Citizens United v. FEC and Corporations in America: A History of Political Economy

“[There] is looming up a new and dark power… the enterprise of the country are aggregating vast corporate combinations of unexampled capital, boldly marching, not for economical conquests only, but for political power… The question will arise and arise in your day, though perhaps not fully in mine, which shall rule- wealth or man; which shall lead- money or intellect; who shall fill public stations- educated and patriotic freemen, or the feudal serfs of corporate capital.” Edward G. Ryan said to the graduating class of the University of Wisconsin Law School in 1873 (quoted in Beitzinger and Ryan 1960, 115-116)

In 2010, the Supreme Court ruled in Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), that according to the First Amendment, the government had no right to restrict expenditures for campaign ads supporting or attacking candidates by corporations, associations and labor unions so long as the money is not directly given to the politicians .1 The court’s majority opinion written by Justice Anthony Kennedy was based on the first amendment, which grants free speech to associations of individuals, including corporations. The government would be constitutionally wrong if it interfered with free speech and donations for campaign ads by regulation. While the ruling did not repeal the Tillman Act of 1907, which banned corporate campaign donations2, nor did it repeal the foreign corporate donation ban3, nor did it alter campaign contribution limits4, it allowed corporations to freely use their treasury funds for the direct advocacy of political candidates. As a result of the Supreme Court decision, the proportion of money spent by outside political groups for political campaigns was 20% (about $1 billion) in the 2012 pesidential elections. Super PACs alone account for 60% of the outside political spending. Super PACs are election funds that were created in July 2010 following the Citizens United case to to allow unlimited amounts of money from corporations, unions and associations to be spent on political advocacies of candidates.5 About 60% of Super PAC funding came from 139 donors with donations of $1 million and above (Bowie and Lioz 2013). Super PACs, in any case, have become important players in campaign finance often even raising more money for political campaigns than the candidates themselves (Briffault 2012, 1687) Some people, however, argue that Citizens United has no noticeable impact on campaign spending (Hamm et al. 2012). Some would claim that unleashing free speech for corporations would be beneficial, and that corporations are not likely to abuse their new won power (Chapman 2010). Others would say that the Supreme Court decision has increased corruption, and the power of corporations and wealthy individuals (Kennedy 2012; Posner 2012; New York Times 2012; Nichol 2011; Hasen 2012). In this paper, I will argue that the Citizens United Supreme Court case reveals the extent to which the power of wealthy individuals and corporate power in the political sphere has increased.

I will first describe the views on the Supreme Court decision. Elite opinion has been split on the subject of Citizens United. The Chamber of Commerce and the National Rifle Association, two very influential interest groups, have supported the Supreme Court’s position. Besides the five conservative judges on the court (Roberts, Alito, Kennedy, Scalia and Thomas), the Senate Republican leader Mitch McConnell (Stohr 2010), the conservative and libertarian think-tanks, including the Heritage Foundation (Dinan 2010) and the Cato Institute (Samples and Shapiro 2010), and the American Civil Liberties Union (Goldstein 2010) had endorsed the Supreme Court decision. Supporters of the decision insist on the freedom of speech provision, which is specified in the First Amendment of the US constitution. On the other end of the spectrum, Citizens United was condemned by four liberal justices (Stevens, Ginsburg, Breyer and Sotomayor), President Obama (CNN 2010), senators Feingold and McCain (Hunt 2010),6 the New York Times (Kirkpatrick 2010a) and a majority of the American people. 80% of the American people following an ABC News/Washington Post poll opposed the Supreme Court ruling on Citizens United (ABC News 2010). Opponents of the decision warn against the corrupting power of corporate and private individual influence in politics. One of the most forceful opponents of the Supreme Court decision is justice John Paul Stevens, who argued that corporations’ right to free speech is not the same as making unlimited donations for broadcasts out of the general treasury.7 Stevens considered the equal treatment of natural persons and corporations with regard to free speech inadequate and inaccurate, because corporations are not members of society, who can vote or run for office. They may be controlled by non-American foreigners, and their interests might conflict with those of the voters.8 The implication is that if corporations are not real people, they also do not deserve the same political right for free speech by unlimited donations for campaign ads. He argued that historically corporations have been chartered to fulfill narrow premises, primarily serving functions specified by the state.9 He quotes Thomas Jefferson who had warned of the unrestricted power of corporations to corrupt the political process. Jefferson wrote, “I hope we shall … crush in [its] birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” (Jefferson 1904, 42) Stevens noted that unlimited campaign ad expenditures influence the political process by forcing members of Congress to follow the biggest corporate spender.10

