Wednesday, January 28, 2015
Of the Corporation, by the Corporation, for the Corporation: A Short History Lesson (Part 1)
In recent years, cries of “socialism” have rung out from Republicans whenever government has meddled at all in the affairs of business. Such cries reveal an unfortunate lack of understanding not only of what socialism is, but more especially of the history of the modern corporation. I keep tabs on the opinion pages of the two major Salt Lake City newspapers, including the online comments, and I am amazed at how many people are willing to defend the corporate system to their dying breath. I assume they are in some way attempting to defend what they think is “free agency” (more on that particular bit of confusion another day), but I don’t think they understand exactly what it is they are defending. It certainly isn’t freedom and democracy. But if I criticize the Republicans, I must pass judgment on most Democrats as well. Both parties appear to be controlled largely by corporate interests without comprehending the corporate system, its history, its values, or its agenda.
In his book When Corporations Rule the World, David Korten claims that “corporations have emerged as the dominant governance institutions on the planet. . . . Increasingly, it is the corporate interest more than the human interest that defines the policy agendas of states and international bodies, although this reality and its implications have gone largely unnoticed and unaddressed.”1 Even though I recognized the economic necessity of the government’s bailout of Wall Street after the meltdown of 2008, I was certainly not happy about this necessity. Unfortunately, it served as just another proof of Korten’s point. And if we need further evidence of how dominant corporations have become, all we need to do is compare the revenues of the largest companies with the gross domestic product of various nations in the world. In its fiscal year that ended on January 31, 2014, Wal-Mart Stores, which has been the world’s largest corporation (but now ranks second to a Chinese conglomerate), had sales of almost $473.1 billion. In other words, if Wal-Mart were a country, it would rank 28th or 29th, depending on which list you choose,2 just behind Taiwan and ahead of Austria. To put it another way, Wal-Mart is larger and more powerful economically than 200 countries for which the CIA keeps statistics. This is insanity on a large scale.
So, how did corporate capitalism reach this level of dominance? How did corporations become so powerful that even governments seem to be in their service?
From Humble (Though Hardly Harmless) Beginnings
There are many accounts of the rise of the modern corporation. Although some claim the oldest existing corporation is the Stora Koppaberg mining community in Falun, Sweden, chartered in 1347, Bruce Brown traces the long history of the corporation all the way back to the founding of the Benedictine Order of the Roman Catholic Church in 529 AD.3 But if we wish to look for the wellspring of today’s global corporate economy, we need look no further than New Year’s Eve of the year 1600, when Queen Elizabeth chartered the East India Company. While not the first of the European corporations of that age, the EIC was certainly the most powerful.
European corporations were initially a creation of monarchs. Indeed, the New World was colonized largely through such corporations. That is not to say, however, that these corporations were admirable institutions. David Korten actually traces the genealogy of our current corporate behemoths to the early privateers and buccaneers who often pillaged and plundered under commission from European monarchs. “Some privateers operated powerful naval forces,” explains Korten. “In 1671, Sir Henry Morgan . . . launched an assault on Panama City with thirty-six ships and nearly two thousand brigands, defeating a large Spanish force and looting the city as it burned to the ground.”4
Monarchs eventually forsook chartered pirates in favor of chartered corporations to pursue their goals of colonial expansion and pillage. Korten observes that in England this transition resulted from the monarch’s attempts to sidestep the restrictions of the country’s “incipient step toward democracy.” When Parliament acquired the authority to “supervise the Crown’s collection and expenditure of domestic tax revenues . . . , sovereigns such as Elizabeth I, James I, and Charles I found that by issuing corporate charters that bestowed monopoly rights and other privileges on favored investors, they could establish an orderly and permanent source of income through fees and taxes that circumvented parliamentary oversight.”5
“In 1580,” writes Thom Hartmann, “Queen Elizabeth became the largest shareholder in The Golden Hind, a ship owned by Sir Francis Drake. The investment worked out well for Queen Elizabeth. . . . After making a fortune on Drake’s expeditions, Elizabeth started looking for a more permanent arrangement [and a way to protect her income stream from Parliamentary oversight]. She authorized a group of 218 London merchants and noblemen to form a corporation. The East India Company was born on December 31, 1600.”6
“It is difficult for us in 2011,” writes Venkatesh Rao, “with Walmart and Facebook as examples of corporations that significantly control our lives, to understand the sheer power the East India Company exercised during its heyday. Power that makes even the most out-of-control of today’s corporations seem tame by comparison. To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company.”7 It is incorrect to state that Britain ruled the world with the assistance of the EIC. It is more correct to say that the EIC ruled the world. Rao continues:
At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire. Massive flows of gold and silver from Europe to Asia via the Silk and Spice routes had been a given in world trade for several thousand years. Asia simply had far more to sell than it wanted to buy. Until the EIC came along.
