by Penny, Laura
Let us start with the fallacy that serves as the foundation for over a century of corporate law. In the eyes of the law, corporations are people, legally no different from you or your grandma. You can’t kick or kiss or kill one of these artificial people, but they nevertheless enjoy people-style blandishments, like free speech rights, property rights, protection from search and seizure, and access to credit, with few of the attendant hassles of being human, like disease and hunger. You see, corporations are magical, mystical things, people and not-people, deathless and everywhere. It’s enough to make a gal burst into Seussian song! Oh, the things you could do, if you were a corporation! The places you’d go! The money you’d make! Being horribly real and terribly fake!
Corporations sprung up in Europe in the fifteenth century as a way of gathering funds for colonial forays to the New Worlds. The first companies—like the British and Dutch East India Companies and the still-going Hudson’s Bay Company—were formed in the 1600s and 1700s to raise enough capital to found colonies and expand international trade. Chartered by monarchs, they were the precursors to today’s multinationals. Some of the American colonies themselves, like the settlements in Virginia and New England, started as just this kind of corporate endeavor. The Boston Tea Party, one of the great set pieces of America’s fight for independence, was as much a cri de coeur against corporate as colonial rule. The rebels didn’t like the king and his stinking taxes, but they had no kind words for the unfair market practices of the East India Company, either. The caffeinated beverages hurled, the rebellion against the Man—it was like the battle in Seattle before there, like, was a Seattle, man.
There were no provisions in the founding American documents about granting charters to corporations. Thomas Jefferson feared that national chartering would encourage the growth of monopolies, which he saw as one of the great threats to human liberty. Consequently, only one federal charter was granted, to the Bank of North America, in 1781. This charter was revoked in the 1800s, due to charges of corruption, and a Second Bank formed. This bank and its sequel were the exception to the rule. The vast majority of corporations were chartered by individual states, which pursued this task with varying zeal. Some states put it to a vote in their legislatures, and others, particularly if the organization in question was a bank, put it to their voters.
Through the first half of the 1800s, the state charters demanded that corporations follow rules for the privilege of incorporation; a company had to have an express purpose, and was limited in its land and capital holdings, and the charters were legit only for a decade or two. Most corporate charters involved a finite goal, like building a bridge, and the corporate entity dissolved when the project was completed. Corporations were not permitted to hold stock in other corporations, to prevent the formation of powerful conglomerates. Some states, like Wyoming and California, had extensive lists of requirements for corporations seeking charters. Pennsylvania expressly forbade corporate endeavors that were injurious to the citizens of the commonwealth. Others, like New Jersey and Delaware, used lax rules and simpler registration processes to lure businesses away from the sticklers. Delaware’s lax laws continue to attract a boisterous population of corporate citizens. More than half of the companies listed in the Fortune 500 are incorporated in the itsy-bitsy state.
For most of the 1800s, corporations were viewed as creations of the law that were subject to the law, subordinate to the state and the citizens. Corporate lawyers tried, throughout the century, to argue against the limited powers provided by corporate charters and win more extensive rights for their increasingly moneyed masters. The Civil War marked a crucial turning point in favor of corporate rights, as war profits gave companies the wherewithal to exploit an unstable political and legal climate to their own advantage. Corporations started becoming people in 1886, with the U.S. Supreme Court’s ruling in the case of Santa Clara County vs. Southern Pacific Railroad. This decision decreed that corporations were persons and consequently enjoyed the protection of the Fourteenth Amendment.
This ruling became the cornerstone of corporate law throughout the Gilded Age. Even though the Fourteenth Amendment is traditionally associated with the end of slavery, corporate lawyers were the ones who invoked it most. After the Santa Clara decision, 288 corporate cases made their way through the courts, versus 19 civil rights cases. Subsequent decisions granted even more rights to corporations based on this assumption that they were people. In the 1893 case of Noble vs. Union River Logging, the court ruled that corporations also enjoyed the protection of the Bill of Rights. In the 1906 case of Hale vs. Henkel, the court ruled that corporations enjoyed the protection of the Fourth Amendment, meaning they could not be searched or seized. In the 1922 case of Pennsylvania Coal Company vs. Mahon, the court ruled that corporations enjoyed the protection of the Fifth Amendment, particularly the “takings” clause, which stresses that no private good may be taken by the government without just compensation.
In Britain, corporations had been considered “artificial persons” for quite some time. But the intent of the British law was regulatory; corporations were persons in that they could sue or be sued and be prosecuted for breaking laws that began with the clause no person shall. The Santa Clara decision was different. It put corporations on track for all the rights that citizens enjoy, including protection against search or seizure and the right to free speech. As the artificial people grew increasingly autonomous, the real people who ran the artificial people became less liable and culpable for anything the artificial people might happen to do. The states were supposed to hold these artificial people accountable, but of late, they have sat on their hands. There are no longer restrictions on capital or land ownership; there are no more demands that the corporation fulfill a specific purpose, other than profit by any means necessary. Though there is a lovely Latin term in corporate law, ultra vires, beyond men, that refers to actions beyond the power granted by the corporate charter, the corporate chartering process today sets few limits on artificial-people power.
