The Corporate State

30 January 2020
Paper

In order to understand corporate power today, we need to understand their history and how they have always been a fundamental part of how the state has governed and continues to govern social life. 

The role of multinational corporations (MNCs) in the global economy has become one of the most pressing political and economic questions. Corporations’ responsibilities for climate change, tax evasion, human rights abuses and environmental disasters are the order of the day. On the face it, the rise of corporate power is exerting undue influence and encroaching on democracy, politics and the state. While corporations have certainly become increasingly powerful and pose a challenge and threat to democracy, I argue that we must understand the inextricable interrelation between the state and the corporation in order to understand corporate power today.

Corporations are an integral part of the political set-up through which the state governs. Corporations are created by the state, or at least given their existence and their various privileges from the state. The fact that major corporations, for instance, do not pay tax (or the very minimum) is not just because they are able to lobby, cheat and subvert the system, but also because they have been granted these rights and possibilities precisely because they are viewed as profitable and fundamental to the political and economic order.

In the contemporary economic and political context, the corporation occupies a paradoxical function. While it is the state that creates, recognises or confers its legal existence, at the same time the corporation appears to be something outside the state, threatening and challenging its power, and lying beyond its control and regulatory competence.1 We therefore need to understand that the state and the corporation are in reality inextricably interrelated in order to grasp what corporate power means.

When it is claimed that the corporation is encroaching upon the state, it implies a sharp distinction between the two, whereby economic and corporate interests operate in their own sphere with their own logics and principles, and distinct and separate from the state, public and democratic power.2 Consequently, when corporations or corporate economic interests encroach upon or influence state politics this is portrayed as errors or glitches in the functioning of the political system,3 rather than integral to how the state has always governed through recognising, accepting or creating associations, corporate bodies and corporations.

Government exists by delegating (or being forced to delegate) power, and by extending rights and privileges to various associations, corporate bodies and corporations in order to achieve certain goals. The main government goal in the neoliberal era of amassing vast profit has long been considered to be best served by one particular corporate form: the publicly traded, for-profit, private corporation. Accordingly, it has been granted extensive rights and privileges to achieve this goal

To understand this, we need to take a closer look at the history of the corporation, and particularly the history of corporate thought and the relation between the state and the corporation. Specifically, I focus on England around the time of the seventeenth century, pivotal in the emergence both of the modern state and of the corporation as a vehicle for economic growth. It was a central period in the conceptualisation of the corporation, as many of the central tenets shaping Anglo–American corporate law in the nineteenth century that remain influential were formulated here.4

As Joshua Barkan has noted, the writings on corporations from this period ‘shaped the problematic for subsequent thinking about corporate power’.5 This period gave birth to the notion of the corporation as being situated both inside and outside the state, both created by the state but also independent from it – an idea that has continued in our current (mis)understanding of corporate power and its relation to the state. I will end the essay by reflecting on what this means for understanding corporate power today.

The State of the Corporation

My basic argument is that the state and the corporation are structurally similar or at least share some ‘family resemblance’. As Barkan points out in Corporate Sovereignty – Law and Government under Capitalism<, the state and the corporation are both ‘collective entities composed of individuals united into a single body’ (corpus coming from the Latin ‘body’), they are both created or instituted through an ‘animating act of incorporation that establishes their legal existence’ (be it a charter with regards to a corporation or a constitution in regards to the state) and they are both collective entities or corporate bodies established ‘to achieve ends of government’.6 The legal historian Frederick W. Maitland also noted that while allowing that the state is a ‘highly peculiar group unit’, there seems to be ‘a genus of which State and Corporation are species’.7

There is no doubt that the state has acquired a privileged place in our political understanding as the embodiment of political sovereignty. In that sense, the state has become the universal corporation, whose government seeks the general or common good of a given political community. However, precisely because the state is itself a kind of corporation or corporate body, in seeking political sovereignty it needed to constitute all other corporations and corporate bodies as subordinate to and dependent upon its power, thereby constituting itself as the sole legitimate claimant to political authority and allegiance.

In medieval and early modern Europe, the legal structure of the corporation was not much used for commercial purposes, but rather for a wide variety of government ends, especially the Church, towns, cities and municipalities. A corporation was a legal and political institution that allowed groups of people to be united into a single body and consequently to own property, to sue and be sued, to have rights, especially to own property, and to have certain privileges, first and foremost to exist as a body independently of its members and thereby to exist in perpetuity.8

In seventeenth-century England, corporations were vital in managing hospitals, alms houses, schools and other philanthropic endeavours, and also increasingly the reorganisation of the colonial and imperial commerce through trading companies. The corporate charter became a mechanism through which to govern central aspects of social life, and to ensure public welfare. Through the corporate charter, the state recognised, created, encouraged and regulated corporations by granting them legal privileges, immunities and exemptions, because this privileged status benefited the common good.9

In the course of the century, corporations became increasingly central to governing the economy and economic growth as the emerging (Western European) states pursued these functions. In particular, what has been called the ‘forerunner of the modern multinational corporation’,10 the joint-stock trading company became the key means to secure trade, import and export, and to establish plantations and colonies around the globe.

