Corporations = People : Fiat Debt Money = Free Speech

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Corporations = People | Fiat Debt Money = Free Speech | You and I Die but Corporations Live on without Responsibility until they are Executed |

See below

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some would say how cute

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Just what is a Super PAC,

just search

Thursday April 14, 2011

Colbert Super PAC – Trevor Potter

SEE HERE

and

Thursday September 29, 2011

Colbert Super PAC – Trevor Potter & Stephen’s Shell Corporation (a C4 corporation in Delaware, anomalous, of course)

Trevor Potter helps Stephen create his own shell corporation so that he can obtain secret donations for his Super PAC.

SEE HERE

( oh, wow, anybody and give any amount, and “donate” it secretly to the SUPER PAC by the c4, which is …. just like money laundering, and nobody gets to know who?)

hmm…..

Steven Colbert Explains Political Corruption, page 1

I was just watching the Colbert Report, and he had a guy named Trevor Potter on his show as a guest. I’m sure you guys already know about the Colbert Super PAC. If not, it’s basically a pac made by Steven Colbert that’s taking advantage of the Supreme Court ruling that money equals speech, and mocks politics in this country.

Well he has Trevor Potter come and and give him a 501c4, this one called “Anonymous Shell Corporation”. Corporations can give to a c4 anonymously, nobody knows who is donating, and this money can be used for politics. Potter explains how lawyers often form Delaware corporations which are called shell corporations that just sit there until they’re needed.

Potter tells him that has to turn his “Anomymous Shell Corporation” into a corporation by having a board of directors meeting, but just Steven by himself is enough for the board of directors. He elects himself as President, Secretary, and Treasurer, and authorizes his corporation to file the papers with the IRS in May 2013. So he can get money for his c4, use it for political purposes, and nobody knows anything about it until 6 months after the election, and even then nobody will know who his donors are.

Without the c4, he’s transparent and people know who his donors are, but with it he’s completely shielded and nobody knows who gave him the money. He can get individual corporate donations of unlimited amounts, and take out political ads. Not only that, but he can take that money, and donate it to his SuperPac. So even though SuperPac’s are transparent, the c4 is secret, so he can take secret donations from the c4 and give it to the supposedly transparent SuperPac. When asked what the difference between that and money laundering is, Trevor Potter says “It’s hard to say”.

In the next segment, he talks about how Karl Rove, Senior Advisor and Deputy Chief of Staff to former President George W. Bush, has a Pac, and 90% of it’s money in 2011 was donated by 3 billionaires. So he plays the “Donating Game” on his show where 3 billionaires come on anonymously to mock the idea that people can donate tons of money and we don’t know who they are.

He takes it a step further in the final part of the show where he interviews Mark Cuban. One of the things he says is that politicians ask him for money “all the time”. He gets “phonecalls, e-mails, letters, FedEx, UPS, everything.”

It seems to me that Jon Stewart and Colbert, even though they are on comedy shows, are more legitimate than any mainstream media station, and actually inform people about what’s going on in the country. The media black-out of Ron Paul, the MSM’s bias, and political corruption are some of the things they’ve covered on their shows. You know things are screwed up in this country when people trust comedy shows more than actual news outlets to give them the information.

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Comedy Central’s Stephen Colbert created his own shell corporation Thursday to demonstrate how Karl Rove launders money to his American Crossroads SuperPAC.

Because Rove only appears on Fox News, a ham loaf with classes substituted for the purposes of Colbert’s interview. With just a few bites out of “Ham Rove,” Colbert gained all of the Republican strategist’s memories and came to understand exactly how the SuperPAC hides its donors.

Unlike American Crossroads, Rove’s Crossroads GPS is a 501c4 organization that does not have to disclose its donors. Crossroads GPS can then transfer donations to the Americans Crossroads SuperPAC and the original donors remain secret.

“Clearly, these c4s have created an unprecedented, unaccountable, untraceable cash tsunami that will infect every corner of the next election,” Colbert noted. “And I feel like an idiot for not having one.”

With the help of former McCain campaign attorney Trevor Potter, Colbert created an anonymous shell corporation and a 501c4 organization.

“So I can get money for my c4, use that for political purposes, and nobody know anything about it until six months after the election?” Colbert asked.

“Yes,” Potter agreed. “And even then they won’t know who your donors are.”

“That’s my kind of campaign finance restrictions,” Colbert joked. “Can I take this c4 money and donate it to my SuperPAC?”

“You can,” Potter replied.

“But wait, SuperPACs are transparent,” Colbert observed. “And the c4 is secret. So I can take secret donations to my c4 and give it to my supposedly transparent SuperPAC. What is the difference between that and money laundering?”

“It’s hard to say,” Potter said.

Watch this video from Comedy Central’s The Colbert Report, broadcast Sept. 29, 2011.

The Colbert Report

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Colbert Super PAC

From Wikipedia, the free encyclopedia
Americans for a Better Tomorrow, Tomorrow
Motto Making a better tomorrow, tomorrow
Formation 2011
Purpose/focus Political action committee
President Stephen Colbert
Website ColbertSuperPAC.com

Americans for a Better Tomorrow, Tomorrow[1] (better known as the Colbert Super PAC) is a United States political action committee (PAC) established by Stephen Colbert, who portrays a conservative political pundit on the television series The Colbert Report. As a super PAC the organization can raise unlimited sums of money from corporations, unions and other groups, as well as wealthy individuals.[2][3] Speaking in character, Colbert said the money will be raised not only for political ads, but also “normal administrative expenses, including but not limited to, luxury hotel stays, private jet travel, and PAC mementos from Saks Fifth Avenue and Neiman Marcus.”[4]

During the January 12, 2012 episode of The Colbert Report, Colbert announced his plans to form an exploratory committee to lay the groundwork for his possible candidacy for “President of the United States of South Carolina.” In the process, he transferred control of the Super PAC to Jon Stewart, renaming it The Definitely Not Coordinating With Stephen Colbert Super PAC. On January 30, 2012, Stewart transferred the super PAC back to Colbert.

In a January 31, 2012 FEC filing, the Super PAC reported raising over $1.02 million.[5] During this announcement of his million dollar earnings on February 2, 2012, Colbert stated a call to the nation to Google Bomb Super PAC’s definition to “A frothy mix of lube and campaign funding that is sometimes the byproduct of politics.”[6] The next day, DefineSuperPac.com[7] was registered and posted Stephen’s new definition on the landing page. This all being a reference to Rick Santorum’s Google Problems.

Contents

[hide]

[edit] Founding

Colbert filed a request with the Federal Election Commission (FEC) asking for a media exemption for coverage of his then-prospective super PAC on a May 2011 episode of The Colbert Report.[8][9] The FEC voted 5-1 to grant The Colbert Report a limited media exemption during a June 2011 public meeting.[10] Following the hearing, Colbert formally filed paperwork for the creation of his super PAC with the FEC secretary.[11]

Colbert Super PAC’s treasurer, Salvatore Purpura, resigned on August 11, 2011 to work as campaign treasurer for Rick Perry. Shauna Polk took over treasurer duties for Colbert’s PAC.[12]

On September 29, Colbert consulted his lawyer and they set up his own 501(c)(4) organization, similar to American Crossroads.[13] Colbert will serve as president, secretary, and treasurer of his new organization and its stated purpose will be to educate the public.[13] However, the organization may legally donate to his Super PAC, lobby for legislation, and participate in political campaigns and elections, as long as campaigning is not the organization’s primary purpose. Colbert’s organization may legally accept unlimited funds which may be donated by anonymous donors. Since the Federal Election Commission doesn’t require full disclosure, Colbert likens his 501 (c)(4) to a “Campaign finance glory hole“: “You stick your money in the hole, the other person accepts your donation, and because it’s happening anonymously, no one feels dirty!” Colbert is currently looking for a billionaire donor, or in the language of Colbert, a “sugar daddy.”[14]

Colbert initially named his Delaware corporation and 501(c)(4) organization Anonymous Shell Corporation,[15] however, according to the Delaware Secretary of State’s Office the official name was changed to “Colbert Super PAC SHH Institute” on the same day it was filed. According to experts, Colbert’s actions are perfectly legal and shine a light on how the financing of elections has dramatically changed since the 2010 Supreme Court ruling that corporations have free-speech rights to spend unlimited amounts of money in political advertising to elect or defeat candidates for office.[13][15] The official animal of the Stephen Colbert Super PAC is the walrus.

[edit] Funds

In an October, 2011 email to his supporters Colbert explained how his 501(c)(4) can be used to legally launder anonymous donations to his Super PAC, “Americans for a Better Tomorrow, Tomorrow.”

As you know, when we began Colbert Super PAC, we had a simple dream; to use the Supreme Court’s Citizens United ruling to fashion a massive money cannon that would make all those who seek the White House quake with fear and beg our allegiance…in strict accordance with federal election law.
And you’ve responded generously; giving your (or, possibly, your parents’) hard-earned money in record numbers. And although we value those donations, we were somewhat surprised to note that none of them ended in “-illion.
That is why I formed the Colbert Super PAC S.H.H., a 501(c)(4), to help lure the big donors. As anybody who thumbs through the tax code on the toilet knows, a 501(c)(4) organization is a nonprofit that can take unlimited donations and never has to report the donors. This should be especially helpful considering that establishing this new 501(c)(4) has quadrupled our parentheses budget.
Already, we have gotten a massive donation from [NAME WITHHELD], a kind and [ADJECTIVE WITHHELD] person who only wants to [OBJECTIVE WITHHELD].”[16]

In a January 31, 2012 FEC filing, the Super PAC reported raising over $1.02 million. The filing also listed donors who gave more than $200 to the Super PAC, including Lieutenant Governor of California Gavin Newsom ($500), actor Bradley Whitford ($250), and actress Laura San Giacomo ($250). In a press release Colbert said, “We raised it on my show and used it to materially influence the elections — in full accordance with the law. It’s the way our founding fathers would have wanted it, if they had founded corporations instead of just a country.”[5]

[edit] Ad campaigns

On August 10, the first ad by the Super PAC, titled “Episode IV: A New Hope,” ran in Iowa, telling Iowans to write-in “Rick Parry” instead of Rick Perry at the Ames Straw Poll.[17][18][19] The following day the second ad (“Behind the Green Corn”) was run.[20][21] Two Iowa television stations ran the ads; however, WOI-TV told Colbert that they would not run the ads because they considered them confusing to viewers.[22]

In October 2011, the Super PAC released its third ad, titled “Foul Balls,” concerning the 2011 NBA lockout.[4] It also released a fourth ad, also related to the NBA lockout, titled “Ball Gags.”

[edit] Run for “President of the United States of South Carolina”

During the January 12, 2012 episode of The Colbert Report, Colbert announced his plans to run for “President of the United States of South Carolina.” Colbert’s lawyer, Trevor Potter, made it clear that it is illegal for Colbert to run for president while active in his Super PAC (though it would be perfectly legal for him to “volunteer” on its behalf). Colbert then signed over control of his Super PAC to Jon Stewart (President pro tempore), and announced that the organization would now be referred to as “The Definitely Not Coordinating With Stephen Colbert Super PAC.”[23] Immediately after this legal block was removed, Colbert announced his decision to form an exploratory committee for his run for “President of the United States of South Carolina”.[24] Super PACs are not allowed to coordinate directly with candidates or political parties since they are “independent”, however a candidate may talk to his super PAC through the media and the super PAC can listen, just like everybody else.[25] In a press release, the new PAC president, Jon Stewart, denied that he and Colbert would secretly coordinate their efforts: “Stephen and I have in no way have worked out a series of Morse-code blinks to convey information with each other on our respective shows.”[26]

During the run-up to the South Carolina primary, the super PAC released an “over the top negative ad” attacking Mitt Romney[5] (“If Mitt Romney really believes ‘corporations are people, my friend’ then Mitt Romney is a serial killer“)[27] and another which first attacked Stephen Colbert and then attacked the Super PAC itself. Both urged South Carolinians to vote for Herman Cain (a former candidate who had suspended his campaign but whose name still appeared on the primary ballot), whom Colbert was using as a proxy as it was too late to get on the ballot himself.[28]

A January, 19 poll showed that if Colbert were to run for “president of the United States of South Carolina,” 18% said they were at least “kinda somewhat likely” to cast their ballot for Colbert, including 4% who were very likely, 7% who were somewhat likely, and 7% who were “kinda somewhat likely.” However, 13% reported they were not too likely, 56% say they were not likely at all, 8% didn’t know enough about him, and 4% a were unsure. Poll results showed that 52% of the potential Republican primary electorate in South Carolina were aware that Stephen Colbert was exploring a potential candidacy for president of the United States of South Carolina, while 48% were unaware or unsure. 21% of the potential Republican primary electorate reported they would be more likely to vote for former candidate Herman Cain if that vote served as encouragement for Colbert, while 62% would be less likely to cast their ballot for Cain, and 9% were unsure.[29] On January 21, the “Cain/Colbert” combo received over 6,000 votes, a fifth-place finish.[30]

[edit] References

  1. ^ “Colbert’s Super PAC Not Actually Called Colbert Super PAC”. TPMMuckraker. Talking Points Memo. 2011-07-01. Retrieved 2011-07-01.
  2. ^ “Outside Spending”. Center for Responsive Politics.
  3. ^ “Rick Perry Super PACs Raise Issues of Coordination, Collusion”. Huffingtonpost.com. 2011-08-13. Retrieved 2011-08-16.
  4. ^ a b Khan, Huma (September 8, 2010). “Stephen Colbert’s Super PAC Takes on the NBA – ABC News”. Abcnews.go.com. Retrieved October 19, 2011.
  5. ^ a b cStephen Colbert’s Super PAC has raised over $1 million, according to filing with FEC” (January 31, 2012). Associated Press.
  6. ^ “”Stephen Colbert’s Call To Google Bomb”. Colbert Nation. February 3, 2012. Retrieved February 3, 2012.
  7. ^ “”DefineSuperPac.com”. DefineSuperPac.com. February 3, 2012. Retrieved February 3, 2012.
  8. ^ Knott, Alex (May 12, 2011). “Stephen Colbert Files FEC Request for Colbert PAC (VIDEO)”. Roll Call.
  9. ^ Vogel, Kenneth P. (May 13, 2011). “Stephen Colbert at the FEC? Really”. Politico.
  10. ^ Bauerly, Cynthia L. (June 30, 2011). “Advisory Opinion” (Press release). Retrieved 2011-10-19.
  11. ^ Shear, Michael (2011-06-30). “Colbert Gets Permission to Form Super-PAC”. New York Times. Retrieved 2011-07-01.
  12. ^ Levinthal, Dave (August 16, 2011). “Stephen Colbert loses treasurer to Rick Perry”. Politico. Retrieved August 17, 2011.
  13. ^ a b c “Colbert takes satirical swipe at disclosure laws to create corporation in Del”. Delaware Online. Retrieved October 6, 2011.
  14. ^ “Stephen Colbert Plays ‘The Donating Game’ With Kevin Kline To Find Billionaire Donor (VIDEO)”. Huffingtonpost.com. September 30, 2011. Retrieved October 19, 2011.
  15. ^ a b Sink, Justin (2011-09-30). “Colbert creates shell corporation to lampoon Karl Rove’s groups – The Hill’s Video”. The Hill. Capitol Hill Publishing Corp..
  16. ^ http://blogs.delawareonline.com/dialoguedelaware/2011/10/07/armed-with-his-anonymous-delaware-shell-corporation-colbert-seeks-massive-donations/
  17. ^ Sands, Geneva (2011-08-10). “VIDEO: Colbert launches first super PAC ad – The Hill’s Blog Briefing Room”. Thehill.com. Retrieved 2011-08-16.
  18. ^ “Colbert Sends Message to pro-Rick Perry PACs – Back Off! – The Note”. ABCNews.com. 2011-08-09. Retrieved 2011-08-16.
  19. ^ “Stephen Colbert | Rick Parry | Ames Straw Poll”. The Daily Caller. 2011-07-19. Retrieved 2011-08-16.
  20. ^ “Colbert SuperPAC’s Debut Vote for ‘Rick Parry’ Ads”. Colbertnewshub.com. 2011-08-12. Retrieved 2011-08-16.
  21. ^ “Colbert’s SuperPAC releases another corny ad | The Examiner | Yeas & Nays”. Washington Examiner. Retrieved 2011-08-16.
  22. ^ POSTED: 10:01 am CDT August 12, 2011 (2011-08-12). “‘Colbert Report’ Slams Iowa TV Station – Commitment 2012: Iowa Caucuses News Story – KCCI Des Moines”. Kcci.com. Retrieved 2011-08-16.
  23. ^ “Colbert Super PAC Under New Management!”. Colbertsuperpac.com. Retrieved January 19, 2012.
  24. ^ Allen, Mike (January 12, 2012). “Stephen Colbert to explore run for president in South Carolina – Politico”. politico.com. Retrieved January 12, 2012.
  25. ^ Will Jon Stewart go to jail for running Stephen Colbert’s super PAC? By Peter Grier, 18 January 2012
  26. ^ Montopoli, Brian (January 13, 2012). “Stephen Colbert isn’t really running for president”. CBS News. Retrieved January 19, 2012.
  27. ^ “Mitt Romney is a Serial Killer”. Political Wire. January 15, 2012. Retrieved January 19, 2012.
  28. ^ “Colbert Super PAC Backs Cain”. Political Wire. January 17, 2012. Retrieved January 19, 2012.
  29. ^ http://maristpoll.marist.edu/119-colbert/
  30. ^ http://www.npr.org/blogs/itsallpolitics/2012/01/21/145583425/herman-cain-gets-a-colbert-bump-in-south-carolina

[edit] External links

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Some of the books below, which I read many years ago, and I wish to share a bit about, indicate that we were awake to this issue and were warning people about the corruptions of corporations as they are institutionalized,  from a long time ago.

Actually one should go back to the “Imperial  Entitlements” in various “Royal Charters” and Decreed into existence “Monopolies” in the age of  Europe empire building, like those of England, France, Portugal, Spain, Holland, etc, and their colonial expansions and extensions,  to ruminate on the beginnings of these corporate entity entitlements , welfare and socialism for the elite insider rich,  as opposed as capitalism, conscription into the armed, and slave labor for the common “subjects” workers  and poor.

So much to present and so little time and resources, but once you are on your way by the guidance and direction and blessings of God to the truths however unpleasant, you can search and see more by your own initiatives.

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going and going on

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The Post Corporate World: Life After Capitalism
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When Corporations Rule the World

When Corporations Rule the World [Paperback]

David C Korten (Author)

4.4 out of 5 stars  See all reviews (79 customer reviews) | Like (10)

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Book Description

Publication Date: May 10, 2001
“”It is absolutely essential to be exposed to David C. Kortens work. . .on corporations and viable alternatives to corporate hegemony.””
–Educate! Volume 2, Issue 3
*An international best-seller
*Endorsed by Archbishop Desmond Tutu and World Economic Forum Founder Klaus Schwab
This second edition updates the reader on the deepening human crisis of the global economy. The gap between rich and poor continues to grow, and people continue to exploit the planet. Korten writes of the new global citizens’ movement of activism in response to corporate globalization, and of civil society groups’ efforts to restructure global economic governance. He transitions from a critical analysis of the new world order to an optimistic focus on the role of spirit and culture in a “civil-ized” society.

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Editorial Reviews

From Publishers Weekly

This well-documented, apocalyptic tome describes the global spread of corporate power as a malignant cancer exercising a market tyranny that is gradually destroying lives, democratic institutions and the ecosystem for the benefit of greedy companies and investors. Korten (Getting to the 21st Century) points out his conservative roots and business credentials?and then proceeds to finger such classic conspiracy-theory scapegoats as the Trilateral Commission and Council on Foreign Relations as the planning agents of the new world economic order he decries. Korten, founder of the People-Centered Development Forum, prescribes a reordering of developmental priorities to restore local control and benefits. Suggested reforms include shifting tax policies to punish greed and reward social responsibility, placing a 100% reserve requirement on demand deposits at banks and closing the World Bank, which he claims encourages indebtedness in nations that can’t afford it.
Copyright 1995 Reed Business Information, Inc. –This text refers to the Hardcover edition.

From Library Journal

Korten (Getting to the Twenty-First Century, Kumarian Pr., 1990) brings impressive credentials to the task of blaming large international corporations for many of the social and environmental problems confronting people all over the world. Using numerous well-researched examples, Korten argues that not only do today’s corporations exploit labor and the environment, but governments (particularly the U.S. government), the World Bank and the International Monetary Fund, aid and abet this exploitation through policies that favor capitalists over workers and small business. Although Korten speaks from an obviously liberal position, in an era when conservative political voices declare an unswerving faith in the benefits of unfettered free markets, a voice from the opposition offers a welcome balance. Recommended for public and academic libraries.?Andrea C. Dragon, Coll. of St. Elizabeth, Convent Station,
Copyright 1995 Reed Business Information, Inc. –This text refers to the Hardcover edition.


Product Details

    • Paperback: 385 pages
    • Publisher: Berrett-Koehler Publishers; 2nd edition (May 10, 2001)
    • Language: English
    • ISBN-10: 1887208046
    • ISBN-13: 978-1887208048
    • Product Dimensions: 9 x 6.1 x 1.1 inches
    • Shipping Weight: 1.2 pounds (View shipping rates and policies)
    • Average Customer Review: 4.4 out of 5 stars  See all reviews (79 customer reviews)
    • Amazon Best Sellers Rank: #50,909 in Books (See Top 100 in Books)

More About the Author

David C. Korten

Biography

In addition to an active schedule of writing and speaking on global issues, I serve as president of the People-Centered Development Forum, chair the board of YES! Magazine (yesmagazine.org), serve on the board of the Business Alliance for Local Living Economies. (livingeconomies .org), and co-chair the New Economy Working Group (neweconomyworkinggroup.org). For more information and periodic updates, visit my website davidkorten.org. You can also follow me on twitter.com/dkorten and facebook.com. The Great Turning has an active facebook.com group.

Customer Reviews

79 Reviews
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Average Customer Review
4.4 out of 5 stars (79 customer reviews)
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210 of 224 people found the following review helpful:
5.0 out of 5 stars Negative Reviews,May 2, 2002
This review is from: When Corporations Rule the World (Paperback)

The people who gave this book one star obviously did not read the book, just looked at the title, maybe read he dust jacket, and decided to rail against it on Amazon for the benefit of their greed-soaked souls. OK, so maybe that last bit was a low blow, but seriously, their objections are WAY off base. Korten is not a communist. It is funny how people can still confuse autocratic communism as practised by the Soviet Union and China with the kind of democratic pluralism advocated by Korten, and realized to a small extent in a few industrialized nations. If you read even a chapter of this book, it is obvous that Korten is in favor of the market, but subordinated to the interest of the people, something that the negative reviewers must find repugnant.He is also not a conspiracy theorist. All of his assertions are based on the principles of positive feedback and greed which it is easy to see operating in the world today. Greedy corporations amass wealth and power thus allowing them to satiate their greed with a freer hand. It happens.

He does, in fact, address the issue of overpopulation, but one reviewer here lies and states the opposite. Overpopulation is a problem, and Korten does not say otherwise, but notes that those of the first world usually focus on it to the exclusion of all else, a point seemingly proven in this very forum.

My last salvo against the negative reviewers is that they, with the exception of the liar, refuse to deal with any of what Korten actually says in the book. They cannot refute his positions–particularly thorny must be the well written analysis of how modern business, which claims to idolize Adam Smith, actually completely disregards his conditions for an efficient market–so they simply resort to ad hominem attacks, typical of the conservative movement. Most amusing of all is the reviewer who implies that the book isn’t even worth talking about by saying he won’t dignify it with further analysis or comments. Pray tell, sir, why you bothered to write a review at all? He cannot refute its positions through analysis, so he will not analyze it at all.

All in all, this is a fantastic book for anyone who knows deep down that something is wrong with the current world order but lacks the information or the economic tools to really uncover what it is. Korten lays it out, but it’s up to us to change it.

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87 of 91 people found the following review helpful:
5.0 out of 5 stars Thank you David Korten,September 10, 1998
By

No book or university course has provided me such a concise description with compelling examples, measures and details of the workings and history of the global economy.The title could have been simply “Corporations Rule the World”.

First and foremost, the book provides a foundation for thinking about sustainable business, ones’ role in society, day-to-day habits and our collective need to create a future for our children.

Take note, however, that the book is worth a read in a very pragmatic and personal way, as a primer for investors.

I was given the book on Aug 17 ’98 and finished it by the 22nd. In recent years, I had placed all of my hard earned cash, and some inheritence from hardworking grandparents — for convenience sake — in the hands of fund managers dealing in “blue chip” companies in the global equity markets. Understanding something from Kortens’ book, and his apt description of the world now around us…I sold all of those equities and funds on the 24’th. The markets collapsed on the 25’th. I’ll go back to directing my own investments with the cash I’ve saved — thanks to a timely reading of Korten’s informative book.

Kortens’ work is as brilliant as a Hitchcock movie — providing space for the reader to fill in the “gaps”, to “get” his global picture in a personal way. Korten avoids confronting readers with the simple statement that WE ARE corporations. We ARE government and we ARE civil society — however healthy or sick…

Having said that, Korten’s book is entertaining and frightening because he is fact-based and truthful.

Unlike other Amazon.com book reviewers, I generally accept and enjoy pondering Korten’s ideas.

I volunteer and commit to spend my rare time on this planet to forward Korten’s kind of agenda for people-centered development. There’s no point having kids and no way to sleep at night, without wisdom and change.

I’ll invest in new forms of global business opportunity, based on Korten’s wisdom and call for change. I’ll start by changing myself, to make my actions consistent with my words, to make my words consistent with such wisdom as Korten’s and to make my business work towards a healthy tomorrow.

Thank you, David Korten.

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68 of 72 people found the following review helpful:
4.0 out of 5 stars It’s not When, they do. Good overview of the concerns.,April 28, 2003
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This review is from: When Corporations Rule the World (Paperback)

The fact that transnational corporations and their agendas have come to dominate cultural, political, and economic life on a global scale can hardly be disputed. These powerful corporations have used national governments and government-created international bodies to create a legislative and institutional regime that accedes to and actively promotes and implements a “free-market” ideology. This book is largely concerned with detailing the tremendous costs to the political, economic, and social fabric of the entire global community as corporations have become ever more capable under this ideological regime in extracting wealth and generating huge profits on a worldwide basis. The author sees poverty, social and political disintegration, and environmental degradation as the main consequences of this global corporate ascendance.The ability of corporations to penetrate the political and cultural sectors of our society is hardly a late twentieth century phenomenon. Despite the founders’ efforts to contain corporations by explicit and revocable state charters, emerging industrialists in the post-Civil War era became powerful enough to sway legislators and the judiciary to act in their behalf. Not only did corporations generally gain rights to perpetuity, but the Supreme Court declared corporations to be legal persons entitled to the same rights as ordinary citizens, in addition to limited liability. By the late 1920s capitalism had largely emerged triumphant over worker and community interests. Consumerism was instilled as the only legitimate avenue for realizing individualized “freedom.”

