Summary and Analysis of the book Corporations and Political Accountability by Mark V. Nadel by Prof. Marc A.

Triebwasser
Covers following broad chapters:
1. 2. 3. 4. The Rise of the Modern Corporation (Page 2) Corporate Influence on Government (Page 17) Corporations' Effects on People (Page 33) Corporate Accountability: Possible Solutions (Page 39)

The Rise of the Modern Corporation

Marc A. Triebwasser, 1998 http://www.polisci.ccsu.edu/trieb/rise.htm
Of Individuals and Institutions As we discussed at the beginning of the term, in order to understand the American political system, we have to understand three major political actors. First, we have to understand the government--something we have been doing all semester. And, of course, we need to understand its relation with the people. We also have to understand the role of corporations. The big difference here is between institutions and individuals.

The inadequacies of trying to apply to the twentieth and twenty-first centuries the philosophies of the 1700s and 1800s can clearly be seen as follows. When our government was established under the Constitution, people recognized that government would have a lot of institutional advantages and it could become an overwhelming force. One of the things that was done to prevent such potential tyranny was to have a series of checks and balances within the government. Another mechanism established to prevent tyranny was the Bill of Rights which provided people with protections against the government. The struggle for power was perceived in the 1700s and 1800s as one of Man vs. the State. In American political thinking we thus took into account the power of the State, but we have never really taken into account the power of large

corporations. Large corporations today are usually conglomerates, and are usually global in extent. These entities certainly have institutional advantages. They have tremendous resources. They can potentially exist for very long times, perhaps forever. Today, they are--as we have noted-global in extent. However, because of court decisions which gave corporations the right of persona, and because of the Fourteenth Amendment, corporations are afforded many of the same Bill of Rights protections against the government that we are granted as individuals. But the people do not have any similar rights to protect them against the corporations. We thus have far more rights against the power of government than we have against the power of corporations. Furthermore, government has difficulty controlling corporations because corporations have many Bill of Rights protections. So you can see the difficulty in the situation.

Both our political and our legal theories treat corporations as if they were the same as biological individuals. In reality, we know that corporations have a great deal of institutional power. The disparity between theory and reality creates major problems for us. Even if you have a very wealthy individual, over time his or her family would become less wealthy. There is at least the inheritance tax. However, a corporation goes from one human generation to another and does not lose any money to inheritance taxes. So once money is in a corporation, it stays in the corporation. That is among the big advantages that corporations have. There are significant problems, indeed, about corporations from the point of view of democratic theory.

The question of how we handle this is a very difficult one--one for which we struggle for an answer. It would seem that people are losing out in this struggle. Some say, "We're losing control of our lives, and the problem is Big Government." They suggest, "Reduce the power of Big Government, and that will strengthen the power of the individual." But if you reduce the power of Big Government, what happens? You give more power to the corporations. And "we the people" have far fewer rights visa-vis the corporation than we do in relation to the government. Furthermore, we do not have any democratic input even theoretically into the decisions made by corporations. So very real problems exist here. The Nadel Book The main question that this book asks is: How can a corporation be made accountable to the people? How can they be made politically accountable? They're not just other persons, like you and me. If we take our model, it serves as a very broad outline for the Nadel book. Part One of the Nadel book, which consists of Chapter 1, looks at the nature of the modern corporation. Part Two deals with how corporations affect the government, how they influence the government. (Then, of course, the government affects the people.) That's Chapters 2, 3, and 4. Part Three, which is Chapters 5, 6, and 7, deals with how corporations affect the people directly. And Part Four of the book, which consists of Chapters 8 and 9, asks: Given the fact that corporations are so large and powerful, if they do influence the government, and if they do affect the people directly, how can we deal with this situation?

This book is not like a textbook. This is a thematic book. In reading it the idea is that you should use the book, not the book use you. Understand the basic nature of the book. The book has a theme: How do we make corporations politically accountable? Why should we, do we need to, and how do we do it? The rest then fits into this general argument. The first part is about the nature of the corporation. The second part, how do they influence government. The third part, how do they influence people directly. And the fourth part, what are the problems and possibilities of making them accountable. Within that general theme each chapter has a place in the argument, and then each section of the chapter has a place within the chapter. So one of the questions to ask as you read each chapter, is how does it fit in with that general outline? In class, we are going to go over the general principles. I'm going to leave it to you to read in the book about some of the specific examples. I note, at the end of the Study Guide, the industries to which you should pay particular attention. I will not be going over in class those specific industries or examples. I may mention one or two, but I'm holding you responsible for getting them from the book. Remember, there are a myriad of details in the book. What you want to grasp first are the general principles. And as you get the general principles, then you should note the examples from the listed industries. Don't be overwhelmed by facts and dates. The book was written in the early 1970s, so we're talking about a work that is about 25 years old. Some of the examples may be somewhat dated, but not too many of them. The general principles hold very much today. What amazes me is that no more recent book of a similar theme has been written on the subject. If it were, I would have assigned it. In the 1970s, people explored the powers of corporations. Today, the corporations are much more powerful and we don't even think about them or learn about them as much, or research them to the extent we should. Limited Sources of Information On television all we see is how well the stock market is doing. We don't often hear about how poorly the worker in America is actually doing. Unfortunately, today, our television networks, newspapers, and radio stations are controlled by only a few major corporations. Who owns CBS? Westinghouse. Who owns NBC? General Electric. Who owns ABC? Think of the ears. Disney. And then you have CNN and Turner which are owned by Time-Warner. Besides owning the television networks, they own newspapers, satellites, radio stations, publishing houses. Our sources of information are controlled by a few, only a very few, major conglomerates. Is it any wonder that the sort of news that we get on

television now reflects the needs of the corporations and not the needs of the people? Let me put it this way. There aren't that many upper middle class people. But when you look at television programs, how many sitcoms deal with ordinary people. For years the only sitcom that dealt with working class people was Jackie Gleason's The Honeymooners. All the other characters were from the upper middle class. In the beginning of the 1970s, there was a lot of political awareness and there were some changes made, but they were mostly cultural and not economic. For example, African Americans appear a lot more on television today than they did before. Of course the differences between the real income of blacks and whites has also increased, and it has increased dramatically. The Women's Movement also had an effect. At least now some women are portrayed as having active roles, and that was usually not the case before. Historic Background To understand where we are today, it's important to put this in some historical and theoretical context. For most of human existence we were food gatherers. We had to follow the migration of animals and the change in weather pattern to where plants would be plentiful. We followed the rain patterns. About 10,000 years ago we learned how to domesticate animals and how to plant crops. So we went through the agricultural revolutionwhich allowed us to stay in one place. In other words, the agricultural revolution, and technological revolution, was followed by a social revolution, the urban revolution. In the ancient world, the different aspects of society were all part of one structure. The pharaohs were considered to be gods. They were also in charge of government and the economy. So society, economy, politics, and religion were all wrapped up into one social structure. In ancient Rome, we had the same thing: the emperors were considered gods. And society, the economy, and politics were pretty much part of the same structure. People viewed life in terms of the whole; individuals were seen in terms of the whole structure of society. Under Christianity, people also saw legitimate authority as coming from God. And so, the kings ruled by divine right. The motto of the British royalty is Dieu et Mon Doit, God and My Right. If a king ruled by divine right, then you had to obey the king. So society came first and then the individual fit into the picture. Feudalism. Rome began to disintegrate around 300. As it did, Europe was plagued by a lot of nomadic tribes attacking settlements of farmers. You had the Goths, the Visigoths and so forth. You also had the Mongols coming from Asia all the way to Budapest. In fact, Hungarian is an Asiatic language. At that time, in addition to the farmers who were trying to till

the land, there was another group of people who provided protection for these farmers. So a relationship developed in which you had a military caste and a farming caste. That served a useful purpose. It was the military's function to protect the farmers, and for that protection they collected a fee or a tax on what the farmers were producing. That made economic sense. After some time, the need for military protection against the nomads had diminished greatly. However, the caste system of military people and farmers remained. Eventually, the farmers became known as peasants; while the military caste became the aristocrats or nobility. In Europe, this period of time was called the Dark Ages, although at the time Islam was at its height in the Middle East and North Africa. When European society was organized in this way with the local nobility in charge of the land and the peasants working it, we called this form of organization, feudalism. In this arrangement, there was also a third caste or estate: the Church. And with the Church involved in all this, Europe was often called, Christendom. So again with feudalism, you had a single system which included religion, the economy, politics, and society. Mercantilism. Then came the Renaissance, largely as the result of artisans and scholars from the Byzantine Empire fleeing to Italy because of the fall of that empire to the Moslems. At that time, you also had knowledge coming to Europe from the Islamic academies of North Africa through Spain and Italy. Often the Jews, who lived in both the Christian and Islamic worlds, served as a conduit for this transfer of information and knowledge. As the Renaissance or Age of Enlightenment progressed, the little lordships and principalities which had dominated Europe became united into the new kingdoms and new nations we know today. The new technologies which were developing then were largely advanced under the control or sponsorship of the king. Kings would give charters to private companies to carry out large economic projects. In this way, the king gave a charter to a company to colonize Connecticut. A charter was also granted to colonize Massachusetts. In Portugal, the king would grant a charter to a company to build a ship, or the Queen of Spain would provide a charter and support to Columbus to sponsor his activities of exploration. However, these companies were not chartered simply so they could make money; they often had a governmental purpose. For example, the British East India company received a charter to develop India economically, but it was also responsible for setting up local governments and building a railroad system. The British East Africa Company was also granted a charter for economic purposes, but the building of a railroad from Mombassa to Lake Victoria helped create a structure through which European style government could be introduced to the interior of that

