1. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 9 Business in Politics

2. 9-2 Paul Magliocchetti and Associates o Paul Magliocchetti and Associates Group (PMA Group) specialized in helping defense contractors get project funding through insertions in defense spending bills o These insertions are called earmarks o Legislators mostly do earmarks for programs that create jobs in their districts and states o Magliocchetti was a pioneer in the art of earmarking

3. 9-3 Paul Magliocchetti and Associates o One day FBI agents surprised him at his home seeking records of his campaign giving o Using other people as conduits to exceed contribution limits is a crime o In 2010 he was charged with 11 criminal counts of illegal campaign contributions and false reporting

4. 9-4 The Structure of American Government o Several basic features of the Constitution shape the political system: o Sets up a federal system, or a government in which powers are divided between a national government and 50 state governments o Establishes a system of separation of powers o Provides for judicial review o The First Amendment protects the right of a business to organize and press its agenda on government

5. 9-5 The Structure of American Government o Federal system: A government in which powers are divided between a central government and subdivision governments o 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

6. 9-6 The Structure of American Government o 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

7. 9-7 The Structure of American Government o 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

8. 9-8 A History of Political Dominance by Business o The Revolutionary War of 1775-1783 that created the nation was fought to free colonial business interests from smothering British mercantile policies o 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. 9-9 A History of Political Dominance by Business o The record since adoption of the Constitution in 1789 is one of virtually unbroken business ascendancy

10. 9-10 Laying the Groundwork o The economy was 90 percent agricultural, so farmers and planters were a major part of the political elite o Under the leadership of Secretary of the Treasury Alexander Hamilton the new government was soon turned toward the promotion of industry o As the young nation’s economy expanded, so did the political power of business

11. 9-11 Ascendance, Corruption, and Reform o In the period following the Civil War, big business dominated state governments and the federal government in a way never seen before or since o 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

12. 9-12 Ascendance, Corruption, and Reform o In Congress, senators were suborned by business money and corruption was rampant o Late in the century, farmers tried to reassert agrarian values through the Populist party

13. 9-13 Ascendance, Corruption, and Reform o Business adversaries that emerged: o The populist movement o Organized labor o The Anti-Saloon league o After 1900, reforms of the progressive movement curtailed overweening corporate power

14. 9-14 Ascendance, Corruption, and Reform o Big business also fought suffrage for women o The great political reforms of the Progressive era were reactions to corruption in a political system dominated by business

15. 9-15 Business Falls Back under the New Deal o Conservative business executives argued that the depression would correct itself without government action o 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 o Corporate opposition to New Deal measures ran counter to public sentiment

16. 9-16 Business Falls Back under the New Deal o 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 o One lasting legacy of the era was the philosophy that government should be used to correct the flaws of capitalism and control the economy

17. 9-17 Postwar Politics and Winds of Change o In the 1940s, industry’s patriotic World War II production record and the subsequent postwar prosperity quieted lingering public restiveness about corporate political activity o During the 1950s, corporations once again predominated in a very hospitable political environment

18. 9-18 Postwar Politics and Winds of Change o During the 1960s and 1970s, national politics became dominated by a liberal reform agenda

19. 9-19 The Rise of Antagonistic Groups o 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 o 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

20. 9-20 Figure 9.1 - Growth of the Federal Budget: 1940–2010

21. 9-21 Diffusion of Power in Government o 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: o Reforms in Congress o The decline of political parties o Increased complexity in government

22. 9-22 The Universe of Organized Business Interests o The most prominent groups are peak associations that represent many different companies and industries o Peak association: A group that represents the political interests of many companies and industries o The largest and most powerful peak association is the U.S. Chamber of Commerce, which was founded in 1912

23. 9-23 The Universe of Organized Business Interests o The National Association of Manufacturers (NAM), founded in 1895, represents a membership of 10,000 companies and 350 trade associations o The Business Roundtable is the organization that speaks for big corporations o It was founded in 1972 and consists of about 160 CEOs whose companies’ dues support it

24. 9-24 The Universe of Organized Business Interests o More than 6,000 trade associations represent companies grouped by industry o Trade association: A group representing the interests of an industry or industry segment o Hundreds of corporations have staffs of government relations experts in Washington o 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