According to the author, a form of democratic pluralism existed among the civil, governmental, and market sectors of society in the post-WWII era, but any such sectorial accommodation was mostly an aberration that came about only because of the necessity to solve the twin crises of the Great Depression (caused by corporate-led economic excess) and WWII. Any social accord that may have existed was shredded as corporations, backed by the Reagan administration, renewed their assault on the working class and relentlessly pursued self-interested global strategies. Over the last two decades, middle-class jobs have been lost, median pay has stagnated, and austerity has been imposed on the less fortunate as a profound upward redistribution of wealth and income has occurred.

Globally, the structural adjustment measures forced upon developing nations by the World Bank and the IMF to qualify for loans, ripped the fabric of those societies and have actually increased indebtedness to First World bankers. Trade agreements and administrative bodies, such as the NAFTA and the WTO, are designed to eliminate local restrictions on investments by international firms and barriers to the free movement of goods between nations. The freedom for capital to move freely among nations has also fueled rampant financial speculation unrelated to productive investment. Unconscionably, American taxpayers have been forced to bailout those engaged in extracting wealth from the developing world.

Free market ideology is used to justify the gutting of the social and legal structures of nations. But it is a disingenuous view. Free market activities posited by Adam Smith involve local, individual economic actors, none of whom have the power to control the marketplace. Unregulated market activities by huge economic entities can result in market coercion. For example, monopolistic firms can externalize costs, that is, they are powerful enough to force societies to pay for the social and environmental side-effects of their activities. For example, labor and environmental regulations are often ignored with impunity with society picking up the pieces.

The impact of corporations acting as legal persons cannot be overemphasized. Corporations overwhelm actual citizen political participation and free speech by the extent and intensity of their political lobbying and media controlling efforts. Corporations and the rich, in a form of legalized bribery, basically fund political campaigns. They also heavily sway public opinion through public relations front organizations, conservative think-tanks, and the control of the major media. The dependency of the media on advertising dollars virtually guarantees presentation of views that are compatible with corporate interests, not to mention the fact that the huge media empires are themselves transnational corporations with no interest in harming broader corporate interests.

As the author indicates, corporations have largely “colonized” the common culture. Television is the main media outlet for the inculcation of business-friendly values, which emphasizes the avid pursuit of consumption. Even political activity has become mostly the marketing of pleasing candidates. The message is incessantly and subtly delivered that a free market system is self running and stabilizing and needs little or no political interference. Of course, the reality is far different. Corporations have infiltrated government at all levels with the sole purpose of ensuring that governments take an active role in supporting the corporate agenda, or pro-business regulation. In addition, governments are left to deal with the unprofitable aspects of society or side-effects of corporate actions. The net effect is a democracy hardly worthy of the name.

The author’s principal approach to this regime of corporate hegemony is to call for a rollback to self-sustaining local communities. Such recommended measures as land reform (breaking up corporate farms) and urban agriculture seem almost quaint. The author confuses his message of a return to pre-consumption-dominated life by calling for high tech solutions, such as video-phones, to link local communities. Where does he think high tech products come from other than corporate development labs? A hard-hitting analysis seems to be getting waylaid by some fuzzy spirituality.

But the most practical approach is contained in the book. Free market propaganda has to be countered and a regime of regulating big business through governmental controls must be instituted. Is there any hope for this? The Seattle protest and other citizen demonstrations show that the democracy-killing initiatives of the WTO have not gone unnoticed. In addition, it has been claimed that 25 percent of the population belongs to a cultural grouping called “Cultural Creatives,” who can be expected to oppose insensitive corporate agendas. And the author takes no note of minority interests that are generally opposed to the conservative business agenda. The author wants to see a cultural transformation, but a heightened awareness of class will be needed to combat the class warfare being perpetrated on the non-elites of the world

One of the most important books of all time!,July 1, 2011

This review is from: When Corporations Rule the World (Paperback)

This book should be required reading for every college student. It deserves a place with Plato’s Republic, Machiavelli’s The Price, and Hobbes’ Leviathan. Korten outlines in detail the destructive effects of multi-national corporations and how it impoverishes the earth, human society, and human dignity while enriching the wealthy owners of capital. This is not a theoretical treatise but rather a factual account of the myriad ways that corporations rape, rob, and siphon off as much assets as possible from the community. It explains lucidly and terrifyingly how corporations wield the enormous power granted them by corporate law, a law constructed by the robber barons of the 19th century to allow them to maximize profits while shielding them from any responsibility to their employees, the community, and indeed the government.

An eye opening and inspiring book!

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5.0 out of 5 stars Corporations are Cannibalising our Planet,June 29, 2011
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This review is from: When Corporations Rule the World (Paperback)

A must read for emerging neo-Capitalists, Wall streeters and common folks. Great account of corporate greed and looting by financial institutions from an academic who’s familiar with the inner workings.

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1 of 1 people found the following review helpful:
5.0 out of 5 stars When Corporations Rule the World,May 30, 2010
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Miss Boo (Southern California) – See all my reviews
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This tells it all. If everyone read this book, we’d be able to help improve our country and the world! Important book!

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3 of 3 people found the following review helpful:
5.0 out of 5 stars A must read,May 25, 2010
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This review is from: When Corporations Rule the World (Paperback)

This is a wonderful introductory treatment of the problem that we have with corporations. In a nutshell, the economic problem with the routine use of the corporate organizational form is that it allows the externalization of the costs of risk. In fact, the whole point of the incorporation statutes is to encourage investing that might not otherwise happen if the investors are liable for claims up to the full amount of their property. The state, therefore, by means of the incorporation statutes, encourages investment risk that the free market would not allow. But since the allocation of risk is at the heart of every business transaction, clearly the incorporation statutes are the most invasive and damaging of all state interventnions into the workings of the free market.

All pro-corporate types need to get this fact: corporations are in essence anti-free-market devices, the sole purpose of which is to achieve the externalization of investment risk through state intervention.

The corporate organizational form has absolutely nothing to do with the free market. Corporations are, in point of fact, designed to negate the discipline of the free market.

It follows that one cannot simultaneously support the (at least, routine) use of the corporate organization form in business and claim fealty to free market principles. These are diametrical opposites. The free market cannot countenance corporations, and corporations cannot allow the operation of the free market. One is the kryptonite of the other.

The one point that corporate “capitalist” types will never address: what happens to the value of the risk that the investors avoid by availing themselves of the incorporation statutes? I’ve never met a “capitalist” who would answer that question directly. They seem to want us to all join them in closing our eyes and ears and making believe that the value of the risk investors avoid through state-sponsored “legal personality” simply disappears. But the value of risk is real. Like in the laws of thermodynamics, you can’t make matter or energy magically disappear from a system. It is always conserved. In the same way the very real value of risk must be accounted for.

Since 2008 we see that the value of risk is real, and that it always exists even if the state in effect commands us to ignore it. We are now witnessing the socialization of unimaginable investment risk value being externalized onto the taxpayers. It’s clear where the value of that risk goes – it’s externalized onto society at large. Corporate types refuse to admit this, because they gain so much by screwing society.

Korten was very much a man of the Left his entire life. I was very much a man of the Right. I used to be a corporate type. I am a corporate and tax attorney. I worked in house for some of the largest corporations in the world. I know from the inside that they are evil entities run by good people. The fact that Korten from the Left and I from the Right wound up meeting our minds in the free-market, anti-corporate center says something about the validity of the position put forth in this book.

I recommend it very highly.

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4.0 out of 5 stars Missing one Thing,May 1, 2010
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This review is from: When Corporations Rule the World (Paperback)

This is an excellent overview of what went wrong and why it did. Korten goes through the globalist banking system and the corporations that feed off this system. He also mentions one of the reasons why things went so badly is because of Bretton Woods (destruction of the gold standard) which would have kept the credit markets in check. Instead, he goes on and on about other back to basics and ‘spiritual’ solutions to the economy. Yet another book that gets the problems right, but the solutions wrong.

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3 of 3 people found the following review helpful:
4.0 out of 5 stars The 15 Points Economic Transformation Plan,May 11, 2009
This review is from: When Corporations Rule the World (Paperback)

The book was first published in 1995 and this edition in 2001, but in the wake of the financial crisis, it is relevant now as ever.Unfortunately things have gotten worse in the years that past.

Corten depicts the blueprint of the global system which destroyes the lives and future of humanity. In doing so he has done a great service to all of us.

However, as a materialist I do not share Corten’s solution to the problem being a spiritual awakening. I also do not like his superficial view of socialsim.

What I do take from Corten’s recipes is his 15 points transformation plan, as he writes:
“The goal is to transform an undemocratic and rapacious capitalist economy into a democratic and socailly efficient market economy.”

1. Financial Transactions Tax.
2. Graduated Surtax on Short-Term Capital Gains.
3. 100% Reserve Requirement on Demand Deposits.
4. Tight Regulation og Financial Derivatives.
5. preferential Treatment of Community Banks.
6. Rigorous Enforcement of Antitrust Laws.
7. Worker and Community Buyout Options.
8. Tax Shifting.
9. Annual Profit Payout.
10. End Corporate Welfare.
11. Reform of intellectual Property Rights.
12. Guaranteed Income.
13. Progressive Income and Consumption Taxes.
14. Pay Equity.
15. Equitable Allocation of Paid Employment.

Hopefully, Obama’s successors will implemnet this inevitable plan in the near future.

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6 of 6 people found the following review helpful:
5.0 out of 5 stars Yet Another Timely Review,October 7, 2008
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This review is from: When Corporations Rule the World (Paperback)

You know, sometimes the synchronicities of my life amaze even myself. Here I started reading this book “When Corporations Rule The World” by David Korten, and all of a sudden, the US economy tanks and all sorts of corporations and banks start going under faster than Congress’ credibility. And sure, we all had been watching it happening for awhile, being built up inside yet another unsustainable bubble and driven by mass speculation and corruption as it was, but the really big piles of fecal matter hit the air circulation devices in late September/early October . . . right as I was reading this book. (A few years ago I had written another review for the book “The New Pearl Harbor” by David Ray Griffin, about 9/11 and the Bush administration . . . right as the so-called “terrorist” attacks in Britain occurred.)

Why is this synchronicity important? Well, Mr. Korten has revealed some really pertinent information in this book that, quite frankly, has a lot to do with said situation. He wrote the first edition back in 1995, and it is now considered a classic. The whole book might as well be a Cliff Notes reader for the economic “disaster” and “bailout” happening at this very moment. In fact, check out this quote from page 188: “Speculation is another form of extractive investment. The financial speculator is engaged in little more than a sophisticated form of gambling – betting on the rise and fall of selected prices. When a speculator wins, he or she is simply capturing claims to wealth created by others. When a large speculator funded with borrowed money loses, the survival of major financial institutions may be placed at risk, resulting in demands for a public bailout to save the financial system from collapse. In either instance, the public loses. Rarely does a speculator’s activity contribute to the wealth or well-being of society.” Seeing as how Congress and the Bush administration have simply put the proverbial band-aid over the crack in the dam, and yet again sold their souls to corporate rule rather than fixing the system that actually FED the troubles (pardon the pun), methinks David Korten is presently shaking his head and saying “I told you so.”

I highly recommend this book. Part V (“Reclaiming Our Power”) and Part VI (“From Corporate Rule To Civil Society”) offer fantastic, practical and empowering ideas on how the people can take back the power that was stolen from them by the corporations. As an example, he suggests we start by stripping the corporations of their “personhood” that was essentially given to them with the 1886 Supreme Court decision of Santa Clara County vs. Southern Pacific Railroad. This is the reason we have lost so much of our political power – the fact that corporations have the same citizens’ rights as do the citizens (and of course, we all know they actually have MORE rights since they have more money.) He is not shy in saying that the source of troubles in the world (economic, political, and environmental) stem from the unrestrained clout and muscle held by corporations and “predatory capitalism.” He also emphasizes the importance of the anti-WTO protests in Seattle in 1999 and even suggests massive decentralization of governmental powers.

This is a most timely review. More importantly, it is a most timely book, one that is sure to enlighten the reader with necessary, alternative views of the current economic situation.

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8 of 8 people found the following review helpful:
4.0 out of 5 stars Globalism and the Growth of Greed.,September 2, 2008
This review is from: When Corporations Rule the World (Paperback)

“When Corporations Rule the World” is thoroughly documented and very accurate.
David Korten describes the many tentacles of global corporations. He examines the details surrounding the case of Santa Clara County v. Southern Pacific Railroad as the beginning of corporations receiving the same rights as individual citizens.

He covers the rise of corporate power in the 1880’s and 1890’s. President Rutherford B. Hayes observed- “This is a government of the people, by the people, and for the people no more. It is a government of corporations, by corporations, and for corporations.”

The author assesses the “free” market and “free” trade as instruments that allow global corporations to plan and organize world economic affairs to enrich themselves without any consequences regarding the environment or workers.
Mr. Korten explains why capitalism favors the limited liability corporation. It provides unlimited, concentrated power with very limited accountability or legal liability.
He favors corporate charters because there is accountability. Charters are a priviledge rather than a right.

Mr. Korten examines the flawed projections that served as propaganda for NAFTA’s passage. He emphasizes that while government shares some of the blame, the “giant corporations that owe no allegiance to place, people, or human interest” are the benficiaries.
From page 133- “The game of global competition is rigged. It pits companies against people in a contest that the people almost always lose.”
Another accurate view on page 207 states- “The argument that globalization increases competition is simply false. To the contrary, it strengthens tendencies toward global-scale monopoly.”

The author explains why GATT and the WTO are bad for the general public, great for global corporations. I disagree with his idea of keeping either the U.N. family of organizations or the Bretton Woods group. Why not get rid of them all?

His take on the China trade agreement was on point. The day after Bill Clinton signed the China trade agreement the Wall Street Journal “noted the real reason the corporate establishment put it’s full lobbying weight behind the China Trade Bill: to guarantee that U.S. companies could safely move more production to China with assured access to U.S. markets.” Does anyone else remember the Chinese campaign contributions to Clinton?

The author has some intriguing solutions in the book. His idea of eliminating income tax on the lower income levels is one positive step. However I don’t agree with some of his ideas. Guaranteed income is one of them.

“When Corporations Rule the World” is a sobering assessment of corporate greed that respects no borders. While it is somewhat dated, I recommend it.

<>

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

” The purpose of MAI-type agreements is to remove virtually all barriers to investment by corporations. Foreign investors would be required to be treated the same as domestic investors…

So while the MAI-and now its clones-would threaten nearly every public sector of national economies such as health care, education, and culture, government spending for the military weapons development and production, and direct support for weapons corporations are excluded from the liberalizing demands of such an agreement.

NAFTA mechanisms, as well as the WTO, IMF, and World Bank are totally / undemocratic, with no access by the people. They are run by the nations with the greatest wealth, the U.S. in the first place-with the corporations and banks pulling the strings…

So it is clear that the new world order of the free market promises further erosion of the U.N., more wars, destruction of sovereignty, elimination of social programs for the people, increasing poverty and joblessness, and the demise of democracy. “

Karen Talbot, CovertAction Quarterly magazine

Building an Elite Consensus
Buying Out Democracy
Rise of Corporate Power in America
The Moral Justification of Injustice
The Decline of Democratic Pluralism
Adjusting the poor
Guaranteeing Corporate Rights
Race to the Bottom
An Awakened Civil Society
Quotations

Building an Elite Consensus

excerpted from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

*****

Visions of American Hegemony

The roots of the current drive toward economic globalization go back to the trauma of the depression that preceded World War II. America’s policy elites were deeply concerned about ensuring that nothing similar would ever recur. There were two prevailing ideas as to how this might be accomplished. One would have required major reforms of the U.S. economy, including strong governmental intervention in the market. The other depended on ensuring the domestic American economy sufficient access to foreign markets and raw materials to sustain the continuous expansion required to maintain full employment without market reforms. The latter was by far the more popular alternative among those in power, including a small elite group of foreign policy planners associated with the Council on Foreign Relations.

A meeting ground for powerful members of the U.S. corporate and foreign policy establishments, the Council on Foreign Relations styles itself as a forum for the airing of opposing views-an incubator of leaders and ideas. Its activities are organized around dinner meetings and study programs for its members-often involving influential world figures or foreign policy thinkers-in settings that are conducive to candid off-the-record discussion. It similarly styles its influential Foreign Affairs journal as a forum for the open debate of significant foreign policy issues.

The portion of the Council’s history that is of particular interest to our present inquiry began on September 12, 1939, less than two weeks after the outbreak of World War II. On that day, Walter Mallory, executive director of the Council, and Hamilton Armstrong, the editor of Foreign Affairs, met in Washington with George Messersmith, assistant secretary of state and a member of the Council. They outlined a long-range planning project to be carried out by the Council in close collaboration with the State Department on long-term problems of the war and plans for the peace. Several war and peace studies groups composed of foreign policy experts would produce confidential expert recommendations for President Franklin D. Roosevelt, who, during his tenure as governor of New York, had lived in a town house next door to the Council’s headquarters. Relations between Roosevelt and the Council continued to be close. At that point in history, the State Department lacked the funds and personnel to undertake such studies, so its leadership accepted the Council’s proposal. By the end of the war, the partnership had produced 682 confidential memoranda for the government, with funding provided in part from the Rockefeller Foundation.

The planners anticipated that the defeat of Germany and Japan and the wartime devastation of Europe would leave the United States in an undisputed position to dominate the postwar economy. They believed the more open that economy was to trade and foreign investment, the more readily the United States would be able to dominate it. Working from that logic, the plans produced by the State Department-Council planning groups placed a substantial emphasis on creating an institutional framework that would create an open global economy.

In April 1941, a confidential memo from the Economic and Financial Group of the Council provided the government with the following suggestion on how to frame the public presentation of U.S. objectives for propaganda purposes during the war:

If war aims are stated which seem to be concerned solely with Anglo-American imperialism, they will offer little to people in the rest of the world, and will be vulnerable to Nazi counter promises. Such aims would also strengthen the most reactionary elements in the United States and the British Empire. The interests of other peoples should be stressed, not only those of Europe, but also of Asia, Africa, and Latin America. This would have a better propaganda effect.

Memorandum E-B34, issued by the Council to the president and the State Department on July 24, 1941, outlined the concept of a “Grand Area.” This was the area of the world that the United States would need to dominate economically and militarily to ensure materials for its industries with the “fewest possible stresses.” The minimum necessary Grand Area would consist of most of the non-German world. Its preferred scope would consist of the Western Hemisphere, the United Kingdom, the remainder of the British Commonwealth and Empire, the Dutch East Indies, China, and Japan. The concept outlined in the memo involved working for economic integration within the largest available core area and then expanding outward to weave other areas into the core, as circumstances allowed.

This same memorandum called for the creation of worldwide financial institutions for stabilizing currencies and facilitating programs of capital investment in the development of backward and merge the economic interests of three regional partners: North America (the United States and Canada), Western Europe, and Japan. This idea became a frequent topic of discussion at Bilderberg meetings. It was decided to create a new forum that included the Japanese and had a more formal structure than Bilderberg.

In 1973, the Trilateral Commission was formed by David Rockefeller, chairman of Chase Manhattan Bank, and Zbigniew Brzezinski, who served as the Commission’s director and coordinator until 1977, when he became national security advisor to U.S. President Jimmy Carter. The Trilateral Commission describes itself as follows:

The Commission’s members are about 325 distinguished citizens, with a variety of leadership responsibilities from these three regions. When the first biennium of the Trilateral Commission was launched in 1973, the most immediate purpose was to draw together-at a time of considerable friction among governments- the highest level unofficial group possible to look together at the common problems facing our three areas. At a deeper level, there was a sense that the United States was no longer in such a singular leadership position as it had been in earlier post-World War II years, and that a more shared form of leadership-including Europe end Japan in particular-would be needed for the international system to navigate successfully the major challenges of the coming years. These purposes continue to inform the Commission’s work.

In contrast to Bilderberg, which is known for its secrecy, the Trilateral Commission is a more transparent organization that readily distributes its membership and publication lists to anyone who calls its publicly listed phone number, and its publications are available for sale to the public. Whereas Bilderberg includes many heads of state, other top government officials, and royalty, members of the Trilateral Commission who assume highly administrative positions in government resign from the Commission for the period of their tenure.

The collective power of the Commission’s members is impressive. They include the heads of four of the world’s five largest non-banking transnational corporations (ITOCHU, Sumitomo, Mitsubishi, and Mitsui & Co.); top officials of five of the world’s six largest international banks (Sumitomo Bank, Fuji Bank, Sakura Bank, Sanwa Bank, and Mitsubishi Bank); and heads of major media organizations (Japan Times, Ltd.; Le Poit; Times Mirror Co.; the Washington Post Co.; Cable News Network [CNN]; and Time Warner).

U.S. Presidents Jimmy Carter, George Bush, and Bill Clinton were all members of the Trilateral Commission, as was Thomas Foley, former Speaker of the U.S. House of Representatives. Many key members of the Carter administration were both Bilderbergers and Trilateral Commission members, including Vice President Mondale, Secretary of State Vance, National Security Advisor Brzezinski, and Treasury Secretary Blumenthal. Former members of the Trilateral Commission who went on to hold key positions under the Clinton administration include Warren Christopher, secretary of state; Bruce Babbitt, secretary of the interior; Henry Cisneros, secretary of housing and urban development; Alan Greenspan, chairman of the U.S. Federal Reserve System; Joseph Nye Jr., chairman of the National Intelligence Council, Central Intelligence Agency; Donna E. Shalala, secretary of health and human services; Clifton Wharton, Jr., deputy secretary of state; and Peter Tarnoff, undersecretary of state for political affairs.

Although the Commission publishes its own position papers, its views are conveyed through many outlets not necessarily associated with it. The trilateralist vision of Sony chairman Akio Morita that was published in Atlantic Monthly and discussed in the previous chapter is an example. At the time, Morita was the Japanese chairman of the Trilateral Commission.

It is important to note that the Council on Foreign Relations, the Bilderberg, and the Trilateral Commission bring together heads of competing corporations and leaders of competing national political parties for closed-door discussions and consensus-building processes that the public never sees. Although the participants may believe that they represent a broad spectrum of intersectoral and even international perspectives, in truth, it is a closed and exclusive process limited to elite Stratos dwellers. Participants are predominantly male, wealthy, from Northern industrial countries, and, except for the Japanese on the Trilateral Commission, Caucasian. Other voices are excluded.

The resulting narrowness of perspective is evident in the publications of the Trilateral Commission. They are written by seasoned and thoughtful professionals, and a diversity of views is presented. Yet they all accept without question the ideological premises of corporate libertarianism. The benefits of economic integration and a harmonization of the tax, regulatory, and other policies of the trilateral countries-and ultimately of all countries-are assumed as an article of faith. The debate centers on how, not whether.

No note is taken of the fact that harmonizing standards-which necessarily means setting standards-can be accomplished only through international negotiations, which by their nature must be carried out in secret by the administrative branches of governments. Thus, in the absence of an elected international parliament, a call to harmonize standards is a call to take decisions regarding the standards by which businesses will operate out of the hands of democratically elected national legislative bodies and pass them to the unelected bureaucrats who represent governments in international negotiations. Such a situation lends itself especially well to cozy insider deal making-especially when these bureaucrats come from the same elite circles as members of the Trilateral Commission. For example, Carla Hills, who as U.S. trade representative under President George Bush played a key role in negotiating the General Agreement on Tariffs and Trade (GATT) that established the new World Trade Organization, was a member of the Trilateral Commission.

The fact that George Bush and Bill Clinton were both members of the Trilateral Commission makes it easy to understand why there was such a seamless transition from the Republican Bush administration to the Democratic Clinton administration with regard to the U.S. commitment to pass the North American Free Trade Agreement (NAFTA) and GATT. Clinton’s leadership in advancing what many progressives thought to be a Bush agenda on these agreements won him high marks from his colleagues on the Trilateral Commission but seriously alienated major elements of his core constituency, who had looked to him to provide a less corporatist view of the trade agenda. On this most fundamental of issues, the electoral system gave the voters only the illusion of choice.

The policy actions being advanced by the elite consensus constitute an increasingly effective attack on the institutions of democracy-the very purpose of which is to prevent a small inside elite from capturing control of the instruments of governance. Their dominance of the policy debate largely precludes raising alternatives to prevailing assumptions.

Economic globalization is neither in the human interest nor inevitable. It is axiomatic that political power aligns with economic power. The larger the economic unit, the larger its dominant players, and the more political power becomes concentrated in the largest corporations. The greater the political power of corporations and those aligned with them, the less the political power of the people, and the less meaningful democracy becomes. There is an alternative: to localize economies, disperse economic power, and bring democracy closer to the people. However, networks and alliances made up exclusively of Stratos dwellers are unlikely to articulate and pursue such an alternative. To the contrary, as we shall see in the next chapter, the Stratos dwellers are mobilizing the full resources of the world’s largest corporations behind an effort to consolidate global corporate rule.


When Corporations Rule the World

Buying Out Democracy

excerpted from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

U.S. corporations entered the 1970s besieged by rebellious anti-consumerist youth culture, a mushrooming environmental and product safety movement, and a serious economic challenge from Asia. Not only was their dream of global hegemony in tatters, they even risked losing control of their own home turf. In response, they mobilized their collective political resources to regain control of the political and cultural agenda. Their methods included a combination of sophisticated marketing techniques, old-fashioned vote buying, funding for ideologically aligned intellectuals, legal action, and many of the same grassroots mobilization techniques that environmental and consumer activists had used against the corporations during the 1960s and 1970s. Their campaigns were well funded, involved sophisticated strategies, and were professionally organized. The major goals were deregulation, economic globalization, and the limitation of corporate liability-in short, to enlarge corporate rights and reduce corporate responsibilities. And their campaign continues in full force.

Mobilizing Corporate Political Resources

In 1971, the U.S. Chamber of Commerce sought the advice of Virginia attorney and future Supreme Court Justice Lewis Powell about the problems facing the business community. Powell produced a memorandum entitled “Attack on American Free Enterprise System” that warned of an assault by environmentalists, consumer activists, and others who “propagandize against the system, seeking insidiously and constantly to sabotage it.” He argued that it was time “for the wisdom, ingenuity and resources of American business to be marshaled against those who would destroy it.” This set the stage for an organized effort by a powerful coalition of business groups and ideologically compatible foundations to align the U.S. political and legal system with their ideological vision.

Among Powell’s recommendations was a proposal that the business community create a business-organized and -funded legal center to promote the general interests of business in the nation’s courts. This led to the formation of the Pacific Legal Foundation (PLF) in 1973. Housed in the Sacramento Chamber of Commerce building, it was the first of a number of corporate-sponsored “public-interest” law firms dedicated to promoting the interests of their sponsoring corporations. It specialized in defending business interests against “clean air and water legislation, the closing of federal wilderness areas to oil and gas exploration, workers’ rights, and corporate taxation.” Some 80 percent of its income was from corporations or corporate foundations.

