Killing Corporations

The movement to revoke corporate charters has gotten its history confused

Let us consider the abuse of language, and the abuse of history.

Last year, then–State Rep. Barbara Pringle (D-Cleveland) sent an unusual letter to Ohio's attorney general. The Cleveland Clinic, she noted, intended to shut down two local hospitals; the city council, in an attempt to save them, had tried to take them by eminent domain. The courts had blocked this, and the hospitals were still slated to be closed.

"In an effort to limit health care accessibility to local communities," Pringle concluded, "the Cleveland Clinic has forfeited its privilege to continue as a legitimate non-profit corporation. By definition, a health care corporation has a duty to provide health care….To protect the health of the people and to prevent the public mischief that is being done, I urge you to bring a quo warranto civil action against the Cleveland Clinic revoking their corporate charter."

You will not be surprised to learn that Pringle's request went nowhere. You may well be surprised to learn that her demand is not unique, save perhaps for the fact that it was being enunciated by a legislator. In California, the National Lawyers Guild has twice petitioned the state to revoke the oil company Unocal's charter, citing everything from allegations of forced labor to "contributing to climate change while funding a researcher to throw doubt on climate-change science." In Alabama, retired judge William Wynn has tried to revoke the charters of five tobacco companies, accusing them of (among other things) "endangering the welfare of a child" and "unlawful distribution of material harmful to a minor." And the northern California town of Point Arena passed a resolution last April declaring that corporations "are artificial entities separate and apart from natural persons," protesting more than a century of jurisprudence extending individual rights to incorporated businesses.

For a significant slice of the modern left, the key to controlling errant businesses lies in two facts about corporations: that the law treats them as though they were people, and that their charters can be revoked. The first fact, we're told, shows the extent to which business has usurped power in America, claiming rights for itself that ought to belong only to you and me. The second is the path to freedom: a way to put citizens back in charge and corporate criminals under control.

Yet corporate charters are rarely revoked. (When the Lawyers Guild submitted its petition in California, it found that the state's last revocation took place in 1976.) Unocal still operates, and Wynn failed to drive corporate cigarettes from Alabama. Even the Point Arena resolution had no practical effect on the law: After much strong language, it merely expressed the opinion that corporations are not people and announced that the city would "encourage public discussion on the role of corporations in public life."

The movement to revoke charters—as one slogan has it, to give corporations the death penalty—is notable less for the influence it's likely to have on American society than for the influence it has already had on the political left. The rhetoric it uses and the precedents it invokes seem to hearken back to earlier critics, including those Jacksonian-era libertarians who railed against both state power and the moneyed interests that suckled at the government's teat. The new movement, however, is something else entirely, a mishmash of confused language and sloppy history that has less to do with ending special privileges than with restricting freedom of association and freedom of speech, for individuals as well as corporate bodies.

The revocation movement's account of history has been laid out in many places; one is Taking Care of Business, a 1993 pamphlet by activists Richard Grossman and Frank Adams. The tract notes that in the early 19th century, enterprises took many forms, from limited partnerships to unincorporated associations to cooperatives. "Legislatures also chartered profit-making corporations to build turnpikes, canals and bridges," the authors write. "By the beginning of the 1800s, only two hundred such charters had been granted….Citizens governed corporations by detailing rules and operating conditions not just in the charters but also in state constitutions and state laws."

The pamphlet does not explain why a business would tolerate such restrictions, if all it need do to avoid them was not incorporate. The answer, of course, is that incorporation bestowed certain advantages. In those days, historian Robert Hessen notes in his 1979 book In Defense of the Corporation, corporate charters often included special privileges, such as "a legally enforced monopoly, exemption from taxation, release of employees from militia and jury duty, power to exercise eminent domain, and authorization to hold lotteries as a means of raising capital." Others received direct subsidies from the government.

Those benefits were awarded only to particular corporations. Another perk was conferred on just about all of them: The corporate form limited shareholders' liability for the corporation's debts, decreasing the risk of investment and allowing greater concentrations of capital. This is what Ambrose Bierce had in mind when he defined a corporation as "an ingenious device for obtaining individual profit without individual responsibility." There are those who argue that this practice could only exist with state intervention—that is, through incorporation laws. There are others, such as Hessen, who argue not only that it could emerge as a matter of contract, but that it has so emerged, and that incorporation today is merely a convenient legal shortcut. (This is separate from the issue of limited liability for harms caused to third parties, a legal doctrine that is somewhat harder to defend.)

