A Georgist Stand on Corporate Privilege?

by Lindy Davies

Georgists are sometimes accused of having taken rather too direct a path back from the heights of inspiration. Sophisticated friends warn that “things just aren’t that simple.” Now, I, for one, am not dismayed by this. I really like Henry George’s contention that once we implement his simple philosophy, we’ll then be free to give adequate attention to all the things in heaven and earth that it dreams not of.

But we’re often admonished that the timeless principles of Georgism need updating. Such advice frequently comes from “guns for hire” who want to use Georgists’ money to save them from their lack of vision. The poor Georgists have been purveying this land thing for so long, with such little success; they just don’t know any better, poor lambs. Such “miserable comforters” should be chucked whence they came — but frustrated advocates, with precious little by way of real success to build on, are easily tempted. And thus, the very real question of updating and modernizing the Georgist message is complicated and — dare I say — sometimes subverted.

One area into which we often feel a need to weigh is that is that of the vast, increasing power of corporations. They surely seem to be exploiting some sort of privilege, and shouldn’t we, as purveyors of fundamental economic justice, say something about that? I mean, can it really all be about land? Agnes George deMille seemed to be heading in this direction in her stirring words on the centenary of Progress and Poverty:

The great sinister fact, the one that we must live with, is that we are yielding up sovereignty. The nation is no longer comprised of the thirteen original states, nor of the thirty-seven younger sister states, but of the real powers: the cartels, the corporations. Owning the bulk of our productive resources, they are the issue of that concentration of ownership that George saw evolving, and warned against. These multinationals are not American any more. Transcending nations, they serve not their country’s interests, but their own. They manipulate our tax policies to help themselves. They determine our statecraft. They are autonomous. They do not need to coin money or raise armies. They use ours.

True enough. So what is to be done, about this “great sinister fact”?

A corporation is an entity recognized in law as an “artificial person” possessing rights enjoyed by real persons, such as freedom of speech (which frequently takes the form of campaign contributions) and due process of law. Corporations in the United States come into being when they are chartered, which happens at the state level, and unlike actual persons they exist forever, unless something extraordinary happens such as bankruptcy, or revocation of their charter. The great advantage of the corporate form of business organization is that a corporation can raise large sums of money by issuing stock. The shareholders, who collectively own the corporation, share in the profits via dividends, and/or bet that their shares will increase in value. However, the corporation’s liability for any illegal or harmful action is limited to the assets of the corporation itself — not those of the shareholders. The most that they can lose is the value of the shares they hold. We could view this in a positive sense as providing the means to create large, progressive, risky and expensive endeavors, the kind that move forward a great nation’s economy — but we could also leaven our enthusiasm with Ambrose Bierce’s definition of a corporation as “an ingenious device for obtaining individual profit without individual responsibility.”

A seminal Georgist document on this issue was the lecture by John Z. White on the Dartmouth College Decision, which appeared in The St. Louis Mirror, and later in The Public, in 1906. The “Dartmough College Decision” was the US Supreme Court decision, written by Chief Justice John Marshall in 1819, which held that the state of New Hampshire could not revoke the charter of Dartmouth College, because it was a legal contract between the college and the English Sovereign which, containing no provision for dissolution, could not be revoked by the state without unconstitutionally breaking a contract. White found this patently absurd. His essay skillfully illuminates every facet of a point that is in fact, by its essential nature, quite obvious. That point is that a corporate charter is not a contract, despite all manner of eloquent statements that it is; it is a grant of privilege which the state, having the sovereign power to grant, can remove. White notes that the doctrine of a corporation as a legal person is embedded in this mistaken decision — because in order for there to be a contract, there must be some person with whom the contract was made. Thus, according to the decision, an infinitesimal instant transpired between the creation of the legal person named Dartmouth College, and the sealing of a contract with that, uhm, person.

John Z. White had recourse to a Single Taxer’s clarity as regards public and private property. This is a tremendous advantage when discussing thorny matters of law. It’s a strategy that could actually get some traction in the mainstream press in 1906 — but, alas, today, not so much. He quotes Marshall: “A grant of corporate powers and privileges is as much a contract as a grant of land.” White goes on to hoist Marshall by his own petard, in another decision referring to a land grant:

This grant is a contract, the object of which is, that the profits issuing from it shall inhere to the benefit of the grantee…. Yet the power of taxation may be carried so far as to absorb these profits. Does this impair the obligation of contracts? The idea is rejected by all….

