On the last Friday of February 2024, the corporate responsibility directive, which had already passed the EU’s negotiation rounds, was removed from the agenda leading to a final decision, partly because Finland’s government would have abstained, effectively voting against it.
In this blog, I will explain why delaying the corporate responsibility directive is a mistake of enormous proportions by the government, demonstrating that the concept of capitalism remains misunderstood. To understand the present, we must revisit the entire history of the corporate concept. Without this context, I cannot explain how the current “old boys’ network” of corporations came to rely on the state’s bosom.
The Ancient Mesopotamians and Romans Were True Capitalists
Businesses, or at least entrepreneurship, have existed for 5,000 years, starting in Mesopotamia where first the Sumerians and then the Babylonians made agreements on trade, finance, and ownership. The first business model involved contracts between individuals, with full liability resting on the individuals – the state provided no special privileges, rights, or guarantees for these contracts. People acted like responsible adults, fully accountable for their actions. This, by definition, is what capitalism is: freedom and responsibility in the use of one’s capital as one wishes.
In the 3rd century BC, profit-seeking enterprises began to emerge in the temples of the Middle East. Agreements on accounting and profit-sharing were made, and even the word ‘entrepreneur’ appeared in the Assyrian languages. The concept of companies as we understand them today was developed by the Romans. Companies also started entering contracts with each other, giving rise to a B2B market. Roman companies did not have limited liability; individuals in the business bore the responsibility, meaning they remained on the path of true and free capitalism.
The Italian Marriage and Stora Enso’s Partition
Centuries later, in Italy, the pioneer of modern “capitalism” was the Maona de Chio e di Focea consortium, which financed the acquisition and operation of 29 ships. The debt was divided among creditors, with state backing for each part, and the state also granted special trading rights to the company. Maona was therefore a consortium of financiers that lent money to the state and, in return, received limited liability from the state for its loan and the right to engage in international trade. The key instrument of colonialism – the marriage between company and state – was born for the first time.
In Sweden in 1288, Stora Kopparberg, now known as the Finnish company Stora Enso, became the first business to sell shares. Owners had limited liability even in the early years, likely backed by state guarantees and rights, at least in practice. Currently, the largest shareholder of the company is the Finnish state-owned investment company Solidium, with a 10.7% ownership stake and 27.3% of the voting rights. Interestingly, Kela (the Finnish Social Insurance Institution) also owns 3% of Stora Enso and controls 10% of the voting rights. I cannot quite say why Kela (or the state) needs to own Stora Enso, but some politician is still responsible for this decision today.
Competition Tightens – The Limited Company Is Born
Let’s return to the history of international, state-driven trade and colonialism: the Dutch East India Company and the English East India Company were the first businesses to freely issue shares for trade. The state bore the risk for these companies, and the owners’ liability was limited to their investment. Shares have been known since the 13th century, and their risk was mainly borne by the state – even today, subsidies are immediately pushed to industries like fur farming when profitability cannot otherwise be maintained. Incidentally, the first stock exchange was established in the Netherlands in 1611.
The competition between England and the Netherlands for companies and the benefits they brought to the state led England to take strong interventionist measures in trade; for example, the queen granted exclusive rights to trade routes. This led to the creation of the Joint Stock Companies Act of 1856, promoted by the laissez-faire advocate Robert Lowe – he believed the state should not act like a “father” but rather leave the responsibility to the actors themselves. However, the law he promoted created the “limited company,” whose liability was borne by the state. Before this, the situation had already been set up by economist Adam Smith, who argued that companies needed state protection and special privileges, such as limited liability, to succeed. It is clear that the more competitive advantage a company can take in any way, the better it will perform – there is nothing logically wrong with the basic principle. At that time, there was simply no discussion of planetary boundaries or human rights; the idea was to acquire as much as the ships could carry.
Companies Become Legal Entities of the State, Cementing Unfair Competitive Advantage
In any case, by the late 19th century, England had accepted an exceptional “old boys’ network” corporate system in which the state strongly favoured its own companies. Companies became their own legal entities, with the actors in these companies enjoying limited legal liability. The original idea of capitalism, with full responsibility and freedom, has now been completely replaced by this thinking. This is problematic because the people behind the companies can remain entirely invisible, while the company itself does not really exist – it is ultimately just an agreement between people.
