A company recognized as a legal entity by the government with specific powers outlined in its charter and liabilities that do not extend to the individual shareholders.
The whole purpose of forming corporations, or joint-stock companies, was to allow individuals to invest in trading companies while limiting their personal liability. The first chartered company was formed in England in 1553. The Muscovy (or Russia) Company was established to explore for a northeast passage to Asia. Formed sixty-one years after the discovery of the New World, the company pooled the resources of private citizens for the venture. At the time, the English royal treasury could not support such a scheme. The expedition traveled from England across the White Sea and down to Moscow. In 1555, the company received a monopoly on all trade with Russia and would eventually establish land trade routes with Persia. The company lost its monopoly briefly after the execution of King Charles I, but the privileges were reinstituted after the restoration of the monarchy under Charles II. The company lost its monopoly again in 1698, but continued to trade in Russia until the revolution of 1917.
The success of the Muscovy Company led to the chartering the Levant Company in 1581. The Levant Company was granted a monopoly to trade with the Ottoman empire and continued to operate until 1825 when Parliament dissolved the corporation.
The third major corporation chartered was by far the largest and most successful. The objective of the British East India Company, founded in 1600 under the reign of Queen Elizabeth I, was to compete or even eliminate the Dutch from the spice trade. After a disastrous slaughter against the Dutch at Amboina in 1623, the British retreated to India where the company had already established several factories. The British East India Company focused on trade in cotton textiles with their brilliant dyes and patterns. The company would later develop the pepper and tea trade. Under the terms of the charter, the company was granted a monopoly on trade from the region and in exchange it was responsible for negotiating trade agreements and providing for its own protection. The royal treasury reaped the benefit of the taxes paid while expanding its empire at no additional expense. Corporations and the government established a mutually beneficial relationship. Madras, Bombay, and Calcutta became the primary centers of trade for the company until the Seven Years’ War when Robert Clive, a company man, helped drive the French from the subcontinent (1751–1760). At the conclusion of the war, Parliament passed a series of legislation designed to lay direct taxes on the American colonies.
After much resistance to and the repeal of the Sugar and Stamp Acts, Parliament passed the Tea Act. The British East India Company was near bankruptcy but had enough tea in its warehouses to pay its debts. Parliament granted the company a monopoly for the sale of tea in the North American colonies but included a small tax on the product. The destruction of the tea in Boston Harbor ultimately led to the American Revolution and the creation of the United States. The British East India Company continued to consolidate control over India until the Sepoy mutiny of 1857. In 1858, the British assumed direct control over India and in 1874 the company was dissolved. The goal of securing India had been accomplished.
Within a few years of the British authorizing the British East India Company, several other corporations were chartered. Among these were the Virginia Company of London (1606) and the Virginia Company of Plymouth (1629), both of which established successful colonies in the New World. The Virginia Company of London was founded on the hopes that the explorers would discover gold like the Spaniards did in South America, while the Virginia Company of Plymouth was founded for religious reasons. The colony established at Jamestown became viable with the cultivation of tobacco—a cash crop. After the company spent 200,000 pounds and arranged for the passage of 10,000 people to Virginia, complaints forced the Crown to revoke the charter and make Virginia a royal colony in 1624. The Plymouth company tried unsuccessfully to establish a colony until 1620, and then Massachusetts Bay was established a few years later. The colony continued to grow and prosper and became part of the triangle trade that developed between Europe, Africa, and the Americas. After several disastrous Indian wars and the Glorious Revolution, Massachusetts Bay, Plymouth, and Maine were consolidated in 1691. Although the corporations ceased to exist, they had established English colonies in the New World and developed trade with England and other parts of the world before becoming the United States.
King Charles II granted a charter to the Hudson’s Bay Company in 1670 with the stated objective of the corporation being to settle the Hudson Bay area and to find a northwest passage to India. The company established a lucrative fur trade, but the French, along the St. Lawrence River, competed with it until the end of the French and Indian War (1754–1763) when the English gained control over all of Canada. The company then had to compete against the North West Company that was interested in the western lands of North America.
Besides the English, the Dutch also established corporations to control trade in the Far East as well as in the New World. The Dutch East India Company, established in 1602, rivaled the British East India Company. The Dutch controlled much of the spice trade and successfully prevented the British from ruling the Spice Islands. The company was dissolved in the late eighteenth century as a result of corruption and its possessions reverted to the government. The Dutch also formed a West India Company that established a fur trade with the American Indians in the area of present-day New York. The lucrative fur trade was ended when the duke of York (the future James II) conquered the New Netherlands and established New York.
The French also used the corporation to fund the exploration and settlement of the New World. In 1664, King Louis XIV chartered the French East India Company to develop trade with the Far East. Settlements on the islands of Bourbon and Île de France (present-day Réunion and Mauritius) were established in the late seventeenth century. In 1719, the company developed trade in India but struggled to pay its expenses. Forced to merge with another company for a few years, the French East India Company became a separate entity again. Events in India required that the company pursue an active role in the political matters of the region and beginning in 1741 Joseph François Dupleix started a change in French tactics by attempting to dominate the Indians and drive the British off the subcontinent. The English defeated the French in India during the Seven Years’ War (1754–1763). By 1769, the French East India Company had been dissolved.
