Birth of the Modern Corporation: From Servant of the State to Semi‐Sovereign Power

• Date: 01 March 2018
• Published date: 01 March 2018
• Author: Luigi Cerri
• DOI: http://doi.org/10.1111/ajes.12212

Birth of the Modern Corporation:

From Servant of the State to

Semi-Sovereign Power

By LUIGI CERRI*

ABSTRACT. It is widely known that large business corporations have

accumulated enormous political and economic power since the early

20

th

century. They not only create barriers to entry to small firms in

the economic domain, they also pose a serious threat to democracy

by dominating public discourse and occupying a wide range of

public spaces. Efforts to halt or reverse the growth of corporate

power have been largely ineffective, in large part because they have

been entirely reactive. In order for citizens to reclaim the economy

and politics, a new strategy is necessary, one that starts by analyzing

the source of corporate power. The method of analysis in this article

is historical, specifically the history of changes in the United States of

the legal instruments of incorporation and their relationship to

emerging conditions in the economy and business. In the first half of

the 19

th

century, corporations were chartered by state governments

to carry out public benefit activities, particularly infrastructure

projects. These mixed corporations lost favor during the depression

of the 1840s and were replaced by private for-profit corporations that

continued using the same debt financing instruments employed by

states. They were also still regulated by the states that issued their

charters. When corporations sought to avoid competition by creating

cartels, they had difficulty maintaining discipline and discovered they

needed new rights in order to gain permanent control of markets. In

the 1890s, they were granted the status of “natural persons,” with the

legal protections of citizens, but they also gained the right to buy

*Professional actor and co-director of Canop

ee, a theater troupe in Paris, France

that engages in activist theater. In 2013, he participated in the “Ga

€

ıa Global Circus”

project, a theater creation led by Bruno Latour about climate change. More recent

projects: “The Cabaret of the Crisis,” and a conference-show “Catastrophe. So what ?”

about climate change, in the framework of Fabrique de Terriens (Factory of Earth-

lings), an arts and sciences interdisciplinary project. Email: cerriluigi@gmail.com

American Journal of Economics and Sociology, Vol. 77, No. 2 (March, 2018).

DOI: 10.1111/ajes.12212

V

C2018 American Journal of Economics and Sociology, Inc.

other corporations, thereby solidifying their market power and

making them largely autonomous from public control. Each transition

was contested, but when it was completed, it seemed to the public

as if corporations had always had their new powers. In order to

regain the power to hold corporations accountable to the public,

those old contested issues need to be brought back into public

discourse, so that citizens might decide for themselves how much

power corporations should have.

Introduction

Are large-scale business corporations compatible with democracy?

Superficially, it might seem obvious that the answer is “yes.” Corpora-

tions have seemingly coexisted with democracy for a century or more.

But that view is based on a simplistic concept of democracy, one

defined by the regular holding of elections and adherence tothe formal

procedures of government action. But democracy is about more than

elections and formal procedures of governance. It is fundamentally

about the idea that sovereignty is held by citizens, based on the premise

that the people of a nation or other jurisdiction can govern themselves.

Since self-government has social prerequisites the answer to the initial

question is not so obvious.

So, we might ask the question in a slightly different way: Do big

corporations have a greater impact than citizens, individually or in

association, on the rules that shape our lives? If we examine the

influence of pharmaceutical companies on how disease is treated

or the role of chemical companies in determining the quality of

food found in grocery stores, the relative strength of corporations

in defining the conditions of everyday life is beyond question. The

same is true of the issues decided by legislation. To a great extent,

many aspects of modern life are decided for us by powerful pri-

vate institutions.

In a comprehensive, statistical test of how much influence is exerted

on policy making by 1) average citizens, 2) wealthy citizens, 3) groups

lobbying for business interests, and 4) mass-based interest groups in

the United States, Gilens and Page (2014: 565) found that ordinary citi-

zens have almost no effecton policy outcomes:

The American Journal of Economics and Sociology240

Economic elites and organized groups representing business interests

have substantial independent impacts on U.S. government policy, while

mass-based interest groups and average citizens have little or no inde-

pendent influence.

For example, there is almost no difference in the probability of legis-

lation being adopted, whether 10 percent or 90 percent of the

general public favors it. So much for “grass-roots democracy.” By

contrast, legislation is three times more likely to be adopted if a

general consensus among wealthy voters favors it compared to no

consensus. When interest groups are factored in, which are “heavily

tilted toward corporations and business and professional

associations,” the system is entirely weighted against the average citi-

zen (Gilens and Page 2014: 573, 574). Corporate advertising, support

for sympathetic research, lobbying, election campaign spending, and

public relations campaigns shape public opinion polls and tip the

balance in close elections. An even greater power of corporations

lies in their ability to define the questions that are considered

relevant in public deliberation. Any group that can frame the ques-

tion for debate does not need to worry about which side wins. The

public is already swayed by the question itself.

It might seem that the Internet has balanced the scales by giving

every individual the capacity to express ideas and opinions to the entire

world. But most commercial and political speech on the Internet is still

controlled by a small number of companies that direct searches toward

corporate-ownedwebsites.

Let us briefly consider some of the ways in which corporations have

an advantage over individuals or the political associations that individu-

als may form:

1. Individuals have finite life spans, but corporations can endure

forever.

2. Individuals and civic associations that seek to influence public

opinion or litigate in the public interest are mostly supported

from wage income; corporations can spend money on influen-

tial actions that are treated as costs and therefore reduce tax lia-

bilities. In effect, government indirectly pays for some portion

of corporate speech. The rest is paid out of profits. Corporate

Birth of the Modern Corporation 241