30 Jul Corporate Welfare
By Jack W. Dean, June 23, 2017
A national movement to amend the U.S. Constitution called “Move To Amend” came together in 2010 to stem what was seen as a growing issue of income inequality in the United States. Since the beginning of 2010, decisions by the Supreme Court (i.e. Citizens United v. FEC and McCutcheon v. FEC) in support of the concept of “corporate personhood” and largely unrestricted freedom to spend money on elections by corporations and individuals has led to what is described by some as a system of corporate welfare. This has led to a growing sentiment to rein in money spent on elections and to abolish the concept that artificial entities (i.e. corporations) have the same rights as real people. It is widely believed that the only viable way to achieve these ends is to amend the U.S. Constitution.
What started out as a democracy in which the people rule is becoming an oligarchy, in which all power is in the hands of a few. This apology for supporting democracy leads us to the necessity that we amend both the State and U.S. Constitutions.
Typically, when the term “welfare“ is used, someone is referring to “social welfare” for the poor or needy among us who are unable to meet their basic human needs of food, shelter and/or healthcare for a variety of reasons. To meet these real needs, local, state and national government, along with religious and other volunteer organizations, have over the years developed programs to help these people survive. There are a few who “scam” the programs, but they are indeed just a few. The vast majority of people receiving these benefits and services are indeed needy, and deserving.
What this article is about, however, is another type of welfare, “corporate welfare”, which is neither widely recognized nor understood. Corporate welfare is a term used to describe largess to another constituency which is neither needy nor deserving. Corporate welfare describes those great privileges and advantages that accrue to large corporations, banks, financial institutions and other moneyed interests via the strength of their financial power in the marketplace. Financial power leads inevitably to political power and the ability to influence laws, regulations and built-in loopholes designed to give those who have this ill-gotten power undeserved advantages.
Our Founding Fathers used the prevailing economic ideas of their time in setting up the rules of commerce in the new United States of America. Adam Smith’s highly acclaimed work An Inquiry into the Nature and Causes of The Wealth of Nations (1776) was a seminal source used as a rationale for the development of modern capitalism. While this work is often referenced, it is in his other major work, The Theory of Moral Sentiments (1759), that we see most clearly the moral basis for his economic system. While this economic component of his 1776 work is often mistakenly portrayed as a simple, conservative policy of laissez-faire attitudes toward the private sector, he in fact advocated “a limited but positive role for government in the economy, or more precisely, an optimum division of labor between the market system and government policy. Smith saw the necessity for regulation in his system. Limitations in a theory of unlimited appropriation is recognized when he states that “civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor.”*
The Boston Tea Party in 1773 was not a demonstration against unfair taxation by Great Britain but against the unfair competition set up by a series of laws passed by the British government to favor the trade activities of the East India Company. By the 1770’s, the colonies had become a huge market for tea which was being largely supplied by Dutch Trading companies and American “smugglers” who operated privately without going through the East India Company. The Company set a precedent that multinational corporations follow to this day: They lobbied for laws that would make it easy for them to put their small business competitors out of business.
Since most of the members of the British government and royalty were stockholders in the East India Company by 1681, it was easy that year to pass “An Act For Restraining and Punishing Privateers and Pirates”. This law required a license to import anything into the Americas and licenses were only rarely granted to anyone other than the East India Company and other large British corporations. Since the competition for the tea trade had become quite significant by the 1760’s, pressure from the East India Company on the British government resulted in a series of laws being passed that increased the Company’s power and influence and reduced its competition and barriers to international trade. These laws included the Townshend Acts of 1767 and the Tea Act of 1773.
The Tea Act was not simply an increase in taxes on tea paid by American colonists. The actual purpose was to give the East India Company full and unlimited access to the American tea trade and exempt the company from having to pay taxes to Britain on tea exported to the American colonies. It even gave the company a tax refund on millions of pounds of tea they were unable to sell and holding in inventory.
This abbreviated account of the earliest events leading to the Revolutionary War of 1776 from Thom Hartmann’s book Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights (2002) illustrates that one direct cause of the American Revolution was the revolt by the colonists against unrestrained corporate power. It should be no surprise, then, that protecting against such unbridled corporate power in the new United States government would be in the forefront of thinking by our Founding Fathers.
