A Commoners’ Manifesto 2: how corporations capture the state, part 1

The origins of the state-corporate double act

Flag of the British East India Company

Contents

1. Introduction

2. The birth of the state-corporate double act

3. Track 1: the long, slow track of peasant dispossession, building factory workforces and corporate consolidation

4. Track 2: the short, direct track of state-chartered mega-corporations

5. The rise of corporate power

6. Conclusion

‘The publicly traded limited liability corporation is a pathological organisational form that must join monarchy as an extinct institutional species’ – David Korten

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This is one of a series of articles that I hope to compile into a book – working title, The Commoners’ Manifesto: Neither Capitalism nor Communism. Here’s an introduction to the series. Comments welcome, including disagreement and debate.

In previous articles (see here), I argued that anti-capitalists should reject state communism as the route to a post-capitalist world, and that community-based, commons solutions are more likely to succeed.

Now I want to argue that corporate dominance wouldn’t be possible without states, and that their dominance has allowed them to capture and control the states that created them, so that a post-capitalist world can’t be built via a ‘democratic’ state either, because ‘the master’s tools will never dismantle the master’s house’ (she was talking about feminism, but the same principle applies here).

In this post I look at how states and corporations have been united since the birth of corporations. In the next 2 posts I’ll look at how corporations set the agenda and control states. Later posts will look at how those captured states ensure that corporations retain their size and power.

Introduction

In the West, people cling to the idea of democracy (power resides with ‘the people’). But power has been bought, which means that what we have now is plutocracy (power resides with money). I’m going to talk about the ways that plutocracy arises and is maintained, none of which require conspiracy (although I’m sure they happen), and all of which can be confirmed quickly with an online search. None of them require laws to be broken (although again, it happens sometimes). It’s all done within the normal operations of capitalism. It’s not about bad individuals or companies either; if they die or fail, they’ll be replaced very quickly. The problems are systemic, and the state is captured slowly and under the radar, not in a one-off spectacular event. States and corporations have been entwined since corporations were first formed, so that now we have a system in which corporate influence is not just readily accepted by the political class – it’s encouraged and requested. They’re accomplices; their status depends on it.

I’ll write mainly about what’s happening in the US political system. Similar things happen everywhere, but without the global ramifications of what happens within the US hegemon in a unipolar world. That will change later this century, but it’s the case right now.

Plutocracy is not a new phenomenon. Centralised states have always been and always will be controlled by the wealthiest and most powerful in society. This was already bad news for the ordinary citizens of ancient Sumeria and medieval Europe – but at a time of such massive damage to the biosphere, inability to shift the status quo due to the power of money is now an existential threat to our species.

In the 1980s, Reagan, Thatcher, Deng and Gorbachev (and then Yeltsin) were singing the praises of the free market, rather than Keynesianism and the stagflation and recessions of the 70s. But what they were really talking about was capitalism, which I want to argue is anything but a free market, because capitalism concentrates wealth, which is then used to buy power and skew the market.

What I’m not saying is that the corporate sector is a monolithic actor. Amazon and Walmart might be looking for regulatory barriers to entry for smaller competitors; Blackrock and Vanguard want liquidity and volatility; extractive corporations (e.g. oil and mining) want deregulation; tech platforms want privacy laws weakened or removed etc. These agendas often conflict. What I’m talking about is the use of the state by the corporate sector to maintain an environment that gives advantages to giantism and restricts competition from small businesses, non-profits, co-ops and commons.

In the past, wealth concentrated in monarchies, the landowning class and the church, but today it’s with the majority shareholders of corporations (not ‘banks and corporations’, because banks are corporations). Let’s look at how corporations came to be, how they concentrated wealth, and how that concentrated wealth buys power today.

The birth of the state-corporate double act

There were two overlapping tracks in the formation of corporations, and both were state-driven. One track saw the British state pushing people off the land over many centuries, and later into the new urban factories, some of which then slowly developed into large corporations. The other track was much more direct – the chartering of giant corporations like the East India Companies by states, uniting the aristocratic and merchant classes under state power.