In any case, 19th-century libertarians fiercely opposed such charters. The more radical critics called for outright abolition of incorporation. Others, such as the journalist William Leggett, demanded an only slightly more moderate change in the law. Leggett wrote in the years surrounding and during the presidency of Andrew Jackson; he spoke from that wing of the Jacksonians that embraced the president's democratic reforms while attacking his support for slavery and his abuses of executive power. Sounding superficially like the modern revocation movement, Leggett wrote in 1834 that he would oppose "the granting or renewing of any special charter of incorporation whatever, no matter who may be the applicants, or what the objects of the association." And yet, he quickly added, he didn't want "to break up those incorporated associations the charters of which are about to expire….It is not against the objects effected by incorporated companies that we contend; but simply against the false principle…of special grants and privileges."

As an alternative, Leggett called for "one general law of joint stock partnerships," explaining, "There is nothing not perfectly equitable in the principle which exempts men from liability to any greater amount than the capital actually invested in any business, provided proper notoriety be given of the extent and circumstances of that investment." Under this law, he added, existing corporations could "go on precisely the same as if their special privileges had been renewed. The only difference would be that those privileges would no longer be special." Such laws were eventually passed, radically changing the nature of the corporate charter.

Grossman and Adams dismiss such arguments as corporate apologism. "Cynically adopting the language of early charter opponents," they write, "corporate owners and their lawyers attacked existing legislative charters as special privileges. They called for equal opportunity for all entrepreneurs, making it seem as if they were asking that everyone have the same chance to compete." But in fact, "these corporations were not just individual entrepreneurs," but "large accumulations of capital" enjoying a host of legal privileges, from direct subsidies to "tariff, banking, railroad, labor and public lands legislation."

But that's a non sequitur. In the days before general incorporation laws, corporate charters were a special privilege. In the days since, people still argued over whether it was wise to permit limitations on debt liability, or limitations on tort liability, or effective immunity from estate taxes. (Corporations—by their nature as independent, potentially immortal entities—are not strip-mined by the government whenever one of their proprietors dies.) But they did not mistake those benefits for a grant of special privilege, since any business that wants to can incorporate.

That's not true of subsidies, land grants, and the other policies that Grossman and Adams list: They really are special privileges, whether enacted as a condition of a corporate charter or put in place some other way. Some industries, such as the banks and railroads, were immediately invested with such benefits; for this, they became the lead villains in the populist demonology of the era. A partnership or cooperative that enjoyed such advantages would have faced the same criticisms.

But that's almost beside the point. The goal of the revocation movement isn't to stop privilege or to end corporate welfare. It's to tighten the state's control of business life. Grossman and the rest don't focus their fire on general incorporation laws. Their favorite target is Santa Clara County v. Southern Pacific Railroad, the Supreme Court decision that ruled that corporations are individuals and therefore protected under the 14th Amendment. The precedent allowed scores of state and municipal statutes to be struck down as unconstitutional, from local taxes on railroad property to restrictions on working hours.

Among those who've taken up this cause are the leftist columnists Russell Mokhiber and Robert Weissman, who cited the case earlier this year while complaining that corporations enjoy rights to free speech ("including the tobacco companies' right to market their deadly wares") and to protection from unreasonable search and seizure. In other words, they are not complaining about special privileges. They are complaining about ordinary freedoms. One need not believe that a corporation "is" a person to recognize that it is made up of persons, and that those people should not give up their rights when they associate to form a corporation. If the groups known as "unions," "churches," and "political parties" are protected by the Bill of Rights, then so are the groups known as "corporations." Deny this, and you run into a host of practical problems. (If Mokhiber and Weissman really think corporations shouldn't enjoy the same First Amendment freedoms as the rest of us, what do they think should happen to the corporation that publishes The New York Times?)

As I said, the revocation movement doesn't seem to be getting anywhere, at least so far as affecting public policy is concerned. It is, however, increasingly popular on the modern left, including not just tobacco-bashers and the like but those lefties who sometimes seem to care about decentralizing power, ending political privilege, and protecting individual liberty. (Grossman and Adams, for instance, are skeptical about regulatory agencies, and at times they even seem interested in states' rights.) It is disheartening to see such people supporting censorship or ignoring due process merely because a corporation is involved. It is even more disheartening to see them chasing such chimeras when the real grants of privilege—the subsidies and entry barriers—are sitting in plain sight.

But what's worse is when someone hoping to ban cigarettes or censor issue ads adopts the rhetoric of men who would treat such causes with contempt. Language and history shouldn't have to suffer such abuses.