continent. Prior to this the Arabs who had settlements for hundreds of years in what is now known as Kenya, had only penetrated the continent for a distance of about ten miles from shore. This sort of economic, political, and social system was called mercantilism. Under mercantilism the economy was centrally directed through the chartering of private businesses which also served public functions. Capitalism. One of the ideas we discussed when we talked about the Declaration of Independence was that the modern way of viewing things was not to start with society first but to begin our considerations with theindividual and to stress individual freedom. This concept of individualism expressed politically by Thomas Jefferson in the Declaration of Independence, was called liberalism. Individualism expressed economically is called capitalism. It is rather significant that Adam Smith, the founder of classic capitalism, first published his major work, The Wealth of Nations, in 1776. The type of classical capitalism Adam Smith discussed was also known as laissez-faire capitalism. Laissez-faire is French for to leave alone. Adam Smith believed that if certain conditions existed in the economic makeup of society, then the government could leave economics alone and that through the operation of market forces alone the economy would automatically be directed toward the public good. The conditions which Adam Smith specified include: Requirements of Classical Capitalism 1. There would be small businesses; 2. There would be many businesses; 3. No one would control these businesses. They would run according to random market forces; 4. The businesses would be in vigorous competition with each other; and 5. There would be business failures. Those businesses which produced the best goods at the lowest prices and were in good locations would succeed; whereas businesses whose products were too expensive, were of a poor quality, or were located inconveniently, would fail. In this way the public needs would be met. Thus the visible hand of the king would not be needed to direct the economy to serve the public good. The economy would be self-directed in the direction of the public good. Instead of the visible hand of the king's

authority, you would have the invisible hand of random So Adam Smith was not simply interested in the free random market forces which he viewed as a means. He in theends, that of an economy directed to meet the

market forces. operation of was interested public good.

Theories of Countervailing Forces At this point it is important to note the mechanism used here, and to be aware that it is the same mechanism used in our legal and political theories. That principle is one of dynamic tension, of pitting one force against another. In our political system, we deal with these forces on the larger (macro) level. At the beginning of the term, we mentioned that Aristotle had discussed this in terms of a mixed form of government where government by the one, the few, and the many were made part of the same system and kept a watchful eye on each other. Our Constitution talks in terms of the legislative, executive, and judicial branches, and we often phrase the dynamic tension between them a system of checks and balances. In the economics sphere, Adam Smith talked about the principle operating on a smaller (micro) level. Each of the many small businesses would be pitted against one another, fiercely competing with each other. The outcome of this struggle would be determined by random market forces. In our legal system, we pit one lawyer against another in an adversarial process--one representing, let's say, the defendant and the other representing, let's say, the general public. The idea here is that you try to ensure that the rules are fair, that you achieve what is known legally as procedural due process. Once you are sure that the rules are fair, you hope that out of the contest of wits the truth will prevail. Now of course we know that there are problems with this, but the basic theory still remains one of dynamic tension. We are not setting up a system of overarching principles of justice; we are setting up a fair contest, and hope things will work out well. Thus the classical democratic political system, the classical laissez-faire capitalist economic system, and the legal system which has come down to us through Common Law, are all based on the principle of dynamic tension or countervailing forces. In concluding our discussion, it is most important to remember that Adam Smith's theory of laissez-faire capitalism--of having the government leave business alone and letting random market forces operate in the marketplace--was more than an economic theory; it was

also a political or moral theory. Random market forces under laissez-faire capitalism would direct the economy to serve the needs of the people. He called these random market forces, the invisible hand, and he sometimes equates the invisible hand with the hand of God. Harnessing Technology All this, of course, was theory. In practice, the technologies brought forth during the Age of Reason in the 1600s, 1700s, and 1800s were often more expensive to put in place than any single individual could afford. Such a person would often not have enough money or capital to get such a business going. And so, people had to find ways of pooling their money. The first mechanism that they used was the joint stock company. However, one problem with this was that if you invested in a joint stock company and if that company caused damages or for some other reason was liable to somebody, each of the shareholders would be liable--and they would be liable, not only for what they put in, but for a proportion of the damages equal to the share of stock they held. Therefore by investing in a joint stock company, you put at risk your own personal fortune. Under these conditions, if people were going to be far away from the management of a company, they would not necessarily want to invest. It would not be prudent. So some other mechanism was needed. Limited liability. This other mechanism was the business corporation. In the United States if a company is incorporated, its name is followed by the letters Inc. In England, it is followed by Ltd. Ltd. means limited. And what is limited? Your liability is limited. So with the corporation, if I invest 100--or $100--and the company carries major damages, I might lose the 100 pounds (or dollars) I originally invested in the corporation, but that was all I could lose. The concept of the state recognizing a corporation and granting its investors limited liability was extremely important to the development of modern business and the utilization of modern technology. It allows people to invest in companies and for companies to accrue the amounts of money or capital that is necessary to build or construct the sort of facilities--textile mills, ships, etc.--necessary to harness the newer technologies becoming available. Individuals would have enough money to do so. The corporation and the concept of limited liability were extremely important social inventions. Early corporations were sometimes involved in a lot of speculation. One such corporation in which English nobility invested was the South Seas Company. When that company failed, a lot of nobility in England lost their fortunes. As a result of this, Parliament passed the South Sea Bubble Act. This was meant to curtail the growth of corporations. However, because the law was so poorly drafted, it actually formed the basis for the future formation of corporations. So the South Sea Bubble Act was the act that gave corporations a major place on the British business landscape.

Early U. S. Business History The United States was a young country at the time. We were not doing things on the scale on which some of the leading powers of the day were engaged. You really did not have to have that much money to start a business. So, the concept of the corporation was usually reserved for companies that served a public purpose. Colonial--and later state-governments would grant incorporation to certain companies which would gain a profit, but would also serve a specific public function. And this was done so infrequently that the legislature would pass a special bill each time a company needed to be incorporated. This was known as special incorporation. The early corporations in America were basically ones that built canals, railroads, or roadways (turnpikes, as they were called). On a turnpike, you had a gate at the beginning of the highway. The gate revolved around a stick-like device or pike. In order to get on the highway you paid the fee, and turned the pike--and thus the gate. That is where the name turnpike came from. Thus in America, corporations were first formed for a public purpose. There was a concept of quid pro quo. If the government grants you the privilege of incorporation and limited liability for you to make money, the government can also demand something from you; i.e., that you serve a public purpose. Quid pro quo is a Latin phrase which means if I do something for you, you are going to do something for me. In the early days of this nation, we had something akin to general stores. Companies would manufacture a product and also sell it. Others would import goods and also sell them. As the country developed, businesses began getting specialized. With the election of Andrew Jackson, the first democratic president, in 1828, the country's attention turned westward. Instead of looking toward Boston and Virginia, and toward England for leadership; it looked westward toward the frontier. At first, the term "west" might mean Ohio which is where the National Road across the Appalachians ended. Later, it meant St. Louis and the Mississippi. Still later, it meant California and the Pacific. By the l840s, you had a lot of small businesses run by self made men, people who were not descendants of the founders or heir to large fortunes. These businessmen were very proud of their business activities. They were entrepreneurs. In those days, of course, you could start a small business and own it. You would be your own person, your own boss. It was not like today, where you go to work and wind up working as a manager of a local business or franchise of a national chain. Today, most often you're not your own boss. In those days, you were.