In a 1980 speech, PLF’s managing attorney Raymond Momboisse turned reality on its head by attacking environmentalists for their “selfish, self-centered motivation . . .; their ability to conceal their true aims in lofty sounding motives of public interest; their indifference to the injury they inflict on the masses of mankind; their ability to manipulate the law and the media; and, most of all, their power to inflict monumental harm on society.”

Business interests funded the establishment of law and economics programs in leading law schools to support scholarly research advancing the premise that the unregulated marketplace produces the most efficient-and thereby the most just-society. Business funded all-expense-paid seminars at prestigious universities such as George Mason and Yale to introduce sitting judges to these economic principles and their application to jurisprudence.

Before the 1970s, business interests were represented by old-fashion, corporate lobbying organizations with straightforward names: Be Institute, National Coal Association, Chamber of Commerce, or American Petroleum Institute. As aggressive public-interest groups succeed’ in mobilizing broad-based citizen pressures on Congress, business decided that another approach was needed.

Corporations began to create their own “citizen” organizations with names and images that were carefully constructed to mask their corporate sponsorship and their true purpose. The National Wetland Coalition, which features a logo of a duck flying blissfully over a swam was sponsored by oil and gas companies and real estate developers fight for the easing of restrictions on the conversion of wetlands in drilling sites and shopping malls. Corporate-sponsored Consumer Alert fights government regulations on product safety. Keep America Beautiful attempts to give its sponsors, the bottling industry, a are. image by funding anti-litter campaigns, while those same sponsors < tively fight mandatory recycling legislation. The strategy is to convin the public that litter is the responsibility of consumers-not the packaging industry.

The views of these and similar industry-sponsored groups-thin six of them are documented in Masks of Deception: Corporate Front Groups in America-are regularly reported in the press as the views of citizen advocates. The sole reason for their existence is to convince the public that the corporate interest is the public interest. The top funders of such groups include Dow Chemical, Exxon, Chevron USA, Mob DuPont, Ford, Philip Morris, Pfizer, Anheuser-Busch, Monsanto, Procter & Gamble, Phillips Petroleum, AT&T, and Arco.

Business interests funded the formation of new conservative poll think tanks such as the Heritage Foundation and revived lethargic pro-establishment think tanks such as the American Enterprise Institute which experienced a tenfold increase in its budget. In 1978, the Institute for Educational Affairs was formed to match corporate funders with sympathetic scholars producing research studies supportive of corporate views on economic freedom.

In 1970, only a handful of the Fortune 500 companies had public affairs offices in Washington, but by 1980, more than 80 percent did In 1974, labor unions accounted for half of all political action committee (PAC) money used to provide special-interest campaign support for politicians. By 1980, the unions accounted for less than a fourth this funding.!’ With the inauguration of U.S. President Ronald Reagan in 1981, the ideological alliance of corporate libertarians consolidated its control over the instruments of power.

Although many of those involved in these campaigns truly believe that they are acting in the public interest, what we are seeing is a frontal assault on democratic pluralism to advance the ideological agenda of corporate libertarianism. Though advanced in the name of freedom and democracy, this massive abuse of corporate power mocks them both.

Building Business Lobbies

Business roundtables are national associations of the chief executive officers (CEOs) of the largest transnational corporations. Whereas more inclusive business organizations such as national chambers of commerce and national associations of manufacturers include both large and small firms representing many different interests and perspectives, the members of business roundtables are all large transnational corporations aligned with the economic globalization agenda.

The first Business Roundtable was formed in the United States in 1972. Its 200 members include the heads of forty-two of the fifty largest Fortune 500 U.S. industrial corporations, seven of the eight largest U.S. commercial banks, seven of the ten largest U.S. insurance companies, five of the seven largest U.S. retailers, seven of the eight largest U.S. transportation companies, and nine of the eleven largest U.S. utilities. In this forum, the CEO of DuPont chemical company sits with the CEOs of his three major rivals: Dow, Occidental Petroleum, and Monsanto. The head of General Motors sits with the heads of Ford and Chrysler-and so on with each major industry. In this forum, the heads of the world’s largest U.S.-based corporations put aside their competitive differences to reach a consensus on issues of social and economic policy for America. The U.S. Business Roundtable describes itself as:

“an association of chief executive officers who examine public issues that affect the economy and develop positions which seek to reflect sound economic and social principles. Established in 1972, the Roundtable was founded in the belief that business executives should take an increased role in the continuing debates about public policy.

The Roundtable believes that the basic interests of business closely parallel the interests of the American people, who are directly involved as consumers, employees, investors and suppliers.

. . . Member selection reflects the goal of having representation varied by category of business and by geographic location. Thus, the members, some 200 chief executive officers of companies in all fields, can present a cross section of thinking on national issues.”

The Roundtable, surely one of America’s most exclusive and least diverse membership organizations, has an unusually narrow notion of what constitutes a “cross section” of thinking on national issues. With few, if any, exceptions, its membership is limited to white males over fifty years of age whose annual compensation averages more than 170 times the U.S. per capita gross national product. Its members head corporations that disavow a commitment to national interests and stand to gain substantially from economic globalization. Once positions are defined, the Roundtable organizes aggressive campaigns to gain their political acceptance, including personal visits by its member CEOs to individual senators and representatives.

The Roundtable took an especially active role in campaigning for the North American Free Trade Agreement (NAFTA). Recognizing that the public might see free trade as a special-interest issue if touted by an exclusive club of the country’s 200 largest transnationals, the Roundtable created a front organization, USA*NAFTA, that enrolled some 2,300 U.S. corporations and associations as members. Although USA*NAFTA claimed to represent a broader constituency, every one of its state captains was a corporate member of the Business Roundtable. All but four Roundtable members enjoyed privileged access to the NAFTA negotiation process through representation on advisory committees to the U.S. trade representative. Using the full range of communication resources available, Roundtable members bombarded Americans with assurances through editorials, op-ed pieces, news releases, and radio and television commentaries that NAFTA would provide them with high-paying jobs, stop immigration from Mexico, and raise environmental standards.

Nine of the USA*NAFTA state captains (Allied Signal, AT&T, General Electric, General Motors, Phelps Dodge, United Technologies, IBM, ITT, and TRW) were among the U.S. corporations that, according to the Inter-Hemispheric Resource Center, had already shipped up to 180,000 jobs to Mexico during the twelve years prior to the passage of NAFTA. Some among the NAFTA captains were corporations that had been cited for violating worker rights in Mexico and for failing to comply with worker safety standards. Many were leading polluters in the United States and had exported to or produced in Mexico products that were banned in the United States. Washington’s major growth industry consists of the for-profit public relations firms and business-sponsored policy institutes engaged in producing facts, opinion pieces, expert analyses, opinion polls, and direct-mail and telephone solicitation to create “citizen” advocacy and public-image-building campaigns on demand for corporate clients. William Greider calls it “democracy for hire.” Burson Marsteller-the world’s largest public-relations firm, with net 1992 billings of $204 million-worked for Exxon during the Exxon Valdez oil spill and for Union Carbide during the Bhopal disaster. The top fifty public relations firms billed over $1.7 billion in 1991.

In the United States, the 170,000 public-relations employees engaged manipulating news, public opinion, and public policy to serve the interests of paying clients now outnumber actual news reporters by about 40,000-and the gap is growing. These firms will organize citizen letter-writing campaigns, provide paid operatives posing as “housewives” to present corporate views in public meetings, and place favorable news items and op-ed pieces in the press. A 1990 study found that almost 40 percent of the news content in a typical U.S. newspaper originates from public-relations press releases, story memos, and suggestions. According to the Columbia Journalism Review, more than half of the Wall Street Journal’s news stories are based solely on press releases. The distinction between advertising space and news space grows less distinct with each passing day.

While the Republicans have long been known as the party of money, the Democratic Party was historically the party of the people, with strong representation of working-class and minority interests. The Democrats once depended heavily on their strong grassroots political organization-on people more than money-to deliver the votes on election day. These structures in turn forced politicians to maintain some contact with the grassroots and ensured a degree of local accountability. Ties to the party were strong. With the growing role of television in American life and the decline in the U.S. Iabor movement, costly television-based media campaigns have become increasingly central in deciding election outcomes. As a consequence, the grassroots organization that was once the foundation of the Democratic Party structure has disintegrated, causing it to lose its populist moorings and leaving those who once constituted its political base feeling unrepresented.

With the breakdown of this structure, those who run for office under the Democratic Party banner have become increasingly dependent on developing their own fund-raising organizations. This has left them more vulnerable to the influence of monied interests and greatly strengthened the hand of big business in setting the policy agendas of both parties. William Greider maintains that the policy directions of the Democratic Party are now largely set by six Washington law firms that specialize in selling political influence to monied clients and in raising money for Democratic politicians. Working closely with Republicans as well, these firms are in the business of brokering power to whomever will pay their fees. This is the sorry state of American democracy.

The Republican Party has responded most handily to the new circumstances, expertly adapting sophisticated techniques of mass marketing to the task of winning elections. With these techniques, it has accomplished the improbable task of exploiting the alienation of powerless citizens to build a populist political base in support of an elitist agenda.

As men of commerce, Republicans naturally understood marketing better than Democrats, and they applied what they knew about selling products to politics with none of the awkward hesitation that inhibited old-style politicians. As a result, voters are now viewed as a passive assembly of “consumers,” a mass audience of potential buyers. Research discovers through scientific sampling what it is these consumers know or think and, more important, what they feel, even when they do not know their own “feelings.” A campaign strategy is then designed to connect the candidate with these consumer attitudes. Advertising images are created that will elicit positive responses and make the sale.

American democracy isn’t for sale only to America’s transnational corporations. The Mexican government spent upwards of $25 million and hired many of the leading Washington lobbyists to support its campaign for NAFTA. In the late 1980s, Japanese corporations were spending an estimated $100 million a year on political lobbying in the United States and another $300 million building a nationwide grassroots political network to influence public opinion. Together, the Japanese government and Japanese companies employed ninety-two Washington law, public-relations, and lobbying firms on their behalf. This compared with fifty-five for Canada, forty-two for Britain, and seven for the Netherlands. The purpose is to rewrite U.S. Iaws in favor of foreign corporations-and it often works.

Corporate libertarianism-an ideology whose claims and promises are as false and self-serving as the claims of cigarette companies that nicotine is non-addictive and cigarette smoke poses no health hazard-has become the dominant philosophy of our political culture and of our most powerful institutions. This is the accomplishment of a persistent campaign that uses the most sophisticated techniques yet developed by the masters of mass marketing and media manipulation. It is one element of a larger campaign to globalize their markets and to embed corporate libertarianism and consumerism in a homogenized global culture.


When Corporations Rule the World

Rise of Corporate Power in America

from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

The fact that the interests of corporations and people of wealth are closely intertwined tends to obscure the significance of the corporation as an institution in its own right. The corporate charter is a social invention created to aggregate private financial resources in the service of a public purpose. It also allows one or more individuals to leverage massive economic and political resources behind clearly focused private agendas and to protect themselves from legal liability for the public consequences.

Less widely recognized is the tendency of corporations, as they grow in size and power, to develop their own institutional agendas aligned with imperatives inherent in their nature and structure that are not wholly under the control even of the people who own and manage them. These agendas center on increasing their own profits and protecting themselves from the uncertainty of the market. They arise from a combination of market competition, the demands of financial markets, and efforts by individuals within them to advance their careers and increase their earnings. Members of the corporate sector also tend to develop shared political and economic agendas. In the United States for example, corporations have been engaged for more than 150 years in a process of restructuring the rules and institutions of governance to suit their interests. Some readers may feel uneasy with my anthropomorphizing the corporation, but I do so advisedly.

Corporations have emerged as the dominant governance institutions on the planet, with the largest among them reaching into virtually every country of the world and exceeding most governments in size and power. Increasingly, it is the corporate interest more than the human interest that defines the policy agendas of states and international bodies, although this reality and its implications have gone largely unnoticed and unaddressed

*****

The corporate charter is a grant of privilege extended by the state to a group of investors to serve a public purpose. Its history goes back at least to the sixteenth century. At that time, an individual’s debts were inherited by his or her descendants and could result in the descendants’ imprisonment through no doing of their own. Those who sailed forth from England to trade for spices in the East Indies faced not only the inevitable perils of the dangerous sea voyage but also the prospect that they and their families could be ruined, even into future generations, if their cargo were lost to bad weather or pirates. The corporation represented an important institutional innovation to overcome this barrier to international commerce. Like so many important inventions, the corporate charter opened enormous new opportunities to advance the interests of human societies-so long as civil society held in check the potential abuse that the concentration of power made possible.

Specifically, the corporate charter represented a grant from the crown that limited an investor’s liability for losses of the corporation to the amount of his or her investment in it-a right not extended to individual citizens. Each charter set forth the specific rights and obligations conferred on a particular corporation-including the share of profits that would go to the crown in return for the special privilege extended. Such charters were bestowed at the pleasure of the crown and could be withdrawn at any time. Not surprisingly, the history of corporate-government relations since that day has been one of continuing pressure by corporate interests to expand corporate rights and to limit corporate obligations.

Holding Corporations at Bay

America was born of a revolution against the abusive power of the British kings. The corporate charter was an institutional instrument of that abuse. Chartered corporations were used by England to maintain control over colonial economies. In addition to such well-known corporations as the East India Company and the Hudson’s Bay Company, many American colonies were themselves chartered as corporations. The corporations of that day were chartered by the king and functioned as extensions of the power of the crown. Generally, these corporations were granted monopoly powers over territories and industries that were considered critical to the interests of the English state.

The English Parliament, which during the seventeenth and eighteenth centuries was made up of wealthy landowners, merchants, and manufacturers, passed many laws intended to protect and extend these monopoly interests. One set of laws, for example, required that all goods imported to the colonies from Europe or Asia first pass through England Similarly, specified products exported from the colonies also had to be sent first to England. The Navigation Acts required that all goods shipped to or from the colonies be carried on English or colonial ships manned by English or colonial crews. Furthermore, although they had the necessary raw materials, the colonists were forbidden to produce their own caps, hats, and woolen and iron goods. Raw materials were shipped from the colonies to England for manufacture, and the finished products were returned to the colonies.

These practices were strongly condemned by Adam Smith in The Wealth of Nations. Smith saw corporations, as much as governments, as instruments for suppressing the competitive forces of the market, and his condemnation of them was uncompromising. He makes specific mention of corporations twelve times in his classic thesis, and not once does he attribute any favorable quality to them. Typical is his observation: “It is to prevent this reduction of price, and consequently of wages and profit, by restraining that free competition which would most certainly occasion it, that all corporations, and the greater part of corporation laws, have been established.”

It is noteworthy that the publication of The Wealth of Nations and the signing of the U.S. Declaration of Independence both occurred in 1776. Each was, in its way, a revolutionary manifesto challenging the abusive alliance of state and corporate power to establish monopolistic control of markets and thereby capture unearned profits and inhibit local enterprise. Smith and the American colonists shared a deep suspicion of both state and corporate power. The U.S. Constitution instituted the separation of governmental powers to create a system of checks and balances that was carefully crafted to limit opportunities for the abuse of state power. It makes no mention of corporations, which suggests that those who framed it did not foresee or intend that corporations would have a consequential role in the affairs of the new nation.

In the young American republic, there was little sense that corporations were either inevitable or always appropriate. Family farms and businesses were the mainstay of the economy, much in the spirit of Adam Smith’s ideal, though neighborhood shops, cooperatives, and worker-owned enterprises were also common. This was consistent with a prevailing belief in the importance of keeping investment and production decisions local and democratic.

The corporations that were chartered were kept under watchful citizen and governmental control. The power to issue corporate charters was retained by the individual states rather than being given to the federal government. The intent was to keep that power as close as possible to citizen control. Many provisions were included in corporate charters and related laws that limited use of the corporate vehicle to amass excessive personal power.’ The early charters were limited to a fixed number of years and required that the corporation be dissolved if the charter were not renewed. Generally, the corporate charter set limits on the corporation’s borrowing, ownership of land, and sometimes even its profits. Members of the corporation were liable in their personal capacities for all debts incurred by the corporation during their period of membership. Large and small investors had equal voting rights, and interlocking directorates were outlawed. Furthermore, a corporation was limited to conducting only those business activities specifically authorized in its charter. Charters often included revocation clauses. State legislators maintained the sovereign right to withdraw the charter of any corporation that in their judgment failed to serve the public interest, and they kept close watch on corporate affairs. By 1800, only some 200 corporate charters had been granted by the states.

The nineteenth century emerged as a time of active and open legal struggle between corporations and civil society regarding the right of the people, through their state governments, to revoke or amend corporate charters. Action by state legislators to amend, revoke, or simply fail to renew corporate charters was fairly common throughout the first half of the century. However, in 1819, the U.S. Supreme Court ruled against the state of New Hampshire in a case in which New Hampshire had attempted to revoke the charter issued to Dartmouth College by King George III before U.S. independence. The Supreme Court overruled the revocation on the ground that the charter contained no reservation or revocation clause.

This decision was seen as an attack on state sovereignty by outraged citizens, who insisted that a distinction be made between a corporation and the property rights of an individual. They argued that corporations were created not by birth but by the pleasure of state legislatures to serve a public good. Corporations were therefore public, not private, bodies, and elected state legislators thereby had an absolute legal right to amend or repeal their charters at will. The public outcry led to a significant strengthening of the legal powers of the states to oversee corporate affairs.

As late as 1855, in Dodge v. Woolsey, the Supreme Court affirmed that the Constitution confers no inalienable rights on a corporation, ruling that the people of the states have not released their power over the artificial bodies which originate under the legislation of their representatives…. Combinations of classes in society. . . united by the bond of a corporate spirit . . . unquestionably desire limitations upon the sovereignty of the people…. But the framers of the Constitution were imbued with no desire to call into existence such combinations.

Spoils of the Civil War

The U.S. Civil War (1861-65) marked a turning point for corporate I rights. Violent anti-draft riots rocked the cities and left the political system in disarray. With huge profits pouring in from military procurement contracts, industrial interests were able to take advantage of the disorder and rampant political corruption to virtually buy legislation that gave them massive grants of money and land to expand the Western railway system. The greater its profits, the more tightly the emergent industrial class was able to solidify its hold on government to obtain further benefits. Seeing what was unfolding, President Abraham Lincoln observed just before his death:

“Corporations have been enthroned…. An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people . . . until wealth is aggregated in a few hands . . . and the Republic is destroyed.”

The nation was divided by the war against itself; the government was weakened by the assassination of Lincoln and the subsequent election of alcoholic war hero Ulysses S. Grant as president. The nation was in disarray. Millions of Americans were rendered jobless in the subsequent depression, and a tainted presidential election in 1876 was settled through secret negotiations. Corruption and insider deal making ran rampant. President Rutherford B. Hayes, the eventual winner of those corporate-dominated negotiations, subsequently I complained, “this is a government of the people, by the people and

for the people no longer. It is a government of corporations, by corporations, and for corporations.” In his classic The Robber Barons, Matthew Josephson wrote that during the 1880s and 1890s, “The halls of legislation were transformed into a mart where the price of votes was haggled over, and laws, made to order, were bought and sold. ” These were the days of men such as John D. Rockefeller, J. Pierpont Morgan, Andrew Carnegie, James Mellon, Cornelius Vanderbilt, Philip Armour, and Jay Gould. Wealth begat wealth as corporations took advantage of the disarray to buy tariff, banking, railroad, labor, and public lands legislation that would further enrich them. Citizen groups committed to maintaining corporate accountability continued to battle corporate abuse at state levels, and corporate charters were revoked by both courts and state legislatures. Gradually, however, corporations gained sufficient control over key state legislative bodies to virtually rewrite the laws governing their own creation. Legislators in New Jersey and Delaware took the lead in watering down citizens’ rights to intervene in corporate affairs. They limited the liability of corporate owners and managers and issued charters in perpetuity. Corporations soon had the right to operate in any fashion not explicitly prohibited by law.

A conservative court system that was consistently responsive to the appeals and arguments of corporate lawyers steadily chipped away at the restraints a wary citizenry had carefully placed on corporate powers. Step-by-step, the court system put in place new precedents that made the protection of corporations and corporate property a centerpiece of constitutional law. These precedents eliminated the use of juries to decide fault and assess damages in cases involving corporate-caused harm and took away the right of states to oversee corporate rates of return and prices. Judges sympathetic to corporate interests ruled that workers were responsible for causing their own injuries on the job, limited the liability of corporations for damages they might cause, and declared wage and hours laws unconstitutional. They interpreted the common good to mean maximum production-no matter what was produced or who it harmed. These were important concerns to an industrial sector in which, from 1888 to 1908, industrial accidents killed 700,000 American workers-roughly 100 a day.

In 1886, in a stunning victory for the proponents of corporate sovereignty, the Supreme Court ruled in Santa Clara County v. Southern Pacific Railroad that a private corporation is a natural person under the U.S. Constitution-although, as noted above, the Constitution makes no mention of corporations-and is thereby entitled to the protections of the Bill of Rights, including the right to free speech and other constitutional protections extended to individuals.

Thus corporations finally claimed the full rights enjoyed by individual citizens while being exempted from many of the responsibilities and liabilities of citizenship. Furthermore, in being guaranteed the same right to free speech as individual citizens, they achieved, in the words of Paul Hawken, “precisely what the Bill of Rights was intended to prevent: domination of public thought and discourse.” The subsequent claim by corporations that they have the same right as any individual to influence the government in their own interest pits the individual citizen against the vast financial and communications resources of the corporation and mocks the constitutional intent that all citizens have an equal voice in the political debates surrounding important issues.

These were days of violence and social instability brought on by the excesses of capitalism that Karl Marx described to powerful political effect. Working conditions were appalling, and wages scarcely covered subsistence Child labor was widespread. By one estimate, 11 million of the 12.5 million families in America in 1890 subsisted on an average of $380 a year and had to take in boarders to survive. Both organized and wildcat strikes were common, as was industrial sabotage. Employers used every means at their disposal to break strikes, including private security forces and federal and state military troops. Violence evoked violence, and many died in the industrial wars of this era.

These conditions gave impetus to a growing labor movement. Between 1897 and 1904, union membership rose from 447,000 to 2,073,000. Unions provided fertile ground for the thriving socialist movement that was taking root in America and called for the socialization and democratic control of the means of production, natural resources, and patents. These were times of open class warfare, with zealous new recruits joining the army of the dispossessed in growing numbers-ready to fight and sacrifice for the cause. Socialists who sought to organize labor along class lines vied for primacy with more conventional unionists who preferred to organize along craft or industrial lines.

These movements united ethnic groups. An emergence of black pride and culture began to unify blacks. The women’s movement took hold, with women forming their own labor unions, leading strikes, and assuming active roles in populist and socialist movements. In 1920, female suffrage (the right to vote) was guaranteed by a constitutional amendment.

In the end, the conditions of chaos and violence that characterized the period of explosive free-market industrial expansion were not conducive to the interests of either industrialists or labor. Competitive battles between the most powerful industrialists were cutting into profits. There was considerable fear among industrialists of the growing political power of socialist and other popular movements, which threatened to bring fundamental change that might eliminate their privileged position.

These conditions set the stage for consolidation and compromise, which transformed social and institutional relationships. Industrialists merged their individual empires into larger combines that consolidated their power and limited competition among them. Formerly bitter rivals, J. P. Morgan and John D. Rockefeller joined forces in 1901 to amalgamate 112 corporate directorates, combining $22.2 billion in assets under the Northern Securities Corporation of New Jersey. This was a massive sum in its day, equivalent to twice the total assessed value of all property in thirteen states in the southern United States. The result was:

The heart of the American economy had been put under one roof, from banking and steel to railroads, urban transit, communications, the merchant marine, insurance, electric utilities, rubber, paper, sugar refining, copper, and assorted other mainstays of the industrial infrastructure.

Eventually, major industrialists came to realize that by providing better wages, benefits, and working conditions, they could undercut the appeal of socialism and at the same time win greater worker loyalty and motivation. There was a parallel interest in the regularization of loosely organized craft-based production processes to take greater advantage of the methods of industrial engineering and mass production. This meant organizing around more highly structured rule-driven production processes that demanded worker stability and discipline.

Big business came to see advantages in working with large moderate (nonsocialist) labor unions that negotiated uniform wages and standards throughout an industry and enforced worker discipline according to agreed rules. These arrangements increased stability and predictability within the system without ultimately challenging the power of the industrialists or the market system.

These reforms took place against a backdrop of continuing struggle. A pro-business judicial system that consistently ruled against labor interests helped prompt the labor movement to become increasingly political, resulting in labor’s development of a legislative agenda and an alliance with the Democratic Party. Reform legislation at local, state, and national levels began to set new social standards and reshape the context of labor relations. Particularly important to labor was the Clayton Anti-Trust Act, which banned court injunctions against striking workers.

Even so, during the Roaring Twenties, corporate monopolies were allowed to flourish within a loosely regulated national economy. A stock market fueled by borrowed money seemed to be a limitless engine of wealth creation. With faith in the free market and the power of big business at its peak, an ebullient President Herbert Hoover proclaimed, “We shall soon with the help of God be within sight of the day when poverty will be banished from the nation.” Irving Fisher, perhaps the leading U.S. economist of the day, announced that the problem of the business cycle had been solved and that the country had settled on a high plateau of endless prosperity.

It was evident that the average American family was better fed, better dressed, and blessed with more of life’s amenities than any average family in history. This reality masked the enormous underlying inequality of an America in which just 1 percent of families controlled 59 percent of the wealth. In October 1929, only a few months after Fisher announced the end of business cycles, the highly leveraged financial system came crashing down. Financial fortunes evaporated almost overnight. It took World War II to provide the impetus for a new social contract between government, business, and labor based on Keynesian economic principles that set the global economic system back on the track of prosperity.

Ascendance and Reversal of Pluralism

By the time Franklin D. Roosevelt became president in 1933, business excesses of the 1920s, the depression, and the resulting plight of farmers, laborers, the elderly, blacks, women, and others had produced a wave of political and cultural radicalism throughout the United States. Roosevelt feared that without dramatic action, this radicalism might overwhelm the entire structure of government. He set about to save the system by pushing through an epic agenda of social and regulatory reforms. Congress’s passage of his National Industrial Recovery Act (NIRA) was key, as it gave government a mandate to play a more active role in achieving an economic recovery that market forces alone seemed unable to manage.

On May 27, 1935, the Supreme Court voided the NIRA and ruled that states could not set minimum wage standards. This decision continued a century-old pattern of Supreme Court defense of business and corporate interests over civil or human rights. Some observers believe that the Supreme Court’s action on NIRA and the minimum wage radicalized a furious Roosevelt, motivating his commitment to a sweeping reform of American institutions. He set about to break up the business trusts, strengthen the regulation of business and financial markets, and push through legislation providing stronger guarantees for worker rights. Programs of public employment were started. A social safety net was put into place.

