How could a corporation become a sovereign state in two or three hundred years?

Question

Imagine a world two or three hundred years in the future, starting from now, in which some corporations (or groups of them) become independent states with sovereign territories. I’m aware this is very unlikely to happen in the today's world, that’s why I’m giving three hundred years for political, sociological and legal changes to develop. Some conditions are:

• Cession must occur from one of today’s most developed countries with strong democratic tradition, like the US or somewhere in Europe, which also houses the most powerful corporations and most of the wealth in today’s (and future) world.
• The country from which the cession has occurred is relatively “stable”. There are no civil wars or revolutions; there are political scuffles and corruption, but no government has been deposed in centuries. Everything occurs through legal changes or democratic voting (again, like in today’s US or Europe).
• There are social classes: A majority of underpaid manual workers, a middle class of educated and highly-skilled workers, and an exceedingly rich minority in charge of the mentioned corporations and with significant political power.
• The most important: Society has changed, but the world has become neither a dystopia nor a utopia. The purpose of these writing is to explore the political and sociological changes the world must go through to make that kind of things possible and I am not trying to explore the morality and beneficial or negative consequences of such changes.

My reasoning goes like this: Corporations progressively take control over social matters in their headquarters and small surrounding territories, providing employment, security, education, health, roads, transportation and a long etc., like a company or college town with significant financial muscle. With time, corporations stop lobbing and make their own candidates run for office, which then get elected. Corporation-appointed politicians and public officials acquiesce to reduce corporative taxes if the corporations do a good job in running their “territories”, progressively taking over the responsibilities of financially-strained governments. These responsibilities can start as things like the mentioned social services, but progressively span to more complex affairs, like issuing passports, managing their own international relations and establishing a judiciary. And the cycle continues, the corporations progressively cut bonds with its parent country until they become independent through a popular referendum or signing a treaty. Also, in the process, the corporations develops its own complex-inner government, probably a mix between management and democracy. Am I missing any tipping point here? What would you add to this theory to make it more plausible? Starting from the current state of affairs in the world, how could a corporation become a country in two or three centuries?

Answer 1

It looks like you're on the right track. A major tipping point may be the successful defeat of anti-trust legislation.

For a corporation to become a viable state they would need monopolies and diverse portfolios. More or less they would probably want/need to control all commerce in their area. This may have an end result of a sort of authoritarian regime where all property is owned by the state/corporation. Much like in the company towns you mentioned, the state/corporation would be your employer, landlord, utilities provider, grocer, healthcare provider, etc...

Another tipping point, something we're already seeing in some sectors in the US, is privatization of services formerly provided​ by the government. We already have privatized prisons, schools, hospitals, and security/military forces. If the trend continues and these private companies consolidate... Well that's most of the leg work already done.

Answer 2

Consent

The most important thing that would be needed would be the consent of the nation that gives up its territory. Next would be the consent of the governed. How do they keep people in the corporate territory and not leaving for the rest of the country?

In the long term perhaps the corporations could restrict freedom of movement, but in the beginning they'd need consent. They would have to be better in some way than the governments that they replaced, or people would just leave.

What could a corporation offer that a country cannot?

Corporate towns

There is historical precedent for corporations running territory. It was quite common in mining towns. The corporation would provide housing, food, etc. The corporation would manage transport, bringing in supplies and taking out mined materials.

Corporations would have to start doing that again. However, the easiest way to get there is not to carve out territory from an existing nation, but to find new territory. There's not a lot of room on the Earth. Perhaps an artificial island in the middle of an ocean. But more likely would be a space habitat. We already have corporations trying to go to space. And those almost have to operate as corporate towns, as who else is going to pay the massive costs of transport to them?

This would begin in space. The first corporations would be in space. They might even be based on non-profits. Once the system works in space, then they would migrate it back to the Earth.

Answer 3

Corporations would like to get all the profit without none of the expenses, so they tend to shift any burdens - such as assurances or healthcare - to the state, if allowed.

I suppose a path could be in the trend of ever-smaller government. With lower and lower corporate taxes and less government spending the government finds itself in a situation were:

• Nearly 40% of the population pays no taxes, 'cause they're too poor.
• 10% of the population pays not taxes, 'cause they're too rich - and move their money elsewhere.

