Marx, Smith, Pirates and Dracula: the Mexican system

Persons who who do not have a mortal lifespan, are not subject to the same moral code as you and I, and have to be killed if they are to die are called vampires. In the United States, they’re also called corporations.

Sam Smith, Shadows of Hope (Indiana University Press, 1994)

In the beginning, if you wanted to form a corporation you needed a state charter and had to prove it was in the public interest, convenience and necessity. During the entire colonial period only about a half-dozen business corporations were chartered; between the end of the Revolution and 1795 this rose to about a 150. Jefferson to the end opposed liberal grants of corporate charters and argued that states should be allowed to intervene in corporate matters or take back a charter if necessary.

With the pressure for more commerce and indications that corporate grants were becoming a form of patronage, states began passing free incorporation laws and before long Massachusetts had thirty times as many corporations as there were in all of Europe.

…

after the Civil War that economic conditions turned sharply in favor of the large corporation. These corporations, says Huston:

. . . killed the republican theory of the distribution of wealth and probably ended whatever was left of the political theory of republicanism as well. . . .[The] corporation brought about a new form of dependency. Instead of industry, frugality, and initiatives producing fruits, underlings in the corporate hierarchy had to be aware of style, manners, office politics, and choice of patrons — very reminiscent of the Old Whig corruption in England at the time of the revolution — what is today called “corporate culture.”

Concludes Huston:

The rise of Big Business generated the most important transformation of American life that North America has ever experienced.

By the end of the last century the Supreme Court had declared corporations to be persons under the 14th Amendment, entitled to the same protections as human beings.

During the same period (about the time of the American Civil War), Mexico was in the midst of it’s own argument about the nature of corporations.  As a business structure, the corporation sprung from two enterprenueual entities, neither of which was seen as beneficial to Mexican reformers like Benito Juarez.

The first was the Catholic Church.  The world’s first, and still most successful, multi-national enterprise, the problem seen by Mexican and European thinkers was that the Church was involved in activities that, while profitable, had nothing to do with its core values.  Running farms, or lending money (at the time, the Church was the only reliable source of credit in Mexico), or managing factories had nothing to do with the original Mission Statement.

You though "corporate raider" was a metaphor?

The second very successful business innovation was piracy.  Shareholding, which allowed private individuals to invest in an enterprise but avoid the consequences of personal responsibility for failure, was invented by the English as a way of giving plausible deniability to Elizabeth the First, who created the English Navy on the cheap… basically underwriting pirates to rob Mexican and Peruvian treasure ships in return for “shares” in the booty.  The Queen and her courtiers could easily hide their certificates, and … as negotiable instruments… would not be physically involved in divvying up the loot.

Certainly, shareholding has been a useful tool in raising funding outside official channels … and the advantage to the common people was obvious.  People have always pooled their resources to meet a mutually beneficial goal (whether snarfing up somebody elses peices of eight or building a market hall), and usually its people with some extra resources that can afford to risk some of their capital.

And… at least as far as money went… this was in theory democratic.  It meant a rich commoner could compete (or at least join in the competition) against the entrenched powers.  But, unlike the King, or the Pope who would not be held responsible for the misdeeds of any royal or clerical business enterprise, the investors in a private enterprise were. Of course, one does not need a “corporation” for joint-risk enterprises.

Of course, democracy has a checkered past.  The guys almost at the top reach the top, then want to pull the ladder up.  As the investors did, seeking the same rights as royal monopolies for their new business enterprises.  But in the American republics, at least it was the people (in theory) who granted the special rights.

Too big to fail

In the United States, where a single multi-national, was not “too big to fail”, this never became a burning issue, and corporations quietly became more and more the norm.  Massachucetts, by 1850, had chartered more corporations than the rest of the world together.  In Mexico, where there was only one corporation of any note — and it didn’t need no stinkin’ charter — it was.  Much of the early history of the Republic, with its tedious list of coups and counter-coups, was faction fights over the economic rights of the Church.

