Adam Smith believed that a person pursuing one’s own self-interest and engaging in others self-interest would on whole benefit society as well. Smith asserted that a person who strived to enhance his or her wealth efficiently would ultimately promote the ends of the community involved; you could not have one without the other. Smith realized that profit making needed to include justice and benevolence. However, Adam Smith was pragmatic; he knew that the free market and one’s own self-interest in that market would not provide for the ethical behavior necessary to participate in an exchange of good or services. Adam Smith wrote in the Wealth of Nations, when ownership is separated from management (i.e. the actual production process required to obtain the capital), the latter will inevitably begin to neglect the interests of the former, creating dysfunction within the company. This free market, corporate dysfunction is what we see today. Economics has divorced itself from the people and the communities that make it sustainable. Of course, I am not advocating an alternative to the free market; however I am advocating that the definition of a corporation return to its communal origin, where it is beholden to the people and not the reverse.
We have created people (companies) who live indefinitely, span the world, and exist everywhere, with more power and authority than government’s and able to control the resources of this world at near will, our land, our sea and our air? They have become beholden to no one, able to bend laws, take and not give, sell and not buy. Why are there still 15 million people unemployed in America, yet we are encouraged to head to the stores to buy our way out of this lingering recession? Why do we ship Roses grown in Lake Naivasha, Kenya to Europe when London can get them locally? The local Keyan’s over 40,000 men and women work for less than 1.56 USD a day.
Why do we buy apples and apple juice from China when we grow apples locally in upstate NY and in Washington State?
How did we get to where almost half the world lives on less than $2.50 a day?
How did we get to where nearly a billion people can’t sign read or even sign their name?
Originally States gave out corporate charters which allowed local businesses state advantages such as subsidies, land, or exclusivity rights in exchange for regional development by the business, some examples being the construction of roads, railroads or bridges. These types of agreements benefited the public in that they, for example, had new roads while the businesses benefited by making a profit. Unfortunately, over time some of these companies with their corporate charters used their growing power as leverage to build up great wealth. This wealth was then used to buy the liberalization of corporate laws. Unfortunately, as a result this led to state incorporation statutes so weak that the only real requirement now to achieve corporate status is to be organized to buy, sell or manufacture what is legal in the state –this is if they are even incorporated in the United States and not offshore.
Over the course of 200 years the purpose of creating a company has radically shifted. The creation of a company transformed from the benefit of society, to the benefit of society and the person, to the person, and now to only the company. The person could be the investor or the shareholder in this case and it can also be the company itself. Companies are now defined as persons having the same rights as an individual. Regrettably, I believe the investor/stakeholder model of a corporation has also changed to the point where the stockholder is so marginalized as to be ineffective at controlling the company. As mentioned above Adam Smith worried about the separation of ownership from management. You can see this separation of ownership from management in the modern definition of a company:
A corporation is a formal business association with a publicly registered charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like natural persons (“people”). Corporations can exercise human rights against real individuals and the state. It has perpetual succession under an artificial form.
What does this mean? A company has all the rights and abilities of a person and super-ordinary abilities beyond what a person has. How did this happen? Well it is simple; the corporation became more powerful than man and government through the greed of men and their fight for more. But, what happens when society rules naturally prevent a person or a company from gathering such power as to threaten to enslave society, limit its own rights? You expand the boundaries of those rules; you change those laws and then the community’s perceptions of such laws. In our society you can do this by going to court and winning, setting new legal precedents.
Here are a few Supreme Court rulings that took us to billions of men in poverty, apples in New York grown in China and Roses in London from Kenya:
Trustees of Dartmouth College v. Woodward (1819): The ruling upheld the sanctity of the original charter of the college which meant College’s corporate charter qualified as a contract between private parties and as such the state could not interfere.
