Corporation Nation

Corporation Nation

Robert E. Wright
Copyright Date: 2014
Pages: 328
https://www.jstor.org/stable/j.ctt5hjm01
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    Corporation Nation
    Book Description:

    From bank bailouts and corporate scandals to the financial panic of 2008 and its lingering effects, corporate governance in America has been wracked with crises. Amid a weakening system of checks and balances in which corporate executives have little incentive to protect shareholder interests, U.S. corporations are growing larger and more irresponsible at the same time. But dependence on corporate profit was crucial to the early republic's growth, success, and security: despite protests that incorporated business was an inefficient and potentially corrupting system, U.S. state governments chartered more corporations per capita than any other nation-including Britain-effectively making the United States a "corporation nation." Drawing on legal and economic history, Robert E. Wright traces the development and decline of corporate institutions in America, connecting today's financial failures to deteriorating corporate law.In the nineteenth century, checks and balances kept managerial interests aligned with those of stockholders, and public opinion grew supportive as corporations raised billions of dollars to finance infrastructure such as transportation networks, financial systems, and manufacturing operations. But many of these checks and balances were dismantled after the Civil War, allowing leeway for the managerial malfeasance that spiraled into economic crisis in the twenty-first century. Bolstered with archival and original data, including the first complete count of American business corporations before the Civil War,Corporation Nationmakes a compelling argument for improved internal governance and more effective external government regulation.

    eISBN: 978-0-8122-0896-2
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. [i]-[vi])
  2. Table of Contents
    (pp. [vii]-[viii])
  3. Chapter 1 The Corporation Nation Emerges
    (pp. 1-8)

    The development of the for-profit business corporation over time has never been well understood, even in the nation most responsible for its economic ascendance, the United States. “American-style corporate capitalism,” two business scholars recently proclaimed, “is an international juggernaut” (an overwhelmingly destructive force) and perhaps the single most important institutional feature of modern, developed economies the globe over.² Yet even leading scholars of the U.S. economy have underestimated the number, ubiquity, and economic importance of early corporations, creating the misapprehension that they were insignificant until after, or perhaps during, the Civil War.³

    Two reporters for the generally astute economics weekly...

  4. Chapter 2 Before the Constitution
    (pp. 9-24)

    Before describing the rise of corporations in America in detail, it is important to define terms and to describe the early development of the corporate form. The Western legal tradition countenanced three major types of corporations: municipal (towns and cities); nonprofit (charities, churches, schools, various societies); and for-profit (business). Each type was important in its own right; indeed, the three types blurred together at first. Early Americans helped to make the distinctions among the three types clearer but only for-profit corporations—to wit, businesses whose main purpose was to earn revenues that exceeded their expenditures for the benefit of their...

  5. Chapter 3 Corporate Iniquity
    (pp. 25-48)

    The U.S. Constitution does not mention business corporations because the delegates to the constitutional convention that met in Philadelphia in 1787 decided not to give the federal government the explicit power to charter corporations of any sort. Ironically, ratification of the Constitution touched off a chartering spree at the state level that has not abated to this day. The reason is not difficult to discern. The rise of the American corporation nation was not sui generis but rather rooted in what contemporaries called the genius of American institutions. Most countries were poor because most suffered under predatory governments. “There is...

  6. Chapter 4 Corporate Ubiquity
    (pp. 49-79)

    Figure 1 plots, on a log scale, the number of special charters granted to businesses each year throughout the United States between 1790 and 1860. The sheer number of corporations was important to the rise of the corporation nation, but so was their size. Size is best measured by total assets; unfortunately, early corporations, especially nonbanks and especially before the 1830s, left few balance sheets to posterity. So Figure 2 plots—again, on a log scale—the next best measure: minimum authorized capitalization (MINAC), the lowest capitalization figure stated in corporate charters.²

    Clearly, the old canard that the antebellum U.S....

  7. Chapter 5 The Benefits of Big
    (pp. 80-115)

    Early American entrepreneurs, more than 131,000 of them, went through the trouble of obtaining a special act of incorporation for the 22,419 corporations documented in Table 1 in Chapter 4 because they expected that the total benefits of incorporation exceeded its total costs. They knew that investors were eager for the profits that promised to flow in the form of dividends or share or real-estate price appreciation. But why did entrepreneurs want to share their profits? To increase their financial success, they had to control more resources than they could personally command. “The convenience to a numerous body of men...

  8. Chapter 6 Governance Principles
    (pp. 116-151)

    Early corporate charters were somewhat experimental at first and hence marked by diversity. Convergence occurred with some rapidity as incorporators and legislators discovered what worked and what did not.² What worked was whatever prevented employees, managers, officers, directors, or large stockholders from stealing from a corporation’s other stakeholders. As Chapter 7 will make clear, corporations were not always successful in their quest to prevent fraud and mismanagement. Were it more honest about itself, our species would call itselfHomo sapiens ereptor, “man the wise thief.” When corporations successfully protected themselves from the agency problems that their critics so feared, they...

  9. Chapter 7 Governance Failures
    (pp. 152-172)

    Chapter 6 explored how and why most early corporations were able to mitigate the principal-agent problem that their critics believed would overwhelm them—or, in the words of a contemporary board of directors, how corporations were able “to promote the permanence, value and usefulness of the work, a reduction of excessive charges and prohibition of all unnecessary expenses, and an economical, systematic and efficient organization of the superintendance of and management of the same.”² When the principles of governance were properly applied, the interests of employees, supervisors, officers, and directors (or managers or trustees) were closely aligned with those of...

  10. Chapter 8 Regulation Rising
    (pp. 173-191)

    Entrepreneurs and legislators first responded to lapses in corporate governance like those described in Chapter 7 by tightening charters and bylaws. After William Duer simply walked off with corporate securities owned by the SEUM, for example, corporations began to hire treasurers and buy chests that could be opened only by two different keys turned simultaneously. When later fraudsters drew on corporate bank accounts, corporations responded by mandating the use of countersignatures on all checks of significant size. After mutual life insurers failed in droves in the 1830s and 1840s, the surviving companies tightened up by making medical examinations more rigorous,...

  11. Chapter 9 Corporate Governance and Regulation since the Civil War
    (pp. 192-214)

    Traditional criticisms of the corporation survived the Civil War and apparently intensified over time.² In 1873, James A. Garfield told the student body of Hudson College that business corporations were a threat to the republic because “the vast powers of the railroad and the telegraph, the great instruments by which modern communities live, move and have their being” were “owned and managed as private property, by a comparatively small number of private citizens.” The future president also reminded his listeners of the agency problems confronting large corporations. “The great managers,” he noted, “have in many cases grasped the private property...

  12. Chapter 10 Reforming Corporate Governance
    (pp. 215-230)

    Despite their weakening governance systems, U.S. corporations have continued to grow larger, more numerous, and more complex, and have become an ever larger component of the national economy. In the late nineteenth century, one corporate jurist noted that few entities other than corporations promoted “wealth, or science or charity, . . . and the statute books are filled with acts of incorporation.”² By 1916, more than 300,000 corporations were active throughout the nation, and the largest ones alone had an aggregate market value of some $8 billion. By the mid-1980s, more than half a million new corporations formed each year....

  13. Notes
    (pp. 231-304)
  14. Index
    (pp. 305-318)
  15. Acknowledgments
    (pp. 319-320)