The Rise of Corporations

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  • by Anup Shah
  • This Page Last Updated Thursday, December 05, 2002

Today we know that corporations, for good or bad, are major influences on our lives. For example, of the 100 largest economies in the world, 51 are corporations while only 49 are countries, based on a comparison of corporate sales and country GDPs (See the facts page for more examples). In this era of globalization, marginalized people are becoming especially angry at the motives of multinational corporations, and corporate-led globalization is being met with increasing protest and resistance. How did corporations ever get such power in the first place?

[The section is a very broad and high-level overview of the history of corporations. It largely summarizes from the works of people like J.W. Smith, author of World’s Wasted Wealth II (Institute for Economic Democracy, 1994) and Economic Democracy; Political Struggle of the 21st Century (M.E. Sharpe, 2000); Giovanni Arrighi, The Long Twentieth Century (Verso Press, 1994 reprinted 2000); Richard Robbins, Global Problems and the Culture of Capitalism (Allyn and Bacon, 1999). Of course, while I do recommend these sources, many, many other sources out there offer similar perspectives and insights.]

The Rise of the Corporation

Corporations, as we tend to think of them, have been around for a few centuries, the earliest of which were chartered around the sixteenth century in places like England, Holland etc. Technically speaking, a corporation is what Robbins describes as a “social invention of the state” (Robbins: p.98). That is, a state grants a corporate charter, permitting private financial resources being used for public purposes. As Arrighi points out, this initial creation of private finance and merchants, etc was to aid in the expansion of a state to which it belonged, and as Arrighi and Smith detail, served to expand colonial and imperial interests to start with, as well as help in war efforts between empires.

The advantage of having a corporation over being an individual investing in trade voyages etc, was that an individual’s debts could be inherited by descendants (and hence, one could be jailed for debts of other family members, for example). A corporate charter however, was limited in its risks, to just the amount that was invested. A right not accorded to individuals. (Robbins: p.98)

Corporations had therefore the potential, from the onset, to become very powerful. Even Abraham Lincoln recognized this:

I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. ... corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.

U.S. President Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins) Ref: “The Lincoln Encyclopedia”, Archer H. Shaw (Macmillan, 1950, NY)

Adam Smith, in his famous book the Wealth of Nations, the “bible” of capitalism, was also critical of some aspects of corporate activity. He saw corporations as working to evade the laws of the market, trying to interfere with prices and controlling trade etc.

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The Rights of the Corporation

As corporations did manage to increase their wealth and therefore political power, laws that initially tried to manage them were further relaxed. As Arrighi mentions throughout his book, corporations would benefit from the State’s war-making activities, further increasing their wealth and influence.

Yet, it was claiming of a corporation to be an individual in the United States in the 1800s, and claiming the same rights as a person that helped to provide for large expansion of corporate capitalism:

[A U.S.] Supreme Court ruling in 1886 ... arguably set the stage for the full-scale development of the culture of capitalism, by handing to corporations the right to use their economic power in a way they never had before. Relying on the Fourteenth Amendment, added to the Constitution in 1868 to protect the rights of freed slaves, the Court ruled that a private corporation is a natural person under the U.S. Constitution, and consequently has the same rights and protection extended to persons by the Bill of Rights, including the right to free speech. Thus corporations were given the same “rights” to influence the government in their own interests as were extended to individual citizens, paving the way for corporations to use their wealth to dominate public thought and discourse. The debates in the United States in the 1990s over campaign finance reform, in which corporate bodies can “donate” millions of dollars to political candidates stem from this ruling although rarely if ever is that mentioned. Thus, corporations, as “persons,” were free to lobby legislatures, use the mass media, establish educational institutions such as many business schools founded by corporate leaders in the early twentieth century, found charitable organizations to convince the public of their lofty intent, and in general construct an image that they believed would be in their best interests. All of this in the interest of “free speech.”

Richard Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon, 1999), p.100 (Bold Emphasis Added)

As Robbins further points out, from this ability to influence, “corporate libertarianism” emerged, which placed the rights and freedoms of corporations above that of individuals. This influence also led to cultural and economic ideologies known by numerous names such as neoliberal, libertarian economics, market capitalism, market liberalism etc.

Some of the guiding principles of this ideology, as Robbins continues, included:

  • Sustained economic growth as the way to human progress
  • Free markets without government “interference” would be the most efficient and socially optimal allocation of resources
  • Economic globalization would be beneficial to everyone
  • Privatization removes inefficiencies of public sector
  • Governments should mainly function to provide the infrastructure to advance the rule of law with respect to property rights and contracts.

However, the assumptions behind these principles are questionable as much as the principles themselves. These assumptions, and how neoliberal ideology has developed into today’s free trade globalization is further discussed in the free trade section of this web site.

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The Rise of Corporate Influence

From this “right” of the corporation, how has it affected the rights of others? Corporations in and of themselves may not be a bad thing. They can be engines of positive change. But, especially when they become excessively large, and concentrated in terms of ownership of an industry and in wealth, they can also be engines for negative change, as seems to have happened. There is of course, the common concern about the drive for profit as the end goal sometimes contradicting the social good, even though it is claimed that the “invisible hand” ensures the drive for profit is also good for society. Sometimes this has surely been the case. But other times, it has not.

