Why do corporations exist?

Imagine you have a couple of extra bucks around and rather than shoving it under your mattress you decide you would like to invest it. You find a nice company in your town who you think is run by nice people and has good prospects and you make them an offer. If they will give you an ownership share in their company (and hence partial ownership of all the profits that are going to roll in) then you would give them the extra money you have laying about.

The company agrees and you don't think much more about it until you find yourself in a court room. It turns out those nice people left town with the company's assets but left behind the company's debts, all of it, much more than you actually invested and you are now personally on the line to pay it all back.

This is how personal property works. If someone, for example, gets hurt in your home you are liable for the damages to them. No one cares if the damages are more than the house is worth, the two things are unrelated. You own the property so you are responsible for what happens with it. In the same way when you are owner of a company you are responsible for what the company does, including any debts it incurs, even if you share that ownership with others. (O.k., I'm over simplifying, see here for some more details).

And for most of human history this is more or less where things stood. But over time it was recognized that there was a problem with this ownership approach. It made people unwilling to invest their money because they could be held responsible for the debts of the company they invested in. The property laws were slowing down the growth of the economy.

This led to the introduction of limited liability (amongst a number of other legal innovations). Governments passed acts giving companies, primarily (but not exclusively) corporations, the right to form and get investors and for those investors to not have any responsibility for the acts of the corporation, this included everything from debt to negligence claims. So if the company went bankrupt with large debts (or, say, killed tens of thousands of people), the worst the investors suffered was the loss of their investment.

Limited liability is a privilege, not a right

But notice, there is no inherent right to limited liability. In fact, quite the opposite. The government is offering a deal. In return for helping the economy the government offers a pre-approved liability waiver. But the terms of the deal are for the government to decide. If the government wants to levy heavy taxes on corporations, limit their activities, set expiration dates on the corporation's existence, etc. that is all within their right.

So no. Corporations are not people. They do not have rights. They are a legal fiction created for the benefit of the citizenry and as such governments are free to set any and every restriction they like on the formation of corporations. If citizens don't like it they can change the law or they can form partnerships or sole proprietorships and accept full legal liability. But if they want the benefits a corporation brings then they need to accept whatever limits governments sees fit to apply. Limiting political donations, which started us off on this journey, is but the most minor of those limitations.

Where to learn more

The story of corporations is a truly fascinating one. John Micklethwait and Adrian Wooldridge wrote a short but very fun book called "The Company: A Short History of a Revolutionary Idea" that I highly recommend.

If you want to learn more about corporations in American legal history then I recommend "A History of American Law: Third Edition" by Lawrence M. Friedman. It's well written and although a survey of all law in America (and many of the key legal personalities) I think it fair to say the author's thesis is that more than anything else business drove the development of law in America so most of the book focuses on how the law and business interacted. Note however that having some background in English common law would make this book an easier read but it's not strictly necessary.

When American citizens were dying in Katrina our government could do nothing for them. The most powerful country on earth couldn’t figure out how to get food and water to people suffering on its own territory.

When even the best evidence at the time demonstrated that there was no threat to America from Iraq our government could not keep itself from invading and generating billions for corporations while needlessly spilling the blood of America’s and Iraq’s citizens.

In the case of healthcare not only is the Congress and our President completely incapable of delivering any meaningful reform the best they can do is mandate that citizens must get healthcare, only from corporations and without doing anything to reign in corporate costs. Our government is so completely in the hands of its corporate masters it can’t even overturn the exemption it gave health insurance companies against federal anti-trust laws. In other words our ‘reform’, if there is any, will simply be to hand more of our money over to our corporate masters while ensuring they are free to gouge us without restraint.

But probably the ‘great recession’, caused exclusively by the greed and incompetence of our corporate overlords, is the clearest example of the end of any meaningful democracy in this country and our total domination by our corporate overlords. Not only were the people forced to pay money, with no strings attached to reimburse our corporate masters for their incompetence but it’s now clear that in return there will be exactly zero meaningful corporate reform. The government is literally, not figuratively, a piggy bank run by our corporate masters with our money. The government does not work for the people, rather the people are simply funding tools for the government and its corporate masters.

I am reminded of the parable of the boiling frog where the frog is put in a pot of water and the heat is slowly turned up, so slowly that the frog doesn’t realize it is being boiled alive until it is too late. How would we know when the water has boiled on American democracy?

I believe that today I got the answer. The U.S. Supreme court, rather than ruling on anything that can be plausibly drawn from the constitution, has just invented a brand new right. It would seem that the first amendment applies to corporations (the court has actually made this argument before but never, I believe, so forcefully as today) and that corporations therefore must have similar rights as citizens to participate in the political process. Never mind that corporations are not people. Never mind there is no fundamental right to form a corporation and that corporations exist as a deal between the people. In essence the deal is that in return for not being held personally liable for the debts of the corporate entity the corporation is required to act on behalf of the people and with what restraints the people choose. That later part has been forgotten, or really, expunged. Now corporations are more or less people and our Supreme Court has decided that restrictions on their ability to fund the charade we call our political campaigns must be, in effect, close to unlimited.

