The Divine Right of Capital
by Marjorie Kelly
Berrett-Koehler Publishers, $24.95, 230 pages, 2001Buy this book from Powell's, an independent bookstore
It's an old story: the child rebels against a parent and then turns out just like him or her. It can happen to a nation too, as Marjorie Kelly shows in her wonderful new book. The American colonists rejected Mother England and everything it stood for: aristocracy, special privilege, inherited wealth, the divine right of kings. Then they created a republic that—despite their best intentions—bred those very things, in the form of the modern corporation.
This is the back story in the Enron fiasco, the one the mainstream media won't touch. Sure, we care about shareholders who lost their life savings. But what about the rest of us, our communities, and the planet? Kelly's title is not facile populism. She means it. The modern corporation and its largest shareholders occupy a place in our society that royalty occupied in the one we supposedly cast off.
A defining trait of aristocracy, for example, is entitlement to income one does not produce. That also defines a modern corporate shareholder. Most shareholders today don't even contribute capital to the corporation they “own.” Instead they just play the Wall Street casino, placing bets on paper representations of ownership as opposed to actually exercising it. “Like the French aristocracy before the (French) revolution,” Kelly writes, “stockholders as owners have discarded virtually all productive functions they once had, but still retain their privileges.”
Or take royalty. As it emerged in Europe, the authority of kings rested on a series of legal fictions, concocted to justify the existing order. The king was everywhere, though physically in one place. He was immortal, and he was never wrong. That's a fair summary of the legal fictions that underlie the global corporation. It is chartered in Delaware or some other state but it exists everywhere. It may lay off workers and decimate communities and the planet; but as long as it is making money for its shareholders then it is always right.
Kelly takes a reader through heavy conceptual territory with a deft, irreverent touch. Her writing has energy and panache, and she offers suggestive nuggets from her research instead of overwhelming with it. Did you know for example, that John Locke, an intellectual father of modern economic orthodoxy, believed that people should own only as much property as they could productively use?
Or that Adam Smith himself believed that profits should be small? Profits are “always highest in countries which are going fastest to ruin,” Smith wrote. High profits represent an “absurd tax” upon the citizenry, he added. Would someone please send a telegram to the White House?
America never really chose the version of the corporation that has come to dominate our lives, Kelly observes. Instead it snuck up through the cracks in the Constitutional scheme. Judges, not legislators, first declared that corporations exist solely for their shareholders. In 1886, in Santa Clara v. Southern Pacific, the Supreme Court ruled—with no precedent or justification—that corporations are legal “persons” entitled to full Constitutional protection under the 14th Amendment. That amendment was supposed to guarantee the rights of African Americans. Yet in the 50 years following the 1886 decision, about one half of one percent of 14th Amendment cases concerned African Americans.
Instead, the vast majority concerned the rights of corporations, which the Amendment never mentions. That's aristocracy in action, claiming for the very rich protections intended for the downtrodden.
Kelly publishes Business Ethics, and she has an ability that most business reporters lose their first day on the job—namely, the ability to ask the obvious question and to look at the accepted with clear and quizzical eyes. Why is it, she asks, that return to employees is considered a cost to a corporation, while return to the shareholders is considered a gain?
In other words why shouldn't an enterprise gauge its success in part on how much it returns to its workers and for that matter to its communities as well? When we start to ask such questions, we'll start to look a little more like the nation the Founders thought they were establishing and less like the old order they were tossing aside.