Many proponents of the free market defend our current system of corporate-based capitalism as if it descended directly from heaven into the pen of Adam Smith and then onto the hearts of our all-knowing Founding Fathers. An investigation of the history of the corporation, however, reveals a much different story.
The first corporations appeared in Europe in the 16th and 17th centuries and were chartered by governments for specific public missions. The largest and most powerful of these early corporations was The East India Company, founded by Queen Elizabeth in 1600 to facilitate trade between England and her colonies. At the height of its power, The East India Compnay held economic control over 1/5 of world’s population and maintained a private army of over 250,000 soldiers. Unjust taxation policies favoring this company insured that the crown, and not the colonists themselves, reaped the benefits from the colonies’ natural wealth and industry.
During the 18th century, Enlightenment ideals began to challenge the power of monarchies and corporations, and the power of the queen’s corporation began to fade. The Boston Tea Party of 1773 signaled not only a victory over the economic tyranny of the East India Company, it also helped pave the way for the political uprising known as the American Revolution. Also around this time, Adam Smith published the Wealth of Nations, arguing for free market economics, but against the concept of large corporations, claiming that they limit fair competition among smaller-sized merchants and artisans.
When the United States gained its independence in 1776, there were 336 corporations in the United States, but most had been chartered by state governments for specific public works projects. The Founding Fathers, still mindful of the crushing power once wielded by the East India Company, severly limited the power of corporations and never would have dreamed of nor allowed the trans-national behemoths we see today. In fact, the original limitations seem laughable when we consider our modern corporations:
1) Corporate charters were granted for fixed periods of time, usually between 10 and 40 years.
Today, corporations are assumed to be open-ended in their duration, only ceasing to exist if they can no longer afford to stay in business. (And sometimes being allowed to continue with government funds even when they can’t sustain themselves!)
2) Corporate charters could be promptly revoked for violations of law or for causing public harm.
Back then, there was corporate accountability. Break the law, and you’re out of business. Today, an offending individual or two might (and I say might) see jail time, but the corporate machine just keeps rolling along. And as for causing public harm…
4) Corporations could not own property that was not essential to the fulfilling of their chartered purpose. Does that include luxury jets? How about condos in the Caribbean?
5) Corporations could not own stock in other corporations. I’m beginning to see a trend here. Corporations were not allowed to do anything or own any assets that were not specifically related to the purpose for which they were founded. Period.
6) The personal assets of corporate shareholders were not protected from the consequences of corpoate behavior. Oh snap! If still upheld today, this rule would have meant that anyone who owned stock in any of the companies that needed a bailout would have had to have paid for those bailouts out of their own pockets. Owning part of a corporation meant truly being responsible for that corporation.
Were they around today, the Founding Fathers would look at our corporate climate and our economic situation, and they would say, “We tried to warn you!” But Amercia has not heeded their wisdom. Almost as soon as the country was born, big business interests began to chip away at these constraints on corporate power. Stay tuned for Part 2 of “The History of Corporate Power: The Rise of the Robber Barons”.