Michael Lind: Now that you and I own GM, perhaps it's time to relaunch a very old concept -- a special kind of public corporation
If the bankruptcy and restructuring of GM proceed according to the Obama administration's plan, then the U.S. government will end up owning about 60 percent of the ailing carmaker. The de facto nationalization of GM, added to the de facto nationalization of AIG and various banks and the renationalization of Fannie Mae and Freddie Mac, is a threat to the healthy distinction between the private sector and the public sector.
Or is it? The truth is that corporations in the U.S. and other countries have always been quasi-public entities chartered for public purposes. You would never know this from corporate propaganda that treats giant, multinational corporations as though they were simply giant versions of sole proprietorships or partnerships. But history and law alike make it clear that today's large corporations, like automobile manufacturers, are much more like spun-off government agencies than like large-scale lemonade stands.
Go back in time before the mid-19th century, and you don't find large private corporations of the modern kind. The only giant enterprises with private financial participation tended to be state-chartered monopolies, including trading companies like the British and Dutch East India Companies, and corporations chartered by government to provide public goods like toll roads or canals or banking. These quasi-public entities were less like modern corporations than like public utilities or modern contractors -- private, for-profit companies delegated the responsibility of carrying out certain public economic functions.
Up until the second half of the 19th century, in the U.S. as elsewhere, governments kept corporations on short leashes. Typically corporations had to be chartered by an act of a state legislature or the federal government (as, for example, in the case of the First and Second Banks of the United States). In many cases, the corporate charter was only temporary and had to be renewed periodically by new legislation. In addition, corporations generally were limited to a single purpose -- building a bridge or a canal, say -- and forbidden to engage in other commercial activities.
In the second half of the 19th century, the modern "general corporation" was invented in Britain and the U.S. Today general corporations can be formed by mere registration; no longer does a state legislature or Congress have to pass a separate bill chartering each individual corporation. Not only are corporations easily formed by registration, but they are also immortal, unlike the companies of the early modern era, which had to have their charters renewed by lawmakers (a practice that encouraged political corruption).
Another characteristic of the modern general corporation, limited liability, also became widespread. Whereas sole proprietors and partners in partnerships are liable for the debts their businesses incur, shareholders of a general corporation are liable only up to the amount of their investments in the business. If a company fails, the creditors cannot go after all of the personal property of the shareholders....
Ever since incorporation laws were liberalized in the late 19th century, the federal and state governments have tried to modify corporate behavior by means of regulations and tax incentives. Having unleashed the large and useful but potentially dangerous animal, they sought to threaten it or coax it rather than to put the leash back on.
Now the partial nationalization of GM and other bailed-out enterprises by the U.S. has unexpectedly provided a third form of leverage over those entities, in addition to regulations and tax incentives -- namely, public ownership. If the U.S. is the controlling owner of a company, it can make the company do whatever it wants, from modifying executive compensation to honoring union contracts. But this kind of public leverage is limited to a few bailed-out companies and banks and will vanish as soon as they are reprivatized (there is no significant constituency for permanent public ownership of major industrial or financial concerns in the U.S., other than government-sponsored entities like Fannie Mae and Freddie Mac).
Following the present emergency, it is likely that those who want to reform corporate America for a variety of purposes will once again be tempted to rely solely on the tools of regulations and incentives. But we should at least consider restoring an old tool to the toolkit: the chartering of specialized corporations for specialized purposes....
Read entire article at Salon
Or is it? The truth is that corporations in the U.S. and other countries have always been quasi-public entities chartered for public purposes. You would never know this from corporate propaganda that treats giant, multinational corporations as though they were simply giant versions of sole proprietorships or partnerships. But history and law alike make it clear that today's large corporations, like automobile manufacturers, are much more like spun-off government agencies than like large-scale lemonade stands.
Go back in time before the mid-19th century, and you don't find large private corporations of the modern kind. The only giant enterprises with private financial participation tended to be state-chartered monopolies, including trading companies like the British and Dutch East India Companies, and corporations chartered by government to provide public goods like toll roads or canals or banking. These quasi-public entities were less like modern corporations than like public utilities or modern contractors -- private, for-profit companies delegated the responsibility of carrying out certain public economic functions.
Up until the second half of the 19th century, in the U.S. as elsewhere, governments kept corporations on short leashes. Typically corporations had to be chartered by an act of a state legislature or the federal government (as, for example, in the case of the First and Second Banks of the United States). In many cases, the corporate charter was only temporary and had to be renewed periodically by new legislation. In addition, corporations generally were limited to a single purpose -- building a bridge or a canal, say -- and forbidden to engage in other commercial activities.
In the second half of the 19th century, the modern "general corporation" was invented in Britain and the U.S. Today general corporations can be formed by mere registration; no longer does a state legislature or Congress have to pass a separate bill chartering each individual corporation. Not only are corporations easily formed by registration, but they are also immortal, unlike the companies of the early modern era, which had to have their charters renewed by lawmakers (a practice that encouraged political corruption).
Another characteristic of the modern general corporation, limited liability, also became widespread. Whereas sole proprietors and partners in partnerships are liable for the debts their businesses incur, shareholders of a general corporation are liable only up to the amount of their investments in the business. If a company fails, the creditors cannot go after all of the personal property of the shareholders....
Ever since incorporation laws were liberalized in the late 19th century, the federal and state governments have tried to modify corporate behavior by means of regulations and tax incentives. Having unleashed the large and useful but potentially dangerous animal, they sought to threaten it or coax it rather than to put the leash back on.
Now the partial nationalization of GM and other bailed-out enterprises by the U.S. has unexpectedly provided a third form of leverage over those entities, in addition to regulations and tax incentives -- namely, public ownership. If the U.S. is the controlling owner of a company, it can make the company do whatever it wants, from modifying executive compensation to honoring union contracts. But this kind of public leverage is limited to a few bailed-out companies and banks and will vanish as soon as they are reprivatized (there is no significant constituency for permanent public ownership of major industrial or financial concerns in the U.S., other than government-sponsored entities like Fannie Mae and Freddie Mac).
Following the present emergency, it is likely that those who want to reform corporate America for a variety of purposes will once again be tempted to rely solely on the tools of regulations and incentives. But we should at least consider restoring an old tool to the toolkit: the chartering of specialized corporations for specialized purposes....