Track 1: the long, slow track of peasant dispossession, building factory workforces and corporate consolidation

First, states saw to it that the rural poor were no longer able to support themselves from the land (see my previous post, What Marx got right, from a commons perspective, especially the Transition from feudalism to capitalism section). The state implemented enclosure acts, to allow the nobility to capture common land, all the way back to the Statute of Merton in 1235, initially for wool production, and peaking in the 18^th and 19^th centuries, when removing peasants’ ability to feed themselves from common land effectively pushed them into urban areas to provide the workforce for the new industrial factories. Acts criminalising vagrancy made it illegal to be idle or homeless, which had the same effect.

These new factories weren’t joint-stock companies or corporations – they were overwhelmingly sole proprietorships or private partnerships owned by wealthy individuals or families.

Politicians were mainly landed gentry until the Reform Act of 1832 broke their monopoly on power and gave industrialists a foothold that helped them become the political elite later in the century. Prime Minister Sir Robert Peel’s family became wealthy through northern textile factories. Industrialists and state elites were more than allies or co-conspirators – they were the same people.

In the late 19^th century, after decades of accumulating immense private wealth, the most successful private factories outgrew the capital of single owners or small partnerships, and became consolidated into giant public corporations. For example, the Dowlais Ironworks – a partnership in south Wales – was the largest steel producer in the UK, that eventually became the multinational GKN.

The legal roots of these corporations can be traced back to the limited partnerships of Renaissance Florence, which separated active directors from passive investors. The latter were allowed to remain anonymous, and their liability became limited to the amount invested. Wealthy nobles, who traditionally looked down on commerce, could then invest without losing social status, and with much less risk. This led to the formation of the joint-stock company with publicly-traded shares that anyone (including foreigners) could buy, which generated the massive capital for, and spread the risk of, the extremely hazardous colonial incursions of that time. This transformed investment in these proto-corporations from an elite hobby into a global engine of early capitalism, and the aristocratic and merchant classes were finally united.

But the joint-stock companies weren’t corporations, in that they weren’t separate entities from their members – so the company couldn’t own property in its own name, and shareholders could be individually responsible for the company’s debts. This changed with the Joint Stock Companies Act of 1844 in the UK, which made incorporation easily available through a simple registration process. This legislation paved the way for the modern corporation, where the joint-stock principle and separate legal entity are standard features.

Track 2: the short, direct track of state-chartered mega-corporations

The British and Dutch East India Companies were joint-stock companies founded by super-wealthy merchants embedded in the British and Dutch states, which chartered them as two of the earliest true mega-corporations (the British in 1600, the Dutch in 1602 – along with the world’s first public stock market for corporate shares, in Amsterdam). They weren’t the first, but they were by far the biggest.

The first governor of the British East India Company was an MP, although of course this was before 1688, when parliament became the dominant decision-making institution of the state, rather than the monarch. Company officials were embedded in the machinery of the state. The landed gentry invested in these charters to protect and enhance their wealth and power.

The Crown granted these companies exclusive monopolies over industries and geographical areas, and provided them with direct military and legislative support; and the companies served the state’s strategic interests. They didn’t create value – they extracted it. This all guaranteed maximum returns for the new elites and prevented competition from small, local businesses. Things are still much the same today.

The first corporations didn’t concentrate wealth. It was already concentrated in the people who formed them, who then made sure it remained concentrated in corporations, as the power of monarchs, landowners and the ancien régime waned.

William Dalrymple’s The Anarchy is a wonderful source of information on the founding and violent rise of the British East India Company, focusing on the characters involved; Wallerstein’s Historical Capitalism contains a great overview of the transition from feudalism to capitalism and capitalism’s subsequent expansion; and Korten’s When Corporations Rule the World contains a lot of good stuff on the birth and rise of corporations.

