(Lasn) 1600-1886 The Birth of the Corporate “I”

Kalle Lasn & Tom Liacas, 2000 >> Download pdf: e_heiman_FutureHistory

I: The Birth

The modern corporation came to life in the hands of nine men. In Santa Clara County vs. Southern Pacific Railroad, an 1886 dispute over a railbed, the US Supreme Court made an historic decision. It held that, under the Constitution, a private corporation was a “natural person,” entitled to all the rights and privileges of a human being.

This single legal stroke changed America fundamentally. From that moment on, the country’s citizens would have to think of corporations very differently. Every corporation — though it was still technically only an idea, a paper phantom — nonetheless had its own “life” now, its own “ego.” They could compete directly against real people and demand equal treatment under the law. Were corporations suddenly as powerful as people? No. Because of their vast financial resources, they were now much more powerful. They could defend and exploit their rights and freedoms more vigorously than any individual. In real terms, the corporation was actually more free than any private citizen. The whole intent of the American Constitution — that all citizens have one vote, and exercise an equal voice in public debates — had been undermined.

The birth of the corporate “I” could not have been anticipated in 1600, when Queen Elizabeth I of England chartered the first corporations of the Anglo-American tradition, essentially to exploit and colonize foreign lands.

As North America was colonized, corporations like the Massachusetts Bay Company and the Hudson’s Bay Company were there every step of the way. Most companies during that period had a charter life of 20 years to accomplish their goals. These early corporations were conceived as institutions serving the public interest. They were temporary structures granted the right to operate for a fixed period of time, with fixed capital, to achieve fixed goals.

To lay claim to the whole of the New World, though, the British Crown needed huge amounts of capital. To encourage investment in such a large and risky enterprise, the Crown agreed to insulate investors from legal and financial responsibility for the undertaking, beyond the amount of their investment. In other words, investors were not liable, in the last resort, for the debts of their company. That decision blew apart one of the bedrock principles of common law: individual responsibility. For the first time, business investors were privileged with limited liability.

Colonials feared these chartered entities. They recognized the way British kings and their cronies used corporations as robotic arms to maintain their sovereignty and control over the affairs of the colonies. The American Revolution was in large part a revolt against what Thomas Jefferson called this “remote tyranny.”

The Declaration of Independence freed Americans not only from Britain but also from the control of British corporations, and for 100 years after the document’s signing, Americans remained deeply suspicious of corporate power. The 200 or so corporations operating in the US by the year 1800 were kept on short leashes. They weren’t allowed to participate in the political process. They couldn’t buy stock in other corporations. And if one of them acted improperly, the consequences were severe. In 1832, President Andrew Jackson vetoed a motion to extend the charter of the corrupt and tyrannical Second Bank of the United States, and was widely applauded for doing so. That same year the state of Pennsylvania revoked the charters of ten banks for operating contrary to the public interest.

The people — not the corporations — were in control.

By the middle of the 19th century, the nation’s commercial engine was humming, and corporations were becoming an indispensable part of business life. They pushed for and gained extended rights and freedoms in their charters. Then, in a series of landmark decisions, state legislators, one after another, enacted “free incorporation laws” that gave corporations the right to engage in any kind of business they wanted. This was a crucial step in the evolution of the corporate form. Corporations were no longer limited to activities that served the public good, yet they continued to enjoy the extraordinary “limited liability” exemption from investor responsibility that they had historically obtained in the name of public service.

During the Civil War, corporations bagged huge profits from procurement contracts. They took advantage of the chaos and corruption of the times to buy judges, legislatures and even presidents. They forced amendments to laws limiting their profits and, in hundreds of cases, won minor legal victories extending their rights and privileges.

They had immense political clout. Civil society was reeling, unable to keep up. Then came Santa Clara, that pivotal 1886 decision, which gave corporations the final boost they needed — “natural person” status under the law. It was one of the greatest blunders in legal history, and it triggered the corporations’ hundredyear march to global power.

1886-1999 The Era of Great Corporate Bodies

II: The Rule

Today we live in the shadow of a super-species, a quasilegal organism that competes with humans and other life-forms in order to grow and thrive. This new species has a number of capacities and powers that we mortal humans can only dream of. For one thing, it can “live” in many places simultaneously. It can change its body at will — shed an arm or a leg or even a head without harm. It can morph into a variety of new forms, absorb other members of its species, or be absorbed itself. Most astoundingly, it can live forever. To remain alive, it only needs to meet one condition: its income must exceed its expenditures over the long run.

The story of the evolution of corporations has a strange, sci-fi air about it. Once upon a time we humans constructed a legal entity, only to watch helplessly as it broke its bonds and stormed the global village.

Between 1890 and 1930, America was transformed, at lightning speed, by a corporate invasion of everyday life. Giant companies like DuPont, US Steel and Standard Oil grew to dominate commerce. Factories, hotels, department stores and amusement parks began to dot the landscape. Streetlights, electric signs, the telegraph, mail-order catalogs, fashion shows — all celebrated the new industrial message.

By the 1930s, corporations employed more than 80 percent of the people and produced most of America’s wealth. The large corporations were now too big and powerful to challenge in the courts, which consistently favored their interests. Employees found themselves without recourse if, for example, they were injured on the job (if you worked for a corporation, you voluntarily assumed the risk, was the courts’ position). During this period, many of the original ideals of the American Revolution were forgotten or watered down, and America was increasingly a corporate state, governed by a coalition of government and business interests.

In the post World War II years, corporations merged, consolidated, restructured and metamorphosed into ever larger and more complex units of resource extraction, production, distribution and marketing. In the 1990s, corporations put aside their traditional competitive feelings toward each other and forged tens of thousands of cobranding deals, marketing alliances, co-manufacturing projects and R&D agreements, and created a global network of common interests.

By 1997, 51 of the world’s largest economies were not countries but corporations. Today, the top 100 companies control 33 percent of the world’s assets, but employ only one percent of the world’s workforce. General Motors is larger than Denmark; Wal-Mart bigger than South Africa. The mega-corporations roam freely around the globe, lobbying legislators, bankrolling elections and playing governments against each other to get the best deals. Their private hands control the bulk of the world’s news and information flows.

By the closing years of the 20th century it was no exaggeration to say that corporations were setting the world’s industrial, economic and cultural agendas. Civil society was in retreat and it looked as if, in the coming century, corporations would indeed rule the world. But then civil society scored two quick victories: an international campaign scuttled the Multinational Agreement on Investment (MAI), which would have greatly extended global corporate powers. And on November 30, 1999 — the cusp of the millennium — citizens shut down a meeting of the World Trade Organization in Seattle. After a phenomenal 200-year run, the corporate ego had fallen prey to its own arrogance. The superspecies suddenly looked much more like a dinosaur.

© 2000 Kalle Lasn and Tom Liacas