Subject: It's time to kill off these " persons."
http://tompaine.com/opinion/2001/07/12/3.html
IS THE CORPORATION OBSOLETE?
Corporate Irresponsibility? Predatory Behavior? Blame
the Charter -- and
Rewrite it
Jonathan Rowe is a fellow at the Tamales Bay Institute
and a contributing
editor of the Washington Monthly.
Editor's Note: This piece originally appeared in the
Washington Monthly. It
is reprinted with permission.
It is a sign of immersion that the thing immersed
doesn't notice. The fish,
famously, is not aware of water. Dick Cheney and George
W. Bush cannot see
past their allegiance to the oil industry because it's
all they know --
their water.
So it is with the corporation. Over the last century and
a half, the
corporation has become the dominant institution of
American life, the
"envelope of existence," as one writer put it. It
defines work,
entertainment, politics, transportation, the way people
think about their
bodies and the world. Increasingly it dominates the
cognitive environment
of
daily life. For all the kvetching about government, the
corporation
permeates our lives in much more basic ways.
Yet the more pervasive the corporation becomes, the less
we seem to notice.
It's just the way things are, the new normal, and
rapidly it is becoming
the
norm for the entire world. This has been the subtext of
recent trade
agreements, and the implicit agenda that has inspired
the opposition to the
World Trade Organization. Protestors in Seattle and
elsewhere have not been
opposing trade per se. One might as well oppose the
morning. The issue
rather is who controls this trade, under what terms and
to what ends.
As it has evolved over the last 150 years, the American
corporation is more
than just a mode of business. It is an agenda, the
organizing principle for
an entire society -- the embedding in the institutional
matrix of the
single-minded quest for monetary gain. Apologists may
protest to larger
aims, or at least effects. But the soul of the
corporation is the charter,
and corporate charters speak for themselves. They say
that the company
exists to make money and for no other reason. The
question today is whether
that governing concern is large enough to serve as
organizing principle for
the entire world.
The question may seem eccentric, even naove, in these
economically
triumphant times. Yet back in the days when the
corporation was still new
and its impact clear, the question was of obsessive
concern. President
Lincoln expressed this in a 19th-century version of
Eisenhower's
military-industrial complex speech. "Corporations have
been enthroned,"
Lincoln said. "An era of corruption in high places will
follow ... until
wealth is aggregated in a few hands ... and the Republic
is destroyed."
Lincoln knew a thing or two about threats to the
Republic. The question
continued as farmer-populists and Progressives led the
drive for
regulations
and restraints. Presidents Theodore Roosevelt, Taft, and
Wilson all called
for federal chartering of large corporations, as
Madison, with unusual
foresight, had urged at the Constitutional Convention.
Roosevelt even
created a Federal Bureau of Corporations because of
these concerns.
But soon enough the corporate economy became simply "the
economy" in the
majestic singular. It was helped greatly by a fledgling
advertising
industry, which cast it in friendly and even patriotic
terms, and by an
economics profession that served as apologist and
booster. Most important
of
all, prosperity had a quieting effect -- the sedation of
Huxley's Brave New
World as opposed to the statist oppression of Orwell's
1984. The 1990s were
such a time, of course. But as regularly happens, the
wheel is turning once
again. The stock market is no longer a money machine for
the masses, and
the
jazzy new technology -- the microchip -- is becoming a
bit old hat.
The energy situation, moreover, has brought dirty old
industries such as
oil
and coal back to center stage. After Clinton's
off-and-on embraces, the
Bush
administration has seized the role of Monica to the
suits. At the same
time,
corporations are showing a degree of raw aggression that
is unsettling to
say the least. They are claiming new territory in
virtually every dimension
of existence, from the personal space that is assaulted
by huckstering and
cell phones to the Star Wars initiative, which will
stake a commercial
claim
to the farthest reaches of outer space. They are taking
control of the
quest
for knowledge at universities, and are moving even to
claim the gene pool
and the processes of life itself.
Perhaps this helps explain why the looming invasion of
oil companies into
the nation's parks and wilderness areas has become so
symbolically charged.
It captures in a single image what is happening already
in American life.
Put all this together, and it is not surprising that
there are efforts to
revive the debate that was aborted a century ago and to
inquire into the
nature of the institution that the United States is
seeking to launch into
a
global role. The issue here is not the market economy or
the free
enterprise
system, though journalists inevitably will cast it that
way. Rather, it is
the institutional machinery the government has created
to dominate that
system.
