Today's diary on the Treasury investigation into Michael Moore's trip to Cuba sparked a number of interesting and lively comment threads. Many were about the evils of corporations and their utter heartlessness.
Whenever I see a sort of mob mentality (even a justified one) I have a natural instinct to say "Whoa! Wait a minute. Is this true just because everyone is saying it?" After all, Satan did not invent the corporation. People did. People did it for compelling reasons. If they are acting in an evil way, perhaps we should consider how and why that came to be. Nobody sets out to create evil monsters (with the possible exception of Hubert Farnsworth) so how did we get here? Are corporations evil?
CORPORATION, n. An ingenious device for obtaining individual profit without individual responsibility. -- Ambrose Bierce, The Devil's Dictionary
There is no way that I can in this limited space and, it must be said, with my limited knowledge provide a complete history of "corporations." Such a history could fill a book and I cannot be so thorough here. (Note, I have not read the book mentioned -- I just looked for a book on the history of incorporation as an idea. There is another book I have found often cited, but that appear to be out of print: Corporation, Trust and Company, 1950, Cooke, C.A.).
We can dispense with pre nation-state concepts of corporations since they differ substantially in purpose from the modern corporation.
The drive to create permanent, non-corporeal legal entities oddly begins both "from above" and "from below."
Three major "industries" drove the need for "incorporation" in the fifteenth century: Printing, Mining, and "Exploration." Exploration was really about general trade by sea. What we today call "the Age of Exploration" was really about tea, spices, and precious metals. Finding them, claiming them in the name of one's monarch, and getting a "royal charter" to exploit them.
Land doesn't belong to people in Medieval Europe. Rather it all belongs to the monarch, who grants titles to nobles to administer the land on the monarch's behalf for a portion of the proceeds (yes, I really did just try to sum up feudalism in a single sentence. As you might guess, a great deal of detail and nuance is lost in doing so!)
Wealth isn't money in feudalism. It is land and the resources that may be developed therefrom. Mainly agriculture, but also forests and mining. As technology develops following the Renaissance (a lovely word that implies a single, inevitable event; which it isn't. It is, instead, a dramatic increase in literacy and education that I personally lay entirely at the feet of the movable type printing press. By making books both abundant and cheap, printing not only resurrected ancient knowledge, it gave it to many more people.), new varieties of wealth begin to emerge.
Books become the first manufactured commodity goods of any consequence. By the sixteenth century, the "great voyages of discovery" are underway. The construction and maintenance of ships becomes the key to nation commerce and quality of life. Not surprisingly, the ancient hand-crafting method of building ships was inadequate to the needs of these new seafarers. Factories begin to appear to produce blocks and tackle, nails, and other ship components. Adam Smith in his seminal work An Inquiry Into the Nature and Causes of the Wealth of Nations spends an extraordinary amount of time detailing the production of wood nails. That these developments went "under the radar" of the traditional aristocratic power structure is illustrated by the fact that nearly 200 years separate the development of the first factories from the publication of "The Wealth of Nations."
With the rise of factories comes the need for large amounts of unskilled labor. In the feudal system, the common people were "serfs." Essentially just another natural resource on the land that belonged to the aristocracy. Serfs could buy their freedom, and in many nations, if they simply lived for a length of time in the city without depending on their lord, they were automatically freemen.
Before industrialization, the vast majority of the population was rural. After, the majority is urban.
Mining was expensive. Virtually no individuals could afford to start mining. The first "chartered corporations" allowed investors to join together to exploit mineral resources. But sea voyages were even more risky. Not only was it expensive to build and buy ships, to crew them, and equip them, but sometimes the whole kit and kaboodle would simply disappear at sea, leaving the investors with nothing.
Groups of shipping investors gathered together to pool their risk. The result became Lloyd's of London, the oldest insurance company in the world.
Miners, shippers, explorers, colonial governors, milliners these became a new class. The "middle-class," the "business class," the "bourgeoisie."
It was not long before the wealth of this middle class was quite a bit greater than that of the aristocracy. One might argue that the American Revolution was in no small way due to the distance from the pomp and intimidation of the old ruling class. There was quite a bit of wealth to be gained in the Americas, and it was not at all clear to many Americans what benefit they got from the aristocracy.
Back to these early companies. Many were formed under authority of the crown to create and administer colonies. The monarch donated "sovereignty," the investors took the risk, the monarch taxed the profits, and the indigenous peoples paid the price. The Dutch East India Company, The Hudson's Bay Company, The British South African Company, and so on were formed to share the risk and join in the plunder of far-off lands.
But it is in the manufacturing field that what we think of as the modern corporation begins to take shape. The development of steam power enables many new kinds of factory by freeing plants from the need to be near available supplies of wood and running water for power. The amount of energy available to a plant is greatly magnified.
We start to see the mass manufacture of goods that were once crafts. Tableware, cloth, clothing, shoes, carriages, glassware, all of these make the shift from craft to product. Men like Josiah Wedgwood not only make plate into a consumer good, they invent branding as a means to make their product stand out. There is really no difference between a Wedgwood plate and a plate made by someone else, but the new middle-class still dreams of aristocracy, so when Wedgwood got permission from Queen Charlotte (consort to George III) to call his plates "Queen's Ware," well, branding was in.
And so shares and trading in shares begins. Insurance begins. These are the "from above" developments. But there were also developments from below. Urban factories powered by coal and coke were death traps. Sanitation was poor. Fire prevention, non-existent. Industrial and railroad accidents were commonplace. The law did little to protect workers and individuals.
In the rank tenements of London, workers organized for themselves. In so doing they laid the groundwork not only of socialism, but also of unions, credit unions, and health insurance. Friendly Societies appeared which would provide services and support to members and their families. These were forces "from below" that also influence the modern corporation.
The first corporations were formed to do things for both the betterment of the human condition and for profit that were too expensive for individuals to do. Over time, other considerations came into play. Marketing and advertising to try to get your product consumed, perhaps on image rather than merit. Limitation of liability to protect investors from the loss of personal assets. Laws that force executives to act for maximum profit, even where this is at odds with the commonweal.
But to bring it to the present, are the acts of Monsanto, Enron, Disney, and Microsoft really "more evil" than those of the British South African Company? Can we compare 21st century "white collar crime" to the Raj? (Of course, Halliburton and Blackwater tend to undermine my argument).
What is needed, in my humble view, is the recognition that "incorporation" is a privilege granted by the state, and that the state, as the Declaration of Independence puts it, "derives its just powers from the consent of the governed), and thus the privilege of incorporation is a gift of the people. Corporations act not only in the interest of the shareholders, but also of the public at large.
The amount of law that regulates that activities of corporations is unbelievably huge, and varies from state to state, from industry to industry. In future diaries in this series I hope to look at some specific issues of corporations in conflict with the public interest. We will begin with questioning the truth and wisdom of "the Invisible Hand" and ask if perhaps there isn't something smarter than either turning the power of the multinational corporation over to the mob mentality of the stock and/consumer market, or trying to direct that power in way contrary to market forces. In other words, is there a way to make a market of interests beyond the financial?
I don't pretend this is a work of scholarship. It is the product of an undergraduate history education and the digging up a few papers and articles, but I think as a broad outline it is sound and allows us to ask the bigger questions down the road.
See you next time...