It was small business people like these who founded the Republican Party in the 1850s. The Republican Party also contained former Whigs and former Federalists who still believed in mercantilism. They believed the Federal Government should direct the economy and charter private companies to build roads, railroads, and canals. Alexander Hamilton who founded this country's financial system was a federalist and basically a mercantilist. However in the 1840s and 1850s, the small business people prevailed with their newly adopted philosophy of laissez-faire. The Emergence of Big Business In the 1870s and 1880s, the transcontinental railroads were built. They changed the shape of America, and of American business to a great extent. The railroads allowed for the mass distribution of goods. This ability to distribute goods over a wide area in turn allowed for mass consumption. To meet the needs of mass consumption, we needed to have mass production. That required large factories. At first, we are considering large industries like the railroads, petroleum, coal, and steel. We are also talking about manufacturing. As we started to build these large businesses, it became necessary to coordinate a lot of the specialized small businesses that existed at the time. Large businesses found that to perform such coordination, it was better to buy out these small businesses and form large scale companies. If you wanted to have a huge company and produce a large amount of goods, you needed to have control over the process. So you would buy out your suppliers, and buy out your competitors. By 1896 with the election of William McKinley, there was a clear recognition of the dominance of these large scale corporations. We also witnessed a movement from a philosophy based on small business laissez-faire capitalism to one based on Big Business. This caused a split in the Republican Party. Teddy Roosevelt, who was from the small business wing of the Republican Party and had already served as a Republican President, ran against the Big Business-dominated wing which controlled the Republican Party in 1908. He ran under a separate political party called the Bull Moose Party. This allowed Woodrow Wilson, a Democrat, to be elected President in a largely Republican era. The importance of moving to a Big Business model of doing business cannot be overstated. In order to administer a business that was so large and involved so many aspects, a new form of business organization emerged which continues to this day: the large scale business corporation. Ownership became separated from management. People bought stock in a company and knew nothing, or very little, about the operation of that

company. They were not interested in being involved in management. They were simply interested in making money. In managing the large scale corporation, new theories of administration were needed. We were moving away from the idea of the entrepreneur, the businessmen of the mid-1800s, to a much more structured and powerfulorganization. No longer were you to be your own person. You had to work for an organization in order to make a living. The Rise of Big Government Many people in those days saw the large scale corporation as a danger to democracy and to the free market. They tried to break them up and return to small business capitalism. Such sentiments led to the Sherman Antitrust Act passed in the 1890s, followed by the Clayton Act. These acts tried to split up monopolies, or to prevent them from being formed in the first place. Another important act along these lines was the Federal Trade Commission Act. These were passed because people were afraid of the power of Big Business. With the Sherman Act, the Clayton Act, and the Federal Trade Commission Act, the general idea was that of pitting the power of Government against Big Business. As businesses grew large in scale, Government had to increase in size in order to regulate Big Business. In order to control the railroads, the first independent regulatory commission, the Interstate Commerce Commission, was formed in 1883. That was followed by the formation of a great many other regulatory commissions--largely under Republican presidents and Republican Congresses. And so, it was in response to the rise of Big Business, that we witnessed the emergence of Big Government. By the 1920s, the government had become so large that an act was passed in 1921, the Federal Budgeting and Accountancy Act, to attempt to deal with the immense growth that had taken place, and to organize the Executive Branch in a more efficient manner.

The Science of Administration By the 1920s, what dominated American thought was a philosophy of administration. In those days it was called The Science of Administration. At the beginning of the twentieth century, people were so enamoured of science that in order for something to be fully accepted intellectually, it had to be called a science. So we had the science of administration. This school of thought was later divided into public administration as far as government is concerned, and business administration which deals with business. But in the 1920s, it was all combined in the concept of the Science of Administration and the model was being applied to both industry and government. Some believe this

Science of Administration would solve all our problems. Just as some people today believe that if you have the right computer program you can solve all the world's problems. It simply is not true, of course. Garbage in, garbage out--you know. But there always seems to be a lot of wishful thinking going around. Anyway, this philosophy was accepted as the modern philosophy. However, there is a very important aspect to all of this, and one we need to consider very carefully. When we discussed classical democracy or classical capitalism, we were talking about the importance of the individual--whether as a citizen, a small business person, or a consumer. The emphasis here was always on individuals. With administrative theory, decisions are made at the top in the organization and work their way downward. Power is organized vertically and hierarchically--for the good of the organization. So we moved from a bottom up way of organizing society as found in classical democratic theory and in classical capitalism to the top down model of administration. And over time, our society has adopted a top down way of seeing things, even while giving lip service to the opposite. The rise to prominence of national television after the 1950s only served to exacerbate the situation. Television presents us with a top down, oneto-many form of mass communication. With television the viewer is being talked at, not talked to. There is little room for participation which is the hallmark of democracy. This may be fine for movies, and other entertainment purposes; it is not fine when applied to the political process. It does, however. fit in very well with the top down way of thinking about organization found in administrative theory. It does not fit in with the bottom up way of viewing the community as expounded in classical democratic theory. In line with the administrative model, both Republican and Democratic governmental leaders have pushed big governmental programs since the beginning of the century--despite the Republicans' rhetoric to the contrary. A Corporate Dominated Economy As businesses grew in size, it became essential for them to be able to plan. When Henry Ford produced the Model T Ford, it took only a few months to begin producing a new product. On the other hand, it took the Ford Motor Company over three years to begin producing the Mustang. The fact is that today, in order to obtain components for a new model automobile, one has to have the design of these components ready several years in advance.

Let's take the example of the electric power industry. It takes about ten years from the time you first have the idea for a new power plant until it is built and operational. It takes another 30 years for the plant to be operating in order for you to recoup your original investment. Building a power plant costs hundreds of millions of dollars. So you want to make sure you are going to be able to recoup that large of an investment. To do so, you must be able to plan--and plan at least 40 years out. In order to be able to plan, you need stability in your environment. You need to have a stable supply of raw materials. You need a stable supply of labor. And you need a stable customer base. To insure a stable supply of raw materials, it may be necessary to control the political process in Third World countries to insure access to these materials. A revolution could upset your access to these materials. To insure stability in your labor supply and in your customer base, you may need to greatly influence the domestic policies of the advanced industrial countries in which you operate. In other words, to be able to plan, you need control of your environment. And since the government has such a great influence on that environment, you need to control governmental structures. So, in the words of the first chapter of the Nadel book, big businesses engage ina quest for hegemony--for total control over its environment. It is these imperatives of the technology -- and not simply greed or ideology -- that leads a large scale corporate dominated economy to have certain characteristics. In order to handle industrial technology efficiently, you need large businesses. Because of their size, you only have a few businesses dominating any one industry. Because of the size of their operations, the size of their investments, and the time needed for their large scale undertakings to reap a profit, you must be able to plan. In order to plan, you need stability in your environment--including the price which you can get for your goods. So you do not want to be in price competition with your rivals. Instead, you engage in non-price competition. Because these businesses are so large, many workers and, in fact, whole communities are affected by these businesses. They also have very large effects on other businesses. Therefore, the government is afraid to let these large scale businesses fail. In other words, we have the phenomenon of: Too large to fail. Let us summarize these conditions of a corporate dominated economy in the following chart: Characteristics of a Corporate Economy 1. Large businesses; 2. Few businesses; 3. Planning by producers;

4. Non-price competition; and 5. "Too large to fail" But if we compare these conditions with the requirements of classical capitalism, we find that not only are these conditions different; they are the direct opposite of the requirements that Adam Smith stated were necessary for classical or laissez-faire capitalism to exist. Let's look at the following comparison of the conditions of a corporate dominated economy and the requirement of classical capitalism: Requirements of Classical Capitalism 1. 2. 3. 4. 5. Small businesses Many businesses Random market forces Vigorous competition Business failures Characteristics of a Corporate Economy 1. 2. 3. 4. 5. Large businesses Few businesses Planning (by producers) Non-price competition "Too large to fail."

So what are we saying? At the beginning of the term, we noted that the Constitution does not guarantee a democracy; it does not set one up. What it does set up is a republic which might serve as the basis on which a democracy could flourish if "we, the people" work hard to make it so. We have to act. Otherwise, we do not have a democracy. Now I am telling you our current corporate economy is not capitalist. Is nothing sacred? So--contrary to popular opinion--we now know that our government is not guaranteed to be a democracy, and the major portion of our economy is not capitalist. What's worse, classical laissez-faire capitalism is the sort of economy that theoretically automatically works in the public interest. However with a corporate economy, there is no reason to assume that it will work in the public interest. We have to purposely adopt additional mechanisms specificallly designed to push it in that direction. Left alone, it will not act in the public interest. It will exploit people, not serve them. This is the real danger.

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How Corporations Influence the Government

Marc A Triebwasser, 1998 http://www.polisci.ccsu.edu/trieb/InfluGov.html Part Two of the book, which covers Chapters 2, 3, and 4, deals with how corporations influence the government. Part Three, which consists of Chapters 5, 6, and 7, discusses how corporations affect us directly. Part Two is a little easier to understand because the concept of corporations influencing the government is a familiar one. In general, corporations influence government through campaign contributions, through lobbying, and through captured regulatory agencies. Although this is not always emphasized in American Government texts, this influence is certainly a common theme in many political discussions. In Part Three, we talk about how corporations affect us directly. This concept is not difficult to understand, but it involves ideas with which we unfortunately may be far less familiar.