One application of this increased corporate influence in politics is J.P. Morgan’s decision to shift its campaign donation from the Democratic Party to the Republican Party, because its CEO, Jamie Dimon, thought that Obama’s financial regulatory agenda would harm his bank (Kirkpatrick 2010b). With the flood gates for campaign donations open, the costs of elections are going up. The total cost of the US elections increased from $3 billion in 2000 to $6.3 billion in 2012.11 The Koch brothers alone, whose net worth total about $62 billion (Vazquez 2013), have invested $400 million in the 2012 elections, exclusively for Republican candidates (Stone 2012). Sheldon Adelson, a casino mogul, had spent nearly $150 million on the 2012 elections (Wing 2012). Even the judicial system is affected by this trend. The nine justices of the Texas Supreme Court have raised almost $12 million in campaign contributions, while a seat for the Pennsylvania Supreme Court cost $4.5 million, the most expensive race in the country (Moyers and Winship 2010). Money in politics is also reflected in the lobbying campaigns of companies and organizations. More than 2,220 organizations have spent $773 million to hire 6,503 lobbyists to advocate on 1,454 tax-related bills between 2001 and 2012 (Byrnes 2013). Lobbying in Congress pays off for some corporations. Whirlpool Corp. invested $1.8 million in lobbying efforts and generated a $120 million tax breaks for 2012 and 2013. Multinational corporations and banks, such as General Electric, Citigroup and Ford Motor Co., collectively received a tax break of $11 billion, which amounts to a rate of return of 8,200%. Hollywood production companies like Walt Disney C., Viacom, Sony and Time Warner received a $430 million tax benefit, which amounts to a rate of return of 860% (Rowland 2013). General Electric, which made $10.5 billion in profits between 2008 and 2010, paid no corporate taxes and instead received a tax refund of $4.7 billion after spending $84 million in lobbying money to Congress (Rivera and Cantor 2012).12 Political influence also benefits corporations with specific legislation. Congress’ passage of the Monsanto Protection Act, which prohibits states to demand food labeling of GMO-products, attests to the clout that corporations like Monsanto have (Sheets 2013).13 Monsanto spent over $1 million in campaign contributions for members of Congress, and almost $6 million in lobbying efforts in 2012.14 The Supreme Court also sided with Monsanto by ruling in Bowman v. Monsanto Co., No. 11-796 (2013) that when farmers use patented seeds for more than one planting, they are liable for damages (Totenberg 2013). While corporations and the wealthy are winning out, middle- and working class Americans are losing out. Besides the Republican party, even president Obama is now demanding cuts in Social Security payments with the proposal of the chained CPI (Kuhnhenn and Taylor 2013)15, despite the fact that Social Security has a $2.5 trillion surplus (Weiner 2010) and the old-aged rely on the program for most of their income than before (Brandon 2011).

The Supreme Court decision also contains important social implications. Citizens United reveals the increased concentration of wealth in the richest segment of society. 68% of the funding for Super PACs originated from mostly wealthy individuals. 93% of the Super PAC contribution of individuals exceeded $10,000, and originated from 3,318 donors or 0.0011% of the US population (Bowie and Lioz 2013, 8). The larger trend in US society is that the richest percentile has seen their income increase by 11.6% between 2009 and 2011, while the income of the bottom 99% of the population shrunk by 0.4% in the same time period (Saez 2013, 5). Furthermore, the wage income share of the richest 1% increased from 5.1% in 1970 to 12.4% in 2007, indicating greater income inequality (ibid. p6). But what factors could account for greater inequality? Goldin and Katz (2010) argue that greater inequality was caused by technology developing quicker than the supply of educated workers could expand. As a result the scarcity of educated and skilled workers bid up wages for skilled workers relative to the less-skilled ones, leading to greater income inequality. While this account explains the growing gap between the skilled (somewhat affluent) and the less-skilled workers (not affluent), it does not explain the gap between the very rich and the rest. James Galbraith (2012), in contrast, argued that rather than technological changes accounting for an increase in inequality, most of the changes in inequality have closely tracked the boom and bust cycle of the stock market, implying that financial markets are the driving factor for growing inequality. Hacker and Pierson (2010), and Stiglitz (2013) would add to that by arguing that this greater concentration of wealth and income is not only the result of unleashed financial markets but also of deliberate policies of tax cuts, weak corporate governance laws and anti-union policies. Following this account, the increasing wealth of the rich impacts the political leaders in the sense that the rich seek to influence politicians to pass policies that benefit the wealthy even more, which positively affects their ability to affect political outcomes even more. Seen from this light, Citizens United is a political reflection of the greater economic resources and power of the wealthy.

