Of all the bizarre decisions the U.S. Supreme Court has produced over its long and for the most part distinguished history, its decision in January in Citizens United v. Federal Election Commission ranks right up there with Bush v. Gore and Dred Scott for lacking any basis in common sense and for making a mockery of democratic ideals. When large corporations wield more political power than at any time since the late 19th century, the decision to treat them as persons with First Amendment free-speech rights in effect creates super-citizens who have at their disposal retained earnings and capacities to borrow against their capital exceeding the resources of almost every real citizen. The decision thereby consigns the rest of us to second-class citizenship.
Some argue that the Court’s decision will not lead to significant increases in corporate spending on political campaigns since there are so many other ways for them to pump money into the political process. That may or may not be so as time passes; the future is stretched out long before us. But as a practical matter, after Citizens United even the mere threat of a giant corporation spending money on this or that candidate may suffice to sway a politician. The rest of us don’t stand a chance of being heard on any but the most salient of issues. Because of this grotesque decision, our First Amendment rights have been diminished to the point where, although we can say whatever we want about a political issue and contribute to the candidate of our choice, we might as well be doing so on a different planet.
While the principle that corporations can be construed as legal persons for business purposes dates at least to the 19th century, the idea that corporations have First Amendment rights to involve themselves in politics is a curious one of comparatively recent vintage. It originated just over three decades ago in a case entitled First National Bank of Boston v. Bellotti. Bellotti was brought by a group of corporations that wanted to spend money publicizing their views on a Massachusetts ballot question about a graduated income tax on individuals. Massachusetts law had barred corporations from buying advocacy ads on such initiatives. Writing for the majority in the 1978 decision, Justice Lewis Powell acknowledged that citizen control over elections was important, but he found that the statute unfairly discriminated against corporate speakers: “The inherent worth of the speech in terms of its capacity for informing the public does not depend upon the identity of its sources, whether corporation, association, union, or individual.”1
Citizens United takes Bellotti to its illogical extreme. Justice Anthony Kennedy, writing for the majority—which included the four members of the Court’s conservative wing—concluded that “if the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” Kennedy and his brethren thereby assumed that a corporation is an “association of citizens.” But it is most certainly not an association of citizens: A corporation is a set of financial agreements. Real people do enter into them but not as “associations of citizens.” They enter them as shareholders, creditors, executives, employees or suppliers. Such people, if they’re American citizens, already have free-speech rights under the U.S. Constitution. Their financial agreements are simply legal contracts, enforceable to the extent they provide some financial benefit—in legal parlance, “consideration”—to other parties. The notion that these contracts themselves have a voice, a will, a capacity for intention or a personality is absurd on its face: The Court’s decisions in effect turn such contracts, and the corporation they constitute, into life forms. It might as well give First Amendment rights to the chairs we sit on or the light bulbs we see by.
Companies should have no rights or responsibilities in a democracy; only people should. Yet the anthropomorphic fallacy—making corporations into people—turns this logic upside down. In fairness, the Court was only mirroring a way of thinking that has become deeply ingrained in American culture. When a disastrous spill occurs on an offshore rig used by the giant oil company BP, politicians and the media accuse BP of being negligent. When a mine owned by Massey Energy Corporation explodes, killing 29 miners, we blame the company for the disaster. When large Wall Street banks bring the national economy to the brink of chaos, we talk as if Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup are responsible. Even the grammatical convention in America of attaching verbs directly to a company—as in “Microsoft is trying to…” or “Wal-Mart wants…”—subtly reinforces the tendency to think about these entities as having independent volition. (The British, with their typical impeccability, use plural verbs to describe corporate conduct, as in “Rolls Royce are considering…”)
This anthropomorphic fallacy that in effect grants corporations duties, responsibilities and also rights leads to a host of bad public policies. Consider the corporate income tax. The public has the false impression that corporations pay it; and if they pay taxes, why shouldn’t they be entitled to participate in the democratic process? No taxation without representation, as the saying goes. In reality, of course, only people pay taxes. The corporate income tax is actually paid by whomever the corporation can shift its costs to—consumers, shareholders or employees, depending on their respective economic leverage.