Campaign Funding One mechanism which corporations use to influence the government is campaign funding. Campaigns for federal office have become very expensive today. They were not always so costly. National campaigns came to be more and more expensive as the country expanded. With the rise of big business, we began to see corporations donating money to political campaigns. The first political campaign involving a large amount of corporate contributions was that of William McKinley in 1896. As a result of the way his campaign was run, large amounts of corporate donations were made. After that there were attempts to clean up political campaigning. For example, Teddy Roosevelt ran a "Clean Government" presidential campaign, under the influence of early reformers. And in the following decades, various laws were passed on campaign financing. We won't go into all of them, but one of the most important of those passed early in the twentieth century was the Federal Corrupt Practices Act of 1925. It limited both campaign contributions and campaign spending. Federal Elections Campaign Act In 1971 the Federal Elections Campaign Act was passed, banning corporate campaign contributions. That was followed by the Watergate scandal. As a result of that scandal, major amendments to that act were passed in 1974. Whether one considers the major act as

that of 1971 or 1974 is not important. However, the major amendments of 1974 were clearly a result of Watergate. Most people today do not know what Watergate was really about. Basically it was Nixon's attempt to use underhanded methods or "dirty tricks" to influence the politics of the Democratic Party so that their weakest candidate would be nominated to oppose him. He did succeed in accomplishing this in the election of 1972. So Watergate was really a crime against democracy. In that endeavor, Nixon's people got many corporations to contribute to his campaign organization, which was called the Committee to Re-elect the President or CREP (an appropriate acronym indeed). The 1974 Amendment tried to limit campaign contributions and campaign spending. It also set up the Federal Elections Commission (FEC) to enforce the Federal Elections Campaign Act. This was very important because it was the first time an enforcement mechanism had been established in connection with a campaign finance law. Although the Federal Corrupt Practice Act of 1925 had contained very strong provisions, they were never enforced. The 1974 Act was thus a very significant step toward campaign finance reform when it was first passed. However, it is very difficult to reform campaign financing. If you try to bar corporate campaign contributions, then the members of the board will contribute personally. If members of the board are not allowed to contribute, their wives will contribute, and so on. There are always loopholes that corporations will try to find. And, since they are well connected and have a lot of high paid lawyers on their side, they will find loopholes. It's very difficult to control this. We have been trying to control corporate contributions for the last 100 years now--without much success! Buckley v. Valeo As we noted, the 1974 Amendments put limits on both campaign contributions and campaign spending. However after the Act was passed in 1974, there was a very important Supreme Court case in 1976 called Buckley v. Valeo. The decision in that case was that campaign spending could not be limited. The Court felt it was a violation of freedom of speech to do so. Moreover, the Court ruled that individuals could contribute as much oftheir own money as they wanted to their own campaigns. The Court did let stand the other limits on campaign contributions. An individual could still only give up to $1,000 to a candidate campaign per election cycle. That meant $1,000 for the primary, and $1,000 for the general election.

What the decision allowing individuals to spend an unlimited amount of their own personal money on their own campaigns did was to increase the tendency of the Senate to be a "millionaires club." It also affected the House in a similar way. Since the Democrats don't want--or don't enjoy-as many corporate and wealthy connections as the Republicans, and therefore have trouble raising money, the Democrats tend to nominate candidates for the Senate who have a lot of their own money to spend on their election campaigns. For example, California Senator Barbara Feinstein's husband is very wealthy and so she has a lot of personal money to spend on her campaign. In fact if you look over the roster of Democrats in the Senate, you will find quite a few millionaires. PACs The 1974 Act also allowed for what is known as political action committees (PACs), and they are very important. A political action committee is a separate fund or organizations to which members of a group--such as a corporation, labor union, or trade association--can donate money. These funds, in turn, are used to contribute to political campaigns in the name of the group. PACs can contribute up to $5,000 per campaign per election cycle. The Democrats had been using union PACs as a source of funds and wanted to continue to be able to do so. They thought that corporate PACs would only be able to accept contributions from members of their boards of directors. However, a subsequent ruling by the FEC said that all employees of a corporation could make voluntary contributions to the corporation's PAC. This gave a lot of strength to corporate PACs. PAC funds had to be totally separate from the funds of the labor unions or the corporations with which they were associated in order not to have direct campaign contributions from corporations or labor unions. You could also have PACs formed in association with civic groups. So, for example, there are liberal and conservative organizations that have their own PACs. These PACs give money to candidates who share the group's views. The amount PACs can collect is unlimited. But, as we noted before, they can only give $5,000 to any one candidate per election cycle. However, they can give to as many different candidates as they wish. Corporations benefit greatly from the provision allowing for PACs. Moreover, even if your company has a PAC, you may also give to the PAC of a trade association that represents your company--let's say National Association of Manufacturers' PAC. In the period since 1974, corporate and trade association PACs have come to dominate PAC contributions and gain far more influence on the government than other PACs. Thus instead of limiting corporate influence, the 1974 Act set up a mechanism--the PAC--for legitimizing that influence. Here we see how, even when you try to level the playing field, in the end your attempts may have the opposite effect.

Furthermore, sometimes voluntary contributions to a PAC may not be so voluntary. If you are a junior executive in a corporation and a senior executive asks you to make a voluntary contribution to the company's Political Action Committee, you might find it difficult to say no. Sometimes companies have been known to set up a situation in which employees make voluntary contributions to the company PAC, and then get their money back in the form of a Christmas bonus. So the corporate contributions in these cases are not so indirect. Soft Money Since the 1970s, other ways have emerged to get around the law. One of them is called soft money. As PACs became major sources of funding, political parties began to lose some of their influence with their own candidates. So Congress amended the Act in 1979 in such a way as to try to strengthen political parties. What these amendments said was that political parties could collect money for party building activities and for voter registration drives as long as their efforts did not support any particular candidate. Contributions for such purposes are called soft money and do not have to be reported. In addition, the amount that can be contributed this way is unlimited. The political party gets this money and they can use it to advertise for Democrats, Republicans, or third party candidates in general. The ads can not focus on a particular candidate. Nevertheless, many of these party activists do support specific candidates, but are couched in general terms. Using this so-called soft money provision is a way contribution limitations have been made ineffective. Independent Expenditures Another important way that the law is gotten around is a mechanism called independent expenditures. An independent expenditure is made by an individual or organization that is not connected with a candidate's campaign, but favors that particular candidate. For example, when Weicker was running as a third party candidate for governor against both the Republican and Democratic candidates, William F. Buckley did not like Weicker. So he placed ads on television against Weicker. They were not for the Democratic or Republican candidate, but they were against Weicker. Buckley could spend an unlimited amount of money on these ads because they were independent of the political campaign of any specific candidate. Recently, some of these independent expenditures have become very suspicious. Many obviously support a particular candidate. And they come just at election time. The difficulty here is that the issue involves freedom of speech. People or organizations must be allowed to express their views freely. We do not want to limit freedom of speech. Yet independent expenditures can be used in ways to get around the election laws.

Therefore have a real dilemma on our hands of trying to balance the requirements of freedom of speech with those of fair democratic procedures in a number of important aspects of election campaigns. These requirements often pull in opposite directions. Issue Ads This brings up a fourth mechanism which has been used recently to get around election laws. This device is called issue ads, and independent expenditures by political parties. Political parties can run ads that don't mention a particular candidate by name, but support issues that the candidate is known to stress. These are issue ads. You also have corporations, labor unions, and others coming in with these issue ads. They are obviously supporting a particular candidate, but they don't mention the candidate by name. Moreover, they are not coordinated with the individual candidate's campaign, so they are completely unregulated. Again, we have the problem of the needs of freedom of speech conflicting with those of fair election procedures. In the 1996 Presidential election, Robert Dole had to spend a lot of the money he had to fight in the primary races. As you recall, there were a lot of primary battles going on in the Republican Party. Bill Clinton, on the other hand, was unopposed for the Democratic nomination. When it came to the general election, Bob Dole had very little money left that he could legitimately spend. He was limited in how much he could spend, because he had accepted public money. Clinton, for his part, still had a lot of money left. So because there were limits on how much Dole could spend, the Republican Party itself collected money and ran issue ads supposedly independent of the Dole campaign. They even ran an ad containing the biography of Robert Dole. It did not say: Vote for Robert Dole; it just presented his life story in a very positive light. The Republicans claimed this was not a campaign ad for Robert Dole; it was an informational ad. And the Republican Party, not the Dole campaign, was running it. Of course it sure seemed like a campaign ad. So you see, it's a matter of definition. Thus, if the Republican or Democratic candidate's campaign, it doesn't matter which, can't collect any more money because it has reached its limit, then there are other mechanisms through which to put ads on television. These are not officially campaign ads, but they very much seem like them--and have the same effect. Because you can always find a loophole and tweak it a little, you can say that what you see is not what you see. It's all done with smoke and mirrors--and expensive lawyers. Public Financing One way to counter some of these tactics would be the public financing of congressional and senatorial elections: having the money come out of the

