Of the Corporation, by the Corporation, for the Corporation: A Short History Lesson (Part 2)

In part 1, I related a bit of history that included the massive power of the British East India Company and how its influence turned America’s Founders against the corporate form of ownership. So, how did America transition from a nation suspicious of corporations to a country controlled by them?

The Comeback of the Corporation

According to Kalle Lasn, a great turning point in American history was the Civil War, but not for the reasons we suppose. “Corporations made huge profits from procurement contracts and took advantage of the disorder and corruption of the times to buy legislatures, judges and even presidents. Corporations became the masters and keepers of business.”¹ A history published by ReclaimDemocracy.org elaborates:

Government spending during the Civil War brought these corporations fantastic wealth. Corporate executives paid “borers” to infest Congress and state capitals, bribing elected and appointed officials alike. They pried loose an avalanche of government financial largesse. During this time, legislators were persuaded to give corporations limited liability, decreased citizen authority over them, and extended durations of charters. Attempts were made to keep strong charter laws in place, but with the courts applying legal doctrines that made protection of corporations and corporate property the center of constitutional law, citizen sovereignty was undermined. As corporations grew stronger, government and the courts became easier prey. They freely reinterpreted the U.S. Constitution and transformed common law doctrines.²

 After the Civil War, according to Lasn, “corporations continued to gain power and influence. They had the laws governing their creation amended. State charters could no longer be revoked. Corporate profits could no longer be limited. Corporate economic activity could be restrained only by the courts, and in hundreds of cases judges granted corporations minor legal victories, conceding rights and privileges they did not have before.”³

A watershed year for corporate rights was 1886, when an obiter dictum attached to the Supreme Court decision in Santa Clara County v. Southern Pacific Railroad (a simple property tax dispute) established a rather amazing legal fact: corporations are actually “persons” and are therefore protected under the Fourteenth Amendment, a concept that paved the way for the recent Citizens United ruling. The difference, of course, between corporate “persons” and human persons is that human persons generally don’t have the financial wherewithal to exert the same degree of social, economic, political, and even moral influence that corporations do.

As governments began relaxing their control over corporations, they also extended charters freely to businesses that were not directly concerned with the public interest. Even though corporations were still viewed with suspicion by both the people and their representatives in government, the ability of these businesses to stimulate settlement and economic growth generated an interstate competition to attract them, “and soon states were prostrating themselves before corporations with inducements, benefits, and a general relaxing of restrictions.” As corporate popularity and power gained momentum, states stumbled all over each other trying to woo them, until, as Estes puts it, “Delaware finally outran the rest in a race to the bottom.”⁴

The ramifications of the Supreme Court’s decision in Santa Clara County v. Southern Pacific Railroad were not understood in 1886, but they have been amplified over the years. “In a single legal stroke,” says Lasn, “the whole intent of the American Constitution—that all citizens have one vote, and exercise an equal voice in public debates—had been undermined.”⁵ Sixty years later, Supreme Court Justice William O. Douglas claimed that Santa Clara “could not be supported by history, logic or reason.”⁶ In other words, it was a remarkable legal blunder, but it changed the very nature of republican democracy in America. The result of this judicial bungle is that corporations are now protected and preserved by government, held generally unaccountable for even severe crimes,⁷ given more rights (and power) than any individual citizen, and are no longer required to provide any semblance of public service. In their subsequent efforts to ensure perpetual survival, corporations even developed their own mind-boggling set of values and morals that are in direct conflict with traditional American notions of morality. (More on that in a later post.)

Because of their preferred status, corporations are now free to grow as large and powerful as they possibly can. Their pre-eminence has expanded to the point that we feel dependent on them not only for our lifestyle but also for almost everything we need to survive. If too many large corporations fail, the whole economy comes apart at the seams, the financial system collapses, and individuals quickly lose access to the basic necessities of life. In short, we have allowed ourselves to become totally dependent on a corrupt system that has grown far beyond the worst nightmares of those who created it. The whole system of corporations—which we commonly refer to as the global economy—has become more important and indispensable than the individual citizens who, through their elected representatives, first granted its existence. In essence, the tail is now wagging the dog.

Indeed, as we have seen in recent years with the government rescue of the financial sector and the automobile industry, corporations are viewed as so essential to our modern way of life that government feels compelled to step in and bail them out when they are sinking, even to the tune of trillions of dollars if need be. But even when corporations are not in peril, government often showers them with tax benefits reminiscent of the largesse that resulted in the Boston Tea Party. In a classic example of the proverbial forest and trees metaphor, what many citizens do not understand is that we no longer have simple capitalism in America, a system of exchanges between relatively equal parties in a relatively free market. We have corporate capitalism, an authoritarian system that shifts influence from individuals to large, impersonal money-making machines and places almost every individual American at an enormous disadvantage in the marketplace and in his or her occupation. Because of this power shift, Adam Smith’s legendary invisible hand has been effectively paralyzed. We have now in the United States a government of the corporation, by the corporation, and for the corporation.

