The Modern Corporation and Private Property
In 1932 Berle and Means published a major work of the New Deal era, The Modern Corporation and Private Property. Through or from this book flowed many concepts of corporations and corporation law, once thought maverick, but now fashionable, even conventional: the inability of thousands of stockholding “owners” to govern, often even to influence, the managers actually in charge of giant companies; the emergence of modern management in large self-financing corporations which reflects this “separation of ownership and control”; the growing concentration of capital in these legally personified aggregations to a point where they dominate modern capitalist societies. Since the book was written, Berle has been prominent not only in academic and legal circles but also in political and diplomatic life.
During the New Deal Berle was a pioneer in the debate about the nature of corporate power and for that he is likely to be best remembered. For instance, in 1932 he engaged in a famous exchange in the Harvard Law Review on the question—then revolutionary in itself—“For Whom are Corporate Managers Trustees?” Traditionally, directors’ duties relate to the interests of the corporation and especially of the stockholders. Professor Merrick Dodd in the Review argued that it was appropriate by then to recognize wider duties to the community at large. Berle was attracted by this view, new in 1932, but, as a lawyer, could not adopt it. The various corporation laws in the United States did not then (and still do not) go much further than to permit management to devote corporate assets to philanthropic purposes, and the interests of stockholders still dominate the rhetoric of its legal duties.
Yet, as usual, social organization moved on, paying scant regard to legal rhetoric. By 1954, Berle asserted that in practice the argument had been settled “squarely in favor of Professor Dodd’s contention” (The Twentieth Century Capitalist Revolution). Managers, he argued, say they consider, and do consider, the corporation’s interest in a very wide setting. The managers of the giant corporations have become, Berle claimed, imbued thereby with a social “conscience.” By 1959 he doubted even the desirability of stockholder control, which he held to be little more than ritualistic (Power Without Property).
To those traditionalists, then, for whom “control” by stockholders exercised through corporation meetings and the stock market is an integral part of the model of capitalism, Berle is a maverick; but he has withstood their attacks. The criticism of Professor Henry Manne in 1962, for example, he called an attempt to describe twentieth-century institutions with “nineteenth century economic folklore.” Three years later he replied to the economist, Professor Shorey Peterson, that classical economics just did not account for modern corporate capitalism: “A vast sector of the American economy is not, even theoretically, within the classical economic system.” Supply and demand are not what they were; prices are widely fixed, not competitive; large enterprises with guaranteed markets do not behave like the classical entrepreneur in the market place. If the profit motive is still “regnant,” the giant corporation’s managers, Berle argued, are influenced today by many new considerations, not least government policies and contracts.
One turns eagerly, therefore, to the new edition of Modern Corporation—which contains a new Preface by Berle and a new Appendix by Means—and to Berle’s recent, more general work on Power. In his new Appendix Means carefully documents the evidence for increased concentration of capital and growing managerial control in the mid-Sixties. But Berle’s Preface reveals little new. He restates his political thesis: corporations are essentially “political constructs”; their operations are “like” operations carried on by the state. The 1932 text of Modern Corporation concluded:
The rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with the modern state…. The future may see the economic organism now typified by the corporation not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organization.
Today, there are more corporations in the world than there are nations with incomes greater than the gross national product of Ireland. In the US some 10 percent of corporate entities control two-thirds of the non-farm economy (what Berle elsewhere calls “the highest concentration of economic power in recorded history”). The perception of Berle and Means has been justified for America. For the rest of the world, their conclusion was prophetic. The dominant organization of the next decade will be the multi-national or international corporation. National governments, said a British cabinet minister in 1968, “including the British Government, will be reduced to the status of a parish council in dealing with the large international companies which will span the world.”
One in nine of the industrial workers in Scotland today is employed by an American enterprise. In 1966, 22 percent of Britain’s “exports” were transactions between branches of multi-national corporations. Trade unions throughout Europe are disturbed by the new multinational faces behind the masks across the bargaining table. As a commentator in the London Times wrote in April, “[I]nternational corporations have now a massive power, not only financial but industrial, and no-one really has the first idea how they exercise it.” When and if we do know, what can we do about it?