While corporations existed and prospered during the 19th century, there were a number of restrictions and limitations placed on the activities of corporations. Among these restrictions were:
- Corporations’ licenses to do business were revocable by the state legislature if they exceeded or did not fulfill their chartered purpose(s).
- The act of incorporation did not relieve corporate management or stockholders/owners of responsibility or liability for corporate acts.
- Corporations had to have their headquarters and meetings in the state where their principle place of business was located.
- Corporation charters were granted for a specific period of time.
- Corporations were prohibited from making any political contributions, direct or indirect.
While many entrepreneurs then and today do business without incorporating, when they wish to seek from the government legal limits on their liability and to legally limit their possible losses, a corporate form becomes necessary. In exchange for these limitations on liability, governments demand certain responsibilities from corporations. One of the oldest responsibilities imposed was that they “operate in the public interest” or “to the public benefit”.
Over time the largest corporations and their investors chafed under what they felt were “onerous” restrictions which limited their profits. Starting in the 1870’s, the railroads and their owners began directing massive legal attacks against the power of governments to regulate them. During the middle part of the 19th century, the railroads grew in size, as well as corporate power. The Civil War was a boon to many corporations of the time and Lincoln recognized the dangers of great wealth being “aggregated in few hands”, as difficulties arose in the various federal attempts to regulate them.
The ratification of the Fourteenth Amendment in 1868, as part of a set of laws to end slavery, became a useful tool to the railroads’ lawyers as they argued that the term “artificial person” in referring to corporations under law should be considered persons under the Fourteenth Amendment. For almost 20 years these arguments did not succeed. But in the 1886 case of Santa Clara County v. Southern Pacific Railroad Company corporations got their break. In that case, the U.S. Supreme Court declared that it did “not wish to hear argument” on whether corporations were ”persons” protected by the Fourteenth Amendment’s due process guarantees originally intended to safeguard the rights of emancipated slaves. This did not prevent the court recorder in the written record of the case, however, from noting “The defendant corporations are persons within the intent of the clause in section1 of the Fourteenth Amendment to the Constitution of the United States, which forbids a state to deny to any person within its jurisdiction the equal protection of the laws.”** While this note by the recorder J.C. Bancroft Davis was not a formal ruling of the court, it has been referenced as precedent in a large number of subsequent cases since that time. These arguments often stated that this decision recognizes that the Fourteenth Amendment applies to both real and artificial persons. A number of Supreme Court decisions since the early 1970’s have recognized corporate personhood in granting corporations many of the same rights as ordinary people.
Now there are some who believe that restrictions on free enterprise by government is bad….that the greatest good comes from un-restricted economic activity. However, this idea of free market versus government is a false dichotomy. Government doesn’t “intrude” on the “free market”. Government creates the market. From page 8 of Robert B. Reich’s book titled Saving Capitalism (2015), “in order to have a “free market”, decisions must be made about
- Property: what can be owned
- Monopoly: what degree of market power is permissible
- Contract: what can be bought and sold and on what terms
- Bankruptcy: what happens when purchasers can’t pay up
- Enforcement: how to make sure no one cheats on any of these rules”
These are essential building blocks for any market, but each of them can be tilted to the benefit of a few rather than the many.
There is also a false idea that a corporation’s main goal is to maximize profits for its shareholders. But corporations impact more than just their shareholders. The real goal should be maximizing “value” for its “stakeholders”. Stakeholders include the general public. Social costs imposed on the general public and other stakeholders, i.e. pollution, unfair labor practices and a host of other activities should be included in assessing the “value” to a company’s stakeholders.
Unfortunately, in recent years laws have been interpreted and/or enforced in ways that have been instrumental to the growing income inequality we see around us. It is widely recognized that economic dominance feeds political power and political power further enlarges economic dominance. To an ever growing extent, artificial entities such as large corporations, along with wealthy individuals, influence the political institutions whose decisions organize the market, and they benefit most from those decisions. They are being subsidized by the rest of us. This is “corporate welfare”.
