When industrial capitalism developed in Western Europe in the 19th century, the great majority of businesses were privately owned. That is, they were the property of a single individual, or sometimes a family, or sometimes two or three partners with defined shares. There was no normal mechanism by which some outsider could become a part owner of the business.

Corporations, i.e., businesses owned jointly by many capitalists, had existed during the earlier phase of commercial capitalism, the most notable early one being the British East India Company (originally named the “Company of Merchants of London Trading into the East Indies”), which was formed in 1600. However, these corporations were rare and had considerable differences from modern corporations. Most were created through a royal charter or a specific legislative act and were confined to the activities specified in their charter.

Modern corporations

Capitalists are driven to accumulate ever more capital. Particularly in Britain, but also in the United States, capitalists pushed parliaments to pass laws that eased and assisted such accumulation. The form most suited to capitalist accumulation proved to be the modern corporation. In 1844 the British parliament passed a law allowing the establishment of corporations (“joint stock companies”) without any further legislation. In 1855, it enacted limited liability for registered “limited” companies; this meant that business people did not risk everything they owned by conducting a business, but only as much as they had invested. (The losers from this arrangement were mostly small businesses that supplied the corporations on credit and workers whose wages might never be paid if a corporation failed.)

The corporate form served capitalists in several ways. It made it easier for successful competitors to gobble up the losers (a process later renamed “mergers and acquisitions”). The selling of nominal ownership certificates – shares – became a method of gathering up the small scattered savings of millions of workers, farmers and small business people and turning those savings into additional capital to generate additional profits. And the use of those savings instead of their own funds enabled capitalists to take greater risks: when they won, they won; when they lost, the small “investors” lost.

When businesses were owned by only one or a few people, capitalists had a strong motive to be active in running the business, since it was their money that would be lost if the business went belly up. As the corporate form became predominant, this changed. As it became possible for individual capitalists to spread their ownership over many businesses, and possible for particular businesses to be owned by many capitalists, it became normal for the task of managing a business to be performed by hired agents.

Employee managers

Already by the time that Karl Marx was writing his analysis of capitalism, corporations had significantly altered the features of capitalism. Marx pointed out that the previous economic function of capitalists, the managing of businesses, was increasingly being performed by (well-paid) employees. This showed that capitalists perform no necessary economic role even within capitalist production. They are “necessary” only outside the productive process – to maintain the class divisions that allow them to appropriate the wealth produced by working people.

The fact that capitalists play no useful role in production has been partially obscured by the further development of corporations. This is because the hired managers of corporations often receive salaries that allow them to become capitalists in their own right. (One recent example in the news was Geoff Dixon’s $11 million salary for a few months’ work as chief executive of Qantas.) This can create the illusion that capitalists are still performing a useful function by managing an enterprise. But these CEOs are not normally appointed as managers because they are capitalists; they become capitalists because they are well rewarded for having managed in the interests of the capitalist owners.

The overall experience of modern capitalist economies leaves no room for doubt. Corporations can be managed by anyone with the requisite knowledge and skills, regardless of whether they are billionaires or paupers. This indicates why it will not be difficult for socialised economies in developed countries to manage themselves without capitalists – and to do so much more efficiently because working people will be in overall charge and insisting on management in their interest.