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Gangs of AmericaThe Rise of Corporate Power and the Disabling of Democracy
By Ted Nace
Berrett-Koehler Publishers, Inc.Copyright © 2005 Ted Nace
All right reserved.
Chapter OneHow Did Corporations Get So Much Power?
In which the author reads a poll, feels provoked and befuddled, and organizes his investigation
As corporations gain in autonomous institutional power and become more detached from people and place, the human interest and the corporate interest increasingly diverge. It is almost as though we were being invaded by alien beings intent on colonizing our planet, reducing us to serfs, and then excluding as many of us as possible. —David Korten, When Corporations Rule the World
It's not often that Americans get asked by pollsters what they think about corporate power. Usually the questions are on issues like abortion and gun control. But in September 2000, Business Week published the results of a series of polls about how people felt about the power wielded by large corporations in American society. These polls were conducted more than a year before the corporate scandals involving Enron, Tyco, WorldCom, and other large companies emerged.
The polls suggested a massive cultural stomachache: too much corporate power, too much corporate everything. When the Harris pollsters commissioned by Business Week asked people what they thought of the statement "Business has too much power over too many aspects of our lives," 52 percent said they agreed "strongly" and an additional 30 percent said they agreed "somewhat."
Two months after doing its first poll, Harris asked a more specific question: "How would you rate the power of different business groups in influencing government policy, politicians, and policymakers in Washington?" Only 5 percent said that big companies had "too little" power; 74 percent said "too much."
Why do large corporations have so much power? The Business Week polls didn't include that question. But one can perhaps imagine what people would have said if they had been asked. They would certainly have mentioned the power that large corporations derive from their political action committees, their lobbyists, their lawyers, their control over millions of jobs. They might have also mentioned the "revolving door" that moves corporate people in and out of government agencies, the corporate ownership of media conglomerates, and so forth.
All those factors are well known. Others are less so. As I began my research on the rise of the large corporation, I saw repeated references to aspects of corporate power whose roots lie buried in history, especially in obscure Supreme Court decisions that "discovered" corporate rights hidden in the language of the Constitution.
How do these corporate constitutional rights translate into political power? The answer is that they complement the other political resources available to corporations (especially large ones), providing a trump card to be played when more direct political tactics fail. When threatened by an unwanted regulation or a pesky piece of legislation, corporations have plenty of tools to draw on: lobbyists, publicity campaigns, threats to transfer factories overseas, and so forth. Even so, laws opposed by corporate interests do get enacted, regardless of conventional corporate clout, especially in times of heightened public mobilization. And this is when having a few constitutional rights comes in handy. The CEO or the vice president for legal affairs directs the corporation's lawyers to challenge the nefarious legislation in court. The court then finds the law "unconstitutional" and invalidates it.
I had heard and read repeatedly that the case in which the Supreme Court declared corporations to be persons for constitutional purposes was the 1886 ruling in Santa Clara County v. Southern Pacific Railroad. I figured that if Santa Clara was the key case in this century-long process of corporate rights decisions, then the text of the decision must be worth reading. I was curious how the Supreme Court had been able to justify declaring corporations to be persons. Typing "Santa Clara County v. Southern Pacific Railroad" into Google, I quickly found the decision online at tourolaw.edu/patch/ SupremeCourtcases.html.
The very first sentence of the online version reads as follows: "The defendant Corporations are persons within the intent of the clause of section I of the Fourteenth Amendment to the Constitution of the United States, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws."
"All right," I thought. "Let's see how they justify this." The idea that corporations should be considered "persons" seemed to be quite a radical metaphysical assertion, and I wanted to find out how the Court had backed it up. But rather than an explanation, I soon came upon a rather curious paragraph. Chief Justice Waite, it seems, was in an exceedingly crabby mood on January 26, the first day of oral arguments by the lawyers:
One of the points made and discussed at length in the brief of counsel for defendants in error was that "Corporations are persons within the meaning of the Fourteenth Amendment to the Constitution of the United States." Before argument, Mr. Chief Justice Waite said: The Court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does.
