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How 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

It’s not often that Americans get asked by pollsters what they think about corporate power. Usually the questions are about things  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.

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 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 ask people for their opinions about the underlying factors that create that power. 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 factors are less so, especially the steady acquisition by corporations of Constitutional rights, beginning in the 1880s. Even though corporations are not mentioned at all in the Constitution, they have somehow accumulated more legal rights than human beings. How did this happen?

As I began reading the literature 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. Here’s where 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 finds the law “unconstitutional” and invalidates it.

But where did these rights come from? You can read the Constitution from front to back, including all the amendments added to the document to the present day, and not see a single instance of the word “corporation.” For that reason, the rights that corporations now enjoy have all been established through indirect means, especially a handful of key Supreme Court decisions.

As I began researching the history of the corporation, I repeatedly saw references to one case in particular, the 1886 ruling in Santa Clara County v. Southern Pacific Railroad. This case, supposedly, had declared corporations to be “persons,” and thus had given them access to the same rights as human begins.

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:
www.tourolaw.edu/patch/SupremeCourtcases.html.

The very first sentence of the online version said this: “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 a hangover.

I read on, until I got to another sentence that said, “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, 36 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 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, second, by the absence of any discussion of whyand 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, though the whole notion of “corporate personhood” still 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 as they become extremely large. “If anything,” I ruminated, “it is the people inside the corporation that need to have rights, not the corporation.”

As I began researching the Santa Clara decision, I found out that I wasn’t the only person who had found it confusing. The case is surrounded with complexities and even intrigue. As related in Chapters 810, there are 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 interestingthough perhaps a bit too interesting, because all the intrigue and complexity tend to distract attention from other things, especially aspects of corporate empowerment that may be hidden even more deeply in history. Thus Santa Clara becomes its own myththe mistaken idea that the entire octopus of corporate power stems from 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. Something must have been going on earlier, because beginning in the mid-1860s a number of prominent Americans suddenly 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, the grandson and great-grandson of Presidents, predicted that corporations “will ultimately succeed in directing government itself. Under the American form of society, there is no authority capable of effective resistance…”

Clearly, the process by which corporations accumulated the political and legal power they enjoy today neither started nor ended with Santa Clara in 1886. While that case is important, it represents a single gene on the entire chromosome of corporate empowerment. As I sought to map this chromosome, I used the Santa Clara decision as my reference pointas the most famous and most significant example of how corporations used the legal system to gain particular privileges. Slowly I identified other rights and quasi-rights, tracing back to the early nineteenth century and forward to the present day. As shown in Table 1.1, this process of empowerment falls into three rough phases. In the first phase, which is described in Chapters 6 and 7, corporations acquired a number of powerful quasi-rights such as limited liability and perpetual existence, but the Supreme Court had still not granted them any formal constitutional rights. In the second phase, described in Chapters 8 through 145, corporations gained at least eleven distinct constitutional rights as a result of a string of Supreme Court decisions over the course of a century. In the third phase, described in Chapter 16, the process of empowerment moved to the international stage as international trade agreements began creating mechanisms by means of which corporations could override the authority of sovereign nations.

This process of steady empowerment extends back nearly two centuries in the United States. But to put it in context, we have to go back much furtherto the British roots of the American corporation. It is with that history that we begin our account.

TABLE 1.1
Three Phases in the Development of Corporate Rights

PHASE I: 1820Present
Legislative and Judicial Creation of Corporate Quasi-Rights
See Chapters 6 and 7

Quasi-Right

Available to People?

Available to Corporations?

When?

Limited liability for shareholders

No

Gradual statutory revision by states

1820 - 1900

Perpetual existence

No

Switch by states from custom charters to general incorporation

late 1800s

Virtual location

No

New Jersey general incorporation law

1889

Indefinite entity or “shape shifting”

No

New Jersey general incorporation law

1889

Protection from lawsuits

No

Judicial revision of common law tort; statutory immunities for particular industries

1850
present

PHASE II: 18861986
Judicial Creation of Corporate Constitutional Rights
See Chapters 814

Right

Available to People?

Available to Corporations?

When?

Equal protection (state legislation)

Fourteenth Amendment

Santa Clara v. Southern Pacific RR

1886

Due process
(state legislation)

Fourteenth Amendment

Chicago, Milwaukee and St. Paul Railway v. Minnesota

1890

Due process (federal legislation)

Fifth Amendment

Noble v. Union River Logging Railroad Company

1893

Freedom from unreasonable searches

Fourth Amendment

Hale v. Henkel

1906

Jury trial in a criminal case

Sixth Amendment

Armour Packing Company v. US

1908

Compensation for government
takings

Fifth Amendment

Pennsylvania Coal Company v. Mahon

 

1922

Freedom from double jeopardy

Fifth Amendment

Fong Foo v. US

1962

Jury trial in a civil case

Seventh Amendment

Ross v. Bernhard

1970

Commercial speech

First Amendment

Virginia Board of Pharmacy v. Virginia Citizens Consumer Council

1976

Political speech

First Amendment

First National Bank of Boston v. Bellotti

1978

Negative speech (the right to abstain from association with the speech of others)

First Amendment

Pacific Gas & Electric Co. v. Public Utilities Commission

1986

PHASE III: 1987present
Trade Agreement Creation of Corporate Global Rights
See Chapter 16

Right

Available to People?

Available to Corporations?

When?

Minimum standard of treatment

No

US-Canada Free Trade Agreement

1987

National treatment

No

US-Canada FTA

1987

Compensation for regulatory takings

No

North American Free Trade Agreement

1993

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