The Birth Of Corporations
The Birth Of Corporations
The most significant legacy of the Roman Church, to the modern world, is the corporation. Much like the Holy Roman Church, built its organization, (on a heap of blood, bones and gold), Western Europe used the same corporate organizational structures to create business corporations. The Eastern Church operating out of Constantinople did not quite have the structures and the ‘at any cost’ attitude of the Holy Roman Church.
In the ensuing melee, England emerged as the main challenger to Spain‘s hegemony – by setting up the English East India Company. The setting up of the East India Company, was a response to diktats favoring Spain and Portugal by the Holy Roman Church. These diktats finally (amongst other reasons) brought about the rise of Protestantism.
The continued use of corporations, especially the Anglo Saxon Bloc – and the West in general, has changed the economic landscape of the world. From the 17th to the 19th centuries, companies could be formed by applying for a charter – which were given, sometimes with express conditionalities. While the associations of various types, have always been present, the use of corporations, especially in Western Europe, with limited liability and having a separate legal entity, freed businesses from all ‘human’ considerations.
These two elements, limited liability and a separate legal entity, have made these Frankensteins different from any previous association of businessmen. The legal structure of corporations allow actual owners to hide behind a legal facade, without liability. For Western Governments, corporations became a useful political and economic tool, an objective-oriented organization, with a self destruct feature. Western Governments created elaborate systems to create support structures for these corporations.
The Use Of Fiat Currency
These corporations have access to large amounts of fiat currency. Old debts are repaid by taking new debts. Competition is killed by raising entry barriers – which is again done by accessing huge amounts of debt. Some of this borrowings are irredeemable – and called equity.
By giving an illusion of ownership, further amounts of money are raised from the populace. Currency management systems (e.g. Bretton Woods systems) further strengthened corporations’ capability to raise ‘funny money’. The expansion of electronic trading systems further eased access to humongous amounts of money. Each day, more than US$ 5 trillion of trades in shares commodities, derivatives-options-futures contracts, et al are done.
Limited liability of the shareholders has meant that various stakeholders usually have little or no recourse – when things don’t pan out. Some stakeholders (usually shareholders and management) have access only to an upside, other stake holders, actually, finally take the risk. Such companies resist any attempt at accountability.
Interestingly, the Indo-USA Nuclear Deal, which seems to be at a risk of falling through, promises more and will deliver less. And what is the big concern of all the multinational corporations, like Areva and GE of this world. Liability for plant malfunctions, design defects, construction shortcomings, faulty equipment! They dont want no part of this liability. After the India taxpayer and consumer pays close to US$9-10 billion for these nuclear plants, these corporations don’t want the liability.
A wised-up Areva and its American and Russian counterparts will ensure that all the costs for liability and risk insurance, construction and operating delays, and reactor efficiency and performance penalties will contractually be borne by the Indian exchequer. If you thought Dabhol electric power at Rs7-8 per unit was scandalous, wait for electricity units priced at Rs.30 or more.
Fair bargain – These corporations take the money and we (the users, consumers and the tax-payers) take the liability!
The Faceless Entity
Thousands of people are employed in these large corporations – and the operation is divided into many small parts. Few individuals have the entire picture – and the rest implement the ‘grand design’. This is especially useful when it comes to challenging competitors. Ethical issues are rarely seen – as very few have the complete picture. The establishment of corporation as a separate legal entity, without human form, particularly enabled the ‘dehumanization’ of corporations.
By the time ethical concerns are flagged, these ‘dehumanized’ corporations are able to change the ground situation. Witness the Corporate Social Responsibility initiatives! It is this ability to evade ethical practices and issues that differentiates these corporations from other business enterprises. From the massacre of millions of Indians during the 1857 War (by the East India Company), the many regime changes that corporations have pushed, the record of these organizations has been far from average.
By various methods of bribery (lobbying, creation of special interest groups, NGOs, think tank groups), media management, public and Government opinion is managed. Prominent personalities (nephew of Sigmund Freud) in case of the Chiquita, the Nobel Prize winners at the LTC are but a few of these cases. LTC, promoted by Western media as another piece of Western financial innovation, with 25 Ph.Ds and 2 Nobel prize winners flamed out. The involvement of the Federal Reserve Board, under Chairman Alan Greenspan, in the LTC bailout, raised more questions and answered none.
“David Livingstone had called for a worldwide crusade to defeat the slave trade controlled by Arabs in East Africa, that was laying waste the heart of the continent. The only way to liberate Africa, believed Livingstone, was to introduce the ‘three Cs’: commerce, Christianity and civilisation.” (italics, bold letters mine).
