THE BLOG
05/30/2010 05:12 am ET Updated May 25, 2011

Dangerous Incentives: Corporations, Thugs, and Politics

The 2010 Supreme Court decision Citizens United v. Federal Election Commission now permits corporations to directly donate to political parties as well as run political advertisements. What is more shocking than the Court's partisan split on the issue however, is the degree to which public anger about the decision has been itself bipartisan. From both ends of the political spectrum, liberal activists and tea party protesters are incensed with a decision they see as allowing even more corporate influence over Washington. Opponents of this decision want to see it overturned by a later Supreme Court; in truth this decision does little to affect the incentive structure already in place, which many argue allows the legislative system in the United States to be captured by private interests.

Lobbyists and public action committees already exploit the need for members of Congress to fret about re-election as soon as they are elected. The level of corporate and private influence in politics already makes a mockery of the 'one person, one vote' contract implicit in a democratic system. Indeed, on key political issues of the day, the financial lobby spends a great deal of time and money trying to persuade Congressmen against the establishment of an independent consumer protection agency. During the healthcare reform bill debate, the insurance industry spent roughly one million dollars a day on lobbyists and contributions to block the public option. From oil companies trying to prevent climate change policy to automakers buying up and destroying public transportation systems to pharmaceutical and food companies lobbying against FDA regulations to no-bid contracts for American companies in Iraq to mortgage lenders protecting their 'loan shark' profit margins--it is evident that while the business of corporations are profit-centered, the purview of governments is the protection and representation of in the people they are elected to serve.

Yet while the notion of corporations as legal persons has been the subject of intense controversy since the 1886 Santa Clara County v. Southern Pacific Railroad decision recognized corporations as persons under the Fourteenth Amendment, it must be admitted that the legal ramifications involved in denying corporations- and by the same token unions- rights of personhood are staggering as well as humbling. Instead of adopting a 'reverse or uphold' legal approach on the matter, it would treat the problem more substantially if we challenged the underlying incentive structure in place--limiting financial influence over public servants, raising the costs of social harm, and maintaining an adamant regulatory system.

One idea, which is not new, is to level the playing field by eradicating private financing of elections altogether: maintaining instead a national fund for elections. Before images of a socialist march come to mind, this system is already in practice in the United States, albeit piecemeal. If a candidate privately raises $5,000 in each of at least 20 states and agrees to independent financing limits, the government subsidizes a dollar for dollar "match". This public funding option is not without disadvantages as the 2008 Presidential election saw candidates who opted for public money often falling far behind their privately-financed competitors.

As a nation that sees itself as a beacon of democracy, we must take the issue of campaign finance reform seriously; we must transform elections from the privately-funded popularity contests they currently are into the publicly-financed and open-to-all contests they were envisioned to be in the founding documents of this country. Our current system has allowed dollars to become more powerful than votes and given the most influence to those who have the most money. Prohibiting all private financing would additionally hamstring corporate influence without violating corporate free speech; thus circumnavigating the thorny issue of free speech as it pertains to corporations as well as unions. Campaign finance reform would additionally engender greater transparency as ads run by corporations and unions would be based on the stances political parties or candidates take (for or against oil for example), and not on who has or hasn't accepted undisclosed funds.

It would serve us well to examine an analogous example of a democratic system breaking under the weight of corruption and money in politics. The ills that plague the oldest and the largest democracies in the world are not all that different, and the solution to help remedy them just happens to involve a similar approach. India, the world's largest democracy, is a ray of hope in a region blighted by political instability and military rule. But when I went to cover the largest elections in the world in April of 2009, pride in this democracy was the least of what I found.

Instead of the rosy picture of millions of people voting (418 million actually did), what I consistently encountered as I spoke with NGO leaders, academics, voters, journalists, ministers, and candidates was the increasing political influence and success of common criminals - thugs - in the elections. According to the Association for Democratic Reform, an election watchdog organization, 28% of elected Indian MPs have criminal cases pending against them (more than one in five); while 14% have serious criminal indictments. More alarming is the fact that this number has increased by 31% since the 2004 elections.

It seems that those who have long lived beyond the reach of the law have figured out that if they manage to delay the adjudication of the cases against them in court (not very difficult in India for those who have money and power)--and get elected in the interim--they can enjoy the fruits of parliamentary immunity. Indian election rules do not prevent those charged with criminal cases from standing for electoral offices, only those who have been convicted. Unscrupulous candidates use many nefarious tools at their disposal--from bribery to extortion to intimidation to rioting and even murder and incitement of gang wars--to get the votes they need. For a village thug charged with a crime, the best thing he can do to free himself of accountability is to get elected. Along with the power of patronage that comes with vaunted ministry positions, an air of 'untouchability' comes with electoral success (and not in the Hindu caste sense of the term, but rather Al Capone's).