The role of these early corporations had been to pool resources of private investors for the purpose of establishing trading companies between the mother country and regions throughout the world. The Crown received a percentage of the profits or funds from the taxation of the company but was spared the expense of settling and protecting these areas. After the enterprises became successful, many of the companies experienced corruption at some level, subsequently they lost their charters and the government assumed control over an expanded empire. During the late seventeenth and early eighteenth centuries that trend continued. With the industrialization of the west European countries and the United States, the trade role of the joint-stock company was replaced by big business.
During the Industrial Revolution, corporations in Great Britain established factories to produce textiles. New inventions, such as the spinning jenny and the water frame, and the spinning mule allowed for the production of cotton cloth at a faster rate and lower cost. Britain became the leading textile producer with the United States developing its textile industry during the early eighteenth century. The British had established a mercantile system that protected their corporations as early as the 1650s, and that policy continued until the mid-1800s when they began advocating free trade. With their corporations already establishing and dominating trade, the move was intended to persuade other countries, when competing goods could not be produced and sold at a competitive price, to eliminate trade barriers such as tariffs so that the British would have a distinct advantage in markets throughout the world.
The response in the United States was to raise tariffs. Between the American Revolution and the War of 1812, the United States had a low, revenue-only, tariff on a select group of imported items. One of the lessons learned as a result of the War of 1812 was that the United States must be economically independent from Europe, including Great Britain. Beginning in 1816, Congress passed a protective tariff that was raised to record high levels after the Civil War. Enumerated schedules were expanded to include most items. The primary beneficiaries of this policy were the corporations. By effectively eliminating most foreign competition through the imposition of high duties, corporations could focus on the domestic market. Many entrepreneurs took advantage of this opportunity to create large corporations such as U.S. Steel and Standard Oil. The lack of anti-monopoly legislation allowed the companies to engage in horizontal and vertical monopolistic practices that reduced the cost of their products. By selling lower than the competition, these companies forced others out of business and once they controlled the market, they could raise prices to whatever level the market could sustain.
By the turn of the twentieth century, popular support for controlling the corporations had developed and Congress passed effective legislation that forced the companies to eliminate interlocking directorates and break up into smaller entities. This shift in policy occurred as corporations had saturated the domestic market and had begun to turn their attention to foreign markets.
Competition between countries during the nineteenth century resulted in the erection of tariff barriers in most industrialized countries. When owners of corporations decided to expand into foreign countries, they were often prevented from selling their goods because of the higher costs involved as a result of tariff rates. In 1911, Henry Ford opened the first overseas branch of the Ford Motor Company in Manchester, England, to circumvent tariff restrictions. Other companies soon followed Ford’s example. Branch offices or factories would be established in foreign countries and the profits returned to the mother country.
Many multinational companies became so large, and amassed so much wealth, that problems often developed. One of the major issues was that such companies often had more wealth, and therefore, influence within the host country than the government itself. Another issue raised by labor unions was that the establishment of facilities in other countries to service that market resulted in the loss of jobs in the home country. As the industrialized nations moved toward a free trade policy after World War II, this argument took on added significance since overseas labor costs less than it does in industrialized nations. Products once manufactured for overseas consumption were being shipped back into the home country of the parent corporation resulting in a loss of jobs. In many instances, the problem was exacerbated by the fact that the United States reduced tariff barriers unilaterally while other countries maintained trade restrictions. During the 1980s, Japanese automobile manufacturers were pressured into opening plants in the United States to placate auto workers who had been losing their jobs as American-made auto sales declined.
The growth of multinational corporations (MNCs) has resulted in many of these companies conducting business on a global basis. Although the headquarters remains in the mother country, the reach of the company extends beyond the control of any one government. The largest MNCs are based in the United States and Japan, followed by the countries of western Europe, although three Chinese corporations joined the top 500 multinational entities during the late 1990s. Many of these corporations own assets in foreign countries, although the Japanese own far less of these assets than other nationalities. In 1995, the top 100 MNCs owned $1.7 trillion in assets overseas and recorded sales of over $2 trillion while employing more than 5.8 million workers. The largest American MNCs are General Motors, Ford Motor Company, and Exxon. The largest European MNC is Shell, while Japanese companies include Mitsui, Itochu, Marubeni, Sumitomo, and Toyota. MNCs such as Unilever, GM, Philips, Nestle, ABB, Siemens, BAT, PepsiCo, and McDonald’s employ hundreds of thousands of workers in their overseas facilities. Some of these corporations benefit from intrafirm trade, although statistics on these transactions are only recorded in the United States. MNCs account for 62 percent of all U.S. imports and exports.
The negotiation of free-trade areas such as the European Union and the North American Free Trade Agreement will foster the growth of MNCs. As more countries moved toward free trade, primarily through participation in the General Agreement on Tariffs and Trade, a voluntary organization, it became essential for a more structured institution to be formed to handle international trade issues—that institution became known as the World Trade Organization. Although international law and agreements govern the many activities of MNCs, the companies continue to exercise power over the political and economic systems of the world, much as they did when they were first formed in the sixteenth and seventeenth centuries. Corporations will continue to control world trade well into the future.
Cynthia Clark Northrup
See also: British East India Company; British Empire; Dutch; European Union; Ford Motor Company; French Empire; General Agreement on Tariffs and Trade; United States; World Trade Organization.
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