The important things to note were – one the trade. Control of all trade and benefits. Second, to attack trading business interests of other racial groups – like Arabs, in this case. This was important. Or the use of Max Mueller to distort, twist Indian history for colonial ends. Most recently, the demonization of Islam is another well-oiled propaganda success story.
Each new product has a shorter life cycle. More consumers are cornered into replacements older products with newer worse products. My family’s first TV worked for 10 years – till we traded it for a colour TV which worked well for another 12 years – and then we made the mistake of trading that in for the latest TV which has gone on the blink twice in the last 5 years, needing expensive repairs. Ditto for the coffee machines, printers, monitors, etc. The environmental impact of this increasing production and consumption, is in turn blamed on the poor.
The post facto price is borne by the rest of the world (90% of the world population). This damage is then inversely blamed on increasing population of the under-developed world!
An exquisite instance of acrobatics in inverting logic.
By the 1990’s the Green lobby, global warming, Ozone layer, environment had become an fashionable issue. Kyoto protocol negotiations began. As usual, the Western world (led by the Anglo Saxon Bloc) dumped this problem onto the developing world.
Secure a greener earth – at the cost of the poor. This time even Third World animals were not spared.
Most competition is finally managed by buyouts. This business is today worth more than US$1 trillion every year. Who pays the price? Consumers, public savings, ‘shareholders’, financial institutions.
An interesting situation exists in the food sector – especially in the US. Giant food corporations, killed buying competition with high prices (to farmers), direct buying from farmers (at higher prices), monoclonal seeds that destroy bio-diversity. And the US consumers are not getting the lower food prices that are being promised in India.
Farmers became dependent on corporate supplies of seeds (at high prices) and corporate purchases by the same corporations (at low prices). Today, an ‘efficient’ and ‘hi-tech’ agricultural farm sector in the US needs more than US$ 7.5 billion (conservative estimates, assuredly) of subsidies to survive. The US-EPA says, “By 1997, a mere 46,000 of the two million farms in this country (America), accounted for 50% of sales of agricultural products (USDA, 1997 Census of Agriculture data)” – and gobble up most of this huge subsidy that lowers Third World agricultural prices. These lower agricultural prices devastate agriculture in Third World countries, creating man-made famines. These man-made famines, of course, gives the West a false sense of superiority. (bold letters mine).
The Indian agricultural system, with nil subsidies, working with cost disadvantages, does not have giant buying corporations and monoclonal seed stock, is holding its own against subsidized agricultural systems of the West. And paid hacks of these Western corporations are trying to tell Indian consumers and policy makers that these giant corporations will reduce the costs of food In India.
These giant corporations are aiming for entry into India – promising ‘efficiencies’ in buying (which will give consumers a better price), and higher prices for farmers (which will increase farm incomes). Of course, this will last as long as there is competition. Once, these giant corporations, fueled by huge amounts of debt and equity, drive out competition, they will lower the boom on the consumers and the farmer – like in the USA.
Raj Patel, in his book, Stuffed and Starved, demonstrates how global food corporations are behind global food habits, imbalance traditional diets, creating disease epidemics (like diabetes) – and how India needs to be careful before crafting industrial policies that encourage these global corporations to destroy Indian agriculture. A book review extracts some key points as follows,
What we think are our choices, says Patel, are really the choices of giant food production companies. Millions of farmers grow food, six billion people consume it. But in between them are a handful of corporations creating what Patel calls “an hourglass” model of food distribution. One Unilever controls more than 90% of the tea market. Six companies control 70% of the wheat trade. Meanwhile, farmers across the world are pitted against each other, trying to sell these gatekeeper companies their produce. And if you think the consumer comes out on top because of all this competition, think again.
The Political Angle
This concentration of power allows the few to subvert, arrogate, reward, punish – even kill detractors. External checks and balances are few and far in between. However, the election rigmarole gives an illusion of freedom – that the powerful and mighty can be brought down. Similarly, the free press, serves to further the illusion of freedom.
In North America, the Hudson Bay Company (Compagnie de la Baie d’Hudson in French) was given a Royal Charter in 1670 by Charles II. It practically owned Canada when the Dominion of Canada was formed – and is the oldest surviving company in North America. It monopoly ended only in 1870 – a few years after the Indian Independence War of 1857.
Anglo American Oil Company (subsidiary of Standard Oil) of Iran plotted the the assassination of Iran’s Prime Minister Haj Ali Razmara and the overthrow of the Mohammed Mossadegh regime. Thereafter, it was the puppet regime of Shah Of Iran which terrorized Iran for 30 years that paved the way for return of Ayatollah Khomeini – and Iran’s regression to medieval times. And who was leading this campaign – Kermit Roosevelt (Teddy Roosevelt’s grandson).