As a result, a increasingly overwhelming share of the taxes falls upon the middle-class, quickly centrifuging it to the extremes. With 65% of the population below the poverty line and 40% of the wealth of the nation in hands of individuals and corporations who also pay (nearly) no taxes at all, the government fails to provide resources to the population, such as education or infraestructure. As a result, companies start to offer these services to attract workers, because they are resorting to emigration or crime. Increasingly, companies find themselves (unwillingly) in the position of becoming states: they have to provide housing, education and healthcare plans to atract workers, police and firefighter to fight against crime and vandalism (and accidents). The government doesn't like the corporations taking its place, but without income it cannot compete. Lack of funding means their military start defecting and becoming private armies under some corporation's payroll. By this moments, the old state is dead, and some newer corporation-states are born. Even if nobody wanted to.

Answer 4

Starting from the current state of affairs in the world

, this is extremely unlikely. The major impetus behind the formation of any state is mutual defense. Having a lot of money doesn't mean anything if you cannot prevent some other guy taking it from you. US defense spending is ~600 billion USD yearly. Apple's most recent net income (before paying shareholders, etc) is ~45 billion USD. The US military recruits from a population of 320M; how many able bodied people will live in the Apple Republic? How do they maintain deterrence against WMDs? So , you need at least a combination of the following to become true:

• Warfare is conducted largely by AI (No need for a large population)
• Your corporations become at least 5-times richer than the richest corporations of our era (Corporations can afford standing militaries)
• The world becomes a much more peaceful place.
• Either WMDs are somehow eliminated, or the world is fine with extreme proliferation of them (Apple has its own nuclear arsenal, etc).

2 and 3 may be contradictory. If income inequality continues to rise, it is extremely unlikely that violence would decline.

The second issue that these tropes always ignore is the granularity of the corporate world.

Look at a list of corporations by revenue. You will notice two things:

1. The list changes every quarter
2. There is very little difference between any two corporations listed one after the other, in term of revenue. For example, in the most current list #43 and #44 have ~107B USD in revenue.

So, how thinly are we going to slice the ham? How many independent corporation territories are we looking at? Where do you draw the line in terms of revenue? How about the very next corporation on the list?

Secondly, although the major corporations are separate entities in terms of operations, the ownership is very much overlapping. Except for Chinese state owned "corporations" and a few family owned ones, great majority of these corporations are publicly traded, so who owns the corporation literally changes by the minute. Also, it is not uncommon for wealthy individuals and investment funds to hold major positions on the boards of several corporations. If I am sitting on the board of Apple, Shell, and McKesson, do I become a citizen of Apple Rebublic, or Shell rebublic, or McKesson republic?

Therefore, you need a combination of the following, also:

• Major mergers result in mega conglomerates in a scale unheard of before. (Historically, over-expanded corporations have not been very profitable. Also, you would need to defeat antitrust legislation somehow.)
• Relatively small number of individuals somehow gain control of these conglomerates (seems very unlikely starting from today's world).

Corporations progressively take control over social matters in their headquartes and small surrounding territories, providing employment, security, education, health, roads, transportation and a long etc

How this could be profitable for a corporation is hard to imagine. A corporate HQ is just an office building. Apple does not design, manufacture, and ship all its products from one HQ. It owns assets around the world. Also, corporate HQs are already in cities with very decent transportation, healthcare, and education. So, you also need the following, which seems contradictory to your second requirement ("stable").

• The state and local governments become so dysfunctional that the country's infrastructure is actually crumbling. Major centers of learning (Harvard, Stanford, etc) somehow collapse. (Only then, it may perhaps be profitable for the corporations to finance schools, roads, etc).

like issuing passports, managing their own international relations and stablishing a judiciary.

Running the judiciary inside their micro-state is of little use to the corporation. What judiciary will they turn to for conflicts with other corporations? What do nation-states do when they have conflict? There is no court with enforceable jurisdiction over all nation states. They either resort to long diplomatic process or duke it out on the battlefield. Not very profitable... So you also need:

• The definition of a corporation changes from a for profit entity to something else. (Perhaps, instead of sovereignty, the corporations make sponsorship agreements with existing nation-states, the United States of Apple, The United Kingdom of Shell, England, and Northern Ireland, etc)

Answer 5

I immediately though of small islands in the ocean. The corporation could buy one or even build one. Depending on the exact situation, there may be the legal framework for that corporation to actually fully own the island. This seems to me to be the most cost-effective pathway.

