The politics of business

Two new books examine how corporations shaped (and were shaped by) politics

Corporations played a central role in British colonial expansion. While the history of colonialism is often told through the biographies of political leaders, both of coloniser and colonised, in ‘Empire, Incorporated’, Philip Stern shifts the focus to a somewhat mundane though ubiquitous protagonist: the corporation. Eighteenth and nineteenth-century British corporations, and the investors that backed them, settled and governed vast new territories, often in territories where the crown was unwilling or unable to tread. This belief in the efficiency of business, and the strength of the limited liability company, not only reshaped ideas of governance and the law but also blurred the boundaries between the public and private sectors and between corporations and the crown.

Stern’s in-depth analysis showcases corporations’ intricate financial structures and networked leadership. Figures like Thomas Smythe, who held pivotal roles across the East India, Muscovy, and Virginia companies, epitomise these intertwined corporate networks. These networks positioned London as a hub of international finance, where business decisions, driven by corporate interests, often influenced political policies and diplomatic actions.

But it wasn’t just high finance that mattered. Critical to these corporations’ success were various actors, such as lawyers, who provided legal frameworks for their expansive ambitions. Writers, including someone like Jonathan Swift, crafted narratives that furthered corporate interests. And a broad investor base consisting of ordinary individuals emerged as a significant force. Their investments fueled corporate activities and indirectly influenced distant decisions of power and control.

One of these distant places, and probably the region where this model was pushed to the extreme, was southern Africa. Stern delves into the networks of corporations that supported British ambitions in Africa, most notably Cecil John Rhodes and De Beers. Rhodes established the British South Africa Company (BSAC) to extend his influence across Africa. This company, backed by a royal charter, combined commercial and political roles, engaging in trade, negotiating with African leaders, and even maintaining its own security forces.

Fortunes were built not only in exploiting local resources but, surprisingly, also in financial innovation and what we today might call creative accounting. On page 285, Stern begins to explain the complicated ways in which Rhodes used holding companies to ensure he maintained control:

With no money changing hands, Rhodes, Casston, and the others had in a single stroke made a ten- to thirteenfold profit, bought out several competitors, and quietly sheltered the concession in a limited holding company, distinct from the more politically visible and potentially vulnerable BSAC.

If such a scheme seems suspect, that is because it was. Plenty of these companies purchased their ‘rights’ with shares rather than with cash, but in this case many were none too pleased to discover that the British South Africa Company did not own its concession. … Some in the British government insisted they would never have approved the chapter if they had known the extent of the scheme. As one financial writer reflected, it was a most interesting exhibition of ‘how to make money by starting a new empire’.

The BSAC and similar corporations, such as the East India Company, significantly influenced the political landscape. They often held power that rivalled governmental entities, evident in their ability to impact the decisions of Britain’s Parliament. Their influence extended to crafting political narratives, sometimes at the expense of local populations. Stern could have made more of this: At the Cape, as research within LEAP shows, Rhodes pulled his political strings to ensure favourable economic policies for De Beers.

But the corporation would not only shape politics, it was often also shaped by it. In Richard Langlois’ magisterial ‘The Corporation and the Twentieth-Century’, he argues that the corporate business structure evolved as a system of economic institutions, offering an internal organisation when external market exchanges faced disruptions. These disruptions were events like the Great Depression, which eroded market-based institutions, making corporations a more stable choice. Additionally, World War II’s effects elevated non-market resource allocations, further solidifying the corporation’s role as an essential economic institution.

Langlois, building on the work of business historian Alfred Chandler, argues that the rise of the modern, multidivisional corporation in the early 20th century was influenced by technological advances such as steam power, electricity, and nationwide transportation. Companies, especially during times of significant product or process change, tend to pull activities in-house for better understanding and control. The Ford Motor Company, for instance, started as an assembler but eventually integrated its production processes as it worked on refining mass production.

And technology continues to shape integration choices. Tesla Motors exemplifies a modern adaptation, integrating heavily, especially into software and battery production. Such vertical integration granted Tesla an edge during the Covid-19 pandemic, when many companies faced supply-chain disruptions due to their reliance on outsourced components.

However, in contrast to Chandler, Langlois insists that this rise of the modern corporation was also shaped by the collapse of anonymous ‘arm’s-length markets’ during the Great Depression and antitrust policies favouring integrated firms over cartels. Politics, he argues, is central to understanding the rise of the corporation.

Government policies have, of course, historically influenced the balance between internal corporate structures and external market-based transactions. The Sherman Antitrust Act of 1890 affected how firms operated, leading to the creation of holding companies. However, subsequent legal actions against these holding companies, argues Langlois, promoted the formation of more centralised, unified enterprises in the 20th century.

Centralised planning within organisations can be as challenging as in economies. In response to antitrust pressures and other external factors, American companies developed modular, product-oriented divisions. Yet, these structures were often scrambled, as seen in General Motors’ response to the antitrust environment and labour relations challenges. This reaction possibly contributed to industry challenges when faced with international competition.

While internal corporate organisation offers advantages, it is not inevitable. By the time Chandler highlighted the strengths of large, vertically integrated firms in the 1970s, these corporations were on the decline. New technological but also political changes, like trade liberalisation and IT developments, facilitated outsourcing and contract production, resulting in a shift in the corporate model, as seen in companies like Apple and Dell.

The point is that business transactions occur within a network of institutions, which can substitute for one another to varying degrees. The future interplay between markets and corporations – what the future corporation will look like – will be shaped by both technological innovations and political preferences.

‘The politics of business’ was first published on Our Long Walk. Support more such writing by signing up for a paid subscription. As an Amazon Associate, I earn from qualifying purchases. The image was created with Midjourney v5.2.