State attorney generals still have the authority to revoke corporate charters, and there have been grassroots rumblings about revoking the state charters of offending corporations—major polluters, for example—in California. But the fact that this notion remains the stuff of lefty rallies demonstrates that states are unwilling to flex their muscle. This would be the artificial person equivalent to being executed by the state, and in the U.S., they like to save that sort of thing for real people.
Instead, the financially strapped states are perpetually engaged in a race to attract corporate investment, and sound more and more like furniture barons in the throes of faked demise: “Everything must go!” They happily hand out tasty tax breaks and incentive packages for the promise of jobs. The rationale? You can’t be a stickler, these days. Nobody likes a stickler, and there are plenty of pliant poor people of varying hues scattered all over the globe who aren’t as persnickety about labor laws. NAFTA has made it a breeze to move operations to a sweatshop in China or a Mexican maquiladora. The balance of power has shifted. Companies no longer court or found communities. Instead, communities beg companies to grace their towns, and pimp themselves out with ads about nonqualities like excellence and diversity, or offer bribes in the form of tax breaks, subsidies, and cheap labor.
Recognizing corporations as people was a contrivance of the law to make corporations subject to law without crushing the spirit of enterprise. Limited liability allows people to try new things. Punitive liability—early incorporators were personally liable, and in some cases, doubly and trebly so, for debts incurred by a corporation—was a hindrance to free enterprise. If your soapworks could land you in debtor’s prison, you’d be less inclined to get the operation up and running. It may have been awfully accountable, but it sure as hell wasn’t an incentive. The problem with the hindrance-to-free-enterprise argument is that it has been reiterated so frequently over the past century. Pollution control? Hindrance. Labor laws? Hindrance. Antitrust laws? Hin
drance. Any attempt on the part of states to regulate corporate activity is now painted as protectionism or as interference with the supreme wisdom of the market.
Real people are subject to regulation. We enjoy a great deal of freedom in North America, but certain things are simply not done. The no-nos in your head, the cop working the beat in your brain, is what puts the civil in civil society. You can’t steal, then expect your own property to be waiting for you at home. You can’t relieve yourself on your neighbor’s welcome mat. You can’t punch people for dressing badly, and so on. Life under democracy is equal parts personal space and the Golden Rule—don’t bother me, and I won’t bother you. Self-interest as the high road to freedom is not new, by any means. It is there in the pursuit of happiness clause of the Declaration of Independence, and it is there in Adam Smith’s insistence that we build a social order that makes a good of our vices, like greed, instead of appealing to our virtues. But Enlightenment thinkers like Smith and the Founding Fathers recognized that the boundary of self-interest is someone else’s self-interest and the universal self-interest of every free person. Your pursuit of happiness couldn’t run roughshod over someone else’s, since both of you enjoyed the equal protection of the law.
Consider that classic economic chestnut about the division and specialization of labor, Adam Smith’s pin factory example. The cool thing about Smith’s pin factory wasn’t just that it made more pins, thus fattening the CEO of Pin Inc. The pin factory made better pins, and made life easier for pin makers and pin users, thus fulfilling the self-interest of the majority. While Smith was an ardent advocate of free trade, marketeers cherry-pick his writings to justify practices that would have made the Scottish moral philosopher recoil in horror. One of the primary ethical ideas of the Enlightenment was Immanuel Kant’s categorical imperative: “Act so that your maxim might be the object of a universal law.” Or, don’t do anything you wouldn’t want everyone else to do. This seems sadly quaint, less au courant than the catalog imperative, you are what you buy, or bullshit imperatives like everybody else is doing it, I didn’t realize it was wrong, or I do not recall.
Both corporations and actual people are self-interested entities. This is a Well, Duh proposition. Even those companies that offer free lunches to the urchins or plant new trees to replenish the foliage they devour still try to be good and look good in order to gain a larger market share or maintain existing business. The problem with the implied equality between real people and their artificial corporate friends is a significant difference in the way the two express their respective self-interest. The prevailing self-interest of a real person is life. The prevailing self-interest of an artificial person is profit. The two-legged guys come and go, talking of mergers and escrow, but the artificial person, the Coca-Cola corporation, lives for more than a hundred years with no signs of senility or reduced mobility. And even though pretty much everybody on the planet knows that Coca-Cola guy, few and far between are those who could name the wizards behind the curtain of the Coca-Cola guy. Most people can name a few star CEOs in blips like something off a set of Great Suits trading cards; Lee Iacocca, General Motors. Bill Gates, Microsoft. DeLorean . . . DeLorean—car guy—was he the cokehead or the crooked trader? Colorful nicknames help: “Neutron” Jack (Welch), “Chainsaw” Al (Dunlap). But do not confuse the artificial with the real. The real people would be the first to insist, particularly in the event of a hefty lawsuit, that they shouldn’t be confused with the artificial people they animate and lead.