Roosevelt attacked the Supreme Court with a vengeance and tried to expand its membership with new appointments of his choice. His attempt to “pack” the Court failed, but his charges had a distinct impact on the justices themselves, and the majority became more supportive of progressive initiatives. In the end, Roosevelt’s long period in office allowed him to appoint justices to fill seven of the Court’s nine seats, setting the Court on a liberal course that lasted until the 1970s, when Republican President Richard Nixon began to re-create the Court in its earlier pro-business image.

World War II brought the government into an even more central and politically accepted role in managing economic affairs. The government placed controls on consumption, coordinated industrial output, and decided how national resources would be allocated in support of the war effort. A combination of a highly progressive tax system put in place to finance the war effort, full employment at good wages, and a strong social safety net brought about a massive shift in wealth distribution in the direction of greater equity. In 1929, there had been 20,000 millionaires in the United States and two billionaires. By 1944, there were only 13,000 millionaires and no billionaires. The share of total wealth held by the top 0.5 percent of U.S. households fell from a high of 32.4 percent in 1929 to 19.3 percent in 1949.34 It was a great victory for the expanding middle class and for those among the working classes who rose to join its ranks.

Pluralism flourished into the 1960s, a period of cultural rebellion in the United States. A new generation, the flower children, vocally challenged basic assumptions about lifestyles, the military-industrial complex, foreign military intervention, the exploitation of the environment, the rights and roles of women, civil rights, equity, and poverty. The U.S. corporate establishment was badly shaken by the apparent threat to its values and interests. Perhaps most threatening of all was the fact that the young were dropping out of the consumer culture. This generation was rebelling not against poverty and the deprivations of exploitation so much as against the excesses of affluence. This rejection of materialism by a new generation of Americans in some ways presented a more fundamental threat to the system than had earlier generations of angry workers seeking a living wage and safe working conditions.

The names of consumer activist Ralph Nader and environmentalist Rachel Carson became household words. Liberal Democrats had firm control of Congress and were passing important legislation that extended the scope of governmental regulation to strengthen environmental protection and product and worker safety. The government was aggressively pursuing antitrust cases to break up monopolies and keep markets competitive.

Abroad, U.S. corporations were under attack on two fronts. Japan and Asia’s newly industrializing countries (NICs)-Taiwan, South Korea, Singapore, and Hong Kong-had become enormously successful in penetrating U.S. markets. At the same time, U.S. corporations were being prevented from fully penetrating Southern economies, including those of the NICs, by Southern governments’ aggressive support of domestic industries, protectionism, and foreign investment restrictions. These Southern government policies militated against a “level playing field” for U.S. corporations. With high taxes on corporations and investor incomes and rigorous enforcement of environmental and labor standards at home, U.S. corporations felt doubly handicapped in global competition.

It was a critical historical moment, and the corporate establishment rallied to protect its interests-as will be examined in more detail in Part III. The election of Ronald Reagan as president in 1980 ushered in a concerted and highly successful effort to roll back the clock on the social and economic reforms that had created the broadly based prosperity that made America the envy of the world and to create a global economy that was more responsive to U.S. corporate interests.

In his insightful book Dark Victory, Philippine economist Walden Bello provides a Southern perspective on the Reagan agenda:

[A] highly ideological Republican regime in Washington. . . abandoned the grand strategy of “containment liberalism” abroad and the New Deal modus vivendi at home. Aside from defeating communism, Reaganism in practice was guided by three other strategic concerns. The first was the re-subordination of the South within a US-dominated global economy. The second was the rolling back of the challenge to US economic interests from the NICs, or “newly industrializing countries,” and from Japan. The third was the dismantling of the New Deal’s “social contract” between big capital, big labor, and big government which both Washington and Wall Street saw as the key constraint on corporate America’s ability to compete against both the NICs and Japan.

The debt crisis of 1982 provided the opportunity to address the threat of prospective new NICs. The U.S.-dominated World Bank and International Monetary Fund moved to restructure the economies of debt-burdened Southern countries to open them to penetration by foreign corporations. The “structural adjustment” imposed by these institutions rolled back government involvement in economic life in support of domestic entrepreneurs, eliminated protectionist barriers to imports from the North, lifted restrictions on foreign investment, and integrated Southern economies more tightly into the Northern-dominated world economy. Trade policy was the weapon of choice for imposing similar “reforms” on the NICs.

The full political resources of corporate America were mobilized to regain corporate control of the political agenda and the court system. High on the political agenda were domestic reforms intended to improve the global competitiveness of the United States by getting government “off the back” of business. Taxes on the rich were radically reduced. Restraints on corporate mergers and acquisitions were removed. And the enforcement of environmental and labor standards was weakened. The government sided with aggressive U.S. corporations seeking to make themselves more globally competitive by breaking the power of unions, reducing wages and benefits, downsizing corporate workforces, and shifting manufacturing operations abroad to benefit from cheap labor and lax regulation.

As these measures took hold in the United States, unemployment became a chronic problem, and labor unions lost members and political clout. Wages began to decline, as did the incomes of the poorest households. A fortunate few profited handsomely. The earnings of big investors, top managers, entertainers, star athletes, and investment brokers skyrocketed. The number of billionaires in the United States increased from one in 1978 to 120 in 1994.39 Lending abuses by a deregulated savings and loan industry left U.S. taxpayers with a bill for $500 billion to clean up the mess. They were hard times for ordinary citizens. Greed had a field day.

As the Reagan initiatives took hold abroad, backed by similar conservative revivals in other Western nations, there were parallel declines in most of the other Western countries as well as the indebted countries of the South. Inequality increased within and between countries. Unemployment rose to alarming levels, and many social indicators that had shown steady improvement over the previous three decades stagnated or in some instances began to decline. Many of the indebted Southern countries fell even further into international debt. The number of billionaires in the world increased from 145 in 1987 to 358 in 1994.

The Reagan administration had pledged to arrest U.S. decline. However, it made a number of strategic policy blunders that strengthened U.S. military might and economic growth in the short term but seriously weakened the U.S. position in the global economy over the longer term. First, massive deficit spending on the military contributed to making the United States the world’s leading international debtor country. The main holder of that debt was Japan, the major competitor of the United States. Second, by denying any government role in economic planning and priority setting, the Reagan administration left the economic future of the United States entirely in the hands of corporations that were being pressed by the capital markets to focus only on short-term profits. Third, by allowing corporations to pursue their anti-labor strategy, the United States squandered its key resource in the competitive global marketplace-its human capital.’ The overall result was a significant weakening of U.S. economic strength compared with that of Japan and Western Europe. The consequences were clearly harmful to ordinary American citizens. In the end, they may have been harmful to U.S. corporations as well.

This was not the result of a conspiracy. Major shifts in national policy do not come about as a consequence of corporate and political elites gathering in a conference room to define a strategy for imposing global adjustment. They are far too independent minded and represent too broad a range of conflicting interests. As Bello observes:

What usually occurs is a much more complex social process in which ideology mediates between interests and policy. An ideology is a belief-system-a set of theories, beliefs, and myths with some internal coherence-that seeks to universalize the interests of one social sector to the whole community. In market ideology, for instance, freeing market forces from state restraints is said to work to the good not only of business, but also to that of the whole community.

Transmitted through social institutions such as universities, corporations, churches or parties, an ideology is internalized by large numbers of people, but especially by members of the social groups whose interests it principally expresses. An ideology thus informs the actions of many individuals and groups, but it becomes a significant force only when certain conditions coincide…. Market ideology became a dominant force only when a political elite which espoused it ascended to state power on the back of an increasingly conservative middle-class social base, at the same time that the corporate establishment was deserting the liberal Keynesian consensus in its favor, because of the changed circumstances of international economic competition.

A Question of Governance

Interwoven into the political discourse about free markets and free trade is a persistent message: the advance of free markets is the advance of democracy. Advocates of the free market would have us believe that free markets are a more efficient and responsive mechanism for political expression than even the ballot, because business is more efficient and more responsive to people’s needs than are inefficient and uncaring politicians and bureaucrats. The logic is simple: In the free market, people express their sovereignty directly by how they vote with their consumer dollars. What they are willing to buy with their own money is ultimately a better indicator of what they value than the ballot, and therefore the market is the most effective and democratic way to define the public interest.

Given the growing distrust of government, it is a compelling message, and it embodies an important truth: markets and politics are both about governance, power, and the allocation of society’s resources. It is also a misleading message that masks an important political reality. In a political democracy, each person gets one vote. In the market, one dollar is one vote, and you get as many votes as you have dollars. No dollar, no vote. Markets are inherently biased in favor of people of wealth. Even more important in our present world, and less often acknowledged, is that markets have a very strong bias in favor of very large corporations, which command far more massive financial resources than even the wealthiest of individuals. As markets become freer and global, the power to govern increasingly passes from national governments to global corporations, and the interests of those corporations diverge ever farther from the human interest …

People, even the greediest and most ruthless among us, are living beings with needs and values beyond money. We need air to breathe, water to drink, and food to eat. Most of us have families. All but the most truly demented among us find inspiration in things of beauty, including a natural landscape or a newborn baby. Our bodies are of flesh, and real blood runs through our veins.

Behind its carefully crafted public-relations image and the many fine and ethical people it may employ, the body of a corporation is its corporate charter, a legal document, and money is its blood. It is at its core an alien entity with one goal: to reproduce money to nourish and replicate itself. Individuals are dispensable. It owes only one true allegiance: to the financial markets, which are more totally creatures of money than even the corporation itself.

The problem is deeply embedded in the structure and rules by which corporations are compelled to operate. The marvel of the corporation as a social innovation is that it has the ability to bring together thousands of people within a single structure and compel them to act in concert in accordance with a corporate purpose that is not necessarily their own. Those who revolt or fail to comply are expelled and replaced by others who are more compliant.

As Washington journalist William Greider writes in Who Will Tell the People?

“[The corporations’] . . . tremendous financial resources, the diversity of their interests, the squads of talented professionals- all these assets and some others are now relentlessly focused on the politics of governing.

This new institutional reality is the centerpiece in the breakdown of contemporary democracy. Corporations exist to pursue their own profit maximization, not the collective aspirations of the society. They are commanded by a hierarchy of managers, not the collective aspirations of the society. “

Human societies have long faced the question whether the power to rule will reside with the rich or the poor. We now face a different and even more ominous question, which-to the extent that its implications are fully understood-should unite rich and poor alike in a common cause. Will the power to rule reside with people, no matter what their financial circumstances, or will it reside with the artificial persona of the corporation?

During this critical historical moment, in which one of the most fundamental challenges our species faces is to rediscover the purpose and unity of life, we must decide whether the power to govern will be in the hands of living people or will reside with corporate entities driven by a different agenda. To regain control of our future and bring human societies into balance with the planet, we must reclaim the power we have yielded to the corporation. One important step will be to free ourselves from the illusions of the ideology that legitimates the policies that are freeing the corporation as an institution from human accountability.


When Corporations Rule the World

The Moral Justification of Injustice

by David Korten

from the book

When Corporations Rule the World

published by Kumarian Press

*****

The moral philosophers of market liberalism perpetrate … distortions by neglecting the distinction between the rights of money and the rights of people. Indeed, they have equated the freedom and rights of individuals with market freedom and property rights. The freedom of the market is the freedom of money, and when rights are a function of property rather than personhood, only those with property have rights. Furthermore, by maintaining that the only obligation of the individual is to honor contracts and the property rights of others, the “moral” philosophy of market liberalism effectively releases those who have property from an obligation to those who do not. It ignores the reality that contracts between the weak and the powerful are seldom equal, and that the institution of the contract, like the institution of property, tends to reinforce and even increase inequality in unequal societies. It legitimates and strengthens systems that institutionalize poverty, even while maintaining that poverty is a consequence of indolence and inherent character defects of the poor.

The most basic premise of democracy is that each individual has equal rights before the law and an equal voice in political affairs-one person, one vote. We can rightfully look to the market as a democratic arbiter of rights and preferences-as market liberals advocate-only to the extent that property rights are equally distributed. Although a market can allocate efficiently with less than complete equality, when 358 billionaires enjoy a combined net worth of $760 billion-equal to the net worth of the poorest 2.5 billion of the world’s people-it cannot be assumed that the market will function either justly or efficiently, and the market’s very legitimacy as an institution is called into question.

Publications such as Fortune, Business Week, Forbes, the Wall Street Journal, and The Economist-all ardent advocates of corporate libertarianism-rarely if ever praise an economy for its progress toward eliminating the poverty that leaves more than a billion people living in absolute deprivation or making strides toward greater equity. Rather, they regularly evaluate the performance of economies by the number of millionaires and billionaires they produce, the competence of managers by the cool dispassion with which they fire thousands of employees, the success of individuals by how many millions of dollars they acquire in a year, and the success of companies by the global reach of their power and their ability to dominate global markets.

Take, for example, the cover story of the July 5, 1993, issue of Forbes, trumpeting the extraordinary accomplishments of the free market under the banner “Meet the World’s Newest Billionaires”:

“As disillusion with socialism and other forms of statist economics spreads, private, personal initiative is being released to seek its destiny. Wealth, naturally, follows. The two big openings for free enterprise in this decade have come in Latin America and the Far East. Not surprisingly, the biggest clusters of new billionaires on our list have risen from the ferment of these two regions. Eleven new Mexican billionaires in two years, seven more ethnic Chinese. “

Taking a slightly more populist view, Business Week presented a special report titled “A Millionaire a Minute” in its November 29, 1993, issue. It included this breathless account of what the free market has accomplished in Asia:

“Wealth. To most Asians just one generation ago, it meant moving to the U.S.-or selling natural resources to Japan. But now, East Asia is generating its own wealth on a speed and scale that probably is without historical precedent. The number of non-Japanese Asian multimillionaires is expected to double to 800,000 by 1996…. East Asia will surpass Japan in purchasing power within a decade. And with savings increasing $550 billion annually, it is becoming the world’s biggest source of liquid capital. “In Asia,” says Olarn Chaipravat, chief executive of Siam Commercial Bank, “money is everywhere.” . . . There are new markets for everything from Mercedes Benz cars to Motorola mobile phones to Fidelity mutual funds…. To find the nearest precedent, you need to rewind U.S. history 100 years to the days before strong unions. securities watchdogs and antitrust laws.”

Such stories do not simply glorify the pursuit of greed, they perversely elevate it to the level of a personal religious mission. Never mind that although a few Asians have made vast fortunes and a tiny minority of Asians have risen to the overconsumer class, the suffering of the 675 million Asians who live in absolute poverty continues unabated. In a special 1994 issue, “21st Century Capitalism,” Business Week confirmed that market economics is a class issue and that the corporate libertarians are clear as to whose class interests they are advancing:

“The death throes of communism clearly gave birth to the new era, leaving most nations with only one choice-to join . . . the market economy…. Almost 150 years following the publication of the Communist Manifesto, and more than half a century after the rise of totalitarianism, the bourgeoisie has won. “

The self-proclaimed “value-free objectivity” of economic rationalism aligns easily with the elitist moral philosophy of market liberalism. Seldom has this been more starkly revealed than in a widely publicized staff memo written by Lawrence Summers in his capacity as chief economist of the World Bank. Summers argued that it is economically most efficient for the rich countries to dispose of their toxic wastes in poor countries, because poor people have both shorter life spans and less earning potential than wealthy people. In a subsequent commentary on the Summers memo, The Economist argued that it is a moral duty of the rich countries to export their pollution to poor countries because this provides poor people with economic opportunities of which they would otherwise be deprived.

In another self-justifying twist of moral logic, economic rationalists commonly argue that rich countries best help poor countries by increasing their own consumption to increase demand for the exports of poor countries, thus stimulating their economic growth and lifting their poor up from poverty. Denying or ignoring the existence of environmental limits, they maintain that there is no moral or practical basis for reducing the consumption of the rich to relieve the deprivation of the poor. To the contrary, they argue, it is the moral duty of the rich to consume more to create more growth to provide more opportunities for the poor-a convenient rationalization for tax breaks for investors and the colonization of ever more of the world’s resources to support self-indulgent consumption by those who can afford it. It is scarcely surprising that economic rationalism and market liberalism appeal to people of wealth.

If economic rationalists and market liberals had a serious allegiance to market principles and human rights, they would be calling for policies aimed at achieving the conditions in which markets function in a democratic fashion in the public interest. They would be calling for measures to end subsidies and preferential treatment for large corporations, break up corporate monopolies, encourage the distribution of property ownership, internalize social and environmental costs, root capital in place, secure the rights of workers to the just fruits of their labor, and limit opportunities to obtain extravagant individual incomes far greater than productive contributions.

Corporate libertarianism is not about creating the market conditions that market theory argues will result in optimizing the public interest. It is not about the public interest at all. It is about defending and institutionalizing the right of the economically powerful to do whatever best serves their immediate interests without public accountability for the consequences. It places power in institutions that are blind to issues of equity and environmental balance.

Millions of thoughtful, intelligent people who are properly suspicious of big government, believe in honest hard work, have deep religious values, and are committed to family and community are being deceived by the false information and the distorted intellectual and moral logic repeated constantly in the corporate-controlled media. They are being won over to a political agenda that runs counter to both their values and their interests.

*****

Decline of Democratic Pluralism

by David Korten

from the book

When Corporations Rule the World

published by Kumarian Press

*****

The Case of Sweden

Sweden is known among the Western industrial countries for its success in achieving prosperity and equity through mixing elements of both capitalist and socialist models within a strong framework of democratic pluralism. Sweden’s experience offers instructive insights into the dynamics of pluralism and the consequences of globalization.

Few realize that industrialization came a hundred years later to Sweden than to England. And until the years following World War II, Sweden remained an extremely poor country. In the countryside, many people lived on small farms that, given the poor soil and climate, barely provided them a living. Some died in famines or emigrated. Many others, even well into this century, lived in serf-like conditions on large estates. Illiteracy was widespread. In the late 1940s, it was still common for a family to live in an apartment consisting of one room plus a kitchen (toilet facilities were shared with other families). Even the Swedish royal house was relatively poor by the standards of most of its European cousins.

Sweden’s modern success was a creation of the Swedish Social Democratic Party, which melded and sustained a national consensus that kept it in power for forty-four years, from 1932 to 1976.5 The Social Democrats built Sweden’s elaborate social welfare system. Their wage policies brought working people into the middle class and created a substantial degree of wage equity and greater equity between the wages of women and men than in any other capitalist country. The Social Democrats placed a high priority on maintaining full employment. To encourage Swedish transnational firms such as Volvo, Electrolux, Saab, and Ericsson to concentrate their operations in Sweden, the applicable real effective tax rate was much lower for profits generated in Sweden than for those generated abroad.

An alliance between the major Swedish industrial corporations and organized labor served as the party’s political base and supported the centralized and peaceful negotiation of wages and working conditions y national union and employers’ organizations. This alignment produced significant benefits for both big labor and big capital. The arrangement had important structural flaws, however, that eventually destabilized it. One was a tax system that subsidized larger firms that were expanding and investing at the expense of small-scale and family firms. This led to increasing concentration and monopolization of ownership of the Swedish economy. Although wage policies stressed equality within the working class, the gap between the working class and hose who controlled capital grew substantially. At the time, this was considered the price of maintaining the industrialists’ commitment to he coalition. In the end, it brought about the coalition’s destruction.

When the first shock of rising oil prices hit in 1973-74, the resulting economic slowdown brought a fiscal crisis and triggered popular resistance to higher taxes. During this same period, Sweden was opening its economic borders and becoming a more active player in the international economy. This loosened the bonds that tied capital to local labor and weakened national labor movements.

In the early stages of globalization, the outward expansion of Swedish firms generated new employment at home, and the objectives of the two sides of the alliance did not significantly conflict. But once Sweden’s transnationals began to define their own interests as global ether than national, the alliance between blue-collar workers and the owners of capital began to disintegrate. By this time, Sweden’s highly educated white-collar workers outnumbered blue-collar workers, and “he younger generation was taking the welfare state for granted- Further weakening the political base of Sweden’s Social Democrats.

The growing contradiction between government support for the global expansion of Swedish transnationals and the need to create employment and rising real wages at home could no longer be sustained. In 1976, the Social Democrats lost the election to a three-party center-right coalition government.

When the Social Democrats returned to power in 1982, they were a chastened party intent on promoting policies that would allow Sweden’s industrialists sufficient profit margins on domestic investment to keep them “believing in Sweden,” a phrase coined by P. G. Gyllenhammar, the chairman of Volvo. Maintaining a belief in Sweden meant increasing the share of the national product going to profits compared with wages so that Sweden’s industrialists would find it worthwhile to invest at home. This was accepted as the price of maintaining full employment at a time when unemployment elsewhere in Europe was running at 8 to 9 percent or higher.

The resulting policies pushed corporate profits to previously unimaginable levels. With so much more money in their pockets than could be absorbed by productive investments, Swedish investors turned to speculation, driving up the prices of real estate, art, stamps, and other speculative goods. To stop the upward spiral, the government loosened monetary controls so that the excess funds could spill over into Europe. Money flowed out at such a rate that it helped push real estate prices in London and Brussels to record highs. As the speculative bubble fed on itself, the quick profits offered by speculation drained funds away from productive investments within Sweden. When the bubble in Swedish real estate finally burst, the Swedish banking system lost $18 billion. The bill was picked up by the state and passed on to the Swedish taxpayers.’!

During this period, Sweden’s major industrialists played an active role in dismantling the “Swedish model” that had been constructed by the Social Democratic alliance. The Swedish Employers’ Federation rejected centralized wage bargaining, which had been one of the model’s cornerstones, and allied itself with the Conservative Party. It also bankrolled think tanks espousing a corporate libertarian economic ideology and conducted a major public-relations effort praising individualism and the free market while denouncing the Social Democratic state as oppressive and inept. This led to a weakening of the political apparatus of the state and its ability to define long-term policies.

In 1983, Volvo chairman P. G. Gyllenhammar stepped in to fill the void by forming the Roundtable of European Industrialists, made up of the heads of the leading European transnationals, including Fiat, Nestle, Philips, Olivetti, Renault, and Siemens. The purpose was to define long-term policies for the state and to serve as an international lobby to press for their implementation.

By the end of 1992, the richest 2 percent of Swedish households owned 62 percent of the value of the shares traded on the Stockholm stock exchange and 23 percent of all wealth in the country. While the average Swedish household grew poorer from 1978 to 1988, the richest 450 households doubled their assets. Unemployment had been below 3 percent when the Social Democrats were first voted out of office. It rose to 5 percent in 1992 and was projected to reach 7 percent, even though another 7 percent of the workforce was already engaged in counter-cyclical retraining programs and public employment projects.

From the beginning, the Swedish model contained the seeds of its own destruction. It built a powerful financial elite whose interests were far removed from those of the majority middle class. It bred a sense of welfare complacency among the Swedish people. It failed to install in the younger generation an awareness of democracy’s need to be continually re-created through constant citizen vigilance and political activism. And its prosperity had been built on the unsustainable exploitation of Sweden’s natural resources of timber, iron ore, and hydroelectric power.

As the elites gained more financial power, they were able to pyramid their claims on the resources of society without making a corresponding productive contribution. As the economic borders were opened, the jobs of those who depended on earning wages for doing productive work became hostage to those who controlled capital. The more the government, in its desperation to keep jobs at home, gave in o the demands of the financial elites, the greater the amount of money hat passed into their hands, the greater their power to dictate public policy in their own interest, and the greater the stresses on the social fabric. The parallels to the U.S. experience … are striking.

The Swedish experience reveals a lesson of fundamental importance: democratic pluralism cannot long survive extreme inequality.

The Need for Creative Balance

In our complex modern world, a society ruled by a single sector is inevitably dysfunctional. The institutions of the civic, governmental, and market sectors each have their necessary roles in serving the needs of a well-functioning society.

Civic Sector. The civic or citizen sector is composed of a vast array ~f alliances of people acting to demand their rights and to fulfill their responsibilities as citizens. Such alliances include, among others, the many representational organizations that serve personal-interest constituencies-such as labor unions that represent workers, medical associations that represent doctors, or groups such as the NAACP that represent African Americans. They also include the countless voluntary organizations that organize around shared values to advance a public-interest commitment.

In their political roles, civic organizations supplement political parties as varied and flexible mechanisms through which citizens define and articulate a broad range of interests, meet local needs, and make demands on government. In their educational roles, they provide training grounds for democratic citizenship, develop the political skills of their members, recruit and train new political leaders, simulate political participation, and educate the broader public on a wide variety of public-interest issues. In their watchdog roles, they serve, long with the press, as checks on what Larry Diamond described as the relentless tendency of the state to centralize its power and to evade civic accountability and control.” The civic sector is the foundation of democratic societies. To a substantial degree, citizen organizations and networks are replacing the increasingly corporate-dominated press in the function of public watchdog.

Although it is civil society that grants the mega-institutions of government and the market their power, the institutions of the civic sector are themselves more limited in their ability to amass concentrations of political and economic power. Unlike the institutions of government and the market, which derive their power from their size and financial resources, the strength of the civic sector is found in the number and diversity of its organizations and the speed and flexibility with which they form complex and shifting alliances around shared values and interests. Through such alliances, civic organizations can achieve powerful scale and leverage.

The cacophony of competing voices within an active civil society can be deafening. However, the ability of civic organizations to form alliances around clearly defined public-interest agendas gives them a distinctive role as catalysts of values-based social innovation-defining, articulating, advocating, and building constituencies for positions that may eventually find their way into the political mainstream.

Governmental Sector. Government is the one sector to which society gives the authority to use coercive power in the public interest. Society cedes to government the power to confiscate assets and to deprive a person of physical liberty and even life. In a democracy, this authority is freely, if reluctantly, granted by the citizens-who have the right to withdraw it at their discretion. It is the legitimate exercise of coercive power that gives government its ability to meet essential needs to maintain public order and national security, collect taxes, and reallocate society’s resources to meet public needs-such as the need for sufficient equity to maintain the legitimacy and viability of society’s institutions.

Government also has important incapacities. Because of its ability to command resources, it is insulated from market forces and the discipline those forces impose. Thus government is generally less efficient in the production of goods and services than are organizations whose survival depends on their ability to compete in the marketplace. Government’s competence is in reallocating wealth-an essential social function-not in creating it.

Governments are political organizations and respond to political power. Even democratic governments serve the public interest only when political power is widely shared within a strong and politically active civil society.

Market Sector. The market sector properly specializes in functions involving economic exchange-producing goods and services for sale in response to market demand. The market has a distinctive competence in creating new wealth through value-added activities and is society’s primary source of essential economic entrepreneurship and technological innovation.

However, markets don’t tell people with substantial incomes to consume no more than their rightful share of ecosystem resources. They don’t tell retailers not to sell guns to children. They don’t tell producers that their wastes must be recycled. They don’t give priority in the relocation of scarce resources to the basic needs of those with little or no money before providing luxuries for those who have great wealth, indeed, in each instance, they generally do exactly the opposite.