In 1997, the CIA de-classified papers which admitted it planned and executed the coup in Guatemala – something that was known all along. This was done to protect the interests of the United Fruit Company – which owned large tracts of agricultural land in South America, used South American labour and shipped out fruit to America. Guatemalan farmers were run out of the market.
When Guatemala proposed land reforms, so that Guatemalans could prosper in Guatemala, the Government of Jacobo Arbenz was overthrown. By the way, the term Banana republics came into being from the frequent intervention of the US into South American countries – and then ridiculing these countries for instability. To obtain US Governmental intervention, the United Fruit Company engaged services of Sigmund Freud’s nephew as PR front man.
The last 100 years saw the use of these companies as a means of economic dominance. ITT was used in South America for installing and removing dictators
“… ITT papers published by Jack Anderson in March 1972, and in the hearings on these papers conducted by the Senate Foreign Relations Committee a year later. This material establishes that offers of financial aid aimed at stopping Allende were made by ITT president Harold S. Geneen to the CIA in July 1970 and to Henry Kissinger’s office in September” (Foreign Affairs; January 1974). Had Richard Nixon and Henry Kissinger not responded to International Telephone & Telegraph and Pepsi-Cola by overthrowing Salvador Allende, Chile “would have found a less violent, more constitutional way out of its conundrum.” writes Stephen Kinzer in his book Overthrow: America’s Century of Regime Change From Hawaii to Iraq.
To gain control of the Panama Canal Company, the operator of the Panama Canal, US engineered the secession of Panama from Colombia. With a puppet Government in place, The Hay-Bunau-Varilla Treaty allowed the U.S. to build the Panama Canal. Subsequent interventions to advance Western oil interests in Colombia and the Canal interests in Panama have reduced Governmental authority in these countries.
Drug cartels, kidnapping and ransom now control the economy of these countries.
Concentration Of Power
Newer methods to measure this concentration are devised. Today the most popular methods are the Fortune 500 listing and the Forbes listing. These listings finally demonstrate that half the world’s economic output is controlled by about 25,000 individuals. Add another 25,000 politicians and bureaucrats. We have about 50,000 people managing the lives of 5 billion people. Read this with the faceless entity aspect, it becomes more worrisome.
For instance, dissident writers are published and ignored. Detracting academics are given sinecures; are put into think tanks. Uncooperative businessmen are managed – Edison vs Tesla, Panam vs TWA.
These detractors become the contemporary version of the court jester. They are tolerated and serve the purpose of exhibiting the ‘tolerance’ and ‘freedom’ of the rulers. Co-opted detractors who get out of line become the Howard Hughes, John Z. DeLorean and Preston Tucker of corporate ecologies. Preston Tucker, alleged during his trial that the Big Three were behind his gargantuan troubles. DeLorean’s book, On A Clear Day You Can See General Motors, saw General Motors attempting to restrict circulation (though DeLorean, said nothing in the book, I could see, for them to).
More egregious was the McCarthy era. The persecution of dissidents in the world’s largest democracy was no less than in any military regime. Left leaning Hollywood personalities were implicated in fabricated cases and criminal charges foisted on them based on thin (or no) evidence. The Hollywood Ten (Alvah Bessie, Herbert Biberman, Lester Cole, Edward Dmytryk, Ring Lardner Jr., John Howard Lawton, Albert Maltz, Sam Ornitz, Adrian Scott and Dalton Trumbo)were banned by the Hollywood corporations. Under pressure from the Government, Hollywood’s production corporations, blacklisted alleged Communists. Eric Johnston released the Waldorf Statement on behalf of the Hollywood studios.
For many years, after the end of the witch hunt, these Hollywood corporations continued with the blacklist. Popular press targetted all the witnesses who co-operated with the House Un-American Activities Committee (HUAC) Hearings and Senator Joe McCarthy – but not the perpetrators of the witch hunt. Heads of these Hollywood corporations (who could have resisted) and figures of authority like Eisenhower, Truman, McCarthy, J. Edgar Hoover and the various perpetrators went scot-free. Victims, like Elia Kazan, who collaborated, under pressure, were smeared as rats and further persecuted.
What Is Happening In India
Out of the 30 current Sensex stocks, which make up the Indian Benchmark Index, 15 started off as SME (small and medium enterprises) 20-30 years ago. These organizations today are lobbying (successfully) to ensure that other SMEs do not challenge and compete with these large corporations. Indian policy makers, apparently, cannot learn from successes.