Corporations, Constructed Strictly


July 26, 2005


Browse in Corporations

The President says he wants Supreme Court justices who will interpret the Constitution as it is written, not according to what they wish it says. It’s a good speech line, but I don’t think the President really means it.

People on the Left generally assume that “strict construction” is Right Wing code for overturning Roe v. Wade, environmental protections and the like. And indeed it is. But it’s also more. Ideologically the doctrine cuts both ways, because “judicial activism” has cut both ways. It was a blatant act of judicial activism, for example, that took the protections of the Bill of Rights, which Jefferson et al intended for real people, and extended them to artificial persons called corporations.

Honestly followed, the principle of strict construction would lead to a drastic curtailment of the rights, and therefore the powers, of these same corporations. I doubt the President wants to go there. And while the question would bring a pulse of life to the looming confirmation hearings for Judge John G. Roberts, I doubt the Democrats want to go there either. Alas.

For those concerned about the commons, the question is crucial. The modern corporation is an engine of enclosure. It cannot rest until every inch of space, every moment of time, every interaction between people, has become either something to sell or an occasion for buying. Even then it cannot rest. To protect the commons, and life itself, humanity has to regain control over its corporate creation. In the U.S., this means, in part, returning to basic principles of Constitutional law that corporate lawyers have managed to annul.

Let’s start with the obvious. The Constitution doesn’t mention corporations. Not once. Not in the Preamble, not in the main text, not in the Bill of Rights, not in the amendments that followed. The voice and standpoint of the document are asserted in the first three words: “We, the People.” Not We the People and something else. Just We the People.

From a strict construction standpoint, the case would seem a slam. No text, no chance.

If we move to another slogan of the Right — “original intent”—the case gets even stronger. To the extent the Founders thought about corporations, it was mainly with distrust. The large corporations of their day were the British trading companies such as the West India Company, which had been a constant irritant to the colonies. To the extent the question of corporations came up in the Constitutional debates, it was to control them, not empower them. James Madison twice proposed that the Constitution give Congress the power to charter corporations “in cases where the public good may require them and the authority of a single state may not be competent.”

Madison was proposing federal chartering, which is a form of federal regulation. Had the other delegates paid heed, they could have averted the “Corporate Reno” effect that erupted about a century later, as states competed to enact the most permissive corporation laws and so attract more charter business. Jefferson opposed Madison on this, on the grounds that corporations created by Congress could come to dominate the government that created them (much as they dominate the state of Delaware, the favored corporate domicile today.)

Madison was the more prescient. The absence of federal chartering hasn’t prevented the result that Jefferson feared. But in any case, it is hard to read into the views of such Framers an original intent to extend the protections of the Bill or Rights to corporations as well as We the People. They were more concerned about the power of We the People to keep corporations under control.

There is extrinsic evidence of this in the writings of a man much admired among the Colonial minds — Adam Smith. The father of free market theory was not high on the institution that has come to dominate free market practice. Smith observed that the large “joint stock company”, as they were called back then, is cumbersome and bureaucratic. Individual entrepreneurs, with their “superior vigilance and attention”, would defeat it every time. Smith cited with approval a study by a French author, who found that of 55 joint stock trading companies founded in Europe since 1600, almost all had failed. Not exactly something to invest with the mantle of Constitutional protection.

One could argue that Madison and Smith were talking about a version of the corporate form that is different from the kind that prevails today. Corporations back then were chartered specifically by acts of legislatures, to carry out specific businesses. They didn’t have carte blanche to make money the way corporations do today. Yes, times have changed. But the argument that justices should interpret the Constitution in light of changing social circumstance is precisely what the strict constructionists say you shouldn’t do. Judge according to what the Framers wrote, they say, not according to what you think they might have written today.

Given all this, how did corporations manage to insinuate themselves into a document intended to protect the rights of genuine people? And how could this happen back in the good old days before the Warren Court and its activist liberals, when upright men decided cases based on the law as it was written? The answer is that corporate activists were in the game long before the liberals got there. The case in which they did their work was one of the strangest in the Court’s history, because the Justices never actually addressed the issue that the case report says they did.

The case involved the Southern Pacific Railroad, which was challenging the property taxes levied by Santa Clara County, California. The tax bill was $30,000, on property worth at least $30 million dollars. As Thom Hartmann points out in his book, Unequal Protection, “That’s like having a $10,000 car and refusing to pay a $10 tax on it — and taking the case to the Supreme Court.” On top of that, the Southern Pacific was a great beneficiary of government land grants to begin with. It got millions of acres free from the taxpayers. Yet it objected to paying what amounted to a pittance in local property taxes.

The case ultimately was decided on a technical point involving the assessment of fences that ran along the railroad’s property. (The Court sided with the Southern Pacific.) But the railroad’s lawyer had tossed in a claim under the Fourteenth Amendment; namely, that the county had no right to tax railroad corporations differently than it did actual persons. This claim was common practice. From the time the Fourteenth Amendment was enacted in 1868, to guarantee rights to former slaves, corporate lawyers saw an opening, and they hammered away.

The Amendment extended the protections of the Constitution to all “persons.” Corporations were legal persons. Shouldn’t they get the same protections the former slaves did?

The Supreme Court wasn’t buying, not at the beginning at least. The purpose of the amendment clearly was the “protection of newly-made freemen” as it said in one opinion, not the protection of artificial persons called corporations. If the framers had intended the amendment to apply to corporations wouldn’t they have said so? At one point, corporate lawyers claimed to have discovered a secret journal of the Congressional deliberations that proved this intent. For some reason they never actually produced it.

But then came the 1880s and the Gilded Age. A former railroad lawyer was chief justice, and the Court was what today would be called “business friendly.” On the day the Court announced its decision in the Southern Pacific case, the chief justice apparently remarked from the bench that the Court was of the view that the Fourteenth Amendment did apply to corporations. The reason for the statement never has been clear. The Court didn’t get to that question in its decision, nor did the case turn on it in any way.

It is a principle of Constitutional interpretation that you don’t base a decision on grounds broader than necessary to resolve the case at hand. You protect the founding document by invoking it sparingly and with economy. You certainly do not establish radical new doctrines in so gratuitous and cavalier a manner. But that’s what happened. The chief justice’s remark somehow found its way into the written report of the case, and it has been taken as established law ever since.

Imagine if Roe v Wade had become law through a procedure such as that. The howls about “activist judges”would magnitudes greater than they already are. But since the tilt in this case was towards the largest corporations in the country, the decision has been accorded the respectability of the railroad barons themselves, in the portraits in which they appear with grave expressions and in formal dress, pondering those important matters that occupy the thoughts of upright men of business.

Over the next 25 years, the Supreme Court would decide 307 Fourteenth Amendment cases. Of those, 19 dealt with the rights of African Americans. The rest dealt with corporations seeking — and usually gaining — the Constitutional protections intended for those African Americans. That litigation continues to this day, as corporations challenge restrictions on their advertising, for example, on the grounds that it is “speech” of the kind that Jefferson and Madison took such pains to protect.

Over the years, a few Justices have raised this issue in dissent. “Certainly, when the Fourteenth Amendment was submitted for approval,” Justice Hugo Black once wrote, “the people were not told that the states of the South were to be denied their normal relationship with the federal government unless they ratified an amendment granting new and revolutionary rights to corporations.” Justice Black went on to say, “Neither the history nor the language of the Fourteenth Amendment justifies the belief that corporations are included within its protections.”

But then, Hugo Black was a strict constructionist, and an honest one. I wonder how Judge Roberts would explain himself on this point. Wouldn’t it be something if a Democrat actually asked?