The Corporation – Joel Bakan

A few years back I watched the excellent documentary film version of The Corporation, but had always intended to read the book, which I finally got around to recently.  I can honestly say that I’m glad I did, not because the film isn’t as enjoyable, far from it, but because they compliment each other so perfectly, with the book going into detail on topics for which the film barely scratches the surface.

Joel Bakan is a Canadian lawyer and author, Professor of Law at the University of British Columbia, he holds a Masters degree from Harvard University and has a solid background in Canadian constitutional law. In The Corporation, his objective is to chart the history of the corporation, it’s unique structure and legal positioning, along with exposing some of the obvious flaws which exist within the idea of a corporate entity.

Bakan begins by giving us a whirlwind history of the development of the corporation as an institution. This history features the ‘jobbers’, stockbrokers who prowled the streets of Exchange Alley in London back in the late seventeenth and early eighteenth centuries. The jobbers would search out naive investors, and persuade them into purchasing shares in bogus companies. Speculation initially caused the share price for these companies to rocket, followed by a total collapse. Bakan states that many soon became suspicious of corporations, with their separated ownership and management, instead preferring the ‘partnership’ model based on mutual trust and loyalty. This distrust of corporations lead to the English Parliament issuing a ban on corporations in 1776, which lasted for around 50 years.

The rise of corporations was assisted by the development of railways, mining, and industrial machinery, all of which relied on massive investments of capital. The partnership slowly went out of fashion as many realised the corporation was a far more efficient method to raise the massive amounts of money required for projects such as these. Bakan discusses the concept of ‘limited liability’ introduced around 1850, the idea being that an investor should only be liable for the amount they had invested in the company, rather than being personally liable for the companies debts, this allowed many more (and for the first time, the working class) to purchase stock.

One of the major themes in the book is the gradual increase in corporate power. One main event in this history was the development of the corporate ‘person’. By the late nineteenth century, corporations had begun to inherit the same legal status as a flesh-and-blood human being, allowing a company to own materials, employ staff and pay taxes just like a regular person, with the added benefit of possessing the same legal protections which any other citizen may enjoy.

In 1934 President Franklin D. Roosevelt unveiled the ‘New Deal’, an economic plan which included a set of reforms to restrict the power of business. Whilst I knew a little about the New Deal before reading this book, I was completely unaware of the plot hatched by the business leaders of the time to attempt a Coup on Roosevelt, in an effort to remove some of these restrictions and impose a business-friendly fascist regime, the type of which were currently developing in Germany under Hitler, and in Italy under Mussolini.

The embracing of neoliberalism in the 1980’s by Margaret Thatcher and Ronald Regan allowed both Britain and the United States to begin to unravel some of these restrictions on business, and with the advent of globalization and the formation of the WTO, companies were now free to look around the world for the best possible economic conditions, resulting in poorer wages for developing nations, and higher profits for the corporation’s shareholders. Bakan argues that at around this time government to some extent lost control over businesses, with the (corporately influenced) WTO also enforcing unethical policies which government has very little say over. Add to this a group of politicians more heavily reliant on corporate donations to get elected, and it becomes evident that government loses a fair amount of it’s regulatory power.

Through lobbying, political contributions, and sophisticated public relations campaigns, they and their leaders have turned the political system and much public opinion against regulation. The law’s ability to protect people and the environment from corporate harm has suffered as a result.

One of Bakan’s most interesting observations is concerned with the relatively new trend of corporate ‘social responsibility‘. This can take several forms, from a company sponsoring the local football team, maintaining the local neighbourhood, or donating money to charitable causes. Obviously these displays are frequently for PR purposes, or are used purely to persuade consumers that their products are ethical, and should be purchased above all others. Bakan states that if these tactics did not result in greater profits for the company in question, the actions would technically be illegal, under corporate laws which designate that maximizing profits for shareholders is the primary responsibility of management. This reminded me of an article I read in the Guardian a few years ago, which told the tale of the writers young child, who was busy reading the label on a bottle of water which stated that for each bottle purchased, the company would send 1 litre of fresh water to a developing nation. The child questioned, with a wisdom and clarity far beyond that which any adult could display: ‘Why doesn’t the company just send the water anyway, whether I buy it or not?’.

Corporate social responsibility holds out promises of help, reassures people, and sometimes works. We should not, however, expect very much from it. A corporation can do good only to help itself do well, a profound limit on just how much good it can do.