The rise of corporate power

European states developed their economies, cultures and legal frameworks to benefit their corporations and to extract as much wealth as possible from their colonies, in order to grow the wealth and military power that would be needed in the huge wars for global dominance that were to follow. The centralised power of states and the monopoly power of corporations reinforced each other and produced the giant state-corporate double acts that remain in power today.

With charters and state backing, corporations went completely global – and their main activities were colonial extraction everywhere. British chartered companies were fleecing other colonies too, not just India. Colonies, including America, had to provide raw materials for British industry, but they weren’t allowed to make finished goods themselves. As you might have heard, the Americans revolted, to say the least. Things were looking bad for corporations in America. The American economy initially revolved around family farms and small, local businesses, and Americans were driven by community, freedom (for some) and democracy (for some), all of which were being destroyed by corporations.

There were big struggles by the American people against corporations in the early years of the US. Around the same time, Adam Smith was railing against them too, in The Wealth of Nations, published in 1776, the year of the American Revolution. Smith is often wheeled out by the right, but he distrusted and disliked corporations as much as he distrusted and disliked states. Actually, he believed that states exist to tax the public to subsidise corporations and to intervene in the market on their behalf – which is exactly what I want to argue.

Smith favoured the ‘invisible hand’ only in terms of small businesses with owner-managers embedded in their communities, not giant companies owned by the super-wealthy and given state subsidies from the beginning. Railways, for example, couldn’t have happened without state subsidies. The same now goes for the aviation and fossil fuel industries (and others). More about ‘corporate welfare’ in upcoming articles.

Corporations embarked on a campaign of purchasing democracy, so that citizens’ rights were diluted and corporate rights enhanced, until the state granted them legal ‘personhood’ at the end of the 19^th century. This, together with the limited liability that they already had, transformed them from aristocratic ventures into mass-investment vehicles. The state didn’t just enable corporations; it created the legal conditions for their dominance. Corporations merged and acquired each other to increase in size to eventually become the behemoths they are today.

Although corporations obtained personhood, they received state benefits that real persons don’t have; and unlike real people, they don’t die, so they’re able to amass wealth indefinitely, and ride out bad times or periods when conditions might not be ideal, and certain governments might be legislating against them. If you’re immortal, it won’t be long before circumstances change and a corporate-friendly government is returned to power.

Private ownership of the economy, as distributists point out, wouldn’t be such a bad thing if it were in the hands of millions of people, with a level playing-field. But that’s not how capitalism works. The means of production and exchange, the giant ‘feudal’ tech platforms and essential infrastructure have all been concentrated in the hands of a tiny percentage of insanely-rich people – the majority shareholders of the world’s biggest corporations.

Corporate tentacles now reach our High Streets via local branches, our homes via TV and internet advertising, our finances via mortgage and credit card debt, and our minds via branding. They suck money from individuals and communities to ensure that wealth and power remain concentrated, and they make us feel grateful for it, because ‘they bring jobs and choice’ (although small businesses provide more jobs, and the kind of choice they mean is generally between things like different kinds of fizzy drinks and fast food).

Conclusion

Don’t think that our modern, corporate landscape and culture is somehow natural or inevitable. It’s not – it was initiated and has been carefully cultivated by those with wealth and power over the last four centuries. But it doesn’t have to stay this way – and nature will eventually show us that it can’t. Those of us wanting to build commons are faced with a Network of Global Corporate Control. Not the most fertile ground for commons, but hey, it makes for an interesting (and necessary) challenge. We won’t defeat them by fighting them at the national or global scales, which are already captured. But they haven’t entirely captured communities and individuals yet, so we can fight them at the local and personal levels, and federate to compete with them at the national and global scales.

In this post I’ve talked about how the state-corporate relationship began, and has developed. In the next two posts I’ll look at how corporations now set the agenda to shape what’s thinkable, and then the various ways that corporations put pressure on governments to ensure that they get their way, so that the state remains a tool for maintaining the size and power of transnational corporations.