Wow! I thought. "The Court does not wish to hear argument." How injudicious. Was the chief justice experiencing a bout of dyspepsia? Gout perhaps? (I'd read somewhere that King George III suffered greatly from this.) Or was this simply a glimpse into that whisky-soaked, hard-living era of railroad barons, alcoholic ex-generals, and their cronies? Maybe he had a hangover.
I read on, until I got to another sentence: "Mr. Justice Harlan delivered the opinion of the Court."
Hmmm. Perhaps this would be the explanation I had been waiting for. So I read and read and read until my eyes glazed over—thirty-six exceedingly dry paragraphs about roadbeds, rails, rolling stock, fences, and rights of way. I went back and checked. Nope, nothing about corporate personhood. And finally I got to a passage where Justice Harlan declares the railroad to be the winner of the case, but not on "personhood" grounds. Instead, he awards the Southern Pacific a thumbs-up on highly technical grounds having to do with how the assessors categorized the fences attached to the railroad's property. Indeed, Justice Harlan declares that the Court doesn't need to invoke any weighty principles to solve the case; the technical issues are sufficient.
Now I felt doubly provoked, first, by the idea that corporations should be treated on the same legal and moral plane as human beings, and second, by the absence of any discussion of why, and in fact, a disavowal that any constitutional issue had been decided by the case at all!
All this left me more than a bit befuddled. If those involved in the case itself did not believe they had decided a constitutional issue, then why had this case been heralded in the years since as doing exactly that? Furthermore, the whole notion of corporate personhood struck me as preposterously, intuitively wrong. I reflected on the common observation that there is something impersonal, alien, soulless, even Frankenstein-like about corporations, especially when they become extremely large. "If anything," I ruminated, "it is the people inside the corporation who need to have rights, not the corporation."
As I continued researching the Santa Clara decision, I found out that I wasn't the only person to find it confusing. The case is surrounded with complexities and even intrigue. As chapters 9 to 11 of this volume explain, researchers into this case over the decades have discovered schemers with hidden agendas, handwritten notes of untold consequence, false clues, deliberate obfuscation, even a "secret journal." Studying it is like peeling an onion. Beneath one layer of myth is another, and then another. The whole thicket of complications makes the Santa Clara decision interesting—perhaps a bit too interesting. Because of all the intrigue and complexity, this case tends to distract attention from other things, especially aspects of corporate empowerment that are hidden even further back in history. Santa Clara has become its own myth—leading to the mistaken idea that the entire octopus of corporate power stems from that one Supreme Court decision.
One tip-off that there is more to the story of corporate power than Santa Clara is the date of the decision: 1886. Yet something was surely going on earlier, because beginning in the mid-1860s a number of prominent Americans began issuing a stream of near-hysterical alarms about corporate power. For example, in 1864 Abraham Lincoln wrote the following in a letter to his friend William Elkins:
We may congratulate ourselves that this cruel war is nearing its end. It has cost a vast amount of treasure and blood.... It has indeed been a trying hour for the Republic; but I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war. God grant that my suspicions may prove groundless.
Similarly, in 1870, Henry Adams, grandson and great-grandson of presidents, wrote:
The belief is common in America that the day is at hand when corporations ... after having created a system of quiet but irresistible corruption—will ultimately succeed in directing government itself. Under the American form of society, there is no authority capable of effective resistance.... Nor is this danger confined to America alone. The corporation is in its nature a threat against the popular institutions which are spreading so rapidly over the whole world, ... and unless some satisfactory solution of the problem can be reached, popular institutions may yet find their very existence endangered.
Clearly, the process by which corporations accumulated the political and legal power they enjoy today neither started nor ended with Santa Clara in 1886. Although that case is important, it represents a single gene on the entire chromosome of corporate empowerment. To map this chromosome, we need to consider three overlapping phases of empowerment, summarized in Table 1.1 on the following two pages.