Bakan then raises the concept of ‘externalities’, costs which corporations attempt to avoid by shifting them elsewhere. To illustrate he tells the story of Patricia Anderson, whose family suffered horrific burns after a car shunted the rear of her own at a set of traffic lights, and her petrol tank ignited. Anderson sued General Motors, and was eventually awarded $107 million, with punitive damages of $4.8 billion. Why so high you might wonder? Well, the car in which Patricia Anderson had been driving was designed with it’s petrol tank just 11 inches from the rear bumper. This was in spite of the fact that GM’s own internal safety guidance suggested the tank should be at least 17 inches away, if not further. To change the positioning of the tank would have added an estimated cost of $8.50 onto each vehicle, so the company instead calculated how many fatalities this design flaw might cause, multiplied by the average payout to the families of each victim, and came out with a figure of just $2.40 per car, a massive saving. Hence the car was not redesigned, and the accidents were allowed to happen. Deeply shocking. Obviously this is an extreme example, but that doesn’t hide the fact that cost-benefit analyses such as these are now performed on almost everything we consume.

The corporation’s unique structure is largely to blame for the fact that illegalities are endemic in the corporate world. By design, the corporate form generally protects the human beings who own and run corporations from legal liability, leaving the corporation, a “person” with a psychopathic contempt for legal constraints, the main target of criminal prosecution.

Something which particularly caught my attention in the light of Education Secretary Michael Gove’s recent announcement of the creation of ‘Free Schools’ was Bakan’s observations on the privatization of education. This appears to be another area where corporate donation to political parties holds great sway in deciding how contracts are awarded, and where funding is secured. The book argues, as many have done again fairly recently, that these schools do not necessarily perform any better then their public counterparts, although Bakan states that this isn’t necessarily the largest threat they represent. In the early 2000’s, Edison schools – a private American education provider – saw it’s stock price drop from over $22, to just $1. Various cost cutting measures began, with Edison’s administration staff moving into the schools to save money on office space, and the company quickly sold off school textbooks, computers, lab supplies, and musical instruments.  An example which demonstrates that applying laizze-faire economic theory to education rarely works, a lesson which Mr Gove should certainly bear in mind over the next few years.

On a closely related topic, the commercial exploitation of children and the ‘Nag Factor’ are also areas placed under the spotlight. Targeted advertising, directly to children, is in my opinion highly unethical, but is yet again another area where government has relaxed the rules, and deregulated at the expense of children’s health and mental well-being. Movie tie-ins, sponsorship of local community organisations, and even freely supplied school curriculum kits (which use the Big Mac to illustrate the four food groups) are removing parents control over their kids in ways never before seen. It also severely diminishes parents ability to safeguard children from harmful corporate influences.

In the final chapter of the book, Bakan accepts that whilst the corporation isn’t going anywhere fast, there are some useful ways we can limit it’s power and influence over us.

No one would seriously suggest that individuals should regulate themselves, that laws against murder, assault, and theft are unnecessary because people are socially responsible. Yet oddly, we are asked to believe that corporate persons – institutional psychopaths who lack any sense of moral conviction and who have the power and motivation to cause harm and devastation in the world – should be left free to govern themselves.

He makes several suggestions as to how this shift could take place. Firstly, improving the regulatory system, by means of stronger government control and effective enforcement, enabled by well staffed regulatory departments, and fines which act as a genuine disincentive against breaking the rules, rather than simply an additional cost for corporations to factor into their business plan. Secondly, the strengthening of political democracy, with a move towards publicly financed elections and a reduction in corporate lobbying. Thirdly, the protection of assets too important to be moved into private hands, such as police, schools and fire-fighters. Finally, he suggests that nations should work together to shift the policies of organisations such as the WTO, IMF and the World Bank, away from market fundamentalism, deregulation and privatization. Where these measures fail within a particular nation, or are ineffective, Bakan raises the story of the people of Cochabamba, Bolivia. Subject to the selling off of their water system (an agreement which went as far as banning them from collecting rainwater on their own property) the citizens organized and protested. Bloody confrontations ensued, as the people of Cochabamba demanded that the company leave, which under substantial pressure from a concerned and volatile public, they promptly did.

I can highly recommend The Corporation to anybody with an interest in politics, economics or social justice, and I was quickly hooked after reading the first chapter. If you’re short on time, I would recommend the documentary version, which does an excellent job of condensing the majority of the book’s topics into just a 140 minute DVD.

Hopefully I’ve given you all some food for thought there, so if anyone reading this has any comments or questions, feel free to leave a message below!