Another path may be to effectively buy the government of a small island nation. In fact this may or may not be limited to a small island, but any government willing to sell itself. There are likely quite a few sovereign nations sufficiently susceptible to such a purchase, given a large enough price offering.

Yet another way could be exploration of a less charter region. For example, if a corporation establishes a research lab in Antarctica, at the bottom of the ocean, on the moon, or on Mars, that could eventually progress to where the corporation is effectively in charge of land and operating as a sovereign entity.

Another suggestion is that the corporation may be able to outright buy some largely unused parcels of land up north in either Canada or Russia, or in the middle of the desert.

Finally, lots of indigenous societies have treaties that effectively make them sovereigns over portions of land (reserves). They may sell some of these rights to corporations, given a high enough price.

Answer 6

Smart cities

A conglomerate company, like google, could buy up large swathes of otherwise useless land on which to build new examples of what their tech could bring to a city in the interest of creating new cities rather than working fixes into old buildings.

These could start off as examples of what the company can do, a city with automatic waste disposal from each house, WiFi across the whole city, new methods of travel, houses with integrated smart tech...the list goes on but it would be the city version of the internet of things.

Now either you take this further, the city grows, initially as a place for its workers and eventually other businesses move in too. Google, or whoever, own the city. Maybe emergency services get a boost too, robotic police, fire service, surveillance everywhere to identify everyone.

Building for countries

So, a massive success, Google City becomes one of the world's most popular cities and everyone wants a piece. So now they start building for countries but the contracts state that, unless the cost has been fully paid off then the company owns the city (giving them a monopoly as the sole electricity, internet, waste, water and transport services provider). The cities will be expensive and the company won't be rushing the countries to pay this off as they get a healthy income from all the people living there.

The company then ends up owning more cities and, to some extent, the access to population (voters) in those cities. It won't be long before such a company's influence becomes indistinguishable from ownership of a sovereign state.

This is actually an idea I've been considering for a while, a divide growing between those living in the smart cities and those not. The 'Smarts' (or 'Googles', my story did have a sense of kinship to the company) feeling it is the way forward. They then side with the company and when a member of its board puts themselves forward to sit as the MP for that city the vast majority agree that 'Smarts' should have a 'Smart' to represent them...and so the slippery slope goes.

Answer 7

There has to be money in it.

For a corporation to invest in government ownership, there must be profit. Otherwise, the shareholders won't go for it. And at the end of the day, profit is all any corporation technically cares about.

There has to be short-term (and long) stability in it.

Any plan that increases instability also increases the risk of losing money. Corporations who increase instability must do so in areas that aren't central to their HQ or operations. Anyone traded on the NY Stock Exchange, for example, is going to be real careful to not disrupt the NYSE. Because that's where a significant portion of their value lives and dies.

There have to be tools.

Taking over a country via military force is a bit too overt. If Apple or the Sinister Eli Lilly or whomever tried to build an army and invade Canada, It would end harshly. Every nation would send troops to defend Canada. And those can build bigger armies faster, since they can operate at a loss. So instead, your corporation must use subterfuge and non-lethal tactics. Armies are the tools of nations, not corporations.

Look at what they're doing now...

Corporations are exerting heavy influence on global events daily. Lobbyists help congress write laws in the US. They work with nations to formulate trade partnerships -- in secret, so you won't know what's in the agreement until it is already signed. They work to build up laws that make it harder to fight their more subtle technologies and tactics.

...then ramp it up.

Take the foundation stones of that, and build up.

It isn't too much to imagine they find a Third World country where the politicians are corruptible, and corrupt them. Buy their way into power somewhere quiet that no one (on a global scale) pays attention to. Once in power, they slowly expand their base, subverting that nation's branches -- the judicial, the legislative, and the executive. Sure, the military is small; they can't take on the US or Russia. But it's big enough to quash any internal complaints.

Then they shift their HQ to this nation, because it's cheap. The country literally gives them land, exceptions to environmental laws, and whatever else they need. Then, slowly, manufacturing shifts to this nation. With no oversight, they can keep eroding those costly environmental laws, labor / safety laws, etc.