* Legislative creation of corporate quasi-rights: After the United States gained its independence, the various states constructed a highly restrictive system for regulating corporations. Over time, that system was undermined and dismantled through a series of legislative and judicial actions that can be fairly characterized as creating a growing body of quasi-rights. These new corporate privileges included features such as limited liability and perpetual existence. This process continues today with new legislation such as tort reform laws that exempt particular industries from lawsuits. (The story is told in chapters 6 and 7.)
* Judicial creation of corporate constitutional rights: As shown in the table, corporations have gained at least eleven distinct constitutional rights as a result of a string of Supreme Court decisions over the course of a century. The first decisions granted corporations Fourteenth Amendment protections, which mainly became shields against attempts by states to enact taxes and workplace regulations. The most recent decisions have created a body of First Amendment protections, whose most significant effect is to impede campaign finance reform. (The creation of corporate constitutional rights is described in chapters 8 through 14.)
* Trade agreement creation of corporate global rights: The most recent phase of corporate empowerment began with the enactment of the U.S.–Canada Free Trade Agreement in 1987. International agreements have the effect of producing new rights that corporations can use to overturn the environmental, labor, consumer, and other laws enacted by sovereign states. (This process is described in chapter 16.)
Together, these three phases of corporate empowerment account for much of the embedded institutional power of the corporation today. But to fully understand the roots of corporate power, we need to look even further back—to the evolutionary antecedents of the modern corporation, which, as we will see in the next chapter, lie in the craft guilds of late medieval London.
Chapter TwoFrom Street Fights to Empire The British roots of the American corporation (1267–1773)
The year was 1267, and blood flowed in the muddy streets of London. A dispute between two guilds—the Goldsmiths and the Tailors—had escalated until it turned into armed conflict. The issues that led to the fighting are not recorded, but history does tell us that over five hundred men were involved, including members of the Clothworkers' Guild and the Cordwainers' Guild, and that many were injured or killed.
Such rumbles broke out from time to time among the scores of craft guilds that had arisen during the thirteenth and fourteenth centuries. In 1340 it was the Skinners fighting the Fishmongers in the Cheapside district of the city. In 1378, the Goldsmiths attacked the Grocers. Though bloody, those conflicts were both mere skirmishes compared with the all-out war of the 1390s, when a grand alliance consisting of the Drapers, the Mercers, the Tailors, the Goldsmiths, the Saddlers, the Haberdashers, and the Cordwainers went to battle against the Fishmongers and the Victuallers. The issues were a complex blend of the lofty and the mundane, including fish prices and the religious teachings of John Wyclif.
What, if anything, do these quaint-sounding medieval guilds and their conflicts over obscure and long-forgotten issues have to do with today's goliaths—General Electric, Microsoft, Merck, Wal-Mart, and so on? The Skinners, Fishmongers, and Haberdashers of the late Middle Ages did not yet display the particular features that would allow us to call them corporations. They were not unified businesses, but rather umbrella groups for the members of particular crafts. Yet already, some seeds of the corporation can be seen in them.
One such seed was a tendency toward exclusion and hierarchy as organizing principles. Even by the fourteenth century, the craft guild had moved a considerable distance from its communal roots in a Saxon tribal institution known as the frith gild, an association that included both men and women and served a variety of protective, religious, and mutual-aid functions. Medieval craft guilds had originally been "commonalities," in which all members were equal. But over time a stratification occurred, with the elite members of each guild assuming uniforms known as liveries. In time, nonliveried members were shut out entirely, and eligibility for membership was determined not by competency at a craft but by ability to pay a fee of capital. Among the London guilds, a strict ranking developed. Twelve became known as the "great livery guilds," with the Mercers occupying the top slot, followed in order of prestige by the Grocers, the Drapers, the Fishmongers, the Goldsmiths, the Skinners, the Merchant Tailors, the Haberdashers, the Salters, the Ironmongers, the Vintonners, and the Clothworkers. Scores of other guilds were known as the "lesser livery guilds."
Excerpted from Gangs of America by Ted Nace Copyright © 2005 by Ted Nace. Excerpted by permission of Berrett-Koehler Publishers, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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