Elizabeth Warren, the Harvard professor who won a US Senate seat in Massachusetts, is an expert on bankruptcy. Responding to Governor Romney’s statement that ‘Corporations are people’, she replied:
No…corporations are not people. People have hearts. They have kids. They get jobs. They get sick. They thrive. They dance. They live. They love. And they die. And that matters… because we don’t run this country for corporations, we run it for people.
The quote is everywhere; it even made it into a Doonesbury cartoon here.
Meanwhile the new Archbishop of Canterbury, Justin Welby, worked as a derivatives trader for corporations – Elf Aquitaine and Enterprise Oil – before he changed course and decided to join the ministry in 1989. His dissertation at theological college was on the topic ‘Can companies sin?’ – to which he answered Yes. He recently told the Guardian:
When one group corners a source of human flourishing, that is deeply wicked. It applies to the City, to commodities traders, or to churches who say only this way is right.
These are similar statements from two new players on the political scene questioning the role of the corporation. Add to that the strong criticism of corporate corruption from the new Chinese leadership (yet to be followed up by any action) and maybe we are seeing something of a trend.
Criticism of corporations is not new, of course. Elizabeth Warren’s statement parallels that of the British Lord Chancellor, Edward, First Baron Thurlow (1731-1806). During the trial of Warren Hastings of the East India Company, Thurlow said:
Corporations have neither bodies to be punished, nor souls to be condemned, they therefore do as they like.
The idea of a Company goes back a very long way. The word is associated with Companion, from the Old French compaignier, which literally meant those who come together to break bread – pain.
Those who break bread together, trade together, and the early trading companies – the Levant Company, the East India Company, the Hudson’s Bay Company and others – depended on the idea of a group of companions sharing the risks and rewards of their venture. Large-scale investments, such as sending a ship, or a fleet, to the East Indies for spices, needed lots of money, so traders pooled their resources by buying shares in the enterprise. The Dutch set up the first stock market in the early 17th century, where traders could buy and sell shares in companies such as the Dutch East India Company and the West India Company. The English copied the idea.
These early companies were formed around a single investment. Once the voyage to the Indies was over, the shareholders divided up the profits and began all over again. But gradually companies developed into permanent institutions, with an address and a board of directors. Each company needed an Act of Parliament: to be incorporated meant to be given a fictional body (Latin: a corpus) which gave the company the rights of an individual in a court of law: to collect debts, to sue or be sued, and so on. (Rights that were not available to married women until the 1880s).
Through the 17th and 18th century, the most important companies were trading ventures or big colonial projects, such as the Londonderry plantation in Ireland. With the Industrial Revolution, big infrastructure projects – canals, then later railways – needed to raise capital through selling shares.
It was a clunky system: each railway project needed a separate Act of Parliament, and that usually meant a generous gift of shares to the MP who oversaw the Act through Parliament. During the 1830s, there was a lot of speculation, insider share trading, and high-risk investments that went belly up when the economy turned sour in the 1840s. Many investors bought shares for a small percentage of their paper value – a bit like options today – hoping to cash in when share prices rose. When they didn’t rise as anticipated, the shareholders were caught out. Sound familiar?
During the 1840s the British government began to sort out the mess. The Joint Stock Companies Act (1844) let investors form a company with corporate status by registration, rather than going through the hoops of an Act of Parliament. The total cost of forming a corporation fell to £10 – not quite the $1 companies of shonky dealers today, but still much cheaper than having to bribe MPs. Then 11 years later, in 1855, a new Act introduced limited liability for shareholders.
Together these two Acts freed commerce from restrictions and made it much easier to raise capital – but also made it harder for Parliament, or anybody else, to oversee what went on in the share market. From now on, a corporation – a legal fiction designed to let companies behave like individuals – was unrestrained by the fear that restrains individuals: the fear of personal bankruptcy and its consequences.
They still can’t dance.
This time last year:
Violators, Victims and Vigilantes, 9 November 2011