A very rough sketch of how the EIC solved the equation reveals the structure of value-addition in the mercantilist world economy.
The EIC started out by buying textiles from Bengal and tea from China in exchange for gold and silver.
Then it realized it was playing the same sucker game that had trapped and helped bankrupt Rome.
Next, it figured out that it could take control of the opium industry in Bengal, trade opium for tea in China with a significant surplus, and use the money to buy the textiles it needed in Bengal. Guns would be needed.
As a bonus, along with its partners, it participated in yet another clever trade: textiles for slaves along the coast of Africa, who could be sold in America for gold and silver.
The British East India Company and its contemporaries, Korten asserts, were hardly paragons of virtue. The corporations that colonized the New World for the British Crown, for instance, “populated them with bonded laborers—many involuntarily transported from England—to work their properties. The importation of slaves from Africa followed.”8 As pointed out above, the EIC paid for many of its purchases in China with opium. “At its height, it ruled over a fifth of the world’s population with a private army of a quarter of a million.”9 The Dutch East India Company was no better; it displaced the local Indonesian population from its lands, confiscating them to grow spices coveted in Europe. “It is no exaggeration,” claims Korten, “to characterize these forbears of contemporary publicly traded limited-liability corporations as . . . legally sanctioned and protected crime syndicates with private armies and navies backed by a mandate from their home governments to extort tribute, expropriate land and other wealth, monopolize markets, trade slaves, deal drugs, and profit from financial scams.”10 Such is the sordid paternity of the modern corporation.
For 200 years, the EIC dominated world trade. The Company also settled America. We often mistakenly remember that the Puritans settled the New World, but “the Puritans traveled to America on ships owned by the East India Company, which had already established the first colony in North America, at Jamestown, in the Company-owned Commonwealth of Virginia, stretching from the Atlantic Ocean to the Mississippi. The commonwealth was named after the ‘Virgin Queen,’ Elizabeth, who had chartered the corporation.”11
The EIC exercised immense power in America, so much power, in fact, that it can rightly be claimed that the American Revolution was not just a rebellion against the Crown; it was also a rebellion against British corporations. One of the delicious ironies of the current political landscape is missed by most Americans. Although we are often taught that the Boston Tea Party was a protest against “taxation without representation,” this is technically incorrect. Actually, the Bostonians who dumped over $1 million worth of tea (in today’s currency) into Boston Harbor in 1773 were protesting against the unfair business practices of the East India Company.
According to George R. T. Hewes, a participant in the crime, who left an account of the drowning of the tea, the “Company received permission to transport tea, free of all duty, from Great Britain to America.”12 Local tea wholesalers and retailers could not compete with the Company and its favored tax status. In other words, the Boston rebels were engaging in an act of sabotage against the Walmart or Exxon of their day. This was a rebellion against unchecked corporate power, not against government taxation. Ironically, today’s misnamed Tea Party is promoting the most corporate-friendly agenda America has seen in decades. What a difference a little historical perspective brings.
Because of their unsavory encounter with European corporations, early Americans distrusted these organizations and chartered very few of them. In 1816, Thomas Jefferson wrote, “I hope we shall . . . crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”13 Ralph Estes observed in 1996 that 150 years ago there were no large corporations in America, and those corporations that did exist were chartered for a very different reason than we see in corporate America today. “For more than two hundred years after Plymouth Rock, corporations were chartered [in America] to serve society. They were created for a specific public purpose, to perform a task that individual citizens or the established but limited governments could not do better. Even then they were usually limited to twenty or fewer years of life.”14
The Revolutionary War liberated American citizens not just from the British monarch but also from the oppression of British corporations. Consequently, for a century after the founding of the United States, American citizens were justifiably suspicious of corporations, and their representatives in government chartered these businesses cautiously and kept them on a very short leash, dissolving them if they violated the restrictions specified in their charters.
