"Unequal Protection: How Corporations Became People."
Thom Hartmann Here with an excerpt from my book “Unequal Protection: How corporations became “people” - and how you can fight back.”
The British first got the idea about the importance of becoming a world power in the late 1400s when they observed the result of Christopher Columbus’s voyage to America—he brought back slaves, gold, and other treasures. That got Europe’s attention and threw Spain full-bore into a time of explosive boom. Then, in 1522, when Ferdinand Magellan sailed all the way around the world, he proved that the planet was a closed system, raising the possibility of tremendous financial opportunity for whatever company could seize control of international trade.
In many of the European countries, particularly Holland and France, consortia were put together to finance ships to sail the seas.
England got into the act a bit late, in 1580, with Queen Elizabeth I becoming the largest shareholder in The Golden Hind, a ship owned by Sir Francis Drake. She granted him “legal freedom from liability,” an early archetype for modern corporations.
The investment worked out very well for Queen Elizabeth. There’s no record of exactly how much she made when Drake paid her share of the Hind’s dividends, but it was undoubtedly vast, since Drake himself and the other minor shareholders all received a 5,000 percent return on their investment. Plus, the queen’s placing a maximum loss to the initial investors of their investment amount only made it a low-risk investment to begin with. She also was endorsing an investment model that led to the modern limited-liability corporation.
The queen also often granted monopoly rights over particular industries or businesses in exchange for a fee. The 1624 Statute of Monopolies did away with this ability of the crown, although in the years thereafter the British government used tax laws to produce a similar result for the corporations favored by Parliament or the royal family.
A business can operate at a profit, a break-even, or a loss. If the business is a sole proprietorship or a partnership (owned by one or a few people) and it loses more money than its assets are worth, the owners and the investors are personally responsible for the debts, which may exceed the amount they originally invested. A small-business owner could put up $10,000 of her own money to start a company, have it fail with $50,000 in debts, and be personally responsible for paying off that debt out of her own pocket.
But let’s say you invest $10,000 in a limited-liability corporation, and the corporation runs up $50,000 in debts and then defaults on those debts. You would lose only your initial $10,000 investment. The remaining $40,000 wouldn’t be your concern because the amount of your investment is the “limit of your liability,” even if the corporation goes bankrupt, defaults in any other way, or causes millions of dollars in damage to the environment or even the deaths of people.
Who foots the bill? The creditors—the people to whom the corporation owes money—or the community that was devastated. The company took the goods or services from them, didn’t pay, and leaves them with the bill, exactly as if you had put in a week’s work and not gotten paid for it. Or it wreaks havoc and death and then simply shuts down, as so many asbestos companies have done recently.
And if the corporation declares bankruptcy and dissolves itself, there is nobody for the creditors to go after. That’s the main thing that makes a corporation a corporation, and it’s why in England the abbreviation for a corporation isn’t Inc., as in the United States, but Ltd., which stands for limited-liability corporation (which is also used in the United States and other nations).
If you were a stockholder in a corporation that went under, it wouldn’t even be reflected on your personal credit rating (unless you had volunteered to personally guarantee the corporation’s debt). Your liability is limited to how- ever much you invested.
Moreover, a corporation can outlast its founders. If you started a one- man glassblowing business, for example, when you die or can’t work anymore, the income stops. But a glassblowing corporation is an entity unto itself and can continue on with new glassblowers and managers after the founders move on. The implication, of course, is that a corporation can pay profits as a divi- dend to its shareholders for centuries, theoretically forever.
This is what Queen Elizabeth had in mind. Incorporating The Golden Hind would limit her liability and that of the other noble and lesser noble investors and maximize their potential for profit. So after the big bucks she made on Drake’s expeditions on The Golden Hind, she started pondering what could be done about the small role England played in world trade relative to Holland, France, Spain, and Portugal.
In part to remedy this situation and in part to exploit a relative vacuum of power, she authorized a group of 218 London merchants and noblemen to form a corporation that would take on the mostly Dutch control of the global spice trade. They formed what came to be the largest of England’s corporations during that and the next century, the East India Company. Queen Elizabeth granted the company’s corporate charter on December 31, 1600.
It went slowly at first. For several decades the East India Company struggled to establish a commercial beachhead among the many Spice Islands and distant lands where there were potential products, raw materials, or markets.
The Dutch had so sewn up the world at this point in the early 1600s, however, that the only island the company was able to secure on behalf of England was Puloroon (leading King James I, who commissioned the translation of the Bible into English, to declare himself “King of England, Scotland, Ireland, France, and Puloroon”). In addition, the company’s hard-drinking captain, William Hawkins, managed to befriend the alcoholic ruler of India, the Mogul emperor Jehangir, building a powerful presence for the East India Company on the Indian subcontinent (which the company would take over and rule as a corporate-run state within two centuries).
During this time England had exported colonists to the Americas in large numbers, including many as prisoners (a practice they later moved to Australia, when it was no longer practical to send them to North America). There was also a steady and growing exodus from England of various types of malcontents who, on arrival in America, redefined themselves as explorers and pioneers or set up theocratic communities.
Much of this transportation was provided at a profitable price by the East India Company, which laid claim to parts of North America and created the first official colony in North America on company-owned land, deeded to the Virginia Company in 1606. (The companies had interlocking boards, as Sir Thomas Smythe administered the American operations of both from his house. Smythe was also the first North American governor of both the East India Company and the Virginia Company.)
The company called it Jamestown, after company patron and stockholder King James I (who took the throne and the royal share of the company’s stock when Queen Elizabeth died in 1603), and placed Jamestown on the Chesapeake Bay in the company-owned Commonwealth of Virginia, named after the now- deceased “virgin queen,” Elizabeth I, who had granted the company its original charter. On the maps from that time, the two companies’ claim of Virginia extended from the Atlantic Ocean all the way to the Mississippi River.*
I'm Thom Hartmann and you can find out more about how corporations became people and how you can fight back in my book Unequal Protection at ThomHartmann.com.