The Supreme Court decision also reveals to which extent corporate power has increased over the last decades (Herman 1981; Boggs 2000; Gourevitch and Shinn 2005). Corporations are powerful in the sense that they shape the way in which money gets allocated in an economy, who gets the cash flow, who creates the jobs, who invests in research and development, and how CEOs are being hired (Gourevitch and Shinn 2005, 1-2). Walmart, for example, as the largest private employer in the US, has profoundly shaped the country with its quest to lower prices on their goods, their suppliers and their employees, while driving smaller firms out of business (Fishman 2006; Moberg 2011). Corporations are, therefore, the crucial institution that produces the existing income and wealth distribution. The concentration of greater economic power within corporations also shapes and limits the extent to which public discourse is possible, leading to a marginalization of progressive and alternative perspectives (Boggs 2000, 25-26 ). In order to understand the significance of the Supreme Court decision, it will be important to reflect on the historical foundation of US corporations to observe how they affect the policy-making process. I will emphasize the early foundations of the corporate legal structure, the rise of the railroad, oil and banking industry, the extent of corporate growth and concentration, the influences of corporate investments in the political process, contemporary discussions on corporate governance issues, free trade agreements and the financial crisis, and the political-economic framework of the US.

Corporations have not started as private institution serving primarily shareholders’ interests and were not granted individual rights. They were initially chartered by governments in order to build roads, construct canals, explore and settle new lands, conduct banking and carry out activities which the government saw itself incapable or unwilling to do (Roy 1997, 41). In addition, corporations were chartered to carry out public activities that the private businessmen would regard as too risky, expensive, unprofitable or public. It was only at a later stage that government expanded rights and entitlements of collective ownership to corporations, while it demanded fewer public responsibilities from corporations (Roy 1997, 46). The essence of modern corporate law involve the condition that owners would not be liable for company debts (limited liability), that companies can own other companies’ stocks, and that managers can run corporations without direct accountability to shareholders (Roy 1997, 145-146). The history of the rise of corporations can be roughly divided into three stages: in the first phase, the early 19th century, corporations were chartered by the government and were a quasi-government agency. They were accountable in their actions to the public. In the second phase during the mid-19th century, corporations became privatized, but they did not take on a manufacturing role. The government passed incorporation laws that removed the public accountability of private corporations, and began treating the corporation as a legal individual. In the third phase between the late-19th and early 20th century, private corporations merged with manufacturing companies. The dominant railroad companies of the 19th century that had seen declining profitability toward the end of the century merged with these manufacturing corporations (Roy 1997, 17). The public ownership of corporations shifted to private ownership over the course of the mid-19th century, because of the anti-state ideology of businessmen and labor groups and the depression of 1837. As a result of the economic downturn, state enterprises began to struggle financially, which the anti-state ideologists used as a justification for privatizing public corporations, citing the notion that the financial difficulties of the public corporations were brought about by the incompetence of the state (Roy 1997, 72) States subsequently retreated from their regulatory function. In an abrogation of its original duties, the government of Ohio, for example, forbade the state to take on debt for public improvements in 1851 (Studenski and Krooss 1963).

In the second half of the 19th-century, the railroads became the most dominant factor in the development of the US economy (Chandler 1965; Lightner 1983). It were the railroad firms that spearheaded the privatization of the corporation and the rise of the modern corporation (Roy 1997, 83). Railroads became the most dominant corporation with the help of the government’s financial support, legal protection (Berk 1990, 138) and foreign investment from Europe (Roy 1997, 136). In the 1840s and 1850s, the state governments were retreating from direct railroad investments, and instead granted charters with fewer and fewer restrictions. Without regulatory provisions specified in the charter, the courts granted to railroad corporations that the only contractual obligations of the corporation go not to the state or to the public, but to private investors (Berk 1990, 141). Even before the railroads rose to importance, the Supreme Court had maintained some constitutional protection to private corporations in the case Trustees of Dartmouth College v. Woodward, 17.U.S. 518 (1819), in which the court upheld the ruling that states were not permitted to alter the original charter granted to corporations citing the contract clause of the constitution.16

When the railroads became more important, they sought and failed for many years to receive 14th Amendment protections from the Supreme Court, which would grant them the rights and privileges heretofore guaranteed to human beings (Hartmann 2010, 17).17 However, the 1886 Supreme Court case, Santa Clara County v. Southern Pacific Railroad Company 118 U.S. 394 (1886), altered the treatment of corporations. In this case, Santa Clara county had sued the railroad company for owing taxes to the county, but the railroad refused to pay it, arguing that the state and not the county has the right to assess fences along the right-of-way, and that the fact that the corporation’s taxes are not assessed the same way as those of individuals violates their 14th Amendment rights (Hartmann 2010, 18-19). In an impassioned speech before the court, the county lawyer, D.M. Delmas, argued on behalf of the county and rejected the claim of the railroad company to attain the same constitutional protection as persons. He argued that the mission of the 14th Amendment “was to raise the humble, the down-trodden, and the oppressed to the level of the most exalted upon the broad plain of humanity- to make man the equal of man; but not to make the creature of the state- the bodiless, soulless, and mystic creatures called a corporation- the equal of the creature of God” (Delmas 1901, 203-204). But the court in its official verdict did not include any consideration of the 14th Amendment, and ruled in favor the railroad company.18 The court reporter J.C. Bancroft Davis, who himself was close to the railroads (Hartmann 2010, 48), had added a headnote (not an official court ruling) stating that the equal protection clause of the 14th Amendment would be applicable to both private individuals as well as to corporations.19 Even though, the court did not rule on corporation’s entitlement to the 14th Amendment, the Santa Clara case has been cited as precedent by later Supreme Court justices either in favor or against the position that corporations deserve the equal protection clause of the 14th Amendment.20