Not only will corporations now be able to completely drown out everyone but their own voice but now foreign governments can funnel money to their pet corporations or really just set up quid pro quo deals (“Oh, you want to expand your business in China? Well maybe if you help this nice senator win his campaign…”). In a sense I suppose this ruling is good because it removes the thin veil that corporations were doing anything other than running our country.

In and of itself I don’t actually think this decision changes anything. It simply clarifies the relationship between corporations and America’s citizens. But I do find it useful as the final flag, the water is just about boiled. One suspects it’s time to jump out.

To the folks who read this blog, who are mostly in the on-line services business, this issue isn't just theoretical. Everyday we make decisions that affect the privacy and security of our users. Where do we host our data? What kind of interception facilities do we put in our networks? What kind of logs do we keep? We all have an obligation to act ethically, to use our knowledge to help people, not harm them. When we record more than we need, keep it longer than we need, make it too easy to recover/intercept and store it in the wrong place we fail in our ethical obligations and for that we all need to be held to account.

N.B. Oh and read Greg Palast's latest diatribe to get a feel for just how inequitable our society is. Do you honestly think this can go on forever?

"Another vital step the President took in the days following 9/11 was to authorize the National Security Agency to intercept a certain category of terrorist-linked international communications. There are no communications more important to the safety of the United States than those related to al Qaeda that have one end in the United States. If we'd been able to do this before 9/11, we might have been able to pick up on two hijackers who subsequently flew a jet into the Pentagon."

In other words, only if the President had been free to order warrant-less searches before 9/11, as he subsequently ordered after 9/11, we could have captured two of the terrorists.

This Washington Post article does a good job of explaining that Cheney is wrong, that the FBI and CIA were too screwed up to even know who to eavesdrop on.

But an even more important point in my opinion is that the same law that requires the President to get a court order before allowing surveillance within America also explicitly provides, in section (f), for "Emergency Orders". These allow the government to begin surveillance without a court order and then apply for one up to 72 hours later. If the FBI and CIA had been in a position to know who to listen in on they could have done so immediately and gotten legal approval at a later date. In other words, Cheney is lying.

What makes this situation really sick is that as it is FISA, the law that controls the Federal government's ability to use surveillance against International terrorists operating in America, would appear to be a meaningless rubber stamp. According to EPIC (a group I regularly donate to) from 1979-2004 a total of 18,642 FISA requests were approved, only 4, all in 2003, were rejected. And it turns out that 2 of the 4 rejected applications were later approved in whole or in part. I find it beyond credibility that in all those years across all of those orders only 2 deserved to be fully rejected. I think it is therefore reasonable to conclude that FISA is just a rubber stamp but apparently even such a toothless protection was too much for President Bush.

Remember folks, pay your Freedom Insurance, donate to the ACLU and EPIC.

To understand the case you have to understand that eventually Padilla did get a lawyer and that lawyer filed a case on his behalf against the government asserting Padilla's rights as a citizen to have evidence presented against him. It was at that point that the government was forced to justify to the courts why they were holding Padilla. Although the government continued to maintain its assertion that it didn't actually have to justify anything it said it would still be 'friendly' about this and decide to provide some evidence, specifically the charges that Padilla was a "Dirty Bomber" who was on a mission to use nuclear material as part of conventional explosives in order to create 'contaminated' bomb sites in the US.

The 4th Circuit Court eventually ordered that Padilla at least had to have a Kangaroo trial (e.g. a trial with different rules of evidence than normally applied to U.S. citizens, see my original article for details). The government then responded by withdrawing Padilla's status as an "enemy combatant" and instead charging him, in a civilian court, with helping to raise money to finance terrorists abroad.

The 4th Circuit Court however didn't like this at all. After all, the Federal government had made specific allegations that Padilla was a "Dirty Bomber" and had used those allegations to justify holding him for three years. Now the government was suddenly throwing those allegations out and charging Padilla with something completely different.

The 4th Circuit Court has therefore ordered that the President cannot transfer Padilla from military to civilian authority and must continue with its current case against Padilla. To make things even more interesting it isn't completely clear that the court has the right to stop Padilla's transfer. This thing is likely to get a lot more complicated.

In a sense I'm almost sorry that the George Bush decided to back down and not continue to assert the government's line that it could hold anyone, anywhere, for however long it thought appropriate. It would have been useful to have had a Supreme Court ruling reminding Mr. Bush that he is President, not Emperor. Of course given the new Justices that Mr. Bush is appointing I suppose I should be happy the case ended now before the new Supreme Court had a chance to rule that we have no rights other than the ones that Mr. Bush decides to give us.

In any case Mr. Bush has demonstrated that the U.S. government can steal three years of a citizen's life without any charges, judicial review, nothing. That alone is scary enough.