Thursday, January 28, 2010

Corporate influence

Large corporations are going to have greater influence in public laws and policy from 2010 onwards.

1. The U.S. Supreme Court recently said that the government cannot prevent publicly-chartered and traded limited-liability corporations from spending shareholder money on political speech.

2.  The Supreme Court decision also applies to union spending of members' dues on political speech.

3.  The limitation on corporate use of shareholder money on political speech has been in place since 1907, so there is no way to be sure how corporations will use their new power with modern media.  Nor can we be sure how legislators will react to the use or threatened use of this power.

Conventional Wisdom:
1.  Negative campaigning is perceived/feared as a useful tool by politicians.  Empirical evidence: the routine use of negative attack ads every election.

2.  "Blow-back" from negative campaigning may sometimes occur when a candidate uses negative advertisements against an opponent.  However, there typically is no downside for interest groups or individuals who have run negative ads.  Empirical evidence: Bob Perry's "Swift Boat Veterans for Truth" attack against John Kerry.  The ads were disavowed by Bush did not substantially affect his popularity. Such disavowal doesn't help the target of the negative attacks, it just minimizes blow-back.  There is also no evidence that placing the ads hurt Perry's construction business.

My Analysis:
1.  There is relatively little downside for unions to "play nice" in the political arena - they are already vilified by the right and disliked by most moderates.

2.  Negative ads have a potential downside for any corporation that must sell directly to a consumer/voter, so companies such as McDonalds, Walmart, or Johnson & Johnson are unlikely to overtly fund negative ads, although they may find channels for political influence by broadly funding multiple political interest groups that will run ads.  If the money is stretched in a wide enough net, it is relatively easy to disavow any single group that "crosses the line" and gets bad press for its negative ads.

3.  Corporations that generally do not sell directly to a consumer (for example Alcoa,  Boeing, Cisco, Jacobs Engineering, Dresser-Rand) have less of a downside when funding negative ads.  They are more likely to run ads that have some risk of blow-back or direct connection to their firm.

4.  Corporations will not have to fund a lot of negative campaign ads to gain influence. The mere threat of such ads will be enough to gain them improved access to legislators.

My Predictions:
1.  Unions will fund extensive political campaigns that will be fairly negative and directed towards igniting populist resentment of "fat cats".  Because of the wide contempt for unions, it seems unlikely that these will have much effect on the elections.  Exceptions may be in a few states or districts where unions have a strong voice and can focus populist anger effectively.

2.  Corporations will use their new power more carefully.  They will contribute at arms-length to interest groups that will "officially" be the creator and funding source for negative ads.  When the "Committee to Oppose _____" is organized, their ads won't say "funded by Alcoa, GE, United Technologies and various other corporate behemoths."  Instead, you will have to dig into the finances (disclosed perhaps quarterly) to find out who is contributing.  We may not know who is funding an interest group until after the election when ads are run in the last couple months before an election.

3.  Some corporations will focus efforts to defeat a few senators/congressmen who are seen as vulnerable (perhaps Evan Bayh of Indiana).  They won't go after those who vehemently disagree with them (e.g. Barney Frank), but will go after moderates that they can help defeat and use as examples of their power.

4.  The corporations will be sure to tell our legislators how the corporate contributions helped defeat candidates.  The threats will not be explicit and will have plausible deniability, but they will be understood.

5.  The legislators who are elected in 2010 will pay much closer attention to the needs and the desires of large corporations.

6.  The end result of this "freedom of speech" for corporate and union executives (using shareholders/union members money rather than their own) will be more influence of special interest groups, and less influence of the general public.  It doesn't take much imagination to see that any legislative measures calling for executives to be more accountable to shareholders are doomed to failure.

7.  The overall change in our governance will be slow and subtle.  You will not see anything that you can easily say "there's the corrupt corporate influence!"  But it will appear in a greater corporate slant in legislation that passes.  Expect to see things such as  "corporate income tax holidays" that allow companies to bring overseas profits back into the US without paying taxes.   Special tax breaks and subsidies for large industries are likely to be more common and more entrenched.  Expect the tax burden to further shift from corporations and investors to middle class wage-earners.

Why I think the U.S. Supreme Court decision is a bad:
There is no doubt that money is speech and influence - the Court is correct on this.  Indeed, I believe that anyone should be able to use their own money to facilitate their own speech and influence politics toward their own goals - and the government does not have the right to limit that spending.  However, no one should be allowed to use someone else's money to pay for political speech without explicit agreement.  I do not believe there is any logical reason that buying shares in a company, or buying shares in a mutual fund that buys shares in a company, should be a constitutionally-protected de facto agreement to allow the corporate executives to speak using shareholders' money.