Thus, the notion emerged that a company could do harm without any individual being responsible – which is inherently absurd. This ethical absurdity also has roots in colonialism, as wrongdoing outside the “old boys’ network” of states wasn’t considered the company’s responsibility. This allowed the state to benefit by granting companies unfair competitive advantages and collecting taxes, while the companies (or rather, the people behind them) benefited from the freedom to do almost anything in corrupt and non-functioning states. Often, the state also owned these large companies, and many businesses benefitted from subsidy schemes. The mutual benefit is not necessarily the biggest problem; it’s that no one is held accountable. The complete replacement of personal identification numbers with business identification numbers (y-tunnus), combined with limited liability, was the mistake we are now trying to rectify – if we still have time.
France’s Advertising Campaign Frightens England
The final reason for the death of capitalism, and the birth of the limited company, was the competition between states over who could limit liability the most. France, which offered limited liability to companies and advertised this in England, was winning the “trade war” and attracting companies with their tax revenues under the French flag. English businessmen and the state feared, both rightly and perhaps irrationally, that they were losing out. England pulled the emergency brake, effectively ended capitalism – the free market economy – and transitioned the Western world to a state-controlled economy in which companies, and the individuals running them, were granted immunity from liability by the state. This is a brilliant example of the power of marketing!
Capitalism Is a Great Thing
When you look more closely, true capitalism is actually a very humanistic and ethical system; it punishes wrongdoing with bankruptcy and gives room for genuine value creation. According to the original idea of capitalism, owners are fully responsible for the actions of their companies – no contract can absolve them of this. In real capitalism, the state would severely punish misconduct but otherwise allow companies to operate as their owners see fit.
If the state stopped protecting the people in company leadership and ownership, cause-and-effect relationships would be revealed. Environmental crimes wouldn’t result in fines and warnings – they would bring full liability and criminal charges. The use of human trafficking in primary production – same thing. Company leaders and owners would face trial, not simply go home after being fired. Children exploited as labour would be compensated for their fate according to international and national court rulings. This is the kind of capitalism we need: freedom and prosperity combined with justice.
It is locally peculiar that the corporate responsibility directive was suddenly put aside in the EU. If any continent would benefit from responsible business, it is Europe. We are relatively well set, as our welfare states and rule of law function effectively. We don’t accidentally commit crimes; the system is transparent and functional enough. As for the division of roles, I would suggest leaving taxation and global judicial power to the states, so that companies can flourish and compete on fair grounds. The state should stop coddling companies: no more subsidies and protection. We don’t need them – although, of course, we will take them if they are offered. It’s not the fool who asks, so companies are unlikely to start dismantling this system themselves, but rather wonder about it from time to time.
So, what puzzles me most are today’s leaders – especially political leaders, as mentioned above, but also the leaders of influential companies. Is it that the state’s support is now taken so much for granted that there is no longer room for capitalism’s original spirit of responsibility? Surely it wouldn’t be so terribly difficult to refrain from human trafficking and polluting groundwater if one really tried? If in return we could get more freedom, less bureaucracy, and even happier employees and teenagers at the breakfast table? I believe many would appreciate at least the latter.
And to answer my question regarding human trafficking and environmental destruction: Yes, avoiding them is somewhat difficult, depending on the industry. Things have gone so wrong over the last thousand years that more is needed than just reforming the system, growing up, and taking responsibility. We need expertise, technology, knowledge-driven management, transparency, and an immense amount of willpower. We need an entire continent – or even one country – to lead the change. Sounds like Europe or at least Finland, doesn’t it? If this interests you, let me remind you of political science: only 3.5% of the population is needed to bring about a revolution. In Finland, that’s just 200,000 people, which is, interestingly, also roughly the same as the Centre Party’s membership. But if we consider the 1.4 million people employed by entrepreneurs in Finland, reasonable lobbying should already be a sure thing. So, there’s no point in blaming the Centre Party for everything – let’s also stop denying reality and regressing to childlike behaviour. Let’s at least get the corporate responsibility directive over the finish line first. It’s truly absurd to live in a world where companies bear no responsibility. After all, responsibility is a prerequisite for freedom, and it is freedom that makes us all happy, and over time, also wise and content.
For more information, offers on implementing sustainability software, and general enthusiasm about responsibility and freedom, you can reach out to me.
Tiina Saukko
P.S. This time I referenced the historical section from the University of Helsinki’s Faculty of Law dissertation: “Restoring Corporate Governance to Lawyers: An Attempt at Corporate Normative Jurisprudence as an Alternative to the Reign of Law and Economics,” Doctor: Reyes Gomez, Javier Alberto.
