Reinventing the corporation.

• Author: Rowe, Jonathan
• Position: Corporate responsibility

When an act of simple human decency appears heroic, it's time to ask some basic questions about the culture in which that act takes place. That's what happened last December in an old mill town in Massachusetts. AT&T had just announced it was laying off 40,000 workers, even though profits and executive pay were soaring. U.S. corporations had inflicted over three million such layoffs since 1989, and there was a depressing new litany on the evening news: jobs down, stock market up. (More recently, it's been the equally revealing counterpart: jobs up, market down.) The new Republican Congress was giving these corporations the store. Yet the more they got, the less they seemed willing to give back in return.

Amidst this grim backdrop, Aaron Feuerstein's textile mill in Lawrence, Mass. burned down. Without hesitation, he announced that he wasn't going to pull up stakes and move to Mexico. He was going to rebuild the mill right there, in the state conservatives deride as "Taxachusetts." Not only that, he was going to pay his workers a month's wages to get them through the Christmas season.

Soon everyone was talking about Feuerstein. He was an ABC News "Person of the Week." He sat next to Hillary Clinton at die State of the Union address. Yet Feuerstein himself couldn't understand the fuss. "What?" he asked. "For doing the decent thing?" While his modesty may be excessive, his instinct is on the mark. By his example, he raised a pointed question: Why do we expect so little from major businesses these days?

Certainly, that thought is abroad in the land. Not since Ralph Nader's heyday in the early seventies have the words "corporate responsibility" come up so often in political debate. Because die prime messenger this time is Pat Buchanan, much of the mainstream media has dismissed the issue as the benighted economics of Bible-thumping ignorami. But the notion that corporations have responsibilities, just like real people, touches a deep chord; and while the term "corporate responsibility" may strike jaded modem ears as oxymoronic and naive, historically it is exactly right. "The corporation is a creature of the state," the Supreme Court observed back in 1906. "It is presumed to be incorporated for the benefit of the public."

How to get back to that original intent--to traditional moral values in the economic realm--is an urgent question. Conservatives say, correctly, that government should do less and individuals and business more. But if that's so, we have to consider whether the dominant form of business is up to the job. If there is to be less top-down regulation and more voluntary well-doing, then we have to ask whether the Wall Street-oriented corporation of today is capable of such a thing.

The issue here is not the hoary ideological debate between the government and the market. Rather, it concerns the kind of entities that will comprise the market. The corporation is an artifice of government, no less than the welfare system or foreign aid. Historically, it has evolved as society has changed. The time has come to ask what the next phase of that evolution should be. In simple terms, how can we reconnect the corporation to the social and community concerns it was originally intended to serve?

The way the corporation drifted from that role is a story that has all the elements of a neoconservative morality play. Corrupt government; self-serving politicians seeking to fill the public coffers and give the voters something for nothing; elite Eastern lawyers riding roughshod over traditional moral values; liberal permissiveness, economic style, and unintended consequences galore--it's all there.

Racing to the Bottom

Today we assume that corporations exist to make money. Ideologists-qua-economists like Professor Milton Friedman of the Hoover Institution assert this as a moral imperative. Yet if we travel back in time five or six hundred years, the European corporations of that era were very different from those of today. They were regulatory bodies, not acquisitive ones, which served to reconcile individual behavior with larger social ends. Gilds, boroughs, monasteries, and the like--today we would call them "mediating institutions," bulwarks of the civil society that has fallen into such disrepair. "Corporations have constituted, for the most part, the framework of society subordinate to that of the state," as John P. Davis put it in his exhaustive two-volume study back in 1905.

When the British Crown was eager to claim the wealth of the New World, it required commercial ventures of enormous scale. But few investors would come forward because they could be held responsible for the enterprise as a whole. The solution was the "joint stock company," die forerunner of today's business corporation. The corporate entity became a legal buffer zone between the enterprise and the actual owners. Ownership and responsibility were severed, so that a larger enterprise could result.

This was a radical step. Individual responsibility is a bedrock principle of the common law tradition. People must stand accountable for their actions and those taken on their behalf. To compromise this principle, something had to be given in...