New Internationalist

People versus corporations

Issue 407

For almost as long as corporations have existed, people have lobbied, agitated and legislated to constrain their power and prevent the social and environmental harm caused by the single-minded quest for profit-maximization.

1 The first corporations

The first corporations emerged in the late 16th century with the aim of encouraging investment in projects of public interest such as roads and hospitals. European states issued ‘charters’ setting out the tasks each corporation would undertake, and limiting the liability of investors for the company’s losses to the amount they had originally invested.

The world’s first major corporate scandal took place in 1721 when the London-based South Sea Company, which had falsely promised shareholders fabulous profits from trade with the South American colonies, collapsed. Mobs besieged Westminster and one of the directors was shot by an angry shareholder. Parliament passed the ‘Bubble Act’ making it illegal to set up new corporations, with very few exceptions, until 1825.

2 The business of empire

One of these exceptions was the British East India Company. Established in 1600, it monopolized all trade between Britain and Asia and became an instrument of colonial control, given the right to raise armies and rule vast territories on behalf of the Crown. The company attracted public criticism for its unprecedented power and unscrupulous behaviour: for violently taking control of Bengal in 1757, exacerbating a famine in which ten million died of starvation; for the lack of accountability of its managers and investors who engaged in bribery, insider trading and reckless financial speculation; and for its central role in the opium trade with China. It was dissolved in 1858 to give way to direct British rule in India.

3 Revolt against corporate rule

In 1776 the US declared its independence, kicked off by protests against a British-imposed tax on tea imports, and against the British corporations who ran the American colonies. The new US republic introduced legal measures to limit the ability of corporations to amass wealth and power, including: limits on ownership of land; personal liability of shareholders for the corporation’s debts; and the right to withdraw a charter if the corporation failed to serve the public interest.

4 Megacorporations emerge

The Industrial Revolution, and railways in particular, fuelled large-scale enterprise and corporations began to proliferate in Europe and the US from the 1850s onwards. Megacorporations emerged in the 1870s as free trade and unfettered capitalism sparked a period of economic globalization comparable to what we are experiencing today.

Corporations gained enough influence over legislators to rewrite the rules governing their existence, undoing many of the checks and balances placed upon them. Managers were no longer liable for damage a company caused to its workers’ health, charters could be granted for an unlimited time, and in 1886 the US Supreme Court ruled that a corporation was a ‘natural person’ and therefore protected by the Bill of Rights.

5 ‘Corporate citizenship’

By the end of the 19th century public concern about corporate exploitation, factory conditions and child labour had hit new heights. Labour movements grew in strength around the world, challenging capitalism and demanding radical social transformation.

Industrialists retaliated against the appeal of socialism with PR campaigns demonstrating that they were good corporate citizens, indispensable to society. They launched welfare programmes for workers and a range of philanthropic activities. The language of ‘corporate responsibility’ began to emerge between the wars, intensified by the Wall Street Crash of 1929 and the Great Depression. It endorsed capitalism and free enterprise, but attempted to humanize it by arguing that well-governed corporations helped society.

Nevertheless, in 1933 Roosevelt’s New Deal introduced sweeping reforms to keep corporations in check, including regulation, workers’ rights, a social safety net and progressive taxation. Similar legislation was passed in many European countries. Over the next few decades corporations continued to dominate economies, but their rights were relatively evenly balanced with the rights of citizens, through the influence of labour unions and consumer and environmental movements that emerged in the 1960s and 1970s. Newly independent economies began to develop in former colonies, often heavily protecting their own industries from foreign competition.

6 The neoliberal era

In 1970, free trade guru Milton Friedman published an influential article entitled ‘The Social Responsibility of Business is to Increase its Profits’. Friedman argued that the greatest good would be achieved by basing all business decisions on maximizing profits for shareholders.

Friedman’s school of thought, known as ‘neoliberalism’, underpinned the 1980s Reagan/Thatcher era of privatization, deregulation and liberalization that opened up the world’s markets for corporations. Social contracts between the state, labour and industry were broken down. ‘Free trade’ was boosted by the General Agreement on Tariffs and Trade. The debt crisis in 1982 gave the US the opportunity to export the free market model to the Global South, via the IMF and World Bank’s ‘structural adjustment’ programmes.

