Corporations and the Constitution

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CORPORATIONS AND THE CONSTITUTION

The United States is the organizational or the corporate society par excellence. Seen sociologically, numerous societal entities of a corporate nature exist. From the perspective of constitutional law, only the business corporation has the status of being a person. Those enterprises are social organizations midway between the state and the individual, owing their existence to the latter's need for organization and the former's reluctance to supply it. They are part of the greatest silence of the Constitution—the nature and operation of the economy. Except for a few nebulous provisions in Article I, plus the obligation of contracts clause and the property provisions of the Fifth Amendment, all is left to inference. Neither business corporations nor unions nor any other private organization (for example, universities, farmers' legions, veterans' leagues, and the like) are mentioned.

As a consequence, corporate organizations fit uneasily into constitutional theory. As collectivities, they are the principal units of today's political pluralism. The giant corporations dominate the economy, both domestically and internationally. It was not always so. As late as 1800, only about 300 business corporations existed. Industrialization, coupled with massive governmental aid (pursuant to alexander hamilton's principles), so burgeoned corporate growth that during the 1850s more were formed than ever before. After the civil war, the "trusts"—the forerunners of today's corporate giants—flowered.

The large corporations do not fit into democratic theory. Centers of economic and thus of political power, some are so mighty as to challenge the sovereignty of the state. Constitutional decisions of the Supreme Court have formed a major part of the legal basis for that dominating position. dartmouth college v. woodward (1819) set the tone. Chief Justice john marshall read the contract clause to nullify New Hampshire's attempt to alter Dartmouth's charter, originally granted by the English crown. In well-known language, Marshall called the corporation "an artificial being, invisible, intangible, and existing only in contemplation of law." He thus made it clear that corporations, although collectivities, were private entities, and by labeling them "artificial beings" he paved the way for the Court in 1886 to declare that corporations are persons protected by the fourteenth amendment. (Also in 1819, Marshall ruled that Congress had implied power to form corporations when " necessary and proper " to carry out its expressly granted powers. The decision, mcculloch v. maryland, is also noteworthy for its theory of broad construction of the Constitution.)

As constitutional persons, corporations were able to invoke the due process clauses to fend off adverse regulations. By inventing the concept of substantive (or economic) due process, the Supreme Court helped to defang the Granger, Populist, and nascent labor movements. freedom of contract was read into the Constitution; laissez-faire economics became constitutional doctrine. By that one development the Court catapulted judicial review into a powerful instrument of governance.

lochner v. new york (1905) is the best known economic due process decision. Over a famous dissent by Justice oliver wendell holmes, the Court invalidated a statute regulating the hours of workers in bakeries, because both the company's and the workers' freedoms to contract were improperly invaded. So many similar decisions were rendered that by 1924 John R. Commons called the Court "the first authoritative faculty of political economy in the world's history."

That practice was altered by the Great Depression: in 1937 the Court grudgingly conceded that economic policy was a province of federal legislation. The turning point came in west coast hotel corp. v. parrish (1937) and the wagner act cases (National Labor Relations Board v. Jones & Laughlin Steel Corp., 1937). The latter decision in practical effect "constitutionalized" political pluralism. ferguson v. skrupa (1963) illustrates the modern, and doubtless permanent, attitude of the Court toward economic regulation.

Noneconomic regulation is a different matter. In first national bank of boston v. bellotti (1978) the Court invalidated a Massachusetts statute prohibiting corporations from spending money to influence elections. Corporate managers now have an unabridgeable right not only to spend their personal funds to further their political views but to use the money of others (in legal theory, corporations are owned by the stockholders). Although fictional persons, corporations by judicial legislation are attaining many of the rights of natural persons.

Neither political theorists nor economists have produced a satisfactory theory of conscious economic cooperation and its effect on the constitutional order. The Supreme Court refuses to recognize the corporation for what it is—a private government that, save in label, differs little from public government. Americans are governed as much—perhaps more—by corporations as they are by the official organs of government. Corporations, moreover, have such an influence upon the governmental structure that a version of corporatism is in process of creation.

Corporations were originally considered to be arms of the state—divisions of society established to get some of the public's business done. Today, paradoxically, they are both associations of individuals and constitutional persons. As such, they challenge orthodox constitutional theory. Their governmental character could be acknowledged by the Supreme Court; but the Justices have usually refused to do so. However, smith v. allwright (1944) did apply constitutional norms to a corporate body (albeit not a chartered corporation)—the Democratic party; and in marsh v. alabama (1946) a business corporation operating a "company town" was subjected to the limits of the first amendment.

The giant corporations have assets that overshadow those of most of the states (and, indeed, most nation-states). They have created a national economic system that makes a decentralized political order impractical. Traditional concepts of federalism have consequently had to give way to notions of nationalism. In recent decades, many corporations have become transnational and they are creating an international economic order. They thus challenge the political order of the nation-state much as their predecessors altered the original federal system.

Corporate bodies, whether business or otherwise, have become so socially significant that in one perspective they have replaced the individual (the natural person) as the basic unit of society. The modern corporation has created societies with structural foundations different from those of the past. Constitutional theory must therefore adapt itself to the corporation on three levels: federalism (in many respects corporations are in effect the most important units of local government); nationalism (where the transnational corporation challenges the sovereignty of the nation-state); and individualism (the natural person must become adapted to living in a hierarchic, bureaucratic society). To date, little scholarly activity has addressed any of these levels.

Arthur S. Miller
(1986)