U.S. Treasury to support these election campaigns at taxpayers' expense. We already do this for presidential races. The cost in a congressional election to achieve name recognition is about $200,000. If a candidate who obtains a certain number of signatures is able to get that amount of money from public sources, at least he or she can run a viable campaign. Moreover once you accept public financing, the amount you spend on your campaign can supposedly be limited, so public financing is a possible solution to some of the problems we have been discussing. It might cost taxpayers a billion dollars every two years for election campaigns. Those who are opposed to such spending have dismissed the idea with a very slick phrase. They call public financing, "Food stamps for politicians." They ask: Why should the public pay for these campaigns? Others suggest the answer to the question is quite simple: He who pays the piper, calls the tune. If the public spends a billion dollars on campaigns every two years and no outside contributions are allowed, your representatives and senators would always be working for you, the public, and not some special economic interests. This could save the public tens of billions of dollars in tax exemptions and government contracts. As we have seen, there are many substantial problems with campaign financing today. There are so many ways that have been invented to get around the 1974 law that it almost seems that its limitations have ceased to exist. It looks like any limitation on the books can be circumvented. And so it would seem impossible to pass a law that is foolproof. Another problem is: How do you get a law on campaign finance reform passed if the very people who would have to pass the law are dependent upon these contributions? Unless the public wakes up and says we have to put a stop to this situation, it is going to continue: Our government will continue to be for sale. As Americans, we have a longstanding concept of separate branches of government. This is a basic American principle. However, if the president receives funds from the same sources that senators and representatives do, then you may have separate branches, but the roots are the same. And that destroys the concept of separate branches. It destroys some of our fundamental principles of democracy. Access Thus far we have discussed PACs, soft money, independent expenditures, and issue ads. These are mechanisms which allow corporations and others to indirectly or directly support political campaigns. What do corporations, wealthy individuals, or other groups get in return? Some say they are buying votes. Others would deny that. What everyone does agree on is that they are buying access. If you are a

major contributor and go to Washington, you might have a chance to have lunch with a senator or representative; or if you are a really big contributor, you might even end up at the White House. The closest chance you or I have at having lunch at the White House is buying a hot dog from the vendor on Pennsylvania Avenue in front of the building. When David Rockefeller was chair of Chase Manhattan Bank, he would go to Washington to meet with three or four representatives and several senators. The nearest we come to that is when we go to our representative's office, he or she might pop in for a minute, get a photograph taken with us, and--if we are lucky--suggest we speak to an aide. Access can be important. It is not necessarily that the representative, senator or staff member will do what you are asking them to do. However, at least they have heard your side of the issue; they may not hear the other side. A corporation will usually give money to those representatives or senators who are on the specific committees or subcommittees that make decisions which affect their industry. It is not so important what state or congressional district a business is in. For example, if I am a banker I'm going to contribute to the chair of the Senate Banking Committee--no matter what state he or she may represent. Non-decisions It is very difficult to determine the effect of access or campaign contributions. One of the reasons for this is that many times what a company wants is that a new law not be passed or that new regulations not be adopted. It wants to maintain the status quo. If it doesn't want a new bill passed, it might like the bill killed in subcommittee where the public's eyes or C-SPAN's cameras might not be focused. Who knows what influences are operating in the decision to kill a bill? And how do you know when a bill is killed if it just does not come up? It may not be that there was a vote against it. What happens if it is simply not put on the agenda? What we are talking about are nondecisions: things which don't happen. It's very difficult to study nondecisions: things which should happen, but don't. How can you measure them? You do not know what the reasons were that it was not discussed, and you do not even know when the bill or regulation died. It just did not get discussed, or it was not given a full hearing. You can't prove anything. Furthermore, many times what a company wants is a little change in the law which doesn't seem to mean very much. However, this small modification can produce millions for that company, while costing consumers or taxpayers a great deal more. But, if the consumer or taxpayer is not aware of the facts, no one raises the issue. On key issues senators or representatives are likely to vote in the public interest as they conceive of it; but on these small points, they may vote

with the special economic interests that support their campaigns. They give one industry a tax break here, and another industry a tax break there. It doesn't seem to hurt anyone, and besides it's buried in the details--so no one notices. However, these little tax breaks add up to a great deal of money the federal government does not have which it could use for programs that serve the people.

Lobbying Direct Lobbying Direct lobbying involves meeting with representatives, senators, or their staffs--or with members of the executive branch, and trying to inform them of your point of view and hopefully getting them to act in a way you would like. In the case of representatives and senators, this usually means getting a bill passed or amended, or getting a bill killed so it does not become a law. With members of the executive branch, it usually means getting regulations written the way you would prefer, or seeing to it that new regulations are not adopted. Lobbying is protected under the First Amendment in the right "to petition the government for redress of grievances" clause. Anyone can lobby, but usually corporations, labor unions, and public interest groups are among the most active doing so. Usually corporations and trade associations have the most money by far to put into lobbying efforts. Groups that wish to lobby either hire their own people to do so, or use the services of special lobbying firms--often Washington law firms serve a primary lobbying function. In lobbying, it is important to be in contact with the legislators and executive branch members you wish to lobby on a long-term basis. This pays off in developing a personal relationship with those you wish to lobby. Lobbying on an ad hoc, issue-by-issue basis is far less effective. One advantage that corporations have in lobbying over public interest groups is that they can hide many of their lobbying activities as ordinary business expenses, while public interest groups usually must report all their lobbying activities. There are basically three functions served by a lobbyist: 1. To inform the government about the industry or cause for which you are lobbying and of the stance those for whom you are lobbying are taking; 2. To inform those who hire you of potential government actions which are likely to affect them. These may include pending

legislation, pending regulations, and upcoming hearings which are to be heard on topics of interest to those for whom you work; 3. To try to convince the legislator, staff member, or administrator to make decisions favorable to your employer's industry or point of view. Some see lobbying as playing an important informational and communications role. Others suggest that, because of their great resources, corporations are so much better equipped to lobby than are other groups and so the balance is always very much in favor of large corporations. Grassroots Lobbying In addition to direct lobbying, there is indirect lobbying, or grassroots lobbying. Grass roots lobbying involves trying to convince the public of your point of view, and then having the public put pressure on their representatives and senators to vote your way. In 1981, Ronald Reagan began his first term as president. One of his highest priorities was to pass new tax legislation. Many Democrats felt that the tax program Reagan was pushing was heavily weighted in favor of the rich, and the Democrats had control of both houses of Congress. Because of this Reagan addressed a joint session of Congress, using the occasion to announce his tax proposals. However, the audience at which he was aiming his remarks was not the legislators present, but rather the national audience watching the address at home. After Reagan's rather effective speech, many voters put pressure on their senators and representatives to pass his tax proposals. In the end, despite their misgivings, many Democrats voted for Reagan's tax proposals which passed a Congress controlled by the Democrats. This is an example of grass roots lobbying. Another example involves advertising by the tobacco industry to convince voters in California not to vote for a referendum that would limit smoking in public places. Lobbying Legislation Over the years there has been some attempt to pass legislation affecting lobbying, mostly in an effort to counteract the influence of money in politics. The first such legislation was the Foreign Agents Legislation Act passed in 1938. This was adopted not so much to affect commercial lobbying, but rather in an effort to deal with Nazi propaganda. The first Act dealing with commercial lobbying itself was the Lobbying Registration Act of 1946. This was part of the more sweeping Legislative Reorganization Act of that year. Unfortunately, this legislation contained many loopholes and groups were able to use the term "public education" to conceal money spent on lobbying.

