The Growth of Corporation and its Effect on Labor

Disclaimer: These words are the author’s personal views and do not reflect the Labor Guild’s opinion.

I’ve spoken about Guilds and Corporations, how they developed and how the two were born of the same mother. So, the question becomes what is our mother’s name? That question is for many of us to determine. However, I feel, during that time frame it was Societal Need for the good of everyone to improve the infrastructure so that life would improve for the general society. Not unlike today, where groups and associations of all kinds organize around common interests to improve the lives of their constituencies. Unfortunately, the structure of the corporate model did not take long to become corrupt. When attempts were made to bring that model to America it failed as I described in my last writing. Corporations were on a very short leash. So, what happened?

It is important for you to know; The Industrial Revolution is defined in two stages. The first was textiles, the water wheel, and the use of machinery with changeable parts along with the production of iron. The second portion came with the development of the steam engine, the Bessemer Furnace, which produced large amounts of steel and later on the development of the internal combustion engine and electric power.

The use of waterpower for mass production and the “spinning jenny” invented by James Hargaves in England in 1764, it allowed fabric to be produced more efficiently with one worker to operate 8 spools. It wasn’t until 1793 that we see Samuel Slater build a waterpower textile mill on the Pawtucket River, and by 1830 we were fully immersed in the Industrial Revolution.

Samuel Slaters model came while working at Arkwright and Strutt, the center of England’s intellectual technology. Slater actually memorized the components of the production line and its machinery. On the other hand, there was Francis Cabot Lowell who went to Manchester England, with the plan to mimic their industrial mill city here in the U.S. The intellectual capital in England at the time was strictly protected and guarded and was not permitted outside the country. Lowell took detailed sketches and plans of the operation and machinery and smuggled them in the liner of his luggage back to the U.S. Even back then industrial espionage was alive and well.

Economists of the day like Adam Smith and Karl Marx and his partner Fredrik Engels along with budding industrialists, understood that real wealth cannot be produced in a service economy. Businesses may charge each other for particular services and although money is transacted, no real wealth has been produced. Real wealth comes not from a service economy but rather by taking raw material and producing a product, such as, a $ 2.00 bundle of cotton being turned into a $ 20.00 shirt or $ 20.00 of ore and coal to make a $2,000.00 car part.

This is where the story of the corporate model America had in place began to change. Funding for Lowell’s project came from primarily three partners that eventually became “Boston Associates” one of the first limited liability corporations. Agreements later for proprietary rights gave Boston Manufacturing the right to operate the project. They even charged mill owners for the water that was used to turn the water wheels. With its initial $600,000 investment and two years of work, the Merrimack Company’s first water wheel was set in motion in Sept. of 1823.

By the 1840’s America had adopted many of England’s laws, including their interpretation of “property rights law”. This will be the turning point between what our forefathers intended (to have corporations on a very short leash with strict oversight) and what developed. It is interesting to see how these laws had built in it, an assumption and interpretation that favored capital. English law was specifically designed to protect property and owners and not workers. Thus, the system has favored industrialists since its inception.

The strength of combined capital in dealing with individuals on their employment status became devastating for unions. The courts allowed capital to organize but not workers. They approved limited liability to officers of the corporation but never considered it for the union officers making similar decisions. A theme you will hear a lot in these writings is. What does Capitalism need most to survive? Capitalism is reliant on a strong legal system in order to ensure the economic system runs smoothly. Especially, the enforcement of contracts and property rights law.

Philadelphia cordwainer (shoemaker) George Pullis dared to “conspire to maintain higher wages”; by encouraging others in their field and shopkeepers to join their society. This conspiracy case was the first court case having to do with labor organizing. The main points of the Commonwealth vs. Pullis trial he was accused of, 1. A conspiracy to extract higher wages. 2. The organization was deceitfully designed. Preventing others to work unless they receive higher wages. 3. Took away the right of other workers to negotiate their own rate of pay with their employer or regulate their own pay rate therefore, infringing upon the rights of others as well as regulating their trade. 4 No man or employer can stand against such a combination of men. The eight workers named in the case were found guilty of conspiracy. Each fined $8.00 along with court costs which caused the organization to collapse. It is interesting that the Court never considered the effect that combined capital would have on an individual worker. How could any worker stand against such power?

It wasn’t until 1842 that a Massachusetts case held differently for another shoemaker under similar circumstances. In Commonwealth vs. Hunt,; Chief Justice Lemuel Shaw found: 1. A conspiracy to be a combination of two or more persons doing a concerted action to accomplish a criminal or unlawful purpose. 2. A conspiracy may be used to accomplish some other purpose and not necessarily for criminal or unlawful purposes. And 3. The most important labor organizations can be used for honorable means as well as devious purposes. This finding legitimized the right of labor to organize. Thus, the birth of the Labor Movement in America.