25. 9-25 The Universe of Organized Business Interests o Business interests form coalitions to create broader support o Coalition: A combination of business interests, including corporations, trade associations, and peak associations, united to pursue a political goal

26. 9-26 Lobbying o Lobbying: Advocating a position to government o Lobbyists articulate diverse interests in the great sweep of American pluralism o A lobbyist who lacks integrity loses access to the very people he or she earns a living trying to influence

27. 9-27 Lobbying Methods o Contact lobbying: Direct interaction with government officials or staff in meetings, phone calls, or e-mail o Background lobbying: Indirect lobbying activity designed to build friendly relations with lawmakers, officials, and staff

28. 9-28 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

29. 9-29 Figure 9.2 - Paths of Pressure

30. 9-30 Regulation of Lobbyists o At the federal level there are three imperfect checks on lobbyists activities o Lobbying Disclosure Act o The House and the Senate have adopted rules to prevent the appearance of impropriety o Criminal act for public officials to ask for or receive any gift or gratuity tied to an official act o Bribery: An agreement to exchange something of value for an official act

31. 9-31 Efforts to Limit Corporate Influence o 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

32. 9-32 Efforts to Limit Corporate Influence o 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 o Federal elections: Elections for president, vice president, senator, and representative

33. 9-33 Efforts to Limit Corporate Influence o After 1907 the spirit of the Tillman Act was quickly and continuously violated o Since the Tillman Act did not limit individual contributions, wealthy donors stepped in

34. 9-34 The Federal Election Campaign Act o 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 o Democrats angry at Nixon passed the Federal Election Campaign Act (FECA) in 1971 to stiffen disclosure requirements on campaign contributions and expenditures

35. 9-35 The Federal Election Campaign Act o In reaction to Watergate, Congress extensively amended the FECA in 1974 o The intent of the amendments was to limit corporate influence; however, over the next 30 years it failed to do so

36. 9-36 Political Action Committees o Political action committee: A political committee carrying a company’s name formed to make campaign contributions o To start a PAC, a corporation must set up an account for contributions o Corporate PACs get their funds primarily from contributions by employees

37. 9-37 Political Action Committees o The money in a PAC is disbursed to candidates based on decisions made by PAC officers, who must be corporate employees o There are no dollar limits on the overall amounts that PACs may raise and spend

38. 9-38 Figure 9.3 - Contributions to Candidates by Corporate and Labor Political Action Committees in Two-Year Election Cycles: 1986–2008

39. 9-39 Soft Money and Issue Advertising o Soft money: Money that is unregulated as to source or amount under federal election law o Hard money: Money raised and spent under the strict contribution limits and rules in federal election law

40. 9-40 Soft Money and Issue Advertising o 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 o In 1996 the Supreme Court held that soft money could be used for issue advertising

41. 9-41 Figure 9.4 - Soft Money Receipts by Democratic and Republication National Party Committees: 1992–2002 Election Cycles

42. 9-42 Reform Legislation in 2002 o 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) o National parties are prohibited from raising or spending soft money

43. 9-43 Reform Legislation in 2002 o Corporations can give unlimited amounts of soft money to advocacy groups for electioneering activity, with restrictions during blackout periods o Contribution limits for individuals are raised o The main purpose of the new law is to end the use of corporate soft money for issue ads run just before elections

44. 9-44 Figure 9.5 - Current Contribution and Expenditure Rules in Federal Elections

45. 9-45 Figure 9.6 - The Fundamental Vision of Election Law

46. 9-46 How Business Dollars Enter Elections o Political action committees o Individual contributions o Executive bundlers o 501(c) groups o 527 groups o Independent expenditures o State and local elections

47. 9-47 Figure 9.7 - History of Efforts to Suppress Corporate Money in Politics

48. 9-48 Concluding Observations o Corporations have a long history of participation in the nation’s political life o In each area the rights of corporations are protected by the First Amendment

49. 9-49 Concluding Observations o Restraints on corporations cannot be absolute o The challenge is to balance the First Amendment right of corporations to free political expression against the societal interest of maintaining corruption- free elections