In short, for White the Dartmouth College decision used a legal technicality to establish a precedent of inviolability for corporate charters. The legal status of corporations was further strengthened by the 1886 decision in Santa Clara County vs. Southern Pacific Railroad, in which corporations were held to have the rights of persons, as guaranteed in the Bill of Rights, and the 14th Amendment’s Equal Protection clause.

But just how harmful is all this? If corporations do indeed have too much power and too little accountability (as seems only too evident), what is to be done about it? These are, I think, fair questions. We’re georgists, and we ought to work to our strengths: less chanting “Ain’t It Awful”; more fundamental solutions.

It’s worth noting that John Z. White was writing before either the individual or the corporate income tax, before a host of federal regulations protecting worker and consumer safety, and the environment, and at a very early stage of the organized labor movement. All of these things seemed — for a while anyway — effective ways to enforce a certain level of corporate responsibility. Yet, today, corporations seem to be striking back with great power, and pretty much having their own way of things. The “race to the bottom” seems to be entirely for the corporations’ benefit. So what must be done? Should corporate charters be revoked? Should corporations be socked with much higher taxes? Should shareholders be compelled to insure themselves against corporate malfeasance? Or — do corporations simply make use of the potential efficiencies granted to them, in order to consolidate deeper levels of privilege and maldistribution?

Georgists are somewhat divided on the issue. Jeff Smith has consistently espoused his “geonomic” position that:

The corporate charter’s salient feature is to limit the liability of those choosing to profit by putting others at risk…. Charters, and their companion pieces of legislation, are worth to those corporations putting nature, labor, and consumer at risk however much that year insurance companies would charge them, i.e., the losses due to unsafe products, workplaces, and pollution and depletion — hundreds of billions annually.*

Meanwhile, Fred Foldvary has consistently countered that

The real privilege is not the corporation as an institution, but from the privileges granted to enterprise in general. Companies world-wide are granted subsidies to destroy and use up natural resources, such as roads in forests paid for by government and dams financed by the World Bank. They are allowed to pollute, with taxpayers financing dysfunctional regulations. Much of their profit can consist of the rent of land that they did not create, and whose value derives from government services they do not pay for. Workers get low wages and suffer poor working conditions because their governments block off alternative opportunities and confiscate much of their meager gains with taxes on incomes, sales, and wealth. Harmful products are sold by fraud, with no consumer warnings or notices to buyers who mistakenly think government protects them.*

Despite what seems, at first glance, to be a substantial impasse, I imagine that both commentators would agree with the following observation by Henry George, Jr., a year before John Z. White’s speech:

If… the privilege of land monopoly be destroyed by the process of taxation, if the privilege of highway monopoly be transferred to public hands, if tariff and other taxation privileges be wiped out, what important privilege would remain for exploitation through incorporation? The only possible use to which an artificial person, or corporation, could be put would be that of engaging in the production of wealth where there was an open and free field, where no one had any favor. What matter then if a corporation be organized “infinite in scope, perpetual in character, vested in the hands of a few, with methods secret even to stockholders”?

Nevertheless: this is where georgists tend to get into trouble. It starts to seem that every time someone brings up a problem: AIDS in Africa, desertification, urban blight, poor-quality TV programs, inexplicable pop songs, the heartbreak of psoriasis — georgists say everything would be fine, everything would be fine — if only we’d tax land values and bring the margin back. OK, I admit it; it makes us sound a bit Wack.

But the problem is, it’s… kind of… true. If rational analysis showed these other issues to be as important as the fundamental laws of distribution, and moral basis of ownership, then georgists would deserve the accusations of fetishizing a 19th-century panacea at the cost of losing all hope for effectiveness. But the Law of Rent is unrepealable; we’ve just got to deal with that. And very, very few people understand what we mean by that. We’ve got to deal with that, too — either that or just stay drunk all the time.

Debate will go on about whether the corporate charter is, in itself, dangerously unjust and harmful. Debate will go on, in a similar vein, over money and banking, international trade, immigration, global warming and a host of other topical issues. These are all important and subtle topics; lots of smart people write reams of provocative copy about them. We georgists, I think, do well to become sufficiently familiar with these issues as to be able to discuss them without drooling. But we should keep our eyes on the prize. Our sights are on “the robber that takes all that is left.” Very few people have as clear a view of that robber as we do. We’re not going to clarify other people’s vision by blurring our own.

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