It seems to me that a child, let alone the combined brains of government, business, and law, can recognize that there is something fundamentally different about a person and a corporation. Put it to the Sesame Street “One of These Things Is Not Like the Other” test in front of a group of toddlers—they’d know the difference. “Here’s Fred. Here’s Lateesha. Here’s Enrique. Here’s the corporate headquarters of General Motors. One of these things is not quite the same . . . now it’s time to play our game!”
Corporations aren’t merely equal to people anymore. While there are some folks, like Bill Gates, who are so wealthy that they have ascended to the commanding heights of corporatification, most people are far, far less powerful than the corporations that surround, sustain, and employ them. Corporations have powers no mere mortal can possess. They have become artificial immortal people who can appear in different parts of the globe simultaneously, like vampires or gods. Ask yourself a couple of questions: Would the government pay me wads of money to move to another state, or another country? Can I keep gallons and gallons of toxic shit in my yard? Can I make a billion dollars and still receive a tax rebate check worth millions? Do I and my team of lobbyists and lawyers regularly enjoy face time with politicians? If the answer to these questions is yes, you may be a corporation. If the answer is no, then you are all too human. I mean, can you fire ten thousand people? God, that would take a long time. Think of how far you’d have to go to scrounge up that many people to can. If you were fair, and only fired the slackers, it could take you years to hand out all those pink slips. And you’d get so sick of the sad faces, having to look them in the eyes and say sorry over and over again. But under the umbrella of the corporation, you and your colleagues could slap together the restructuring plan on the plane, bounce it around in a board meeting, write up the press release, send the word down the line to managers you barely know, and let them say sorry to people you’ve never even seen. And then you can watch as your stock goes up, and your bank account swells, thanks to your brave decision to downsize, cutting labor costs, increasing productivity, and generating shareholder value.
The difference in powers enjoyed by real people and their artificial coevals is vast, and it continues to grow. It is crazy talk to consider them the same in the eyes of the law. People range in size from midgets to giants, a difference of a few feet and a couple of hundred pounds at the most. Corporations, on the other hand, range from the corner store to behemoths like Wal-Mart. They live longer than people, have more money than people, and are so very much bigger than people that personhood no longer seems like a sufficient or accurate descriptor. The fact that half of the world’s biggest economies are corporations puts them in a different league than people.
This is, admittedly, an oft-disputed comparison. Lefties contend that it accurately reflects the fact that a Wal-Mart is closer to a midsized nation like Denmark than it is to a single citizen of any nation, and that there are a number of poor countries whose pitiful GDPs are dwarfed by the revenues of even the minor major corporations. Market boosters, like the nice people at The Economist, insist that the figure is an apples and oranges comparison, since it compares GDPs, or what a country produces, to total corporate revenues, or what a company sells, without considering other assets and costs. But while the notion that half of the world’s big economies are corporations is subject to debate, it is blatantly obvious that a Wal-Mart or a General Electric is more like a state than a citizen, and involves a lot of people and power rather than just the one legal guy.
This is not merely a question of size. It is also a question of access to state power. Corporations and states are no longer each other’s antagonists. I believe the more appropriate adjective for their relationship is cozy. And all those warm fuzzies mean that there really isn’t anyone working the door. It would be folly to expect corporations to check themselves before they wreck themselves, as Ice Cube advised. Governments used to serve as a countervailing force against corporate power. Through taxation and regulation, they protected the interests of the citizenry against the inordinate growth of artificial-people power. Americans may have perfected the art of creating corporations, but early presidents feared their growing influence, and saw them as a competitor with the republic for power over the people.
This presumption of rivalry has gone the way of the musket and the stovepipe hat. The ludicrously pro-business policies of the past few presidents stand in sharp contrast to the words of earlier presidents. Jefferson wasn’t taking
any shit from the bankers: He writes in an 1816 letter, “I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” Twoscore and five years later, that commie Lincoln said, “Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”
After the Depression, FDR was of the opinion that big business hadn’t held up their end of the deal, and chastised the financial class, declaring that they had failed even on their own terms. “We have always known that heedless self-interest was bad morals,” he said, “we now know that it is bad economics.” Doesn’t that sound like a breath of fresh air? Wouldn’t you, just once, love to hear a president chew out a business that blew a wad of private and public money and went bust, instead of simply helping them up, dusting them off, and writing them a check?
The past twenty years have seen a veritable orgy of industry deregulation and breaks for corporations. If you think of corporate personhood as a Pinocchio story, the election of Ronald Reagan marks the point where the Blue Fairy finally makes the wooden puppet a real boy. Reagan did deal with the old antagonism between big business and the state, but he was pitching for the other team and helped inaugurate the absurdity that is anti-government governance. He summed up the previous governments’ view of the economy thus: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Reagan insisted he would change this, and change two out of three he did. Businesses paid less tax and faced less strict regulations, but they didn’t have to worry about missing out on the rich, creamy subsidies. This was particularly so with favored industries like defense, aerospace, and energy.