An unexpected friend: liberalism's response to corporate political spending.

AuthorIsaacs, Daniel M.

TABLE OF CONTENTS I. INTRODUCTION II. CORPORATE POLITICAL SPENDING IS INCONSISTENT WITH LIBERALISM A. Corporate Political Spending Undermines Government's Ability To Fulfill Its Proper Role B. Corporate Political Spending Is Inconsistent with Liberalism Because It Weakens the Checks and Balances that the Separation of Political and Economic Power Places on Political Authority C. Corporate Political Spending May Be Inconsistent with the Property Rights of Shareholders and the Contractual Theory of the Firm D. Corporate Political Spending Is Inconsistent with Liberalism Because It Reduces the Ability of Individuals To Counter Special Interests, To Be Well Informed, and To Create a Society Consistent with Individual Liberty III. A POTENTIAL CORPORATE DEMURRER, AND A RESPONSE IV. SEEKING A SOLUTION V. CONCLUSION "But what does 'freedom ' mean? When men mutually agreed to pass laws against robbing, mankind became more free, not less so. Individuals locked into the logic of the commons are free only to bring on universal ruin; once they see the necessity of mutual coercion, they become free to pursue other goals." (1)

"To many, the word coercion implies arbitrary decisions of distant and irresponsible bureaucrats; but this is not a necessary part of its meaning. The only kind of coercion I recommend is mutual coercion, mutually agreed upon by the majority of the people affected." (2)

--Garrett Hardin, The Tragedy of the Commons

  1. INTRODUCTION

    Much of the scholarly literature critical of the Supreme Court's Citizens United v. Federal Election Commission (3) decision is likely to ring true to people predisposed to view corporate power and free markets with suspicion. (4) Although many of those articles are well reasoned and advance the analysis of the issue, few contain arguments likely to convince people who believe in the power of free markets to promote social welfare. Preaching to the choir rarely reaches an audience beyond the congregation. Real progress on the issue of corporate political expenditures requires engagement among people who have more fundamental philosophical disagreements. (5) That engagement entails listening without judgment, and accepting, at least initially, that others hold their beliefs in good faith. Agreement is not necessary, but a commitment to society requires "tolerance" and "humility" grounded on the recognition that no one is right all of the time. (6) As Milton Friedman maintained, people holding divergent views have little hope of resolving differences unless they ask, "'what facts [and presumably arguments] ... if they were observed, [would each person] ... regard as sufficient to contradict [his or her] view, and vice versa?' and then [consider] whether the evidence contradicts or supports the view [each] has." (7)

    I use the term liberalism as Milton Friedman and Friedrich Hayek used it. Friedman referred to liberalism as "the intellectual movement that ... emphasize[s] freedom as the ultimate goal and the individual as the ultimate entity in the society.... pertaining to a free man." (8) Similarly, Hayek wrote, "[t]he fundamental principle [of liberalism is] that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion." (9) As discussed in more detail below, unlike some current proponents of libertarianism, liberalism provides that government has an important role in setting the rules of the game, mediating disputes, and acting in the few, but important, areas where markets cannot act efficiently. (10)

    I maintain that corporate political spending is inconsistent with liberalism because it: undermines government's ability to fulfill its proper role; weakens the checks and balances that the separation of political and economic power places on political authority; and reduces the ability of individuals to counter special interests, be well informed, and create a society consistent with individual liberty. Furthermore, it is an inefficient use of corporate profits, and is inconsistent with the rights of shareholders. I elaborate on each of these rationales in turn in Part II. (11) In Part III, I address a potential demurrer from corporate managers. That is, they might respond to the foregoing arguments with a question--why should we care if corporate political spending is inconsistent with liberalism if it seems profitable? I respond that corporate political spending is not in the long-term interests of corporations because, as set forth in Part II: it undermines the ability of government to fulfill an organizational role that is essential to the success of corporations, it is not the most efficient use of corporate funds, it risks a backlash from shareholders and intervention by regulators, and it offsets any short-term gains. (12) In Part IV, I seek a solution. If corporate political spending so threatens the system that preserves liberty and the efficient operation of a free-market society, it is reasonable to permit the state to impose rules to preserve its limited role, or for a solution to come from the market and voluntary action. (13) If spending their money on independent political expenditures is not in the interests of corporations, then there will be no need for coercion. Corporate leaders will recognize that the long-term costs of corporate political expenditures exceed the likely benefits and voluntarily limit them, or adopt policies requiring the disclosure of what they do with the funds, both of which some corporations have already done. (14) The purpose of this Article then is to argue that corporate political expenditures are inconsistent with liberalism and contrary to the long-term interests of the corporations that make them.

  2. CORPORATE POLITICAL SPENDING IS INCONSISTENT WITH LIBERALISM

    There are two distinct concerns with respect to corporate political spending--corruption (i.e., politicians will favor the entities who spent money to help them get elected) and distortion (i.e., those with more money will overwhelm the airwaves, thereby preventing the public from hearing a wide range of messages). (15) one could imagine a world in which people could only disseminate anonymous advertisements supporting or opposing candidates for office. In this world, corruption concerns would virtually disappear, because politicians would not know who spent money to get them elected. But distortion concerns would remain. Part II is divided into four sections to address liberalism's response to the problems of both corruption and distortion.

    1. Corporate Political Spending Undermines Government's Ability To Fulfill Its Proper Role

      This section addresses corruption, and the problem of too much business involvement in government. To maximize economic and personal freedom, liberalism recognizes that it is the proper role of the state to set, mediate and enforce "the rules of the game." (16) Friedman explained that the "existence of a free market does not ... eliminate the need for government. on the contrary, government is essential both as a forum for determining the 'rules of the game' and as an umpire to interpret and enforce the rules decided on." (17) He summarized the role of the state as follows:

      The need for government ... arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men. Men's freedoms can conflict, and when they do, one man's freedom must be limited to preserve another's--as a Supreme Court Justice once put it, "My freedom to move my fist must be limited by the proximity of your chin." (18) Thus, contrary to common perceptions of liberalism, "[t]he consistent liberal is not an anarchist" (19) and government plays an important role in the organization and maintenance of the market and "law and order [so as] to prevent coercion of one individual by another." (20) Implicitly recognizing the necessary limits on free enterprise, Friedman defined the concept with the following:

      In the United States, "free" [in the context of the term free enterprise] has been understood to mean that anyone is free to set up an enterprise, which means that existing enterprises are not free to keep out competitors except by selling a better product at the same price or the same product at a lower price. (21) In describing the liberal view, Scherer and Palazzo write, "the market cannot establish the conditions of its own existence. Rather, these conditions have to be erected by the state apparatus that defines the rules of the game." (22) As Berle and Means wrote, the operation of the market and corporate law can lead to an improper separation of ownership from control within the corporation such that the interests of corporate managers diverge from those of their principals, the shareholders. (23) One of the ways government defines the rules of the game is to work to make sure that the separation of ownership from control does not work an injustice on the owners, the shareholders. With those principles in mind, the following examples demonstrate a manifestation of a different facet of the agency problem, or the same problem but with differing practical effects. They also highlight the proper role of government in a free society and demonstrate how corporate political spending interferes with the ability of government to fulfill that role. (24)

      Example 1. Pennsylvania Judges are accused of accepting kickbacks from a for-profit youth detention center in connection with declaring over 2,000 minors delinquent, and forcibly sending them to the center. (25)

      In connection with the responsibility of government to set the rules of the game, government may properly enact laws prohibiting bribery even where bribery would otherwise make the corporation more profitable. The need to protect individual liberty against wrongful detention and maintain fair competition among other for-profit youth detention...

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