The Hidden History of Corporate Rule
(Note: If you’re interested in the history of corporate power in the U.S., you might be interested in ordering a Timeline of Personhood Rights and Powers.)
British Crown Corporations began operating in North America with the start of European settlement. These Crown Corporations, also known as colonial corporations, were a tool to export wealth back to the stockholders and the monarch that chartered them. The creation of corporations expanded empire and made the aristocracy wealthy. These early crown corporations were given the right to levy taxes, wage war, and imprison people all while enjoying a monopoly over trade in the regions where they operated. As Thomas Hobbes stated, corporations are “chips off the old block of sovereignty.”
It was clear though that these corporations possessed no rights of their own, but were rather artificial creations of the monarch, that existed for the benefit of the sovereign monarch. At any point the sovereign could revoke a corporation’s charter (the legal document that allows a corporation to exist).
Colonial anger and resentment against corporate power grew as the English Parliament introduced measures that protected trade by Crown corporations over that of local colonial merchants. In direct protest against Parliament’s tax protections that subsidized the East India Company, colonists organized an act of civil disobedience that came to be known as the Boston Tea Party. In that one act of property destruction, colonists destroyed the equivalent of one million dollars of the Company’s property.
Corporations After the American Revolution
After the American Revolution sovereign power was allegedly transferred from a monarch to “We the people.” Obviously the idea of vesting power in the people was noble, but only about 10% of the population counted as “people” with full citizenship rights. Those who were not white, male and property owners were not legally considered “people”. Over the next two hundred years groups excluded from “We the People” have struggled to be legally defined as “persons.”
For people immersed in a corporate world it is hard to imagine that in the 1800s corporations were only one form of doing business rather than the form. (As late as 1900 only 10 per cent of manufacturing companies in California even had a corporate charter.) The corporate form, was recognized to have certain utility in aggregating capital for large scale projects, which is why “the people” allowed them to exist at all.
Of course the concentration of capital also brings with it inherent risk for the populace. For this reason the formation of corporations was restricted to parameters set up by state constitutions and constrained by specific limitations in the state codes. The early 1800s frequently reiterated the fact that corporations could only be created for public benefit.
The Supreme Court of Virginia stated in 1809 that if an applicant for a corporate charter’s “object is merely private or selfish; if it is detrimental to, or not promotive of, the public good, they have no adequate claim upon the legislature for the privileges.” A comparison of state laws from the early 1800’s shows that corporations had limits on capitalization, debts, land holdings, and sometimes profits. They could not own stock in other corporations, could not have their headquarters outside their chartering state, nor could they keep their financial books closed to public representatives or make political or charitable contributions. In dramatic contrast to today, corporate stockholders and directors were often held personally responsible for crimes and harms they committed and debts they incurred under the name of the corporation.
Stated simply, corporations were properly understood to be public institutions created by democratically elected representatives of the sovereign people.
The Corporate Return to Power
“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As the result of the War, corporations have been enthroned. … 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 wealth is aggregated in a few hands… and the Republic is destroyed.”
– Abraham Lincoln, 1864
Only one year after the Civil War ended, individual states began to compete for corporate charters, and the income which charters generated. At the same time people’s movements against corporations were growing in strength. These movements were fueled by fear and resentment of concentrated corporate power that had boomed as a result of the Industrial Revolution and the Civil War.
This raging struggle led President Rutherford B. Hayes to say in 1876: “This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations.”
In 1886, ten years after President Hayes spoke those words, the relationship between United States citizens and their corporate creations changed even more dramatically: corporations became “natural persons” under the law, sheltered by the Bill of Rights and the Fourteenth Amendment. It all started here in California in a court case titled “Santa Clara County v. Southern Pacific Railroad”. Later that year, the U.S. Supreme Court let the state court ruling stand with these words: “The Court does not wish to hear the arguments on whether the provision in the Fourteenth Amendment to the Constitution applies to these corporations. We are all of the opinion that it does.” Sixty years later, Supreme Court Justice William O. Douglas wrote, “There was no history, logic, or reason given to support that view.”
