Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

9 - 2 Chapter 9 Business in Politics This chapter:  Explains how corporations, now and in the past, have exercised political influence.

9 - 3 The Abramoff Scandals Opening Case  Rep. Tom DeLay (R-Texas) pressured lobbyists to support his candidates and causes and rewarded the lobbyist through the use of Congressional earmarks.  Jack Abramoff was a lobbyist whose style was to lavish attention and favors on lawmakers.  Bob Ney (R-Ohio) accepted gifts and trips and then did legislative favors at Abramoff’s request.  Randy “Duke” Cunningham (R-California) was corrupt to an unprecedented degree. He even had a “bribe menu.” Corporations dominate the political area with huge expenditures for lobbying and campaign donations. The recent spate of Washington scandals teach that the area in which business must pursue its political goals can be highly compromising.

9 - 4 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 - 5 A History of Political Dominance by Business  The Revolutionary War of that created the nation was, according to some historians, 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.  Yet the record since adoption of the Constitution in 1789 is one of virtually unbroken business ascendancy.

9 - 6 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 also did the political power of business.

9 - 7 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  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 - 8 Ascendance, Corruption, and Reform (continued)  Business adversaries that emerged:  The populist movement  Organized labor  The Anti-Saloon league  After 1900, reforms of the progressive movement curtailed overweening corporate power.  Big business feared giving women the vote.  The great political reforms of the progressive era were reactions to corruption in a political system dominated by business.  While business was more often checked after the turn of the century, it remained preeminent. Corruption continued.

9 - 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.  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 so that prosperity would no longer depend solely on unbridled market forces.

Postwar Politics and Winds of Change  In the 1940s, industries’ 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.  During the 1960s and 1970s, national politics became dominated by a liberal reform agenda.

The Rise of Antagonistic Groups  During the 1960s, the climate of pressure politics changed with the rise of new groups focused on consumer, environmental, taxpayer, civil rights, and other issues, changing the political arena for business.  The rise of groups hostile to business is part of a broader trend in which new groups of all kinds, including business groups, have been stimulated by growth of government.  In the 1990s there were an estimated 23,000 organized interest groups, roughly 400 percent more than in the 1950s.

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

The Universe of Organized Business Interests  Literally thousands of groups represent business.  The most prominent groups are peak associations that represent many different companies and industries.  More than 6,000 trade associations represent companies grouped by industry.  More than 700 corporations have staffs of government relations experts in Washington. These Washington offices are set up mainly by big companies.  Business interests also form coalitions to create broader support.

Lobbying  There are two broad areas of business involvement in politics:  Government relations, or lobbying  The electoral process  A lobbyist presents the position of a corporation, interest group, or trade association to a government official.  Lobbyists provide critical intelligence to lawmakers.  In Washington today, legislators are receptive to lobbyists.  Lobbyists are only loosely regulated. Lobbying Advocating a position to government.

Lobbying Methods  Major lobbying efforts now resemble political campaigns in the way they combine a broad range of methods including:  Direct contact  Background lobbying  Public relations  Legal support  Polling  Policy analysis  Grassroots work Grassroots lobbying The technique of generating an expression of public, or “grassroots,” support for the position of a company or lobbyist.

Paths of Pressure

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.  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.  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.

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.  In reaction to Watergate, Congress extensively amended the FECA in  The intent of the amendments was to limit corporate influence; however, over the next 30 years it failed to do so.

How PACs Work  To start a PAC, a corporation must set up an account for contributions.  Corporate PACs get their funds primarily from contributions by employees.  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. Political action committee A political committee carrying a company’s name formed to make campaign contributions.

Soft Money and Issue Advertising  In 1979 Congress amended the FECA to encourage support for state and local political parties by suspending limits and prohibitions on contributions to them.  These contributions came to be known as soft money.  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.

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.  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.

Testing the New Law  The 2004 election cycle was the first under BCRA rules. The new law did not stop the rise in overall spending.  Hard money contributions went way up.  New advocacy groups formed to take in the soft money that corporations, unions, and individuals could no longer give to parties.  Independent expenditures for and against candidates increased.  So far, the new restrictions of the BCRA have worked to cut the flow of unregulated soft money into federal elections, but overall growth of campaign giving and spending has not been slowed.

Tension Over Corporate Political Expression  Tensions exists between two strong values in the American political system, freedom of speech and political equality.  Regulation to silence speech, including corporate speech, goes against the grain of the First Amendment.  Restraints on corporate giving have been permitted to ensure political equality in elections and the implied duty to maintain elections free of corruption and the appearance of corruption.  Dissenters have argued that corporations have the right to unlimited speech.

Concluding Observations  There is significant imbalance of resources between corporate interests and other interests such as poor people, small farmers, environmentalists, and consumer advocates.  Business today is forced to deal with more, and stronger, opposing interests than in the past.  The rise of soft money and refinements in lobbying methods create a perception that corporation money is undermining the independence of officials.  Because of disclosure rules, American politics is cleaner than the politics of most other nations and cleaner than in past eras.