The idea of this and subsequent acts was not to restrict lobbying, but to make these activities more public and therefore to focus voters' attention on these activities. Some of the major problems with the 1946 Act were that it very narrowly defined lobbyists and lobbying activities. According to the Act, to be considered a lobbyist you had to spend a majority of your time on lobbying activities. Moreover, the Act only applied to the direct lobbying of senators and representatives. It did not cover lobbying activities directed at legislative staff members, or members of the executive branch. In 1954 the Supreme Court further narrowed the definition of lobbyists in U.S. v. Harris, deciding that the 1946 law only applied to private lobbying firms and contract lobbyists. This decision left totally uncovered the activities of organizations that hired people within their own corporation or group to lobby. It also limited the definition of lobbying in the Lobbying Registration Act to direct lobbying and left grassroots lobbying uncovered. In the succeeding decades, there have been several attempts to strengthen the lobbying laws. Some of these failed efforts include bills introduced in 1976, 1977, and 1993. In the election of 1994, the Republicans gained a majority in both the House and the Senate. As a result of the reform efforts that were heralded by that election, incumbent, reform-minded Democrats joined forces with the large 1994 Republican freshman class to pass the Lobbyist Disclosure Act of 1995, as well as resolutions in both chambers restricting gifts to congressional members. The Lobbyist Disclosure Act of 1995 defined a lobbyist as someone who spends 20 percent or more of their time lobbying congressional members, their staffs, and top executive branch members. It requires these lobbyists to report twice a year on who pays them, how much they are paid, and what issues they work on. The Senate also passed a resolution restricting the value of a single gift to a senator to no more than $50 in value, and the total gifts that a senator could receive annually from any one source to no more than $100. For its part, the House passed a resolution banning representatives from accepting any gifts or meals and banned congressional members and their aides from accepting free travel to recreational events in which lobbyists participate.

Captured Regulatory Agencies Chapter 4 discusses captured regulatory agencies. One thing to remember is that as people work together, they begin to think similarly. Many of these regulatory agencies work very closely with the industry they regulate. So, after a while they think very much like that industry. It is not that anyone does anything corrupt per se; it is just a natural human behavior: you get to know these people and you want to protect them.

Furthermore, the regulatory agencies are always the targets of corporate influence. In each area of policy, a triangular relationship exists. The players are the lobbyists and corporations and other private organizations in that area, the congressional committees and subcommittees who make decisions about that subject area, and the executive agencies and regulatory commissions that operate in that field. The connections between these players are as follows: Corporations for whom the lobbyists work give campaign contributions to members of the congressional committees that make decisions about that field. These committees and subcommittees in turn determine the jurisdictions, and sometimes the budgets, of the executive agencies and regulatory commissions that work in the field. Finally, the executive agencies give out government contracts, which can be very lucrative to the industry; while the regulatory commissions adopt regulations, which can be beneficial or restrictive to the industry at hand. If everyone in the triangle cooperates, as they usually do, everyone benefits--that is, everyone except the general public.

These triangles are called Iron Triangles or Washington Triangles. These symbiotic relationships, which exist in every policy area, are also known as subgovernments. The FAA Let us take the Federal Aeronautics Administration (FAA) as an example. The FAA usually seems to make decisions in favor of the airline industry, and not in the public interest.

The DC-10 presents a fine case in point. When the DC-10 first came out there was a problem in its design. It was a minor problem, but it caused major disasters. The latch bolt in the cargo-hold door was designed incorrectly. When the door to the cargo bay was closed, it didn't close tightly enough. So when the plane was in the air, the cargo bay door had a tendency to pop open. That would depressurize the cargo-hold and would cause the ceiling on the cargo-hold to collapse. The cargo hold ceiling is also the floor of the passenger cabin. Unfortunately, the hydraulic connections for the steering mechanism of the plane went through that floor. So when the cargo door opened and the partition between the cargo bay and passenger cabin collapsed, you could no longer steer the plane. That caused a major crash of a DC-10 and the loss of a lot of lives in Windsor, Ontario. After that, the Canadians wanted the FAA to ground the planes until their cargo bay door bolts were replaced. However, since McDonald Douglas was trying to sell these planes abroad, the FAA was hesitant to do this. Instead, it simply issued an advisory warning. A year later, some 80 percent of the DC-10s in service had not had the problem corrected. Then, there was a crash of an Air India DC-10 leaving Orly Airport in France which was caused by the cargo bay door bolt problem. The plane spewed jet fuel all over Paris, just at dinnertime when all the chimneys were hot. This was a major disaster, but still the FAA would not issue a directive to ground the planes until they were repaired. About a decade later, a DC-10 was involved in another crash. It seems the plane took off from Chicago, but forgot something: one of its engines. It turned out that the engine mounts on some of the DC-10s in service were not being maintained properly, and cracks were developing. This problem caused the engine on the Chicago plane to fall off. They inspected other DC-10s and found cracks on the engine mounts of a number of them. Some wanted all DC-10s grounded until each plane could be inspected to see if it had this problem. The FAA felt that would cause too many problems for the airline industry, so they refused to ground the planes. The Airlines Passengers' Association then went to court and sought an injunction that did finally ground all the DC-10s until the planes were inspected and the problem corrected. It took court action to do this; the FAA itself would not issue the order. In this case, it turned out that McDonald Douglas was not at fault; the people who had been servicing the planes had caused the problem. More recently, we have the matter of TWA Flight 800. That was the Parisbound plane that crashed off Long Island. After a long investigation, it was determined that the cause of the crash was a spark that caused the empty central fuel tanks to explode. Vietnam fighter planes had had a similar problem with empty fuel tanks. What they did in Vietnam was to fill the empty tanks with an inert gas so they would not explode. The

National Transportation Safety Board said this solution should be applied to all 747s in service to prevent sparking creating an explosion. They issued this recommendation in their report on the crash. However, the FAA said: No! It would cost the airline industry too much. It would have to study the matter further. So repeatedly, we encounter decisions by the FAA that are made not for the safety of the general public, but for the sake of the airline industry. Another matter involving the FAA is that of life rafts. When a plane crashes over water, most people do not die from the crash itself. What they die from is exposure. When they hit the water, they leave the plane and enter the water in life vests or other flotation devices, such as their seat cushions. They then often catch chill and die of hypothermia. The way to remedy this is to have enough life rafts aboard these planes--in addition to life vests and other flotation devices--so the people would not have to enter the water. It's so simple: store rafts so people do not go directly into the water. That would save lives if there were a crash over water. It is true that air travel is one of the safest means of transportation. You are much safer flying than you are in a car, for example. However, the point is that air travelcould be made even safer. An air accident can cost the lives of 300 people--and on the newer planes even more. So it should be made safer. But the industry doesn't want to spend the money. And government agencies, especially FAA, do not insist on such measures by issuing the necessary regulations. The Federal Communications Commission (FCC) is another regulatory commission that often makes decisions in favor of the industries--local telephone companies, broadcasters, cable companies, etc.--it is supposed to regulate and more examples can be given. The point is that often these regulatory commissions become captured by the industry they are supposed to regulate. Instead of the regulatory commission regulating business for the benefit of the general public, they tend to regulate the economy in favor of big business. Often they adopt regulations that will help big business and hurt small business. A major problem with this situation is that the unregulated decisions of large companies can often have very disastrous effects for whole ecosystems. For example, General Electric dumped such a large quantity of PCBs into the Hudson River that it made the fish in the Hudson River inedible. The fish contained too high a level of PCBs, and PCBs are a carcinogen. This wiped out the whole fishing industry on the Hudson River. People who for generations had made their livelihood by fishing could no longer do so because the fish they caught could no longer be used for commercial trade. So, sometimes the unregulated decisions of large corporations not only hurt the general public; they also hurt the small businessperson.

The Washington Connection By way of summary at the end of Chapter 3, the author talks about a number of avenues of influence or what he calls The Washington Connection: ways in which corporations influence the government. Let us take specific note of seven ways. The first one he notes is access. Through campaign contributions and other methods, corporations are able to gain access to public officials more often than the average citizen. This means that corporations at least have a better chance of having their case heard. Secondly, there are advisory committees to government agencies. The fact is that the government does not have fact gathering apparati in a number of fields. And so, government agencies appoint committees to provide information and advice. Often, these committees contain many people from the industry involved. The information they provide are used in making public policy. Now, obviously, if the information that government agencies are getting is from the industry involved, then the perspective from which they get the information is likely to be one-sided. For example, if the government needs information on nuclear power, it most likely will call upon nuclear engineers for advice. However, these engineers come from the industry involved. The government does not usually consider the opinion of the private citizen, although the concerns that pregnant women have who live near Three Mile Island or other nuclear power facilities might well need to be taken into account. So the advice the government gets is often stacked in favor of the corporation. A third avenue that Nadel mentions is one he calls musical chairs or the revolving door effect. Many times individuals are employed in an industry, then get called upon to work as the head of an agency or on a regulatory commission, and then return to the industry in question. These people are going to be returning to work in the same industry they may be regulating. How independent can the thinking of these people be? Are they going to make a decision against the interest of that industry if they are eventually going to have to get another job in that industry? So this musical chairs or revolving door effect is a two-way traffic pattern between industry and government in which people go from working in the industry to working in the government, and back to working for the industry again. An example of this is the personal interchange program that some corporations have had. Sometimes a corporation may lend personnel to the government and the corporation may even pay them while they hold that government position. The corporation might say: "Look, we're being very patriotic. We're paying people to work for the government." However, others would suggest that these people have the interests of the corporation in mind. Often, such a bias may not be that obvious. It's

