Corporations as privately-owned governments

A large corporation is not like a person.  It is like a government, a privately-owned government.   We Americans make a big mistake when we fail to realize this.

Our American tradition tells us to be suspicious of the power of governments.  We try to limit the government power by means of a written Constitution, and separation of governmental powers among three branches of government and between Washington and the states.   We tend to value individual rights more highly than the common good.

We don’t  have a good way of fitting corporations into this way of thinking.

A public, limited liability corporation is an institution with special privileges and powers established by law, in order to allow people to combine their wealth to accomplish a common purpose.

The power of the corporation comes from the principle of limited liability.  Investors in a company are not responsible for the obligations of the company beyond the amount of money they have put in.   That gives corporate owners a huge advantage they would not have enjoyed as individuals.

This is a good thing when the purpose aligns with the public good, as sometimes happens but not always.   Big American corporations historically have been strong engines of economic growth.   They’ve also been dangerous concentrations of monopoly power and sources of political corruption.

American leaders in the era of Theodore Roosevelt and Woodrow Wilson understood this well.  They enacted anti-trust laws so that corporations were subject to the discipline of competition.  They set up systems of regulation to prevent executives from advancing corporate interests at the expense of the public.

Starting in the late 1970s and early 1980s, American leaders forgot this.  They thought that anti-trust laws and government regulation held corporations back [1] and experimented with giving corporations free rein.

Many adopted the philosophy of Milton Friedman, which was that since the working of the free market produced the optimum result, there was no need to consider anything else.

We’re now living in the results of that experiment.

I’ve often heard the argument that there is a fundamental difference between government power and corporate power because corporations don’t have the right to use lethal force or put people in prison.

That is true, but when I recorded on business for the Rochester (NY) Democrat and Chronicle, I found people were much more afraid of offending private employers or potential private employers than they were of offending any governmental body.

I ran into many people who were critical of the big employers in the community, but I had a devil of a time finding anyone unafraid say so on the record.  About the only people willing to speak like free Americans were tenured college professors, labor union leaders and small-business owners not dependent on sub-contracting work.

Many big corporations have quasi-governmental powers.  Public utilities and pipeline companies have the right of eminent domain.   Banks and mortgage companies have a record of seizing property of debtors without due process of law or, in some cases, accurate information.

Individual businesses are subject to the rules and regulations of local governments, but large employers can usually get special treatment by threatening to relocate.

Under the Bush and Obama administrations, the federal government has bailed out big banks on the grounds that their failure would jeopardize the U.S. economy.  Attorney-General Eric Holder has refrained from prosecuting financial crime on the same grounds.   This is like the legal doctrine of sovereign immunity – “the King can do no wrong”.

One thing that’s important to remember is that the modern publicly-owned limited-liability corporation is something new in history.  Until about 150 years ago, corporations were recognized as arms of government.  The typical corporation had designated owners who were granted charters to engage in a specific purpose, such as building a canal or founding a colony.

In the early days of the American republic, this was recognized.  People who wanted to limit the powers of government were equally hostile to government-chartered corporations.  Only in the late 19th century were there corporations that were owned by anybody who could buy stock on the public market and which could engage in any legal activity that was profitable.

The flexibility allowed by this new type of organization had benefits.   The fact that stockholders weren’t liable for anything beyond what they’d invested allowed corporate executives to take many risks that they otherwise wouldn’t have done.  But limited liability allowed corporations to offload their risks onto society as a whole.   That’s a power subject to great abuse.

The first step in dealing with concentrations of power is to recognize their existence.   Checks and balances are needed in the corporate world, just as in the governmental world.

LINKS

The East India Company: the original corporate raider by William Dalrymple for The Guardian.  A corporation that was literally a private government, and also the original “too big to fail” corporation.

The nature of a corporation and how it changed in the 1980s by Matt Stoller for Ian Welsh.

Geithner: “The End of Capitalism As We Know It” by William K. Black for New Economic Perspectives [added 3/20/2015]

The new global corporate law by Juan Hernandez Zubizaretta for the Transnational Institute.

Taming the Corporate Beast by Marianne Hill.

 

Tags: Corporate Power, Corporations