This essay links corporate regulation with developments in economic and corporate theory. The issue employed for this purpose is one that dates back more than one hundred years: whether companies should be regulated by the national government or by state governments. With the enactment of the Corporations Act 1989 (Cth) and the decision of the High Court in New South Wales v Commonwealth much attention has focused on the constitutional power of the federal government to regulate both the incorporation of companies and the trading activities of companies. A fundamental question however is whether it is better to regulate companies at the national level rather than the state level.

Corporate regulation is front-page news in Australia. In recent years we have witnessed the unedifying debate between the Federal and State governments about how the responsibility for, and benefits of regulating companies and securities law should be allocated. Federal Parliamentary committees have conducted inquiries into the law relating to directors' duties, insider trading, and (currently) minority shareholders' rights. The chairman of the National Companies and Securities Commission and the Australian Securities Commission, Mr Tony Hartnell, has gained frequent publicity and support for his concern to “deal with the excesses of the past”.

As this brief survey indicates, the renewed concern about corporate regulation has tended to focus on the task of defining and controlling the conduct of some company personnel (directors, managers, and their advisers) in order to protect the interests of other corporate players (particularly shareholders and creditors). This focus is not surprising, but where does it leave the corporation?

In the recent decision in New South Wales v Commonwealth (hereafter referred to as the Corporations case), the High Court's interpretation of s 51(xx) of the Constitution frustrated the Commonwealth Government's attempt to create a single national system for the regulation of companies and securities by denying the Commonwealth Parliament the ability to legislate for the incorporation of companies. Corporate existence, and the privilege of limited liability which arises from it, flows from registration under applicable companies legislation. The Commonwealth's ability to displace State companies legislation and bring all or most corporations within its scheme would therefore be significantly enhanced by the ability to legislate with respect to the incorporation of companies. The Corporations Act 1989 (Cth) was, for reasons mentioned below, a complex piece of legislation. However, any effort by the Commonwealth to extend its control of corporate regulation without the ability to control incorporation would be likely to generate a system whereby companies came into being by registration under a State Act, but were then bound to conduct their affairs in accordance with Commonwealth legislation - a system which might almost have been constructed by opponents of federalism in order to demonstrate its absurdity.

The recent High Court case on the Corporations Act and the reliance therein by the majority on ‘history’ to support their reading of s 51(xx) raises the question of what were prevailing community attitudes to uniform national legislation on corporations in the late nineteenth and early twentieth century. Whilst the views of the delegates to the Conventions and the views of the justices in the High Court in the Huddart, Parker & Co Pty Ltd v Moorehead have been selectively dusted off and resuscitated by the majority justices in the Corporations Act case the broader spectrum of opinion in relation to such matters, both at the time of federation and subsequently, is less well known. Nevertheless such views are also important in arriving at a proper understanding of the meaning of placitum (xx) of s 51.

Policy formation has displaced the diffused and incremental operation of the common law as our primary means of social regulation … In the process, the nature of legislation itself has undergone a major change. It no longer consists of rules that displace or supplement the common law: contemporary legislatures … enact a wide range of … provisions that bear little resemblance to our traditional concept of law. For these functions we have no adequate theory, no general account of how such statutes should be designed ....

The period of the Hawke Labor Governments has been one of considerable economic change. That change reflects two basic and interrelated factors. First, capital accumulation itself is a continually revolutionising process. Competition forces capitalists to search for new and cheaper ways of producing their products in order to gain an advantage over their rivals. Secondly, the international economic system has been in crisis since the mid-1970s. That crisis can be seen in Australia in the tendency of the rate of profit to decline over the last twenty years or so. The strategy underpinning the Hawke Government's actions, and this is as true of the taxation field as any other area, has been to adopt measures that will facilitate capital accumulation and improve profit rates for Australian based capitalists. This article will examine how some of the tax law changes that have been made have been affected by this strategy, in particular the internationalisation of the Australian economy. In the first place however, these changes have to be seen as part of the more general process of change itself.