Saturday, June 5, 2010

Government Faces New Threat From Corporations

The recent blowout in the Gulf of Mexico is on everyone’s minds these days. President Obama, under public pressure to take action against the oil and gas industry, recently announced he wants to trim tax incentives for the oil and gas industry. He may face new hurdles in doing so because of the new-found political powers of corporations.

The industry is doing well today because public policy supports the exploration for new domestic energy sources. BP’s drilling in the Gulf was part of that effort. Now that they enjoy robust incentives, the industry probably won’t give them up willingly. Try taking a bone away from a bulldog. He’s not inclined to let you have it.

In January the Supreme Court overturned provisions of federal campaign finance law which limited corporations and unions from spending money directly in campaign advertising. Under the aegis of free speech, the decision “unleashes the floodgates of corporate and union general treasury spending” in political campaigns, as Associate Justice John Paul Stevens wrote in his dissent.

Corporations are creatures of statute; the Constitution doesn’t mention them at all. So how did corporations start getting treated on par with human beings?

In a quirk of American judicial history, in 1886 a court reporter slipped language into a Supreme Court decision headnote that implied corporations were entitled to equal protection under the Fourteenth Amendment. Nobody caught it, and subsequent courts started citing the case as law.

Granted, the First Amendment broadly says “Congress shall make no law … abridging the freedom of speech.” But as Justice Stevens saw it, the Founding Fathers “had little trouble distinguishing corporations from human beings, and when they constitutionalized the right to free speech in the First Amendment, it was the free speech of individual Americans that they had in mind.”

Federal election restrictions on corporations date back to 1907, when Congress banned all corporate contributions to candidates. The Senate Report on the legislation at that time observed that the “evils of the use of (corporate) money in connection with political elections are so generally recognized that the committee deems it unnecessary to make any argument in favor of the general purpose of this measure. It is in the interest of good government and calculated to promote purity in the selection of public officials.”

How could a corporate heavyweight influence a political campaign?

Take the case of Hugh Caperton and behemoth Massey Coal Company. Caperton, owner of another small coal company, sued Massey in West Virginia for fraud and breach of contract, and in 2002 won a $50 million judgment. (Yes, Massey is the same coal company where 29 miners died in an explosion two months ago.) In 2004, Massey’s CEO, Brent Benjamin, spent $3 million of his own money to help unseat a West Virginia Supreme Court justice. Massey then appealed the jury verdict and won 3-2, with the new justice voting in its favor. On review, the U.S. Supreme Court held that the new justice should have recused himself from the Massey appeal.

Benjamin did nothing illegal; it was his personal cash. But now corporations like Massey will be able to spend their own money in similar efforts, effectively buying legislative seats to protect their interests.

To fix the Gulf oil leak, BP alone claims to have $5 billion in available cash, $5 billion in bank credit lines and an additional $5 billion in standby credit facilities. That’s a lot of firepower held by one of many oil companies, some of which could possibly be directed toward fall elections in the best interests of stockholders. The general public has neither the cohesiveness nor the cash to respond.

Justice Stevens conceded in his dissent that lengthy and expensive lawsuits like Caperton’s might catch some of the worst abuses. “This will be small comfort to those States that, after today, may no longer have the ability to place modest limits on corporate electioneering,” he added. And the effects may be irreparable, as we may learn on the Gulf coast.

What’s next? Justice Stevens wrote, “Under the majority’s view, I suppose it may be a First Amendment problem that corporations are not permitted to vote, given that voting is, among other things, a form of speech.”

But corporations won’t need to go there. They now have more subtle and more effective ways to protect their interests. Unless Congress acts first, corporations may target members of Congress who side with the President in efforts to trim back corporate welfare to the oil and gas industry.

The very people who cry for smaller government forget that a weak government cannot provide the safeguards we expect – from national security to the regulation of offshore oil drilling, subordinated debentures and Bernie Madoff’s Ponzi schemes to name but a few. Everyone wants small government until they need a big strong government. By then, it’s too late.

In 1816 Thomas Jefferson wrote, "I hope we shall... crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."

Apparently, we have failed.

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