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Can corporations govern?

In the 1948 Frank Capra film State of the Union aircraft tycoon Grant Matthews is drafted as a candidate for president of the United States. Matthews has never sought office and his popularity stems solely from his business successes and his charismatic and plain-talking speeches. As it becomes clear to Matthews that his self-funded campaign might win him the nomination, he gives in to the corrupting influence of the politicians and party fixers who have recruited him and who now manage his campaign.

Today, the notion that tycoons are corrupted by politicians and not the other way around seems quaint. The last pretense that American political institutions are not merely an extension of global financial and industrial interests was stripped away earlier this year when the U. S. Supreme Court ruled that corporations may spend unlimited amounts of money influencing political campaigns. To be fair, corporations have long influenced American politics through a variety of means including political action committees, donations to major parties (which is no longer allowed), lobbying, issue advertising, threats to move operations out of the country (or the community), and, in some cases, actual bribery (still technically illegal).

Despite their obvious power, corporations up to this point had to accept that, however dominant their position in American politics, they still had to contend with other interests seeking the ear and votes of elected representatives. If corporations had had absolute power over federal policy, neither financial reform nor health care reform would have passed the Congress since, even in their admittedly watered-down state, they contained provisions which both industries vehemently opposed. Thus, their sway over elections and policy has been considerable, but not absolute.

That may now change. Without any limitations on what corporations can spend or even say (since no front group is obliged to disclose its donors), they are free to destroy the reputations of candidates they don't like anonymously and therefore with impunity. To be fair, an incurious group of voters called swing voters--these are the ones who switch their party allegiance from election to election--are complicit in this process. They do little vetting of candidates and issues and rely heavily on information provided by campaigns and by independent groups that sponsor political ads of questionable veracity.

The campaign of 2010 may produce members of Congress and of the Senate who are nothing but conduits for corporate agendas and whose loyalties can be traced directly to those corporate-funded campaign groups--groups made up of anonymous donors who seek nothing less than direct control of the government of the United States for their personal gain. What this means is that corporations will now for the first time since the Gilded Age be forced to govern rather than simply influence those who govern.

It is a common conceit that American businessmen (and now businesswomen) know how to run the government better than career politicians. Frank Capra's film is merely one product of this type of thinking. The claim often made by such people when they run for office is that they've met a payroll and created jobs. But what is most relevant is how they have gone about doing these things. Typically, businesspeople who seek office have run corporations as chief executives and often owners. That means their style of governance has always been buttressed by the fact that they are autocrats who can get their way by command. Getting things done in a large, modern corporation is, of course, more difficult than simply commanding it. But corporate structures remain highly undemocratic and hierarchical. The employees can't fire the boss.

But whether they run for office themselves or simply hire people to do it for them, there is no getting around the fact that these corporate managers and owners constitute a class of autocrats who wish to rule the country. They are not used to the give and take of the political process, and they do not suffer people they believe are fools easily. (In this context "fools" are merely people who oppose their views and aims.)

While the corporate paymasters of the new crop of corporate politicians profess their love for free markets, limited government, and respect for individual freedom, they believe in nothing of the sort. This is just what they and their minions say to voters in order to get their votes. What they really mean to do and have done, to the extent their powers have enabled them, is to use the government as a slush fund for their own benefit--both as a source of revenues through tax breaks and contracts and as an insurance pool for their corporate interests when they make disastrous financial decisions.

With regard to the insurance function the government has played, particularly for large financial institutions, former Wall Street trader and now author Nassim Nicholas Taleb explained before a Congressional committee last year that he was instructed again and again in his career not to worry about extreme losses, only smaller losses in the 5 to 10 percent range, since the government would bail out his firm in the event of a financial crisis. Here's what he said:

I was a trader for 21 years. And every time I said, "What if we blow up?", they [management] said, "Who cares? The government bails us out." And, I heard that so many times throughout my career.

To judge how the country's new corporate government might perform, one needs only to recall how events unfolded in a couple of areas in which corporate lobbyists got their way. First, the ongoing financial deregulation which had been occurring in the United States for many years was a product of heavy lobbying by financial firms. They got their deregulation and even lax enforcement of the remaining regulations based on the idea that markets are self-correcting and that the interests of the individual trader, his or her firm and the shareholders were identical. When the financial system melted down because of the excessive risks, fraud and mismanagement by Wall Street managers and traders, these employees of the firm already had their huge bonuses in pocket. The bad trades and positions which led collectively to the financial meltdown were backstopped by the U. S. Treasury and the Federal Reserve, not the the firms or their employees. Nobody has been forced to give back their bonuses.