Shamefully, though the Fourteenth Amendment was passed to guarantee freed slaves treatment as legal persons under the law, rights that were not enforced until the 1950s. When women tried to argue they were protected as persons under the fourteenth amendment (Minor v. Happersett, 1874) they were told the 14th amendment only applied to black males. The Fourteenth Amendment ruling has radically changed the nature of corporations in the United States and the world, as other countries have followed our lead.
“Corporate persons” won other Bill of Rights protections in the decades that followed. First Amendment, free speech protections making it virtually impossible to prohibit corporate campaign contributions. The Fourth Amendment now protects corporations from inspections to ensure worker safety.
Two years after the “Corporate Personhood” decision, President Grover Cleveland worried that, “Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.”
President Cleveland should have kept more careful watch on his Attorney General if this was truly his concern. Just one year earlier, in 1887, Mr. Olney had quietly told railroad executives that the world’s first regulatory agency, the Interstate Commerce Commission (ICC), was to be, “a sort of barrier between the railroad corporations and the people…” To the public, the new ICC was justified as a way to protect people from railroad corporations such as Southern Pacific Railroad Corporation, which was accused of cheating farmers on land sales, making secret pacts with large businesses to drive out smaller ones, and even destroying the equipment of rival railroads. The large railroad companies used the ICC as a legal way of fixing prices so upstart railroads could not charge less than them. ICC Commissioner Charles Perkins of Chicago, Burlington & Quincy Railroad Company said bluntly in 1888, “Let us ask the [ICC] Commissioners to enforce the law when its violation by others hurts us.”
Since the creation of the first regulatory agency, an alphabet soup of agencies have been created by state and federal governments: the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), the National Labor Relations Board (NLRB), the California Department of Forestry (CDF), the Bureau of Land Management (BLM), and hundreds of others.
We, the citizens of each state, have been taught to think that these agencies exist to protect us. In fact, each has been modeled on the example of the Interstate Commerce Commission with bureaucrats taken directly from the ranks of the industry being regulated. This process has resulted in the development of regulatory agencies which merely manage – rather than prohibit – corporate harms and abuses of the public good.
Global Corporate Capitalism
Global trade agreements such as North America Free Trade Agreement (NAFTA), the Free Trade Area of the Americas (FTAA) and the World Trade Organization (WTO) are ushering in a new era of corporate dominance but the struggle remains largely the same:
Who shall rule, corporations or the people?
As the corporate system goes global, we in the United States have a responsibility to undermine illegitimate corporate “rights” because that concept was invented by our corporations, our legal system and our government. Our work against corporate rule in the United States helps those in other nations fighting the same struggle against the corporatization of their countries.
(If you’re interested in the history of corporate power in the U.S., you might be interested in ordering a Timeline of Personhood Rights and Powers.)
Our Hidden History of Corporations in the United States
When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country’s founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.
Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end. The states also imposed conditions (some of which remain on the books, though unused) like these*:
- Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.
- Corporations could engage only in activities necessary to fulfill their chartered purpose.
- Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.
- Corporations were often terminated if they exceeded their authority or caused public harm.
- Owners and managers were responsible for criminal acts committed on the job.
- Corporations could not make any political or charitable contributions nor spend money to influence law-making.
For 100 years after the American Revolution, legislators maintained tight controll of the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.
States also limited corporate charters to a set number of years. Unless a legislature renewed an expiring charter, the corporation was dissolved and its assets were divided among shareholders. Citizen authority clauses limited capitalization, debts, land holdings, and sometimes, even profits. They required a company’s accounting books to be turned over to a legislature upon request. The power of large shareholders was limited by scaled voting, so that large and small investors had equal voting rights. Interlocking directorates were outlawed. Shareholders had the right to remove directors at will.
In Europe, charters protected directors and stockholders from liability for debts and harms caused by their corporations. American legislators explicitly rejected this corporate shield. The penalty for abuse or misuse of the charter was not a plea bargain and a fine, but dissolution of the corporation.