Corporate Domination

From their weak and restricted beginnings in America, corporations have become self-centered, self-perpetuating, self-accountable entities in search of a narrow, narcissistic goal that has replaced public service: profit. And to generate as much profit as possible, many corporations have turned their backs on the communities and societies that nurtured and pampered them. They have grown and have spread geographically until they are now called multinationals, organizations that call no nation home, entities that forsake the local workforce that once both sustained and relied on them. These mammoth organizations go to the ends of the earth to find the cheapest labor in order to create the largest profit. Needless to say, labor practices in Third World countries bear no resemblance to what we now accept as normal in America, thanks largely to the labor unions that conservatives disparage and are actively seeking to dismantle. In early 2010, for instance, Chinese workers producing transmission parts for Japanese giant Honda went on strike, protesting twelve-hour workdays, six-day work weeks, and low wages.⁸ In America, while we have not reverted to those working conditions, the minimum wage is currently, when adjusted for inflation, about where it was when I was born in 1956.⁹

The insatiable corporate hunger for profit has also spawned an out-of-control financial sector that has become what Willis Harman, founder of the World Business Academy, called “one vast gambling casino.” We now have money breeding money without even a remote connection to the production of necessary goods and services. Indeed, sometime after the year 2000, the financial sector overtook manufacturing as the largest sector of the American economy. And as we have seen in recent years, when this disconnected financial superstructure can’t see past its own short-sighted pursuit of profit and embraces too much risk, its breakdown affects all businesses and individuals. No longer do corporations exist at the pleasure of and in service to the people. They exist for their own purposes and in many ways hold ordinary citizens hostage.

How dominant have corporations become? Consider just the 500 largest U.S. companies. In 1955, Fortune 500 revenues represented 39 percent of U.S. gross domestic product, while these companies employed 20 percent of the U.S. workforce. Now Fortune 500 revenues equal about 75 percent of GDP, but they employ less than 10 percent of the workforce. This represents an increasing concentration of wealth among a small group of corporations that provide a decreasing proportion of U.S. jobs.

Another indication of this wealth concentration is that Fortune 500 profits increased 29 percent in 2006 alone, while median wages rose only 3 percent. From 2000 to 2006, while profits rose 80 percent, the Fortune 500 workforce increased by only 3.6 percent. In a similar vein, CEOs of Fortune 500 companies now earn 520 times as much as the average worker. Executive pay keeps pace with or exceeds profit growth, while pay for lower-level employees lags far behind. And since the September 2008 meltdown, the true identity of corporate America and its nerve center, Wall Street, has been unmasked. Barely a year after the near collapse of the economy and the ensuing multitrillion-dollar bailout of the financial sector, Wall Street banks announced that they would once again be paying out record bonuses, all while the real economy still suffered and unemployment lurched upward. Three years later, while corporate profits reached record levels, corporate hiring was almost nonexistent. These organizations recognize no obligation to support the very economies they depend on for their own survival. Their blind devotion to the short-term bottom line can only be described as suicidal. But they apparently can’t see the larger picture, even when it depicts their own demise.

This is not the description of a healthy economy with a bright future. Such increasing inequality, as I will discuss in a later post, creates serious problems for a national economy. And this immense concentration of wealth also translates directly into inordinate political influence, indeed, more than sufficient influence to shape laws and tilt policies away from such social goods as environmental responsibility, worker safety, and consumer protection (all with the eager assistance of the GOP).

One reason corporate profits have been so impressive over the past few decades is that federal and state laws and regulations have permitted these companies to externalize so many of their costs. Communities not only subsidize these businesses in order to create jobs, but they also pay for corporate-caused air and water pollution, the education of the corporate workforce, the effects of workplace accidents and work-related illnesses, and the other detrimental side-effects corporations spin off into their immediate environment, including public services needed by low-wage employees. A recent study concluded that a 300-employee Walmart store could costs its host community as much as $900,000 per year in public services.¹⁰

When we consider how domineering corporate capitalism has become, when we understand how inconsistent it is with the political and social ideals of the democratic republic we purport to have, and especially when we fully grasp the fact that corporate-bred inequality is at record levels and rising fast, only one conclusion is possible. We must reconsider the role of corporations in our economy: how we define not only their purpose but also their form of ownership and the limits of their influence.

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1. William Kalle Lasn, “The Uncooling of America: The History of Corporations in the United States,” http://www.thirdworldtraveler.com/Corporations/Hx_Corporations_US.html; chapter excerpted from Kalle Lasn, Culture Jam: The Uncooling of America (New York: William Morrow, 1999).

2. “Our Hidden History of Corporations in the United States,” http://reclaimdemocracy.org/corporate_accountability/history_corporations_us.html.

3. Lasn, “Uncooling.”

4. Estes, Tyranny of the Bottom Line, 25.

5. Lasn, “Uncooling.”

6. Quoted in Lasn, “Uncooling.”

7. See, for instance, Estes, Tyranny of the Bottom Line, 41, regarding Union Carbide and the Bhopal disaster; see Paul Hawken, The Ecology of Commerce: A Declaration of Sustainability (New York: HarperBusiness, 1993), 110–22, regarding Chevron, Phillip Morris, Ciba-Geigy, DuPont, Union Carbide, General Electric, Exxon, Ford, Dalkon, Philadelphia Electric, Shell Oil, McDonnell Douglas, Procter & Gamble, Dow Corning, and Rockwell International, companies that either committed crimes for which they were held largely unaccountable or lobbied to change laws so that their unethical behavior would not be considered illegal. Hawken also cites Russell Mokhiber, whose research showed that corporations kill 28,000 people and seriously injure 130,000 every year by selling dangerous and defective products.

8. Keith Bradsher and David Barboza, “Workers’ Strike at Chinese Honda Plant Highlights Pay Inequality,” Deseret News, May 30, 2010, A15.

9. See Michael Lester, “And Animated History of the Minimum Wage,” Time, February 28, 2014, http://business.time.com/2014/02/28/an-animated-history-of-the-minimum-wage/.

10. Dave Jamieson and Saki Knafo, “One Walmart’s Low Wages Could Cost Taxpayers $900,000 per Year, House Dems Find,” Huffington Post, June 2, 2013, http://www.huffingtonpost.com/2013/05/31/walmart-taxpayers-house-report_n_3365814.html.