Second, for years under administrations from both parties, the oil industry essentially got whatever it wanted from what was formerly called the Minerals Management Service which oversaw offshore drilling. Inadequate regulations and poor enforcement were the policy of this agency under successive administrations. The BP well blowout and oil spill was one result of that lax regime. Of course, in this case BP was actually made to pay for some of the damage. But it will never be able to restore the Gulf of Mexico to its state prior to the spill, even if it expended all of the funds it will ever generate. Some things can't be fixed. And, the federal government and communities across the Gulf coast will be paying for the collateral damage for decades to come.

In both cases profits were privatized and risks were socialized, and we can expect to see more and more of that in every area of economic life in America under a new corporate-run government. The incentives for corporations are mostly short-term because the incentives for the managers are short-term. And, the incentives for shareholders to allow and encourage corporate misbehavior is huge, since shareholders demand maximum returns, usually in the short term. The average holding period for stocks listed on the New York Stock Exchange is nine months. The average holding period for all stocks including exchange-traded funds is four months.

The history of corporate governance also shows that when corporations might have naturally aligned themselves with changes that would have been good for their bottom lines as well as the public, these corporations have failed to do so. The American automakers would have benefited greatly from a universal health care system in the United States. Health care costs for autoworkers were one of the main financial drains on the industry and a competitive disadvantage in a world where Japanese and European automakers had the benefit of government-sponsored universal systems that picked up most of the costs. Yet, the automakers never supported such a plan and instead focused on defeating increases in fuel economy standards. Such shortsightedness in part led to the bankruptcy of two of the Big Three automakers. Their foreign competitors relentlessly chipped away at the market share of the Big Three with fuel-sipping cars and lower overall cost structures. It is proof that oftentimes corporate managers either do not know or do not care what will be good for their own companies in the long run.

Some people have dubbed the gradual and perhaps all-but-complete melding of corporate and government power as fascist. None other than Mussolini dubbed such a combination one facet of fascism. But even the fascist regimes of Mussolini and Hitler engaged in large public works projects meant to boost employment and income during the Great Depression. And, it is, of course, of no small import that they incorporated their respective industrial establishments into their ambitions for military conquest.

Under fascism, the government colludes with corporate interests to achieve its goals. But what does one call a government in which the corporations, not the government, call all the shots? What does one call a government in which there is no political class to mediate the needs of many factions? The closest we might come is plutocracy. But this doesn't quite get it either because plutocracy refers to undue influence by the wealthy in the affairs of government. What shall we call it when the wealthy through their corporations achieve absolute control of government policy?

Naturally, not all corporations share the same interests. Those who make wind turbines do not have interests identical to those who mine coal. But in the fight over government policy, it is fervency that matters, for where corporations rule, money follows fervency. The fossil fuel lobby will continue to work to prevent any kind of climate change legislation even though the insurance industry knows only too well what risks its faces as climate changes and causes insured property damage to crops, homes and businesses. Yet, the insurance industry has many other areas which it must be concerned with. It will never be as focused as the fossil fuel industry is on this issue.

Will the alternative energy industry suffer the same fate? A tiny fraction of the world's energy comes from renewable energy today. While growing quickly, the alternative energy industry simply doesn't have the money to buy as many candidates as the new political funding regime allows to the fossil fuel industry.

Look for little or no progress on important environmental and natural resource issues in the years ahead in the United States as corporations battle it out for narrow advantages for themselves obtained through government policy. The trouble with this type of governance, however, is that it will miss the big picture and thus the big dangers and challenges and never prepare us for them.

Whether a politically moribund voting public will be able to associate an increasingly dysfunctional government with the corporate takeover now in progress is an open question. Whether that public will be able to affect change if and when it does understand this is a troubling one. But, given the history of corporate intervention in American political life, we can summarize in one word how corporations will govern the American nation as they move toward complete political control: badly.

What do you think? Leave a comment below.

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