Corporate executives are supposed to be custodians of shareholder money for business purposes, but they have an inherent conflict of interest regarding laws for corporate governance, transparency in executive compensation, recall of  Directors, prohibition on interlocking directorships, etc.  Corporate executives do not always speak for shareholders - they may speak for themselves and executive interests that are at odds with shareholder interests, in particular when the average shareholder has a widely diversified portfolio.  Corporate executives should not be allowed to use shareholder money for political speech for the simple reason that they are not the owners of the company or the owners of the assets - they are the hired hands.  The owners of the company, the shareholders, are free to use their own money (including dividends from the corporation or profits from sale of stock) for whatever political speech they desire.  There are no Constitutional limits on a persons' ability to use the money generated from business to fund their own speech.  However, a shareholder should not have to worry about their hired employees using their money and diluting their earnings by engaging in political speech without their explicit consent.  But with the recent ruling, the executives are able to use shareholders' money to help elect politicians that will agree to further insulate them from accountability to the shareholders.

Where I believe the Supreme Court went wrong was that they failed to give due weight to the fact that a publicly-traded corporation is entirely a creation of legal statutes; and therefore the corporation logically should not have any rights beyond what is granted by statute.  Considering the fundamental thesis of liberty in our Declaration of Independence, I'm left wondering how a corporation has "inalienable rights" that are anything other than what their "creator" (the government) originally granted in setting up corporate charters.  Indeed, there is no requirement in the Constitution for recognizing publicly-traded, limited-liability corporations, so arguably we could ban them outright.  The Supreme Court has effectively decided that the rights of the corporation owners - the shareholders - to pay for their own political speech with their own money is automatically transferred to the corporation, and the ability to choose the content of that political speech is transferred from the owners to their employees (the corporate executives).  And yet, there is no provision in the Constitution for transference of rights from owners to their employees.  Indeed, the framers of our Constitution would be shocked at the power we've endowed corporate managers. I've discussed this previously in context of Adam Smith's The Wealth of Nations, which was the economic Bible of our founders.

The transference of political speech rights from a diffuse group of shareholders into the hands of corporate managers simply does not have any rational backing or basis in the Constitution.  Those who do not like the statutes for publicly-traded corporations are free to hold their corporations privately, without trading on the public stock markets.  Corporate executives are free to use their own money to buy political speech the same as any other person - they just shouldn't be able to use someone else's money without that other person's agreement.

As a corollary to the above arguments, I do think that privately held corporations should be able to buy as much political speech as they desire.  Within a privately-held corporations, ownership is much less diffuse and the state's interest in protecting shareholders' rights is relatively limited.  The political voice of a privately-held corporation can be reasonably assumed to represent the views of the majority of the owners, so there is no public interest in regulating such speech.

My over-arching thesis is that because a publicly-held corporation is purely a creation of the body politic, its rights should be entirely circumscribed and controlled by statute rather than being protected by the Constitution.  I do not see how a corporate executive's Constitutional speech rights are infringed if he/she is simply being prohibited from financing their individual speech using other people's money.  No one can stop the CEO of any corporation from paying out of his/her own pocket for whatever political speech he/she desires.  Likewise, I do not see how a shareholder's rights are infringed when they can use their own money to fund their own speech.  If the shareholders all want to speak together on a particular issue, there is nothing stopping them from creating a political action committee and making themselves heard.  Thus, no one's speech in a public corporation has ever been infringed by the present laws - only the questionable "right" to use the shareholders' money to speak on behalf of management.

My problem is not with corporate speech by corporate owners per se, but with executives of public corporations using the owners' funds to finance the executives' own political speech and agenda.  There nothing in recent or ancient history that allows us to assume corporate managers will be 100% faithful to their fiduciary duty to the shareholders  - indeed, if they always acted in the shareholders' interest we wouldn't need any regulations or government oversight of public corporations.  But the ability of corporate managers to act against their shareholders interest and influence the creation of laws reducing the shareholders' control is a corrupt distortion of democracy, capitalism and free markets.

Is there another path?
We perhaps have an 11-month window to pass a bill that requires corporations and unions obtain support of the majority of their shareholders/members before they spend the shareholders' money or members dues for political purposes.  I don't think this is the ideal approach, but it is probably the only practical way to deal with the Supreme Court decision.

Monday, January 18, 2010

Eliphaz the Temanite

Does anyone else see the similarity between Pat Robertson and Eliphaz the Temanite in the Book of Job? Both claimed to speak for God and to "know" that the grim events besetting the Haitians (or Job) were God's punishment for transgressions.

Seems to me that Pat Robertson needs to spend a little time refreshing his memory of Judeo-Christian theology (or perhaps learning it in the first place). Judeo-Christian theology has long held that bad things do happen to good people, and we cannot know the mind of God. Anyone who claims otherwise needs to put forward a burnt offering of seven bullocks and seven rams.

Friday, January 15, 2010

The non-representative government

We presently have 40 Republican senators, controlling 40% of the vote in the US Senate. But they actually only represent 36% of the population.

Of course - that's just my way of thinking of things.  The GOP represents 36% of the populace, the Democrats represent 64% of the populace, which adds up nicely to 100%.