Markets respond to money and financial values. They do not disinguish between profits earned from the efficient production of goods and unearned profits gained by exercising monopoly power, eternalizing social and environmental costs onto the community, privatizing common property resources, or creating artificial demand through marketing campaigns for unnecessary and even harmful products. In other words, markets are blind to many of the needs of healthy human societies and often encourage behaviors exactly contrary to fundamental human interests-and even to the needs of the market itself.

Furthermore, when market power becomes concentrated in very large corporations, these acquire a distinctive form of coercive power that civil society never intended them to have-the power to deprive people of heir means of livelihood. This power represents a social dysfunction hat only a democratically accountable government can correct.

There is no substitute in a complex modern society for the market ~s an efficient mechanism for setting most prices, motivating productive activity, and processing routine economic transactions. However, although markets are useful institutions for implementing public priorities, they are inappropriate institutions for setting them.

Democratic pluralism melds the forces of the market, government, and civil society to maintain a dynamic balance among the often competing societal needs for essential order and equity, the efficient production of goods and services, the accountability of power, the protection of human freedom, and continuing institutional innovation. This balance finds expression in the regulated market, not the free market, and in trade policies that link national economies to one another within a framework of rules that maintains domestic competition and favors domestic enterprises that employ local workers, meet local standards, pay local taxes, and function within a robust system of democratic governance.

The order of precedence among the three primary sectors is fundamental to the healthy and balanced function of society. A civic sector without government and an organized market is anarchy. This is why civil societies create governments and organized markets. Civil society is, however, the first sector. The authority and legitimacy of all other human institutions flow from it. Since government is the body through which citizens establish and maintain the rules within which the market will function in the human interest, government is appropriately viewed as the second sector. The institutions of the market appropriately function as the third sector.

Globalizing national economies and giving free reign to corporate power invert this order. The market becomes the first sector, government becomes subordinated to corporate interests, and the ability of civil society to hold government accountable to the public interest is seriously weakened. When the market reigns, the corporation is king.

Playing by Different Rules

One of the most basic rules of market economics is that participants I in market transactions must bear the full costs of their decisions-in addition to reaping the benefits. In practice, market players commonly go to considerable lengths to capture the benefits of success for themselves and pass the costs to others. This creates a tension between what efficient markets require and what self-interested market participants are prone to do.

Market players are attracted to the corporation as a form of business organization specifically because the legal nature and structure of the corporation tend to exempt both the corporation and its decision makers from accountability for many of the costs of their activities. Actual shareholders, the real owners, rarely have any voice in corporate affairs and bear no personal liability beyond the value of their investments. Directors and officers are protected from financial liability for acts of negligence or commission by insurance policies paid for by the corporation. The generous compensation of top mangers bears little relation to performance, and they are rarely prosecuted for the illegal acts of the corporation. Acts that would bring stiff prison sentences or even death for individuals result-at worst-in small fines for corporations that are generally inconsequential in relation to corporate assets. Civil liability suits pose perhaps the greatest threat to corporate malfeasance, but even here, corporations can marshal massive legal resources in their own defense and they aggressively seek legislation further limiting their liability; if they lose, insurance companies may pick up the tab. It is with good reason that William M. Dugger characterizes the corporation as “organized irresponsibility.”

Unlike real people, who are all eventually rendered equal by the grave and whose fortunes are subject to confiscation by inheritance taxes, corporations are able to grow and reproduce themselves without limit, “living” and amassing power indefinitely. Eventually, that power evolves beyond the ability of any mere human to control, and the corporation becomes an autonomous entity unto itself, using its power to “create its own culture, using the lens of career to focus corporate culture on profit, size, and power.” Those who serve the corporate interest are well rewarded and derive substantial personal power from their positions. But in the end, their power is conferred by the corporation, and they serve the corporation’s interest at the corporation’s pleasure.

No real person can begin to match the political resources that a large corporation is able to amass in its own behalf. Corporations may lack the right to vote, but that is a minor inconvenience, given their ability to mobilize hundreds of thousands of votes from among their workers, suppliers, dealers, customers, and the public.

The corporate charter remains a useful social innovation that allows us to meet needs that could not be met through other forms of organization. However, like most technologies, it is subject to abuse and has a tendency to take on a life of its own quite apart from the human interest. Left to their own devices, corporations colonize markets and defeat the very mechanisms that theory tells us make the market work in the human interest. We might consider corporations to be anti-market institutions. Thus it is fully appropriate that citizens view corporations with the same skepticism as the early American settlers did, granting corporate charters judiciously, setting clear rules for their function, and holding them accountable for their actions. Most important of all, we must get corporations out of politics.

The owners and managers of corporations have the full rights of any citizen-in their capacity as citizens-to participate in defining public goals and policies. However, corporations themselves, as non-human legal entities created to serve the public interest, have no place using their resources to influence the processes by which citizens define the public interest and set the rules of corporate conduct. Corporations are not people. They are alien to the ways of life and blind to the complex non-material needs of human societies. They should be wholly barred from any form of political participation-a point elaborated in Part VI.

A corporate charter represents a privilege-not a right-that is extended in return for the acceptance of corresponding obligations. It is up to the people, the members of civil society-not the fictitious persona of the corporation-to define these privileges and obligations. We are learning through harsh experience that the survival of democracy depends on holding firmly to this principle.

*****


When Corporations Rule the World

Adjusting the Poor

excerpted from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

In the flurry of global institution building that followed World War II, the spotlight of public attention was focused on the United Nations (UN), which was to be inclusive of all countries, each with an equal voice- at least in its General Assembly. Delegates to the UN are public figures, and debates are open to public view and often heated. Yet the General Assembly has little real power. The real ability to act is vested in the Security Council, in which each of the major powers maintains the right of veto. Judging from its governance structures, it must be concluded that the UN was created primarily to function as a forum for debate.

In contrast, three other multilateral institutions were created with relatively little fanfare to operate outside the public eye-the International Bank for Reconstruction and Development (commonly known as the World Bank), the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT). These three agencies are commonly referred to as the Bretton Woods institutions, in tribute to a meeting of representatives of forty-four nations who gathered in Bretton Woods, New Hampshire, July 1 – 22, 1944, to reach agreement on an institutional framework for the post-World War II global economy. The public purpose of what became known as the Bretton Woods system was to unite the world in a web of economic prosperity and interdependence that would preclude nations’ taking up arms. Another purpose in the eyes of its architects was to create an open world economy unified under U.S. leadership that would ensure unchallenged U.S. access to the world’s markets and raw materials. Two of the Bretton Woods institutions- the IMF and the World Bank-were actually created at the Bretton Woods meeting. The GATT was created at a subsequent international meeting.

Although formally designated as “special agencies” of the UN, the Bretton Woods institutions function nearly autonomously from it Their governance and administrative processes are secret-carefully shielded from public scrutiny and democratic debate. Indeed, the internal operating processes of the World Bank are so secretive that access to many of its most important documents relating to country plans, strategies, and priorities is denied to even its own governing executive directors. In the World Bank and the IMF, the big national powers have both veto power over certain decisions and voting shares in proportion to their shares of the subscribed capital-ensuring their ability to set and control the agenda.

*****

In their roles as international debt collectors, the World Bank and the IMF have become increasingly intrusive in dictating the public policies of indebted countries and undermining progress toward democratic governance and public accountability. As Jonathan Cahn argues in the Harvard Human Rights Journal:

“The World Bank must be regarded as a governance institution, exercising power through its financial leverage to legislate entire legal regimens and even to alter the constitutional structure of borrowing nations. Bank-approved consultants often rewrite a country’s trade policy, fiscal policies, civil service requirements, labor laws, health care arrangements, environmental regulations, energy policy, resettlement requirements, procurement rules, and budgetary policy.” In its governance role, the World Bank-a global bureaucracy-is making decisions for people to whom it is not accountable that would normally be the responsibility of elected legislative bodies. The very process of the borrowing that created the indebtedness that gave the World Bank and the IMF the power to dictate the policies of borrowing countries represented an egregious assault on the principles of democratic accountability. Loan agreements, whether with the World Bank, the IMF, other official lending institutions, or commercial banks, are routinely negotiated in secret between banking officials and a handful of government officials-who in many instances are themselves unelected and unaccountable to the people on whose behalf they are obligating the national treasury to foreign lenders. Even in democracies, the borrowing procedures generally bypass the normal appropriation processes of democratically elected legislative bodies. Thus, government agencies are able to increase their own budgets without legislative approval, even though the legislative body will have to come up with the revenues to cover repayment. Foreign loans also enable governments to increase current expenditures without the need to raise current taxes-a feature that is especially popular with wealthy decision makers. The same officials who approve the loans often benefit directly through participation in contracts and “commissions” from grateful contractors. The system creates a powerful incentive to over borrow.

In effect, those officials who sign foreign loan agreements are obligating the people of the country to future financial obligations completely outside of any process of public review and consent. This becomes especially egregious when, as has happened to millions of people in Bank client countries, the loan-funded projects displace the poor from homes and lands, pollute their waters, cut down their forests, and destroy their fisheries. Then, adding insult to injury, when the bills come due, the poor are told that their social services and wages l must be cut to repay the country’s loan obligations.

The Corporate Connection

Although it seeks to create an image of serving the poor and their borrowing governments, the World Bank is primarily a creature of the transnational financial system. The Bank’s direct financial links to the transnational corporate sector on both the borrowing and the lending ends of its operation have received far too little attention. Technically, the Bank is owned by its member governments, which contribute its paid-in capital; this was only $10.53 billion, as of 1993. In addition member governments have pledged $155 billion that can be called by

the Bank if needed to meet its financial obligations. The paid-in capital and the pledges are not actually loaned out. They secure the Bank’s extensive borrowing operations in the international financial markets, where it raises the funds that are then re-lent to governments at more favorable rates than they could obtain by borrowing directly.

Although the Bank lends to governments, its projects normally involve large procurement contracts with transnational construction firms, large consulting firms, and procurement contractors. These firms are one of the Bank’s most powerful political constituencies. The area of Bank operations that is watched most closely by the Bank’s executive directors-representatives of its shareholder governments- is the procurement process. Each director wants to ensure that the countries he or she represents are getting at least their fair share of procurement contracts. The U.S. Treasury Department is quite up front in its appeals to the corporate interest in supporting funding replenishments for the Bank. Treasury officials point out that for every $1 the U.S. government contributes to the World Bank, more than $2 comes back to U.S. exporters in procurement contracts. As Treasury Secretary Lloyd Bentsen assured Congress in 1994, “The dollars we have sent abroad through the development banks come back home in increased U.S. exports and more U.S. jobs.”

The sole function of one arm of the World Bank, the International Finance Corporation, is to make government-guaranteed loans on favorable terms to private investors whose projects are too risky to qualify for commercial bank financing. It accounts for 10 to 12 percent of total World Bank lending. The potentials for abuse are even greater than with the Bank’s core lending programs. To date, the Bank has kept the International Finance Corporation so far out of the public eye that it is seldom mentioned, even by Bank critics. However, given its own ideological belief in free-market forces, it seems difficult for the Bank to justify a major operation devoted to using publicly guaranteed funds to finance large private ventures that are so risky that commercial banks will not fund them.

If the Poor Mattered

When the formation of the World Bank was proposed, Republican Senator Robert Taft emerged as a formidable opponent. His argument, made in 1945, reveals a significant insight into why foreign aid based on large financial flows is a deeply flawed idea:

“I think we overestimate the value of American money and American aid to other nations. No people can make over another people. Every nation must solve its own problems, and whatever we do can only be of slight assistance to help it over its most severe problems…. A nation that comes to rely on gifts and loans from others is too likely to postpone the essential, tough measures necessary for its own salvation.

Taft maintained that the major beneficiaries would be Wall Street investment bankers: “it is almost a subsidy to the business of investment bankers, and will also undoubtedly increase the business to be done by the larger banks. Subsequent events have substantially affirmed Taft’s argument.

Properly understood, development is a process by which people increase their human, institutional, and technical capacities to produce the goods and services needed to achieve sustainable improvements in their quality of life using the resources available to them. Many of us call such a process people-centered development-not only because it benefits people but also because it is centered in people. It is especially important to involve the poor and excluded, thus allowing them to meet their own needs through their own productive efforts. A small amount of help from abroad can be very useful in a people-centered development process, but too much foreign funding can prevent real development and even break down the existing capabilities of a people to sustain themselves.

Debates about import-substitution versus export-led development rarely acknowledge the people-centered alternative. Both start from the top, focusing on the production of more of the things that people who are already well-off want to buy. Poor people seldom buy imported goods. Their needs are met by simple locally produced goods. When a country seeks to replace imports with domestic production, it usually means producing at home more of the goods that those who are relatively well-off buy from abroad. When a country seeks to increase its exports, it generally means gearing domestic productive capability to producing things for relatively well-off foreigners. In theory, either strategy will produce more jobs for poor people so that they can participate m the money economy. But usually the jobs these strategies provide are too few and too poorly compensated to eliminate poverty. Either strategy can, and in all too many instances does, displace local production of the things that poor people use in order to produce more of the things that wealthier people want-even depriving the poor of their basic means of livelihood, such as when the lands of small farmers are taken over by estates producing for export.

Let’s reduce the problem to its basics. Poverty-generally defined as a lack of adequate money-is not the issue. It is the deprivation associated with a lack of money that is the problem-the lack of access to adequate food, clothing, shelter, and other essentials of a decent life. This simple fact suggests a people-centered alternative to both the import-substitution and export-led development models: pursuing policies that create opportunities for people who are experiencing deprivation to produce the things that they need to have a better life.

This is, in many respects, what Japan, Korea, and Taiwan did. Each made significant investments to achieve a high level of adult literacy and basic education, carried out radical land reform to create a thriving rural economy based on small farm production, and supported the development of rural industries that produced things needed by small farm families. These became the foundation of larger industries. The development of these countries was equity-led, not export-led- contrary to the historical revisionism of corporate libertarians. Only after these countries had developed broad-based domestic economies did they become major exporters in the international economy.

From the standpoint of transnational corporate capital and the World Bank, a people-centered development strategy presents a major problem. Since it creates very little demand for imports, it also creates little demand for foreign loans. Furthermore, it favors local ownership of assets and thus provides few profit opportunities for transnational corporations.

*****

If measured by contributions to improving the lives of people or strengthening the institutions of democratic governance, the World Bank and the IMF have been disastrous failures-imposing an enormous burden on the world’s poor and seriously impeding their development. In terms of fulfilling the mandates set for them by their original architects-advancing economic globalization under the domination of the economically powerful-they both have been a resounding success. In addition, the IMF was highly successful in averting, at least temporarily, a global financial crisis on terms favorable to the Northern commercial banks. Together, the Bank and the IMF have helped build powerful political constituencies aligned with corporate libertarianism, weakened the democratic accountability of Southern governments, usurped the functions of democratically elected officials, and removed most consequential legal and institutional barriers to the recolonization of Southern economies by transnational capital. They have arguably done more harm to more people than any other pair of nonmilitary institutions in human history.


When Corporations Rule the World

Guaranteeing Corporate Rights

excerpted from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

The framework for a post-World War II economy, which had been worked out largely between the United States and Britain, called for the creation of three multilateral institutions: the World Bank, the International Monetary Fund (IMF), and an international trade organization. The latter organization was stillborn because of concerns in the U.S. Congress that its powers would infringe on U.S. sovereignty. The General Agreement on Tariffs and Trade (GATT) served in its stead, with a somewhat ambiguous status, as the body through which multilateral trade agreements were fashioned and enforced.

It was not until January 1, 1995, that the triumvirate was finally completed. A new global organization, the World Trade Organization (WTO), was quietly born during the Uruguay round of GATT. It was a landmark triumph for corporate libertarianism. A trade body with an independent legal identity and staff similar to that of the World Bank and the IMF is now in place, with a mandate to press forward and eliminate barriers to the free movement of goods and capital. The needs of the world’s largest corporations are now represented by a global body with legislative and judicial powers that is committed to ensuring their rights against the intrusions of democratic governments and the people to whom those governments are accountable. What the World Bank and the IMF had accomplished in institutionalizing the doctrines of corporate libertarianism in low-income countries, the WTO now has a mandate and enforcement powers to carry forward m the industrial countries.

The World’s Highest Judicial and Legislative Body

A key provision in the some 2,000 pages of the GATT agreement creating the WTO is buried in paragraph 4 of Article XVI: “Each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.” The “annexed Agreements” include all the substantive multilateral agreements relating to trade in goods and services and intellectual property rights. Once these agreements are ratified by the world’s legislative bodies, any member country can challenge, through the WTO, any law of another member country that it believes deprives it of benefits it expected to receive from the new trade rules. This includes virtually any law that requires imported goods to meet local or national health, safety, labor, or environmental standards that exceed WTO accepted international standards. Unless the government against which the complaint is lodged can prove to the satisfaction of the WTO panel that a number of narrowly restrictive provisions have been satisfied, it must bring its own laws into line with the lower international standard or be subject to perpetual fines or trade sanctions The WTO’s goal is the “harmonization” of international standards Regulations requiring that imported products meet local standards on such matters as recycling laws, use of carcinogenic food additives, auto safety requirements, bans on toxic substances, labeling, and meat inspection could all be subject to challenge. The offending country must prove that a purely scientific justification exists for its action. The fact that its citizens simply do not want to be exposed to the higher level of risk accepted by lower WTO standards isn’t acceptable to the WTO as a valid justification.

Conservation measures that restrict the export of a country’s own resources-such as forestry products, minerals, and fish products- could be ruled unfair trade practices, as could requirements that locally harvested timber or other resources be processed locally to provide local employment. Cases may also be brought against countries that attempt to give preferential treatment to local over foreign investors or that fail to protect the intellectual property rights (patents and copyrights) of foreign companies. Local interests are no longer a valid basis for local laws under the new WTO regime. The interests of international trade, which are primarily the interests of transnational corporations, take precedence.

Challenges may also be brought against the laws of state and local governments located within the jurisdiction of a member country, even though these governments are not signatories to the new agreement. The national government under whose jurisdiction they fall becomes obligated to take all reasonable measures to ensure the compliance of these state or local administrations. Such “reasonable measures” include preemptive legislation, litigation, and withdrawal of financial support.

The fact that local laws are subject to challenge under the WTO does not necessarily mean that they will be. However, there are numerous cases in which these same types of laws were successfully challenged under the previous, less stringent, GATT rules. Even before the GATT / WTO was ratified, the United States, Canada, the European Community, and Japan had each compiled extensive lists of one-another’s laws that they intended to target for challenge once the agreement was m place.

Although the GATT-WTO is an agreement among countries, and challenges are brought by one country against another, the impetus for a challenge normally comes from a transnational corporation that believes itself to be disadvantaged by a particular law. That corporation looks for a government that can be encouraged to bring a challenge. It need not be the government of its country of incorporation; a challenge can be brought by the government of any country that can make a reasonable case that its economic interest is being harmed. For example, a U.S. company growing fruit in Mexico uses a pesticide that leaves a toxic residue on the fruit that complies with the international standard but is greater than the standard of the state of California. The corporation might convince the Mexican government to bring a case against the California standard under WTO. California would have no right to appeal an unfavorable WTO decision in either California or U.S. courts.

Elsewhere in the world, tobacco companies have repeatedly used trade agreements to fight health reforms intended to reduce harm from cigarette smoking. When Taiwan was working on a law that would ban cigarette sales in vending machines, restrict public smoking areas, prohibit all forms of tobacco advertising and promotion, and fund a public education campaign to encourage people to give up smoking the U.S. trade representative responded to complaints from transnational tobacco companies by threatening to call for trade sanctions against Taiwan-even though these laws would affect domestic Taiwanese tobacco companies and U.S. imports equally. After bans on foreign tobacco companies were repealed in Korea as a result of similar pressure, the percentage of male teenage smokers rose from 1.6 percent to 8.7 percent of the male teen population.

When a challenge to a national or local law is brought before the WTO the contending parties present their case in a secret hearing before a panel of three trade experts-generally lawyers who have made careers of representing corporate clients on trade issues. There is no provision for the presentation of alternative perspectives, such as amicus briefs from nongovernmental organizations, unless a given panel chooses to solicit them. Documents presented to the panels are secret except that a government may choose to release its own documents The identification of the panelists who supported a position or con elusion is explicitly forbidden. The burden of proof is on the defendant to prove that the law in question is not a restriction of trade as defined by the GATT.

When a panel decides that a domestic law is in violation of WTO rules, it may recommend that the offending country change its law. Countries that fail to make the recommended change within a prescribed period face financial penalties, trade sanctions, or both

Under the proposed rules, the recommendations of the review panel are automatically adopted by the WTO sixty days after presentation unless there is a unanimous vote of WTO members to reject them. This means that over 100 countries, including the country that won the decision, must vote against a panel decision to overturn it-rendering the appeals process virtually meaningless.

As was GATT, the WTO is a trade organization, and its mandate is to eliminate barriers to international trade and investment. The national representatives who vote in its councils are specialized trade representatives whose primary mandate is to open other markets to exports from their own countries. Responsibilities for maintaining foreign exchange balances; full employment; health, safety, and environmental standards; and protecting the democratic rights of citizens fall under the jurisdictions of other bureaucracies. It may reasonably be anticipated that the WTO will follow the pattern of GATT in giving trade goals precedence over all other public policy concerns

The WTO has legislative as well as judicial powers. GATT allows the WTO to change certain trade rules by a two-thirds vote of WTO member representatives. The new rules become binding on all members. The WTO is, in effect, a global parliament composed of unelected bureaucrats with the power to amend its own charter without referral to national legislative bodies.

Because economic activities have assumed such a large role in modern societies, control of economic rules is one of the most important powers in the world today. Under the WTO, a group of unelected trade representatives will become the world’s highest court and most powerful legislative body, to which the judgments and authority of all other courts and legislatures will be subordinated.

Governance in the Corporate Interest

The world’s major transnational corporations have had a highly influential insider role in GATT negotiations and will be similarly active in the WTO. They are especially well represented in the U.S. delegations, which have had a pivotal role in shaping the GATT agreements. The key to this corporate access is the U.S. Trade Act of 1974, which provides for a system of trade advisory committees to bring a public perspective to U.S. trade negotiations. The trade committees must conform to the Federal Advisory Committee Act of 1972, which sets guidelines for the membership of all such federal advisory committees. The public representation must be “fairly balanced in terms of points of view represented and the functions to be performed by the advisory committee.” Advisory committee processes are also required to be open to public scrutiny.

The U.S. trade representative’s office has chosen to define this requirement to mean only that the advisory committee membership must be representative of the business community with regard to “balance among sectors, product lines, between small and large firms, among geographical areas, and among demographic groups.” A study by Public Citizen’s Congress Watch released in December 1991 found that of 111 members of the three main trade advisory committees, only two represented labor unions. An approved seat for an environmental advocacy organization had not been filled, and there were no consumer representatives. The trade panels rarely announced their meetings to the public and never allowed the public to attend.

The corporate interest, in contrast to the public interest, was well represented. The study found that ninety-two members of the three committees represented individual companies, and sixteen represented trade industry associations-ten of them from the chemical industry. Members of the Advisory Committee for Trade Policy and Negotiations, the most important of the panels, included such corporate giants as IBM, AT&T, Bethlehem Steel, Time Warner, 3M, Corning BankAmerica, American Express, Scott Paper, Dow Chemical, Boeing Eastman Kodak, Mobil, Amoco, Pfizer, Hewlett Packard, Weyerhaeuser, and General Motors-all of which were also members of the U.S. Business Roundtable. Of the corporate members, all but General Motors were represented by either the chairman of the board or the president-in most instances, whichever of these officers functioned as chief executive officer (CEO). According to Public Citizen’s Congress Watch:

“Advisory committees are so intertwined with governmental trade negotiators that panel members require security clearances. One of the perks of membership is a special reading room filled with classified documents available for perusal by nongovernmental advisors. To enable trade advisors’ opinions regarding the current GATT talks to reach negotiators more quickly, a database has been established that instantly puts an advisory committee member’s words at the negotiators’ fingertips. Government sponsors of the trade advisory system take enormous trouble to keep trade advisors fully informed of every twist and turn in the negotiating process. Despite their enormous influence, the corporate trade counselors work in near total obscurity.”

A 1989 Department of Commerce document described the involvement of advisory committee members in the 1979 Tokyo round of

“The advisory members spent long hours in Washington consulting directly with negotiators on key issues and reviewing the actual texts of proposed agreements. For the most part, government negotiators followed the advice of the advisory committee. Whenever advice was not followed, the government informed the committees of the reasons it was not possible to utilize their recommendations.”

.Of the ninety-two corporations represented on the three trade advisory panels, twenty-seven companies or their affiliates had been assessed fines by the U.S. Environmental Protection Agency (EPA) totaling more than $ 12.1 million between 1980 and 1990 for failure to comply with existing environmental regulations. Five-DuPont, Monsanto, 3M, General Motors, and Eastman Kodak-made the EPA’s top ten list of hazardous waste dischargers. Twenty-nine of the member companies or their affiliates had collectively contributed more than $800,000 in a failed attempt to defeat California’s Safe Drinking Water and Toxics Enforcement Act, a statewide initiative to require accurate labeling on potentially cancer-causing products and to limit toxic discharges into drinking water. Twenty-nine had put up over $2.1 million in a successful bid to defeat another California initiative called Big Green, which, among other provisions, would have set tighter standards for the discharge of toxic chemicals.

Clayton Yeutter, in his capacity as U.S. secretary of agriculture under George Bush, stated publicly that one of his main goals was to use GATT to overturn strict local and state food safety regulations. He rationalized, “If the rest of the world can agree on what the standard ought to be on a given product, maybe the US or EC will have to admit that they are wrong when their standards differ.”

The WTO’s global health and safety standards relating to food are set by a group known as the Codex Alimentarius Commission, or Codex. It is an intergovernmental body established in 1963 and run jointly by the UN Food and Agriculture Organization (FAO) and the World Health Organization (WHO) to establish international standards on things such as pesticide residues, additives, veterinary drug residues, and labeling. Critics of Codex observe that it is heavily influenced by industry and has tended to harmonize standards downward. For example, a Greenpeace USA study found that Codex safety levels for at least eight widely used pesticides were lower than current U.S. standards by as much as a factor of twenty-five. The Codex standards allow DDT residues up to fifty times those permitted under U.S. law.

Governmental delegations to Codex routinely include nongovernmental representatives, but they are chosen almost exclusively from industry. One hundred forty of the world’s largest multinational food and agrochemical companies participated in Codex meetings held between 1989 and 1991. Of a total of 2,587 individual participants, only twenty-six came from public-interest groups. Nestle, the world’s largest food company, had thirty-eight representatives. A Nestle spokesperson explained, “It seems to me that governments are more likely to find qualified people in companies than among the self-appointed ayatollahs of the food sector.’

Protecting Information Monopolies

Many of the GATT-WTO provisions have been put forward as necessary to ensure the efficient functioning of competitive markets. Yet the GATT-WTO does nothing to limit the ability of transnational corporations to use their economic power to drive competitors out of the market by unfair means; absorb competitors through mergers and acquisitions; or form strategic alliances with competitors to share technology, production facilities, and markets. Indeed, one area in which GATT calls for strengthening government regulation and standards is its agreement on intellectual property rights-patents, copyrights, and trademarks. Here the call is for strong government intervention to protect corporate monopoly rights over information and technology.