A logical tax policy would eliminate the corporate income tax and require shareholders to pay personal taxes on all income earned by the corporation on their behalf—whether retained by the corporation or paid out as dividends. Shareholders need not feel the pinch any more than salary-earners do: As each shareholder’s “corporate” earnings accumulate throughout the year, the company would withhold taxes owed just as do employers on their workers’ salaried earnings.2 One important byproduct of this reform would be to puncture the false idea that corporations pay taxes and therefore deserve to be represented in the political process.
A similarly bizarre outcome occurs when companies are held criminally liable for the misdeeds of their executives or other employees. Not only does this practice reinforce the anthropomorphic fallacy—after all, criminals have rights under most democratic legal systems—but it ends up hurting innocent people. Consider Arthur Andersen, the former accounting firm convicted of obstruction of justice in the Enron case when, shortly before the SEC began its investigation, certain partners destroyed records of their auditing work just as the energy giant was imploding. When the company was convicted in 2002, its clients abandoned it for other accounting firms. Andersen shrank rapidly from 28,000 employees to a skeleton crew of 200, who attended to the final details of shutting it down. The vast majority of Andersen employees had nothing to do with the Enron account but lost their jobs nonetheless. Some senior partners moved to other accounting or consulting firms. Joseph Berardino, Andersen’s CEO at the time, snagged a lucrative job at a private equity firm. Some other senior partners formed a new accounting firm and were able to maintain their high salary levels. But many lower-level employees were hit hard; three years after the conviction, a large number were still out of work, according to an Andersen associate who ran a website for Andersen alumni. In addition, retired partners and employees lost a substantial portion of their retirement benefits. The Supreme Court eventually reversed the conviction, but by then it was too late—the company was gone. One former employee wrote on the website, “Does this mean we can bring a class action against the DOJ [Department of Justice] for ruining our lives?”3
The Arthur Andersen episode illustrates well the moral perversity as well as the illogic of the anthropomorphic fallacy. Companies cannot act with criminal intent because they have no human capacity for intent. Arthur Andersen may sound like a person but it wasn’t; the accounting firm was a legal fiction. The Supreme Court reversed the decision because the trial judge had failed to instruct the jury that it must find proof Andersen knew its actions were wrong. Yet how can any jury, under any circumstances, find that a company “knew” that “its” actions were wrong? A company cannot know right from wrong; a company is incapable of “knowing” anything. Nor does a company itself take action. It is a basic tenet of democracy, after all, that only people know right from wrong, and only people act.
Similarly, it makes no sense for the U.S. government to favor corporations headquartered in the United States on the assumption that American-based companies are somehow more “patriotic” than companies headquartered abroad. This use of the anthropomorphic fallacy confuses the set of contracts that comprise a company with rights and responsibilities of citizenship that only people deemed citizens can exercise. The truth is that under contemporary global capitalism all major companies, wherever they are headquartered, compete against each another for global consumers and investors. They hire executives and employees from all over the world, take in money from investors and lenders who live all over the planet, and conduct business wherever they can make a profit.
Giving First Amendment rights to “American” corporations therefore gives non-Americans the right to finance political elections in America. This problem is not obviated, as the Justices seem to think, on the basis of where a company is incorporated, because the composition of its staff and investment portfolio need bear no likeness to its place of incorporation. Likewise, blaming “American” companies for “outsourcing abroad” and therefore “sacrificing American jobs”—and imposing taxes or other penalties on them for doing so—assumes that an “American” company has a unique competitive advantage doing business in the United States. This is just not so: If an “American” corporation used more higher-priced American labor than its global competitors, with the result that its costs and prices were higher, the vast majority of its American customers and investors would abandon it in favor of other global companies that provided better deals.
