Thursday, April 14, 2011

Fighting Back Against Corporatization Part 2-- Striking at the Roots

Last week, I wrote about the rationale behind the creation of corporations as legal entities. If these institutions are not serving us well, then let's change them. Today's post will be about some of the ideas afoot about how this might be done.

Limit the Scope of Corporations

In "The Story of Citizens United v. FEC,"Annie Leonard explained that in the 19th century, corporations were created to undertake short term projects, such as the construction of a bridge or railroad. Upon completion of the projects, the corporation would be dissolved. We could try going back to this model, by limiting the size or duration of a corporation. For instance, any corporation with a market capitalization greater than a certain number of dollars would be forced to divide itself into new competitive units. This would also eliminate the problem of some corporation, such as a bank or auto manufacturer, being too big to fail. Another option is to have expiry dates for corporate charters, for example, it can't last more than, say 6 years.

Limit Limited Liability

When a corporation causes some harm to people, through, for example, environmental damage, drugs with side effects, faulty products, or outright malfeasance, the victims and their survivors can only sue the corporation for its assets. Limited liability prevents them from suing the shareholders, owners, or managers of the corporation for their personal assets. Unfortunately, the value of the claims can often exceed the available assets and someone invariably gets the short end of the stick.

Michael Rozeff, a liberatarian, has argued for abolishing limited liability entirely, because the arrangement skews risk assessment and market valuations. Arguments in favor of abolishing limited liability have also come from progressives, such as the article in Mother Jones following the Union Carbide gas plant accident in Bhopal, India, and the spill of the Exxon Valdez in Alaska.

Less dramatic options exist as well. Shareholders could be made liable for their capitalization and any earnings that they have received. In other words, they could lose the value that they initially invested PLUS any dividends that they were paid. For example, someone who held shares of a high profitable tobacco company would have to return the money they made if it was needed to cover claims by victims or their survivors. Another option that is currently popular is to increase the personal  responsibility of executives.

Change the Tax Code

Currently, capital gains, i.e. income from an investment, is taxed at a lower rate than earned income. I see two problems with this. 1) It encourages people to buy shares and sit on their butts, rather than to use their money do work that increases other kinds of value. 2) It encourages creative accounting to move income from one category to another. It would be more beneficial to society for this creativity to be directed elsewhere. The simple solution is to simply remove the category of capital gains. Income is income. Investing in corporations would no longer be the default choice for making money grow and people would look closer at other options, such as supporting local projects.

Amend the Constitution

This proposal is specific to the US, because it addresses a uniquely American problem. The idea is to amend the constitution to explicitly state that corporations are not persons and subject to protections under the bill of rights. Much of the  outrage surrounding corporate personhood came to a boil last year after the Citizens United v. FEC case was decided by the US Supreme Court and limits on how much money corporations could contribute to political campaigns were removed. These limits, it was decided, were an infringement of corporations first amendment rights to free speech. Many people felt that this overstepped the bounds of reason and are mobilizing. Perhaps the most visible example is Stanford University law professor, Lawrence Lessig, and his root strikers project.

Interestingly, the origins of corporate personhood are murky at best. As Rushkoff wrote in Life Inc., the concept crept into law through dogged persistence on the part of corporations and a clerical "error."
The passage of the Fourteenth Amendment, written to guarantee the rights of citizenship to former slaves, gave corporate lawyers the legal framework to make their cases. For reasons historians can't quite articulate, the Amendment uses the phrase "persons" instead of "natural persons." Corporations argued that this was because it was meant to include their own, non-natural personhood. In their opinions, justices repeatedly scolded corporate lawyers for attempting to exploit a law written on behalf of emancipated slaves. But the corporations had patience, and opportunistically sought out every leak and crack in the system.

Finally, in 1886, in a legal maneuver that has yet to be conclusively explained, a Supreme Court clerk with documented affinity for corporate interests incorrectly summarized an opinion in the headnotes of the decision on Santa Clara County v. Southern Pacific Railroad Company. The clerk wrote, "The defendant corporations as persons within the intent of the clause in section 1 of the Fourteenth Amendment to the Constitution... which forbids a State to deny any persons within its jurisdiction the equal protection of the laws." There was no legal basis for this statement, nor any discussion about it from the justices. From then on, however, corporations were free to claim the rights of personhood. The more precedents that were established, the more embedded the law became. Over the next twenty-five years, 307 Fourteenth Amendment cases went before the Supreme Court. Two hundred eighty-eight of them were brought by corporations claiming their rights as natural persons.
At present, is gathering signatures in support of three constitutional amendments, one of which is to "[f]irmly establish that money is not speech, and that human beings, not corporations, are persons entitled to constitutional rights." Their effort builds on the work of, which has written the following draft amendment. 
An Amendment to Preclude Corporations from Claiming Bill of Rights Protections

SECTION 1. The U.S. Constitution protects only the rights of living human beings.
SECTION 2. Corporations and other institutions granted the privilege to exist shall be subordinate to any and all laws enacted by citizens and their elected governments.
SECTION 3. Corporations and other for-profit institutions are prohibited from attempting to influence the outcome of elections, legislation or government policy through the use of aggregate resources or by rewarding or repaying employees or directors to exert such influence.
SECTION 4. Congress shall have power to implement this article by appropriate legislation.
Getting a constitutional amendment passed is not an easy task, especially in the face of opposition supposed and financed by corporations, but it is a very cool solution. If we get it done, it will be something to tell the grandkids about.

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