Particularly ominous is the extension through the GATT-WTO of international patent right protection of genetic materials, including seeds and natural medicinals. U.S. companies have aggressively pursued patent protection for seeds and genetic materials in the United States, convincing the U.S. government to extend patent protection to all genetically engineered organisms, from microorganisms to plants and animals-excluding only genetically engineered humans. By patenting the processes by which genes are inserted into a species of seeds a few companies have effectively obtained monopoly rights over genetic research on an entire species and on any useful products of that research. These companies have been pressing hard to turn such patents into worldwide monopolies under the GATT-WTO. In 1992 Agracetus, Inc., a subsidiary of W. R. Grace, was granted a U.S. patent on all genetically engineered or “transgenic” cotton varieties and has applications pending for similar patents in other countries accounting for 60 percent of the world’s cotton crop, including India, China, and Brazil, and in Europe. In March 1994, it received a European patent on all transgenic soybeans and has a similar patent pending in the United States.

Through the ages, farmers have saved seed from one harvest to plant their next crop. Under existing U.S. patent law, a farmer who saves and replants the offspring of a patented seed is in violation of patent law. The move to globalize the protection of seed and other life-form patents has been the subject of massive demonstrations by farmers in India, who realized that under the GATT-WTO agreements, they could be prohibited from growing their own seed stocks without paying a royalty to a transnational corporation.

The industry view of what is right and proper with regard to people’s rights to their means of subsistence has been clearly expressed by Hans Leenders, secretary general of the industry association of corporate seed houses and breeders:

“Even though it has been a tradition in most countries that a farmer can save seed from his own crop, it is under the changing circumstances not equitable that a farmer can use this seed and grow a commercial crop out of it without payment of a royalty…. The seed industry will have to fight hard for a better kind of protection.”

Measures extending patent protection over genetic materials are promoted on the ground that they will speed the advance of agricultural research and improve global food security. Critics argue that such patents stifle research by preventing the use of genetic materials and techniques by any researcher not working under specific license granted by the patent holder. Vandana Shiva, a leader of the Southern opposition to the patenting of life-forms, says, “This is just another way of stating that global monopoly over agriculture and food systems should be handed over as a right to multinational corporations.” What we are seeing is a blatant effort by a few corporations to establish monopoly control over the common biological heritage of the planet.

A review of the accomplishments of the three Bretton Woods institutions brings their actual functions into sharp focus. The World Bank has served as an export-financing facility for large Northern-based corporations. The IMF has served as the debt collector for Northern-based financial institutions. GATT has served to create and enforce a corporate bill of rights protecting the rights of the world’s largest corporations against the intrusion of people, communities, and democratically elected governments.

The Bank and the IMF celebrated their fiftieth anniversary in 1994. Citizen organizations from around the world marked the event by organizing a global campaign around the theme “Fifty Years Is Enough.” Fifty years of Bretton Woods has indeed been far more than enough. The world’s people and environment can scarcely afford more.

World War II did not end the global domination of the weak by strong states. It simply cloaked colonialism in a less obvious, more beguiling form. The new corporate colonialism is no more a consequence of immutable historical forces than was the old state colonialism. It is a consequence of conscious choices based on the pursuit of elite interest. This elite interest has been closely aligned with the corporate interest in advancing deregulation and economic globalization. As a consequence, the largest transnational corporations and the global financial system have assumed ever greater power over the conduct of human affairs in the pursuit of interests that are increasingly at odds with the human interest. It is impossible to have healthy, equitable, and democratic societies when political and economic power is concentrated in a few gigantic corporations. We have created a system that is now beyond the control even of those who created it and whom it richly rewards for serving its ends. Indeed, the system is now turning against them as well. In Part IV, we examine the nature and dynamics of this system.


When Corporations Rule the World

Race to the Bottom

from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

While competition is being weakened at the core, it is intensifying among smaller businesses, workers, and localities at the periphery as they become pitted against one another in a desperate struggle for survival. What the corporate libertarians call “becoming more globally competitive” is more accurately described as a race to the bottom. With each passing day it becomes more difficult to obtain contracts from one of the mega-retailers without hiring child labor, cheating workers on overtime pay, imposing merciless quotas, and operating unsafe facilities. If one contractor does not do it, his or her prices will be higher than those of another who does. With hundreds of millions of people desperate for any kind of job the global economy may offer, there will always be willing competitors. Faced with its own imperatives, the core corporations can do little more than close their eyes to the infractions and insist that they have no responsibility for the conditions of their contractors.

Modern Slavery

Descriptions of the working conditions of millions of workers, even in the ‘modern and affluent” North, sound like a throwback to the days of the early industrial revolution. Consider this description of conditions at contract clothing shops in modern affluent San Francisco:

Many of them are dark, cramped and windowless…. Twelve-hour days with no days off and a break only for lunch are not uncommon. And in this wealthy, cosmopolitan city, many shops enforce draconian rules reminiscent of the nineteenth century. “The workers were not allowed to talk to each other and they didn’t allow us to go to the bathroom,” says one Asian garment worker . . . Aware of manufacturers’ zeal for bargain-basement prices, the nearly 600 sewing contractors in the Bay Area engage in cutthroat competition-often a kind of Darwinian drive to the bottom…. Manufacturers have another powerful chip to keep bids down Katie Quan, a manager of the International Ladies Garment Workers Union in San Francisco, explains, “They say, ‘If you don’t take it, we’ll just ship it overseas, and you won’t get work and your workers will go hungry.'”

In 1992 a [Department of Labor] investigation of garment shops on the U.S. protectorate of Saipan found conditions akin to indentured servitude: Chinese workers whose passports had been confiscated, putting in eighty-four-hour weeks at sub-minimum wages.

The line between conditions in the South and the North as defined by geography becomes ever more blurred. Dorka Diaz, a twenty-year old textile worker who formerly produced clothing in Honduras for Leslie Fay, a U.S.-based transnational, testified before the Subcommittee on Labor-Management Relations of the U.S. House of Representatives that she worked for Leslie Fay in Honduras alongside twelve- and thirteen-year-old girls locked inside a factory where the temperature often hit 100 degrees and there was no clean drinking water. For a fifty-four-hour week, she was paid a little over $20. She and her three-year old son lived at the edge of starvation. In April 1994, she was fired for trying to organize a union.

When the black women who toiled over knitting machines in a Taiwanese-owned sweater factory in South Africa for fifty cents an hour made it known that with the election of Nelson Mandela they expected “a union shop, better wages and a little respect,” the Taiwanese owners responded by abruptly closing their seven South African factories and eliminating 1,000 jobs. Low as the wages were, the cost of labor in South Africa is twice that of labor in Brazil or Mexico and several times that in Thailand or China. Noting that prospective foreign investors have turned wary of South Africa, the New York Times suggests, “There are doubts about the Government’s long-term commitment to capitalism, about whether Mr. Mandela can contain the expectations of the impoverished majority.” In the world of big money and multimillion-dollar compensation packages, greed is a worker who wants a living wage.

In many Southern countries, to say that conditions verge on slavery is scarcely an exaggeration. China has become a favorite of foreign investors and corporations seeking cheap labor and outsourcing for offshore procurement at rock-bottom prices. Business Week described the prevailing conditions of Chinese factory workers:

In foreign-funded factories, which employ about 6 million Chinese in the coastal provinces, accidents abound. In some factories, workers are chastised, beaten, strip-searched, and even forbidden to use the bathroom during work hours. At a foreign-owned company in the Fujian province city of Ziamen, 40 workers-or one-tenth of the work force-have had their fingers crushed by obsolete machines. According to official reports, there were 45,000 industrial accidents in Guangdong last year, claiming more than 8,700 lives…. Last month … 76 workers died in a Guangdong factory accident.

Although the Chinese government reportedly is trying to tighten up on standards, it has faced enormous problems of unemployment since its decision to free up market forces. Tens of millions of rural workers are streaming to the cities. Urban unemployment stood at 5 million in mid-1994, a 25 percent increase in a year. Two million workers lost their jobs in Heilongjiang province in 1993 alone. Millions more urban workers face pay cuts, and half of the government-owned enterprises that employ approximately half of the urban workforce are losing money, creating prospects of massive layoffs and plant closings. Government efforts to tighten up on standards in this “free-market miracle” are also hampered by skyrocketing rates of crime and corruption.

In Bangladesh, an estimated 80,000 children under age fourteen, most of them female, work at least sixty hours a week m garment factories. For miscounting or other errors, male supervisors strike them or force them to kneel on the floor or stand on their heads for ten to thirty minutes.

It isn’t only in the garment industry. In India, an estimated 55 million children work in various conditions of servitude, many as bonded laborers-virtual slaves-under the most appalling conditions. Each child has his or her own story. A few months after his rescue from forced labor, Devanandan told a reporter that he had been coaxed to leave home by a promise of wages up to $100 a month for working at a loom two hours a day while going to school. When he agreed, he found himself locked up in a room where he ate, slept, and was forced to work knotting carpets from four in the morning till late evening for pennies in pay.

Former Indian Chief Justice P. M. Bhagwati has publicly testified to observing examples of boys working fourteen to twenty hours a day: “They are beaten up, branded [with red-hot iron rods] and even hung from trees upside down.” The carpet industry in India exports $300 million worth of carpets a year, mainly to the United States and Germany. The carpets are produced by more than 300,000 child laborers working fourteen to sixteen hours a day, seven days a week, fifty-two weeks a year. Many are bonded laborers, paying off the debts of their parents; they have been sold into bondage or kidnapped from low-caste parents. The fortunate ones earn a pittance wage. The unfortunate ones are paid nothing at all. The carpet manufacturers argue that the industry must have child laborers to be able to survive in competition with the carpet industries of Pakistan, Nepal, Morocco, and elsewhere that also use child laborers.

As we rush to enter the race to the bottom in a globally competitive world, it is sobering to keep in mind just how deep the bottom is toward which we are racing.

The Limits of Social Responsibility

Within the apparel industry, a few socially concerned firms such as Levi Strauss, Esprit, and The Gap are attempting to live by their values. They are proving that a responsible, well-managed company need not tolerate the worst of the conditions described above, but they face the same competitive pressures as others in their industry. Almost inevitably, such firms find themselves developing split personalities. In the end, they finance their public good works and the good pay and conditions of their headquarters staffs by procuring most of the goods they sell through contractors that offer low wages and substandard working conditions.

Consider specifically the case of Levi Strauss, a company widely acclaimed as a leader in the realm of corporate responsibility. In April 1994, the Council on Economic Priorities gave Levi Strauss an award for its “unprecedented commitment to non-exploitative work practices in developing countries.” In 1984, the company was named one of the hundred best companies to work for in America. In June 1992, Money magazine ranked it first among all U.S. companies for employee benefits. Bob Haas, chief executive officer (CEO) of Levi Strauss, was featured in the August 1, 1994, cover story of Business Week titled “Managing by Values,” which emphasized his belief that social responsibility and ethical practice are good business.

In 1985, Bob Haas, as CEO and a member of the Levi Strauss family, led a $1.6 billion leveraged buyout of the company, taking it private specifically to prevent a takeover by outside speculators. The fact that 94 percent of the stock is in Haas family hands has given the company more flexibility in maintaining its social commitment than a publicly held company might have in an era of hostile takeovers.

Under Haas’s leadership, Levi Strauss has set strict standards with regard to the work environment. As evidence that they mean it, the Levi Strauss board of directors voted unanimously to close out $40 million a year in production contracts in China in protest of human rights violations. When the company found that its contractor in Dhaka, Bangladesh, was hiring girls as young as eleven as full-time seamstresses, it worked out an agreement by which Levi Strauss would continue to pay the wages of these girls while sending them to school and paying for their uniforms, books, and tuition. When they reach age fourteen, the minimum employment age set by International Labor Organization standards, they will return to work. By the standards of the industry, Levi Strauss is a candidate for sainthood. But it is sobering to see how constrained even a Levi Strauss can be.

Although Haas asserts that Levi Strauss has made every effort to keep as many of its production jobs in the United States as possible, during the 1980s, it closed fifty-eight U.S. plants and laid off 10,400 workers. According to Haas, if the company had made its decisions on purely economic grounds, its remaining thirty-four production and finishing plants would all have been closed in favor of overseas production.

Even at its plants in the United States, the core-periphery phenomenon is evident. When the authors of The 100 Best Companies to Work for in America visited the Levi Strauss plant in El Paso, Texas, they found that Money magazine had ranked the company number one on the basis of the benefits enjoyed by its headquarters staff, not by staff at its plants. The benefits received by the El Paso production workers were little different from the marginal conditions at other local textile factories. The authors decided not to include the company among the 100 best in the book’s revised edition.

Spreading Cancer

We have focused here on U.S.-based multinationals, because their dysfunctions seem to be spreading through the world like a cancer. By way of 1994, a binge of corporate restructuring in Europe, similar to that in the United States, had pushed Europe’s unemployment rate to 10.9 percent. Even these rates, high as they are, may mask a much deeper dysfunction. In Belgium, unemployment was 8.5 percent in 1992, but 25 percent of the workforce was living on public assistance. Persistent joblessness is resulting in growing social unrest, exacerbating racial tensions, and sparking a vicious backlash against immigrants. Joblessness is especially acute among youth, whose unemployment rate s twice that of the general population and still rising. On March 25, L994, 50,000 students marched down a Paris boulevard, “taunting police and chanting slogans demanding jobs.” A survey of 3,000 European teenagers found them “confused, vulnerable, obsessed with their economic futures.

Pointing out that the unemployment rate in Europe has averaged about 3 percentage points higher than in the United States, The Economist cautioned “no trade barrier will keep out the technological changes hat are revolutionizing work in the rich world; and a trade war is sure o destroy more jobs than it saves. It counseled Europe to respond by emulating the United States to reduce the social safety net benefits that give the unemployed little incentive to seek work,” minimum wages that cost young workers their jobs,” employer social security contributions hat reduce demand for labor, and “strict employment-protection rules” hat discourage firms from hiring by making “it hard, if not impossible, ~ lay off workers once they are on the payroll.” To those who point out hat the quality of jobs in America has deteriorated as a consequence f such policies, The Economist has a ready answer:

Too many [of the jobs being created in America], say the merchants of gloom, are part-time, temporary and badly paid. The real wages of low-skilled workers have fallen over the past decade. Yet in comparison with Europe, this should be seen as a sign of success, an example-of a well-functioning labor market-not a failure. As manufacturing has declined, America and Europe have both faced shrinking demand for low-skilled labor. In America, the relative pay of these workers was allowed to fall, so fewer jobs were lost. European workers, by contrast, have resisted the inevitable and so priced themselves out of work.”

In short, Europe’s unemployment problem is a result of overpaying the poor, taxing the rich, and imposing regulations on European firms that limit their ability to get on with serious downsizing. The Economist editorial pointed to moves by various European countries to reduce minimum wages, cut payroll taxes, and loosen employment-protection laws as signs of hope for Europe. Business Week offered similar counsel:

To ensure it remains competitive once the down-cycle wanes, Europe must be willing to see more of its low-value-added manufacturing jobs move to Eastern Europe and elsewhere…. And it must reduce farm subsidies while continuing to hammer away at high wages and corporate taxes, short working hours, labor immobility, and luxurious social programs. If Europeans don’t follow these prescriptions, this recession may be doomed to be more than just a cyclical one…. Putting up trade barriers will only insulate Europeans from the discipline they need to maintain.

Although they are running a bit behind the United States, the evidence suggests that European companies and governments are increasingly heeding this advice, which means that the unemployment, racial tension, and social unrest currently plaguing Europe are almost certain to spiral upward. We may presume that The Economist will then praise Europe for its success.

Although Japan, with unemployment below 3 percent, continues to be the full-employment champion of the industrial world, there is evidence that the commitment there to lifetime employment has begun to break down and that a growing number of Japanese are experiencing the pinch of joblessness. A series of economic shocks has leaf Japanese managers to look to the United States for lessons on increasing efficiency. According to Michael Armacost, former U.S. ambassador to Japan:

Japanese business leaders-who just a few years ago thought they had nothing further to learn from us-are examining American business practices with renewed interest and emulating some with interesting results…. Daiei, one of the country’s largest chain stores, says it will seek to reduce retail prices by 50 percent over three years…. Wal-Mart Stores recently established links with two of Japan’s supermarket chains…. Japanese executives are now studying America’s experience with corporate downsizing, merit-pay packages and investment practices.

Armacost goes on to urge American trade negotiators to focus on pushing for regulatory reforms to accelerate these processes.

With or without U.S. tutelage, it is already happening. Domy Co., a discounter, is importing Safeway cola for sale in Japan at forty-seven cents a can, undercutting the price of local beverages by 55 percent. It sees great potential for imports of Safeway lemon-lime soda, cookies, and bottled water. The Japanese government has relaxed size limits on new retail outlets as well as limits on store hours and business days- with the consequence that retailers are seeking the wide-open spaces of the suburbs, and strip malls are springing up throughout the countryside. Retailers are turning to cheap imports, with China as a preferred source. The burgeoning discount retailers have become the darlings of the Japanese stock market. Faced with price cutting based on low-cost imports, Japanese companies have been restructuring to increase their efficiency.

In January 1995, an accord was announced between the United States and Japan under which U.S. investment houses would have the right to participate in the management of Japanese pension funds. Wall Street investment managers may soon be positioned to give the Japanese lessons in their home territory on the money game, predatory finance, corporate cannibalism, and managed competition.

The trend toward concentration in the retail sector is spreading rapidly to other countries, partly as a consequence of changes in trade rules that open domestic markets to the large retail chains. On January 14, 1994, only two weeks after the North American Free Trade Agreement (NAFTA) went into effect, Wal-Mart announced its move into Canada, which began with the purchase of 120 Woolco discount department stores from Woolworth Canada. Business Week called it “a full-scale invasion of the Canadian market.” Investors rushed to sell holdings of Canada’s major retail chains, which were believed to be ill-equipped to meet Wal-Mart’s price competition. Canadian retailing consultant John Winter predicted that by the late 1990s, “half of the Canadian retailers you see up here now may not be in business.

With the signing of NAFTA, U.S. retailing giants were poised to quickly “conquer retailing” in Mexico as well, but according to Business Week, “Mexico’s army of bureaucrats, steeped in protectionist habits, is plaguing them with mountains of paperwork, ever changing regulations, customs delays, and tariffs of up to 300 percent on low-priced Chinese imports favored by the discounters. Mexico thought that it had a free-trade agreement with the United States to become the major low-wage supplier of the U.S. market. It seems to have balked when confronted with the reality that U.S. retailers intended to use NAFTA to open Mexico to goods produced by even lower paid Chinese workers.

The complaints of the U.S. retailing giants aside, we might conclude that the Mexican government showed better sense in putting up a few roadblocks to slow the assault of the mega-retailers than it did in spending millions to promote NAFTA in the first place.

The dream of the corporate empire builders is being realized. The global system is harmonizing standards across country after country- down toward the lowest common denominator. Although a few socially responsible businesses are standing against the tide with some limited success, theirs is not an easy struggle. We must not kid ourselves. Social responsibility is inefficient in a global free market, and the market will not long abide those who do not avail of the opportunities to shed the inefficient. And we must be clear as to the meaning of efficiency. To the global economy, people are not only increasingly unnecessary, but they and their demands for a living wage are a major source of economic inefficiency. Global corporations are acting to purge themselves of this unwanted burden. We are creating a system that has fewer places for people.


When Corporations Rule the World

An Awakened Civil Society

excerpted from the book

When Corporations Rule the World

by David C. Korten

published by Kumarian Press, 1995

January 1, 1994, was the inaugural day of the North J American Free Trade Agreement (NAFTA), an agreement intended to complete the integration of the economies of Mexico, Canada, and the United States. Business leaders throughout North America welcomed the new opportunities for corporate expansion afforded by the merger. The indigenous peoples of Chiapas state in southeastern Mexico took a strikingly different view. They had for generations endured similar economic “advances,” each time losing more of their lands and finding their livelihood opportunities ever more limited. Calling NAFTA a death sentence for the people of Chiapas, some 4,000 Indians launched an armed rebellion against the Mexican government.

Mexican political analyst Gustavo Esteva has called the Chiapas rebellion the “first revolution of the twenty-first century.” Whereas the revolutions of the twentieth century were contests for state power, the struggle of the Chiapas people was for greater local autonomy, economic justice, and political rights within the borders of their own communities. They did not call on their fellow Mexicans to take up arms against the state but rather to join them in a broad social movement calling for the liberation of local spaces from colonization by alien political and economic forces. Their battle cry-“Baste!” (Enough!)-was picked up by popular movements all across Mexico and resonated around the world.

Each day, more people are saying no to the forces of corporate colonialism, reclaiming their spaces, taking back responsibility for their lives, and working to create real-world alternatives to the myths and illusions of economic globalization.

Saying No

Journalist Dai Qing is a courageous and outspoken opponent of the Three Gorges dam in China that threatens to displace 1.2 million people, flood 100,000 hectares of the country’s most fertile agricultural land, inundate a magnificent stretch of canyons, and destroy the habitat’s endangered species. In her words, “The highest expression of dignity can be summed up in the single word ‘No!”

The democratic legitimacy of the institutions to which we yield power derives from (1) being duly constituted by and accountable to the sovereign people, (2) conducting their operations according to an appropriate code of morals and ethics, and (3) producing desirable consequences for the whole. Most are failing on all three counts, not because the individuals who head them are corrupt, but because these institutions have become too big, too distant, and too captive to special interests. Capturing state power, whether by election or revolution, does not change this. Nor do reforms that simply chip away at the edges of the current structure. This is why elections have become meaningless. We must transform the system itself by reclaiming the power that we have yielded to the corrupted institutions and taking back responsibility for our own lives-exactly what growing millions of people are doing at this moment everywhere on the planet. As this process progresses, we redefine the relationships of power between the global, the national, and the local, and the power of once seemingly invincible institutions evaporates.

In 1986, the Philippine people took to the streets in massive demonstrations to say no to the hated and corrupt Marcos dictatorship. The military sided with the people, Marcos fled the country in disgrace, and democracy was restored with scarcely a shot fired. The world saw an even more dramatic demonstration of this truth in 1989 in Eastern Europe, and in 1991 in the former Soviet Union.

In India, Tasmania, Canada, Thailand, France, Hungary, and elsewhere, people are joining Dai Qing in saying no to dam projects that threaten their homes, livelihoods, and wild places. The women of India’s Chipko movement are wrapping themselves around threatened trees to save them from loggers; Penan tribal people of Sarawak, Malaysia, are blockading logging roads with their bodies; and the 1 million strong Future Forest Alliance is organizing protest demonstrations and media campaigns in Canada.

People are mobilizing to protect mangroves in the Ivory Coast, reef systems in Belize, and wildlife in Namibia. They are opposing toxic dumping in the United States and campaigning to protect Antarctica as a natural preserve. Japanese citizens are pressuring Japanese logging companies to change their practices abroad. Germans are calling for an end to foreign aid that destroys primary forests. Indigenous pocket miners, farmers, and fisherfolk in the Philippines are mobilizing to challenge the right of a few powerful mining corporations to destroy the livelihoods of thousands of people.

The ideologues of corporate libertarianism tell us that environmentalism is a middle- or upper-class issue-a luxury that the poor cannot afford. Yet we find with increasing frequency that the most heroic actions to save the environment are being taken by the poor, who know the costs of allowing the plunder of the natural resources upon which their existence depends.

Indigenous peoples are often at the forefront. In Ecuador, they have organized to reclaim their lands, protect the Ecuadorean rain forests from foreign oil companies, and block a government agricultural modernization program that would drive them off their farms. In Peru, they have formed a 300,000-member alliance to initiate projects that combine environmental and indigenous land objectives. National Indian organizations from Peru, Bolivia, Ecuador, Brazil, and Colombia have formed an international alliance representing over a million people to press for Indian land rights. Native Americans blocked a Honeywell corporation plan to create a nuclear weapons testing site in the sacred Black Hills of South Dakota and rejected offers from AMCOR Company to build a 5,000-acre landfill and incinerator on tribal lands. In southern Panama, indigenous peoples have organized to prevent the completion of the Pan-American highway through the tropical forests of their homelands-well aware that the highway would lead to the devastation of their forests, the expropriation of their lands, and the destruction of their culture.

In the Philippines and Colombia, people are saying no to violence, declaring their villages to be zones of peace and telling both government and insurgent combatants to fight their wars elsewhere. The Women’s Action Forum in fundamentalist Islamic Pakistan has brought women out from the seclusion of their homes and veils to join in mass public demonstrations to say no to the curtailment of women’s rights.

There are costs to saying no. Many of the nonviolent warriors of the Ecological Revolution have suffered public ridicule, threats, loss of jobs, bankrupt businesses, imprisonment, torture, and death at the hands of those who do not share their vision of life-centered societies. They bear the burdens of the political and spiritual awakening that must precede the transformational changes on which our collective future depends.

Creating alternatives, the building blocks of healthy societies, is an important part of saying no. The women of Kenya’s Greenbelt movement have set up 1,500 grassroots nurseries and planted over 10 million trees. Other African women are following their lead. The fisherfolk of Kerala state in India have organized to protect their coastal fisheries resources. In the United States the Quinalt Indians on the west coast of Washington State are buying back the lands of their reservation acre by acre to carry out plans for their sustainable management. Nearby, the people of Willapa Bay, a major salmon and oyster fishery, have formed an alliance of environmentalists, loggers, local businesspeople, government, fisherfolk, landowners, and members of the Shoalwater Bay Indian tribe to regenerate their once dynamic and biodiverse ecosystem as the foundation of a prosperous, diversified, and sustainable local economy. In Seattle, Washington, a group of citizen leaders has formed Sustainable Seattle to pioneer the development of indicators of progress toward sustainability.

Japanese women operate a 200,000-household Seikatsu Club Consumers’ Cooperative that works with suppliers to assure that they provide safe and healthful products and treat workers and nature properly. The 23,000 members of the Spanish Mondragon Cooperatives grossed $3 billion in sales in 1991 and provide the world with a model of the potential of dynamic worker-owned, community-based enterprises. In hundreds of communities in Canada, Argentina, Australia, New Zealand, the United States, and elsewhere, people are creating their own community currencies-known variously as LETs, green, or time dollars-to free themselves from colonization by the global financial system, revitalize their communities, and build economic self-reliance. Over 7,500 households representing some 20,000 people in thirteen European and North American countries participate in Global Action Plan International (GAP) to support one another and monitor their individual and joint progress toward more sustainable lifestyles. Students in the United States have organized to make their schools advertising-free zones. Five hundred Philippine citizen organizations have formed a National Peace Conference to develop a national peace agenda to end the long-standing armed conflict in their country. In Israel, the Re’ut Sadaka Jewish Arab Youth Movement encourages Arab end Jewish youth to live and study together.

