Rise of Corporate Power in America

 Dr. David C. Korten

{Big corporations (domestic and foreign) are influencing legislation and judiciary in India to get laws passed in their favour. They are grabbing resources of the country. Corruption is rampant. Exactly this happened in the USA more than a century ago. We give here the history of the rise of corporate power in the USA from Dr. Korten's book, 'When Corporations rule the world', just to show the similarity. Ed.}

America was born of a revolution against the abusive power of the

British kings. The corporate charter was an institutional instrument of that abuse. Chartered corporations were used by England to maintain control over colonial economies. In addition to such well-known corporations as the East India Company and the Hudson’s Bay Company, many American colonies were themselves chartered as corporations. The corporations of that day were chartered by the king and functioned as extensions of the power of the crown. Generally, these corporations were granted monopoly powers over territories and industries that were considered critical to the interests of the English state.

The English Parliament, which during the seventeenth and eighteenth centuries was made up of wealthy landowners, merchants, and manufacturers, passed many laws intended to protect and extend these monopoly interests. One set or laws, for example, required that all goods imported to the colonies from Europe of Asia first pass through England. Similarly, specified products exported from the colonies also had to be sent first to England. The Navigation Acts required that all goods shipped to or from the colonies be carried on English or colonial ships manned by English or colonial crews. Furthermore, although they had the necessary raw materials, the colonists were forbidden to produce their own caps, hats, and woolen and iron goods. Raw materials were shipped from the colonies to England for manufacture, and the finished products were returned to the colonies.

These practices were strongly condemned by Adam Smith in The Wealth of Nations. Smith saw corporations, as much as governments, as instruments for suppressing the competitive forces of the market, and his condemnation of them was uncompromising. He makes specific mention of corporations twelve times in his classic thesis, and not once does he attribute any favorable quality to them. Typical is his observation: “It is to prevent this reduction of price, and consequently of wages and profit, by restraining that free competition which would most certainly occasion it, that all corporations, and the greater part of corporation laws, have been established.

It is noteworthy that the publication of The Wealth of Nations and the signing of the U.S. Declaration of Independence both occurred in 1776. Each was, in its way, a revolutionary manifesto challenging the abusive alliance of state and corporate power to establish monopolistic control of markets and thereby capture unearned profits and inhibit local enterprise. Smith and the American colonists shared a deep suspicion of both state and corporate power. The U.S. Constitution instituted the separation of governmental powers to create a system of checks and balances that was carefully crafted to limit opportunities for the abuse of state power. It makes no mention of corporations, which suggests that those who framed it did not foresee or intend that corporations would have a consequential role in the affairs of the new nation.

In the young American republic, there was little sense that corporations were either inevitable or always appropriate. Family farms and businesses were the mainstay of the economy, much in the spirit of Adam Smith’s ideal, though neighborhood shops, cooperatives, and worker-owned enterprises were also common. This was consistent with a prevailing belief in the importance of keeping investment and production decisions local and democratic.

The corporations that were chartered were kept under watchful citizen and governmental control. The power to issue corporate charters was retained by the individual states rather than being given to the federal government. The intent was to keep that power as close as possible to citizen control. Many provisions were included in corporate charters and related laws that limited use of the corporate vehicle to amass excessive personal power. The early charters were limited to a fixed number of years and required that the corporation be dissolved if the charter were not renewed. Generally, the corporate charter set limits on the corporation’s borrowing, ownership of land, and sometimes even its profits. Members of the corporation were liable in their personal capacities for all debts incurred by the corporation during their period of membership. Large and small investors had equal voting rights, and interlocking directorates were outlawed. Furthermore, a corporation was limited to conducting only those business activities specifically authorized in its charter. Charters often included revocation clauses. State legislators maintained the sovereign right to withdraw the charter of any corporation that in their judgment failed to serve the public interest, and they kept close watch on corporate affairs. By 1800, only some 200 corporate charters had been granted by the states.

The nineteenth century emerged as a time of active and open legal struggle between corporations and civil society regarding the right of the people, through their state governments, to revoke or amend corporate charters. Action by state legislators to amend, revoke, or simply fail to renew corporate charters was fairly common throughout the first half of the century. However, in 1819, the U.S. Supreme Court ruled against the state of New Hampshire in a case in which New Hampshire had attempted to revoke the charter issued to Dartmouth College by King George III before U.S. independence. The Supreme Court overruled the revocation on the ground that the charter contained no reservation or revocation clause.

This decision was seen as an attack on state sovereignty by outraged citizens, who insisted that a distinction be made between a corporation and the property rights of an individual. They argued that corporations were created not by birth but by the pleasure of state legislatures to serve a public good. Corporations were therefore public, not private, bodies, and elected state legislators thereby had an absolute legal right to amend or repeal their charters at will. The public outcry led to a significant strengthening of the legal powers of the states to oversee corporate affairs.

As late as 1855, in Dodge v. Woolsey, the Supreme Court affirmed that the constitution confers no inalienable rights on a corporation, ruling that the people of the states have not released their power over the artificial bodies which originate under the legislation of their representatives… Combinations of classes in society… united by the bond of a corporate spirit… unquestionably desire limitations upon the sovereignty of the people… But the framers of the Constitution were imbued with no desire to call into existence such combinations.

