Leveling the Political and Economic Playing Field

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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January 26th, 2010 3:04 PM

Leveling the Political and Economic Playing Field

The Supreme Court ruled last week that corporations could spend as much money as they want in elections, thereby making most existing restrictions on corporate election spending unconstitutional. This raises the prospect of US politics becoming even more corrupt than it already is. It will now be totally legal for Goldman Sachs, Citigroup, or any other major corporation to spend endless amounts of money to elect politicians who will drain taxpayers' pockets to enhance their profits. This is not good for democracy.

However, if the court has ruled that Congress can't limit political spending by corporations, then it can always go the other direction and redefine corporations. The court effectively said that corporations have the same rights as individuals in the political sphere.

But corporations are creations of the government. The economic privileges granted to corporations are set by governments, not by the Constitution and certainly not by nature. Specifically, the limited liability of the shareholders in a corporation is a special privilege that governments grant to corporations.

Because of limited liability, the individuals that own a corporation can poison our water, sell dangerous products to our kids or cripple their workers and not pay for the damage they have caused because the government limits their liability to the value of the stock they own. While there may be good economic arguments for giving corporations the privilege of limited liability, there certainly is no moral or legal argument that corporations, or more properly their shareholders, must be granted this privilege.

This allows for a simple route around the Supreme Court's ruling. Consistent with the Supreme Court's ruling, corporations can be given the right to engage in whatever political activity they wish. However, to get the benefit of limited liability, a corporation would have to sign away its right to take part in election campaigns. It could not contribute to political campaigns, engage in any lobbying efforts on legislation or appointees or take out issue ads.

In effect, to get the privilege of limited liability, corporations would have to give up their political rights in the same way that insurance companies often require people to give up their right to sue and instead submit to binding arbitration. Everyone still has the right to sue, but not in the cases where they have explicitly surrendered this right to the insurance company. Similarly, corporations still have the full right to take part in political activity, but not if they have surrendered this right in order to gain the privilege of limited liability.

There is actually precedent for exactly this sort of restriction in the law. Tax-exempt organizations are severely restricted in their ability to support candidates, lobby legislatures, or in other ways take part in the political process. This is not viewed as a restriction on freedom of speech; it is simply a condition of getting tax-exempt status. These organizations are free to engage in as much political activity as they like, but not when they are benefiting from tax-exempt status.

There is no reason that the government can't apply the same rules to the political conduct of corporations as it does to tax-exempt organizations. They can do whatever they like, but not when they benefit from the privilege of limited liability.

Unfortunately, Congress is not likely to rein in corporate behavior in this way. The problem is not a legal one; the problem is that US politics are already so corrupt that any measure restricting the ability of corporations to interfere in the political process is almost a joke in political circles. Members of Congress who pushed such measures would have been targeted with a flood of money coming indirectly from corporate coffers even before the Supreme Court ruling. Now that the court has outlawed most of the restrictions that did exist, this flood will be almost unstoppable.

Unless we can do something to reverse the direction of politics in the United States, the burden that the wealthy and corporate America impose on the rest of society will grow ever larger. And we should be very clear: this has absolutely zero to do with free markets and free speech. This is entirely about writing the rules so that the rich can rip off the rest of us.

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