As a result of the government’s and the court’s favorable treatment of the railroads, they grew into a very large monopoly, and a very large trust. By 1890 more than 180 million acres of publicly owned land had been deeded to the largest railroad owners (Hartmann 2010, 104). New York financiers like J.P. Morgan played an increasing role by expanding and centralizing control over the national railroad system (Carosso 1987; Roy 1997, 104-105). Industrialists like Cornelius Venderbilt or Jay Gould became wealthy through ownership of railway systems (Carosso 1987). The rise of the railroad and other manufacturing industries also coincided with the rise of the financial industry (Roy 1997, 250). Large-scale industry depended on external financial capital, especially from the New York stock and bond markets (James 1978, 8) The financial industry, which concentrated more and more capital, ensured that more industries would be incorporated and listed on the stock exchange. Most industries took on the corporate form between 1898 and 1903 (Roy 1997, 252). Faced with the increased monopoly power of the railroad corporations, president Groover Cleveland (1885-89, 1893-97) warned in his state of the union address in 1888 that “corporations, which should be the carefully restrained creatures of the law, are fast becoming the people’s masters.”(Cleveland 1888) Cleveland further noted that the railroad owners are forming “combinations to perpetuate such [political and economic] advantages through efforts to control legislation and improperly influence the suffrages of the people.”(ibid.) Political corruption was pervasive. For example, the La Crosse and Milwaukee Railroad in Wisconsin handed out $900,000 in stocks to the governor, 13 senators and 59 assembly men in return for one million acre of free land and no competition (Hartmann 2010, 117-18). Rockefeller’s Standard Oil donated $250,000 to president McKinley’s presidential campaign in 1896 (Lundberg 1937, 60-61).

The end of the 19th century also saw the rise of other trusts21, such as Standard Oil, U.S. Steel, American Tobacco Company, the International Mercantile Marine Company, and De Beers (Moody 1904). When J.P. Morgan created U.S. Steel in 1901, the initial capitalization was $1.4 billion at a time when US GNP was about $20 billion (Tabarrok 1998, 4). Governments increasingly resisted the rise of trusts. States like New York took action against the forming trusts. The Supreme Court of New York decreed the revocation of the corporate charter for the sugar trust, which went on to reorganize itself as a holding company registered in New Jersey (Roy 1997, 210-211). The Progressive Era marked the passage of the Sherman-Antitrust Act of 1890, which prohibited contracts, combinations and conspiracies in restraint of trade, and was an attempt to deal with the monopoly position of the railroads, the oil industry and other trusts (Binder 1988, 446). But rather than reduce the monopoly, the Sherman Act increased merger waves of railroads (Bittlingmayer 1985; Hoopes 2011, 31). The consolidation of the railroad and oil industries occurred mainly via mergers into holding companies, purchase of stock and interlocking directorates (Locklin 1947). The railroad companies colluded to form six communities of interest, where each railroad company worked to raise each other’s profits and prevent competition (Roy and Bonacich 1988). In the mean time, the Supreme Court legitimated the existence of holding companies in the case of United States v. E.C. Knight Co. 156 U.S. 1 (1895), by decreeing that the federal government was not permitted under the commerce clause to control monopolies (Roy 1997, 213). Furthermore, the various trusts (in steel and railroads) were increasing their political contributions to influence legislators. Congress responded with the passage of the Tillman Act of 1907, which bars corporate money from political campaigns (Hartmann 2010, 194). President Teddy Roosevelt (1901-09), who had the reputation of a “trust-buster”, started to enforce the Sherman-Antitrust Act by filing lawsuits to break apart large trusts the Chicago meat packers (1905), Standard Oil (1906) and Union Pacific (1907) (Bittlingmayer 1993, 6-7), filing a total of 41 anti-trust cases during his presidency. His successor, William Howard Taft (1909-13) was even more prolific and filed 72 cases in his presidency (ibid.,10). Under President Woodrow Wilson (1913-21), the anti-trust lawsuits slowed somewhat as the country was heading into a recession (ibid., 12). His administration saw the passage of the Clayton Antitrust Act of 1914, which founded the Federal Trade Commission, outlawed monopolistic practices such as price discrimination, exclusive dealing contracts, the acquisition of competing companies via stock purchases, and interlocking directorates within the same industry (Shughart 1990, 56). Especially small businesses and the agricultural industry were strongly in favor of the law, advocating for its passage (Ramirez and Eigen-Zucchi 2001, 158-59). The capitalists reacted to the Clayton Act by shifting from the acquisition of another corporation’s stock to the acquisition of another corporation’s assets (Smiley 2010). Banks remained a powerful political force. A congressional committee found in 1912-13 that the major banks headed by J.P. Morgan owned $22 billion in assets compared to a total US GDP of $40 billion (Brandeis 1914).