Berle and Means summed up the program of the Modern Corporation: “[T]he ‘control’ of the great corporations should develop into a purely neutral technocracy balancing a variety of claims by various groups in the community and assigning to each a portion of the income stream on the basis of public policy rather than private cupidity.” Even for American corporations, that program—scarcely a formula for democracy—today looks inadequate. As the visitor looks about him, he does not recognize the picture drawn in Berle’s new Preface (to put it mildly): “We are well underway toward recognition that property used in production must conform to conform to conceptions of civilization worked out through democratic processes of American constitutional government.”
In the face of the international giant, the Modern Corporation program is virtually irrelevant except to corporation managers. The words “public policy” are difficult even to define in that context. As Berle’s Platonic corporate-kings of a multinational empire decide upon the allocation of a new plant, just how do they “balance” the claims of the unemployed in (say) Ulster and Sicily? And quis custodiet…? In neither book does Berle even hint at any method for democratic control of the power wielded by the multinational corporation.
The failure to confront corporate capitalism internationally is only one of the disappointments of Power. The book is a curious mixture. In the more legal chapters, the argumentation becomes more compact and concrete. Berle wants controls on American corporate power to be developed by the Supreme Court reinterpreting the Fourteenth Amendment, though, aware of the dangers of judicial lawmaking, he prefers legislative action in the longer run. But he fails to explain why existing legislation on corporations has not moved significantly in that direction. Why has the most creative judiciary in the common law world created so few positive public obligations for managers? Is it that neither legislators nor judiciary accept “Professor Dodd’s contention”? Or are they held back by other forces? Why are most state corporation codes dominated by a philosophy of “enablingism,” which is the legal expression of managerial power? Analysis of the relationship between corporation law and social power is missing. On his old terrain the pioneer no longer asks the difficult questions.
Even Berle’s application of his own persuasive thesis, “separation of ownership and control” in big corporations, which has percolated through Burnham, Galbraith, and others into modern conventional wisdom, is limited by the rigidity of his thinking. Curiously the thesis is attacked by both the right and the left. To the former it is part of his offense against classical economics. To some of the latter he departs from a traditional analysis of capitalism in which the “owners” of capital, identified as stockholders, are dominant. But “owner” is a lawyer’s word. Those who effectively control the use of corporate assets in a giant company today may or may not own or control large quantities of stock. Or the controlling stock may be in “neutral” hands, an institution or pension fund. In social reality the “owners” of big modern corporations include both the owners of significant stockholdings and the occupants of managerial positions, giving them control over corporate wealth unencumbered by the functionless thousands of little stockholders.
This suggests that the left need not carp at the “separation” thesis—except to point out, as the Austrian Marxist Renner did fifty years ago, that like most such legal concepts “ownership” has a variable content. Berle makes a parallel point about “property”; and it is a pity he nowhere discusses Renner’s work. The “separation” thesis must not, however, be confused with a distinct question—whether modern management really aims in any classical sense to “maximize” profits. Is it, perhaps, the case, as Ralph Miliband suggests, that “the classical entrepreneur’s motives and impulses were surely quite as various, complex, and possibly contradictory as those of the modern corporate manager” in what Marx himself termed the “Faustian conflict” between consumption and accumulation?
But Berle has little patience with this kind of problem—largely because he sets up five a priori laws of “power” and adds to them some special definitions of terms. For example, he will have nothing to do with “class” power in society. A “class” must both “realize” its common interest and “be willing to defend” it. So the 26 million shareholders in the US cannot possibly be a class because they have no “sense of identity.” By thus insisting upon his own subjective definition, Berle can sweep out of the window in a page or two not merely Marx and Wright Mills (whose work is caricatured) but anyone else who ever took seriously any objective concept of “class.” There is no hint that such a notion might be a useful tool of analysis, or that class “consciousness” (let alone “false consciousness”!) is worth a word or two.
The author’s failure to consider (even if only to reject) obvious ideas alternative to his own is the least satisfactory aspect of Power. The book is full of Delphic conclusions such as the one about “the endeavor to describe power in the United States as a reflection of economic interests”: any attempt at “explaining lodgment of power along class or bourgeois or capitalist economic lines is unsound. The problem is deeper.” Oddly, it is that very “depth” which the book lacks; and Galbraith’s words, quoted on the dust jacket, that Berle had considered power “more deeply than any other man of his time” seem the most odd comment yet made by one maverick about another.
The English can recognize parochial insularity when they see it; Power sometimes has precisely that flavor. For example, the discussion of “organized labor” displays not merely the usual reflexes of the middle class to a labor movement; it lacks any European or world perspective whatever. Statements about labor, strikes, and working people’s movements offend European experience. They make for a blinkered account of power as exercised, or lacked, by those who sell their labor. (Most amusing is the passage describing how “Communist parties specialize in” strikes that aim at “a change of political power,” words which must have been going to press at about the same time as the strikes in France, summer 1968).