Spoils of the Civil War

The U.S. Civil War (1861-65) marked a turning point for corporate rights. Violent antidraft riots rocked the cities and left the political system in disarray. With huge profits pouring in from military procurement contracts, industrial interests were able to take advantage of the disorder and rampant political corruption to virtually buy legislation that gave them massive grants of money and land to expand the Western railway system. The greater its profits, the more tightly the emergent industrial class was able to solidify its hold on government to obtain further benefits. Seeing what was unfolding, President Abraham Lincoln observed just before his death:

Corporations have been enthroned... An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people…until wealth is aggregated in a few hands…and the Republic is destroyed.

The nation was divided by the war against itself; the government was weakened by the assassination of Lincoln and the subsequent election of alcoholic war hero Ulysses S. Grant as president. The nation was in disarray. Millions of Americans were rendered jobless in the subsequent depression, and a tainted presidential election in 1876 was settled through secret negotiations. Corruption and insider deal making ran rampant. President Rutherford B. Hayes, the eventual winner of those corporate-dominated negotiations, subsequently complained, “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 his classic The Robber Barons, Matthew Josephson wrote that during the 1880s and 1890s, “The halls of legislation were transformed into a mart where the price of votes was haggled over, and laws, made to order, were bought and sold.

These were the days of men such as John D. Rockefeller, J. Pierpont Morgan, Andrew Carnegie, James Mellon, Cornelius Vanderbilt, Philip Armour, and Jay Gould. Wealth begat wealth as corporations took advantage of the disarray to buy tariff, banking, railroad, labor, and public lands legislation that would further enrich them. Citizen groups committed to maintaining corporate accountability continued to battle corporate abuse at state levels, and corporate charters were revoked by both courts and state legislatures.

Gradually, however, corporations gained sufficient control over key state legislative bodies to virtually rewrite the laws governing their own creation. Legislators in New Jersey and Delaware took the lead in watering down citizens’ rights to intervene in corporate affairs. They limited the liability of corporate owners and managers and issued charters in perpetuity. Corporations soon had the right to operate in any fashion not explicitly prohibited by law.

A conservative court system that was consistently responsive to the appeals and arguments of corporate lawyers steadily chipped away at the restraints a wary citizenry had carefully placed on corporate powers. Step-by-step, the court system put in place new precedents that made the protection of corporations and corporate property a centerpiece of constitutional law. These precedents eliminated the use of juries to decide fault and assess damages in cases involving corporate-caused harm and took away the right of states to oversee corporate rates of return and prices. Judges sympathetic to corporate interests ruled that workers were responsible for causing their own injuries on the job, limited the liability of corporations for damages they might cause, and declared wage and hours laws unconstitutional. They interpreted the common good to mean maximum production—no matter what was produced or who it harmed. These were important concerns to an industrial sector in which, from 1888 to 1908, industrial accidents killed 7,00,000 American workers—roughly 100 a day.

In 1886, in a stunning victory for the proponents of corporate sovereignty, the Supreme Court ruled in Santa Clara County v. Southersn Pacific Railroad that a private corporation is a natural person under the U.S. Constitution—although, as noted above, the Constitution makes no mention of corporations—and is thereby entitled to the protections of the Bill of Rights, including the right to free speech and other constitutional protections extended to individuals.

Thus corporations finally claimed the full rights enjoyed by individual citizens while being exempted from many of the responsibilities and liabilities of citizenship. Furthermore, in being guaranteed the same right to free speech as individual citizens, they achieved, in the words of Paul Hawken, “precisely what the Bill of Rights was intended to prevent: domination of public thought and discourse. The subsequent claim by corporations that they have the same right as any individual to influence the government in their own interest pits the individual citizen against the vast financial and communications resources of the corporation and mocks the constitutional intent that all citizens have an equal voice in the political debates surrounding important issues.

These were days of violence and social instability brought on by the excesses of capitalism that Karl Marx described to powerful political effect. Working conditions were appalling, and wages scarcely covered subsistence. Child labor was widespread. By one estimate, 11 million of the 12.5 million families in America in 1890 subsisted on an average of $380 a year and had to take in boarders to survive. Both organized and wildcat strikes were common, as was industrial sabotage. Employers used every means at their disposal to break strikes, including private security forces and federal and state military troops. Violence evoked violence, and many died in the industrial wars of this era.

These conditions gave impetus to a growing labor movement. Between 1897 and 1904, union membership rose from 447,000 to 2,073,000. Unions provided fertile ground for the thriving socialist movement that was taking root in America and called for the socialization and democratic control of the means of production, natural resources, and patents. These were times of open class warfare, with zealous new recruits joining the army of the dispossessed in growing numbers—ready to fight and sacrifice for the cause. Socialists who sought to organize labor along class lines vied for primacy with more conventional unionists who preferred to organize along craft or industrial lines.

These movements united ethnic groups. An emergence of black pride and culture began to unify blacks. The women’s movement took hold, with women forming their own labor unions, leading strikes, and assuming active roles in populist and socialist movements. In 1920, female suffrage (the right to vote) was guaranteed by a constitutional amendment.