The ultimate crash of the corporate system? part 2.

I've already written once on this channel about William Magnuson's fantastic book 'For Profit' (FT Book of the Year, the Economist Book of the Year).

I will remind you that it is a brilliantly told story of capitalism from the perspective of the history of corporations. Today we would say companies, but it is worth following the book to recall that corporations are social creations, when the state ceded to private entrepreneurs tasks it thought were too much for the state/society to do themselves. And it gave them back some, or perhaps most, of the profits.

Too much sometimes meant too expensive to implement, too risky, too innovative.

But it was always the state that gave the corporation the licence. Not the other way around.

Emperors, the Senate, Popes and Kings ‘incorporated’ corporations.

The first corporations were the Roman ‘societas publicorum’. The Roman state under the Republic found it difficult to collect taxes in many of the more remote, yet wealthier, provinces. The Senate decided that this should be privatised. Let the rich patricians of Rome set up a ‘societas publicorum’ and let them share with the state what they collected. This went great at first, but when the Empire began, it became apparent that the ‘societas’ were too greedy and took too much for themselves. Something just like in Martin Scorcese's famous thriller ‘Casino’.

The corporations were dissolved and Rome began to collect taxes on its own. Maybe it fell because of this. But surely the corporations became a victim of their own success.

In the late 14th century, Naepolitan archdeacon Baldassare Cossa began to, slowly but steadily, make a career for himself in the Vatican. Cossa came from an impoverished noble family, but financial problems led him and his brothers to become pirates (virtually). The money from piracy Cossa invested in studying law in Bologna and went on somehow.

Giovanni de Bicci de Medici (on the picture above) came from a well-known, but declining, banking family in Bologna. Bologna was the banking centre of Europe at the time. But what was banking at the time? The Catholic Church forbade loans at interest, and there was no system of financial transmission in the international sense (even within the Western world at the time).

Giovanni and Baldassare met on their way (probably in Bologna) and liked each other.

And guess what? Over the years, former pirate Baldassare was elected Pope (he was probably a better politician than Trump), under the name of John XXIII. But before that, Giovanni lent his pirate pal campaign money to make him a cardinal.

Under the patronage of the Pope, the Medici invented a workaround to the Church's 'usury' (no interest lending) rules. They came up with the breakneck concept (which nevertheless still exists today) of the bill of exchange. Instead of lending money, the Medici Bank would give you money to be repaid in different currency. Of course with hidden interest.

This enabled the development of banks in various European countries and revolutionised the circulation of money on the continent.

This also initiated the development of what we today call the multinational corporation. For example, the bank's branches were treated as separate entities, and only the head office had the competence to lend to the princes upwards. Reminds of your job today?

But Giovanni, nicknamed ‘Il Magnifico’, had succession problems and his descendant Piero did not get on with either the Church or the bourgeoisie of Florence. The Bank de Medici does not exist today, while 500 years ago it was Europe's largest financial institution.

There is not space in the pages of this column to summarise, even very briefly, the whole book.

I will cite one last example. When John Rockefeller's Standard Oil empire was split up under anti-monopoly rules in 1911, one of the companies created from its ruins became Exxon. Between 1950 and 1970, Exxon became part of US energy policy, or better said, its pillar. Wherever Exxon went, the United States stood behind it in negotiations. In Iraq, Iran, Arabia.

Until Exxon became too strong and the State started to rub its nose in it. Leaving it alone in negotiations. By giving warnings to overly powerful CEOs.

These three examples, from three distant eras, show, according to the book's author, that a corporation must have the legitimacy of the State in order to live and survive. Moreover- besides making money for itself, it must fulfil an important general purpose for society.

Otherwise it falls victim to its success, read: the State, or society, brings it back upright.

In the final chapter of his book called "Start Up", Magnuson shows that the same thing happened with Facebook - pressure to respect privacy, data protection, content moderation - Facebook implemented all this because it had to, and didn't necessarily want to.

I wonder, however, how it will be with a corporate creation called a start-up, in the age of AI.

In my posts a few days ago, I wrote that I wondered if there might be a Unicorn created and run by one person. Or even not one but just a few. Could such a creation be the first corporation to have the power to resist the pressures of society/state and focus on ruthless profit maximisation?

It sounds scary. But maybe human beings are the kind of beings who don't care about absolute profit. And also, or perhaps above all, about relationships with other people