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Corporations' Ascent

Peter Barnes: Capitalism 3.0 — Chapter 2: A Short History of Capitalism (pages 15-32)

When I speak in this book of corporations, I’m speaking of a very special institution: the publicly traded stock corporation. This is an institution with a board of directors, a set of executive officers, and a fluctuating set of shareholders to whom the directors and officers are legally accountable. These corporations have an explicit mission: to maximize return to stock owners.

When Adam Smith wrote The Wealth of Nations in 1776, there were barely a handful of corporations in Britain or America. The dominant business form was the partnership, in which small groups of people known to each other ran businesses they co-owned. In the public’s mind — as in Smith’s — the corporate form, in which managers sold stock to strangers, was inherently prone to fraud. Numerous scandals supported this view. Yet as the scale of enterprise grew, partnerships proved unable to aggregate enough capital. The great advantage of corporations was that they could raise capital from strangers. In this, they were aided by laws limiting stockholders’ liability to the amounts they had invested.

In early America, state legislatures retained some control over corporations by granting charters to them one at a time. Typically, the charter specified a business — such as building a canal and then charging tolls — that a corporation was authorized to conduct. The corporation could do nothing else, and after a certain number of years, its charter expired.

These limitations didn’t last long. By the mid-nineteenth century, corporations could live forever, engage in any legal activity, and merge with or acquire other corporations. In 1886, the U.S. Supreme Court declared that corporations were “persons” entitled under the Fourteenth Amendment to the same protections as living citizens. In effect, a corporate franchise became a perpetual grant of sovereignty, with the sovereign powers consisting of immortality, self-government, and limited liability.

These changes not only gave corporations great economic power; they conferred political power as well. Unlike average citizens, corporations have large flows of money at their disposal. With this money they can hire lobbyists, sway public opinion, and donate copiously to politicians. They can also sue, or threaten to sue, whenever it serves their needs. The one thing they can’t do is vote, but with all their extra powers, voting is hardly necessary.

By the end of the twentieth century, corporate power — both economic and political — stretched worldwide. International agreements, promoted by the United States, not only lowered tariffs but extended corporate property rights and reduced the ability of sovereign nations to regulate corporations differently. In short, what corporations have wanted and largely won is a homogeneous global playing field around which they can freely move raw materials, labor, capital, finished products, tax-paying obligations, and profits.

All of this might be well and good, were it not for two things.

* First, despite the Supreme Court’s holding, the modern corporation isn’t a real person. Instead, it’s an automaton designed to maximize profit for stockholders. It externalizes as many costs as it possibly can, not because it wants to, but because it has to. It never sleeps or slows down. And it never reaches a level of profitability at which it decides, “This is enough. Let’s stop here.”
* The second difficulty is that these automatons keep getting bigger and more powerful. In 1955, sales of the Fortune 500 accounted for one-third of U.S. gross domestic product; by 2004 they commanded two-thirds. These few hundred corporations, in other words, enveloped not only the commons but also millions of smaller firms organized as partnerships or proprietorships (see figure 2.1). ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 5: Reinventing the Commons (pages 65-78)

Property rights are useful human inventions. They’re legally enforceable agreements through which society grants specific privileges to owners. Among these are rights to use, exclude, sell, rent, lend, trade, or bequeath a particular asset. These assorted privileges can be bundled or unbundled almost any which way.

It’s largely through property rights that economies are shaped. Feudal economies were based on estates passed from lords to their eldest sons, alongside commons that sustained the commoners. Commoners were required, in one way or another, to labor for the lords, while the lords lived off that labor and the bounty of the land. The whole edifice was anchored by the so-called divine right of kings.

Similarly, capitalism is shaped by the property rights we create and honor today. Its greatest invention has been the web of property rights we call the joint stock corporation. This fictitious entity enjoys perpetual life, limited liability, and — like the feudal estate of yesteryear — almost total sovereignty. Its beneficial ownership has been fractionalized into tradeable shares, which themselves are a species of property.

There’s nothing about property rights, however, that requires them to be concentrated in profit-maximizing hands. You could, for example, set up a trust to own a forest, or certain forest rights, on behalf of future generations. These property rights would talk as loudly as shares of Pacific Lumber stock, but their purpose would be very different: to preserve the forest rather than to exploit it. If the Lorax had owned some of these rights, Dr. Seuss’s tale (and Pacific Lumber’s) would have ended more happily.


... read the whole chapter




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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper