Chapter 13.
As pervasive entities in the modern world, corporations trace their origins to the collective enterprise and ventures of individuals and groups that have evolved into complex structures. As Yuval Noah Harari discusses in Sapiens: A Brief History of Humankind, corporations can be seen as a kind of “useful myth.” These entities exist primarily in our collective imagination; we believe in them and act as though they are real, enabling complex forms of cooperation. This shared belief does not make corporations any less real in their effects, as they have a tangible impact on the world.
A corporation is a legal entity that is separate and distinct from its owners, which provides key advantages like limited liability and the ability to exist in perpetuity.
The concept of the corporation has ancient origins. In Roman times, groups like religious organisations and municipalities were recognised as legal entities with certain rights and responsibilities. These early corporations, known as universitas, could own property, make contracts, and sue or be sued.
The development of the modern corporation is closely linked to the expansion of trade and colonialism. During the 16th and 17th centuries, royal charters were granted to companies like the British East India Company, giving them monopolies over trade routes and vast territories. These companies were, in effect, extensions of the state, wielding considerable power.
Adam Smith was critical of these early corporations, arguing that they were inefficient and prone to mismanagement. Despite his reservations, the corporate form continued to evolve, driven by the need for large-scale capital investment in industrialising economies. The Industrial Revolution brought about significant changes in business operations, and the corporation became the dominant form of business organisation, with its ability to pool resources from many investors.
In the 19th century, general incorporation laws made it easier to form corporations, facilitating the growth of large-scale industrial enterprises like railroads and oil companies. The late 19th and early 20th centuries saw the “managerial revolution,” as described by Alfred Chandler in his book The Visible Hand: The Managerial Revolution in American Business (1977). Professional managers, rather than owner-entrepreneurs, came to lead large corporations, developing new organisational structures and management techniques.
The growth of large corporations also raised concerns about their potential for abusing power. Critics argued that corporations could engage in anti-competitive practices, exploit workers, and manipulate the political process. This led to the passage of antitrust laws, labour regulations, and other measures aimed at curbing corporate power. David Dayen’s Monopolized: Life in the Age of Corporate Power (2020) provides a contemporary analysis of how monopolies have come to dominate various aspects of our lives.
The 20th century witnessed the further expansion and globalisation of corporations, with multinational corporations (MNCs) emerging to operate across national borders. These corporations have played a major role in the growth of international trade, the spread of technology, and the integration of the world economy.
The rise of MNCs has also raised new challenges and concerns. Critics argue that these corporations can exploit differences in labour standards and environmental regulations, leading to a “race to the bottom.” They also contend that MNCs can exert undue influence over governments and international organisations, undermining national sovereignty. John Mikler’s The Political Power of Global Corporations (2018) examines how global corporations act as political entities and influence state agendas.
The sheer economic power of some corporations rivals that of nation-states, with their revenues often exceeding the GDP of many countries. This immense wealth provides corporations with significant influence in the global arena, particularly through lobbying. Studies have shown a strong correlation between multinational status and increased lobbying expenditures. This influence may not always align with the public interest, potentially leading to policies that favour corporate profits over the well-being of citizens.
The role of corporations in driving economic growth is exemplified by China’s experience following economic liberalisation in the late 1970s. Corporations, both domestic and foreign, played a crucial role in this transformation, bringing in new technologies, capital, and management expertise. This corporate-led growth propelled China to become the world’s second-largest economy.
The Chinese Communist Party (CCP) has also demonstrated its willingness to intervene and crack down on corporations when they are perceived to be gaining excessive power or acting in ways that could undermine the Party’s control. These actions often reflect the CCP’s concern over maintaining social stability. This complex dynamic highlights the ongoing tension between economic growth driven by corporations and the political imperatives of the ruling party.
The nature of the corporation has continued to evolve. The rise of the “shareholder value” concept, popularised by economist Milton Friedman, has emphasised that the primary goal of a corporation is to maximise profits for its shareholders. This has led to increased pressure to focus on short-term financial performance. Joel Bakan’s The Corporation: The Pathological Pursuit of Profit and Power (2004) critically examines this nature of the modern corporation.
In response, there has been a growing movement towards “stakeholder capitalism,” which argues that corporations should consider the interests of all stakeholders, including employees, customers, suppliers, and the communities in which they operate. This approach recognises that corporations are not only accountable to their shareholders but also have a broader responsibility to contribute to the well-being of society. Klaus Schwab, the founder and executive chairman of the World Economic Forum, has been a prominent advocate for this approach in his book Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet (2021). Schwab contends that by considering the needs of all stakeholders, corporations can create more sustainable and inclusive business models, leading to greater resilience and shared prosperity.
It is important to note that the link between stakeholder capitalism and resilience is complex. Companies that prioritise strong relationships with their stakeholders often foster greater trust, which can be invaluable during challenging times. A stakeholder-focused approach encourages a long-term perspective and allows companies to gain valuable insights into changing market conditions, enhancing their adaptability. This provides a buffer during crises. For example, companies like Mars, Incorporated, and Patagonia appear to benefit from enhanced resilience. While other factors also play significant roles, considering the interests of a broad range of stakeholders can contribute to a company’s long-term health and ability to navigate challenges.
The debate over the role and responsibilities of corporations is likely to continue. As corporations become increasingly powerful in an interconnected world, it is essential to consider how they can be governed and regulated to ensure they serve the public interest and contribute to a more just and sustainable society.
Next Chapter: Economics: A Social Science
Bibliography:
Bakan, Joel. The Corporation: The Pathological Pursuit of Profit and Power. Free Press, 2004.
Chandler, Alfred D. The Visible Hand: The Managerial Revolution in American Business. Belknap Press, 1977.
Dayen, David. Monopolized: Life in the Age of Corporate Power. The New Press, 2020.
Harari, Yuval Noah. Sapiens: A Brief History of Humankind. Harper, 2014.
Mikler, John. The Political Power of Global Corporations. Polity Press, 2018.
Oxfam. (Various reports and publications on corporate wealth, inequality, and lobbying).
Peterson Institute for International Economics (PIIE). (Various reports and analyses on China’s economic policies and corporate crackdowns).
Schwab, Klaus. Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet. Currency, 2021.
Smith, Adam. The Wealth of Nations. 1776.