Santa Clara County v. Southern Pacific Railroad Company (1886): the ruling decided for the first time that the word ‘person’ could in fact include corporations
Chicago, Milwaukee & St. Paul Railway v. Minnesota (1890): the ruling stated rail rates were subject to judicial review if set by a commission
Smythe v. Ames (1890): the ruling voided a Nebraska tariff law stating it violated the 14th amendment and the company’s due process. Tariff laws were subject to judicial review even if passed by state legislatures.
Noble v. Union River Logging Railroad (1893): the ruling stated that for first time corporations have claim to the Bill of Rights.
Dodge v Ford Motor Co. 1916: the ruling stated the purpose of the corporations was to maximize the return to investors.
Buckley v. Valeo (1973): the ruling stated that money is equivalent to free speech and has first amendment protections
First National Bank v. Bellotti (1978): the ruling stated that corporations had a First Amendment right to make contributions which can attempt to influence the political process.
Federal Election Commission v. Wisconsin Right to Life, Inc. (2007) weakened McCain–Feingold, but upheld core of McConnell. McCain-Feingold ban corporate funding of political issue ads.
Citizens United v. Federal Election Commission (2010) the Supreme Court of the United States held that corporate funding of independent political broadcasts in candidate elections cannot be limited under the First Amendment, overruling Austin (1990) and partly overruling McConnell (2003).
Over the last thirty years, super-industrialization on the backs of information management has swelled aggressive companies into Multi-nationals or companies that have facilities in more than one country. These MNC’s account for more than 1/4th of all global production, have revenue that exceeds many countries total GDP and are more powerful than the countries where their facilities exist. Even the nationality of an MNC can be unresolved, who owns what and where? We need to remember that “while they prate of economic laws, men and women are starving” –Franklyn D. Roosevelt (1932). This is in stark contrast to Milton Friedman’s view that the sole social responsibility of Business was to increase its profits. As Alfred Marcus and Sheryl Kaiser write in their book Managing Beyond Compliance over the past several decades there has been increasing separation of ownership form the control of the corporation, the end result being the steady erosion of shareholder power.
Here we contrast the top 10 companies in the world to the bottom 10 countries in the world, based on yearly revenue
2009 gross dollar figures unless specified:
1. Wal-Mart -$413 billion
2. Exxon Mobil -$310.5
3. Royal Dutch Shell -$278.1 billion
4. British Petroleum -$246.1 billion
5. Saudi Aramco –$216 billion in 2007
6. Toyota- $205 billion through March 2010
7. Samsung –$178.3 billion in 2007
8. Chevron –$171.6 billion
9. Sinopec -$165.4 billion in 2007
10. ING Group –$165.4 billion
2009 gross dollars unless specified
171 Vanuatu $0.637 billion
172 Grenada $0 .615 billion
173 Saint Vincent and the Grenadines $0.571 billion
174 Samoa $0.558 billion
175 Saint Kitts and Nevis $0.557 billion
176 East Timor $0.556 billion
177 Comoros $0.537 billion
178 Dominica $0.362 billion
179 Tonga $0.313 billion
180 São Tomé and Príncipe $0.189 billion
181 Kiribati $0.13 billion
So we have created people (companies) who live indefinitely, span the world, exist everywhere, with more power and authority than government’s and able to control the resources of this world at near will, our land, our sea and our air? They have become beholden to no one, able to bend laws, take and not give, sell and not buy. Why are there still 15 million people unemployed in America? Why are their wars for oil? Why do companies buy land and ship the water in bottles out of the region it came from? Why do fast food companies target poor urban areas and a burger from them is cheaper than making a nutritious meal at home? Why when we see the doctor are we first given blood pressure medication when we could just alter our lifestyle? Why do we buy at mega-stores here, while we cannot live on the salaries of their employees and their goods are manufactured by sweatshop labor in another country?
We need to stop and realize the way we view corporate is not the way they view our children and grandchildren. If we want our children and everyone’s children to grow up in a world we would like to live in, then we need to rethink and return to the common sense of Adam Smith and not the insanity of Milton Friedman, otherwise we are going to see what Roosevelt lived through.