New Internationalist

A short history of Corporations

Issue 347

What is a corporation? Ambrose Bierce’s Devil’s Dictionary defines it as ‘an ingenious device for obtaining profit without individual responsibility’. It is a legal construct, a charter granted by the state to a group of investors to gather private funds for a specific purpose. Originally, charters were granted in the service of a public purpose, and could be revoked if this were not fulfilled. The relationship between state and corporation is a complex one. Over the past 400 years corporations have conquer

The first corporations

Prior to the 17th century, the first corporations were created in Europe as not-for-profit entities to build institutions, such as hospitals and universities, for the public good. They had constitutions detailing their duties overseen by the government. Straying outside these was punishable by law.

Colonial companies

Only in the 17th century did making money become a major focus for corporations. Their wealth was used to finance European colonial expansion. Companies were used by the imperial powers to maintain draconian control of trade, resources and territory in Asia, Africa, and the Americas. First in an ignoble line was the East India Company, set up by British merchant adventurers and granted the Royal Charter of Queen Elizabeth I in 1600. Partners combined their personal stock, turning it into company stock to create the world’s first commercial corporation. It shipped out gold and silver to Asia in return for spices, textiles and luxury goods. The East India Company expanded into a vast enterprise, conquering India with a total monopoly on trade and all the territorial powers of a government. At its height, it ruled over a fifth of the world’s population with a private army of a quarter of a million.

The American revolution

In America, resentment was brewing against British rule, including corporations that ran American colonies with ruthless monopoly powers. Royal charters decreed that raw material was shipped from the colonies to Britain for manufacture, with the colonies forced to purchase the finished goods. The American Revolutionary War began in 1776 with a determination to rout the British. Adam Smith, the father of free-trade theories, who published Wealth of Nations in the same year as the Declaration of Independence (1776), argued that large business associations limit competition: ‘The pretence that corporations are necessary to the better government of the trade is without foundation.’

Ending colonial monopoly

After Independence, American corporations, like the British companies before them, were chartered to perform specific public functions – digging canals, building bridges. Their charters lasted between 10 and 40 years, often requiring the termination of the corporation on completion of a specific task, setting limits on commercial interests and prohibiting any corporate participation in the political process. Britain had fiercely protected its own textile industry and forced the Indian market open. In the words of Governor-General William Bendick, ‘The bones of the cotton weavers are bleaching the plains of India’. Conditions under the colonial capitalists led to the Rebellion (‘Mutiny’) of 1857. In 1858 Britain reined in the East India Company, dissolving its territorial power and making India the responsibility of the British crown. The Company continued trading opium to China, which led to the Opium Wars of the 19th century.

Corporate ‘personhood’

Corporations as we know them came to being in Britain with an 1844 Act allowing them to define their own purpose. The power to control them thus passed from the government to the courts. In 1855, shareholders were awarded limited liability: their personal assets were protected from the consequences of their corporate behaviour. In 1886 a landmark decision by a US court recognized the corporation as a ‘natural person’ under law. The 14th amendment to the Constitution: ‘no state shall deprive any person of life, liberty or property’ – adopted to protect emancipated slaves in the hostile South – was used to defend corporations and strike down regulations.

Free trade

Unchecked capitalism ran rampant, and by the end of the 19th century railroad tycoons and robber barons were in charge of monopolies and cartels. So much so that the health of capitalism itself was threatened. Massive labour unrest was brewing. In the US, antitrust laws to break monopolies were brought in. Taxation and tariffs were raised and state regulation crept in once more. However, one railroad executive observed that regulation was good only ‘in order to impress the popular mind with the idea that a great deal is being done, when in reality, very little is intended to be done’.

State Intervention

The labour movement, the depression of the 1930s, World War Two and the creation of welfare states in Europe all saw the return of state intervention. However, European and US corporations controlled land, military forces, ports and railroads in poorer countries. Hence the name ‘banana republics’ given to countries like Guatemala where United Fruit backed a right-wing coup in 1953.

Nevertheless independence in former Western colonies after World War Two led to aggressive protection of their domestic industry in the name of development, as well as restrictions on foreign investment.

In the US, social activism in the 1960s pushed forward demands for environmental and labour standards, as well as some break-ups of monopolies. Overall, between 1950 and 1980 social welfare provision and state intervention to regulate economic activity were widely accepted as economic orthodoxy.

The neoliberal era

In the 1970s Milton Friedman and his ‘Chicago School’ economists developed ultra free-market ideas based on deregulation and privatization that harked back to the laissez-faire capitalism of the 19th century (hence the term ‘neoliberalism’). This was to become the economic orthodoxy of globalization. In the early 1980s the full political resources of corporate America mobilized to regain control of the political agenda and the court system. Thatcher and Reagan, using the Chicago School ideas, made the world safe for corporations. They dismantled the social contract through tax cuts, ignoring unemployment, rolling back social welfare and increasing privatization. The debt crisis of 1982 gave the US its chance to dominate the world economy and for the rich nations to re-subordinate the global South through ‘structural adjustment’ via the World Bank and the International Monetary Fund.

Globalization

The power of transnational corporations is greater than that of many nation-states. The most important battles over deregulation take place at the global level with free-trade agreements such as NAFTA and those of the World Trade Organization (WTO). The level of mergers and monopolies are reminiscent of the end of the 19th century. However, now as then, social movements and resistance to unrestrained global capitalism are also growing, questioning the legitimacy of corporate rule.

Sources: David Korten, When Corporations Rule the World, Earthscan, London 1995; Jeffrey Kaplan, The Short History of Corporations, Terrain, 1999; Daniel Bennet, Who’s In Charge?, POCLAD, London.

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