Corporations are Not Real People
“Corporate rights” continues to be a controversial issue, whether in corporate farming or corporate financing of political campaigns. The only people who don’t know intuitively that corporations are fundamentally different from “real people” seem to be members of the U.S. Supreme Court. The Supreme Courts has ruled that since the shareholders in publicly-traded corporations are real people who have a legal right to act collectively through corporations, denying constitutional rights to corporations is equivalent to denying the constitutional rights of the individual shareholders.
Since people have a constitutional right to free speech, corporations have the same rights as real people to “speak” in favor of political parties and candidates. Unfortunately, corporations are able to speak with a much “louder voice” in a society where “money equals speech.” Since real people have a right to farm, I suspect today’s Supreme Court would rule that corporations also have a constitutional right to farm – if they were asked to rule on the matter.
So, I think it is important for people to understand how and why large, publicly-traded corporations are fundamentally different from “real people” – regardless of court opinions to the contrary. First, corporations are granted charters which give their collective investors specific legal rights not available to individuals. In the case of for-profit corporations, individuals are granted the right to “collude” by investing their capital collectively rather than individually. In the old days, when Americans still believe in competitive markets, it was illegal for investors to pool their capital unless the people, through their government, concluded that incorporation was necessary to serve some compelling public purpose.
Obviously, the “compelling public purpose” needed to justify corporations has been forgotten. Today, charters are routinely granted for corporations to “serve any legal purpose.” This allows for-profit corporations to function as purely economic entities – with additional special privileges, such as limited liability and minimal taxation. That said, it’s important to remember that corporate charters are still granted with public consent and can be revised or revoked by public consent, assuming we still have a democracy.
Family corporations, including family farms, can be managed much the same as independently owned business. Families can give their ethical and social values priority over the economic bottom-line – if they choose to do so. A limited-liability partnership or corporation with a small number of owners can operate much as a family corporation. Shareholders can reflect their shared social and ethical values in corporate decisions. Unlike real people, most publicly-traded corporations are purely economic entities that have no capacity for social or ethical values. The corporations that increasingly dominate the global economy and control American agriculture are fundamentally different from real people.
While individual shareholders obviously have personal values, the shareholders of large corporations may have very different life experiences, family backgrounds, nationalities, religions, cultural histories, and thus have a wide diversity of social and ethical values. The only value managers of such corporations can be confident their shareholders hold in common is their common desire to increase economic returns on their investments. Some people argue that corporations are not legally obligate to maximize shareholder returns. However, corporate managers are legally responsible to serve the “common interests” of their investors, which means maximizing profits for large publicly traded corporations.
With a large portion of individual investments made through pension funds and mutual funds, most investors today don’t even know which corporate stocks they own on any given day. How can they possibly reflect their individual values through minimal shares in corporations they don’t even know they own? With electronic trading, where stocks are more likely to be owned for seconds rather than years, any ability for individual investors to influence corporate management is essentially eliminated. Maximizing economic returns is the logical default management strategy for today’s corporate managers. Regardless, corporate CEOs who fail to maximize quarterly profits typically are quickly replaced.
Some corporate leaders apparently recognize that for-profit corporations constitute a fundamental problem for society and humanity. “Socially responsible investing” allows corporations to self-identify as advocates of a “triple bottom line” approach to management. Socially responsible corporations report ecological and social measures of performance, as well as their economic bottom-lines. However, the competitive nature of stock markets forces such firms to earn competitive economic returns, regardless of the ecological and social consequences. New “benefit corporations,”[i] or B-Corps, represent an attempt to formally write social and ecological performance into corporate charters. B-Corps allow investors to self-select by investing in corporations with charters that reflect their social and ethical values. However, B-Corps are still experimental and their effectiveness is yet to be determined.
In the meantime, the U.S. Supreme Court seems to be blind to the fact that the basic purpose of government is social and ethical, not economic. Government is the means by which we collectively do things for the common good of society that we cannot do individually. Government provides a means of reflecting our collective social norms or ethical values in laws and regulations that condition how we related to each other in our communities and within society as a whole. Government is the means by which we ensure that the pursuit of economic self-interest does not diminish our social and ethical quality of life. It simply makes no sense to allow purely economic entities to participate in the process of governance. Real people can choose between economic interests and societal interests; corporations cannot.
We simply cannot allow corporations to control our government, and we cannot allow corporations to control our farms. As I have written on many occasions, real farming has always been, and must always be, a social and ethical way of life as well as a means of making an economic living. An agriculture that is driven by the economic bottom line quite simply is not sustainable. The vast majority of the farms in the U.S. are still family owned and operated – many as family corporations. However, many of today’s larger farm families have chosen to relinquish their management responsibilities to publicly-traded corporations through comprehensive contractual arrangement.
From Mother Jones Magazine
According to the 2012 U.S. Census of Agriculture,[ii] the 4% of producers with the largest farms now account for two-thirds of the total value of U.S. agricultural production. Virtually all of these farms operate under contracts with large publicly-traded corporation. Just under 95% of all livestock and poultry operations are managed under some form of corporate contractual arrangement.[iii] More than half of all crop producers operate under contracts, not considering that more than 90% of corn, soybeans, and cotton in the U.S. is produced using patented genetically engineered seeds requiring corporate licensing agreements.[iv]
Current corporate ownership of farmland in the U.S. is relatively small – probably less than 1%.[v] However, about 70% of U.S. farmland is likely to change hands over the next two decades.[vi] Non-farm investors already own about 30% of all U.S. farmland, and large private equity investors have become major competitors in markets for farmland. Managers of corporately controlled farms, through either comprehensive contracts or direct ownership, simply lack the motivation, or even the ability, to reflect the traditional social and ethical values of family farming in their operations. The battles to defend our democracy against the threat of corpocracy and traditional family farming against the threats of corporate agriculture are battles that must be won.
John Ikerd
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[i] Wikipedia, “Benefit Corporation,” https://en.wikipedia.org/wiki/Benefit_corporation .
[ii] United States Department of Agriculture, Census of Agriculture, 2012. http://www.agcensus.usda.gov/Publications/2012/
[iii] James M. MacDonald, “Trends in Agricultural Contracts,” Choices, AAEA,
[iv] Fernandez-Cornejo, Jorge, Seth Wechsler, Mike Livingston, and Lorraine Mitchell. Genetically Engineered Crops in the United States, ERR-162 U.S. Department of Agriculture, Economic Research Service, February 2014. https://selectra.co.uk/sites/default/files/pdf/geneticallyengineeredcrops.pdf .
[v] Wikipedia, “Corporate Farming,” https://en.wikipedia.org/wiki/Corporate_farming .
[vi] USDA-CSREES, “The FarmsLASTS Project, 2010. https://www.uvm.edu/farmlasts/FarmLASTSResearchReport.pdf .