A History of Corporations

"For Profit: A History of Corporations

By William Magnuson

Basic, 357 pages, $32

It is sometimes hard to know how corporations make any money. People with firsthand experience of them will tell you that they are bloated and overstaffed, with too many meetings and too few actionable decisions despite all the discussion. The truth is that, whatever the challenges they face, corporations are tremendous generators of revenue. The Fortune 500 had aggregate sales of $37.8 trillion in 2021, over a third of the world's gross domestic product. The process of making a product or providing a service that is bought by millions of people, if not billions -- and then selling it again and again -- is a difficult one but amazingly profitable when it works. It is, appropriately, at the heart of William Magnuson's "For Profit: A History of Corporations."

Mr. Magnuson, a law professor at Texas A&M who has worked in mergers and acquisitions at a major law firm, is taking up an under-researched topic. Business history, despite its stories of pluck, initiative and risk, is often ignored or sidelined by other kinds of historical analysis and chronicling. Yet the history of business matters. As Mr. Magnuson writes, corporations "have always and ever exerted an outsize influence on world events."

This influence, Mr. Magnuson shows, dates back to ancient Rome, where the earliest corporations supported the Roman Republic. They were, of course, different from the massive enterprises that we know today, being closer to citizen-run suppliers in which small groups acted as quartermasters or first responders and produced goods or services the republic needed in exchange for governmental dispensations. Rome governed a vast amount of territory with a tiny administrative state, and the hard work of collecting taxes, building roads and enforcing Roman rule was managed by corporate organizations. Once the republic fell and the reign of the emperors began, Mr. Magnuson shows, corporations fell away and a large bureaucracy arose, without generating better results.

Mr. Magnuson picks the story up again in Renaissance Florence, where the Medicis built a banking empire and developed a model for financial institutions that in some ways still exists. Their houses of finance exchanged currencies, provided a safe place for people to deposit money, and found smart ways to make money off money at a time when "usury" -- known by the Franciscans as "making the coins fornicate" -- was forbidden.

The Medicis, of course, were patrons of the arts, commissioning works from Michelangelo, Leonardo and Botticelli. That was on the plus side. On the minus, the relations between Medicis and their rivals could be cutthroat in a more literal sense than we encounter in business competition today. After the Pazzi family aimed at Florentine ascendancy by force, the Medicis counterattacked and enacted a brutal revenge.

Force was also a tool of the British East India Co., which maintained its own army in establishing a British presence in India. Colonial Americans were quite aware of the military tactics of the company. Not least, there was its habit of throwing "its weight around to get special treatment for its products," most notably, in the Americas, by muscling the Tea Act through Parliament in 1773 -- and provoking, eventually, the Boston Tea Party. A general concern about corporate-enforced British rule increased colonial skepticism toward the crown and encouraged the move toward revolution.

In the 19th century, corporations became less violent but, in some cases, no less rapacious. The Union Pacific Railroad's effort to build a cross-country rail system helped create a united nation in which goods and people could flow more freely. But the railroad engaged in shameless political corruption and heavy-handed price impositions. Many of today's anti-corporate sentiments derive from the Robber Baron era of the late 19th century. Though the Robber Barons, like the Medicis, supported art and culture with their philanthropy, and though they are often maligned more than they deserve, their popular standing remains low.

The problem of public image has been a persistent one. Even as corporations generated remarkable innovations in the 20th century and helped increase national wealth exponentially, they could alienate the public. John Rockefeller was known to be brutal in eliminating what he called "ruinous competition," using spies and manipulating regulators. But he also used his domination -- in oil exploration, refinery capacity and distribution -- to make affordable fuel available to the broader population. Much of our fuel network, as well as our transportation system, derives from Rockefeller and the companies he formed. Chevron, one of the largest energy companies in the world today, was originally Standard Oil (California).

An even more innovative leader was Henry Ford, who built one of the first gas-operated vehicles -- the Quadricycle -- in 1896. He described his prototype to Thomas Edison, who encouraged him to proceed, saying, "You have the thing. Keep at it." Keep at it he did, building the first affordable car for the masses. He revolutionized the means of production, too, with the assembly line. "There is something magnificent," Mr. Magnuson writes, "in the tale of Henry Ford figuring out how to make a car and, within the span of just two decades, assembling a team capable of making ten thousand of them in a day." What is more, Ford's production method was transferable to other industries, allowing other products to be made cheaply and easily. His $5-a-day pay scale was revolutionary, though a good deal was demanded of his workers. Mr. Magnuson notes that his "production quotas made no allowance for breaks for lunch or to go to the bathroom, let alone for rest."

Thanks to the rise of unions and the expansion of managerial bureaucracy, many corporations, over time, became debt-loaded and inefficient, something that private-equity firms -- most prominently, Kohlberg Kravis Roberts & Co. -- noticed. As Mr. Magnuson relates, such firms began with modest aims, offering to assist family-owned businesses with both management and monetization and thus helping ensure that the businesses would continue on after the owners retired. The infusion of know-how from private equity had a salutary effect, making such companies more durable and profitable. But as KKR and its competitors became larger and more ambitious, they developed more aggressive strategies and a different reputation. They might increase the value of a company by taking on debt, laying off workers, selling the company off in parts and moving on. It's not a fair depiction of the entire industry, of course, but business is always a mix of benefits and costs, social as well as financial.

Nowhere is this truer than with today's high-tech corporations. To take an obvious example, Meta, Facebook's parent, is one of the most powerful companies in the world. Its pre-eminent social-media service lets people keep up with old friends, gather information and share stories. At the same time, it can be manipulated by bad actors and is often (as it was designed to be) an addictive time-suck.

These days, both Democrats and Republicans -- goaded by the controversies surrounding high tech and by other familiar objections to corporate conduct -- seem to revile corporations. "For Profit" shows why this is so but also, more importantly, why we should appreciate corporations more than we do.

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Mr. Troy is director of the Presidential Leadership Institute at the Bipartisan Policy Center in Washington. His most recent book is "Fight House: Rivalries in the White House From Truman to Trump."” [1]

1.  REVIEW --- Holiday Books: From Medicis to Modern Times
Tevi Troy. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 19 Nov 2022: C.8.