But I've been criticized for the above because, in the opinion of one friend: "each Senator represent[s] ALL the people of the state, regardless of their party."  As a practical matter, I haven't seen a single vote of either Kay Bailey Hutchinson or John Cornyn that reflects the politics of the 44% of the people of Texas that voted for Barack Obama.  I also doubt that 37% of voters in California that supported McCain feel like their views are represented by Barbara Boxer or Diane Feinstein.  Nor do I expect that Democrats of Indiana routinely sway the opinions of Richard Lugar.  Likewise, Republicans of Indiana probably don't call on Evan Bayh to push their political agenda.

But let's put such argumentation aside look at the numbers if we assume that a single senator really represents all the voters of the state:

Of course, the numbers above don't add up to 100%, because some people are getting represented by both parties using this way of thinking.  Interesting that even with this accounting the GOP doesn't represent a majority of the populace.

All data from Wikipedia 2008 estimates of US state populations (ignoring District of Columbia and populations in US territories).

Wednesday, January 13, 2010

The health insurance mandate

The proposed health insurance reform includes a "mandate" requiring people buy insurance or pay tax penalties. This incenses people from both the right and the left. On the left, it's annoying to be forced to buy insurance from a profit-making company, thereby subsidizing corporate jets, bonuses and the wimpy corporate boards that protect CEO interests above shareholder interests. However, most liberals/progressives support the mandate if there is a competitive public option health program. On the right, the opposition isn't about the type of insurance, but a more fundamental opposition to any government incursion on our independence - in this case, the idea that the government can force you to buy something you don't want or don't need.  Arguments from the right make it seem that the proposed health insurance mandate is both unprecedented and unreasonable.

Is a health insurance mandate unprecedented? Let's consider car insurance. I suspect that every state has a mandate that every licensed vehicle must carry car insurance or pay a fine. We consider driving a "privilege" rather than a "right," so the mandate seems fairly unobtrusive. The argument could be made that one doesn't have to drive, so one chooses to drive and therefore chooses to abide by the laws requiring insurance. But as a practical matter, how independent is an American that chooses not to drive? Either you must live close to your place of work and walk, risk your life on a bike, or take public transport that is subsidized by the taxpayers. For the vast majority of Americans in urban, suburban, ex-urban and rural areas, driving a car is not optional - its a necessary part of our life due to the way our infrastructure has developed.  Thus, the requirement to buy car insurance is a de facto "mandate," and is a precedent for a health insurance mandate.

Is a health insurance mandate unreasonable? The reason for the car insurance mandate is fairly obvious: through stupidity, carelessness, or simply a bit of bad luck any one of us can cause an accident that leads to another person being financially harmed. Insurance compensates those harmed by any accident we cause. On the face of it, this seems different than health insurance - after all, if I don't carry health insurance how do I harm you? Aren't I just putting myself at risk? Shouldn't I be allowed to be stupid - and wouldn't the gene pool be ultimately improved by allowing this choice? Unfortunately, my choice not to carry insurance does harm you. We have a network of public and private hospitals that receive subsidies based on providing emergency care to any and all who come through the door. If I fall into a seizure in the middle of the street, I will be picked up by emergency medical services, taken to a hospital and treated, even if I do not have any ID or insurance card on me. When I recover consciousness, if I cannot pay and don't have insurance I will still be released from the hospital - we don't have debtors prisons anymore. The cost of my choice to be uninsured doesn't fall on me, it falls on the taxpayers and on those who have insurance that will pay the higher overhead of the hospital that treats the uninsured.

Thus, the argument for the health insurance mandate is fairly simple - we do not have an "opt out" mechanism for emergency treatment, therefore a choice to be uninsured is not a choice for independence, but is a choice to rely on a socialist emergency treatment network.  As the ultimate provider of that socialist network, the citizens, must pay the costs themselves through general taxes, recoup the costs by targeted taxes on the uninsured, and/or reduce the number of uninsured by mandating insurance. Oddly enough, the consistent conservative point of view should be payment through targeted taxes and mandates, i.e. individual responsibility. The consistent progressive point of view should be payment through general taxes, i.e.  the dreaded single-payer system. However, conservatives, presently arguing against the mandate and tax penalties, are actually arguing for emergency health care that is subsidized by general taxes - while the liberals are arguing for tax penalties for those who don't take individual responsibility to get their own insurance.

There could be a compromise (warning - sarcasm follows). We could allow people to avoid the taxes for not buying health insurance if they post an undertaker's bond of $2000 and have a tattoo on their wrist that says "DO NOT TREAT".  We would then tell EMS workers just to leave such people where they lie.  Once they're dead the undertaker can pick them up and collect the bond.   The uninsured by choice could have their independence and our only inconvenience would be having to step over the dead and dying on the sidewalk.

The proposal to tax people for not having insurance is very similar to what happens with people who rent houses.  You aren't required to buy a house, but if you don't buy one you will pay higher taxes than someone who does - and yet no one talks about a "home-owning" mandate in the tax code.