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CORPORATE POWERDISCUSSION GROUPS Session One: An Overview of Corporate Power printer-friendly version of session 1 By Citizen Works CORPORATE DOMINANCE: DEFINING THE PROBLEM America is built on simple yet revolutionary principles; fundamentally, self-governance is an inalienable right and governments should serve the interests of the people. These are essential characteristics of a healthy and functioning democracy. But America has stumbled upon a formidable roadblock to the realization of our founding fathers' dream, as Lincoln said, of a country that is "of the people, by the people, and for the people" . Clearly, the gap between our democratic ideals and our current reality is due to many factors; one of the biggest is that mammoth corporations, huge in size, wealth and power, are drowning out the voices and interests of everyday American citizens. The following is a broad overview of the ways in which corporate dominance is stifling democracy, stunting our communities and devastating the environment. THE CORPORATE INFLUENCE ON GOVERNMENT Once elected, an army of roughly 20,000 corporate lobbyists provides constant reminders of just whose money elected whom . The combination of corporate political donations and pressure from lobbyists is an excellent investment for the corporate world. It helps them frame the issues and keep critical interests out of the halls of government. Sometimes the payoff is direct. In 2000, corporations received $125 billion in tax-breaks and subsidies , a return of about 100 to 1 on their investment. In addition to draining taxpayer dollars to support corporate welfare, the government also heavily subsidizes the research and development side of many industries, particularly the pharmaceutical, technology and military hardware/weapons industries, spending billions of government dollars and then giving away the findings for virtually nothing to corporations, who proceed to make a profit . The ties between corporations and governments run so deep that a revolving door has appeared between the two sectors. Many of President Bush's appointees, for example, are ex-corporate executives now in government positions where their role is to regulate the industries they were once a part of. For example, 41 officials in the Bush administration have close ties to the oil industry . These kinds of connections clearly make it difficult for objective evaluation and regulation of industry, or for the interests of ordinary citizens to receive equivalent consideration. THE RISE OF MULTINATIONALS One example of how international trade agreements give corporations more rights than citizens is Chapter 11 of NAFTA, the chapter that defines investors' rights. Chapter 11 grants corporations of each nation (the U.S., Mexico and Canada) the power to sue the other two nations and overturn laws that might be construed as interfering with the corporation's profits. If a company believes that a NAFTA government has violated these new investor rights and protections, it can initiate a binding dispute resolution process for monetary damages before a trade tribunal - a process which is closed to public participation, observation and input. Individuals, on the other hand, have no legal status in NAFTA. Human and labor rights, environmental protections, and democratic accountability were consciously excluded. As Jeff Faux of the Economic Policy Institute puts it, "NAFTA thus represents the most extreme example of the so-called neoliberal model, in which supranational rules liberate the private corporate investor from the constraint of democratic public values." The recent mass wave of corporate mergers has resulted in extreme consolidation of wealth for a very small number of corporations. In fact, 51 of the world's 100 largest economies are corporations, while only 49 are nations . The result is that unaccountable corporations and corporate dominated institutions like the IMF, World Bank and WTO have more power and influence than many countries' governments . WHAT DRIVES THE SYSTEM? CEOs are in fact legally bound to make as much money as possible for their shareholders. The problem with this kind of system design is not the notion of profit in itself, but rather that the real costs of business ventures and corporate activity are not taken into account. Consequently, communities, workers and the environment are left to pick up the tab for corporate irresponsibility. Any economic model that solely relies on profit and growth to gauge success is fundamentally unsustainable and flawed because it neglects critical components of a healthy society: the well being of communities, workers, and the environment. A huge component of this problem is that there are very few avenues available for the voices and concerns of employees, communities or other stakeholders to be heard and heeded as they are excluded from the corporate decision-making process. The logical result of the single-minded profit-based approach is an array of both legal and illegal bad corporate behavior. For example, in the name of profit corporations legally can, and often do, re-incorporate in an off-shore tax haven without moving any of their operations. While still benefiting from government services and contracts these corporate tax traitors can save tens of millions in annual tax returns. Officials from the U.S. Treasury Department estimate that between $70 and $155 billion disappears into the "Bermuda Triangle" of off-shore tax havens each year . By utilizing tax havens