It is just as illogical for policymakers to subsidize the U.S.-sited research of American-based companies on the assumption that this will make America more competitive. American-based companies do research and development all over the world. Such subsidies merely underwrite research that would have been undertaken here anyway while freeing up more corporate research money to be spent outside the United States. Nearly every U.S. brand of notebook computer, except Apple, is now designed in Asia. The same is true for most cell phones and many other hand-held electronic devices. IBM has a major research laboratory in Switzerland; the Swiss company Novartis, on the other hand, operates a research lab in Boston.4 Microsoft has invested $1.7 billion in India, about half that sum in its R&D; center in Hyderabad. IBM is opening a software laboratory in Bangalore. Dow Chemical has a research center in Shanghai that employs 600 engineers, as well as a large installation in India. A survey of more than 200 American and European global corporations conducted by the National Academies of Science found that 38 percent are in the process of shifting more of their R&D; work to China and India, and decreasing the share of R&D; done in the United States and Europe.5
The goal of U.S. government policy should be to make Americans more competitive, not to make American companies more competitive. Most corporate executives understand this distinction, although most Americans—and many of the politicians and policymakers who represent them—do not. “For a company, the reality is that we have a lot of options”, says William Banholzer, Dow’s chief technology officer. “But my personal worry is that an innovative science and engineering workforce is vital to the economy. If that slips, it is going to hurt the United States over the long run.”6 The Federal government should subsidize the basic R&D; of any company, regardless of where its headquarters are located, as long as its work develops the on-the-job skills of American-based engineers and scientists.
Nor does it make any sense to treat companies as “persons” with legal rights to challenge the constitutionality of duly enacted laws and regulations. Yet this is occurring all the time. Nine global automakers sued the state of California to block its “clean cars” law, which requires cars sold in California to reduce greenhouse gas emissions 30 percent by model year 2016, on grounds that the legislation amounts to an unconstitutional restraint on interstate commerce. A majority of the shareholders of at least seven of these automakers were not American citizens, yet the court gave them standing to challenge, and potentially overturn, a law enacted by the citizens of California. Real citizenship should be the core criterion for engaging the U.S. legal and political system; only people—actual living, breathing human beings, who are citizens—should be granted standing to challenge Federal or state laws and regulations on constitutional grounds. Any American citizen or group of American citizens claiming they are injured by California’s law should have standing to mount a constitutional challenge to it—including, for example, a class-action suit brought by American investors in Toyota. But non-Americans should not have such a right, including non-American investors in, say, General Motors.
Democracy is for people, not for corporations. Getting our thinking straight about this is a crucial step toward reclaiming our dilapidated democracy. For many years, anti-union lobbyists have pushed what they call “paycheck protection” laws designed to protect union members from being forced, through their dues, to support union political activities they oppose. Under such laws—already in effect in several states—no union dues can be spent for any political purpose, including lobbying, unless union members specifically agree to it. It would be logical to apply the same principle to protect shareholders from being forced through their investments to support political activities they oppose. “Stockholder protection” would require that shareholders specifically agree to any corporate political activity. If a company dedicates, say, $100,000 to political action in a given year—including lobbying, campaign contributions, so-called “issue” advertisements, and gifts or junkets for elected officials—shareholders who do not wish their money to be used this way would get a special dividend or additional shares representing their pro rata share of that expenditure. Mutual funds and pension plans would have to notify their shareholders of such political activity, and seek their agreement or acquiescence. Such political activity would thereby be financed only by shareholders who wish to spend their portion of company profits on it.
We are all consumers and a great many of us are investors, and in those roles we try to get the best deals we can. That is how we participate in a market economy and enjoy the benefits of capitalism. But we are also citizens who have a right and a responsibility to participate in a democracy. Yet we can do this only if we protect our democracy from capitalism for, contrary to comforting myth, the two are not eternally harmonious and mutually reinforcing. A giant first step would be to abandon the anthropomorphic fallacy. Policymakers, including even the Justices of the Supreme Court, eventually will come to understand this basic point—but only if the rest of America understands it, too.
2Modern computer software is easily capable of allocating corporate earnings based on the number and duration of stock holdings.
3Jonathan Glater and Alexei Barrionuevo, “Decision Rekindles Debate Over Andersen Indictment”, New York Times, June 1, 2005.
4See G. Pisano and W. Smith, “Restoring American Competitiveness”, Harvard Business Review (July/August 2009).
5See William Broad, “Advisory Panel Warns of an Erosion of the U.S. Competitive Edge in Science”, New York Times, October 13, 2005.
6Banholzer quoted in Steve Lohr, “Outsourcing Is Climbing the Skills Ladder”, New York Times, February 16, 2006.