With the Roaring 1920s following the end of World War I, a business boom was accompanied by lax enforcement of the Sherman and Clayton Acts (Hartmann 2010, 125). President Warren G. Harding (1921-23) said during his campaign speech that there should be “less government in business and more business in government.” (New York Times 1920) A more passive government in the interwar period coincided with a further rise in big corporations. The share of manufacturing assets held by the 100 largest corporations increased from 34.5% in 1925 to 41.9% in 1939 (Niemi 1980). In 1929, the 200 largest corporations controlled half of all corporate wealth (McElvaine 1984, 37). The number of car producers was reduced from 120 in 1920 to 44 in 1929, with Ford and GM controlling 70% of the market share. Similarly the tire industry was reduced from 190 firms in 1919 to 30 firms in 1937, while the market share of the five largest tire companies rose from 50% in 1921 to 75% in 1937 (Smiley 2010). Mergers took place in almost all industries, but particularly in petroleum, primary metals and food products (Eis 1969). The 1920s were not only marked by a rise in big corporations, but also by growing wealth and income inequality similar to what can be observed in the early 2010s (Rauch 2012). In 1929, the richest 0.1% of Americans owned wealth equivalent to what the poorest 42% owned . The richest 0.1% owned 34% of the nation’s savings, while 80% of the people had no savings at all. Between 1920 and 1929, the richest 1% saw a 75% increase in disposable income (McElvaine 1984, 38). In comparison, the average manufacturing worker wages increased by 8% between 1923 and 1929, while output increased by 32%. This implies that the very wealthy- as executives and shareholders in control of corporate profits- have absorbed most of the productivity increases in the manufacturing sector. Indeed, corporate profits increased by 62% and dividends increased by 65% between 1923 and 1929 (ibid.39). The federal government contributed to growing inequality by passage of the Revenue Act of 1926, which reduced federal income and inheritance taxes that mostly burdened the rich (Baughman 1996, 80) Government officials essentially reacted to the rise of business organizations and trade associations, who formed lobby groups that influenced Congress to write legislation on behalf of corporations and wealthy individuals (Norton et al. 2008, 679). The Supreme Court similarly sided with big business. In Coronado Coal Co. v. United Mine Workers 268 U.S. 295 (1925), the court ruled that striking unions are illegally interfering with trade and commerce, making it difficult for workers to organize in unions and bargain for higher wages. On the other hand, in Maple Flooring Manufacturer’s Association v. United States 268 U.S. 563 (1925), the court ruled that trade associations that distributed anti-union literature were not found to be interfering with trade (Henretta, Edwards and Self 2012, 663). The policies and legal judgments during the 1920s are a clear example of enormous corporate power impacting those same policies and legal judgments.

The enormous concentration of wealth in the hands of the few is intimately linked with the Great Depression of the 1930 (Soule 1947; Eccles 1951). The enormously high productivity of the workers in the factories implied that there was a surplus produced in goods, which can not be sold to workers whose wages are not rising very fast. On the other hand, the wealthy, whose incomes are going up very fast, do not want to consume more, saving a huge fraction of their income. As a result, the banks armed with billions of dollars in assets in large part due to the savings of the wealthy and the profits of the corporations lent out huge sums to working people as installment credit, resulting in a rise in consumer spending. By the end of the 1920s, 60% of the cars and 80% of the radios were purchased on installment (McElvaine 1984, 41). Consumer growth coincided with a rising indebtedness of private households, rising corporate profits and rising stock market values on Wall Street. As the stock market share prices were soaring, more people were fooled into purchasing more stocks on margin22 based on rosy expectations about rising share prices (Bierman 1998, 71-73; Harris 2003,10). The ensuing speculative bubble burst in 1929, ushering in the Great Depression. Real GNP per capita was reduced in half between 1929 and 1933, while corporate profits fell from $10 billion to $1 billion and 100,000 businesses closed (Norton et al. 2008, 709). The unemployment rate increased from 3.14% in 1929 to 24.75% in 1933 (U.S. Bureau of the Census 1960, 70)

