Corporations and the Public Interest: Lessons from History
Corporations and the Public Interest: Lessons from History
Here is a fact to think about. The corporation is something that the government has created. When you consider the implications of corporate personhood, start at the beginning. The government created the corporate structure, and every organization within the corporate structure owes its existence to the government. If a corporation is a person, then the government is its parent.
A corporation can only exist because we have laws that say it can exist. A corporate charter granted by the government is a license for the corporation to exist. The corporate structure isn’t something that is inherent in nature. It also is not mandatory. Organizations choose to incorporate, because the laws passed by the government make it beneficial for them to do so. Legal benefits of incorporation include preferential tax treatment, as well as certain types of limited liability. The only reason an organization will choose a legal corporate structure is because the benefits of doing so – benefits granted by the government – are perceived to outweigh the benefits of alternative organizational structures. The government, and nobody else, has provided organizations with alternatives; one of which is legal incorporation.
Why does the government agree to this setup? To put the question another way: If the government belongs to We the People, why would we as a people agree to this? What benefits do we receive?
The simple answer is: We the People, through our government, have decided that the existence of the corporate structure is good for the economy and good for society.
We can cite some economic theories to back up this claim: the benefits of the corporate structure provide incentives which make the economy more efficient.
We can even pick out some facts to back up this claim: corporations provide millions of our jobs, and corporations provide many of the technological advances that we enjoy.
If we take a closer look at this, we can find some important truths in such claims. We should not ignore these truths; however, the same closer look will reveal that these claims do not tell the whole story.
If We the People, through our government, are responsible for the existence of corporations, then We the People, through our government, have the right to insist that the actions of corporations are in the public interest. Corporations exist for our benefit, and we have a right to make sure that they act accordingly. Indeed, our elected officials have a duty to see to it that corporations are acting in the public interest. The government provides the legal structure in order for corporations to exist. We have absolutely no reason to allow corporations to use the benefits we give them in a way which undermines the public good. After all, we created corporations so that we can benefit from their existence, and for no other reason.
If you think that corporations always, or nearly always, act in the public interest, then you haven’t been paying attention. If you think that we have to accept the status quo, and all of its negative outcomes, on the grounds that the positive outweighs the negative, then you don’t understand the social costs and public options involved. A full explanation of these points would fill volumes, and be far beyond the scope of this essay. But if you take a look at the history of corporations in America, you should be able to understand the serious problems faced by our society due to corporate actions that are not in the public interest. You will see that it hasn’t always been this way, and that it doesn’t have to be this way.
I won’t attempt to list and explain all of these problems. I couldn’t do justice to the subject in the length of an essay. Instead, my approach will be to let the historical record speak for itself. What follows is a brief history of corporations in America.
The United States was formed in part out of distrust of corporate power. The dominance of British corporations over everyday life in the colonies, and the powers granted to these corporations by the British government through corporate money’s influence in Parliament, provided the economic reasons for the American Revolution. The Boston Tea Party was a revolt against corporations having so much power that the people had become economic slaves to the dictates of corporations.
Real life experience with corporations such as the British East India Company left the American colonists with a strong distrust of corporations and corporate power. This distrust carried over to the men who wrote the founding documents, including the Constitution. The founders knew that the concentration of wealth and political power through large corporations could not coexist with personal freedom and self-determination.
The American founders left the power to grant corporate charters to the individual states in order to put corporations under tight local control. The distrust of corporations was widespread throughout the populace and throughout the states, and states placed severe restrictions on corporate charters. If you think the regulation of corporations is overbearing today, check out how corporate power was limited at the time of America’s founding, and for nearly 100 years afterward:
- Corporations were viewed as a necessary evil, and charters initially were granted only for purposes of providing the national infrastructure
- State legislators debated each charter application
- Very few corporate charters were granted
- Corporate restrictions were often included in state constitutions as well as state laws
- Corporate charters were granted for a limited time and for a limited purpose
- Corporate charters specified which activities each corporation was allowed to engage in
- Corporate activities were limited to one purpose only
- Corporations were forbidden from owning property that wasn’t necessary to meet a specified and approved purpose
- Corporations were required to justify that their activities were in the public interest
- Corporate ownership of stock in other companies was prohibited
- Corporate mergers were forbidden
- Corporate owners and managers were held criminally responsible for crimes committed by corporations
- The penalty for corporate misconduct was dissolution and liquidation of the corporation
- Corporations were not allowed to make political contributions or spend money in an attempt to influence legislation
- Corporate size was often limited by law
- Corporate debts were often limited by law
- Corporate profits were sometimes limited by law
- Legislators could audit corporate records at any time
- Small shareholders had equal voting rights with large shareholders
- Corporate directors could not serve more than one company
That’s the way it was at the time of the founding of the United States, and for nearly 100 years afterward. The corporation existed to serve the public interest. There were no conglomerates. There were no giant multi-national corporations. There was no concept of corporate personhood. Corporations did not own the government, hire lobbyists, or spend money in attempts to increase their political or economic power through legislation.