simply that these people share the culture of the corporation as to what sort of decisions should be made. Many times they may just have a way of thinking that doesn't take the public interest into account. Fourthly, he talks about the high demand that exists for former members of the House or Senate to serve as lobbyists. Many times, when people retire from the House or Senate, they become lobbyists for major corporations. Now, first of all, these people know a great deal about the laws that have been passed relating to their new employer's industry, and they know the inside dealings that went into making these laws. What's more, former representatives and senators maintain the privilege of going on to the floor of their old chambers. That means that during a vote on a bill, they can go on the floor and lobby current senators or representatives as the case may be. No other lobbyists can do this. So these former legislators have a greater ability to influence the process than someone who doesn't have the privilege of the floor, or the other connections they do. Thus ex-senators and ex-representatives are often valued as lobbyists. The fifth avenue of Washington influence is lobbying itself, and especially grassroots lobbying. This is something we have already discussed at some length. Sixth of all there is the symbiotic relationship between lobbyists, members of congressional committees and executive agency personnel. In other words, the Washington triangles or iron triangles. The seventh avenue of the Washington connection is court action. The fact is that corporations can pay a lot more for legal work than the government. Many times corporate lawyers don not aim at winning a case, but simply at delaying government action. Let's say a corporation has an advertisement on television that the Federal Trade Commission feels is misleading to the general public. The FTC may issue a ruling for the corporation to withdraw that advertisement from the air. The corporation then gets its lawyers to seek a temporary injunction against that ruling until a hearing on the ruling can be held. In the meantime, the advertisement remains on television. Then, the corporation's lawyers use various legal tactics to keep delaying the date of the hearing. There are lots of ways lawyers can do this. Let's say the hearing finally comes up a year later. Before the hearing actually begins, the corporate lawyers announce that they are going to withdraw their objections and that the corporation will follow the FTC's ruling and withdraw the ad. They know they don't have a leg to stand on in court. Has the corporation lost? No. While all this has been going on, the advertisement has been on television for a whole extra year. So even though the corporation is eventually going to lose the case, it winds up winning by delaying things.

Delays can be helpful to the corporations in other areas as well. Let's say there has been an accident in the company's plant and the corporation has control of its workers' compensation payments for the accident. The corporation's lawyers may keep delaying the payment of these compensation benefits. What you may have in this case is working class families that can't afford these delays. They have to live with large medical expenses, and they have a hard time keeping things together. The corporation then offers them a much lower settlement. And because they need the money so desperately, the families are willing to take something now, rather than wait for the larger payment to which they are entitled. Another use of the high paid lawyers employed by large-scale corporations is in patent cases. Let's say a small company has a patent on something and a large company decides to use that technology without paying the small company for its use. The small company may have the patent, but may not have the money to hire high paid patent lawyers to pursue the case--especially if the large company's lawyers delay things and make the legal proceedings very expensive. In this way, the large corporation wins-even though it is in the wrong. The problem is that many of these large companies can hire very good lawyers who can argue very persuasively. These lawyers are people who are paid hundreds of thousands of dollars a year because they have these skills. The corporations have the money to hire better lawyers than the government or smaller businesses, and that's a real problem. Furthermore, the job of the corporate lawyer seems not to be to inform their employer of what is legal and what is not; often their job is to tell them how to best bend the law--and they can attract the brightest lawyers to do that. Every once in a while you run into a lawyer working for the government a judge who does not fit this pattern and will stand up for what is right. For example, in the 1950s the Justice Department filed an antitrust action against AT&T, but the Justice Department eventually caved in. When the Justice Department brought another suit against AT&T in the 1970s, however, there was a judge by the name of Harold Green who turned out to be a very staunch consumer advocate. He ordered the breakup of AT&T into the regional telephone companies we have today. AT&T never expected that. ***********************************************************

How Corporations Affect Us Directly

Marc A Triebwasser, 1998 http://www.polisci.ccsu.edu/trieb/ecocon.htm The Blurring of the Boundaries Between Public and Private The factors that lead to a blurring of the boundaries between the public and the private include the following: 1) There is very extensive cooperation between governmental and nongovernmental organizations. It is, therefore, often difficult to know where the operations of one begin and those of the other end. In the late 1800s, the struggle for power was seen as a battle between Big Government and Big Business. Today, the interactions between them have become so cooperative and institutionalized themselves that they often seem to work as one continuum exerting pressures on the individual. 2) The impact and nature of actions taken by non-governmental or private entities on their own have a deep impact on the general public. The rules that banks, telephone companies, credit card companies, and so forth issue affect us all. The services of these companies are so necessary in conducting business-and, in fact, in just functioning--in the world today that we have to go along with their rules. 3) The direct role that private interests play in the making of government policy. As we saw in our discussion on The Influence of Corporations on the Government, this occurs largely through campaign financing, lobbying activities, and the operation of captured regulatory commissions. 4) The alleged dominance of private elites in public life.

Public Policy We usually think of public policy as being made by the government. However, some private institutions, such as large-scale corporations, exert such heavy influence on the public that they can also be said to make public policy. In other words, these institutions may be nominally private in nature, but they are certainly public in effect. In the 1950s, a political scientist named David Easton defined public policy making as the authoritative allocation of values. In other words, public policy making consists of three elementsauthority, binding decisions, and the allocation of values for society.

The allocation of values may be defined as the distribution of goods, services, honors, statuses, opportunities, costs, etc. Usually something is considered to be valuable from an economic perspective if it is in short supply. A policy is authoritative for society if it is binding regardless of the sources of that policy. Decisions are usually made binding through the mechanisms of punishments and rewards. This is usually how government operates. If you run a red light, you are subject to a fine and sometimes to imprisonment. This is a punishment. This is how government discourages an activity. On the other hand, if government wishes to encourage an activity, it may offer the citizen some rewards. For example, since the government wants to encourage home ownership, the interest paid on a mortgage may be deducted from your income for tax purposes. Interest and finance charges on other loans are not tax deductible. Also, since the government wants to encourage savings, it has instituted such programs as the IRA and the Roth IRA. The non-taxability aspects of these accounts is a reward. These avenues of making decisions binding are usually not available to corporations, although the corporation may issue coupons or rebates on the purchase of some goods. The way corporations usually make their decisions binding is through a process called situational bindingness. Situational bindingness is accomplished by limiting our choices. For example, in the movies it is not possible to buy unsalted popcorn. Popcorn in the movies is always salted because they want you to buy soft drinks. If you are purchasing a new car, you most often do not have the choice of simply buying powered doors so you can install some security systems. You have to purchase a whole package consisting of powered doors, powered windows, an adjustable steering wheel, and perhaps alloy wheels-even if you don't want most of the items in the package. You either get the whole package or you don't get powered doors, and therefore can't install the security system you want. If you go to purchase an airline ticket between two points, there may be several airlines "competing" in that market, but somehow they all charge the same high fare. The simple fact is that you either purchase the product or service under the conditions that the producer wants you to or you don't purchase it at all. You have no other choice. That is what we mean by situational bindingness. Economic Concentration In order to achieve the conditions necessary to produce situational bindingness, there must be economic concentration in the industry at hand. Although economic concentration is regarded as an extremely bad

thing in classical, laissez faire capitalism, it is one of the hallmarks of a corporate economy. Here any one major industry is usually dominated by only a few large businesses. Some of the types of economic concentration which exist in corporate economy are as follows:

Horizontal Monopoly - a company that owns all the businesses on a certain level of business in a particular market.

Vertical Monopoly - a company that owns at least one business on each level of business in a market.

Oligopoly - just like a monopoly, except, instead of one business dominating a field, several do.

Conglomerate - a company that owns unrelated subsidiary businesses in many different markets. Cross Subsidization- occurs in a conglomerate when one subsidiary temporarily subsidizes a new venture by another subsidiary. The subsidiary engaging in the new venture does not have to look for outside sources of capital, as would an independent business. After it has had a chance to make money by selling its new product or service, it can pay back the other subsidiary. Another advantage subsidiaries of conglomerates often have over the independent businesses with which it is competing in the same market, is that a subsidiary of a conglomerate can obtain technical services (engineering, legal, accounting, advertising, etc.) from corporate central at extremely reduced rates, whereas the independent businesses have to obtain these services from the outside at the current rates. Multinational Corporations (MNCs) - companies, usually conglomerates, that have subsidiaries in several countries. Today, most businesses seeking international leadership try to have subsidiaries in Europe, North America, and the Pacific Rim. They usually have subsidiaries in many countries, and today are often called global companies.

