Chapter 9 Lecture:Business in Politics

“The proposal of any new law or regulation of commerce which comes from [business should be] listened to with great precaution. It comes from [people] who have a general interest to deceive and even oppress the public.”

- Adam Smith, 1776

“[W]e must guard against the acquisition of unwarranted influence…by the military-industrial complex. Only an alert and knowledgeable citizenry can…[ensure a proper] balance in and among national programs.”- Dwight D. Eisenhower, 1961

Business in American Politics: Dominant From the Start

Business has been an important, if not a dominant, influence on U.S. government from the start.

Some say the Revolutionary War was fought to free colonial business interests from smothering British mercantile policies!

The Founders who drafted the Constitution were an economic elite.

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Alexander Hamilton was a very pro-business Secretary of the Treasury.

Business in American Politics: The Civil War (1860-1865)

During the Civil War, some corrupt army purchasing agents accepted bribes to purchase shipments of bad meat.

When the war ended, the power base of southern agriculture had been decimated, and a major counterweight to the power of northern industry was lost.

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Grant’s first term: 1869-1872: The Whiskey Ring scandals.

Second term: 1873-1877: The Credit Mobilier scandal.

President Ulysses S.

Grant

The Seventeenth Amendment

Passed in 1913, instituted the direct election of U.S. senators

Previously, state legislators had chosen senators.

Corporations fought the amendment, but their motives were not pure.

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Business in American Politics: 1900-1923

The great political reforms of the progressive era (1900 – 1923) seemed to herald a change from “business as usual.”

But modern scholarship has revealed that the corruption in federal politics continued apace.

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President Warren G. Harding:

1920-1923The “Teapot Dome” scandal

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The Great Depression: 1929-1935

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Franklin Delano

Roosevelt and the

“New Deal”

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The 1960s and 1970s

National politics became dominated by a liberal reform agenda

New groups rose to defy corporations

Business was saddled with massive new regulatory schemes

Two Broad Areas of Business Involvement in Politics

LOBBYINGELECTORALPROCESS

Business Lobbying Activities

Self-representation More than 700 corporations have

staffs of government relations experts in Washington.

Private lobbyists 75% of large firms hire private

lobbyists Most lobbyists are lawyers Many are former U.S. officials

Business Interest Groups

Business Interest Groups

Peak Associations Half a dozen Business Roundtable

Trade Associations Have more influence than the peak

associations because the interests of its members are more cohesive

Number over 6,000! Often try to avoid publicity

Do Lobbyists Lie to Legislators?

Probably not If they did, they would have trouble

getting access to the legislator in the future

Instead they try to be useful Provide technical information about bills Provide politically valuable information

about how constituents and special interests stand on a particular issue

Mostly argue why it is best for the country or the state

Efforts to Limit Corporate Influence

The Tillman Act of 1907 Implemented by progressive

reformers angry about the role of corporate contributions in the presidential election of 1900

Prohibited banks and corporations from making direct campaign contributions to candidates

The Federal Election Campaign Act (FECA) of

1971 Required public disclosure of

campaign contributions and expenditures

Data for the 1972 Presidential elections brought public attention to the issue

Watergate investigations revealed illegal contributions

1974 FECA Amendments

The limits on campaign expenditures were struck down as unconstitutional in Buckley v. Valeo (1976)

The limits on contributions were upheld

PACs in the U.S. (2006)

Type NumberCorporate 1,621

Trade Association

935

Labor 283Other 1,371Total 4,210

How Corporate 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.

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Corporate PAC

A political committee carrying a company’s name formed to make campaign contributions.

Soft MoneyThere are various definitions of soft

money, but the broadest one is “money raised or spent for the purpose of winning elections that is exempt from the reporting requirements and contribution limits of FECA.”

Under this definition, there used to be 4 kinds of soft money, but now there are only 3.

Soft MoneyThe 3 kinds we still have are Soft money raised and spent by state

party committees, Soft money raised and spent by section

501c and 527 organizations, and Independent expenditures by

individuals.The kind we don’t have any more is Soft money raised and spent by

national party committees.

The Bipartisan Campaign Reform Act of 2002

National parties are prohibited from raising or spending soft money

State parties may raise soft money, but cannot use it for issue ads

Corporations can give soft money to new 527 and 501c groups, but can’t use it for ads advocating election or defeat of a candidate during blackout periods.

The Bipartisan Campaign Reform Act of 2002

Individuals can give soft money to new 527 and 501(c) groups, and that money CAN be used for ads advocating election or defeat of a candidate during blackout periods!

Candidates’ reelection committees can still use hard dollars for such ads

Section 501(c) Groups

These are classic non-profit groups They were originally set up mostly

for “educational” purposesExamples include The Cato Institute The Heritage Foundation Americans for Job Security

The 501(c) Loophole

These groups are prohibited from conducting “political campaign activities to influence elections to public office.”

But they are permitted to educate individuals about issues.

Section 527 Groups

Another type of tax exempt group But this time, explicitly set up for the

primary purpose of influencing the nomination, election, appointment, or defeat of candidates for public office

Cannot make expenditures to directly advocate the election or defeat of any candidate for federal elective office

Section 527 Groups

Can make expenditures to directly advocate the election or defeat of candidates for state or local elective office

Can raise money to spend on issue advocacy ads

Can raise money to spend on voter mobilization

Section 527 Groups

The line between issue advocacy and candidate advocacy is a source of continued debate and litigation.

Any coordination between the activities of a candidate’s election committee and any 527 group is prohibited by law.

Section 527 Groups

Federal Election Commission rulings after the 2004 election put advertisements which questioned a candidate’s character and fitness for office off-limits to 527-organizations.

What I Think

I agree with the positions taken by the U.S. Public Interest Research Group and Common Cause.

I think Presidential and Congressional Races should be 100% publicly-financed.

This would require a Congressional Amendment.

U.S. PIRG’s Position

1. Provide candidates with a full public financing option.

2. Provide free media for candidates.

3. Provide incentives for small political contributions.

4. Lower contribution limits.5. Limit campaign spending.