and other tax loopholes corporations are paying less than their fair share, only 1.3 percent of the nation's Gross Domestic Product, the lowest percentage in two decades . At the same time, many of these same companies are receiving untold billions in corporate welfare subsidies. Additionally, because of weak whistleblower protection laws, corporate disclosure regulations and public right-to-know laws, it is often difficult for the public to learn when corporations are breaking the law. While much corporate irresponsibility, abuse and tax-avoidance is legal, we recently witnessed a wave of corporate crime that was fueled, in part, by the drive to maximize profits. But corporate crime is not a new phenomenon. While the FBI doesn't keep statistics on corporate crime, one university professor found that in 1997 there were twice as many workplace deaths as murders . White-collar corporate crime - consumer fraud, deceptive advertising, tax cheating, and insurance, Medicare, and securities fraud - cost society between $200 - $500 billion each year . Compare this to the cost of burglary and robbery costs, which the FBI estimates is about $3.8 billion a year . The punishments for white-collar crime are also significantly less than those for street crime, generally on the order of months instead of years. Corporate crime, like violating environmental, workplace safety or labor laws, regularly goes un-prosecuted and often results in nothing more than a minor fine that the corporation can write off as the cost of doing business. The big Wall Street banks that were charged with stock-research abuses in 2002, for instance, are claiming that more than $1 billion of their $1.5 billion global settlement is tax-deductible. Frank Easterbrook and Daniel Fischel, two leaders of the Chicago School of Law and Economics, summed up the profit-at-any-cost school of thought 20 years ago: "Managers not only may but should violate the rules when it is profitable to do so. " THE CORPORATE CRIME WAVE - A SYSTEM OUT OF CONTROL The corporate scandals of 2002 were caused by a number of factors that can be viewed as the failure of both internal and external accountability. Observers, such as The Conference Board , that describe the cause as a failure of internal accountability point to a breakdown in corporate governance. Corporate governance is the accountability of management to shareholders and directors. Shareholders (mostly passive investors) are technically the owners of publicly traded companies, but since they are such a diffuse group, they exert little control. Instead, they "elect" a board of directors to look out for their interest, which is almost always narrowly defined as making money. However, these directors are generally handpicked by management and wind up serving the interests of management more than the interests of shareholders. An illustration of the resulting unaccountability of management is the ridiculous pay packages that top executives have received in recent years . Nor is this lack of accountability unique to companies involved in financial fraud. On average, CEO pay is astronomical, and still rising. In 2001 the average CEO earned 411 times what the average worker earned . Incentive packages for CEOs often include millions in stock options that can motivate executives to pursue short-term profit at any cost, even if that involves laying off employees or artificially inflating share price through accounting fraud. Even where directors are more independent, they still only represent a small slice of people affected by a company's actions. If workers, communities, consumers and other stakeholders were given a participatory voice in corporate governance, corporations would probably become responsive to more than just profit-driven investors, and more closely resemble their roots as public-minded entities. But shuffling the players on the board is not enough. We are still left with the failure of corporations to be accountable to the broader citizenry. (The analysis of the Enron scandal provided by its own board through the so-called "Powers Report" - which depicted a company defrauded by a few greedy executives - ignores the damage that Enron did to California consumers, the environment, etc.) Much of the debate after the recent scandals focused upon the failure of the system's traditional watchdogs - including accountants, stock analysts and the media. The dismantlement of New Deal-era protections and the aggressive deregulatory agenda of the last 30 years led to massive conflicts of interest between and among the accounting and banking sectors. The doctrine of deregulation only left corporations alone to bend and break the law, while these so-called watchdogs aided and abetted the fraud. Their indifference was fueled by "tort reform" laws that gutted the liability of aiders and abetters of fraud, such as the Private Securities Litigation Reform Act of 1995 . But while a few laws were passed regarding accounting reform and analyst ties to banks that underwrite the businesses to which they are supposed to provide objective stock analysis, the general faith in deregulated markets continues. Although many "experts" were touting the benefits that deregulating the electricity markets would bring to places like California, we now know the results: gouging of customers (including poor homeowners and small businesses), blackouts, and fraud and manipulation of trading by Enron and other companies. Nevertheless, efforts to gut the Public Utility Holding Company Act (PUHCA) continue unabated . The