The idea that corporations are not people, and that they exist only to serve the public interest, was commonplace within the court system as well as the general public.
As you can see, this picture of early corporations in America is a far cry from today’s reality. What happened in the meantime?
During the American Civil War, corporations were granted large contracts to support war efforts. Many corporations took advantage of wartime chaos and ignored limitations imposed on them by their charters. Corporate wealth began to grow. Some corporations made money from both sides in the war. Bribery of government officials was commonplace, as was price gouging on government contracts.
In the years and decades following the Civil War, federal courts (including the U.S. Supreme Court) often ruled in favor of corporations in charter disputes with states. As a result, corporations began to test their limits and assume more power in violation of charter agreements.
The new support from the court system, combined with the advent of the Industrial Revolution and continued western settlement, led to widespread exploitation of workers. Company towns sprang up in numerous places. Labor organizers were blacklisted. The Industrial Revolution meant that many people who used to be self-employed farmers, merchants, and craftsmen – as well as those who had worked for local employers who were answerable to the community – were suddenly dependent on absentee corporate owners for a paycheck. The threat of unemployment meant that these workers were easy to exploit.
In addition to exploiting workers, corporations began exploiting their new-found legal victories by ignoring many different charter restrictions. They began to form conglomerations and trusts. They spent freely on obtaining favors from politicians. They purchased newspapers which published pro-corporate and anti-labor rhetoric in order to gain public support for corporate power. Wealth and power were removed from local communities and given to absentee corporate owners.
In 1886, the U.S. Supreme Court ruled in Santa Clara County v. Southern Pacific Railroad that a corporation was a “natural person”. After that ruling, corporations increasingly asserted more personhood rights under the 14th Amendment to the Constitution, an amendment enacted for the purpose of protecting the rights to freed slaves. Since that time, judges have routinely struck down laws restricting corporate activities on the grounds that corporate personhood is protected by the 14th Amendment. Thus began the concept of “corporations are people” – and the era of corporate money in politics.
The rights that courts granted to corporations through the 14th Amendment often came with limits. It wasn’t until 1978, in First National Bank of Boston v. Bellotti, that the U.S. Supreme Court ruled that 1st Amendment free speech rights included the right for corporations to spend money to influence political outcomes.
In 2010’s Citizens United v. Federal Election Commission, the U.S. Supreme Court ruled that corporate 1st Amendment rights to free speech, as defined by money spent to influence the political process, was unlimited.
- Political favors go to the highest bidder
- Those with the most money are entitled to the most protection under the 1st Amendment
- The Supreme Court has made a mockery of American history, including the preamble to the Declaration of Independence, the justification for the American Revolution, and the original meaning of the very Constitution that the Court is sworn to uphold
- Political power that goes to those with the most money has replaced the democratic principle that each citizen has equal power and equal opportunity
- Economic inequality is increasing – solely because of laws written to serve the moneyed interests
- Decisions which affect the livelihoods of the populace are being made behind closed doors by unelected corporate executives
- Moneyed interests control much of the information available to the people
- The legality of corporate personhood is complete
- Candidates for political office must spend a lot of money in order to get elected, and the only way they can get the amount of money necessary is by serving the needs of the moneyed interests (namely corporations) rather than serving the needs of We the People, as established by the Constitution
- We the People are not entitled to see the names of those who are bankrolling our political system
- The government has been rendered legally powerless to control the amount of money in politics
- Due to corporate personhood and money in politics, government officials must serve corporate interests
- We the People must serve the interests of corporations which have been created by our laws to serve us
- Corporations no longer have a responsibility to serve the public interest
Other than waiting for a future Supreme Court with a different majority to take up a relevant case and reverse this ruling, there is no way to undo the damage caused by Citizens United – unless enough people become educated on the subject so that a constitutional amendment reversing this ruling can receive the necessary support from a cross-section of Americans.
Corporations are people? The government is the parent to these corporate persons?
Flesh-and-blood parents exist for the benefit of their flesh-and-blood children. We are supposed to want what is best for our children. We chase the American Dream, and hope that our children have a better, more prosperous life than we have. We serve their needs. But governments should not exist for the benefit of corporations. Governments should exist for the benefit of We the People. Governments created corporations, not for the purpose of having the government serve corporations, but for the purpose of having corporations serve the interests of the people. The entire concept of corporate personhood turns logic on its head.
Unfortunately, a majority of the current U.S. Supreme Court has ruled otherwise.
A version of this essay is included as a chapter in the book Common Misconceptions of Economic Policy by Jerry Wyant. You can purchase this book in paperback form from Amazon and other online book distributors. The list price is $12.99 (only $9.99 using discount code TA9GTK7E when ordering, depending on the distribution channel). Or if you prefer, you can download a digital version on your device (Kindle, Nook, etc.) for $4.99.
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