Know Thine Enemy

A Brief History of Corporations

by Joel Bleifuss

In These Times magazine, February 1998


Corporations can't cast a ballot, but they do vote with their wallets. In the 1995-96 election cycle, corporations and corporate PACs contributed $147 million to candidates running for federal office. The United States is one of the few democracies where such donations are legal. The Supreme Court affirmed the right of corporations to pay for electoral campaigns in the 1978 case First National Bank v. Bellotti. Writing for the majority, Justice Lewis Powell explained that giving cash to influence the outcome of an election "is the type of speech indispensable to decision making in a democracy, and this is no less true because the speech comes from a corporation rather than an individual."

Indeed, under the prevailing interpretation of the Constitution, corporations have the same rights as individuals. This was not always the case: American corporations gained these protections in the 19th century, when the Supreme Court, in a series of rulings, defined the relationship between business and the state. Those rulings shielded companies from government regulation and thus allowed the corporation to become the dominant form of economic organization. [In] the 21st century, the combined gross revenues of the 200 largest corporations exceed the GDP of all but the nine richest nations. In this context, it is important to know how corporations came to hold such sway over our everyday lives, and what can be done about it.

The first corporations appeared in 17th-century Europe, during capitalism's infancy. At the time, the government chartered all corporations-that is, it gave them a specific public mission in exchange for the formal right to exist. The United States was settled by one such corporation, the Massachusetts Bay Company, which King Charles I chartered in 1628 in order to colonize the New World. The practice of chartering companies was a crucial part of the mercantile economic system practiced by the epoch's great powers-Holland, Spain and England. By allowing investors to pool their capital, the monarch made it possible for companies to launch ventures that would have been beyond the means of one person. And in exchange for the charter, companies expanded their government's wealth and power by creating colonies that served both as sources of raw materials and as markets for exported goods.

But in the 18th century, the Enlightenment challenged this model of economic organization by putting forward the idea that people need not be subjects in feudal structures but could act as individuals. American revolutionaries, inspired by radical notions of "unalienable rights" to "life, liberty and the pursuit of happiness," fought for independence not only from the Crown, but from the corporate bodies it had chartered. The Boston Tea Party, for example, was a protest against the British East India Company's monopoly of Eastern trade. Another critic was Adam Smith, whose Wealth of Nations was published in the same year as the Declaration of Independence. Influenced by John Calvin, Smith believed that human resourcefulness and industry were earthly signs of God's favor, and thus that wealth obtained in a market economy was an expression of "natural justice." Smith, however, did not think that corporations were a natural part of this order. Arguing that large business associations limit competition, he wrote, "The pretense that corporations are necessary to the better government of the trade is without foundation."

In the infancy of the republic, Americans gave little thought to corporations. In 1787, fewer than 40 corporations operated in the United States. By 1800, that number had grown to 334. Like the British corporations before them, these companies were typically chartered by the state to perform specific public functions, such as digging canals, building bridges, constructing turnpikes or providing financial services. In return for this public service, the state granted corporations permanence, limited liability and the right to own property.

American manufacturers began to form corporations only when trade with Europe was shut down by President Thomas Jefferson's embargo of France and Britain from 1807 to 1809 and by the War of 1812. In order to supply the domestic market with the manufactured goods that had previously come from England, Americans formed new companies to amass the capital needed to build factories. The rise of these associations-created not to fulfill a public mission, but to create private wealth-led to a legal dilemma: How would these new forms of business enterprise be treated under the law?

