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Are Corporations Obsolete

by J. Rowe Monday, Aug. 20, 2001 at 4:13 PM

A historical look at the development of corporations, and suggestions to improve the situation.

Subject: It's time to kill off these " persons."



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


daily life. For all the kvetching about government, the


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


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


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


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


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


industry, which cast it in friendly and even patriotic

terms, and by an

economics profession that served as apologist and

booster. Most important


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


jazzy new technology -- the microchip -- is becoming a

bit old hat.

The energy situation, moreover, has brought dirty old

industries such as


and coal back to center stage. After Clinton's

off-and-on embraces, the


administration has seized the role of Monica to the

suits. At the same


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


to the farthest reaches of outer space. They are taking

control of the


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


global role. The issue here is not the market economy or

the free


system, though journalists inevitably will cast it that

way. Rather, it is

the institutional machinery the government has created

to dominate that


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


social and economic frame. Beatty is an editor at the

Atlantic, and his


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


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


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


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


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


which the modern corporation came about does not square

with this exalted


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


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


institutional amplifier for them. By the time of the

American Revolution,

this form had evolved into a kind of franchise,

chartered by the


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


they sought to hold institutional power in check. That

assumption fell


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


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


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


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


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,


surveying, and federal troops dispatched to rout the

natives when


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


Among other things, this left states helpless to counter


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


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


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


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


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


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


less conscientious competitors. When competitors move

production to


sweatshops abroad, even the most well-meaning maker of

dungarees or


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


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


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


so much market share, that's how big it could grow.

Moreover, if the


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:


1999-2001 The Florence Fund

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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


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