Each such initiative reclaims previously colonized space, advance the rebuilding of human communities and natural ecosystems, and serves as an inspiration for others.

The Power of Citizen Networking

When citizen volunteers organize to oppose powerful institutions the command billions of dollars and access to the most privileged inner sanctums of political power, it seems a highly uneven contest. The institutions of transnational capital are highly visible, their power is concentrated in an identifiable corporate core, and they command enormous amounts of money. Yet their ability to command the life energies of people diminishes quickly if their money flows are restricted. Citizen activists are learning to turn these characteristics into vulnerabilities.

The power of civil society rests with its enormous capacity to rapidly and flexibly network diverse and dispersed individuals and organizations that are motivated by voluntary commitments. Effective citizen networks have many leaders-each able to function independently of the others. The diversity and independence of their members allow them to examine problems from many different perspective and bring diverse abilities to bear. Their use of the same electron) communications technologies-phone, fax, and computer-that corporations have used to extend their global reach allows them to move quickly and flexibly in joint actions at local, national, and global level’

The lack of defined structure can make the actions of citizen networks incoherent and difficult to sustain, but it also gives them the ability to surround, infiltrate, and immobilize the most powerful institutions. These same characteristics make them virtually imperviou to attacks by the more centralized, money-dependent global instititions of business and finance. Any one node in the network can be immobilized and isolated-key actors have even been assassinated-but a functioning network is able to adjust almost instantaneously. It much like a hologram that can be reconstructed from any of its part Indeed, attacks on citizen networks expose the ill will of the perpetrators, offend moral sensibilities, increase the network’s visibility, attract new recruits, and strengthen resolve.

There are many contemporary examples of the ability of such networks to make a difference at both national and global levels. In the former Soviet Union, grassroots environmentalists held the government accountable for widespread environmental degradation and built a movement that helped spark the region’s democratic transformation. These groups are now allied under the politically powerful SocioEcological Union to advance a broad environmental and human rights agenda. In South Korea, the Citizen Coalition for Economic Justice helped establish democratic rule and now works for economic justice and environmental sustainability. In Finland, 2,300 committees of the Village Action Movement have affected the lives of some 500,000 people and restored rural areas to a central place in national life.

A social movement in Sweden called the Natural Step is building a national consensus around a commitment to make Sweden a model of sustainability by achieving near 100 percent recycling of metals, eliminating the release of compounds that do not break down naturally in the environment, maintaining biological diversity, and reducing energy use to levels of sustainable solar capture. Some 10,000 professionals, business executives, farmers, restaurateurs, students, and government officials are active in sixteen specialized networks developing and carrying out action plans. Forty-nine local governments, members of the Swedish Farmers Federation, and twenty-two large Swedish companies are now working to align themselves with these rigorous objectives.

A broadly based U.S. citizens’ alliance of farmer, consumer, environmental, animal welfare, religious, labor, and other public-interest organizations is working on a broad agenda to transform U.S. agriculture to restore small farms, eliminate the use of toxic chemicals, and make land management practices sustainable. New initiatives in the U.S. Iabor movement-largely spearheaded by women and minority groups-have more of the community-oriented, participatory, and open quality of social movements than conventional hierarchically organized craft or industrial unions and are seeking alliances with small farmers and small business owners who share a stake in strong local economies. Local African American groups are reclaiming their power and taking back responsibility for their communities by mobilizing to steer their young men away from drugs and guns and build more economic opportunity for African American people.

One of the most dramatic national-scale citizen initiatives is Citizenship Action against Misery and for Life-Brazil’s grassroots hunger movement spearheaded by Herbert “Betinho” de Souza of the Brazilian Institute for Social and Economic Analyses (IBASE). It is an outgrowth of the broadly based Brazilian citizen movement that led to the 1993 impeachment of Fernando Collor, the Brazilian president whose corruption grew to exceed even the tolerance of Brazil’s jaded middle and upper classes. Once the new government was installed, de Souza capitalized on his own reputation as a leader of the impeachment movement and the resulting sense of civic empowerment to mobilize Brazil fans behind a national commitment to end a national disgrace-3 million of Brazil’s 156 million people living in perpetual hunger o incomes of less than $120 a year in a country with one of the world most modern and dynamic economies. A 1994 survey estimated th.at some 2.8 million Brazilians, roughly 10 percent of the population of sixteen years old, were active participants in neighborhood hunger committees made up of workers, students, housewives, businesspeople, artists, and others. Roughly a third of Brazil’s adult population has mad some kind of personal contribution to the campaign.

Three key elements make the Brazilian hunger movement distinctive:

1. The problem is broken down into manageable pieces. Members of the middle and upper classes were admonished to go into their immediate neighborhoods, find one person who was hungry, and do something about it. An individual feels overwhelmed and disempowered by the hunger of 32 million people, but doing something about the hunger of one or two people who live within a block of home is possible-and deeply fulfilling. Each individual has the empowering experience of being able to make a difference. When millions of people share this experience, it can create a new civic culture.

2. It involves direct human engagement. People are not asked to send money to a relief agency so that professional hunger workers can feed the needy in some safely distant place. They are challenged to go into their own neighborhoods and build human relationships, to allow themselves to be touched by the life of a poor and hungry person whom the system has excluded, to hear that person’s story and share in the burden of his or her suffering, and to serve as a bridge to make society whole again.

3. It guilds toward a new political and spiritual consciousness. People are encouraged to reflect on the act of befriending and improving the life of a hungry person as both a political and a spiritual experience and as a source of insight into the source of the dysfunctions of Brazilian society. Through media presentations and local meetings, citizens are led to a growing awareness of the dynamics of inequality and exclusion that flow from the concentration of economic power in a few giant corporations.

International citizen advocacy has come into its own in the past twenty to thirty years. Global alliances such as Amnesty International have long been at the forefront of the international struggle to recognize basic human rights. In the late 1960s and early 1970s, the International Planned Parenthood Federation led a global transformation in attitudes toward family planning and a woman’s right to birth control.

In the 1980s, while U.S. President Ronald Reagan was characterizing the Soviet Union as the evil empire and Soviet leaders were characterizing Americans as barbaric monsters, thousands of private American and Soviet citizens were engaged through groups such as the Institute for Soviet-American Relations, the Esalan Institute, the Natural Resources Defense Council, and the Context Institute in building foundations for peace, mutual understanding, and democratization. The Philippine Development Forum, with offices in Washington and Manila, has helped block multilateral funding of destructive energy projects, expose toxic wastes at U.S. military bases, and advance creative new funding mechanisms to promote sustainable development in the Philippines. A coalition of Canadian, Mexican, and U.S. groups formed to oppose NAFTA is coordinating citizen proposals for people-centered economic cooperation among the countries of North America. When Honeywell and General Electric fired union organizers at their plants in Juarez and Chihuahua, Mexico, unions in the United States and Canada representing workers employed by these multinationals joined to act against these companies in support of their Mexican counterparts.

In 1979, Malaysian consumer activist Anwar Fazal, then president of the International Organization of Consumer Unions (IOCU), convened the International Baby Food Action Network (IBFAN), an international alliance of citizen advocacy groups, to boycott Nestle products. Responding to evidence that bottle-feeding was causing thousands of infant deaths each year in poor countries, the boycotters demanded that Nestle stop the aggressive promotion of its infant formula product as a modern and nutritious substitute for breast-feeding. Nestle launched a vicious counterattack, which spurred the rapid growth of IBFAN into a coalition of more than 140 citizen groups in seventy countries. As a result of the IBFAN efforts, the World Health Organization issued a code of conduct in 1981 governing the promotion of baby formula, and Nestle made a promise-subsequently dishonored-to follow the code.

Building on the IBFAN experience, the IOCU regional office in Penang, Malaysia, launched other citizen networks to counter threats to human health, safety, and pocketbooks from the activities of transnational corporations dealing in pharmaceuticals, tobacco, toxic wastes, chemical agriculture, biotechnology, and food irradiation. The Third World Network, an important Southern citizen advocacy group led by former university professor Mohammed Idris, was also born in Penang-making this coastal city a global focal point of citizen resistance to the new colonialism.

The way in which citizen networks with modest resources are able surround and infiltrate the most powerful international institute is demonstrated by the “Fifty Years Is Enough” campaign organ)’ by citizen groups on the occasion of the fiftieth anniversary of t World Bank and the International Monetary Fund (IMF). The Bank and the IMF command massive financial resources, leverage the worlds largest financial markets, and virtually dictate the policies of ma governments. They can mobilize thousands of highly paid staff to generate statistics and policy papers favoring their positions, buy me’ reach through the world’s most prestigious public-relations firms, a co-opt influential nongovernmental organizations (NGOs) with off of grants, contracts, and foreign travel.

Citizen groups in nearly every country in which these two institutions operate rose to the challenge of this highly unequal contest, even eliciting cooperation from sympathetic staff within these secret institutions. The Bank and the IMF now are never certain what sec internal documents will find their way into citizen hands and publications or where protest banners, mass demonstrations, op-ed piece advertisements, and special issues of citizen journals and newsletter will appear challenging their claims of effectiveness and calling for c’ in their funding. No more than three years ago, the suggestion that the World Bank should be shut down seemed naive and even a bit frivolous. Now the Bank’s funding replenishments are in jeopardy, and closure is discussed as a serious proposal.

This is only a small illustrative sampling of the countless initiatives being undertaken by ordinary people everywhere. Together they r. resent the awakening of civil society and the emergence of the social and political forces of the Ecological Revolution.

Globalizing Consciousness

Global citizen networking is a crucial part of the process of creating new globalized human consciousness. In countless forums, people from every corner of the world are meeting to share their experiences w an errant global system and build a cooperative agenda. The United Nations Conference on Environment and Development (UNCED), Earth Summit, held in Rio de Janeiro in June 1992 was a defining moment in the global citizen dialogue. While the official meetings were going on in the grand and heavily guarded Rio Centro convention center, some 18,000 private citizens of every race, religion, social class, and nationality gathered in tents on a steamy stretch of beachfront on the other side of town for the NGO Global Forum to draft citizen treaties setting agendas for cooperative voluntary action.

The two gatherings could hardly have been more different. The official meetings were tediously formal and tightly programmed; they largely affirmed the status quo and carefully avoided most of the fundamental issues, including planetary limits to economic growth, unaccountable corporate power, and the consequences of economic globalization. The citizen deliberations were chaotic, free-floating, and contentious. They directly confronted the fundamental issues and called for sweeping transformational change. In the end, it was evident that behind the cacophony of discordant voices were important elements of consensus manifesting a new global political, environmental, and spiritual consciousness.

At UNCED, citizen organizations worked largely at the periphery of the official discussions, but the citizen treaty process made a major contribution to putting in place the foundation of a citizen consensus and helped prepare the way for more substantive input to future global meetings. Key elements of the Consensus were synthesized in “The People’s Earth Declaration: A Proactive Agenda for the Future” (see the appendix). At subsequent official international conferences, citizen groups have become more familiar with and skilled in dealing with official UN processes-especially key organizations within the women’s movement, such as Development Alternatives for Women in a New Era (DAWN) and the Women’s Environment and Development Organization (WEDO). By the time of the 1994 International Conference on Population and Development in Cairo, the women’s movement demonstrated that it was the first among the citizen movements to truly master the UN meeting process. Working with and through national governments and the UN secretariat, women’s groups set the basic frame of the official conference document. Dissenting governments and the Catholic Church were the ones placed in the position of seeking adjustments in the nuances of phrases to which they objected. Bearing a disproportionate share of the human burden of the global human crisis, women are now taking the leadership in crafting a new gender-balanced human development agenda to benefit all people. The women’s movement is rapidly emerging as the political vanguard of the Ecological Revolution.

Doing the Possible

We live in an era in which the potential for rapid change on a global scale far exceeds that of any previous period in human history. In a single year, 1988, the environment, which previously had been a issue only for hard-core environmentalists, broke into global consciousness. Environmental concerns became a major issue in a U.S. presidential election, and Time magazine named the endangered earth the media event of the year. Four years later, in June 1992, the largest gathering of heads of state, other political leaders, corporations, and citizen organizations in human history took place in Rio de Janeiro t complete agreements protecting the global environment.

Consider the ridicule that would have been heaped on the visionary prophet who dared even in 1988 to predict that by 1991 the Soviet Union would peacefully dissolve itself, Germany would be reunite’ the Berlin Wall would be gone, and the leadership of the former “evil empire” would be inviting the United States to help dismantle its nuclear arsenal. What if this same prophet had predicted that in 1993 the Israelis and Palestinians would sign a peace accord? And that in 1994 Nelson Mandela would be elected the president of South Africa in an open multiracial election? Perhaps even more remarkable the fact that these events occurred at all is that fact that we already take most of them for granted, quickly forgetting what extraordinary events they were and how rapidly impossible dreams are becoming accomplished fact.

Now let’s consider a number of possible contemporary predictions line with the agenda of the Ecological Revolution. Most of us would conclude that anyone foolish enough to predict that any of the following might occur within the next five years had taken leave of his or h, senses. Yet in each case, ask just one question before jumping to the conclusion: is it any more preposterous to suggest that this event m, occur by the year 2001 than it would have been to suggest the possibility of any of the above-mentioned events happening even as little as three years before their actual occurrence?

* International arms sales will be banned and the world’s major armies dismantled in favor of a small unified UN peacekeeping command.

* Japan, the United States, Canada, Germany, and a number of other European countries will levy a 50 percent tax on advertising to finance consumer education on the merits of frugality and research on how to eliminate the growth imperative from the national economy.

* Current national income accounting systems based on returns to business enterprises will be replaced by systems that measure economic performance on the basis of human needs met and the enhancement or depletion of a country’s human, social, and natural capital stock.

* A rigorous international antitrust agreement will be signed by the world’s nations, and aggressive implementation of its provisions-combined with a rash of community and worker buyout initiatives-will break up most of the world’s larger transnational corporations and convert their components into community- and employee-owned enterprises serving predominantly local markets.

* Massive agrarian reform initiatives will break up corporate and other large agricultural holdings nearly everywhere and convert them into family farms serving local markets, using biointensive agricultural methods and recycling organic wastes. Ninety percent of the debts of low-income countries will be repudiated or forgiven, and long-term international borrowing will be sharply curtailed.

* A drastically downsized World Bank will be converted into a technical assistance agency melded into the United Nations Development Program to function under UN auspices as an advisor to countries on how to become less trade dependent and localize their economies.

* The IMF and the General Agreement on Tariffs and Trade – World Trade Organization will be replaced by UN agencies under the authority and supervision of the UN’s Economic and Social Council and will be engaged in rewriting international finance and trade policies to support economic localization within a framework of global cooperation.

* Several thousand indigenous cultures previously on the verge of extinction will be revived and flourishing.

* The industrial countries will reduce their per capita consumption of nonrenewable energy by 50 percent, and sales of new gasoline-powered automobiles will fall in the industrial countries by 75 percent with the phase-in of solar conversion and the redesign of urban habitats to facilitate walking, bicycling, and public transit.

* The world’s major fisheries will be well on their way to recovery under regimes of sustainable management carried out by resource management cooperatives made up of small-scale family fishing enterprises.

* An international agreement will make the patenting of life forms illegal, and an international authority will be established, funded by a tax on international capital movements, to purchase rights to the most socially and environmentally beneficial technologies, place them in the public domain, and facilitate access to them by anyone in the world who wish put them to beneficial use.

* A number of national and international business organize representing many of the world’s largest corporations voluntarily accept codes of conduct that include capping executive salaries at a level no greater than twenty times the lowest paid worker anywhere within a firm’s global auction network, reducing nonrenewable energy use t percent of 1995 levels by 2010, and achieving 90 percent product life-cycle recycling by the same year.

* Most countries will eliminate taxes on incomes and basic gumption up to the levels required for a comfortable subsistence in favor of taxes on resource extraction, internal movements of money, luxury consumption, upper-level incomes, and inheritances.

* More than half of the world’s countries will have policies convert the productivity gains of mechanization and automation into a twenty-hour workweek and a guaranteed income. Most exclusionary fundamentalist religious sects preach fear and intolerance will fall into obscurity in the face ecumenical movement born of the widespread inner spiritual awakening to the unity of life and consciousness.

* Most women and men will be sharing equally in household and voluntary community duties.

* All but 500,000 of the world’s refugees will be permanently and peacefully resettled-most in their countries of origin.

* Most of the world will embrace the norm of the two-child family, with the endorsement of the Catholic Church and major religious bodies.

* Political party structures will be realigned in most countries and grassroots political movements born of concern for democratic accountability, social justice, and environmental sustainability will be flourishing-with many people from ordinary walks of life contesting and winning election to both local and national office.

Absurdly unrealistic? Yes, but no more so than many of the advances of the past few years. Am I offering these as predictions? No, but they are among the possibilities that we may wish to include on our agenda for change.


When Corporations Rule the World

Quotations

by David Korten

from his book

When Corporations Rule the World

The systemic forces nurturing the growth and dominance of global corporations are at the heart of the current human dilemma … to avoid collective catastrophe we must radically transform the underlying system of business to restore power to the small and local.

*****

As we continued our discussion over the next few days, the pieces began to fall into place. The Western scientific vision of a mechanical universe has created a philosophical or conceptual alienation from our own inherent spiritual nature. This has been reinforced in our daily lives by the increasing alignment of our institutions with the monetary values of the marketplace. The more dominant money has become in our lives, the less place there has been for any sense of the spiritual bond that is the foundation of community and a balanced relationship with nature. The pursuit of spiritual fulfillment has been increasingly displaced by an all-consuming and increasingly self-destructive obsession with the pursuit of money-a useful but wholly substanceless and intrinsically valueless human artifact.

It seemed evident from our analysis that to reestablish a sustainable relationship to the living earth, we must break free of the illusions of the world of money, rediscover spiritual meaning in our lives, and root our economic institutions in place and community so that they are integrally connected to people and life. Consequently, we concluded that the task of people-centered development in its fullest sense must be the creation of life-centered societies in which the economy is but one of the instruments of good living-not the purpose of human existence. Because our leaders are entrapped in the myths and the reward systems of the institutions they head, the leadership in this creative process of institutional and value re-creation must come from within civil society.

*****

From our vantage point in Asia we have watched in horror as the same policies the United States has been advocating for the world have created a Third World within its own borders as revealed in its growing gap between rich and poor, dependence on foreign debt, deteriorating educational systems, rising infant mortality, economic dependence on the export of primary commodities-including its last remaining primary forests-indiscriminate dumping of toxic wastes, and the breakdown of families and communities.

*****

I share the liberal’s compassion for the disenfranchised, commitment to equity, and concern for the environment and believe that there are essential roles for government and limits to the rights of private property. I believe, however, that big government can be as unaccountable and destructive of societal values as can big business. Indeed, I have a distrust of any organization that accumulates and concentrates massive power beyond the bounds of accountability. In short, I align with those who are defining a new path that is more pragmatic than ideological and who cannot be easily pigeonholed within the conventional conservative-liberal spectrum of political choice.

*****

… the systemic forces nurturing the growth and dominance of global corporations are at the heart of the current human dilemma. I now believe that to avoid collective catastrophe we must radically transform the underlying system of business to restore power to the small and local. I further believe that accomplishing the needed transformation will require the cooperative efforts of those within the system-including those who head our major corporations and financial institutions-in addition to the efforts of citizen movements working from outside it.

With regard to spiritual values, I was raised in the Protestant Christian faith but find wisdom in the teachings of all the great religions. I believe that we have access to an inner spiritual wisdom and that our collective salvation as a species depends, in part, on tapping into this wisdom from which the institutions of modern science, the market, and even religion have deeply alienated us. Through this rediscovery we may achieve the creative balance between market and community, science and religion, and money and spirit that is essential to the creation and maintenance of healthy human societies.

*****

… we are experiencing accelerating social and environmental disintegration in nearly every country of the world-as revealed by a rise in poverty, unemployment, inequality, violent crime, failing families, and environmental de~dation. These problems stem in part from a fivefold increase in economic output since 1950 that has gushed human demands on the ecosystem beyond what the planet is capahle of sustaining. The continued quest for economic growth as the organizing principle of public policy is acceleratin.g the breakdown of the ecosystem s regenerative capacities and the social fabric that sustains human community; at the same time, it is intensifying the competition for resources between rich and poor-a competition that the poor invariably lose.

Governments seem wholly incapable of responding, and public frustration is turning to rage. It is more than a failure of government bureaucracies, however. It is a crisis of governance born of a convergence of ideological, political, and technological forces behind a process of economic globalization that is shifting power away from governments responsible for the public good and toward a handful of corporations and financial institutions driven by a single imperative-the quest for short-term financial gain. This has concentrated massive economic and political power in the hands of an elite few whose absolute share of the products of a declining pool of natural wealth continues to increase at a substantial rate-thus reassuring them that the system is working perfectly well.

Those who bear the costs of the system’s dysfunctions have been stripped of decision-making power and are held in a state of confusion regarding the cause of their distress by corporate-dominated media that incessantly bombard them with interpretations of the resulting crisis based on the perceptions of the power holders An active propaganda machinery controlled bv the world’s largest corporations constantly reassures us that consumerism is the path to happiness, governmental restraint of market excess is the cause our distress, and economic globalization is both a historical inevitability and a boon to the human species. In fact, these are all myths propagated to justify profligate greed and mask the extent to which the global transformation of human institutions is a consequence of the sophisticated, wellfunded, and intentional interventions of a small elite whose money enables them to live in a world of illusion apart from the rest of humanity.

These forces have transformed once beneficial corporations and financial institutions into instruments of a market tyranny that is extending its reach across the planet like a cancer, colonizing ever more of the planet’s living spaces, destroying livelihoods, displacing people, rendering democratic institutions impotent, and feedin on life in an insatiable quest for money. As our economic system has detached from place and gained greater dominance over our democratic institutions, even the world’s most powerful corporations have become captives of the forces of a globalized financial system that has delinked the creation of money from the creation of real wealth and rewards extractive over productive investment. The big winners are the corporate raiders who strip sound companies of their assets for short-term gain and the speculators who capitalize on market volatility to extract a private tax from those who are engaged in productive work and investment.

Faced with pressures to produce greater short-term returns, the world’s largest corporations are downsizing to shed people and functions. They are not, however, becoming less powerful. While tightening their control over markets and technology through mergers, acquisitions, and strategic alliances, they are forcing both subcontractors and local communities into a standards-lowering competition with one another to obtain the market access and jobs that global corporations control. The related market forces are deepenmg our dependence on socially and environmentally destructive technologies that sacrifice our physical, social, environmental, and mental health to corporate profits.

The problem is not business or the market per se but a badly corrupted global economic system that is gyrating far beyond human control. The dynamics of this system have become so powerful and perverse that it is becoming increasingly difficult for corporate managers to manage in the public interest, no matter how strong their moral values and commitment.

Driven by the imperative to replicate money, the system treats people as a source of inefficiency and is rapidly shedding them at all system levels. As the first industrial revolution reduced dependence on human muscle, the information revolution is reducing dependence on our eyes, ears, and brains. The first industrial revolution dealt with the resulting unemployment by colonizing weaker peoples and sending surplus populations off as migrants to less populated lands. People in colonized countries fell back on traditional social structures to sustain themselves. With the world’s physical frontiers largely exhausted and social economies greatly weakened by market intrusion, few such safety valves remain. Consequently, the redundant now end up as victims of starvation and violence, homeless beggars, welfare recipients, or residents of refugee camps. Continuing on our present course will almost certainly lead to accelerating social and environmental disintegration.

*****


When Corporations Rule the World

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and on and on

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Year 501
The Conquest Continues

Noam Chomsky

Copyright © 1993


Table of Contents

Note: Each chapter is divided into [segments] of about eight paragraphs each.

