A New Deal for Local Economies: II. The Birth of Corporations

Stacy Mitchell
Jacqueline Bos

While signs abound that people are rediscovering the benefits of an economy rooted in community and small-scale enterprise, all of this activity, though widespread, is still quite modest. It exists largely on the margins and is unlikely to coalesce into a wholesale reorganization of our economy unless we change the rules. 

We tend to imagine that our economic system is the product of a kind of natural evolution, the inevitable result of forces as innate and inexorable as the weather. But in fact our economy is largely the consequence of public policy. We have made rules that privilege the global over the local, concentrate ownership, and undermine democracy. 

The corporation itself is an invention of government, and the more you study its origins and structure, the more peculiar and artificial you realize it is. The first corporations were established in the 15th century by monarchs eager to maintain their power against a rising merchant class. These chartered corporations were endowed by their royal creators with monopoly rights to control trade and exploit various regions of the world, backed by the full legal and military power of the state.(7) 

This unholy alliance between central governments and powerful corporations has continued right on down to the present day, but with a few noteworthy setbacks along the way. One was the American Revolution, which, you may recall, got underway in earnest when a group of colonists forced their way onto three ships docked in Boston Harbor and dumped more than 90,000 pounds of tea into the sea. The colonists' actions that night were as much a challenge to corporate power as they were a rebellion against King George III. Those ships were owned by the East India Company, which had been losing money in the colonies in part because of growing competition from local tea merchants. Parliament stepped in and passed the Tea Act, which exempted the East India Company from the taxes that its small rivals had to pay. The assumption was that the lure of cheaper tea would outweigh any loyalties the colonists had to their local merchants. But Parliament and the East India Company misjudged. The Boston Tea Part and the Revolution itself were thus acts of both civil disobedience and corporate sabotage.(8) 

In the decades following the war, Americans remained highly suspect of economic concentration. Thomas Jefferson even proposed making "freedom from monopolies in commerce" part of the Bill of Rights. Although his proposal failed, the early republic still placed strict limits on the power and longevity of corporations.

But the corporate form waited in the wings and made a comeback after the Civil War, when a series of court rulings and new laws endowed the modern corporation with extraordinary power, including most of the rights of citizens plus several superhuman powers, notably limited liability and unlimited life. In the words of David Morris, co-founder of the Institute for Local Self-Reliance, "We gave business the tools to grow beyond our capacities to control it. And one hundred years later these creatures of the state have come to dominate states." 

From bailouts for big banks to tax breaks for superstores, we have rigged the system with policies that underwrite corporate expansion and undermine local economies. A handful of companies now dominate every sector of our economy. 

This is not the world of Adam Smith. It is not about people creating and exchanging real value. Corporations exist not to create value, but to extract it. Their roots in colonialism are very telling. When mega-retailers, like Wal-Mart or Tesco, move into a community, their aim is not to enrich the local inhabitants. Their aim is to eradicate local businesses and to sever the web of economic relationships that link the people of a community together - from the local banker making a loan to the shopkeeper, who sources goods from a local manufacturer or farmer, who in turn hires the local accountant, and so on. In place of this robust system of local trade and mutual benefit, the big superstores erect a single-track economy in which wealth flows in only one direction: out. 

How is it that we have so willingly accepted such colonization? We acquiesce in large part because we long ago stopped conceiving of ourselves as citizens, with all of the authority and responsibility that role entails. Instead we adopted the highly circumscribed role of consumer. This is how we are referred to by corporations, the media, our elected officials, and even ourselves. We have internalized the logic of corporations. 

This consumer identity is actually a relatively modern invention. It was created in California in the late 1930s by one of the first big chains, a company called A&P. At its height, A&P operated about 4,000 supermarkets. It is often referred to as the Wal-Mart of its day, although its market share was in fact much smaller. When A&P, and other early chains like Woolworth's, were first expanding in the 1920s and 30s, they were met with fierce resistance. People organized against them in hundreds of cities, half the states passed anti-chain store taxes that grew progressively larger the more outlets a chain had, the federal government launched several antitrust cases against A&P, and by 1939 Congress itself was debating a national chain store tax that was so steep that, had it been enacted, it would have dissolved A&P.(9) 

It's fascinating to read this early debate because it's so different from the discussion we have today about chain stores. People at that time reacted to A&P as citizens, as independent economic actors, as stewards of their communities. And from all of these perspectives, they saw A&P as a threat, to both their livelihoods and democracy itself. A&P responded by hiring a very clever ad agency and launching a sweeping public relations campaign that reframed the terms of the debate and repositioned people not as citizens, but as consumers. It worked. People began to see a new supermarket not as a threat, but just another shopping option. The national chain store tax was defeated, antitrust took a back seat, and our consumer identity was born.(10) 

When we became consumers, the pursuit of happiness — to use Thomas Jefferson's lovely phrase — ceased to be a collective, public endeavor. It was no longer about seeing friends at the pub, or strolling the high street on a warm evening, or joining with one's neighbors to address a community need. Instead the pursuit of happiness became confined to the narrow realm of individual consumption. People no longer relied on their neighbors so much as competed against them. "A life devoted primarily to the pursuit of material ends," Fritz Schumacher observed, "necessarily sets man against man … because man's needs are infinite and infinitude can be achieved only in the spiritual realm, never in the material." Consequently, today we find ourselves not only on the brink of environmental catastrophe, but increasingly alienated and unhappy.

Einstein was right that "no problem can be solved from the same level of consciousness that created it." And so we must begin by reclaiming our citizenship.

7. Douglas Rushkoff, Life Inc. (Random House, 2009).
8. Thom Hartmann, Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights (Rodale, 2004).
9. Stacy Mitchell, Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses (Beacon Press, 2006) p. 205-210; Richard C. Schragger, "The Anti-Chain Store Movement, Localist Ideology, and the Remnants of the Progressive Constitution, 1920-1940," Iowa Law Review, 2005; Lizabeth Cohen, A Consumers' Republic: The Politics of Consumption in Postwar America, (Knopf, 2003).
10. Helen Woodward, "How to Swing an Election," The Nation, Dec. 11, 1937.