MGM of business and society

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

Chapter 9
Business in Politics

9-*

Paul Magliocchetti and Associates

Paul Magliocchetti and Associates Group (PMA Group) specialized in helping defense contractors get project funding through insertions in defense spending bills

These insertions are called earmarks

Legislators mostly do earmarks for programs that create jobs in their districts and states

Magliocchetti was a pioneer in the art of earmarking

9-*

Paul Magliocchetti and Associates

One day FBI agents surprised him at his home seeking records of his campaign giving

Using other people as conduits to exceed contribution limits is a crime

In 2010 he was charged with 11 criminal counts of illegal campaign contributions and false reporting

9-*

The Structure of American Government

Several basic features of the Constitution shape the political system:

Sets up a federal system, or a government in which powers are divided between a national government and 50 state governments

Establishes a system of separation of powers

Provides for judicial review

The First Amendment protects the right of a business to organize and press its agenda on government

9-*

The Structure of American Government

Federal system: A government in which powers are divided between a central government and subdivision governments

Supremacy clause: A clause in the Constitution, Article VI, Section 2, setting forth the principle that when the federal government passes a law within its powers, the states are bound by that law

9-*

The Structure of American Government

Separation of powers: The constitutional arrangement that separates the legislative, executive, and judicial functions of the national government into three branches, giving each considerable independence and the power to check and balance the others

9-*

The Structure of American Government

Judicial review: The power of judges to review legislative and executive actions and strike down laws that are unconstitutional or acts of officials that exceed their authority

9-*

A History of Political Dominance by Business

The Revolutionary War of 1775-1783 that created the nation was fought to free colonial business interests from smothering British mercantile policies

The noted historian Charles Beard argued that the Constitution was an “economic document” drawn up and ratified by propertied interests, for their own benefit

9-*

A History of Political Dominance by Business

The record since adoption of the Constitution in 1789 is one of virtually unbroken business ascendancy

9-*

Laying the Groundwork

The economy was 90 percent agricultural, so farmers and planters were a major part of the political elite

Under the leadership of Secretary of the Treasury Alexander Hamilton the new government was soon turned toward the promotion of industry

As the young nation’s economy expanded, so did the political power of business

9-*

Ascendance, Corruption, and Reform

In the period following the Civil War, big business dominated state governments and the federal government in a way never seen before or since

Through ascendancy in the Republican Party, corporations had a decisive influence over the nomination and election of a string of pro-business Republican presidents from Ulysses S. Grant in 1868 to William McKinley in 1900

9-*

Ascendance, Corruption, and Reform

In Congress, senators were suborned by business money and corruption was rampant

Late in the century, farmers tried to reassert agrarian values through the Populist party

9-*

Ascendance, Corruption, and Reform

Business adversaries that emerged:

The populist movement

Organized labor

The Anti-Saloon league

After 1900, reforms of the progressive movement curtailed overweening corporate power

9-*

Ascendance, Corruption, and Reform

Big business also fought suffrage for women

The great political reforms of the Progressive era were reactions to corruption in a political system dominated by business

9-*

Business Falls Back under the New Deal

Conservative business executives argued that the depression would correct itself without government action

After the election of Franklin D. Roosevelt in 1932, corporations fought his efforts to regulate banking and industry, strengthen labor unions, and enact Social Security

Corporate opposition to New Deal measures ran counter to public sentiment

9-*

Business Falls Back under the New Deal

Roosevelt was hurt by all the hate and felt that through his major New Deal programs, he had saved capitalism in spite of the capitalists

One lasting legacy of the era was the philosophy that government should be used to correct the flaws of capitalism and control the economy

9-*

Postwar Politics and Winds of Change

In the 1940s, industry’s patriotic World War II production record and the subsequent postwar prosperity quieted lingering public restiveness about corporate political activity

During the 1950s, corporations once again predominated in a very hospitable political environment

9-*

Postwar Politics and Winds of Change

During the 1960s and 1970s, national politics became dominated by a liberal reform agenda

9-*

The Rise of Antagonistic Groups

During the late 1960s, the climate of pressure politics changed with the rise of new groups focused on consumer, environmental, taxpayer, civil rights, and other issues

The rise of groups hostile to business is part of a broader trend in which new groups of all kinds have been stimulated by growth of government

9-*

Figure 9.1 - Growth of the Federal Budget: 1940–2010

9-*

Diffusion of Power in Government

A second change in the climate of politics, besides new groups, has been the diffusion and decentralization of power in Washington, D.C. caused by:

Reforms in Congress

The decline of political parties

Increased complexity in government

9-*

The Universe of Organized Business Interests

The most prominent groups are peak associations that represent many different companies and industries

Peak association: A group that represents the political interests of many companies and industries

The largest and most powerful peak association is the U.S. Chamber of Commerce, which was founded in 1912

9-*

The Universe of Organized Business Interests

The National Association of Manufacturers (NAM), founded in 1895, represents a membership of 10,000 companies and 350 trade associations

The Business Roundtable is the organization that speaks for big corporations

It was founded in 1972 and consists of about 160 CEOs whose companies’ dues support it

9-*

The Universe of Organized Business Interests

More than 6,000 trade associations represent companies grouped by industry

Trade association: A group representing the interests of an industry or industry segment

