In the course of a tax debate over at America’s Debate1 I got to thinking about the rationale for their even being such a thing as a corporation. Why does the government support the existence of these artificial things which are granted the same rights (e.g. property ownership) as real people but are not held to the same standards of accountability as people and not taxed as people? How does that fit with the government’s proper role as protector of real people’s rights, safety, and opportunity? The short answer seems to be that it doesn’t. Here are a few explanations of how corporations came to be (selected for accessibility, not completeness or authority):

  • The first corporations appeared in 17th-century Europe, during capitalism’s infancy. At the time, the government chartered all corporations-that is, it gave them a specific public mission in exchange for the formal right to exist. The United States was settled by one such corporation, the Massachusetts Bay Company, which King Charles I chartered in 1628 in order to colonize the New World. The practice of chartering companies was a crucial part of the mercantile economic system practiced by the epoch’s great powers-Holland, Spain and England. By allowing investors to pool their capital, the monarch made it possible for companies to launch ventures that would have been beyond the means of one person. And in exchange for the charter, companies expanded their government’s wealth and power by creating colonies that served both as sources of raw materials and as markets for exported goods. (Know Thine Enemy)
  • We tend to think of corporations as fairly recent phenomena, the legacy of the Rockefellers and Carnegies. In fact, the corporate presence in prerevolutionary America was almost as conspicuous as it is today. There were far fewer corporations then, but they were enormously powerful: the Massachusetts Bay Company, the Hudson’s Bay Company, the British East India Company. Colonials feared these chartered entities. They recognized the way British kings and their cronies used them as robotic arms to control the affairs of the colonies, to pinch staples from remote breadbaskets and bring them home to the motherland. (The Uncooling of America)
  • Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end….

    …For 100 years after the American Revolution, legislators maintained tight controlled the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.

    States also limited corporate charters to a set number of years. Unless a legislature renewed an expiring charter, the corporation was dissolved and its assets were divided among shareholders. (History of Corporations”)

There’s a distinctly mercantilist flavor to all of these explanations. Contrary to “classical liberal” revisionists’ nostalgic portrayals of the US’s early days as a golden age of small government, these early corporations were much more tied to the government than is the case today. They were created and allowed specifically to promote the public good, with profit as a motivator but not as the primary goal. Even Adam Smith had this to say about corporations (from the first citation above):

Smith believed that human resourcefulness and industry were earthly signs of God’s favor, and thus that wealth obtained in a market economy was an expression of “natural justice.” Smith, however, did not think that corporations were a natural part of this order. Arguing that large business associations limit competition, he wrote, “The pretense that corporations are necessary to the better government of the trade is without foundation.”

Alexis de Tocqueville had this to say:

The old land-based aristocracy of Europe at least felt obliged “to come to the help of its servants and relieve their distress. But the industrial aristocracy… when it has impoverished and brutalized the men it uses, abandons them in a time of crisis.”

The question, then, is whether corporations as they currently exist fulfill the mandate that led to their creation. Are they agents for betterment of society, or have they become independent agents whose interests actually conflict with society’s? I think a strong case could be made for the latter. With regard to the original issue of taxation, the tax treatment of corporations – which contribute only 10% of federal revenue while being primary beneficiaries of government protection and largesse – actually increases the tax burden on “organic citizens” such as you and me. Many corporations contribute to pollution, the cost of which is borne by society while the officers who make decisions about that pollution are shielded from liability by the non-person that is the corporation. Similarly, when it comes to insurance or tort reform, the corporations are treated as entities must be protected even though their interests are clearly in conflict with those of true citizens seeking redress for grievances. In general, it would seem that corporations are often enemies of the state and its people. Their actual behavior and effects have, over time, actually become contrary to the original justification for their existence. They protection and favorable treatment they receive, supposedly as a spur to competition and innovation, often end up having the exact opposite of the intended effect. Maybe we should consider a return to the model of chartered, time-limited incorporation that must prove itself to be in society’s best interest to support. Continuity of corporate existence for its own sake, as though they were real people (except of course for being immortal) has no place in a social contract that claims to place a premium on individual effort and accountability.

1Yes, I still go there. Yes, I get the same “special attention” from the site owners as before. No, neither they nor I want a link.