A New Deal
One sign of the renewed debate is the recent book by
Jack Beatty, called
Colossus: How the Corporation Changed America. After a
decade or more of
how-to-make-a-million books, it is significant that
someone of Beatty's
stature has stepped back and attempted to put the
corporation into a
broader
social and economic frame. Beatty is an editor at the
Atlantic, and his
work
shows the best voice of that magazine -- temperate,
fair-minded, but with a
strong ethical compass. Through anthology and essay,
Beatty argues that a
disposition toward worldly lucre runs deep in the United
States. It took
root here with the Puritan settlers and found ultimate
expression in the
modern corporation.
In the contest between God and Mammon, it wasn't even
close. Yet as the
vehicle for these pecuniary urgings, the corporation
posed a big dilemma.
On the one hand, it became a prodigious engine of
"prosperity" as
conventionally defined. Yet it also represented a
concentration of power
beyond anything the Founders envisioned -- and power was
the very thing
they strove mightily to subdue. It was their demon, the
thing they found
"ultimately corrupting," as historian Bernard Bailyn put
it.
Yet here it was, the thing Madison and the others
dreaded most, arisen
through the cracks in their own system and bearing gifts
that the populace
could not resist. The result was a bipolar national
psyche, which Beatty
illustrates through a host of contemporary accounts,
from John D.
Rockefeller's ruthless empire-building to the
repercussions of the more
recent leveraged buy-out craze. Beatty's answer is the
one John Kenneth
Galbraith formulated in the '50s: countervailing power.
The centralized
economic power of the corporation requires institutional
counterweights in
the form of a strong federal government, as well as
labor unions and
organized citizen groups.
Countervailing power is a brooding Madisonian concept
that extends the
constitutional principle of checks and balances to the
unanticipated gap in
the design. (Decades ago, a young Ralph Nader took the
idea to heart.) As
Beatty says, it is the missing element in debates over
the global economy.
Competition for global market share will not ensure that
other needs are
met; in fact, it practically ensures that they won't. If
corporations are
going to have free rein on a global level, then there
must be a
counterbalance -- a "New Deal for the global economy" --
to protect the
environment, establish labor standards, temper the rush
toward genetic
engineering, and so on.
This is a suggestive idea, and something like it is
bound to come. Yet as
Beatty himself points out, the New Deal served largely
to save corporate
capitalism from its own excesses. The World Trade
Organization, which is
run
primarily for its corporate constituents, is the first
step toward the new
global order, and not exactly a promising one. Already
Philip Morris has
gotten behind the idea of a global treaty on tobacco
marketing. One
suspects
its goal is not to put itself out of business.
There will always be a need for cops on the beat, for
corporations as for
real people. We can work for an arrangement that is more
than a global
version of the company town. There's a particular need
to reestablish
boundaries between corporations and the rest of life --
to declare
particular realms (such as childhood and aspects of the
gene pool)
off-limits. But while we construct a system of external
restraint, it would
be wise to inquire into the nature of the entity that
requires all this
policing.
The question requires a shift of mental gears. The
corporation has attained
an almost metaphysical stature in American life -- an
apotheosis of the
market rather than just a contrivance of fallible
humans. Yet the process
by
which the modern corporation came about does not square
with this exalted
status.
In fact, the story of the corporation is practically a
primer of
contemporary right-wing demonology. Outlandish public
subsidy, industrial
policy, judicial activism, revenue-mongering by corrupt
politicians -- it's
all here. As for unintended consequences, nothing the
government has
created
has produced so many.
>From Monasteries to Monopolies
The first corporations in the Western tradition were
monasteries, boroughs,
guilds, and the like. They were vehicles of community
and social cohesion;
they sought to restrain the tendencies toward
self-seeking -- not provide
an
institutional amplifier for them. By the time of the
American Revolution,
this form had evolved into a kind of franchise,
chartered by the
legislature
to perform a specific public function, such as running a
toll road or a
bridge. These early business corporations were limited
in size and scope;
and there was little reason to suspect that such
creatures of the state
would one day become the dominant institutions in it.
Thus there is no provision in the Constitution for the
large business
corporation. The Founders thought they were dealing with
a polity of
individuals organized as interests. The corporation was
an extension of the
government, and thus would be restrained by the checks
and balances by
which
they sought to hold institutional power in check. That
assumption fell
apart
in the period that came to be described as "Jacksonian
Democracy." The
practice of granting charters one by one through
legislation had given rise
to corruption and abuse, and the Jacksonians opened up
the corporate form
to
all comers, through general incorporation laws.
