The Lost Massey Lectures (43 page)

The multinational does not transfer ownership of its methods and technology in its foreign activities. There is no export or sale of these assets to an arms-length entity in the host country. The specific advantage, together with the invested capital, remains the property of the parent as the parent absorbs foreign assets—resources and/or markets—via its branch plants. What happens is not a transfer but an extension of the firm's existing property rights and control over a stream of revenues to new markets and political jurisdictions. The theorist of international resource allocation and the multinational president then assert, without proof or demonstration, that there is a superior efficiency in this global allocation and investment of resources, which must be protected from the political interference of national governments acting in the name of the interests and priorities of their citizens. If the nation-state is to have no place in the board rooms of the global corporation, then the community is indeed in the grip of an industrial autarchy.

The use of the corporate form for commercial purposes is a late product of the Industrial Revolution. We tend to think of the concept of the corporation as an ancient form of organizing business activity, whereas in fact the legislation creating limited companies in Great Britain dates back to 1855 and 1856. The Industrial Revolution had changed economies from the emphasis on agricultural to commercial and industrial activity, with the consequent changing composition of assets and private wealth from land to liquid and current assets. More formal procedures of accounting and administration were clearly needed to protect property. Since the corporate form had been used for centuries to co-ordinate and control non-profit-making activities—monasteries, bishoprics, universities, highways and canals—its adoption by commercial profit-making activity seemed a natural move. Few could foresee at the time the extent to which the corporate form would be used for the making and accumulating of profit.

In a famous case relating to the responsibilities of the Board of Regents of Dartmouth College, Chief Justice Marshall of the U.S. Supreme Court had defined, in 1819, a corporation as “an artificial being, . . . possessing among its most important properties immortality and individuality, properties by which a perpetual succession of many persons are considered as the same, and may act as an individual.”

Until the nineteenth century, incorporation had been a privilege granted by the Crown or state for achieving national purposes or social objectives, privileges that could be and often were taken away. Social institutions—universities, for example—are continually called upon to justify their stewardship and so to continue their work long after the original founders have left the scene. The existence of the institution and the validity of the institution are continually legitimated by the interlock of their services with the objectives of the community. The immortality of the social institution was and is a contingent immortality, conditional on serving the public welfare.

The attributes of the public corporation—continuity, personality, and individuality—were not extended to the private corporation until the Industrial Revolution was well under way. From Adam Smith through to John Stuart Mill writing in 1849, economists viewed the firm as a proprietorship or partnership, mortal like the owners and operators, certain to disappear in time, thus providing the openings for new men, new initiatives, new ideas. If entry was not easy, exit at least was certain. It was this constant turnover in a dynamic, evolving economy that theoretically prevented a large number of firms from controlling prices and production. This is not the appropriate manner of looking at the economy of 1983 or the multinational, although the model still survives in economic theory.

A commercial corporation may be endowed by the law with
immortality, but somehow this attribute has to be supported by adequate sources of funds. Unlike universities or bishoprics, which depend on gifts and alms from their supporters, or municipalities and states, which depend on taxes, the commercial corporation can only prove its claim and right to perpetual operations by gaining and maintaining a control over consumer markets and/or natural resources. Such a control or near monopoly will enable it to survive more confidently through time, growing and accumulating all the way.

The half century after the passage of the limited-liability and corporate legislation saw an unprecedented concentration of industrial power that led to consolidations, mergers, and trusts. The Sherman Act, designed to slow down concentration and the creation of trusts, was rendered virtually harmless by an act of the New Jersey legislature in 1888 that permitted corporations to buy each other out, a movement that reappears regularly as takeovers and consolidations reach billion-dollar proportions in 1983.

Their control of their markets, their absolute size (measured by assets and material strength), and their independence from those who own them means that society has created institutions that can grow without limit through time. As they grow, they burst through national boundaries and demand the right to range across the world—anonymous institutions that acknowledge no citizenship and would be free of all responsibility except the single objective of accumulating wealth.

In 1970, the Royal Bank of Canada was a hundred years old and had accumulated $11.4 billion in assets. Twelve years later, in 1982, its wealth and power had increased to $88.5 billion.

The
CPR
, founded in 1880, by 1970 reported assets of $2.3 billion. By 1982, its assets has risen to $17.3 billion, partly financed by government generosity permitting the deferral of $1.8 billion in corporate tax.

Imperial Oil was founded in 1880 and had collected assets of $1.6 billion by 1970: By 1982, with the federal government amiably deferring the payment of $1.3 billion in taxes, Imperial Oil had amassed the grand total of $7.5 billion in assets.

Corporate capitalism is not a competitive system when 608 corporations reported taxable income of $15.5 billion in 1980, 53 per cent of the taxable income of the $29.5 billion reported by the Canadian corporate community of 451,567 firms. These are the firms that administer prices in their markets, control output of goods and services, and generate the funds from their operations that ensure the “immortality” that the law accepts.

A government can be dismissed by voters, a church affected by the scepticism of its adherents, or a university deserted by a community for losing touch with its needs or goals. Each of these institutions is bound by the purposes and priorities of its constituents.

The sole concern of the corporation, however, is with itself. Being a new legal person, it is possessed of an identity and form that is distinct from that of the people who own it, who work in it, and who deal with it. What happens to the corporation if a number of shareholders decide to sell their shares? Nothing. Others take their place through the facilities of the stock exchanges; management, which considers owners to be speculating in and outers, is indifferent to the change.