General Court Room, East India House
General Court Room, East India House / Photo credit British Library
The most famous of these in the English context was The English East India Company, which was founded by a charter granted by Elizabeth I on 31 December 1600, giving the company existence as ‘one Body Corporate and Politick’. This was done for the ‘Increase of our Navigation, and the Advancement of lawful Traffick to the Benefit of our Common Wealth’.11 The company was granted the monopoly on trade in the area between the Cape of Good Hope on the southern tip of Africa to the Straits of Magellan in South America. In this enormous region, the company was granted the jurisdiction of the people under its command, the right to have an army, the right to make war and to make peace (officially only with non-Christians), to make laws and judge accordingly, to erect strongholds and fortifications, to engage in diplomatic relations with local rulers, to coin its own money and to have its own flag.12

The East India Company in this respect was indeed a ‘Company-State’,13 and certainly the most famous, but far from being the only one. And they were all granted extensive rights in the area where they operated. As a way of protecting investors in the dangerous and risky endeavours, the trading companies were increasingly incorporated as joint-stock corporations, making it possible for investors to pool resources and be liable only for their own investment.14

As mentioned earlier, the century was also pivotal in the emergence of concept of the state as an impersonal subject, independent of rulers and ruled. One of the most famous thinkers on the sovereign state, Thomas Hobbes, in Leviathan, published in 1651, mounted a strongly absolutist defence of the omnipotence of the state. He did this exactly by likening the state to an ‘artificial man’.

This is captured in the famous image of the Leviathan as an enormous body hovering over a city with a sceptre in one hand and a sword in the other. Above it reads a quote from the Book of Job (Chapter 41 verse 24, in the Vulgate version) describing the mighty sea-creature Leviathan Non est potestas Super Terram quea Comparatur ei – there is no power on earth to be compared to it. In establishing the omnipotence of the state, and making it the sole legitimate claimant to political authority and allegiance, Hobbes was bound to constitute all other corporate bodies (the people, the family, and all other associations, corporations and corporate bodies) as subordinate to and dependent upon state power – or, as Hobbes terms them, ‘wormes in the entrayles of a naturall man’, who were at risk of becoming ‘many lesser Common-wealths in the bowels of a greater’.15 It is precisely because of their structural resemblance to the state that other corporate bodies and associations exist only if the state allows them to.16

This problematic relationship between the state and the corporation goes beyond Hobbes. Edward Coke’s (1552–1634) Institutes and Reports outlined what were was to become the basic tenants of subsequent English thought regarding corporations. In The Case of Sutton’s Hospital from 1612, Coke defined the essentials of a corporation as being firstly, and very importantly, that it had to be created by a ‘Lawful authority of Incorporation’.17. Coke’s definition, and his emphasis on the fact that the corporation’s most important feature is the relation to the power that created it, was reproduced numerous times, including two treatises dedicated to the subject; – the anonymously published The Law of Corporations in 1702 and in the pamphlet Of Corporations, Fraternities, and Guilds in 1659.

William Blackstone, in his Commentaries on the Laws of England (1765–69), a highly influential work bringing together and systematizing the tradition of English law up until that point, held that when it is in the public interest, certain groups are permitted to perpetual succession and legal immortality, and these ‘artificial persons are called bodies politic, bodies corporate (corpora corporata) or corporations: of which there is a great variety subsisting, for the advancement of religion, of learning, and of commerce’.18

Blackstone underlined that ‘The general duties of all bodies politic, considered in their corporate capacity, may, like those of natural persons, be reduced to this single one; that of acting up to the end or design, whatever it be, for which they were created by their founder’.19 is noteworthy in these early understandings is that while the state accepted, recognised and granted the existence of corporations and extended their privileges in order to govern social life and to secure government aims, it was also vital to delimit them as subordinate to and dependent upon state power.

This notion of the corporation as both inside and outside the state, dependent upon but independent of state power, still persists and makes it difficult to properly understand corporate power and its relation to the state.

Is the Corporation a Political Subject?