After a relatively passive Hoover administration (1929-33), Franklin D. Roosevelt took power in 1933 and implemented New Deal policies, including various job creation initiatives to relieve unemployment, the Social Security system to relieve old age poverty, and banking reforms to prevent future financial crises. During his inaugural speech, Roosevelt had attacked the “money changers” (the heads of the bank corporations), who “stand indicted in the court of public opinion, rejected by the hearts and minds of man.” (Roosevelt 1938, 11-16) With enormous public pressure, Congress passed the Glass Steagall Act in 1933, whose most important provision was the separation between commercial banks and investment banks (Carpenter and Murphy 2010). Carter Glass, senator in the banking committee and introducer of the bill, argued that the financial and economic crisis had been caused by the unregulated use of commercial deposits for investment speculative purposes (Bulkley 1932, p.9911). The passage of the banking reforms led to a 50 year period, where no major banking crisis occurred in the United States (Moss 2009, 25). It was not until the 1980s, that investment banks grew very large in size, while oversight and regulation were relaxed (ibid. 26), and it was not until the passage of the Gramm-Leach-Bliley Act of 1999 that the separation between commercial and investment banks were lifted. With regard to the rest of the corporate world, Roosevelt did not think that the big corporations should be broken up, but instead be controlled by strengthening the power of labor unions23, which has the tendency to reduce economic inequality (Stiglitz 2013). With the passage of the National Labor Relations Act of 1935, the unionization rate jumped from 13.2% of the workforce in 1935 to a peak of 35.5% in 1945 (Sherk 2013). The New Deal period also saw further attempts by the government to control the practices of large corporations. The Robinson-Patnam Act of 1936 outlawed anti-competitive practices, such as price discrimination. After World War II, Congress passed the Celler-Kefauver Act of 1950, which prohibits the purchase of competitor business assets if competition would be reduced. One more anti-merger law was passed in 1976 called the Hart-Scott-Rodino Antittrust Improvements Act, which required companies to file for approval at the Federal Trade Commission when carrying out mergers, acquisitions, and transfer of assets/securities. The Supreme Court under chief justice Earl Warren backed the enforcement of corporate regulations. In Brown Shoe Co. v. United States 370 U.S. 294 (1962), the Supreme Court held that a merger between two firms that comprise at least 5% of industry output violated the anti-trust laws.24 Five years later, the court ruled in United States v. Arnold, Schwinn & Co. 388 U.S. 365 that manufacturer’s restriction in the re-sale of goods to franchised dealers is illegal (Gardner 1968, 487). In the 1970s, the Supreme Court relaxed anti-trust enforcement lawsuits, and held in Brunswick Corp. v. Pueblo Bowl-O-Mat 429 U.S. 477 (1977) that private anti-trust litigants have to prove “antitrust injury”, and henceforth neglected monopoly charges in favor of economic efficiency (American Bar Association 2002, 844-845).25

The post-World War II period was marked not only by enormous economic growth, but widely shared prosperity. Income and wealth inequality was sharply reduced thanks to heavy taxation of financial wealth (Grusky 2013), and average worker incomes rose in tandem with increases in productivity (Mischel 2012). This period is also referred to as the Golden Age of capitalism (Marglin 1990). The government followed Keynes’ (1936) advice to use monetary and fiscal policies to stabilize the economy (Eatwell and Milgate 2011).26 The most important new industry, which the government supported with ample funds, was what is referred to as the “military-industrial complex” (Hooks 1991). Despite all the anti-trust regulations, the post-war period was also marked by more business consolidation. For example, International Telephone and Telegraph bought Sheraton Hotels, Continental Banking, Hartford Fire Insurance, Avis Rent-a-Car, among others.27 The economist John Kenneth Galbraith (1952, 1967) argued that the days of competitive behavior in the market economy were over, and that since corporations have enormous control over prices, oligopoly has become a key feature of the modern economy. The value-added of the 50 largest manufacturing companies increased from 17% in 1947 to 25% in 1966 (Adelman 1973, 69). By 1968, the 200 largest industrial corporations held over 60% of the manufacturing assets (Williamson 1995, 21). Managers reduced their interest in plant investment and increasingly turned to mergers (ibid. 24). By 2000, mergers of corporations worldwide were worth $3.5 trillion (Buckley and Ghauri 2002, 1).