In the early 1970’s, as the deleterious effects of unbridled corporate power became more and more visible, a movement was initiated to invoke social responsibility by corporations via stockholder initiatives. While it had some impact on corporate policies, it was not effective enough to countermand the espoused idea that corporations were to maximize profits for their stockholders. This they did by often passing off what can be considered social costs (i.e. pollution and other collective adverse unintended consequences) to the general public.
More recently, corporate lawyers and lobbyists have used the courts to increase their profits. Using the concept known as “corporate personhood”, which reflects the idea that corporations should have all the same Constitutional rights as ordinary people and the idea that use of money is free speech, they and others with very deep pockets have succeeded in securing Supreme Court decisions (i.e. Buckley v. Valeo (1976); First National Bank v. Belotti (1978); Citizens United v. FEC (2010); and McCutcheon v. FEC (2012)) which have opened the floodgates to massive political campaign fund-raising and spending by these very same corporations, other artificial entities and individuals. Extremely large financial resources available to these entities for use in our election process will effect a change in our government from a Democracy to an Oligarchy or Plutocracy, if left unchecked.
In addition, corporations have relied on their newfound constitutional rights to avoid compliance with duly enacted laws. Examples of this include Hobby Lobby, which invoked freedom of religion to avoid providing reproductive health care to its employees, and Lorillard Tobacco, which invoked freedom of speech to continue to advertise cigarettes within 1,000 feet of a school or playground.
One step that has been taken in Massachusetts to overcome these threats to our representative form of government, is the crafting of a bill called the “We the People Act”, which has been filed with the State Legislature. This Bill (H.1926 in the House; S.379 in the Senate) calls on Congress to propose an Amendment to the U.S. Constitution that would affirm that:
- The rights protected by the Constitution of the United States are the rights of natural persons, i.e. human individuals, only and
- Congress and the states shall place limits on political contributions and expenditures to ensure that all citizens have access to the political process, and the spending of money to influence elections is not protected free speech under the First Amendment.
Also, if Congress does not propose this constitutional amendment within 6 months of the passage of this bill, the bill petitions Congress to set up an Amendments Convention. In either case it will take 38 (3/4) of the states to approve such an Amendment for it to become law.
Similar legislation has been filed in a number of other states. As of the end of March, 2017, five states (Vermont, California, Illinois, Rhode Island and New Jersey) have passed resolutions calling for an Article V Convention to amend the constitution to enable the people to regain control of the amount of money allowed to be spent in elections and eliminate the idea that corporations have the same rights as real people. In two other states (New Hampshire and Hawaii), their House of Representatives have passed such a bill and are waiting for the vote by their respective Senates to join the five states mentioned above. In Delaware and Maryland, their Senates have passed such a bill and need only a positive vote by their House of Representatives to send it to Congress.
In Massachusetts, besides the attempt to gain passage of such a bill via the Legislature route, there is a new strategy by national organization American Promise to gain passage by appealing directly to the people via a ballot initiative. This initiative will set up a Citizen’s Commission which will then gather evidence, testimony and advice in accordance with the Commonwealth’s Open Meeting and Public Records Laws and issue a Report of Findings and Recommendations which will be widely disseminated.
Only by overcoming the undue influence which “corporate personhood” gives large moneyed interests and by controlling the amount of money and transparency of those donating it in our election process will “welfare” go only to those needing it, and not to those whose political power grants them undeserved public largess.
*Adam Smith, The Wealth of Nations, II, p. 207.
**Thom Hartmann, Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights, (Rodale, USA, 2002), p. 105.
The Mattapoisett Democratic Town Committee has not endorsed the effort to amend the Constitution re: Citizens United. However, it's an issue garnering a lot of serious thought and debate in Democratic and progressive circles. We hope to make this a good place to come for information, a forum for persuasive pieces,personal stories related to activism, and so on. Jack Dean, a Mattapoisett resident, wrote an informative, thought-provoking series on the topic. If you didn't already see it in the Standard-Times, we hope you'll read it here. We will be happy to post any thoughtful, well-reasoned rebuttals. The proposal (and its opposition) deserves our thorough consideration.