Dr. Andrew Schocket

Dr. Andrew Schocket

Corporations part of U.S. 'policy DNA,' says historian Schocket

America has long had a love-hate relationship with the corporation. While a symbol of wealth and capitalism, it has also been viewed as impersonal and greedy, trampling the rights of the common man and frequently the undeserving beneficiary of “corporate welfare.”

Though the standard view of historians has been that corporate power in America arose in the 19th century, a new book by Dr. Andrew Schocket, history, makes the case that the very fabric of American society has been interwoven with corporate involvement from the earliest days of the new nation. In Founding Corporate Power in Early National Philadelphia, published recently by Northern Illinois University Press, Schocket demonstrates that corporations served many purposes in the early republic, from providing regional transportation systems to establishing banks and creating the money supply (at that time, banks were authorized to print money)—all the while consolidating the wealth and power of their owners, who were most often the wealthy elite.

“Corporations were an important part of the Revolutionary settlement and how government and the economy were set up,” he said. But it was an “uneasy alliance,” he notes, in which both sides were suspicious of one another and social benefits were often countered by diminished self-determination for the populace. Schocket traces the history of modern-day corporate America’s hostility toward government back to the 1780s, when “corporate men had great disdain for the popular government.”

Founding Corporate Power in Early National Philadelphia by Dr. Andrew Schocket

Philadelphia is a particularly interesting example of the rise of the corporation, in that the city’s popular politics were among the most radical in all the states, yet it chose to adopt the corporation as a means of carrying out public projects, thus consolidating power in the hands of a few. “It was in Philadelphia as much as anywhere during the republic’s first fifty years where these institutions took full form and their officers came to possess such power,” Schocket writes in the book’s introduction.

Where the early government did not have the resources or the will to undertake large projects and did not want to raise taxes sufficiently to accomplish them, the corporation stepped in to provide the service.

Though it gained a benefit, what the government lost in the bargain was control of the planning and outcome of the projects. The elite faction was allowed to perform the functions it felt were needed and to shape the institutions and even economic policy as it saw fit. In addition, “corporations had the ability to reward friends and punish enemies, increasing economic stratification” in the new democracy, he noted.

Eventually, even those members of the corporate elite who were on opposing political sides managed to work together to circumvent popular will when it was to their benefit.

In the case of the banks, for example, “they collaborated to control the money supply outside the democratic process. They could lend money and decide who would get credit,” Schocket said.

On the other hand, he said, by “consolidating economic benefits, they enabled entrepreneurs to start up.” One area where this was particularly true was transportation.

When the state granted a charter to a corporation to render the Schuylkill River navigable to transport coal from eastern Pennsylvania downriver to Philadelphia to provide power to developing industry, the privately financed Schuylkill Navigation Company “succeeded beyond even the company’s grandest expectations,” Schocket writes. The company controlled the length of the 108-mile canal, and soon the value of manufactured goods traveling back up the canal exceeded even that of the raw materials flowing into Philadelphia.

Rapid economic growth ensued. Small towns and businesses sprang up beside the canal, and land value increased. “In Manayunk, upriver from Philadelphia, water and textile mills sprang up, and workers flowed in,” Schocket said. “The economic changes were so profound that all of society was affected.” But the controlling ownership remained in Philadelphia, where the canal corporation and the owners of the mills and businesses were located. “The town was transformed in its social relations, and economic and social power were distributed differently.”

Another great social benefit provided by a Philadelphia corporation—in this case the municipal government, and again with accompanying social costs—was the provision of a public water supply. With the yellow fever epidemics of the 1790s and the decline in Philadelphia’s stature as a major city (due to the move of the capital to Washington, D.C., and the growing power of New York and Baltimore), a public water system was seen as a way to reinvigorate the city’s image.

Benjamin Henry Latrobe designed the steam-powered Philadelphia Waterworks, a model for its time. Once it was converted to waterpower, so great was its capacity that the city was able to sell water to the suburbs. The municipal corporation that owned it sold bonds to finance the project, and a portion of citizens’ taxes went to pay the profit for the bond issuers. The corporation enacted laws protecting the water supply, and eventually all the suburbs were brought into the city for efficiency’s sake. Through its “urban growth regime, the elite controllers of the corporation were able to push growth in the way they wanted,” Schocket noted.

Though people today tend to see the economy as separate from the government, in truth “the establishment of the corporation is central to how we set up our government and institutions, how we make decisions and allocate resources,” Schocket says. “It has broad implications, from who controls the airwaves to how we manage the environment, and is central to our policy making. It is part of our policy DNA.”

April 23, 2007