By the end of the 1960s and early 1970s, the Keynesian consensus fell apart (Abbott and Ryan 2000, 156). Full employment policies could no longer be maintained, as budget deficits and inflation increased (ibid., 253). Governments backed away from their commitment to full employment (Mitchell and Muysken 2008), while businesses are intent to restore their profitability by moving jobs overseas (Hira and Hira 2008), and by automating more jobs (U.S. Congress, Office of Technology Assessment 1986) to lower wages. Jobs that were once considered stable became more insecure, as job tenures were reduced in favor of more flexible work arrangements (Cappelli 1999). Wealth became more concentrated at the top as an increasing share of the economy is tied to the stock market, with the wealthy owning a majority of all the stocks (Allegretto 2011). Corporate managers have shifted from an emphasis of ‘retain and reinvest’, in which internal business profits were used to make investments in plants, to shareholder-value maximization, where the immediate profit interests of the shareholders were placed above the long-term interests of the company (Lazonick and O’Sullivan 2000; Chang 2010, 19). Wall Street institutions also played an important role in changing corporate governance. Over the course of the 1970s, the financial institutions shifted from supporting long-term activities of corporations, such as training workers and building plants, to increasing capital gains by trading corporate and government securities (Lazonick and O’Sullivan 2000, 16). Financial deregulation permitted pension funds, insurance companies and savings and loans institutions to issue junk bonds (ibid., 17). With the passage of the Garn-St.Germain Act of 1982, S&Ls used the junk bonds to launch hostile takeovers of large corporations (Gaughan 1996, 302).28 The rise in hostile takeovers coincided with more layoffs, pension fund reductions and wage reductions for senior workers (Baker and Fung 2001, 25). By the early 1990s, even US corporations that were committed to long-term job guarantees, like IBM, DEC and Delta carried out downsizing and lay-off of blue- and white-collar labor (Weinstein and Kochan 1995, 16). Share buybacks rather than investments in plants have become the dominant form of corporate expenditure. Whereas in the early 1980s, 5% of corporate profits were used for share buybacks, it reached 90% in 2007 (Chang 2010, 19-20). Boosting the value of the stocks might have been a preferred option of corporate managers as a greater share of executive compensation became tied to the stockmarket. The average CEO to average worker compensation ratio increased from 20.1:1 in 1965 to 231:1 in 2011 (Mishel and Sabadish 2012). And rather than investing in job creation, corporations are instead piling up $1.7 trillion in cash (Johnston 2012). Apple alone is sitting on $145 billion in cash, and wants to use a large fraction of it repurchasing their own shares (Dillet 2013).

Government policies since the 1980s aided in the drive to cement changes to corporate governance and greater income and wealth inequality. The Reagan administration (1981-89) reduced the enforcement of anti-trust laws encouraging mergers (Correia 1986). It reduced the enforcement of labor laws, leading to a sharp decline in unionization rates (Baker 2007, 70).29 It also deregulated the savings and loans industry fueling financial speculation (Dreier 2004), and lowered the top tax rate for the highest income earners from 70% to 28% (Carbaugh 2011, 310) fueling an increase in inequality. In the 1990s, the Clinton administration (1993-2001) added to changes in the corporate structure by repealing the Glass Steagall Act30, which brought about the tech-bubble and the housing-bubble (Hodge 2010, 160), and by signing NAFTA, a free trade treaty, which gave foreign investors the right to sue governments over worker or environmental safety regulations (Roach 2007, 20). NAFTA has raised Mexico’s economic costs of environmental degradation to 10% of GDP, as hazardous waste and air pollution are on the rise thanks to greater US investments (Gallagher 2009, 62). NAFTA also gave further impetus to companies to move jobs overseas and raise their profits (Snow 2010, 122; Chaison 2006, 137). According to one estimate, the trade treaty with Mexico has led to a loss of 682,900 jobs (Scott 2011). The passage of permanent normal trade relations with China led to a swift decline in US manufacturing employment (Pierce and Schott 2012). In 2005, the Bush administration (2001-2009) signed the CAFTA free trade agreement with various Latin American countries. His administration also sharply reduced tax rates benefiting mainly the wealthiest Americans (Fieldhouse 2011), while neglecting regulatory oversight over financial institutions (Lichtblau 2008), precipitating a huge financial crisis. The Supreme Court facilitated the passage of free trade, and ruled in Department of Transportation v. Public Citizen 541 U.S. 752 (2004) that a federal agency does not have control over making an environmental assessment of trucks that enter the US and come from Mexico. The Obama administration (2009-) has approved a free trade treaty with Panama, Korea and Columbia, and is set to negotiate another free trade treaty with countries in the Pacific called the Trans-Pacific Partnership (Cooper 2011). While the trade treaties create some jobs in export-related industries, more jobs will be lost in outsourcing (Isidore 2011). US multinational corporations are already taking advantage of the more flexible labor market by cutting their US workforce by 2.9 million throughout the 2000s, while adding 2.4 million jobs overseas (Wessel 2011).

