Special series: Corporations in U.S., part 3
NewsNotes, May-June 2009
Ed: The following article is slightly edited from its original form.
In the second part of this series, we learned about the seminal 1886 case when a court reporter misrepresented a Supreme Court decision and created the impression that corporations were considered persons under the 14th Amendment. Since that case, the courts have granted rights to corporations that were never envisioned by the writers of the Constitution.
From the late 1800s into the early 1900s, corporations, wanting more freedom to expand into other areas of business, buy other corporations, etc., began fiercely lobbying the states to change the requirements in their charters. New Jersey was the first state to capitulate, granting corporations the right to own equity in other corporations in 1889. This set off a “race to the bottom” as states rushed to be more “business friendly” in order to attract corporate charters, a situation not unlike globalization today which sets national governments against each other. In fact, trade agreements can be seen as simply an extension of this quest for power and influence by corporations. The free trade agenda, pushed heavily by transnational corporations, encode many of the “rights” that corporations have won in the U.S. into international law.
In 1896, New Jersey passed its General Incorporation Law, which removed restrictions on a corporation’s size and market share, put time limits on charters, reduced shareholder powers and permitted all kinds of mergers of corporations. Results for the state were remarkable: By 1901, New Jersey was home to 71 percent of all U.S. corporations with assets of more than $25 million and its legislature struggled to spend the surplus revenue brought in from these corporations.
In 1899, Delaware won the “race” by passing its General Incorporation Law that basically allowed corporations to write their own rules of governance. Today, Delaware, where nearly 60 percent of all Fortune 500 companies are incorporated, remains the most popular state for corporations.
One result of the states’ new laws was a huge consolidation of corporate power. From 1895 to 1904, nearly 1,800 companies were consolidated into 137 megacorporations or trusts leaving U.S. Steel with 63 percent of the steel market, International Harvester with 85 percent of the agricultural tools market, etc.
Troubled by this concentration of control, Congress, with only one dissenting vote, passed the Sherman Antitrust Act in 1890, designed to prevent monopolies or cartels that disrupt interstate commerce. It did not, however, have the hoped-for effect.
Ironically, one of the earliest uses of the Act was in 1894 to break up not a corporation, but a union. The Pullman Palace Car Company won an injunction against the American Railway Union to stop a strike, arguing that the strike disrupted interstate commerce. The Antitrust Act was used more than 4,000 times before 1930 to break up strikes. Before the Great Depression, only Theodore Roosevelt, who ruptured 40 large corporations, and William Taft, who divided the Standard Oil trust into 33 companies and broke up American Tobacco, used the Act for its original purpose.
In 1905, the landmark case Lochner v. New York involved a state law mandating a 60-hour work week in baking establishments. The court determined that this law violated the corporation’s “liberty of contract” that was implied in the due process clause of the 14th Amendment. The majority opinion wrote that this was an “unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual to contract.” The case established substantive due process for corporations that was then used in the following decades to overturn more than 200 recently passed Progressive era statutes, such as child labor laws, maximum work week laws, safety standards, workers’ compensation, etc.
Corporations were further strengthened in 1893 when the Supreme Court allowed the Union River Logging Railroad the right to due process, granted in the Fifth Amendment. With this new privilege, corporate lawyers could challenge, and the Supreme Court could overturn, democratically legislated laws at the federal or state level, where most progressive laws were being passed.
The right against undue search and seizure protected by the Fourth Amendment was granted to corporations by the Court in 1906 in the Hale v. Henkel case. A corporate representative refused to turn over documents claiming Fifth Amendment rights from incriminating itself. The Court decided that the witness would not be incriminating himself but the corporation he worked for, and so must turn over the documents. Yet the Court then went on to determine that the corporation’s Fourth Amendment rights had been broken by forcing the turn over of documents. Access to Fourth Amendment protections have been used by corporations repeatedly ever since to avoid a variety of government regulations.
In a few short decades from the 1880s-1920s, corporations had gone from the limited public service tools originally imagined in the Constitution to enormous and incredibly influential entities with human rights. Entities that were designed to be carefully controlled by government had now become too big to control. The result was the roaring 1920s when corporations operated almost completely unchecked and workers were denied the ability to organize and fight for their needs.
The lack of controls led to the corporate excesses that created the conditions for crash that led to the Great Depression. In the next article, we will explore the strengthening of corporate controls after the Depression and the campaign of corporations to loosen those same controls in the following decades.
Go here for a good article on corporations and the bill of rights.