7 Backlash

By the late 1980s, the painful effects of this global economic restructuring were becoming clear: massive unemployment; economic instability; a growing gap between the very rich and the very poor; corporate misconduct such as the 1984 Bhopal chemical spill by Union Carbide which killed 10,000 people, the Exxon Valdez oil disaster in 1989, and Nestlé’s ongoing aggressive marketing of breastmilk substitute to Majority World women.

The 1990s saw a backlash against transnational corporations (TNCs). When McDonald’s took two environmental activists to court in 1992, the McSpotlight website and campaign did the company’s reputation serious damage. In 1995 Shell was implicated in the death of Ogoni activist Ken Saro-Wiwa, executed by the Nigerian Government for protesting against the oil company’s operations. An international boycott followed Shell’s attempt to sink the Brent Spar oil platform in the North Sea. 1995 was also ‘The Year of the Sweatshop’ as slave-like conditions in factories supplying Gap, Wal-Mart, Disney and Nike were exposed.

‘Corporate Responsibility’, sometimes called ‘Corporate Social Responsibility’, was resurrected by companies whose profits were being damaged by citizens’ campaigns. A lucrative industry emerged around enhancing a company’s ethical image while avoiding drastic changes to its core business practices. Millions of corporate dollars were simultaneously being devoted behind the scenes to lobbying governments against social and environmental regulation and for further liberalization.

8 ‘Anti-globalization’

From the mid-1990s, citizens’ campaigns started to look beyond individual corporations to the underlying structures allowing them so much power. In Mexico, the Zapatista movement emerged in direct opposition to NAFTA, a free trade agreement designed to open up Mexico to North American corporations. In 1997-98 an international campaign defeated the Multilateral Agreement on Investment (MAI), a shady deal which sought to remove restrictions on international investment for Western TNCs.

In 1999 the ‘anti-globalization’ movement arrived on the world stage when 100,000 people converged on the streets of Seattle to shut down a World Trade Organization (WTO) summit. The meeting aimed to launch a round of trade negotiations that would further prise open global markets for TNCs, disadvantaging the Majority World, driving down labour and environmental standards and eroding democracy. From then onwards no major economic summit could take place without anti-corporate protests outside.

9 The 21st century

Corporations now operate in every sphere of public life: providing water, energy, healthcare and education; running prisons and welfare systems; fighting wars for governments and busting unions for other businesses, all at a profit. The consumer-driven economy continues to boom as corporations scour the earth for more resources to extract and sell.

Many corporations are larger than nation-states, with unrivalled political influence. They have forged strong strategic alliances with bodies that formerly posed a threat to their legitimacy such as NGOs and the UN.

Yet the Corporate Responsibility strategy of voluntary self-regulation has not silenced dissent. Local campaigns against specific corporate abuses have a global audience thanks to the internet. The Enron scandal in 2001 shook faith in the corporate world by exposing fraud and corruption at the heart of one of America’s most admired companies.The spectre of climate change is forcing an urgent rethink of the way the global economy operates. The neoliberal project is stumbling, as the WTO’s ‘Doha Development Round’ flounders and regional free trade negotiations are met in the Majority World by mass resistance.

The corporation has grown to dominate the globe, but there is no guarantee that this ruthless moneymaking machine will endure in its current form.



Sources: Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power, Constable and Robinson, 2004; Naomi Klein, No Logo, Flamingo, 2000; David C Korten, When Corporations Rule the World, Berrett-Koehler, 1995; Steven K May, George Cheney, Juliet Roper (eds), The Debate Over Corporate Social Responsibility, Oxford University Press, 2007; Nick Robins, The Corporation that Changed the World: How the East India Company Shaped the Modern Multinational, Pluto Press, 2006; Dean Ritz (ed), Defying Corporations, Defining Democracy, Program on Corporations, Law and Democracy, Apex Press, 2001.

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