Editor's Introduction Corporations as Semi‐Sovereign Powers

• Date: 01 March 2018
• Published date: 01 March 2018
• DOI: http://doi.org/10.1111/ajes.12224

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ECONOMICS and SOCIOLOGY

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Volume 77 March 2018 Number 2

Editor’s Introduction

Corporations as Semi-Sovereign Powers

Introduction

Modern business corporations have existed for slightly over a cen-

tury. In that short time, they have become a defining feature of the

economy. Of particular importance are the companies called multi-

national corporations (MNCs) or transnational corporations (TNCs)

that have affiliates in numerous countries and no loyalty to any of

them. By concentrating investment capital, they are able to control

a large portion of the world’s commerce and dominate decision-

making by national and local governments on key economic

issues,suchastaxes,tariffs,andsocialspending.Asaresult,large-

scale corporations have transformed not only economies but entire

societies. They have also magnified power differentials in econom-

ics and politics. Those are some of the topics that authors in this

issue examine.

In terms of sheer numbers, only a few corporations play a signifi-

cant role in shaping economics and politics. In the United States,

many small businesses with fewer than 500 employees each are

organized as corporations for legal and tax purposes (US-SBA 2012).

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

DOI: 10.1111/ajes.12224

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C2018 American Journal of Economics and Sociology, Inc.

Those 5.5 million small corporations, which represent about 99.5

percent of all U.S. corporations, do not have the capacity to

bias economic and political decisions. Thus, when the term

“corporation” is used here, it generally refers to the other 0.5 per-

cent of them that do have inordinate influence on politics and

society.

The problem of corporate power arises generally from the size of

the 19,464 largest companies that employ 53 percent of the employ-

ees in the United States and provide 59 percent of the payroll (U.S.

Census Bureau 2017). Not all of those giant companies are incorpo-

rated, but most are. Similar large-scale, limited liability companies

dominate the economies of other nations as well. Many of them are

multinational, which means the parent company is located in one

country and its subsidiaries in others. Their loyalties are purely to

shareholders, not to the communities in which they operate. Most

domestically-owned corporations outside the United States and the

United Kingdom are directly controlled by wealthy families that are

the top stockholders. In France, for example, after excluding for-

eign- or state-owned companies from the list of the top 500 indus-

trial companies, families control 59 percent of them (Murphy 2005).

Hiding in Plain Sight

The signs of corporate power and influence are strangely invisible in

the public record. In the United States, the Securities and Exchange

Commission collects some basic financial information from individual

corporations, as does the Internal Revenue Service. But no agency

compiles any information for comparative purposes that would enable

citizens to observe at a glance where the greatest concentrations of

capital are. That work is carried out only by private companies, such

as Forbes and Fortune magazines. It is noteworthy that the data on

U.S. employment in the previous paragraph do not explicitly distin-

guish between corporations and other large businesses. That may not

be important in itself, but it provides a means for quibbling over the

statistical outliers—the privately held companies with large assets,

sales, or payrolls. The fact that size and corporate control are not

The American Journal of Economics and Sociology206

exactly synonymous then may serve as the basis for questioning any

critique of corporations.

The reluctance of the U.S. government to publish corporate data

was not always the case. In the Tariff Act of 1909, “corporate income

returns [were made] available for public inspection,” and in 1924,

both corporate and individual income tax payments by wealthy indi-

viduals also became of public record (Yin 2012: 35, 37). The New

York Times (1925a, 1925b) published long lists of taxpayers and the

amount of their tax payments, but the door to such public informa-

tion was closed by Congress in 1926 and never opened again. If

one judged the size and influence of the top 500 corporations in the

United States now by how carefully they are monitored by public

agencies, one might conclude that they are about as significant as

hair salons or daycare centers. In this way, the public remains

largely uninformed about the activities of some of the most power-

ful institutions in the world.

The Demise of Competition

The rise in importance of large-scale business corporations has

changed the economic and political landscape. In terms of purely

economic factors, corporations dominate many national and regional

markets. Bunting and Barbour (1971: 318) describe the rapid growth

of corporations from 1896 to 1905, when they gained control of 40

percent of U.S. industrial capital: “Nearly all were promoted as devi-

ces to gain large dividends through the elimination of competition,

the consolidation of inefficient organizations, and the exercise of

large-scale economies.” As that statement indicates, the original pur-

pose of establishing the modern business corporation was to avoid

competition by consolidating existing businesses into giant enter-

prises in order to form oligopolies. Before 1890, various methods

were used by businesses to control prices: holding companies,

trusts, and cartels. Each proved problematic because cartel members

defected. The simple solution, when the law finally allowed it, was

the limited liability corporation, which could pool risk, shield invest-

ors from liability, gain the privileges of personhood, and expand

indefinitely through mergers, acquisitions, and the proliferation of

Editor’s Introduction 207