Benito Juarez, and the 1850s reformers, in common with liberal thinking at the time, saw free thought as the trade-off for free trade.  They sought not so much to undermine the Church as a religious institution as to democratize the economy when they simply wrote corporations out of existence.

Of course, opening Mexico to the world, and the world to Mexico, as happened over the course of the next 60 years, created its own new set of challenges.  Businesses from the Untied States (with their “personhood”) and elsewhere wanted to shield their Mexican investments from the vaguaries of risky ventures in what was seen as a risky environment.  Porfirio Diaz acted more like a King than the head of a Republican government (and we forget Mexico did have elections — of a sort — during Porfirio’s long reign) in granting foreign “concessions”.  And, the late 19th and early 20th centuries saw a huge change in the way businesses were organized.

In Europe, where political practice delved more from theorists (like Karl Marx and Adam Smith) as well as the more empirical Americas, corporate power became a major political and social issue at the start of the 20th century.  In the United States — where corporations were persons — controlling corporations became a major political and social cause.

Mexico was a little slow off the mark in joining the “developed world”, but with the 1910-20 Revolution, it had to synthesise about 50 years of economic and social change in one bite.  The Church was not the only untouchable foreign power around any more.   And it wasn’t relatively small investments like mine shafts or apartment houses under outside control… it was things like steel mills and oil companies and telephone systems.

And were those steel mill owners persons, or not?

Very few Mexicans had the financial resources to take on the new mega-businesses that had appeared since the 1850s, but those who were already very, very rich (usually landowners) could easily maintain their power and wealth by transferring from the now limited land ownership to other forms of wealth.  Land ownership was always risky (pesky peons might take it into their heads to take back what was once theirs, and pick up machetes, for example) and the personal liability of owning a factory was less than owning a farm.  The really huge enterprises — the oil business and the telephone system, for example — could be turned into state enterprises, as the most popular of the new European theories (Socialism) recommended. As well as the older, Catholic tradition of free will.

Mexico, always pragmatic, has adjusted over the years, and no one economic theory is seen as Holy Writ.   Smith, and others talked about “economic man” and in the United States, corporations were persons in law.  Marx said all power to the proletariat.  The Church said man has free will and is responsible before God and the community.

In Mexico, as things have evolved,  the European concepts of Marx and the Church both were part of the new system.There are a few corporations that are basically state enterprises:  PEMEX, for example.  When I write about PEMEX, I use the Spanish word, paraestatal — since, unlike a U.S. corporation (or, a Dubai one, or a Cayman Islands one), it doesn’t have a good English word to descibe a state-chartered and controlled (and financed) operation.

Telmex, while a state enterprise, had millions of shareholders — the users.  Buying a telephone required buying stock from the state company.  When it was privatized, the state was selling its shares to the consortium put together by Carlos Slim.  Twenty-odd years later, there are still brokers sitting outside the main office in Mexico City offering to buy up those old shares to transfer to the privatized telephone company.

Nearly every other business could function, and did, under existing structures, or a few new ones added along the way.  NONE were corporations as we know them… the personal fiscal who held shares was trusting a persona moral to make the good or bad financial decisions for them… and that persona moral — accepted the risk.

And, unlike Dracula — or AIG, or Bank of America — a persona fiscal has a life span.  Because the business enterprise exists for a specific reason (avoiding the problems that arose from a church, meant to save souls, also saving floundering haciendas or acting as a savings bank) to exist.  Its charter includes a  “Razon social”  — about equivalent to a “mission statement” but not an exercise in corporate marketing, but a clear and consise statement of what activities the business is involved in… and it can only be involved in those specific enterprises) and only exists for a limited life span.  All men are mortal, all personals morales are mortal, and all personas fiscales are simply reflections (something vampires lack) of personas morales.

Unlike in the U.S., if a company goes down through mismanagement, the shareholders of the business are personally liable (and, if there were criminal acts involved, are the ones who go to the slammer).  A persona fiscal is assumed to be acting on behalf of the persona moral.  And unlike vampires or corporations, real persons are moral beings, who possess free will and are responsible for their actions.