Obviously, corporate law and the role of corporations have significantly changed since their inception. In nineteenth-century Anglo–American corporate law, successive legislation transformed incorporation from a political, chartered process to an administrative one. However, the earlier writings on corporations highlight the paradoxical role of the corporation as being both inside and outside the law.20 As the political scientist David Ciepley has pointed out, the corporation falls between traditional categories of public and private, making it hard to grasp. Corporations are not entirely private because they are politically constituted and their existence depends on the state, but nor are they entirely public because they are run on private initiative and financing. Ciepley seeks to develop a legal and policy category specific to the corporation, calling it ‘corporate’, beyond and different from public and private.21

Evidently, modern corporations are much less accountable to national laws and do not require a direct government charter in order to exist. Corporations increasingly regulate themselves in private legal systems if international arbitration is essentially a contemporary lex mercatoria. As Bakan has argued, private regulation has exploded since the 1980s, reducing state capacity to protect ‘the public interests, […] people, communities, and the environment from corporate excess and malfeasance’.22 However, as he also underlines, this has not been matched by the curtailment of the state’s protection of corporations and their interests. It is still national law that incorporates companies, gives them the rights and protections of legal persons, and provides them with favourable tax regimes, limited liability, entity shielding, and a host of other privileges.

These legal mechanisms are vital for corporations’ operation. The state also exerts its power to block and repress protests opposing corporate power and its expansion. Internationally, states (of course, subject to lobbying influence) are able to agree to and ratify trade agreements that give corporations hitherto unprecedented rights and powers. Corporations are still dependent upon states for their existence and to obtain their special privileges and legal exemptions – and also for actively securing their way of operating.

The rise of corporate power since the 1970s, and neoliberalism more generally, can therefore be seen as the privileging of one particular subject: the for-profit, publicly traded corporation. Whereas in the Keynesian welfare state, the primary political and wealth-creating subject was the individual worker, in neoliberalism it is the corporation. The corporation is the primary creator of wealth and growth in a neoliberal world and is its ideal subject – perfectly economically rational and free to move in pursuit of profit. This is why the corporation is granted privileges and exemptions from regulations and laws, and is privileged through favourable tax regimes, international mobility and special economic zones.

The open allegiance among Western politicians to the competitive neoliberal state signalled a clear shift in political objectives from the social and economic rights of individuals and families to the promotion of business competitiveness and hence corporate subjects. When competitiveness becomes the most important and central factor, (comparative) corporate strength becomes the most important political goal, leading to states conducting a race to the bottom in order to attract the most productive subjects.

Since the 1980s, the net profits of the world’s largest corporations have tripled, just as corporate tax rates (especially in the US) have fallen.23 Recent US Supreme Court decisions on Citizens United v. Federal Election Committee (2010) and Burwell v. Hobby Lobby (2014) have granted first amendment rights of free speech (in the form of money) as well as religious rights to corporations, thereby making them subjects of free speech and religious freedom.

In many trade agreements – as was also highly debated around the Transatlantic Trade and Investment Partnership (TTIP), the Trans Pacific Partnership (TTP) and the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU) – there is the infamous Investor State Dispute Settlement (ISDS) mechanism, which grants the corporation an inherent right to pursue profit by giving it the right to sue a government if it passes laws placing limitations on this right. The mechanism has rightly been termed a ‘corporate bill of rights’,24 granting corporations rights to pursue profit that supersede entire peoples’ democratic rights. The neoliberal era effectively privileges corporations as the primary political subject to the detriment of not only human subjects, but also other forms of collective subjects, such as unions, cooperatives and other forms of association.25

Number of Investment Agreements signed 1980-2018
Number of Investment Agreements signed 1980-2018 / Photo credit UNCTAD, 2019

As I have argued in this essay, this development does not amount to a distortion of politics or of the nature of the state. The rise of corporate power cannot be attributed solely to lobbying or to the diminishing power of the state in the face of economic globalisation, which is in any case a largely state-led project. The delegation of responsibility to other actors (most notably corporations) does not necessarily reflect a decline in state power, merely a change to the way it governs social life.

By pitting corporate power as an unruly encroachment on the democratic state, we effectively affirm a distinction between the state and the corporation, and so reify the state as the seat of politics and democracy, separate from economic and corporate interests. This very separation between the political and the economic, the state and the corporation, is central to the way that corporate power functions. By relegating corporations to the economic sphere, states can plausibly avoid admitting their own involvement in corporate scandals, in the same way as corporations can defer political decisions and democratic accountability to states. By making a sharp distinction between the state and the corporation we inadvertently conceal the latter’s political constitution.

In order to understand corporate power today, we need to understand the inextricable interrelation between the state and the corporation. Corporations are and have always been a fundamental part of how the state has governed and continues to govern social life.

