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Thursday, June 21, 2012

Political Spending = Business Spending (by Unions as well as Corporations)

Earlier this week, the WSJ touted a new Manhattan Institute study showing that political contributions by corporations have a positive effect on the bottom line.  The study found that "most firms, like most individuals, behave rationally and strategically in their spending decisions on campaigns and lobbying, devoting resources in ways that, they have reason to expect, will benefit the corporations themselves and their shareholders."  And benefits do come, in the form of lower taxes, more favorable regulation, and earmarks that help the business. The authors calculate that these political benefits improve returns for shareholders by 2% to 5% a year.

It should not be a surprise that corporate political spending helps corporations.  This recent study follows upon research by Jill Fisch on FedEx's political spending, which found that "FedEx has successfully used its political influence to shape legislation, and FedEx's political success has, in turn, shaped its overall business strategy."  The WSJ uses the Manhattan Institute report to beat back critics of Citizens United who are looking to get corporations out of politics.  The Journal opines:

Liberals have been trying to persuade CEOs and corporate boards to stop spending money on politics by claiming that it doesn't pay. But according to a new study by the cofounder of the Democratic-leaning Progressive Policy Institute, corporate participation in politics works for the companies and their shareholders. * * * 

In a better world, corporations wouldn't have to devote money and time to politics. . . . But politicians have created a gargantuan state that is so intrusive that businesses have no alternative than to spend money to defend themselves and their shareholders from such arbitrary looting as the medical device tax in ObamaCare. Liberals want business to disarm unilaterally.

Oddly, neither the Journal nor the Supreme Court seem to understand these principles when it comes to unions.

In today's Knox v. SEIU, the Court again privileges the rights of represented employees to opt out--or rather, not to have to opt-out in the first place--from union political spending.  The Court clings to the trope that the union's political spending is somehow extraneous to the core services provided by the union to the represented employees.  But political spending is perhaps even more important to unions than it is to corporations.  I have posted before about SEIU's electoral activity, but it bears repeating--SEIU spent an estimated $85 million to help elect Barack Obama in 2008.  Although the Obama administration failed to get the Employee Free Choice Act passed, it did pass healthcare reform -- which was arguably more of a SEIU priority.  (See Chapter 9 of this book by Steve Early, entitled "How EFCA Died for Obamacare").  Former SEIU President Andy Stern had the highest number of oval office visits of any outsider--22--during the president's first six months in office.  Stern was not in there based on his individual perspicacity about the nation's various problems.  He was in there as president of the fastest-growing union in the U.S. -- one whose members largely worked in the health care field and would benefit from an expansion of health care benefits.

Knox v. SEIU concerns a "Political Fight-Back Fund" levied against represented employees, including nonmembers, to fund political activities in California. Two propositions were on the California ballot: Proposition 75, which would have required an opt-in system for charging members fees to be used for political purposes, and Proposition 76, which would have given the Governor the ability to reduce state appropriations for public-employee compensation.  In response to the petitioner's objection to the special assessment, an SEIU employee said, "we are in the fight of our lives," and it's easy to see the urgency.  If you accede to the principles that (1) employees can choose as a majority whether to have union representation, and (2) all represented employees need to pay for their representation, then political spending should not be excluded.  In an era where state governments are reconsidering collective bargaining rights for public sector unions, political spending is critical to the unions' very existence as businesses.  Unions need to have collective bargaining rights in order to bargain collectively on behalf of represented employees.

The majority's opinion in Knox v. SEIU assumes the distinction between collective bargaining expenses and political expenses without much discussion, other than an interesting block-quote from a Clyde Summers's book review.  (I would argue that all of Summers' examples don't really prove his or the Court's point.)  And at this point, not even the dissent questions the Hudson framework.  But it makes no sense.  Unions and academics should start fighting the framework: unions are businesses, and political spending is business spending.

I did see one glimmer in the Court's opinion, in the following passage:

Public-sector unions have the right under the First Amendment to express their views on political and social issues without government interference.  See, e.g., Citizens United  v. Federal Election Comm’n, 558 U. S. ___ (2010). But employees who choose not to join a union have the same rights.

The Manhattan Institute report, like the Wall Street Journal, recognizes that corporations are not merely "express[ing] their views on political and social issues" when they make political contributions.  They are fighting for their businesses.  The Court should not continue to disarm unions unilaterally in a post-Citizens United world.

Posted by Matt Bodie on June 21, 2012 at 01:48 PM in Corporate, Workplace Law | Permalink


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The report says: "The general consensus drawn from the literature, then, is that corporations use PACs to make strategic, long-term investments in the political process, in the hopes of influencing policy outcomes in ways that help them or their shareholders. Corporate PAC contributions have the potential to directly influence certain legislation, and votes in Congress and corporate PAC contributors to members may often be aligned." (Sec. III, last paragraph.) I don't read that as saying that contributions "don't really matter." Of course, the report has to back off the notion that contributions can get you exactly what you want, because that would be -- well, bribery.

Posted by: Matt Bodie | Jun 22, 2012 6:33:42 PM

If you read the actual report, they conclude that the studies show that campaign contributions don't really matter. Though lobbying does.

Posted by: frankcross | Jun 22, 2012 5:25:47 PM

The idea that political spending "doesn't pay" is naive at best. The studies I've seen show returns on "investment" in the hundreds to thousands of percent. Rent-seeking and corruption is orders of magnitude more profitable and effective for businesses than dated concepts like "doing business in an efficient manner." (See, e.g., http://www.huffingtonpost.com/steven-strauss/actually-corporations-tha_b_1144789.html)

Optimal strategy would seem to be for corporations to spend far MORE money than they already are spending on politicians, and far less on legitimate business decisions, to the point where the rates of return for spending a dollar on a politician and on a legitimate investment are equal! (This squares well with my sense of the way businesses operate in openly corrupt, authoritarian countries, though I admit I don't have a pithy article to cite to prove the point.)

While I wholeheartedly agree that the answer to the questions "should unions be allowed to buy politicians?" and "should corporations be allowed to buy politicians?" ought to be answered identically, the answer to both questions should be "no."

It's pathetic that our notion of "democracy" is so attenuated that the author can actually assert-- apparently in all seriousness-- that rent-seeking is a legitimate "business expense." What's next, a tax deduction line-item for bribes? Donating other people's money (or one's own, for that matter) to buy political favors should be a felony, not a business expense.

(I also don't much understand why the author is bending over backwards to assume that the Court and WSJ "don't seem to understand" the contradiction in their principles. The Court is filled with brilliant people [the WSJ Editorial Board, not so much...]. Assuming that they are interested in enacting dispassionate rules of law, and not in acting to aid political and economic actors with whom they are sympathetic, is as naive as assuming that corporations can't make basic economic calculations and figure out whether donating money to politicians helps them or not.

If what you actually assume is that the Supreme Court is made up of five fairly conservative, unusually wealthy Republicans and four fairly moderate, unusually wealthy Democrats, who understand full well what's going on, this decision is not only logical, it would be curious if it came out otherwise.)

Posted by: Anon | Jun 21, 2012 9:17:37 PM

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