There’s little doubt that the biggest corporations are on the top, with extraordinary economic and political power in the United States. Levels of corporate concentration in everything from the meat industry to the media are at unprecedented levels; corporate CEOs routinely make two hundred, three hundred times more than their rank and file employees; and the political clout they wield through lobbyists and political donations ensures, as Marten Gilens has shown, that their priorities carry far more weight with elected officials than what the majority of American citizens desire.
Though many people aren’t happy about the current level of corporate dominance, we tend to see it as just a side effect of a global economy that rewards the most innovative and efficient businesses. But it is much more than that.
The truth is that Three Epic Lies, concocted at different times over the past century and a half, have paved the way for this corporate aristocracy we are now living with. In different ways, they’ve been codified in law or risen to become the conventional wisdom, dominating how institutions, academics, politicians and the courts view the limits and responsibilities of corporations in our nation.
Three huge, Epic Lies, each one of profound importance; taken together they’ve made corporate control of our economy and politics almost inevitable. So, let’s take a look, starting with a Supreme Court Clerk more than a hundred years ago.
In 1881, Leland Stanford was ticked off. California had just passed a tax on property owned by railroad lines and Stanford wasn’t going to let his company, Southern Pacific Railway, pay any more than they had to without a fight. So, he pushed the claim that the new tax was discriminatory because his giant corporation was protected by the 14th Amendment to the US Constitution, enacted in 1868 to establish the personhood of African Americans. This case came to be known as Santa Clara County v Southern Pacific Rail Line (UCLA law professor Adam Winkler details this history in a March 5th, 2018 piece in The Atlantic).
Stanford had friends in high places, including Supreme Court Justice Stephen J Field. In the Santa Clara decision, notes from the Justices’ deliberations show that the high court declined to rule whether or not corporations should be granted ‘personhood’, enraging Justice Field. But no matter. The Court Clerk, JC Bancroft Davis – himself a former Rail Line company president! – wrote in his summary that the Court had decided that “corporations are persons… within the 14th Amendment.” They’d done no such thing, but this was how the decision was characterized. By the court clerk.
A few years later in a separate case, Justice Field stated that corporations are persons, saying that “It was so held in Santa Clara v Southern Pacific Rail Line”. The Court’s clerk had said this, not the Justices; Field knew it, but he ‘cited’ the decision regardless. And courts have been doing so ever since then, building on the logic of “corporate personhood” all the way to the culminating case of Citizens United in 2010. A wealth of legal precedent at the highest level, all founded on a lie. That’s the first Big Lie.
About four decades later, the second Big Lie was born, arising out of the Michigan Supreme Court’s settling of a dispute between Henry Ford and the Dodge brothers. The latter were shareholders in Ford Motor Company. When they decided to start their own car company, Ford attempted to withhold paying their dividends, as he didn’t want to help capitalize a competitor. Ford Motor Company, which was not publicly traded at that time, argued that they needed the money to lower prices to consumers and pay better wages to their employees (In truth, they had plenty of money for both).
The Michigan Supreme Court sided with Horace and John Dodge, ordering Ford to pay the dividends owed. The court’s official opinion – the “holding” – was quite limited in scope. But in a tangential comment they opined that “…a business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.” Tangential observations such as this – mere dicta, they’re called – are neither a necessary part of the court’s ruling, nor are they legal precedent, as Lynn Stout makes clear in her remarkable book, The Shareholder Value Myth. They are musings, a sidebar. Nowadays we might call it a rant.
But guess what? That’s exactly what this sidebar observation from 100 years ago has become: The foundation for the widely held view that publicly owned corporations have the legal duty to maximize returns to shareholders, trumping all other considerations, from employee well-being to environmental stewardship. In fact as Stout observes, “There is no solid legal support for the claim that directors and executives in US public corporations have an enforceable legal duty to maximize shareholder wealth. The idea is fable.” And it’s the second Big Lie.
Giving corporations the rights of people has helped corrupt our politics, making a mockery of “one person, one vote” and enabling similar legal absurdities, such as equating unlimited expenditure of money with unlimited free speech. Insisting that corporations are legally bound to maximize profits – short term profits, no less – above all else has further concentrated wealth and power among a tiny group of investors and CEOs. And it has helped create an economy of collateral damage, to people, communities and the land.
But wait, there’s more. One more Big Lie that has greased the skids for corporate dominance of our economy and politics. This one started in the 1960’s, coming to fruition in the 1980’s, the result of the relentless drive of Supreme Court wannabe, Robert Bork. This third Big Lie has pulled the rug out from under anti-trust laws and their enforcement, enabling seemingly endless merger mania and corporate concentration in nearly every sector of our economy.
The Sherman Act of 1890 was the first significant piece of federal legislation to tackle monopolies. Named for Senator John Sherman, the law sought to stem the growing power of Standard Oil Company and other huge “trusts” of that era. It took some time before the federal government began to implement the law, but by the early years of the 20th Century, enforcement led to the break-up of behemoths like Standard Oil, and the preclusion of corporate concentration through mergers and buyouts. This was the norm for the ensuing 70 years, where a consensus held that monopolies were bad for the economy and dangerous for our democracy.
As Tim Wu describes in The Curse of Bigness, Bork set out to re-write history, beginning with his 1966 article, “Legislative Intent and the Policy of the Sherman Act”. In this piece, and his arguments over the next two decades, Bork declared that the original intent of the Sherman Act was simply to protect “consumer welfare” and nothing more. In other words, mergers could be stopped only when it was determined that prices to consumers would likely rise. Bork made the case that this is what Senator Sherman and Congress had intended. But as Wu makes clear, nothing could be further from the truth. In fact, Sherman had spoken of the “inequality of condition, of wealth, and opportunity” that arose from monopolies, stating further they created “a kingly prerogative, inconsistent with our form of government”.
Undaunted by history and truth, Bork pushed on, moving his simplistic argument from the margins of the debate to the Supreme Court, which cited Bork in a 1979 decision declaring that “consumer welfare” was to be the standard by which corporate concentration should be judged. Over time, this new – and false – understanding of Congress’ original intent became the accepted measure by which mergers and monopolies would be judged. Stop them if they will likely raise prices, otherwise there’s nothing the government can do. The third, very Big Lie had prevailed.
The corporate takeover of the US economy and, to a large degree, American politics was not inevitable. Neither was the notion that corporations, which are granted a public charter, after all, are legally obligated to maximize shareholder wealth, subordinating any and all responsibility to the public. We are where we are, rather, because of Three Big Lies that have enabled the extreme concentration of economic and political power that is our status quo. Let’s name those lies – that corporations are people, that their sole purpose is to enrich their shareholders, and that we can’t stop them from getting bigger unless they’ll raise prices – for what they are: false, absurd and un-American. Let’s unravel the misleading claims that gave rise to them, and then let’s fight like hell to take them down and begin to restore our economy and our democracy.