larger lessons seem to have gone unnoticed. The most prominent companies involved in the corporate scandals came from industrial sectors -- energy, banking and telecommunications -- that were quickly transformed in recent years by new laws that lowered existing barriers to the companies' rapid expansion and involvement across business sectors. For example, after the Telecommunications Act of 1996, the telecom industry (buoyed by overinflated expectations about the new high-tech economy) spent nearly half a trillion dollars building a monumental high-tech network with extensive overcapacity that caused it to grow its debt from $9 billion to $306 billion by the year 2000 . Telecom investors alone lost nearly $2 trillion, while half a million workers lost their jobs, and dozens of debt-laden companies went bankrupt, including WorldCom, the biggest bankruptcy in history . We also saw the repeal of the New Deal-era Glass-Steagall Act, which established the strict separation between investment banking, insurance, and underwriting businesses. As a result of lobbying efforts led by Citigroup, in 1999 the Act was fully repealed after several years of gradual dismantlement. As a result, investment analysts rated stocks that their own banks were underwriting, giving them strong recommendations, while privately deriding them as junk. BIG PICTURE: LEGAL WRONGDOING HOW DID THIS HAPPEN? MOVING TOWARDS SOLUTIONS There is a huge array of potential solutions, and a variety of strategic approaches that can be used, including legislative fixes, legal challenges, community empowerment and direct limits of corporations. Some are already being used in one place or another; others have yet to be tried. None of these is the magic bullet to suddenly fix the problem of abusive corporate power. These approaches vary in size and scope and their usefulness and appropriateness will vary from community to community, and from issue to issue. For example, in some places citizens can pursue legislative strategies. Under other circumstances, it may be necessary to begin with an educational program to lay the groundwork before mounting a fundamental challenge to entrenched corporate interests. In fact, all of these approaches should include an educational component and focused outreach to new people and groups. A successful national movement to curb abusive corporate power will include efforts on many fronts and will operate on the local, state and national levels all at once. We need organized citizens to educate one another and mobilize a multi-faceted, coordinated campaign to make substantial steps forward. ILLEGITIMATE LEGAL RIGHTS Corporations have not always had a firm grip on the rights of people while managing to escape the responsibilities of citizenship. At the center of the illegitimate corporate claim to the rights of people is the notion of corporate personhood, based on the 1886 case Santa Clara v Southern Pacific Railroad. While 100 plus years of corporate legal theory is based on the corporations-as-people assumption, remember that the Supreme Court has never ruled on corporate personhood. American citizens have never voted on corporate personhood and congress has never passed legislation about corporate personhood. We have truly been bamboozled. The struggle to reclaim citizen authority over corporations and strip the illegitimate corporate claims to constitutional rights and protections of people will require years, perhaps decades of work. It will necessarily involve both local and national campaigns as well as legal and legislative battles. Although revoking corporate personhood may ultimately require a constitutional amendment, there are significant steps we can take before we are strong enough to mount a campaign of that magnitude. (See Box entitled Abolishing Corporate Personhood for an example of a local approach.) Another approach is to challenge specific corporate rights. One of the many rights that corporations claim is that of free speech, which, among other things, allows them to make campaign contributions. This "right" was affirmed in the 1976 case Buckley v. Valeo which stated that money is a form of free speech and corporations, as people, have the right to use speech (i.e. money) to influence candidates and elections. Finding a way to legally challenge this assumption may be a key step to significantly reduce corporate influence of politics as well as educate the public about corporate personhood. Corporate access to First Amendment rights is also being challenged on
another front. Marc Kasky, an activist in California, alleges that Nike
is deceiving consumers in a PR campaign to convince the public that it
has cleaned up its subcontractors' sweatshop labor practices. It is against
California law for corporations to intentionally deceive people so Kasky
is suing Nike, Inc. Nike isn't saying it didn't lie, but rather is arguing
that corporations have the same free speech rights as individual citizens
and therefore can lie just like regular folks. The California Supreme
Court disagreed, and now the U.S. Supreme Court will hear arguments about
whether Nike can use the First Amendment to protect its "right to
lie. " This controversy is an excellent opportunity to educate the
public about corporate claims to constitutional rights and re-examine
the assumptions of corporate personhood. A decision is expected in late
July 2003. See www.reclaimdemocracy.org for more information.
Corporate Crime and Punishment Another problem is the sheer power of large corporations versus the government.