But their aim was to bust up monopolies, not to absolve
corporations of the
responsibilities that came with the license to operate
in that form. A
corporate charter bestows an extraordinary privilege --
exemption from
common-law rules of personal responsibility. It enables
the owners of the
corporation to say in effect, "I didn't do it, your
honor. The corporation
did." People still believed that those so privileged
owed something to
society in return. "While the rights of private property
are sacredly
guarded," wrote Jacksonian Chief Justice Roger Taney in
1837, "we must not
forget that the community also has rights."
Accordingly, free-incorporation laws typically included
limits on the size
and scope of the corporation. Some expired after a given
period, like
broadcast licenses today. The existence of such charter
restrictions was
why
Rockefeller and others resorted to secret trust
agreements to construct
their corporate empires; their charters wouldn't let
them purchase stock in
other companies.
That's where things stood until a New Jersey governor by
the name of Leon
Abbett came on the scene. Abbett was what rightward
polemicists today would
call a "revenue-hungry politician." Where others saw
dangerous
agglomerations of economic power, he saw money for the
state's coffers --
along with under-the-table emoluments for himself.
Abbett proceeded to
rewrite New Jersey's corporate-charter laws to make them
a little like a
Liberian flag of convenience. Pay the fee and you could
do pretty much
whatever you wanted. By 1900, New Jersey chartered some
95 percent of the
nation's major corporations.
More than one could play this game, however. Delaware
soon outbid New
Jersey -- in part by insulating managers from pesky
shareholders -- and
ultimately won the ensuing race to the bottom. Today, a
fair portion of the
world's largest corporations exist in file drawers in
law offices in
Wilmington. This means that the ground rules for the
major players in the
global economy have been constructed largely to fill the
revenue needs of
one of the nation's smallest states -- and were drafted
by corporate
lawyers
for the benefit of their clients. (In Delaware, for
example, corporate
officers are fully indemnified for all court costs and
settlements and thus
are insulated from civil and criminal responsibility.)
Meanwhile the visible hand of government was providing
subsidies on a scale
that would cause the most prolific pork-barreler of
today to blush. The
first truly national corporations were the railroads,
and they began with
the help of large government land-grants, along with
capital infusions,
free
surveying, and federal troops dispatched to rout the
natives when
necessary.
An activist Supreme Court played a big role as well. In
Santa Clara County
vs. Southern Pacific Railroad Company, decided in 1886,
the court declared
that corporations are "persons" within the terms of the
14th Amendment and
thus are entitled to full constitutional protection.
The court cited no precedent for this assertion, nor
even justification. It
did "not wish to hear argument on the question," it
said. Some 50 years
later, Justice Hugo Black observed that "Neither the
history nor the
language of the 14th Amendment justify the belief that
corporations are
included within its protection." Nevertheless, a
constitutional provision
designed to ensure the rights of the most vulnerable
citizens -- former
slaves -- became a protection to the most powerful
instead.
Among other things, this left states helpless to counter
the
charter-mongering of New Jersey. Absent Santa Clara,
other states might
conceivably have refused to honor the degraded New
Jersey charters. But
since corporations were now "persons," the court
eventually held that other
states didn't have that choice. The only alternative was
to try to curb the
worst abuses of these new juggernauts. Thus was born the
federal regulatory
apparatus -- antitrust laws, the Interstate Commerce
Commission, pure food
and drug laws, and the rest. In other words, the federal
regulatory state
didn't leap unbidden from the imaginations of statist
schemers. It was
largely a response to the corporate economy, and to the
urbanization that
came with it. Then, as now, a corporate economy and a
centralized state go
hand in hand.
Charting a New Course
There's a case to be made that the emergence of the
current form of
corporation, while not pretty, served a useful end. It
mobilized the
entrepreneurial and managerial energies that filled a
sprawling continent
and tapped its vast resources. The job could have been
done better and with
more attention to long-term implications. Still, it did
get done; and given
the circumstances of the 19th century, perhaps it was
better to err on the
side of permissiveness.
But the corporate form that emerged from the 19th
century is essentially an
engine of appetite. It takes the romantic individualism
of that era and
transplants it into an institutional machinery geared
exclusively to
self-enhancement, without regard to implications for the
context in which
it
grows. That is a definition of a cancer; and while it
didn't seem to matter
much in the 19th century -- so much space to conquer, so
many resources to
tap -- today that is no longer the case. Where once
there was an abundance
of social and environmental space to absorb the side
effects of large-scale
enterprise, today the sponge is getting full. A
cell-phone purchase may
bring happiness (or whatever) to the purchaser but
misery to many others
who
must share the coffee shop or subway car while the
caller yaks. The
purchaser of the SUV might get to feel like a suburban
cowpoke, but
everyone
else gets less space on the road, more brutal crashes,
and tighter gas
supplies as well.
