MORRIS: The Corporation Must be Tamed

Five hundred years ago the British Crown craved the riches of the New World. But a major obstacle had to be overcome. Exploration was enormously expensive and investors were unwilling to be personally liable for the debts of a failed enterprise. To solve this dilemma England devised what without question has become the most important social invention in history: the limited liability "joint stock company."As Jonathan Rowe wrote in a recent Washington Monthly article, this was a radical step. Individual responsibility was and is one of the foundations of common law doctrine. Even the most ardent proponents of limited liability corporations realized that by severing the connection between ownership and responsibility we created the potential for great mischief. Thus governments issued corporate charters sparingly and with many restrictions.At the time of the Constitutional Convention only some 40 business corporations had been chartered in the colonies. Most were for building bridges or roads. In the 19th century restrictions on corporate size were not uncommon. As late as 1903 almost half the states limited the duration of corporate charters to 20 to 50 years. Legislatures revoked charters when corporations failed to live up to their responsibilities.But between 1870 and 1900 the balance of power between corporation and state dramatically shifted. States began to issue general purpose charters that allowed corporations to engage in any commercial pursuit. Delaware devised a charter that virtually eliminated any control over businesses that incorporated in that tiny state.And then in 1886, without hearing any formal arguments, the U.S. Supreme Court simply decreed that corporations are persons. That gave corporations the same constitutional protections as people. Indeed, of the civil rights cases brought before the Supreme Court between 1890 and 1910 only 19 involved humans while 288 were brought by corporations challenging government regulations.Corporations now have the right to free speech, which is why we cannot ban tobacco and liquor advertising. Like people, they have the right to spend unlimited amounts of money to influence voters.But corporations are not people. They cannot be put in prison for breaking the law. They live forever. They are infinitely more powerful than persons.People can pursue social goals without pursuing personal gain. Corporations cannot. Courts repeatedly have ruled that corporate directors must act to maximize the wealth and power of their corporations.The corporation is like an immensely powerful car whose driver is required by law to keep the gas pedal pressed to the floor. However even the most powerful mechanical engine pales before the economic might of modern corporations. Of the 100 largest economic entities on the planet, almost half are corporations, not nations. Of the mergers announced in the first 11 months of this year, 78 have been for more than $1 billion for a total price tag of $240 billion. Some analysts predict that the telecommunications industry soon will consist of only 5 or 6 huge international companies. Some predict the US electric power industry may shrink to one utility per state in five years.Corporations now exercise power openly and defiantly. Wal Mart, the nation's largest seller of pop music, demands that singers change their lyrics in order to sell their records in Wal Mart's 2500 outlets. Blockbusters Video requires similar changes by movie producers. Time Warner refuses to allow competitors to distribute their shows on its cable channels.Once a creature of the state, corporations are increasingly becoming states unto themselves. Now they make the rules. When you pay legal fines you don't get to deduct them from your taxes. Corporations do. Corporations receive tax breaks when they move their factories. Much of their foreign investment is guaranteed by the federal government.The age of corpocracy is upon us. But dissenting voices exist, as they have throughout our history. In the early 1900s Republican President Theodore Roosevelt established the Federal Bureau of Corporations to monitor the impact of these entities. Democratic President Woodrow Wilson, along with Roosevelt and Taft, advocated the federal chartering of large corporations. In the 1970s, Supreme Court Justices White, Brennan and Marshall wrote in one dissenting opinion, "Corporations are artificial entities created by law...The State need not permit its own creation to consume it."The anger at unrestricted corporate power has galvanized left and right alike. At the national level Ralph Nader and Pat Buchanan are delivering the message. At the local level, Richard Grossman's Program on Corporations, Law and Democracy and Ronnie Dugger's inspired Populist Alliance are traveling from town to town, listening to the people describe the havoc that has been wrought by divorcing ownership and responsibility in the economic sector.Increasingly those proposing a change are advocating a constitutional amendment to undo the immense damage resulting from the 1886 Supreme Court. "A corporation is not a person." Six words that could begin the process of giving democracy back to the people. Let the debate begin.For more information contact: John Bailey, Research Associate Institute for Local Self-Reliance 1313 Fifth Street SE, Suite 306 Minneapolis, MN 55414 Tel: 612-379-3815 Fax: 612-379-3920ILSR's Web Site: Sustainable MN:


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