The period of the robber barons after the American Civil War resembled the Russia of today, with the collapse of old certainties, corrupt government and accelerating technological change making possible the sudden emergence of fantastically wealthy individuals dominating economic and political life. The difference is that today’s Russia has jettisoned the ideology of communism without yet developing a universally accepted alternative. In America the ideology and institutions of democracy, although they had failed to prevent a murderous civil war, survived. The institutions continued almost unchanged to the present day, but the ideology underlying them was about to develop in a radical new direction.
European historians have generally regarded the First World War as the great watershed that changed world history for ever. Equally plausible is the claim that the American Civil War marked the beginning of the new age. In May 1863, 3,000 Confederate cavalrymen destroyed a key northern ‘asset’ near Parkersburg, West Virginia. As flames from the appropriately named Burning Springs flared into the sky, the world witnessed for the first time oilwells and oil supplies on the front line of war. Not only was it a sign of technological change but of political and economic change, for with oil came the corporation.
Before the civil war America had been a land of local lords – southern planters, New England factory owners, New York merchants. Fifty years later the lords were not local but national, and after a further fifty years they were international. The social convulsions brought on by war, the construction of railways knitting the nation together and the economic potential of mass production set the stage for men to wield commercial power on an altogether larger scale – if the right tool could be found. That tool was the corporation.
In modern Russia that tool has arrived ready-made. Everyone knows what an oil company is, and so it was easy for unscrupulous men to carve oil companies out of the old communist structures. Earlier American oligarchs had to make it up as they went along.
Corporations had existed long before Rockefeller and Carnegie, but the robber barons married them to the ideology of democracy in a way unimaginable to the Founding Fathers. When limited liability companies were first proposed in England centuries before, the idea met enormous opposition. Until then all rights had been human rights and all rights implied corresponding responsibilities. The idea that a man could pass some of his rights to a legal abstraction, a corporation, and in doing so limit his own responsibilities, was totally alien. Only in the most exceptional circumstances would the monarch agree to a charter of incorporation, and then it was surrounded by a mass of conditions and was likely to be revoked at any moment. One such corporation, the East India Company, seemed to illustrate exactly the dangers that such charters were supposed to prevent, as it gobbled up territory in southern Asia in just the same way that the tsars were doing further north. It was the prospect of the company starting to throw its commercial weight around in the American colonies that tipped the colonists into revolt, as well as the company’s tea into Boston Harbour.
The first stage on the road to the modern corporation was a minor legal development in medieval Europe that embodied a huge philosophical leap – the acceptance that a virtual object, a corporation, could have rights. It is difficult now to imagine a time when this was inconceivable, a time when all rights were human rights. Before the invention of the corporation people were fully responsible in law for their actions, whether they were acting as individuals or in a group. They could of course act in concert, but if someone else felt aggrieved about a group’s actions their legal remedy was to sue the group’s members. Treating the collective as a legal entity that could sue and be sued in its own right was an enormous leap forward, and one that immediately raised the question of what the entity’s legal rights and responsibilities would be.
This question was answered in the next development: the concept of limited liability – the doctrine that a corporation’s responsibilities could be more limited than its owners’. If I owe you £100 but only have £50 in the bank you can make me sell my belongings to give you your £100. But if I create a corporation with limited liability and put £50 in its bank account then that is all you can get back; if my corporation owes you £100 then tough – you still only get £50 and I get to keep my belongings, because my liability is limited to the £50 I invested. The English parliament realised that giving corporations limited liability was a massive step, which created great danger for members of the public who might end up being owed money they could not collect. Parliament therefore made sure that these corporations were only created where there was a specific public benefit that could not be achieved in any other way; charters of incorporation severely limited what the corporations were allowed to do. At first the same philosophy was applied in America. It was a commonplace at the time of the American Rebellion that business should be the domain of entrepreneurs – men who were both owners and managers and who would take full responsibility for their actions. Only in very rare cases was it permissible for an activity to justify the creation of some other form of organisation in which individuals could limit their responsibilities behind the veil of incorporation.