When battle between unions and owners were fought out in Court, the process was cumbersome and long. A jury trial was planned, a case was heard, and a jury determined whether or not the union action was criminal or not. That changed with the adoption of the Civil Injunction in the 1890’s, which was very successful in breaking up union strikes. It was called the “civil injunction” which was cheaper and less time consuming than the alternative. Again, coming from English property rights law. Its premise is to: empower a judge to intervene and force a party (usually the union) to cease its activity in order to maintain the status quo, regardless of whether or not it is fair or legal. What mattered were the owners and their rights, in their dealings with their property and their commerce.

As I draw this comparison of Labor and Corporations, I want you to be aware of the tools they had to work with. The Unions were beginning to organize into Federations, and actions like boycotts were effective. A picket line in front of the entrance to a company that refused to be union would literally be shut down and the people they did business with would also be picketed (secondary boycott). Court cases again took too long and were fairly successful, until the Sherman Anti-Trust law was passed. This Act designed to restrict monopolies was used against labor as well.

When Labor did go to trial it is important to note that Union leaders did not have the same limited liability protection that corporate officers had, protection from criminal acts. Corporate officers were not held liable for the business decisions they made in the name of the business. In fact, many of our early labor leaders were sent to jail and made to pay treble damages for the cases that went against the union.
The 1800’s brought with it entrance to the Gilded Age. Especially, beginning around 1850. Robert Fulton’s steam engine provided power to move commerce via water and rail and by the 1850’s a labyrinth of train tracks began to crisscross the country like an interstate highway system.

Now, I would like to introduce to you a person you may never have heard of but did more for the business community and contributed more to the wealth of the Industrialist than, in my opinion, any other person in history. His name is Thomas Scott, a station manager for the Pennsylvania Railroad was also their “borer”. Defined as an executive who was paid to bribe and or buy regulators and elected officials. (A predecessor to the lobbyist). The significance of Scott’s work cannot be overstated. His work changed the structure and influence of corporations to a degree that both Adam Smith and Karl Marx could never have foreseen or imagined. Beginning with literally back-room politics, Scott listened to proceedings and oversaw the debate of the Pennsylvania State Legislature from an adjacent room where he directed and wrote the law that revoked the railroad’s tonnage tax. The public, enraged, when made aware of the law’s full effect, made attempts to repeal the law but found it impossible to do; for the law was actually a contract between the legislature and the railroad and needed the consent of both parties for repeal. The heat had become so hot that President Lincoln asked Secretary of War, Edwin Stanton to place him on special business in Washington as Assistant Secretary of War. During the Civil War Scott made a name for himself by directing troop movements and logistical equipment via rail.

After the Civil War Scott’s vision to rebuild railroads in the South and expansion to the West slowed when Southerners were aware Yankee money was in the mix. They feared that money may be used to colonize the South. Scott went back to the Pennsylvania Legislature and convinced them to ease restrictions on the Pennsylvania Railroad. He also used that opportunity to set in motion the basic formulation for a “holding company” in order to purchase other railroads. Specifically, he managed to persuade the legislature into allowing corporations to buy stocks in other corporations and thereby established the “holding company”. This allowed the purchase of railroads by a holding company without revealing the owners, a group of nameless, faceless, stockholders. A Holding Company is a parent corporation with limited liability that owns a controlling amount of stock in any amount of companies they can afford to purchase. It is then able to direct its management and its policies. If a holding company owns 100% of the stock in a business, it is considered a wholly owned subsidiary. Where this charter was granted in Pennsylvania, other state laws could not be used to regulate their charter, basically, circumventing any local or state restrictions governing corporations (steroids for corporations). Hence, started the competition between the states, as to which state was the friendliest to corporations to “charter” in. Delaware became the winner of that joust, being the most favorable to corporations and where the most corporations are chartered, even today. It seems today corporations want it both ways. They like playing states against each other for better working conditions and benefits but most of all, what they wanted was corporations to be viewed, by federal law, to be people and given the same rights as people. In my next writing, I will show you how they attempted to accomplish that.

As a side note, Tom Scott took under his wing a young 14-year-old boy who ran telegraph messages for him. The young boy emigrated from Scotland and whose father and maternal grandfather were “Chartists “the Chartist were a worker’s organization which pushed the Parliament for more friendly workers’ rights. While working on the railroad with Scott, he educated himself by attending night school and went on to be one of the most successful industrialists of his time. His name was Andrew Carnegie.