In 1819 the U.S. Supreme Court tried to strip states of this sovereign right by overruling a lower court’s decision that allowed New Hampshire to revoke a charter granted to Dartmouth College by King George III. The Court claimed that since the charter contained no revocation clause, it could not be withdrawn. The Supreme Court’s attack on state sovereignty outraged citizens. Laws were written or re-written and new state constitutional amendments passed to circumvent the (Dartmouth College v Woodward) ruling. Over several decades starting in 1844, nineteen states amended their constitutions to make corporate charters subject to alteration or revocation by their legislatures. As late as 1855 it seemed that the Supreme Court had gotten the people’s message when in Dodge v. Woolsey it reaffirmed state’s powers over “artificial bodies.”
But the men running corporations pressed on. Contests over charter were battles to control labor, resources, community rights, and political sovereignty. More and more frequently, corporations were abusing their charters to become conglomerates and trusts. They converted the nation’s resources and treasures into private fortunes, creating factory systems and company towns. Political power began flowing to absentee owners, rather than community-rooted enterprises.
The industrial age forced a nation of farmers to become wage earners, and they became fearful of unemployment–a new fear that corporations quickly learned to exploit. Company towns arose. and blacklists of labor organizers and workers who spoke up for their rights became common. When workers began to organize, industrialists and bankers hired private armies to keep them in line. They bought newspapers to paint businessmen as heroes and shape public opinion. Corporations bought state legislators, then announced legislators were corrupt and said that they used too much of the public’s resources to scrutinize every charter application and corporate operation.
Government spending during the Civil War brought these corporations fantastic wealth. Corporate executives paid “borers” to infest Congress and state capitals, bribing elected and appointed officials alike. They pried loose an avalanche of government financial largesse. During this time, legislators were persuaded to give corporations limited liability, decreased citizen authority over them, and extended durations of charters.
Attempts were made to keep strong charter laws in place, but with the courts applying legal doctrines that made protection of corporations and corporate property the center of constitutional law, citizen sovereignty was undermined. As corporations grew stronger, government and the courts became easier prey. They freely reinterpreted the U.S. Constitution and transformed common law doctrines.
One of the most severe blows to citizen authority arose out of the 1886 Supreme Court case of Santa Clara County v. Southern Pacific Railroad. Though the court did not make a ruling on the question of “corporate personhood,” thanks to misleading notes of a clerk, the decision subsequently was used as precedent to hold that a corporation was a “natural person.” This story was detailed in “The Theft of Human Rights,” a chapter in Thom Hartmann’s recommended book Unequal Protection.
From that point on, the 14th Amendment, enacted to protect rights of freed slaves, was used routinely to grant corporations constitutional “personhood.” Justices have since struck down hundreds of local, state and federal laws enacted to protect people from corporate harm based on this illegitimate premise. Armed with these “rights,” corporations increased control over resources, jobs, commerce, politicians, even judges and the law.
A United States Congressional committee concluded in 1941, “The principal instrument of the concentration of economic power and wealth has been the corporate charter with unlimited power….”
Many U.S.-based corporations are now transnational, but the corrupted charter remains the legal basis for their existence. At Reclaim Democracy!, we believe citizens can reassert the convictions of our nation’s founders who struggled successfully to free us from corporate rule in the past. These changes must occur at the most fundamental level — the U.S. Constitution.
We are indebted to our friends at the Program on Corporations, Law and Democracy (POCLAD) for their research, adapted with permission for this article. Sources include:
- Taking Care of Business: Citizenship and the Charter of Incorporation by Richard L. Grossman and Frank T. Adams (published by POCLAD) was a primary source
- The Transformation of American Law, Volume I & Volume II by Morton J. Horwitz
Please visit our Corporate Personhood page for a huge library of articles exploring this topic more deeply. You might also be interested to read out proposed Constitutional Amendments to revoke Illegitimate corporate power, erode the power of money over elections, and establish an affirmative constitutional right to vote.