Ted Nace, who saw the American Revolution primarily as an attack on the corporate power of the East India Company, has researched the fundamental changes in US political values since that time. The changes started soon after the United States was born and greatly alarmed many of the Founding Fathers. Nace quotes Thomas Jefferson, who spoke out towards the end of his life against the perils facing the new nation: ‘I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength.’
Up until the civil war charters of incorporation were still relatively rare and were granted by state legislators for very specific purposes, such as building a railway, and were always circumscribed by numerous conditions. Corporations were prohibited from doing anything not specifically allowed in their charter, and the charter itself was usually granted for a limited period. Corporations could only operate within the state where they were incorporated, and often the state legislature retained considerable powers to veto activities. In the half-century after the civil war these restrictions were swept away, and today’s multipurpose corporations transformed commercial and political life.
The robber barons who came to dominate American industry realised that if the bothersome public benefit requirements could be stripped away the institution of the corporation would both shroud their activities from public view and allow them to raise large sums of money from investors, who were now freed from all responsibility for the consequences of their investment. The federal system of government proved ideally suited to implementing the oligarchs’ agenda. Malleable legislators, particularly in New Jersey and Delaware, were persuaded to charter perpetual multipurpose corporations that allowed the oligarchs to do whatever they wanted for as long as they wanted. When other states refused to follow suit the oligarchs simply used their tame legislators in states like New Jersey to set up corporations there, with the power to take over corporations domiciled elsewhere.
The age of the robber barons only lasted thirty or forty years but it changed the face not just of America but of the world. History until the end of the civil war reflected social and economic currents ridden and occasionally diverted by powerful individuals. History was played out at the macro level or the micro: the story of Russia and America in the 1860s could be portrayed in macro terms as the forces of industrialisation undermining slavery and serfdom, or in micro terms as Abraham Lincoln and the Tsar Liberator ‘making history’. The robber barons appeared on the stage as one more set of micro-characters ‘making history’, but they left behind them something altogether new – the corporation. From then on history was driven not just by great social forces and great historical figures but by inanimate legal abstractions that seemed to have acquired the ability to live for ever. Between macro and micro appeared something altogether new.
Quite distinct from
the macro-historical forces of ideology, economics and technology and the micro-history of presidents and tsars, there sprang up a murky midi-history in which micro-characters, hidden away in the boardrooms of Standard Oil and US Steel, made decisions which collectively had macro-impacts. Not only did their businesses directly have an impact upon the way people lived but they often exercised real political power; at the turn of the century one wag commented that Standard Oil could do anything with the Pennsylvania state legislature except refine it.
Nowhere was the transition from micro to midi clearer than in the case of one of the most powerful but least known of the robber barons. Minor Cooper Keith’s corporation was to wield political power more directly, and for longer, than almost any other. Like so many of his contemporaries Keith made his first fortune building railways; what was unusual is where he built them – south of the border in Central America. He and his brothers set out from New York to make their fortune in Costa Rica. Minor was the only one to survive the appalling conditions in which 4,000 men died building a railway from the capital San José to the Caribbean. The Costa Rican government defaulted on the loans made by British banks to build the railway, and Cooper managed to gain control not only of the railroad itself but 80,000 acres of adjacent land on which to establish banana plantations. He quickly realised that the real money was to be made by controlling the whole supply chain. After establishing the first steamship service carrying fruit from Central America to the United States, he bought out plantations in Panama and Colombia. In 1899 he merged his interests with the Boston Fruit Company, which dominated the fruit plantations of the West Indies, to form the United Fruit Company – the world’s largest banana company, with plantations in Colombia, Costa Rica, Cuba, the Dominican Republic, Jamaica, Nicaragua and Panama. Soon the company controlled 75 per cent of banana sales in the United States and effectively controlled the governments of most of the ‘banana republics’ of Central America. Following the traditions of European royalty, he entered into the local aristocracy by marrying the daughter of the Costa Rican president.