On a larger scale, the implications of genetic
engineering, global warming
and the rest push the boundaries of human life itself.
In conventional
economic terms, the externalities of corporate
enterprise are starting to
outweigh the internalities -- the negative side effects
of production and
consumption are becoming larger than the presumed
benefits to the parties
immediately involved. Yet the corporation has evolved to
maximize such
externalities; when it shifts costs onto the social
structure or the
environment, then its own bottom line increases.
In a global economy, this chain of unintended
consequence extends to all
corners. The organizing principle of the corporation
becomes the mode of
governance of human life itself. So it is not
extraordinary to ask whether
the version of the corporation that emerged in
19th-century America, with
the help of activist judges and pork-barreling,
revenue-hungry politicians,
is adequate to the challenges of the 21st. To put this
another way, if the
government is as stupid as our friends on the right
contend, then might it
not have made a few mistakes in the form of corporation
that it launched
upon the world?
There are people who dispute the premise of the
question, of course. Milton
Friedman and others contend that corporations should not
concern themselves
with anything besides making money. They serve humanity
best when they
serve
themselves most. Most of us probably have known people
like that, and they
weren't the kind we'd want to fill the world with --
especially if they
were
the size of Exxon or Microsoft. A more serious objection
is that
corporations can do ample good already, given
enlightened management (which
is no small given). Yes, the corporate-responsibility
movement is to be
applauded. But it is vulnerable in the extreme -- to
Wall Street pressures,
the passing of an inspired leader, corporate takeovers,
the downward pull
of
less conscientious competitors. When competitors move
production to
low-wage
sweatshops abroad, even the most well-meaning maker of
dungarees or
sneakers
eventually has to follow.
In this world the wicked often do prosper. As long as
the corporate charter
says that making money is the corporation's only
objective, a CEO invites
shareholder lawsuits if he or she pursues other goals.
By contrast, if we
built a larger mission right into the governing document
-- the corporate
soul -- as in the old days, then the good guys would
have a stronger hand.
When broadcasters were held to a community-service
standard as a condition
of their licenses, news departments flourished. A more
permissive regime
has
enabled broadcast corporations to score financially,
especially in radio.
Public service has not fared as well.
Perhaps the answer lies in different kinds of
corporations -- new
institutional tools designed for different tasks. There
could be one type
for small start-up firms that need lots of room for
experiment and risk. As
a company grew larger the society could expect more of
it. Concerns for the
environment, workers, local communities, and the rest
could become warp and
woof of the charter -- the basic contract with the
community -- so that
CEOs
would not be dragged constantly down to the lowest
common denominator.
In this approach, we could do away with much
bureaucratic regulation, such
as the mountainous economic sophistry that attends
antitrust litigation
today. If the charter said a company could grow only so
big, or control
only
so much market share, that's how big it could grow.
Moreover, if the
charter
required corporations to take responsibility for some of
the costs they now
"externalize" upon the rest of us, they could use their
own ingenuity to
meet those responsibilities in the most efficient
manner. Entrepreneurial
energies would still prevail, only in more directions.
Already, such
measures as pollution taxes and fees turn environmental
cleanup into a
bottom-line mandate. Charter revision could accomplish
the same thing
on a larger scale.
Whatever the exact approach, it is time for the
corporation to grow up.
If it is to keep the legal status of a person, then it
should accept the
responsibilities that we expect of persons as they
mature. A corporation,
declared Chief Justice John Marshall, is but "an
artificial being,
invisible, intangible, existing only in contemplation of
law." It is a
social creation, a projection of the society's values
and aspirations. As
the creator, so the creation -- and the time is long
overdue to ask whether
the two still match.
Reprinted with permission from the Washington Monthly.
Copyright by the
Washington Monthly Company, 733 15th St. NW, Suite 1000,
Washington, DC
20005. (202) 393-5155.
Originally published at:
http://www.tompaine.com/opinion/2001/07/12/3.html
1999-2001 The Florence Fund
- --
For MAI-not (un)subscription information, posting
guidelines and
links to other MAI sites please see
http://mai.flora.org/
............................................
Bob Olsen Toronto
"Corporations have been enthroned, an era of
corruption in high places will follow ...
until wealth is aggregated in a few hands...
and the Republic (democracy) is destroyed."
Abraham Lincoln
............................................