Both the Department of Justice and the Securities and Exchange Commission
(the two agencies responsible for prosecuting corporate crime) are woefully
under-funded and unfocused when it comes to unraveling complicated corporate
crime. But plenty of resources are devoted to street crime. The lack of
much initiative against corporate crime at the federal level has in some
cases caused some politically ambitious attorneys general in a few states
to take aggressive action . In order to force corporations to change their
behavior we need to punish them as institutions, not just individual executives.
One attempt to crack down on corporate crime is the Corporate Three Strikes
Act currently being pursued in California (see box entitled Corporate
Three Strikes). Another approach is to change the system design or incentives that motivate executives to commit crimes in the interest of maximizing profits. One model of this approach has been suggested by attorney Robert Hinkley, who calls his approach the Code for Social Responsibility (see box entitled Code for Corporate Responsibility).
CULTURAL TRANSFORMATIONS Corporations are invading our lives from all angles through a cascading assault of sponsorships and advertisements, an all-encompassing web of product placements and branding. Our sports stadiums and museums garishly broadcast the names of corporations ; our symphonies and public works are only made possible through their "generous" sponsorship. Even our schools, universities, and places of worship now increasingly bear the marks and mindsets of corporations. We no longer relate to each other as citizens, but as consumers, our identities somehow defined by the clothes we wear, the cars we drive, even the soft drinks we prefer. Corporate values have permeated our culture, through and through. We can challenge the corporate co-optation of our culture, both through individual actions and coordinated campaigns. For example, 11 years ago, Adbusters started Buy Nothing Day on the busiest shopping day of the year, the day after Thanksgiving, as a simple yet powerful way to challenge our over-consuming culture. Citizens participate in a variety of ways by stepping out of the insanity of consumer work-spend-work-spend fray for 24 hours to organize symbolic and educational actions. In the same vein, in 2002 Citizen Works launched an annual event, Big Business Day, as a vehicle to demonstrate opposition to corporate driven culture and corporate power. Each year, communities across the country organize teach-ins, rallies, protests, parades and other media events to illustrate a local aspect of the problem of corporate power. Big Business Day is helping to build the movement to challenge corporate power by educating and activating concerned citizens, and raising awareness about corporate power among the general public. Citizens also find other ways to locally challenge the infiltration of corporatism into their communities. Some communities are running campaigns against Channel One, a mandatory T.V. program shown to eight million students in 12,000 schools across the country. The program contains a mix of ads, news and other programming. Critics contend that the content of Channel One forces children to watch commercial advertising, wastes school time, promotes violent entertainment, wastes money and promotes television instead of reading. See www.commericalalert.org for more information.
CHALLENGING CORPORATE POLITICAL POWER Fighting to ensure that public officials are truly independent and beholden only to their voting constituents, activists and public interest advocates throughout the twentieth century have championed various campaign finance reforms (CFR) aimed at curbing corporate influence in government. Particularly in the last two decades, since monumental court decisions expanded opportunities for corporations to contribute to electoral campaigns, the debate about money in politics has become increasingly visible and the necessity for reform clear to the public. The turning point that ushered in the modern campaign finance reform era was the passage of the Federal Election Campaign Act (FECA) in 1971. This act, along with a slew of amendments in 1972 after the Watergate scandal, represented an effort to address the damaging conflicts of interests created when big corporate money elects public officials. Among other things, it enacted spending caps, limited the amount an individual could contribute to a federal candidate to $1000, and established the Federal Election Commission to enforce the regulations. This system was never given a fair chance, though, because in 1976 the Supreme Court ruled in Buckley v. Valeo (see Legal Rights section) that the key provisions were unconstitutional . This decision was monumental and laid the foundation for the unjust and disastrous system we are faced with today. The next campaign finance reform victory came in March of 2002, when after years of proposals and compromises and in the wake of the Enron scandal, the Congress passed into law the McCain-Feingold campaign finance bill. While proponents of reform celebrated, most of them recognized it as a compromise and a modest step forward. The laws' two major provisions are a ban on soft money (money donated to parties that is not subject to contribution limits or disclosure), contributions to national parties, and restrictions on the timeframe within which interest groups are allowed to air ads. But many of the key provisions of the initial bill drafted in 1996 did not make it into the final version of the law. These include bans on PACs (Political Action Committees), voluntary spending limits in exchange for free broadcast time, and a mandate for Senate candidates to raise 60 percent of their funds in their home state. Some critics even say that the law has the potential to further cripple the system with its increase in the hard money (money donated directly to candidates) limit from $1000 to $2000 . While McCain-Feingold was on the whole an important victory for the CFR movement, we must consider it a step towards more fundamental change, not a final destination.