In 1901 Cooper moved into the nation that was to become UFC’s base and the archetypal banana republic: Guatemala. As in Costa Rica, Keith built a railway line from the capital to the coast and was given land alongside at ultra-low prices by the Guatemalan dictator, who also granted United Fruit the exclusive right to transport mail between Guatemala and the US and the contract to build telegraph lines alongside the railway. UFC gained control of virtually all means of transport and communications and charged a tariff on everything moving into and out of the country through its ports, including Guatemala’s famous coffee.
Cooper Keith died in 1929 but his corporation carried on, becoming a symbol of American corporate imperialism at its crudest.
For the first time ever the pattern of human life ceased to be determined by human beings. Until then history had been a long succession of religious prophets and marauding warlords, of great thinkers and heroic martyrs, of generals and politicians. History had been made by kings and presidents, revolutionaries and despots. Underneath existed great substrata to be mined by myriads of specialists – economic historians, social historians, anthropologists, environmental historians, and so on – but when most people think about history they think about Julius Caesar or Napoleon, Abraham Lincoln or Catherine the Great. And they are right to do so: those are the figures who shaped the way people lived and died and whose legacies endured for centuries afterwards. Ask who in the first half of the nineteenth century had the greatest impact on life in the modern world and there could be interesting debates about the claims of, say, the warlord Napoleon Bonaparte or the inventor of the steam train George Stephenson. Ask the same question about the second half-century and the names of many of the contenders would be hidden behind the veils of corporations. American history books might still concentrate on Congress and the White House, but the reality is that most politicians have had far less impact on the way people live today than a host of forgotten figures whose names are recognised by virtually nobody, figures like morphine addict John Stith Pemberton.
Pemberton was just one of numerous small entrepreneurs who made a living after the civil war producing wine-based stimulants and headache remedies. In today’s jargon the market leader was a man named Angelo Mariani, but Pemberton produced an adequate ‘me-too’ product that enjoyed limited success until, in 1886, Pemberton’s home state of Georgia introduced prohibition, and he was forced to modify his formula. Pemberton’s accountant suggested a new name for the new concoction based on the main ingredients: coca leaves and kola nuts. Pemberton’s French Wine Coca became Coca-Cola. Almost certainly more people today can distinguish Coca-Cola from Pepsi-Cola than can distinguish Theodore Roosevelt from Franklin Roosevelt. Not only is Coca-Cola known to millions of people around the world who have never heard of either Roosevelt, but the impact of the Coca-Cola Corporation as a vector of American pervasiveness has been far stronger and longer lasting than that achieved by any single American president. Coca-Cola could not be further from the first corporate imperialists in Hawaii and the banana republics of Central America. It supports cultural and sporting events wherever it operates, has a rigorously enforced code of corporate ethics and is welcomed around the world. Nevertheless its ubiquitous brown mixture has displaced indigenous beverages, its operations across the globe have helped inculcate American corporate values and millions of dollars of profit have passed back to Atlanta, Georgia. Coca Cola might be said to represent the acceptable face of American imperialism, the face that to many demonstrates that ‘corporate imperialism’ is a myth.
