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