In addition to publicly financed elections, Mark Green , a longtime expert
on campaign finance reform and author of Selling Out, lays out the following
additional steps, essential to a clean system: Getting corporate money out of electoral politics is only one of the
reforms necessary if we are to eliminate immense corporate influence of
government. Corporations manipulate our democratic process with an army
of lobbyists, scores of unelected and appointed high-ranking government
officials, and by demanding massive industrial subsides. The following
are some important steps to counter this influence beyond CFR: ECONOMIC POWER A single corporation is able to integrate operations across many sectors, stifling competition and access to markets. For example, Clear Channel, a firm that controls 1,200 radio stations in the United States, owns concert promotion firms and many concert venues across the country. Clear Channel uses its radio stations to promote its concerts, and some independent concert promoters claim they are denied access to airtime for paid advertisements and some bands produced by competing promoters do not get airtime either . This illustrates how companies involved in many phases of production or delivery of a particular service can leverage their power in one market to exert influence over another. For Clear Channel, as for Enron, corporate misconduct has been enabled by deregulation. Deregulation is part of a broader economic philosophy that is often described as neoliberal, and is based on the idea that free, unregulated markets are the best way to provide equal access to opportunities for growth and progress. What the theorists behind neoliberalism neglect, though, is that the world does not operate in a vacuum free of stresses and complicating influences. We have seen time and time again that markets left unregulated do not in fact allow equality. Rather, they produce increasing inequality and a wild, volatile atmosphere that does not encourage sustained growth, while constantly narrowing consumer choice and making it difficult for smaller and new businesses to startup and sustain . Deregulation assumes that competition will promote efficiency that benefits all, and that government is wasteful because it has no incentives to do better. It should be clear after what energy deregulation did to California that the assertions about increased efficiency and consumer choice have proven false . There are a number of national and state groups working to reverse the deregulatory tide and advocate for sensible economic policies on the state, national, and international levels. Some of these include Public Citizen www.citizen.org (particularly in the area of energy and water utilitities), United for a Fair Economy www.ufe.org, the Economic Policy Institute www.epinet.org, Institute for Policy Studies www.ipd-dc.org, New Rules Project www.newrules.org, and Campaign for America's Future www.ourfuture.org. Communities around the country are challenging these neoliberal economic policies and challenging the corporate dominance of local markets in other ways. Community groups have beaten back large corporate box stores like Wal-Mart in a number of towns. In addition to resisting corporations, communities are working to strengthen local economies through such means as small business associations. Owners of small businesses have begun to organize independent business alliances that aim to highlight the value of supporting local business. These alliances are instrumental in preserving local cultural heritage, integrity in business practices and community involvement, and often set a standard that larger international chain corporations cannot meet. (See box entitled American Independent Business Alliance.)
These fights are also tied in a way to national and international policies . While starting with advocacy on the local level is certainly the best way to protect services in your community, there are many ways that state, national or international policies affect your local struggle. The battle against trade agreements is in many ways a battle to protect local control. But how do we make the connection? On a global scale, we are fighting an aggressive push by the corporate-driven international financial institutions to coerce developing nations to relax trade laws, open markets and usher in privatization . This agenda is being driven by taxpayer-funded institutions such as the IMF and the World Bank. And we can fight these institutions by taking away their funds. One way is to pressure our elected officials to vote against any funding reauthorization.
Both domestically and internationally, internal pressure to change corporate behavior is growing through a rapidly-expanding network of socially-conscious investors. A record number (up to 893 by late February) of shareholder proposals have been filed at 2,000 widely held U.S. companies in 2003, according to the Investor Responsibility Research Center. The resolutions address company policy on corporate tax dodging, worker rights, global warming, executive compensation and other corporate governance questions . There are at least as many approaches to solving the problem of corporate dominance as there are components of the problem. Instead of allowing the choice to overwhelm us, we should recognize that these approaches can be complimentary and that a multi-faceted effort is indeed necessary to effectively challenge the complex problem corporate power. Only through a comprehensive and versatile effort of coordinated groups will we engage massive numbers of diverse citizens and build a strong and successful movement. 1. Gettysburg Address, delivered November 19, 1863 Last Updated March 27, 2003 |
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