The Coca-Cola Corporation of today would not have been possible if the lawyers employed by the robber barons had not invented the legal construct we know as the corporation; nor would it have been possible if the robber barons had remained predators perceived by the rest of society to be feasting on the wealth created by others: sooner or later populist politicians would have found a way of bringing them under public control. But wealth buys respectability. By the beginning of the twentieth century the robber barons were being transformed into captains of industry – perceived as serving the public rather than robbing it. Once more the railroads were in the forefront of this transformation. In 1906 Congress gave the Interstate Commerce Commission sweeping powers to inspect the railway corporations’ accounts and fix prices. The measures were introduced to assuage popular anger over high fares and the preferential tariffs given to the most powerful corporate customers. It might be thought that the railroad magnates would have reacted in fury to proposals that today would be regarded as old-fashioned socialism, but by the time the measures came in the railway industry itself had changed. In 1883 railroad oligarch William Vanderbilt had famously declared that ‘the public be damned!’ Twenty years later the public pronouncements of the captains of the railway industry were very different. Now they too favoured reform, at least in public; in the corridors of Washington they were fighting to build in as many loopholes as possible. The new corporate captains had no desire to be forced into giving massive rebates to quasi-monopolists like Standard Oil nor to engage in cut-throat competition with each other; having established their place in society they much preferred the comforting support of the state to the unbridled brutality of the free market. The main beneficiaries of railroad regulation were the railroads – a debt they were to repay twelve years later when the government called upon them to help keep the world’s greatest railway, the Trans-Siberian, out of the hands of Russian revolutionaries.
The First World War was a critical time in the evolution of corporatism, as the power of big business reached into the centre of government. The state took on enormous powers, with the War Industries Board introducing central planning on a massive, if hardly Bolshevik, scale. Woodrow Wilson’s administration showed how corporatism had moved on from the crude corruption of the robber barons to something more recognisably modern. His most trusted advisor, and head of the War Industries Board, was not
the creator of some great industrial monopoly but a Wall Street speculator, Bernard Baruch, who was to go on advising presidents for half a century. Baruch’s board rammed through measures that dramatically increased US production, although its decision to regulate wholesale but not retail prices was a speculator’s delight.
In almost every society the rich, like Baruch, find it easier to grasp the levers of power than the poor, but what was new in America is that increasingly it was not rich individuals that wielded power but corporations. At the beginning of the twentieth century, for example, the Southern Pacific railroad, in the words of Hugh Brogan, ‘ruled California as its private fief’. And because for corporations, unlike individuals, life can seem infinite, political power can persist for generations: Montana was run as a virtual colony of the Anaconda Copper Company for nearly a century.
Having established themselves in America after the civil war, it was a small step for the corporations to move on to the international stage and assume the role of the earlier filibusters. The individuals who went out to expand the empire now did so with the power of corporations behind them. Whereas Texas had been colonised by bands of settlers seeking a new life for themselves and their slaves, Hawaii was colonised by a small band of corporations seeking profits for their shareholders back home, much as India had been colonised by the East India Company. Minor Keith’s operations in Central America provided an extreme example of the new model. In 1910 a group of armed filibusters sailed from New Orleans to Honduras and installed a new president. What differentiated this group from its predecessors was that it was organised by the United Fruit Company, which acted when the incumbent president refused to provide the corporation with tax breaks; the newly installed president gave the company a waiver from paying any taxes for twenty-five years.
More representative was the natural and perfectly legitimate expansion of corporations in search of new markets and cheaper resources, following the example of the gun-maker Samuel Colt. The oil corporations took the lead; by 1885, 70 per cent of Standard Oil’s business was outside the US, and it even had its own intelligence service, but the company usually credited as the world’s first multinational corporation was far more humble in its aspirations. In 1867, a decade after Colt’s failed experiment in London, the sewing machine manufacturer Isaac Singer opened a factory in Scotland, just sixteen years after starting his operations in New York. The Singer Corporation established the model for swallowing up competitors and aggressively expanding overseas; in 1905 it absorbed its leading US rival and opened a second overseas plant in Russia. By the Second World War it had plants in France and Italy and had been joined by a host of well-known American firms. The car industry was one of the first to be dominated by US corporations, like Ford, which opened its first foreign factory in England in 1911, and General Motors, whose cars started rolling off its Danish assembly line in 1924. It is estimated that in 1916, 55 per cent of the world’s cars were Model T Fords. After the First World War the historic pattern of foreigners investing more in America than Americans invested abroad was reversed as US corporations expanded into overseas markets.
Empires Apart Page 40