A very significant change in the corporate structure occurred with the deregulation of the financial sector (especially the repeal of the Glass-Steagall Act), explaining the twin crises of the tech-bubble in the early 2000s, and the housing-bubble in the mid-2000s (Kuttner 2007).31 Similar to the stock-market crash of 1929, the Wall Street banks had grown enormously in size, and income inequality had grown, while a few major shareholders in the stock-market had benefited enormously from the rising share prices of the dot-com stocks and later the housing assets. The enormous wealth concentration coincided with a stagnant household median income since 1973. While the productivity of the average worker grew by 80.4% between 1973 and 2011, median wages increased by only 10.7% (Mishel 2012). This condition alone would have accounted for a stagnation in the economy, as not enough people would have the income to sustain consumption and economic growth (Batra 2008; Wolff 2010; Reich 2010; Mistral 2011). But with the deregulation of the financial sector, mainly the merger of commercial and investment banks, the creation of new financial instruments32 and the relaxation of lending standards, more loans could be handed out to people to purchase homes. An increase in the demand of housing led to an increase in housing prices, which homeowners could use to re-finance their mortgage (Case and Quigley 2010, 478). The enhanced purchasing power of the US consumer allowed an increase in consumption without an increase in real wages.33 By holding down wages while maintaining consumption on debt, corporate profits, returns on capital income and the general economy grew (Batra 2008). In the mean time, the Federal Reserve had helped an expansion in mortgage lending via a consistently low-interest rate policy (Brenner 2009, 2). The banks, who facilitated the lending profited handsomely from the fees. They packaged the subprime mortages34 into mortgage-backed securities, which were complex financial products that received favorable ratings from rating agencies35, and sold these securities to pension funds, university endowments and other investors seeking for high yields. The yields for the most risky mortgages remained high in the mid-2000s, as long as housing prices increased (ibid., 47-57). The housing bubble burst when the default rate of the mortgages increased. Housing values fell by 25% between 2006 and 2008 (ibid., 70). The banks went into a financial crisis, and Lehman Brothers went bankrupt. The financial crisis spilled over into the real economy, as companies were laying off employees. The laid off workers pulled back on consumer purchases, which had a further depressing impact on the economy. While millions of people either lost their job or lost their house due to foreclosure, the banks received a bailout from the government. Then-treasury secretary Hank Paulson, who was also the former director of Goldman Sachs (one of the major banks on the bailout list)36, convinced Congress to vote for a bailout of the banking industry to prevent economic collapse (too-big-to-fail).37 Of the $418 billion in TARP funds (Troubled Asset Relief Program), 93% of the funds were recovered (Massad 2013). However, the government also wrote $27.1 billion in losses (SIGTARP 2013, 37). The Federal Reserve bailouts are even greater than the federal government bailout.38 The largest institutions borrowing from the Fed are Citigroup, Morgan Stanley, Merrill Lynch, Bank of America and Barclays PLC (U.S. GAO 2011, 131). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was designed to increase oversight over the financial institutions.39 Nonetheless, the big banks have grown bigger, and remain too-big-to-fail (Ryan 2013; Hollander 2013). The banks have also been able to gain some concessions from regulators (Brush 2013). With assets that are equivalent to two-thirds of the nation’s GDP concentrated in the hands of the six largest banks (Sanders 2013), the financial industry has among the most powerful corporations in the contemporary economy.40

In conclusion, the Citizen’s United Supreme Court decision reveals to what extent the power of large corporations has increased. Corporations were chartered originally in the colonial era in order to fulfill public functions, such as building canals or roads, and were accountable to the state. Gradually, and with the rise of the railroad industry, corporations developed into profit-seeking enterprises that are exclusively accountable to their shareholders, and were controlled by corporate managers. They have used their greater economic power in the political process, mainly by means of lobbying and campaign contributions. The Supreme Court has notably sided with the corporations. The Santa Clara landmark case implicitly extended 14th Amendment rights to corporations, giving these legal entities the same rights as individuals. Using political support from the government in the form of land grants and subsidies after the end of the Civil War, the railroads became the first major corporation, creating enormous revenues and profits. The rise of the railroad industry also coincided with the rise of the financial industry, notably under the leadership of J.P. Morgan, and the rise of the oil industry under John Rockefeller. The growing monopoly that emerged toward the end of the 19th century led to a progressive backlash, culminating in the passage of the Sherman Antitrust Act and the Clayton Antitrust Act. Despite the government regulations, corporations continued to grow bigger and bigger over the course of the 20th century. While the 1920s, were marked by a weakening of corporate regulations and growing inequality, the Great Depression led to a paradigm shift in public policy. Stronger labor laws led to a check on unrestrained corporate power, while higher taxes on the wealthy limited the extent of wealth inequality. The post-World War II boom was marked by further industrial concentration but largely shared prosperity, as workers benefited from stable jobs and rising incomes. The stagflation period of the 1970s altered the paradigm of policymakers and corporate managers, as steps to restore corporate profitability were implemented. These include downsizing, the outsourcing of jobs into other countries, the automation of production jobs, the emphasis on shareholder value, and cuts in the marginal income tax rate. Today, with the help of unlimited campaign funding, politicians are beholden to the interests of corporations, who can make important decisions that may negatively impact the larger society, while benefiting the few. For example, the deregulation of the financial industry facilitated the largest financial and economic crisis since the Great Depression. The various free trade treaties that have been passed since the 1990s have cost many jobs in the US. In light of the Citizens United Supreme Court decision, the important issue of corporate responsibility needs to be addressed by political leaders, political organizations and the people if policies are to be implemented that benefit all people.

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