We, the Corporations?

May 31, 2013 Luigi Zingales

One would think that 600,000 comments on a petition would be sufficient to bring an issue to the top of the US Securities and Exchange Commission’s agenda. But public opinion does not seem to matter if the issue is mandatory disclosure of political spending by corporations.

CHICAGO – You would think that 600,000 comments on a petition would be sufficient to bring an issue to the top of the US Securities and Exchange Commission’s agenda. But public opinion does not seem to matter if the issue is mandatory disclosure of political spending by corporations.

Denying rumors that such a rule will be promulgated soon, SEC Chair Mary Jo White recently told lawmakers that this issue is not at the top of her list of priorities. But it is at the forefront of the Republican Party’s concerns, reflecting its leaders’ determination to prevent any such requirement from taking effect. In April, Ann Wagner, a Republican congresswoman, introduced a bill “to prohibit the Securities and Exchange Commission from issuing rules requiring the disclosure of an issuer’s expenditures for political activities.”

The reason why such an apparently minor issue is gaining so much attention is that it transcends corporate governance and goes to the very essence of America’s democratic system. For this reason, it is important to understand what is at stake.

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Luigi Zingales

Writing for PS since 2008
23 Commentaries

Luigi Zingales is the Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, and serves on the Committee on Capital Markets Regulation. He is also a faculty research fellow at the National Bureau of Economic Research, a research fellow at the Center for Economic Policy Research, and a fellow of the European Governance Institute. He is the author of A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.

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Parrain Boursorama Jan 12, 2014

The best model for expanding Alternative Energies and Environmental Protection globally is through using market equilibrium, whereas governmental subsidies and fiscal stimulus to be just supplementary
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Jeffrey Scofield Jun 3, 2013

Corporations enjoy purchasing information on consumer spending, many times without the knowledge of the consumer, but act offended when voters want to know how corporations are spending profits. There is no doubt about it, both corporations and governments are so intertwined that transparency and accountability are needed to keep the voter informed about the exact nature of the collusion, especially now that corporations are financial institutions are providing incentives for members of their own to make the transition into politics or regulation. As long as multinationals are allowed to spend unlimited amounts of money to exercise their "right to free speech", the rest of us have a right to watch their lips move.
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Frank O'Callaghan Jun 1, 2013

A corruption has erupted through the business and political world world and needs to be stamped out for the good of society.
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Tom Whelan Jun 1, 2013

Luigi, let us be candid. The antipathy toward Citizens United, and the immediate impetus prompting calls for additional disclosure requirements, have two disparate sources. The first is a legitimate, if misdirected, concern about the corrupting influence of money in politics. And the second is a McCarthyite desire to use mandated disclosures as another tool to intimidate supporters of causes that activists and politicians oppose. Are you now, or have you ever been, a contributor to this party, that politician, or this disfavored cause? Once this question must be answered, a polite letter from Uncle Sam is bound to follow.

Dear Madame:

We see from your mandatory disclosure that your corporation contributed to a candidate and to a non-profit group that opposed the Administration’s bill to establish heaven on earth. The law prohibits the government from using this information for any purpose other than, well, knowing what you’re thinking and doing. It is purely a coincidence that your IRS audit notice is enclosed, your OSHA inspection begins on Tuesday, and the EPA will begin conducting tests at your manufacturing plant on Wednesday. Thursday is a Federal holiday. HHS will take your first born on Friday.

In the interest of full disclosure, low level bureaucrats leaked your confidential information to news outlets and activist groups, but you should take comfort that there is no evidence any senior level officials knew about, or condoned, these disclosures in advance, or for that matter, did anything about the unfortunate disclosures once they learned about them in news reports. The Inspector General announced last week at the GSA’s Las Vegas retreat that budget cuts will delay any investigation until after the next election. In the interim, the IG will take no action to ensure that this never happens again; human nature being what it is, there is nothing the IG can do anyway. These things happen and will happen again.

One group who received your leaked information, and who receives generous subsidies from the higher taxes you now pay, asked to exercise its First Amendment right to petition the government for redress of its grievances, which include their dislike of you and the amount of money you make that the government does not redistribute to them. We have issued a parade permit to this group. Protesters are scheduled to begin picketing at your headquarters tomorrow. We understand a boycott will be announced at that time. The group’s application for a parade permit states, however, that if you renounce your support for the candidates and causes identified in your disclosures, and you make a generous contribution to support their cause, the protests and boycott will be called off. This is a deal you can’t refuse. Any questions?

One question underlying the disclosure conundrum is this: Does money corrupt politics or does politics corrupt money? The answer, obviously, is, yes. But the focus on corporate personhood obscures the underlying issue. All of the disclosures in the world will not change these facts:
• Ambitious public men are attracted to power over money.
• Ambitious private men are drawn to money over power.
• The distinction between ambitious public and private men fades as each learns to turn public power into private gain and private gain into public power (e.g., LBJ, any Kennedy, Jim Johnson, Franklin Raines, etc., etc.).
Men and women attracted to capitol cities, like Washington, love power, not only for its own sake, but also to get rich. The more power a government assumes over the money and lives of its people, the more its money its people spend to influence the exercise of the government’s power over their lives. Why is so much money spent in Washington DC to influence the flow of money across the Potomac? Because, as Willie Sutton said, “that’s where the money is,” at least once it’s taken from taxpayers.

Additional disclosure will not change a gosh darn thing. We already know almost everything important about who the big influence peddlers are; who buys; who sells; and at what price. Big labor buys Democrats, and Democrats rent unions. Big Oil buys Republicans, and Republicans rent oil companies. Both parties buy and sell themselves to local business interests. Soros funds progressives and progressive causes. Koch funds libertarians and conservatives. Liberal Democrats buy votes for food stamps from Conservative Republicans with votes for farm subsidies, and conservative Republicans buy votes for farm subsidies from liberal Democrats with votes for food stamps. Urban liberals vote to subsidize ethanol to salve the green consciences of limousine liberals, and rural conservatives ignore their free market ideals to fatten the wallets of their farming constituents. Big Pharma cuts itself in on Obamacare so Obamacare won’t cut Medicare reimbursements to Big Pharma. Speaking of Medicare, every time Docs bitch, Congress fix. And too-big-to-fail banks own almost everyone in Washington; somehow big banks scared the credulous geniuses who run Washington that the FDIC can’t devise a deposit insurance system that keeps Ma and Pa from losing their life savings at an FDIC insured bank on Main Street without bailing out all of Wall Street.

Does anyone really believe that additional disclosures will change the way horses are traded and power is auctioned at the DC Auction House? Adding a few names to the bidder’s registration list isn’t going to change the House rules – other people’s money will still go to the highest bidder – or the same Senate rules for that matter. There is a problem. But additional disclosures are a distraction, not the solution.
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Mark Pitts May 31, 2013

Disclosures will incite audits by the IRS for opinions unfavorable toward the government.
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Robert Winter May 31, 2013

An excellent point. When you couple it with the practical inability of shareholders to exercise effective control over large corporation -- it is almost always easier to sell than to fight, particularly for those without great resources -- absent disclosure the impact of the Supreme Court's decision is to vest great political power in an economic class characterized by great wealth. You are correct as to the long term risks to democracy. We already have more than enough crony capitalism in our system.
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