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Business in Politics

AIDA ANN ISSACSHAS P SHAREEFRINEESH

Business in PoliticsThis chapter: Explains how corporations, now and in the past,

have exercised political influence.

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Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.

Crony capitalism

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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.”

The Abramoff ScandalsOpening Case

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.

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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.

The Structure of American Government

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The federal system divides powers between a central (federal) government and subdivision (state) governments. It creates many points of access for business influence.

The system of separation of powers divides powers among the executive, legislative, and judicial branches of the federal government. This also creates multiple points of access. The constitutional system of checks and balances among the branches lends itself to delay. If business can influence one branch, it may block action by the other two.

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• Judicial review is the power of judges to review actions of government officials and strike down laws that are unconstitutional. In the past, courts have blocked actions and invalidated laws opposed by business.

• The First Amendment protects the right of business to influence government. It gives business the right to lobby officials and to express ideas expansively

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The Revolutionary War of 1775-1783 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.

A History of Political Dominance by Business

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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.

Laying the Groundwork

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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 1900.

Ascendance, Corruption, and Reform

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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.

Ascendance, Corruption, and Reform (continued)

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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.

Business Falls Back under the New Deal

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An economic elite wrote and ratified the Constitution. Its arrangements open the government to business influence.

In George Washington’s administration the groundwork for business dominance was laid when Alexander Hamilton set up policies of industrialization. As the nation’s economy expanded so did business political power

The pre-eminence of business in politics is an enduring fact in America.

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After the Civil War, commercial interests lacked strong opposition and grew exceptionally powerful. Politics in the late nineteenth century was defined by the corruption this led to.

In the prosperous 1950s business again surged to dominance

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Peak associations represent many companies in different industries. The U.S. Chamber of Commerce is an example.

Approximately 6,000 trade associations represent companies grouped by industry. Large companies are often members of many trade associations.

More than 700 companies have Washington offices to house their own lobbying staffs.

The organizations that represent business are classified this way

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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.

LobbyingLobbyingAdvocating a position to government.

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Paths of Pressure

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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.

Efforts to Limit Corporate Influence

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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 passed the Federal Election Campaign Act (FECA) in 1971 to stiffen disclosure requirements on campaign contributions and expenditures.

After all reactions, Congress extensively amended the FECA in 1974.

The intent of the amendments was to limit corporate influence; however, over the next 30 years it failed to do so.

The Federal Election Campaign Act

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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.

How PACs WorkPolitical action committeeA political committee carrying a company’s name formed to make campaign contributions.

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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.

Soft Money and Issue Advertising

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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.

Reform Legislation in 2002

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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.

Testing the New Law

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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.

Tension Over Corporate Political Expression

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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.

Concluding Observations

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Business in PoliticsIn INDIA…………….

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Political contribution Under Companies

act Under income tax

act

What do you think ????

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IPL The complete lack of

accountability is what is so unique about the BCCI and its subsidiaries including the Indian Premier League (IPL). Politicians are accountable to the people, if not on a daily basis then at least once in five years. Most big businessmen are accountable to shareholders and investors; all listed companies have to declare excruciating details of their business to the public every three months, and the stock markets can punish them for wrongdoing. But once politicians and businessmen enter the hallowed halls of the BCCI, there is not an ounce of accountability. No wonder they are so entrenched.

The problem is that no principles or rules are sacrosanct in the governance of Indian cricket, except the one about ‘honour among thieves’. Mr. Modi’s cardinal sin was that he reneged on the only rule that mattered to those in the BCCI. He washed dirty linen in public when he implicated Shashi Tharoor in the murky dealings related to IPL’s Kochi franchise. That is what set the authorities, then under the thumb of the Congress-led United Progressive Alliance, after Mr. Modi. Conveniently, he disappeared to London, never to return to India.

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Consider how soft the entire establishment has been on ex-BCCI head N. Srinivasan despite his many conflicts of interest that spilt out into the public domain. Sure, Mr. Srinivasan is a strongman but when there were/are powerful politicians like Sharad Pawar, Arun Jaitley and even Amit Shah in positions of influence in the body, how is it not possible to nail Mr. Srinivasan for his unsavoury practices? The answer is obvious: even if they dislike Mr. Srinivasan and his practices, no one really wants to break the code of silence and be ostracised like Mr. Modi. At best, minor changes can be made, which usually signal business as usual, such as the return of Jagmohan Dalmiya as BCCI head.

Conclusion However, the government

could push legislation to first take it over and then reconstitute it as a corporate entity managed by professionals. Indian cricket should not be run by politicians or big businessmen. It should not even be run by cricketers who have no expertise in administration. It should be run by managers who know what it is to be accountable.

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Both the BJP and the Congress have accused each other of encouraging crony capitalism. There is an element of truth in the accusation as business houses close to them have benefited from their proximity.. Today, some private companies have grown so large that they can undertake projects worth billions of rupees without any support from the government, unlike in the past. Yet, they cultivate those in authority to facilitate their work, for they know nothing works better than such linkages.

McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies,

Inc. All rights reserved

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n both Spectrum and Coalgate scams the country saw how large companies made use of their political influence to get contracts worth billions of dollars. Crony capitalism isn’t an Indian phenomenon. It thrived in the Mecca of capitalism, the US, when at the turn of the 20th century the government introduced transparent regulatory systems. Shortly thereafter, most politicians were taken off the regular payrolls of companies. Crony capitalism thrives in many fast-growing economies, including China, albeit in various ways. One reason why politicians in India seek a costly relationship with businessmen is the need for money to fight elections. When The Economist pegged the cost of organizing a meeting addressed by Congress chief Sonia Gandhi at a minimum of $300,000, the total cost of electioneering by the party can well be imagined.

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POOR…………..rich

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What is needed is an end to the dependence of political parties on business houses for election funds. Better and transparent enforcement of regulatory systems and deterrent punishment of those who flout the rules will eliminate corruption to a large extent. The Election Commission should have the power to monitor the accounts of political parties so that they neither generate nor make use of black money. If all the parties are forced to disclose their income and expenditure on a monthly basis and the media are allowed to report and keep a tab on them, this will go a long way in controlling crony capitalism.

Conclusion

In Business....