Hundreds of corporations have staffs of government relations experts in Washington

Washington office: An office in Washington, D.C., set up by a corporation and staffed with experts in advocating the firm’s point of view to lawmakers and regulators

9-*

The Universe of Organized Business Interests

Business interests form coalitions to create broader support

Coalition: A combination of business interests, including corporations, trade associations, and peak associations, united to pursue a political goal

9-*

Lobbying

Lobbying: Advocating a position to government

Lobbyists articulate diverse interests in the great sweep of American pluralism

A lobbyist who lacks integrity loses access to the very people he or she earns a living trying to influence

9-*

Lobbying Methods

Contact lobbying: Direct interaction with government officials or staff in meetings, phone calls, or e-mail

Background lobbying: Indirect lobbying activity designed to build friendly relations with lawmakers, officials, and staff

9-*

Lobbying Methods

• Direct interaction with government officials or staff in meetings, phone calls, or e-mail

Contact lobbying

• Indirect lobbying activity designed to build friendly relations with lawmakers, officials, and staff

Background lobbying

• The technique of generating an expression of public, or “grassroots,” support for the position of a company, industry, or any interest

Grassroots lobbying

9-*

Figure 9.2 - Paths of Pressure

9-*

Regulation of Lobbyists

At the federal level there are three imperfect checks on lobbyists activities

Lobbying Disclosure Act

The House and the Senate have adopted rules to prevent the appearance of impropriety

Criminal act for public officials to ask for or receive any gift or gratuity tied to an official act

Bribery: An agreement to exchange something of value for an official act

9-*

Efforts to Limit Corporate Influence

An effort at reform came after the election of 1904, when Republican Theodore Roosevelt, who campaigned as a reformer, was embarrassed by his opponent, Democrat Alton B. Parker, for taking large cash contributions from corporations

9-*

Efforts to Limit Corporate Influence

In 1907 progressive reformers pass the Tillman Act, making it a crime for banks and corporations to directly contribute to candidates in federal elections, and this is still the law today

Federal elections: Elections for president, vice president, senator, and representative

9-*

Efforts to Limit Corporate Influence

After 1907 the spirit of the Tillman Act was quickly and continuously violated

Since the Tillman Act did not limit individual contributions, wealthy donors stepped in

9-*

The Federal Election Campaign Act

In the years following the Tillman Act, Congress added to the body of election law although none of these measures limited the influence of what continued to be the main source of campaign funding – corporations

Democrats angry at Nixon passed the Federal Election Campaign Act (FECA) in 1971 to stiffen disclosure requirements on campaign contributions and expenditures

9-*

The Federal Election Campaign Act

In reaction to Watergate, Congress extensively amended the FECA in 1974

The intent of the amendments was to limit corporate influence; however, over the next 30 years it failed to do so

9-*

Political Action Committees

Political action committee: A political committee carrying a company’s name formed to make campaign contributions

To start a PAC, a corporation must set up an account for contributions

Corporate PACs get their funds primarily from contributions by employees

9-*

Political Action Committees

The money in a PAC is disbursed to candidates based on decisions made by PAC officers, who must be corporate employees

There are no dollar limits on the overall amounts that PACs may raise and spend

9-*

Figure 9.3 - Contributions to Candidates by Corporate and Labor Political Action Committees in Two-Year Election Cycles: 1986–2008

9-*

Soft Money and Issue Advertising

Soft money: Money that is unregulated as to source or amount under federal election law

Hard money: Money raised and spent under the strict contribution limits and rules in federal election law

9-*

Soft Money and Issue Advertising

Although corporations are barred from contributing to federal campaigns, a series of advisory opinions by the Federal Election Commission opened the door for them to give unlimited soft money contributions to national party committees

In 1996 the Supreme Court held that soft money could be used for issue advertising

9-*

Figure 9.4 - Soft Money Receipts by Democratic and Republication National Party Committees: 1992–2002 Election Cycles

9-*

Reform Legislation in 2002

Senators John McCain (R-Arizona) and Russell Feingold (D-Wisconsin) pushed through a bill that was enacted as the Bipartisan Campaign Reform Act of 2002 (BCRA)

National parties are prohibited from raising or spending soft money

9-*

Reform Legislation in 2002

Corporations can give unlimited amounts of soft money to advocacy groups for electioneering activity, with restrictions during blackout periods

Contribution limits for individuals are raised

The main purpose of the new law is to end the use of corporate soft money for issue ads run just before elections

9-*

Figure 9.5 - Current Contribution and Expenditure Rules in Federal Elections

9-*

Figure 9.6 - The Fundamental Vision of Election Law

9-*

How Business Dollars Enter Elections

Political action committees

Individual contributions

Executive bundlers

501(c) groups

527 groups

Independent expenditures

State and local elections

9-*

Figure 9.7 - History of Efforts to Suppress Corporate Money in Politics

9-*

Concluding Observations

Corporations have a long history of participation in the nation’s political life

In each area the rights of corporations are protected by the First Amendment

9-*

Concluding Observations

Restraints on corporations cannot be absolute

The challenge is to balance the First Amendment right of corporations to free political expression against the societal interest of maintaining corruption-free elections