That task fell to the Supreme Court, then under the leadership of John Marshall, a staunch federalist from Virginia. The Marshall Court (1801-1835) created a national market by striking down trade barriers between the states. It also set precedent for later pro-business interpretations of the Constitution by invoking the Constitution's "obligation of contracts" clause (Article 1, Section 10), which states that "no state shall ... pass any ... Iaw imparing the obligation of contracts." For example, in Fletcher v. Peck (1810), the Supreme Court refused to allow the Georgia legislature to right a wrong committed by a previ- \) ous heavily corrupt legislature, because to do so would entail voiding contracts that had been made in good faith. Not all justices agreed that business reigned supreme. Chief Justice Roger Taney, an Andrew Jackson appointee who served from 1836 to~ 1864, tried to ameliorate the Marshall Court's rulings on the sanctity of contracts. In Charles River Bridge v. the Proprietors of the Warren Bridge (1837), he wrote for the majority, "The continued existence of a government would be of no great value, if by implications and presumptions, it was disarmed of the powers necessary to accomplish the ends of its creation; and the functions it was designed to perform, transferred to the hands of privileged corporations."

In the 1880s and 1890s, the Supreme Court allowed state courts to apply the Marshall Court's principles on a larger scale. At the time, states with strong Populist movements were passing laws to regulate corporations and the robber barons who owned them. But the courts, using Marshall's interpretation of the inviolability of contracts, struck down numerous attempts to regulate the workplace and protect collective bargaining.

The hand of capital was further strengthened by an unlikely legal sword: the 14th Amendment, which states that "no state shall deprive any person of life, liberty or property, without due process of law." The amendment was adopted during Reconstruction to protect recently emancipated slaves in a hostile South. But in the landmark case of Santa Clara County v. Southern Pacific Railroad (1886), the Court, invoking the 14th Amendment, defined corporations as "persons" and ruled that California could not tax corporations differently than individuals. It followed that, as legal "persons," corporations had First Amendment rights as well.

Using this definition of corporations as persons, the Court proceeded to strike down a whole range of state regulations. In 1938, Justice Hugo Black noted that in the 50 years after Santa Clara, "less than one-half of I percent [of Supreme Court rulings that invoked the 14th Amendment] invoked it in protection of the Negro race, and more than 50 percent asked that its benefits be extended to corporations."

Corporations suffered a setback in the '30s, when the Great Depression discredited laissez-faire economics. In West Coast Hotel Co. v. Parrish (1937), the Court redefined the due process clauses of the 14th Amendment. In a rebuke of the Marshall Court's ruling in Fletcher v. Peck, Chief Justice Charles Evans Hughes wrote, "The Constitution does not speak of freedom of contract. It speaks of liberty and prohibits the deprivation of liberty without due process of law." That --- In the same year, the Court, which had previously struck down key components of Roosevelt's New Deal, upheld the National Labor Relations Act and Social Security legislation. As Justice William Douglas observed in Williamson v. Lee Optical of Oklahoma (1955), "The day is gone when the Court uses the Due Process Clause of the 14th Amendment to strike down state laws, regulatory of business and industrial conditions because they may be ... out of harmony with a particular line of thought."

Although courts now permit government regulation of business, corporations have managed to retain the First Amendment rights they were granted in Santa Clara. Few, if any, mainstream voices consider the question: Should corporations have the same rights as people have? Corporations based in the United States wield vast economic and political power. They can live forever. They feel no pain. They do not need clean air to breathe, potable water to drink or healthy food to eat. Their only goal is to grow bigger and more powerful.

Rather than treating these institutions as if they were flesh and blood, the political and legal system should acknowledge the fact that corporations are merely one way that people organize themselves to do business. They are not "endowed by the creator with unalienable rights" but rather are human-made creatures that can just as easily be unmade if they cease to serve a worthwhile public function.

To begin this retooling process, we need to expose the absurdity of granting First Amendment rights to corporations. We can draw our inspiration from both the 17th-century English philosopher Thomas Hobbes, who decried corporations as "worms in the body politic," and from Hobbes' star pupil, King Charles II. In 1664, the owners of the Massachusetts Bay Company protested when Charles II tried to investigate their company's operations. The Crown responded, "The King did not grant away his sovereignty over you when he made you a corporation.... When his majesty gave you authority over such subjects as live within your jurisdiction, he made them not your subjects, nor you their supreme authority."

We should be as wise.

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