Managements come and go as do the workers. There is a little ceremony, a wristwatch, or a television set. The corporation, of which these men and women were a part, carries on undisturbed. The whole is not only greater than the sum of its parts—owners, management, workers—it is completely separate from any of them. If the corporation is linked to anything, it is not to people.

In 1973 Barclays Bank Limited of London, England, had a record year, a gross profit of £199 million. The chairman, in an
advertisement in the
Economist
, announced that £96 million would be retained by the bank to increase the wool on its back, that £88 million had to go to the government for taxes, and £15 million in dividends to the stockholders. He stated: “It is also worth recording that of the three parties who make up a bank, namely stockholders, staff, and customers, none has gained much from these profits.” And, indeed, they had not. In a year of 10 per cent inflation, the salary increases were limited to 7 per cent, the dividend increase to 5 per cent, and customers had to pay higher rates of interest.

These facts apply right across the corporate spectrum. The Barclays chairman was simply being frank. The corporation has simply one concern, to make full provision for its own continuity and growth.

Corporations have become ends in themselves when they were never meant to be more than efficient means of grouping the factors of production, land, and labour with the support and thrust of capital saved, to expand the output of goods and services and thus establish a higher standard of living for the whole community.

Unwilling to accept the goals of those who own it—although private property is the core of the value system in which it flourishes—struggling to free itself from the priorities and purposes of the community, the sole concern of the corporation is with its future. Self-perpetuating, self-determining, independent of time and space, the object of the corporation's existence is itself.

To be wealthy, said Aristotle, is no problem, even for a philosopher. He related the story of Thales, the astronomer-philosopher born in Miletus. Observing the stars, the philosopher judged the conditions appropriate for a great olive harvest. Whereupon Thales bought up all the olive presses in Chios and Miletus. There was a great harvest, but no olive presses—except those belonging
to the philosopher, who rented them out at prices that soon made him rich. Control a market, be a monopolist.

Aristotle told another story. A man in Sicily bought up all the iron that was available. When merchants came to buy, he was the only seller, and with little difficulty he soon gained 200 per cent. Dionysius, the tyrant of Syracuse, called the man before him and told him that he could keep his money but that he must leave Syracuse. Dionysius feared that the man's wealth would soon be dangerous to his own political authority.

Aristotle established clearly the supremacy of politics over economics. Dionysius, wrote Aristotle approvingly, had recognized immediately and clearly that the accumulation of wealth can be a threat to and victor over political authority. For Aristotle, politics—even when practised by a tyrant—was to be preferred to the tyranny of wealth, for it is by politics that people decide on their priorities and their future directions.

Laissez faire was the spirit of the age when the acts of incorporation were adopted, permitting the right to incorporate with a freedom and lack of control that was clearly irresponsible. One hundred and twenty-seven years later, society is still paying for its failure to impose safeguards, to define responsibility, and to make accountable to the state the new means of organizing industrial activity to produce a greater wealth.

When forms of business organization were personal—partnerships or proprietorships—there was no problem about defining business ethics. Business ethics were personal ethics, and the ethics of the person may be described by the one word—“love.” “Have and do whatsoever thou wilt,” was the commandment of St. Augustine, but he was not inviting anarchy. A true love would not infringe the rights of others, and this boundary to one's actions preserves community and freedom.

To command a corporation to love would be madness.
Commanding a corporation to love would be asking it to distribute its wealth, to commit suicide. On the other hand, the corporation cannot be concerned simply with itself; it cannot be the object of its existence. It can and must be forced to conduct itself so that its activities correspond with the aims of the community, with the state itself as the seat of power and elected spokesman of the people.

I have made great use of the commitments made at the Williamsburg conference by the leaders of the seven industrial nations relating to the common defense of the West and the need to achieve comergence—i.e., integration of economic policies, particularly in the monetary, fiscal, and exchange-rate fields. The summit statements are the clearest and most comprehensive description of what has been taking place in the West, the putting in place of an informal supranational authority which could integrate the foreign-policy posture, the defence contributions, and the economic policies of the Western powers.

To repeat the substance of the decisions, the leaders of the seven leading industrial nations agreed:

1. In the statement on arms control: “We shall maintain sufficient military strength to deter any attack, to counter any threat, and to ensure the peace.” Also, “The security
of our countries is indivisible and must be approached on a global basis.”

2. In the text on economic recovery: “To promote convergence of economic performance in our economies” and “focusing on near-term policy actions leading to convergence in the medium-term.” This goal was to be reached by following a pattern of non-inflationary growth of the money supply, appropriate interest rates, discipline over government expenditures, and convergence of exchange rates.

Williamsburg gives the impression that a community of the West has been created with authority over the participating nation-states. In fact, the leaders could do no more than agree to follow certain lines of conduct that would contribute to national and group security and to follow this up with appropriate economic initiatives.

Williamsburg as an exercise in public relations may or may not impress the Russians with the display of solidarity, but no international legal organization was created that could strip away elements of national sovereignty and so provide the unification that exists in the Soviet bloc. Not one of the Western leaders would have dared to accept openly the limitations of their sovereignty spelled out in the agreed press releases if these limitations were to be enshrined in an international treaty. It is worth repeating that the legal sovereignty of a state is incompatible with the existence of a supra-national authority that has a power centre of its own. A legal space is a universal space, although sovereign nations may choose not to exercise their rights in given situations. To the self-limitation of its sovereignty, Canada has been particularly prone.