While the subversion is happening, their governmental mouthpieces silence the UN by improving stability, ending civil wars or genocides already in progress, etc. They clean up the place, which makes them look like good guys. Heck, the US, UN, etc. might even supply weapons to make the take-over happen faster. They've done similar things before.

Sure, people would notice. They'd make noise about it. But by the time everyone realized it wasn't just a conspiracy theory, it'd be too late.

Answer 8

This has already happened at least once in our history. The East India Company was formed in 1600 to trade with India and China, but from the 1750s onwards it came to directly rule large areas of the Indian subcontinent with a private army and the administrative functions of a sovereign state, a situation that lasted for about 100 years.

A similar situation could arise in the future if a corporate entity was sufficiently motivated and used similar tactics:

• Establishing trade agreements and economic ties and then manipulating them to acquire political leverage and power, eventually subverting the incumbent sovereign authorities and assuming their functions.

• Direct military action - a well funded trans-national corporate entity could field a private army capable of overwhelming the military of many smaller or less militarily capable nation states.

Given the conditions you've defined, direct military action against "one of today’s most developed countries" is unlikely to be economically viable or feasible for a corporate entity. However it would be possible for a corporation to bring about an economic and political situation (through control of the media and politicians) where a subset of one of those countries decides to cede (e.g. Scotland from the UK, Texas from the United States) and become an "independent" political entity.

If this succeeds then the corporate entity could then set about subverting the newly formed, smaller state (e.g. by destabilising the economy, fomenting political unrest) and then present themselves as the solution to these problems, as the only entity capable of bringing stability and prosperity. The desperate population could then be persuaded to vote for a corporate takeover of the state to "rescue" the country.

Answer 9

Many of the historical examples have to do with colonialism: Dutch East Indian Company, Hawaii, Africa, etc.

In the future, this will happen in space. It will be only natural for an asteroid mining camp to be an “company town”. What we need first is to maintain the company hold as a camp grows into a colony and a larger settlement.

Now, I’ve seen estimates as to the truely staggering wealth involved: one well-chosen asteroid will contains trillions of dollars in precious metals, trillions of dollars in rare earth elements, not even counting the iron. This kind of money makes people go crazy. This much inflow of material will destabilize entire economies. People wanting to “get this done” can subsume the previous government to then get the permission and infrastructure they wanted on the Earth side.

So the Asteriod Company can, for example, approach a country like England and say “having trouble with treaties and trade because you want China’s cheap steel? never mind them, we can provide all you need.” They can muscle in on the world stage simply by outclassing everyone else in terms of sheer resources.

As for fighting the Earth nations, we’ve gone over before how inherently dangerous space industry is due to the energy scale. Every ship is a weapon of mass destruction. They plan to deliver tons of Iron, gold, etc. to the ground as part of their core businesses, so naturally they will have rocks in a staging area ready to deorbit. This trivially becomes a city-killing weapon. They have the “high ground” and the ability to withdraw out of range of Earth-bound nation’s forces.

The Asteroid Company will be the largest superpower. They will take over other governments to get what they want.

Answer 10

We have several small countries, right now, that are corrupt enough so governments can pay zero taxes (for an up-front 'fee'), or openly sells a 'flag' for their ocean vessels that incurs no regulations, or openly sells one of their allocated rights to launch a satellite, or lets them register as a corporation with zero corporate oversight. Many will outright sell citizenship.

Some of these are not democracies but monarchies or dictatorships. They sell these products of their sovereign nation because they are relatively poor, say with wealth in the low millions, and the payday is significant for them.

The idea for a very rich corporation would be to just buy out one of these dictators or kings and install themselves as the control of an already sovereign nation. And I mean buy them OUT, say a billion dollars for all the appropriate decrees and signings to make the corporation the ruler and the guy they are replacing retires to Paris or wherever else they like.

Then the corporation can install whatever they want in terms of government employees, ambassadors, immigration policy, laws and so on. They can rename their country to their corporate name. They can transfer the wealth and property of their corporation to that of the country they bought.

The whole meaning of a "sovereign" country means it makes its own laws, just like North Korea does. All the way to executions, murder, imprisonment, labor slavery, sex slavery and so on.