These corporations were created specifically to serve the public interest, perhaps to build bridges or canals or to provide banking services. In other words, corporations were an extension of government, created by the people to serve the needs of the people.15 This bit of history makes today’s conservative cries of “socialism” sound rather silly, not to mention un-American. One of the original functions of government was not just to create corporations, but to control them and to channel their activities into avenues that would serve public purposes. According to Lee Drutman,
Post-Revolution America developed largely along the ideals of Jefferson’s yeoman farmer, with American industrialism lagging behind its European counterparts. Corporations remained small institutions, chartered at the state level for specific purposes, such as banking or seafaring. Corporations could only exist for a limited time, could not make any political contributions, and could not own stock in other companies. Their owners were responsible for criminal acts committed by the corporation and the doctrine of limited liability (shielding investors from responsibility for harm and loss caused by the corporation) did not yet exist. . . . Governments kept a close watch on how these corporations were being run, regularly revoking charters if corporations were not serving the public interest. For example, in 1832, President Andrew Jackson refused to extend the charter of the Second Bank of the United States and the State of Pennsylvania revoked 10 banks’ charters.16
In the mid-1800s, perhaps because of Americans’ native distrust of corporations and also because of the corporate tendency toward corruption and abuse, government’s chartering of these institutions began to fall out of favor. Consequently, laws were passed to protect public instead of shareholder interests, and most states tightly regulated corporate charters. Because of these laws, many industrialists simply avoided incorporating their business interests. For instance, Andrew Carnegie set up his steel enterprise as a limited partnership, and John D. Rockefeller organized Standard Oil as a trust.17 In America, both citizens and legislators viewed corporations as dangerous, and for good reason. Legislative restrictions included limits on duration, full liability of stockholders for corporate debts, and even reserve clauses that allowed government to amend corporate charters “at any time for any reason.”18
Next post: how corporations turned the tables on us. Stay tuned . . .
1. David C. Korten, When Corporations Rule the World (West Hartford, Conn.: Kumarian Press and San Francisco: Berrett-Koehler, 1995), 54.
2. For calendar year 2013, according to the United Nations, Wal-Mart would be 29th; according to the International Monetary Fund, World Bank, and the CIA Factbook, Wal-Mart would rank 28th. See Wikipedia, “List of Countries by GDP,” http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29.
3. Bruce Brown, The History of the Corporation, http://www.astonisher.com/archives/corporation_intro.html.
4. David Korten, Agenda for a New Economy: From Phantom Wealth to Real Wealth (San Francisco: Berrett-Koehler Publishers, 2009), 60–61.
5. Korten, Agenda for a New Economy, 61–62.
6. Thom Hartmann, “The Real Boston Tea Party was an Anti-Corporate Revolt,” April 15, 2009, http://www.commondreams.org/view/2009/04/15-10.
7. Venkatesh Rao, “A Brief History of the Corporation: 1600 to 2100,” http://www.ribbonfarm.com/2011/06/08/a-brief-history-of-the-corporation-1600-to-2100.
8. Korten, Agenda for a New Economy, 62.
9. “A Short History of Corporations,” http://findarticles.com/p/articles/mi_m0JQP/is_2002_July/ai_89148684.
10. Korten, Agenda for a New Economy, 63.
11. Hartman, “The Real Boston Tea Party.”
12. Quoted in Hartman, “The Real Boston Tea Party.”
13. Thomas Jefferson to George Logan, 1816, http://etext.virginia.edu/jefferson/quotations/jeff5.htm.
14. Ralph Estes, Tyranny of the Bottom Line: Why Corporations Make Good People Do Bad Things (San Francisco: Berrett-Koehler, 1996), 22.
15. This especially true of banks. Before the Civil War, there was no national currency. Paper “money” in America consisted of banknotes issued by local banks. These notes were useful in a local economy but less so in distant communities. A truly national economy was not feasible under such a monetary system. And this should help us understand that the Constitution was written to govern a nation far different from the corporation-dominated country we now inhabit. If the Founders had foreseen what was coming, they certainly would have written provisions into the Constitution to better control these organizations.
16. Lee Drutman, “The History of the Corporation,” www.citizenworks.org/corp/dg/s2r1.pdf.
17. “Corporation,” Wikipedia, http://en.wikipedia.org/wiki/Corporations.
18. Estes, Tyranny of the Bottom Line, 25.