There is much recognized and unrecognized corporate influence in our lives. Indeed, much of western culture and increasingly, around the world, consumerism is expanding.

Corporate influence can reach various parts of societies through various means, which many other entities don’t have the ability to do, as they lack the financial resources that corporations have:

  • Influence on general populations via advertising and control and influence in the mainstream media.
  • Influence on public policy and over governments, as hinted to above. This can range from financing large parts of elections, to creating corporate-funded think tanks and “citizen” groups, to support from very influential political bodies such as the Trilateral Commission, the Council on Foreign Relations and the Bilderberg group, etc.
  • Influence on international institutions, such as the World Trade Organization, as well as international economic and political agreements.

Thom Hartmann, a writer and reporter, describes at length how corporations co-opted the use of human rights, in his book Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights (Rodale Press, October 2002). It details the 1886 ruling also mentioned above on this page. With kind permission, a table contrasting implications before and after that ruling is reproduced here, from a summary page on the web site for the book:

 Before 1886: When Only Humans Had Human RightsAfter 1886: After the Corporate Theft of Human Rights
Rights and PrivilegesOnly humans were “endowed by their creator with certain inalienable rights” and those human rights included the right to free speech, the right to privacy, the right to silence in the face of accusation, and the right to live free of discrimination or slavery.While to this day unions, churches, governments, and small unincorporated businesses do not have “human rights” (but only privileges humans give them), corporations alone have moved into the category with humans as claiming rights instead of just privileges.
PoliticsIn many states, it was a felony for corporations to give money to politicians, political parties, or try to influence elections: “They can’t vote, so what are they doing involved in politics?!”Corporations claimed the human right of free speech, expanded that to mean the unlimited right to put corporate money into politics, and have thus taken control of our major political parties and politicians
BusinessStates and local communities had laws to protect and nurture entrepreneurs and local businesses, and to keep out companies that had been convicted of crimes.Multi-state corporations claimed such laws were “discrimination” under the 14th Amendment (passed to free the slaves) and got such laws struck down; local communities can no longer stop a predatory corporation.
WarGovernment, elected by and for “We, The People,” made decisions about how armies would be equipped and, based on the will of the general populace, if and when we would go to war. Prior to WWII there were no permanent military manufacturing companies of significant size.Military contractors grew to enormous size as a result of WWII and a permanent arms industry came into being, what Dwight Eisenhower called “the military/industrial complex.” It now lobbies government to buy its products and use them in wars around the world.
RegulationCorporations had to submit to the scrutiny of the representatives of “We, The People,” our elected government.Corporations have claimed 4th Amendment human right to privacy and used it to keep out OSHA, EPA, and to hide crimes.
PurposeCorporations were chartered for a single purpose, had to also serve the public good, and had fixed/limited life spans.Corporations lobbied states to change corporate charter laws to eliminate “public good” provisions from charters, to allow multiple purposes, and to exist forever.
OwnershipJust as human persons couldn’t own other persons, corporations couldn’t own the stock of other corporations (mergers and acquisitions were banned).Corporations claim the human right to economic activity free of regulatory restraint, and the still-banned-for-humans right to own others of their own kind.

Hartmann actually goes further saying that the ruling never happened:

the Supreme Court ruled no such thing in 1886. The 'corporations are persons' ruling was a fiction created by the court’s reporter. He simply wrote the words into the headnote of the decision. The words contradict what the court actually said. There is, in fact, in the US National Archives a note by the Supreme Court Chief Justice of the time explicitly informing the reporter that the court had not ruled on corporate personhood in the Santa Clara case.

Thom Hartmann, Dinosaur War, The Ecologist, December/January 2002 Issue

But since then, either way, the influence and power of large corporations has increased and is an undeniable facet of the 'global village' and corporate globalization. Of course, the influence of various groups and entities is nothing new. But today, the increasing size and wealth of corporations point to more concentration of wealth and of political and economic power and influence than before. Indeed, today as mentioned above, of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs).

Adam Smith, often regarded as the father of modern capitalism, wrote the influential famous book, The Wealth of Nations in 1776. This book exposed the mercantile and monopoly capitalism of the preceeding centuries as unjust and unfair, and proposed a free market system. He himself was very critical of the influences of concentrated ownership (which is also a way to reduce competition) and large corporations as interfering with free market capitalism (although many who do exert influence don’t mind doing so in his name, and calling it “free market”!) Smith is worth quoting at length:

Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their good both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.

...

Merchants and master manufacturers are ... the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter. Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. (Emphasis Added)

Adam Smith, The Wealth of Nations, Book I, (Everyman’s Library, Sixth Printing, 1991), pp. 87-88, 231-232

As Adam Smith warns, only after great precaution, careful, scrupulous and “suspicious attention” should commerce-related policies from corporate interests be accepted. However, as described in detail on this web site’s media section, corporations also have concentrated ownership of the mainstream media, which makes it even more difficult these days for the general public to apply great precaution, careful, scrupulous and “suspicious attention.”

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The remainder of this web site’s section on corporations introduces some of the impacts and influences of corporations around the world. (Due to the immense size of this topic, do be sure to check back for updates!)

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Author and Page Information

  • by Anup Shah
  • Created: Monday, September 03, 2001
  • Last Updated: Thursday, December 05, 2002

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