The contrast with the careful groundwork which preceded the theoretical observations of Modern Corporation in 1932 is startling. After all, this book claims to be about Power generally. Whereas it is not unreasonable to treat the American corporation as at least in part characteristic of the modern capitalist enterprise, the peculiarity of the American labor movement is so well-known that even broad assertions founded upon its detailed history would need to be checked against working-class history elsewhere. At least Berle might have asked after the still disputed factors which so far have prevented the rise of an American working-class movement of a European kind. Appeals to native individualism will hardly do.
For Berle, organized American labor is unlikely to operate as the desired influence on corporate business which already has a conscience and is “increasingly affected with a public interest.” If an agency is needed to control or prod it into “civilized” action, that must be the “State.” Here again, however, we find a failure to examine critically a concept which lies at the very heart of both his analysis and his prescription. There are, it is true, chapters on Political Power and Judicial Political Power. But nowhere is there extended explanation of just what Berle understands by the “State.”
Berle does not confront the question of when and how far this state, the federal government, can control corporate power. We do not know how far Berle thinks power can be exercised by corporate interests by way of the State. Sometimes it is hard to take him seriously, as when he categorically equates “State” control of corporate decisions with “socialism.” It is no surprise that the book does not even refer to the question whether, as Marx put it, the State might be changed from “an organ superimposed upon society into one completely subordinated to it.” The debate about industrial democracy which is sweeping Europe is intimately bound up with such questions. For Berle they do not seem to exist. Worse, he gives no impression of understanding why every campus warms to such words, because they invoke at least the rhetoric of a society in which people will again live together in communities, using the “State” rather than being used as commodities in a mass-advertised and packaged order.
Two idiosyncratic factors give Power its special flavor. The first is Berle’s classical romanticism. Throughout he contrasts Order and Chaos (he is for the former—in the right hands—and against the latter). In long opening and closing sequences he constructs Homeric “myths” about Zeus and Pergamum. Hesiod is appropriately quoted as the source of the Chronos-Zeus myth. But Hesiod was stirred to recount his bucolic tales by a visit from the Gods who shouted (I remember a tutor translating freely), “Get up, greedy guts.” No such message comes from Berle. The message of Power is the need perhaps to civilize, but, above all, to preserve, Order.
How, at a most critical period of history for a nation whose problem is how to use the greatest concentration of power yet available to a political society, has a distinguished scholar, a critic of many traditional canons—one who in 1932 insisted on trying to look the facts rather than the folklore of corporate capitalism in the face—omitted so much, used so many a priori categories, and reached such conservative conclusions? To the visitor, part of the apparent explanation speaks to the dilemma currently facing colleagues in American scholarship. If they are to escape the Mandarin category, described with searing clarity by Noam Chomsky, they must be at least prepared to step outside those recommendations for change which do not challenge established Order. And that, here as in most societies in the world, is becoming increasingly dangerous.
This leads to the last of the curiosities of Power: Berle’s maintenance of the old cold war. Order is threatened throughout the earth. It must be defended in a world which is presented as a battleground between the good and the bad. This vision dominates the book, producing a view of history that can only be called bizarre.
In 1945, he writes, “British policy, in general, supported the American dream of a world ruled by law” (although British troops reinstated the colonial regime in Saigon in 1945 and slaughtered the left-wing resistance who opposed the return of the ancien régime in Greece in 1944). He declares that there is “always the danger of a megalomaniac—a Hitler, a Castro, a Guevara—a fanatic or a dogmatic messianist power-holder to whom the rational interests of his people (or even of himself) seem irrelevant.” All “wars of liberation” are indiscriminately damned as foreign invasions to put “Marxian theory” into practice. (The only reference in the book to Guatemala is in a footnote list of members of the Organization of American States.) The invasion of the Dominican Republic by US troops in 1965 was required by an “anarchic civil war” and “indications” that the “Moscow-Castro Communists had entered the fray….” In the face of other descriptions of US policy in Santo Domingo by such writers as Theodore Draper (in The Dominican Revolt), one wonders whether one lives in the same world as Adolf Berle. Could the US have withdrawn from Vietnam in 1967? Berle’s answer is ready. One of the “laws” of power is that a power vacuum will always be filled. Naturally, therefore, the forces of good must fill it first. And once they are there, how could they possibly retreat?