Pricing In classical capitalism, it is assumed that the price of goods is under no one's control, but is determined by random market forces and the interaction of supply and demand. A way of viewing this is to say that a merchant sells a product or service for whatever price the market allows. The difference between this price and the cost that the vendor must expand to produce the product, is the profit that the business person is able to obtain. In a market with a high degree of concentration, such as a corporate economy, the producer is able to determine the price to be charged for the product. Usually, competitors do not engage in the price competition and therefore charge the same high price. If the consumer wants the good or service, he or she must pay the high price. This price-one that is set by the producer, and not by market forces--is called an administered price. This leads to a very different relationship, under a corporate economy, between cost and price. Profit in a large corporation is distributed to the owners (the stockholders) as stock dividends . However the corporation does not distribute all its profits to its share holders; rather it keeps some within the corporation. These funds are known as either rolled over profits or retained earnings. This situation can be seen in the accompanying diagram.

From a classical perspective, these retained funds should either be distributed to the owners as dividends, given to the workers as additional wages, or used to reduce the price paid by the consumers. These are all

biological individuals, and they should enjoy the rewards of good business. The idea of a corporation-an artificial individual--retaining money for itself does not fit from a classical perspective. These retained earnings represent an additional amount that the consumer is forced to pay. If the corporation were a government, this additional amount paid would be considered a tax. Since the consumer has no say in the decision making process of corporations, especially in decisions as to where those additional funds will be spent, this can be said to amount to a situation of: Taxation without representation! Furthermore the decisions on how these retained earnings are to be spent, are made by the managers of the corporation, and not the owners . Resource Transfer Resource transfer involves exchanging one valued quantity for another. If I have a stamp collection and sell it, I now have money at my disposal to buy other things I want, but I no longer have the stamp collection. Or a manufacturer may sell his or her goods to a retailer. These are all examples of resource transfer. If manufacturers want to increase their profits by not installing scrubbing devices in their chimneys and thus polluting the air, this is also a resource transfer. These manufacturers have transferred resource increased profits for the resource of less clean air. If we consider this manufacturer in an interaction with a retailer the manufacturer may increase his or her profits and at the same time reduce the cost of the goods to the retailer by engaging in such air polluting practices. In this case both the manufacturer and the retailer do well. It is the public that suffers from the loss of clean air. This loss is considered to be an externality. An externality is a cost borne by a third party who is not directly involved in the transaction at hand (in the above example, the manufacturer's sale of the product to the retailer). We thus see that the costs involved in a process may not necessarily be borne by the same parties who enjoy the benefits gained in that same process. What we are more concerned about from a political or social perspective is that some of the benefits gained by economic institutions are at the cost of resources lost to the general public. This may be in the form of the loss of clean air, the loss of clean water, a decrease in worker safety, or a decrease in consumer product safety. These are considered to be public goods. Unfortunately, our legal system has much better mechanisms for protecting private goods than for protecting public goods. ***********************************************************

Corporate Accountability: Possible Solutions Marc A. Triebwasser, 1998 http://www.polisci.ccsu.edu/trieb/solution.htm In the last part of his book, Nadel presents ten possible solutions designed to achieve corporate accountability to the public. The first solution he presents, is an increased sense of corporate responsibility. There are several meanings that this term could have. However, it would be difficult to imagine large scale corporations operating in today's environment adhering to moral concepts which might put them at a competitive disadvantage. A second solution Nadel presents is that of more antitrust legislation . Antitrust legislation is designed to prevent the formation of monopolies and other practices which represent conspiracies for the restraint of trade.At the present time, there are a number of antitrust laws on the books, but still the government has been approving megamergers lately. It is thus difficult to see how new antitrust legislation could be passed today, or how it can be effective-especially if the old laws do not seem to work. The unevenness in resources between the government and large scale corporations should also be kept in mind. For example, the entire budget of the antitrust division of the Justice Department amounts to only 5%or1/20th -of just the advertising budget of Proctor and Gamble. The third solution which Nadel presents is that of the Federal chartering of large corporations. Right now, corporations are chartered by states. Because of the Fourteenth Amendment, a corporation chartered in one state must be recognized by every other state. In the late 1800s the states vied to have corporations locate their main offices in their state. It would be beneficial for revenue purposes. The states therefore made it very easy for businesses to incorporate. Perhaps the chief competitors then were New Jersey and Delaware. As a result of this, the rules the states adopted for incorporation are extremely lenient. The idea of Federal chartering of corporations with annual sales or with assets above a certain amount would be to correct this situation. More quid pro quo requirements, for example, could be put on large scale corporations. Federal chartering therefore represents a number of possible new approaches designed to achieve corporate accountability. A fourth approach is to change the internal governance of the corporation. This might mean putting a consumer advocate or a publicminded spokesperson on the board of directors of the corporation. In this way, it is hoped, the decisions of the corporation would take social values more fully into account. The problem with this is that, in order to be

effective, such actions would involve far more changes than might be tolerated like today's corporations. At the present time, many important decisions are simply not brought before the board of directors. And when they are, the board is often presented with insufficient information to make educated decisions. For this solution to work, the whole information structure of the corporation would have to be changed. Without these changes, putting some publicminded people on the board of directors might be more symbolic than significant. A fifth solution suggested is to encourage large institutional investors to take the social record of a corporation into account in making investment decisions. Today, a great deal of stock is controlled by union and government pension funds, churches, trust divisions of banks, etc. However, to expect these institutions--or their financial advisors--to invest stocks which may represent companies with better safety or environmental records, but which may not produce as much revenue, would seem unrealistic. A sixth solution which Nadel suggests is various models of worker control of the corporation. This might take the form of putting workers on the board of directors. Such a practice is followed in some German companies and is called codetermination. The question is: Would American workers be more socially responsible in their decision making than their counterparts in management? Would the workers be any more concerned about product safety or saving the Federal government a great deal of money if such goals ran counter to their receiving increased wages? A seventh solution which Nadel suggests is that of divestiture . Antitrust legislation would prevent large companies from forming in the first place. Divestiture, on the other hand, would break up large companies which already exist. There have been some famous examples of divestiture such as the breakup of Standard Oil into Esso, Enco, and Humbel Oil at the beginning of the twentieth century. Another famous example is the breakup of AT&T into a long distance company and seven regional bell operating companies which took place in the 1980s. However, these seem to represent the exceptions rather than the rule. Besides, today Standard Oil is able to sell worldwide under one name: Exxon. Moreover, we have recently witnessed mergers among the regional bells--or the baby bells as they are called. Take, for example, the recent merger of Bell Atlantic with Nynex. An eighth solution which Nadel suggests is the establishment of an Agency for Consumer Advocacy. Such an agency would not promulgate new regulations, but would provide legal assistance to the consumer in suing corporations, and in enforcing laws which

are already on the books . At the present time consumers have a number of important rights, but to exercise these rights, they need legal assistance which is usually very expensive. So in effect, they are unable to exercise their rights. In other words they have rights, but do not have legal remedies. The creation of an agency for consumer advocacy would correct this situation. An attempt was made to create such an agency in the early 1970s when public political awareness was at its height. However, corporate lobbying succeeded in having this legislation defeated. A ninth solution which Nadel suggests would be to make it easier for consumers to bring class action suits. A class action suit is one in which a number of people (a class of individuals who are similarly affected) get together and sue an entity. By pooling their resources they can afford the legal assistance they need, and their effect on corporations is a lot greater. The amounts of money involved in the settlement of class action lawsuits may seem very large indeed. However when divided among the entire group of the individuals involved, the individual settlements may be quite small. One major example of a class action suit is that being pursued by women against Dow-Corning and Dow Chemical because of illnesses which may be related to breast implants. A tenth solution which Nadel presents is that of reducing the bounds of secrecy in which corporations operate. Because corporations have been considered persons by our legal system, they are afforded many privacy rights intended for biological individuals. These include the protections against arbitrary search and seizure guaranteed in the Fourth Amendment. Because of this, it is often difficult to research corporate decision making and such practices as corporate campaign financing and lobbying. An Eleventh Solution, Not Mentioned It is interesting to note that all ten of the solutions that Nadel presents are within the current arena of capitalist thought. For the most part, they are designed either to break up large corporations and restore the conditions of small business in which laissez-faire capitalism can flourish; or they are designed to regulate the corporation so as to protect the public interest. Usually when a person criticizes our economic system, they are called socialists or communists. It is, therefore, important to remember that none of Nadel's suggestions go in that direction! If Nadel were going to suggest such a solution, it might take the form of nationalizing large corporations. Nationalizing would mean that the government would take over these large scale enterprises. It is significant to note that Nadel does not make this suggestion. ***********************************************************