While this may seem a somewhat gloomy conclusion that states and corporations are united in their aims and powers of government, there is a silver lining to my argument. First of all, by grasping the inextricable relation between the state and the corporation, we can avoid reifying the state as the seat of democracy and properly understand its role in expanding corporate power. And second, by accepting that the state actually governs through corporations and corporate forms, and has always done so, there is a possibility of enforcing the production of a different kind of corporate subject than the shareholder-driven, publicly traded, for-profit corporation.

Imagining the state as exerting its power through corporate bodies makes it possible to imagine other types of corporate bodies for the government of social life. Rather than attempting to contain corporations within the economic sphere, we should devise ways to foster alternative corporate forms that promote more desirable values and interests. Regarding corporations solely as economic actors also makes them non-political actors. In my view, we need to understand the political nature and constitution of corporations, and therefore re-politicise the corporation and avoid the trap of imagining a separation between the political and the economic.

The task for social movements is not, therefore, to confine corporations to their imagined proper sphere, which does not exist. Imagining the state as being made up of corporate bodies helps to highlight other ways to organise socio-economic life. Re-politicising corporations means working out how to democratise them and economic life as a whole, so that workers, employees and a multiplicity of stakeholders are involved in determining the relations of production, ownership relations and accountability to people, democracy and environment.

Notes

1 Barkan, J. (2013) Corporate Sovereignty: Law and Government under Capitalism. Minneapolis, MN: University of Minnesota Press. This essay draws heavily on this volume.

2 For the centrality of the separation between the political and the economic to the functioning of capitalism, see Meiksins Wood, E. (1981) The separation of the economic and the political in capitalism. New Left Review 66–95.

3 Barkan, J. (2013) Corporate Sovereignty.

4 Davis, John P. (1904) Corporations. A Study of the Origin and Development of Great Business Combinations and of their Relation to the Authority of the State. Kitchener, ON: Batoche Books, p. 361.

5 Barkan, J. (2013) Corporate Sovereignty, p. 19.

6 Ibid., p. 5.

7 Maitland, F.W. (1922) ‘Introduction’, in Otto von Gierke: Political Theories of the Middle Age. Cambridge: Cambridge University Press, p. ix.

8 Stern, P.J. (2017) ‘The Corporation in History’, in G. Baars and A. Spicer (eds.) The Corporation: A Critical, Multi-Disciplinary Handbook. Cambridge: Cambridge University Press, pp. 21–46. DOI: 10.1017/9781139681025.002, pp. 23–27.

9 Barkan, J. (2013) Corporate Sovereignty, pp. 8–20.

10 Robins, N. (2006) The Corporation that Changed the World: How the East India Company Shaped the Modern Multinational. London & Ann Arbor, MI: Pluto Press.

11 East India Company, Shaw, J. (2012) Charters relating to the East India Company from 1600 to 1761: reprinted from a former collection with some additions and a preface for the Government of Madras, p. 2.

12 Thomson, J.E. (1996) Mercenaries, Pirates, and Sovereigns: State-Building and Extraterritorial Violence in Early Modern Europe. Princeton studies in international history and politics. Princeton, NJ: Princeton University Press, p. 32–35.

13 Stern, P.J. (2011) The Company-State. Corporate Sovereignty and the Early Modern Foundations of the British Empire in India. Oxford & New York: Oxford University Press.

14 They were not fully fledged joint-stock corporations as we know them today, but the first beginnings of this can be seen here.

15 Hobbes, T. (1996). Leviathan, ed. Richard Tuck. Cambridge texts in the history of political thought. Cambridge & New York: Cambridge University Press, p. 230.

16 It is important to note that Hobbes is not here primarily concerned with the trading companies, but with the great city corporations. However, he was also very critical of the trading companies, especially their monopolies.

17 ’The Case of Sutton’s Hospital, in Coke, E. (2003) The Selected Writings and Speeches of Sir Edward Coke. Ed. Steve Sheppard. Indianapolis: Liberty Fund, p. 363.

18 Blackstone, W., 1966. Commentaries on the Laws of England. Dawsons of Pall Mall, London, p. 455.

19 Blackstone (1966): p.467

20 Barkan, J. (2013) Corporate Sovereignty, pp. 3–19.

21 Ciepley, D. (2013) ‘Beyond public and private: Toward a political theory of the corporation’, American Political Science Review 107(01): 139–158. DOI: 10.1017/S0003055412000536.

22 Bakan, 2015: 279–300)

24 https://www.monbiot.com/2014/11/04/a-gunpowder-plot-against-democracy/

25> It could be argued that this development has been turned around with, for instance, the election of Donald Trump (who – rhetorically – highlights individual workers in the face of global trade), the scrapping of the TTIP, and Brexit, which was opposed (just as Trump was), by most capitalists. https://www.theguardian.com/commentisfree/2019/oct/09/brexit-crisis-global-capitalism-britain-place-world