Recently elected Indian Parliamentarians with criminal offences boastfully refer to themselves as baahubali, which literally translates as "muscle men" or gangsters. Characteristic of these legitimized ruffians is a general desire to amass vast amounts of wealth, use this wealth to attain power, capture more wealth with this newfound power, and so on endlessly.

Historically, the term "thug" referred to a member of an organization of robbers and assassins in India who typically strangled their victims. Corporations are certainly not thugs in the literal sense: they are by definition legal entities created by the State, endowed with rights of legal personhood, shielded from personal liability, and can exist in perpetuity. Armed with these benefits and shareholder funds, corporate executives and managers can however generate vast sums of wealth, which often benefits society at large. Without these privileges, risk-averse individuals would not assume high levels of debt and risk bankruptcy to endeavor to operate such enterprises. Thus, while the existence and life of a corporation is crucial to higher standards of living, their categorical incentive structure, which maximizes profit for shareholders, can also do harm.

It doesn't take much of stretch to see that profit maximization is not always innocuous, and without regulation can endanger human lives, the environment, and even jeopardize competition itself. As Ralph Nader has argued, "from pollution, medical negligence, procurement fraud, product defects, and financial fraud, to antitrust, public corruption, foreign bribery and occupational homicide, corporate crime is widely ignored by politicians - yet acutely felt by all Americans." American corporations, especially those that operate abroad, such as United Fruit, Halliburton, Nike, Enron, Blackwater, Dow Chemical, Goldman Sachs, AIG, Arthur Andersen, Hollinger, and a host of others throw around massive amounts of wealth, bribe, intimidate, tamper with and bend laws to suit their interests, silence whistleblowers, engage in patronage, squeeze out competition, and instill fear in their workers so as to avoid rebellion from within. All of these behaviors can be learned from a baahubali handbook, if ever one was literate enough to write one.

The near collapse of the global financial system at the hands of profit-maximizing investment bankers and sub-prime mortgage brokers in 2008 illustrates this correlation well. A lack of accountability, an absence of a properly functional regulatory framework, extremely close ties (some would say a revolving door) between Wall Street and Washington, conflicts of interest (such as the relationship between Goldman Sachs and Greece), and the expectations of huge personal profits brought peril to the global economic system. Many concerned with avoiding another financial crisis argue that these root causes have not been addressed; Wall Street continues to operate with moral hazard and Congress continues to have difficulty policing those on whom it relies to get re-elected to office.

One thing remains sad and true. Whether you are looking at the American Congress or the Indian Lok Sahba, reform falls into the hands of the very people who have incentives to stunt it. In other words, those who stand to gain from a corrupting system are the very ones who hold all the power to change it. Will we see campaign finance reform in our lifetime? The answer unfortunately lies with those who have the money: thuggish Parliamentarians in India and corporate entities in the United States. Can we trust them to regulate themselves as we naively did with respect to Wall Street?

We have for far too long allowed the incentive structure in the American political system to tilt toward private money. It doesn't take a genius to understand that eventually those with the most money will carry the greatest influence, and those who depend on those large caches of cash will be beholden to the dictates of their funders. It reminds one of that proverbial parental slogan: 'as long as you live under my roof, you will do as I say.' Just as children must move out and make their own money to gain their independence, so too should Members of Congress move out of the 'care' of their financial supporters. In order to free our lawmakers from the need to accumulate vast resources and then repay those supporters in kind, we must institute a system that publicly funds the campaigns of those who are eligible. The goal here is to level the playing field, dissuade lawmakers from using their time in office to obtain fresh funds, and use that time instead to make and vote on laws - their actual jobs.

It was never the intention of the Founding Fathers that American lawmakers would be beholden to financiers, and it seems doubtful that they would allow corporations to take center stage in our political system. The private sector is adept at many things; but financing political outcomes shouldn't be one of them. Glenn Greenwald, in pointing out how little healthcare reform hurts private interests or insurance companies, emphasizes, "Corporate control of the Government is one of the most serious problems, if not the single most serious problem, the nation faces. Every future bill -- from "financial reform" to energy bills to national security and surveillance legislation -- is dominated by that central fact." Yet the idea that financial and political power should rarely mingle is still considered radical today.

In his dissent to Citizens United, Justice John Paul Stevens asked why corporations, which are not members of society and cannot vote or run for office, should be allowed to crowd out those who do. What is the point of voting at all if members of Congress are more indebted to their financial base than to their electoral base? Corporations alone seem to have the amount of cash required to fund campaigns, and they often fund both parties in order to ensure that their views are represented in debate on any legislation that would affect them. In India, thugs behave in the same fashion. They meet in secret with other Parliamentarians, give and trade favors, and do this with the extra cash and muscle they acquire from their positions. It is a negative feedback loop built around rational responses to incentives.

America is a capitalist democracy, and if we endear ourselves to the notion of proper incentive structures as well as free and fair elections, we should demand both! What actually and ironically seems the most self-evident about corporate influence in politics is that it has the power to corrupt absolutely.