But one comes, at length, upon a section headed “Is Empire Avoidable?” That is indeed a question worthy of the scholarship of 1932—the current American dilemma which once the British knew. No brief summary can do justice to the inadequacy of the answer given. At times one’s hopes revive, as when reading of “the weary problem: In the modern world, can the hegemony of the most powerful economic nation be avoided in the territorial areas to which its surplus capital must flow?” (Emphasis added.) Succeeding pages must surely contain a footnote mentioning the work of Rosa Luxemburg, to whose thesis reference is clearly made? At last, power, capital, and international policy, it seems, are to be explored together. But again the hope is dashed. Within ten pages we are drearily back to Soviet Russia’s “messianic mission to overthrow any non-Communist government, and especially the United States, when possible.” Berle comes to the “regrettable” conclusion that, without world government, “some form of empire” is unavoidable; and the need is (naturally) to make that empire “good.” It is as though the CIA (which is nowhere mentioned for its mission) were the right hand of Zeus in Long Cheng.
This simplistic view of recent world history which makes no distinctions between Stalin, Hitler, Lenin, Castro, or Guevara—Franco, on the other hand, is always respectfully referred to as “General Franco”—must obviously have been partly formed by Berle’s earlier career, which included presence at the Versailles peace talks. Even as the treaty was being drawn up, Lenin was making Russia Bolshevik; and as they signed it the Japanese were at work conquering Manchuria. With “other young men,” Berle tells us he resigned from the US delegation “in protest against the Versailles Treaty”—a gesture that had the “gallantry of a mosquito attacking a battleship—and about the same result.”
Berle significantly offers as the justification for this volume a desire to discuss power about which he has thought a great deal and occasionally observed closely “since attending the Versailles Peace Conference.” The 1919 World Order, even as it was created, was smashed. Berle still believes in “the cause of world government” which will “develop a choate moral philosophy of world-wide impact”; but his bitter youthful experience of the betrayal of Order and the futility of confronting the establishment with “gestures” is evident on every page.
Is there perhaps in Power that contradiction which may be the mark of the first-class Mandarin? For it is not true that Berle has given up his earlier concern about the people managed by corporate and state power. On the contrary, he sees the dangers of the growth of this power as clearly as he sees the horror of the murders with which he frequently belabors those who cannot share his rejection of all socialist revolutions. He still asserts categorically the need to demand a new price for the corporate privileges and advantages that the law gives to aggregates of capital through which some men have power over others. He has tasted and understands the insensitivity of bureaucracy.
This is “the world of great corporations and, now, of computer action,” writes Berle, as he describes a time when under corporation-made programs information about an individual will be stored in such complete form that it can be used, without his knowledge, to control his life. His credit, his license to drive, all will be subject to remote and unknown computerized decisions.
But what is Berle’s remedy? To take the example just cited, against the horrors of corporate-computer control he counterpoises mainly developments of the “normal rules of tort liability.” The remedy here, as elsewhere, just does not fit the disease. But, for Berle, Order must not be disturbed to the degree that there is a threat of Chaos. So the answer to corporate power is more “statist” control. Berle asks: Will that involve tyranny? He answers: “Perhaps; yet as it comes it is likely to appear perfectly logical—the only practicable escape from unendurable congestion and confusion, if not chaos.” To those who had not realized the depth of his commitment to the status quo, this vision of the “logic” of state capitalism seems disastrously complacent.
Students of corporations and society will return with greater relish to the maverick who in 1932 wrote: “One recognizes the occasional benevolences of the many corporate managers whose sympathies are warm and whose aspirations are magnificent. The gross result, however, appraised from the angle either of government or economics, has not been either benevolent or idealist.” Forty years later, that sentiment is pregnant with a demand for change far more fundamental than the author of Power can envisage.
Berle’s closing pseudo-myth sets a final seal on his priorities. Demonstrators for “Student Power,” “Black Power,” “No Ruling Class,” and “Power to the Poor” are all confronted by Zeus, standing within the “police barricade.” Also present are Athena and a young engineer repairing the electric-wire system: The engineer grinned at the demonstrators. “While all this racket goes on, somebody has to make things work,” he shouted to me, laughing, through the noise. “All these characters need lights.”
Was the place, one wonders, Chicago? This is truly a tragic book.