Overview

PART I: Old Wine, New Bottles

Chapter One: The Great Work of Subjugation and Conquest [1]

  1. “The Savage Injustice of the Europeans” [2/3/4/5/6/7]
  2. “Felling Trees and Indians” [8/9/10]
  3. Showers of Benevolence [11/12]

Chapter Two: The Contours of World Order

  1. The Logic of North-South Relations [1/2/3]
  2. After Colonialism [4/5/6]
  3. The Rich Men’s Club [7/8]
  4. The End of the Affluent Alliance [9/10]
  5. The “Vile Maxim of the Masters” [11,12,13]
  6. The New Imperial Age [14,15]

Chapter Three: North-South/East-West

  1. An Oversize “Rotten Apple” [1/2]
  2. “Logical Illogicality” [3/4/5]
  3. Return to Normalcy [6/7/8]
  4. Some Free Market Successes [9/10]
  5. After the Cold War [11/12/13]
  6. The Soft Line [14]

PART II: High Principles

Chapter Four: Democracy and the Market

  1. The Freedom that Counts [1]
  2. The Flight of the Bumble Bee [2/3/4]
  3. The Good News [5]
  4. Reshaping Industrial Policy [6/7]

Chapter Five: Human Rights: The Pragmatic Criterion

  1. Reality and its Abuse [1]
  2. Securing the Anchor [2/3/4]
  3. Celebration [5/6]
  4. Closing the Books [7/8/9]

PART III: Persistent Themes

Chapter Six: A “Ripe Fruit” [1/2/3/4/5/6]

Chapter Seven: World Orders Old and New: Latin America

  1. “The Colossus of the South” [1]
  2. “The Welfare of the World Capitalist System” [2/3]
  3. Protecting Democracy [4/5]
  4. Securing the Victory [6]
  5. “A Real American Success Story” [7]
  6. Fundamentalism Triumphant [8]
  7. Some Competitors for the Prize [9/10/11/12]
  8. “Our Nature and Traditions” [13]
  9. Some Tools of the Trade [14/15/16/17]

Chapter Eight: The Tragedy of Haiti

  1. “The First Free Nation of Free Men” [1]
  2. “Unselfish Intervention” [2/3/4]
  3. “Politics, not Principle” [5/6/7/8/9]

Chapter Nine: The Burden of Responsibility

  1. Irrational Disdain [1/2]
  2. Laboratory Animals [3/4]
  3. Indian Removal and the Vile Maxim [5/6]
  4. “The American Psyche” [7]

PART IV: Memories

Chapter Ten: Murdering History

  1. The Date which will Live in Infamy [1/2]
  2. Missing Pieces [3/4]
  3. Some Lessons in Political Correctness [5/6]
  4. “Self-Pity” and other Character Flaws [7/8/9/10/11]
  5. On Sensitivity to History [12/13]
  6. “Thief! Thief!” [14/15]
  7. A Date which does not Live in Infamy [16/17]

Chapter Eleven: The Third World at Home

  1. “The Paradox of ’92” [1/2/3]
  2. “Fight to the Death” [4/5]
  3. “To Consult Our Neighbor” [6]

Bibliography
Glossary


Overview | Cover | Archive | ZNet

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see in PDF

from =  dgswilson.com/pdf/Noam%20Chomsky etc

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Early Monopolies: Conquest And Corruption

December 03 2011 | Filed Under »
Monopoly, or the exclusive control of a commodity, market or means of production, is an integral part of history. In a monopoly, all the power is concentrated in the hands of a select few. Monopolies, in many cases, have been vital to getting large jobs done. Unfortunately, they also have been known for abusing the same power that makes them so effective. In this article, we’ll take a walk through history to uncover the roots of this single-minded vision. (For more on this topic, see Antitrust Defined.)TUTORIAL: Economics BasicsWhen All Business was Small Business
Through most of human history, the formation of business monopolies, or even powerful monarchies, was precluded by the limitations of transportation and communication. Anyone can claim to rule a kingdom, but it comes to naught if you can’t order your subjects around or send your soldiers to discipline them. In this same way, businesses were limited in most cases to the village or even the neighborhood in which they were physically located. Shipping by horse, boat or on foot were possible, but this added costs that made the shipped goods more expensive than locally produced products.In this sense, many of these small businesses enjoyed monopolies within their own towns, but the extent to which they could fix prices was restricted by the fact that the goods could be bought from the next town over if prices went too high. Also, these small businesses were mostly family or guild operations that put the emphasis on quality rather than quantity, so there was no pressure to mass-produce and expand the market to other towns. The tools for mass production didn’t become available until the industrial revolution, when cottage businesses were all but erased by factories and sweatshops. (For more insight, read An Exploration Of The Development Of The Market and Financial Capitalism Opens Doors To Personal Fortune.)
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Roma
The reign of the Roman Empire introduced the world to the best and worst of concentrated power. In the time of Tiberius, the second Roman emperor and the man who set the tone for debauchery that his successors, Caligula and later Nero, took even further, monopolies (or monopolium) were given to senators and nobles by the empire. These included shipping, salt and marble mining, grain crops, public construction and many other aspects of Roman industry. The senators that granted monopolies were responsible for reporting revenues and assuring a steady supply, but were not very involved in the business except to skim profits. In many cases, the labor and the management were supplied through slavery, with the highly educated slaves doing most of the administration. These slave-supported monopolies helped Rome expand its infrastructure at an amazing speed. (To learn more about revenues, see Can Earnings Guidance Accurately Predict The Future?)Toward the end of the Roman Empire, the increased infrastructure was all put at the disposal of a succession of unstable and corrupt emperors who used their excellent roads to drain conquered foes through taxation until they rebelled. The monopolies also caused problems as they granted too much power to citizens who used the proceeds to bribe their way up the ladder.Monopoly and Monarchy
The first modern monopolies were created by the various monarchies in Europe. Charters written by feudal lords granting land holdings and the accompanying revenues to loyal subjects during the Middle Ages became the titles and deeds that landed nobles displayed to cement their status by right of lineage. In the late 1500s, however, royal charters extended into private business. A number of monarchs granted royal charters that gave exclusive shipping rights to private firms. The majority of these firms had someone on the board with ties to nobility or some other connections with the crown, but the investors and venture capitalists that actually funded the firms were largely from the newly-rich merchant classes (bankers, moneylenders, ship owners, guild masters, etc.). (To learn more, see How Venture Capitalists Make Investment Choices.)Britannia
Royal charters allowed the Dutch East India Company to corner the spice market as well as later allowing the British East India Company to do the same in addition to giving them considerable power over shipping and trade regulations. The monopolies created by charters were, with the exception of the British East India Company, very fragile. When royal charters expired, competing companies quickly undercut the established company. These price wars often cut too deep for all involved, depressing the whole industry until venture capitalists put up money to get fresh companies into the decimated market. (For related reading, see The Birth Of Stock Exchanges.)Government and Business
The British East India Company was an exception because it was associated with the ascendant British government and acted like a nation, having an army unto itself. When China tried to stop Britain’s illegal importation of opium into the country, the army of the British East India Company beat the country into submission, thus keeping the opium channels open and securing more free trading ports. Even when the charter expired, the ultra-wealthy company bought up controlling interests in any company that sought capital to compete with it.The company and the British government grew almost indistinguishable from one another as many of its investors were also the business and political pillars of Britain. But the company, like the Roman Empire, suffered from its own success. Despite years of huge revenue, it was teetering on the edge of bankruptcy when its shoddy administration of countries under its imperial rule caused famines and labor shortages that the company lacked capital to cover. The corruption within the company led it to try and make up the difference by tightening its monopoly on Indian tea and driving the prices up. This contributed to the Boston Tea Party and added to the fervor that lead to the American Revolution. (To learn more see, What is the history behind today’s bankruptcy laws?)
Death of a Double Centenarian
The British government then formalized its relationship with the British East India Company by taking it over in a series of acts and regulations. The government took over the administration of the company’s colonies, but modeled its civil service in much the same way and, in many cases, with the very same people. The main difference was that the colonies were now part of the United Kingdom and their revenues flowed into government coffers instead of to the company’s. The company maintained some of its privileges by managing the tea trade for a few more decades, but it became a toothless lion lounging at the heels of the British parliament, which began stripping the company of all its charters, licenses and privileges from 1833 to 1873. In 1874, the British East India Company finally dissolved.Conclusion: Sunset of the British Sun
Much of the economic prosperity enjoyed by England from the 1600s to the early 1900s was due to the one-way trading systems that the British East India Company imposed on colonies. The goods from the American colonies, for example, were in raw forms that were processed in English factories and sold back at a premium. It is hard to say the monopoly created the British Empire, but it certainly sustained it. And, although it was claimed that the sun never set on the British Empire, it did. The colonies proved to be the clouds that covered the British sun as they – long sufferers underneath imperialistic monopolies – emerged to create monopolies of a scale that appalled even the British.

Read more: http://www.investopedia.com/articles/07/monopoly-history.asp#ixzz1mPF3cJns

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Corporate personhood

From Wikipedia, the free encyclopedia

Corporate personhood is the status conferred upon corporations under the law, which allows corporations to have rights and responsibilities similar to those of a natural person. There is a question about which subset of rights afforded to natural persons should also be afforded to corporations as legal persons.

The Supreme Court of the United States (Dartmouth College v. Woodward, 1819), recognized corporations as having the same rights as natural persons to contract and to enforce contracts. In Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394 (1886), the Supreme Court recognized corporations as persons for the purposes of the Fourteenth Amendment. In a headnote—not part of the opinion—the reporter noted that the Chief Justice began oral argument by stating, “The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does.”[1]

Contents

[hide]

[edit] The notion of corporations as persons in the United States

As a matter of interpretation of the word “person” in the Fourteenth Amendment, U.S. courts have extended certain constitutional protections to corporations. Opponents of corporate personhood seek to amend the U.S. Constitution to limit these rights to those provided by state law and state constitutions.[2][3]

Others argue that corporations should have the protection of the U.S. Constitution, pointing out that they are organizations of people, and that these people should not be deprived of their human rights when they act collectively.[4] In this view, treating corporations as “persons” is a convenient legal fiction that allows corporations to sue and to be sued, that provides a single entity for easier taxation and regulation, that simplifies complex transactions that would otherwise involve, in the case of large corporations, thousands of people, and that protects the rights of the shareholders as well as the right of association.

Some have argued in court that corporations should be allowed to refuse to hand over incriminating documents under the Fifth Amendment. In one case, “[a]ppellants [suggested] that the use of the word “taxpayer” several times in the regulations requires that the fifth-amendment self-incrimination warning be given to a corporation.”[5] However, the court did not agree in United States of America v Steve Sourapas and Crest Beverage Company,a 1975 case.

The Green Party,[6] the Women’s International League for Peace and Freedom,[7] Democracy Unlimited, and former Vice-President Al Gore[8] have objected to the idea of corporate personhood, focusing on constitutional protections—such as the right to contribute to political campaigns—that are granted to corporations. Gore argues that the 1886 Southern Pacific decision entrenched the ‘monopolies in commerce’ that Thomas Jefferson had wanted to prohibit.[8]

Since the Supreme Court’s ruling in Citizens United v. Federal Election Commission in 2010, upholding the rights of corporations to make political expenditures under the First Amendment, there have been several calls for a US Constitutional amendment to abolish Corporate Personhood.[citation needed]

[edit] Historical background in the United States

Question book-new.svg
This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (October 2011)

Although the Federal government has from time to time chartered corporations, the general chartering of corporations has been left to the states. In the late 18th and early 19th centuries, corporations began to be chartered in greater numbers by the states. Corporations had long existed in the new nation, but these were primarily educational corporations or institutions chartered by the British crown which continued to exist after the new nation was created from the Confederation. Due to experience as British Colonies, new corporations were greeted with mixed feelings. Before, British corporations were chartered by the crown to do business in North America. Most of these entities were able to operate and derived their right to exist from the foreign colonial ruling power. They were able to do business through government grants of monopoly as part of the chartering process. For example, the controversial Bank Bill of 1791 chartered a 20 year corporate monopoly for the First Bank of the United States, but, after the charter expired in 1811, the bank was bought out by Philadelphia philanthropist Stephen Girard.

The degree of permissible government interference in corporate affairs was controversial from the earliest days of the nation. In 1790, John Marshall, a private attorney and a veteran of the Continental Army, represented the board of the College of William and Mary, in litigation that required him to defend that corporation’s right to reorganize itself and in the process remove professors, The Rev John Bracken v. The Visitors of Wm & Mary College (7 Va. 573; 1790 Supreme Court of Virginia). The Supreme Court of Virginia ruled that the original crown charter provided the authority for the corporation’s Board of Visitors to make changes including the reorganization.

Thomas Jefferson claimed in his autobiography that he had a hand in the reorganization when he was elected a Visitor of William and Mary after being appointed the Governor of the Commonwealth in June 1779. His main reason for the reorganization was to move the college from a curriculum rooted in theology to a curriculum rooted in science, fine arts, and languages.

The notion of corporate personhood, then, has roots in the early history of the republic. Still, as the 19th century matured, manufacturing in the U.S. became more complex as the Industrial Revolution generated new inventions and business processes. The favored form for large businesses became the corporation because the corporation provided a mechanism to raise the large amounts of investment capital large business required, especially for capital intensive yet risky projects such as railroads.

The Civil War accelerated the growth of manufacturing and the power of the men who owned the large corporations. Businessmen such as Mark Hanna, sugar trust magnate Henry O. Havemeyer, banker J. P. Morgan, steel makers Charles M. Schwab and Andrew Carnegie, and railroad owners Cornelius Vanderbilt and Jay Gould created corporations that influenced legislation at the local, state, and federal levels as they built businesses that spanned multiple states and communities. Beginning in the 1870s, corporate lawyers became bolder about using the Webster/Marshall theory that corporations could exercise the rights of their shareholders, arguing that as such they were entitled to some of the legal protections against arbitrary state action accorded also to natural persons.

In the late 19th century, railroads were among the most politically powerful corporations in the country as the corporate officers had to work with federal and state legislatures in order to obtain land grants for rights of way and the legislatures in turn depended on the railroads to provide the low cost transportation needed to open up new territory. Railroads provided a means for most of the nation’s farmers to transport agricultural products such as grain and livestock from rural areas into cities such as Chicago. Manufacturing corporations needed coal, iron ore, finished iron, or any other materials transported and consumer goods business such as Sears, Roebuck and Company used railroads to deliver goods to mail order catalog customers.

As railroads increased their size, a number of conflicts between various states and the railroads began to surface. In four cases that reached the Supreme Court (94 U.S. 155, 94 U.S. 164, 94 U.S. 179, 94 U.S. 180 (1877)), railroads tried to argue that the Fourteenth Amendment prevented states from regulating the maximum rates they could charge. These cases did not rely on just an interpretation of the Fourteenth Amendment, but also on the Interstate Commerce clause. In each case, however, the Court based its decision on the Interstate Commerce clause.

[edit] Case law in the United States

In 1818, the United States Supreme Court heard the case Dartmouth College v. Woodward, 17 U.S. 518 (1819), making the following statement in their decision: “The opinion of the Court, after mature deliberation, is that this corporate charter is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States. This opinion appears to us to be equally supported by reason, and by the former decisions of this Court.”

Seven years after the Dartmouth College opinion, the Supreme Court decided Society for the Propagation of the Gospel in Foreign Parts v. Town of Pawlet, (1823) in which an English corporation dedicated to missionary work, with land in the U.S., sought to protect its rights to that land under colonial-era grants against an effort by the state of Vermont to revoke the grants. Justice Joseph Story, writing for the court, explicitly extended the same protections to corporate-owned property as it would have to property owned by natural persons. Seven years later, Chief Justice Marshall stated that, “The great object of an incorporation is to bestow the character and properties of individuality on a collective and changing body of men.”[9]

Similarly, in 1877, in Munn v. Illinois (94 U.S. 113 (1876)), the Supreme Court decided that the Fourteenth Amendment (because Munn asserted his due process right to property was being violated) did not prevent the State of Illinois from regulating charges for use of a business’ grain elevators. Instead, the decision focused on the question of whether or not a private company could be regulated in the public interest. The court’s decision was that it could, if the private company could be seen as a utility operating in the public interest.

In the 1886 case Santa Clara v. Southern Pacific, the Supreme Court directed the lawyers that they were of the opinion that the Fourteenth Amendment equal protection clause guarantees constitutional protections to corporations in addition to natural persons. This was not a ruling, but has been treated as precedent.[10]

The primary purpose of the 14th Amendment was to protect freed slaves.[citation needed] One of the 1886 judges, Samuel F. Miller, had considered the purpose of the Amendment in 1872, only six years after the Amendment had become law, when the court was “called upon for the first time to give construction to these articles.” In the Slaughterhouse Cases (83 U.S. 36 (1872)), Miller delivered the majority opinion and discussed the Thirteenth Amendment and the Fifteenth Amendment as well as the Fourteenth as follows:

The most cursory glance at these articles discloses a unity of purpose, when taken in connection with the history of the times, which cannot fail to have an important bearing on any question of doubt concerning their true meaning. Nor can such doubts, when any reasonably exist, be safely and rationally solved without a reference to that history, for in it is found the occasion and the necessity for recurring again to the great source of power in this country, the people of the States, for additional guarantees of human rights, additional powers to the Federal government; additional restraints upon those of the States. Fortunately, that history is fresh within the memory of us all, and its leading features, as they bear upon the matter before us, free from doubt. We repeat, then, in the light of this recapitulation of events, almost too recent to be called history, but which are familiar to us all, and on the most casual examination of the language of these amendments, no one can fail to be impressed with the one pervading purpose found in them all, lying at the foundation of each, and without which none of them would have been even suggested; we mean the freedom of the slave race, the security and firm establishment of that freedom, and the protection of the newly made freeman and citizen from the oppressions of those who had formerly exercised unlimited dominion over him.[11]

Careful research has shown that John A. Bingham, the member of Congress who is known to have been chiefly responsible for the language of Section One when it was drafted by the Joint Committee in 1866, had, during the previous decade and as early as 1856-1859, employed not one but all three of the same clauses and concepts he later used in Section One. More important still, Bingham employed these guarantees specifically and in a context which suggested that free Negroes and mulattoes unquestionably were the persons to which he then referred.[citation needed]

But whatever the reasons for their adoption, laws often benefit those other than the original intended beneficiary. Thus, whites, latinos, and women, as well as African-Americans, are clearly protected by the Fourteenth Amendment, and groups organized specifically for business purposes, including corporations, may also benefit from its protections, just as any other group of persons.

The 14th Amendment does not insulate corporations from all government regulation, any more than it relieves individuals from all regulatory obligations. Thus, for example, in Northwestern Nat Life Ins. Co. v. Riggs (203 U.S. 243 (1906)), the Court accepted that corporations are for legal purposes “persons,” but still ruled that the Fourteenth Amendment was not a bar to many state laws that effectively limited a corporation’s right to contract business as it pleased. However, this was not because corporations were not protected under the Fourteenth Amendment – rather, the Court’s ruling was that the Fourteenth Amendment did not prohibit the type of regulation at issue, whether of a corporation or of sole proprietorship or partnership.[citation needed]

Similarly, two Supreme Court judges, Hugo Black and William O. Douglas, later rendered dissenting opinions attacking the idea that the equal protection clause extended to the tax codes governing corporations. Quoted here is the conclusion of Justice Black’s opinion:

If the people of this nation wish to deprive the states of their sovereign rights to determine what is a fair and just tax upon corporations doing a purely local business within their own state boundaries, there is a way provided by the Constitution to accomplish this purpose. That way does not lie along the course of judicial amendment to that fundamental charter. An amendment having that purpose could be submitted by Congress as provided by the Constitution. I do not believe that the Fourteenth Amendment had that purpose, nor that the people believed it had that purpose, nor that it should be construed as having that purpose.

(Hugo Black, dissenting, Connecticut General Life Insurance Company v. Johnson (303 U.S. 77, 1938).)

Justice Black was not alone in his questioning of the legitimacy of corporate personhood. Justice Douglas, dissenting in Wheeling Steel Corp. v. Glander (337 U.S. 562, 1949), gave an opinion similar to, but shorter than, the one quoted above, to which Justice Black concurred. The extent to which the rights of personhood should attach to corporations has remained a subject of controversy.[12]

By the time of those opinions, political contributions to candidates in federal races by corporations had been prohibited since the Tillman Act of 1907, even though individual contributions remained unlimited.

Both Justice Black and Justice Douglas dissented from the Supreme Court’s 1957 decision in United States v. United Auto Workers, 352 U.S. 567 (1957), in which the Court, on procedural grounds, overruled a lower court decision. Justices Black and Douglas therefore upheld the prohibition on corporate and union political expenditures:

We deal here with a problem that is fundamental to the electoral process and to the operation of our democratic society. It is whether a union can express its views on the issues of an election and on the merits of the candidates, unrestrained and unfettered by the Congress. The principle at stake is not peculiar to unions. It is applicable as well to associations of manufacturers, retail and wholesale trade groups, consumers’ leagues, farmers’ unions, religious groups, and every other association representing a segment of American life and taking an active part in our political campaigns and discussions. It is as important an issue as has come before the Court, for it reaches the very vitals of our system of government. Under our Constitution, it is We The People who are sovereign. The people have the final say. The legislators are their spokesmen. The people determine through their votes the destiny of the nation. It is therefore important — vitally important — that all channels of communication be open to them during every election, that no point of view be restrained or barred, and that the people have access to the views of every group in the community.

[edit] Legislation in the United States

The laws of the United States hold that a legal entity (like a corporation or non-profit organization) shall be treated under the law as a person except when otherwise noted. This rule of construction is specified in 1 U.S.C. §1 (United States Code),[13] which states:

In determining the meaning of any Act of Congress, unless the context indicates otherwise– the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals;

This federal statute has many consequences. For example, a corporation is allowed to own property and enter contracts. It can also sue and be sued and held liable under both civil and criminal law. As well, because the corporation is legally considered the “person,” individual shareholders are not legally responsible for the corporation’s debts and damages beyond their investment in the corporation. Similarly, individual employees, managers, and directors are liable for their own malfeasance or lawbreaking while acting on behalf of the corporation, but are not generally liable for the corporation’s actions. Among the most frequently discussed and controversial consequences of corporate personhood in the United States is the extension of a limited subset of the same constitutional rights.

Corporations as legal entities have always been able to perform commercial activities, similar to a person acting as a sole proprietor, such as entering into a contract or owning property. Therefore corporations have always had a ‘legal personality’ for the purposes of conducting business while shielding individual stockholders from personal liability (i.e., protecting personal assets which were not invested in the corporation).

Broadcaster Thom Hartmann has argued that the Santa Clara Railroad case was not intended to extend equal protection to corporations. Chief Justice Waite wrote in private correspondence that, “we avoided meeting the [Constitutional] question.” Hartmann claims that correspondence between Waite and Bancroft Davis (available in the Library of Congress) demonstrates that Waite did not intend to create a legal precedent. The question of whether corporations were persons within the meaning of the Fourteenth Amendment had been argued in the lower courts and briefed for the Supreme Court, but in this interpretation, the Waite Court did not explicitly decide upon this issue. Whatever the merits of Hartmann’s theory, in numerous cases since the Court has reiterated that corporations are protected in many activities by the equal protection clause of the Constitution. The extent of the protection is what continues to be at issue. Generally speaking, corporations may invoke rights that groups of individual may invoke, such as the right to petition, to speech, to enter into contracts and to hold property, to sue and to be sued. However, they may not exercise rights that are exclusive to individuals and cannot be exercised by other associations of individuals, including the right to vote and the right against self incrimination.

Ralph Nader and others have argued that a strict originalist philosophy, such as that of Justice Antonin Scalia, should reject the doctrine of corporate personhood under the Fourteenth Amendment.[14] Indeed, Chief Justice William Rehnquist repeatedly criticized the Court’s invention of corporate constitutional “rights,” most famously in his dissenting opinion in the 1978 case First National Bank of Boston v. Bellotti.[15] Nonetheless, these justices’ rulings have continued to affirm the assumption of corporate personhood, as the Waite court did, and Justice Rehnquist himself eventually endorsed overruling “Austin,” dissenting in “McConnell v. FEC.”

[edit] Corporate political spending

A central point of debate in recent years is what role corporate money plays and should play in democratic politics. This is part of the larger debate on campaign finance reform and the role that money may play in politics.

In the United States, legal milestones in this debate include:

The corporate personhood aspect of the campaign finance debate turns on Buckley v. Valeo (1976) and Citizens United v. Federal Election Commission (2010): Buckley ruled that political spending is protected by the First Amendment right to free speech, while Citizens United ruled that corporate political spending is protected, holding that corporations have a First Amendment right to free speech.

[edit] See also

Supreme Court cases

[edit] References

  1. ^ 118 U.S. 394 (1886) – Official court Syllabus in the United States Reports
  2. ^ “Proposed Constitutional Amendments to U.S. Constitution-Reclaim Democracy.org”. Reclaimdemocracy.org. 2010-01-21. Retrieved 2011-01-19.
  3. ^ “The Saving American Democracy Amendment – Sanders.senate.gov”. Bernie Sanders @ sanders.senate.gov. 2011-12-12. Retrieved 2011-12-12.
  4. ^ Smith, Bradley. “Corporations Are People, Too”. NPR. Retrieved 2011-01-19.
  5. ^ “United States of America, Plaintiff-appellant, v. S. Steve Sourapas and Crest Beverage Company, Defendants-appellees”. Cases.justia.com. Retrieved 2011-01-19.
  6. ^ “Green Party USA Platform”. Greenparty.org. Retrieved 2011-01-19.
  7. ^ “WILPF – Challenge Corporate Power, Assert the People’s Rights – The Leader in Challenging Corporate Personhood”. Corporatepersonhood.com. Retrieved 2011-01-19.
  8. ^ a b Gore 2007:88
  9. ^ Providence Bank v. Billings, 29 U.S. 514 (1830).
  10. ^ Calvert, Clay (2006). “Freedom of Speech Extended to Corporations”. In Finkelman, Paul. Encyclopedia of American civil liberties, Volume 1. CRC Press. p. 650. ISBN 9780415943420.
  11. ^ Graham, Howard Jay (1968). Everyman’s Constitution. Madison: State Historical Society of Wisconsin. See also Graham, Howard Jay (1938). “The ‘Conspiracy Theory’ of the Fourteenth Amendment”. Yale Law Journal 47 (3): 341–403. doi:10.2307/791947.
  12. ^ Mayer, Carl. “Personalizing the Impersonal: Corporations and the Bill of Rights“, 41 Hastings Law Journal 577, (March 1990).
  13. ^ “United States Code: Title 1,1. Words denoting number, gender, and so forth | LII / Legal Information Institute”. .law.cornell.edu. 2010-04-07. Retrieved 2011-01-19.
  14. ^ Ralph Nader and Robert Weissman. Letter to the Editor: Ralph Nader on Scalia’s “originalism” The Harvard Law Record, Published: Thursday, November 13, 2008, Updated: Tuesday, September 29, 2009.
  15. ^ “Justice Rehnquist’s Dissent in First National Bank of Boston v. Bellotti”. Reclaimdemocracy.org. Retrieved 2011-01-19.

[edit] Further reading

[edit] External links

>

Citizens United v. Federal Election Commission

From Wikipedia, the free encyclopedia
“Citizens United” redirects here. For conservative political organization, see Citizens United (organization).
Citizens United v. Federal Election Commission
Seal of the United States Supreme Court.svg
Supreme Court of the United States
Argued March 24, 2009
Reargued September 9, 2009
Decided January 21, 2010
Full case name Citizens United, Appellant v. Federal Election Commission
Docket nos. 08-205
Citations 558 U.S. [1] (more)
130 S.Ct. 876
Prior history denied appellants motion for a preliminary injunction 530 F. Supp. 2d 274 (D.D.C. 2008)[1] probable jurisdiction noted U.S.
Argument Oral argument
Reargument Reargument
Opinion Announcment Opinion announcement
Holding
A provision of the Bipartisan Campaign Reform Act prohibiting unions, corporations and not-for-profit organizations from broadcasting electioneering communications within 60 days of a general election or 30 days of a primary election violates the free speech clause of the First Amendment to the United States Constitution. United States District Court for the District of Columbia reversed.
Court membership
Chief Justice
John G. Roberts
Case opinions
Majority Kennedy, joined by Roberts, Scalia, Alito; Thomas (all but Part IV); Stevens, Ginsburg, Breyer, Sotomayor (only as to Part IV)
Concurrence Roberts, joined by Alito
Concurrence Scalia, joined by Alito; Thomas (in part)
Concur/dissent Stevens, joined by Ginsburg, Breyer, Sotomayor
Concur/dissent Thomas

Citizens United v. Federal Election Commission, 558 U.S. 08-205 (2010), 558 U.S. ––––, 130 S.Ct. 876 (January 21, 2010), was alandmark decision by the United States Supreme Court holding that the First Amendment prohibits government from placing limits on independent spending for political purposes by corporations and unions. The 5–4 decision originated in a dispute over whether the non-profit corporation Citizens United could air a film critical of Hillary Clinton, and whether the group could advertise the film in broadcast ads featuring Clinton’s image, in apparent violation of the 2002 Bipartisan Campaign Reform Act, commonly known as the McCain–Feingold Act in reference to its primary Senate sponsors.[2]

The decision reached the Supreme Court on appeal from a January 2008 decision by the United States District Court for the District of Columbia. The lower court decision had upheld provisions of the 2002 act, which prevented the film Hillary: The Movie from being shown on television within 30 days of 2008 Democratic primaries.[1][3]

The Supreme Court reversed the lower court, striking down those provisions of the McCain–Feingold Act that prohibited all corporations, both for-profit and not-for-profit, and unions from broadcasting “electioneering communications.”[2] An “electioneering communication” was defined in McCain–Feingold as a broadcast, cable, or satellite communication that mentioned a candidate within 60 days of a general election or thirty days of a primary. The decision overruled Austin v. Michigan Chamber of Commerce (1990) and partially overruled McConnell v. Federal Election Commission (2003).[4] McCain–Feingold had previously been weakened, without overruling McConnell, in Federal Election Commission v. Wisconsin Right to Life, Inc. (2007). The Court did uphold requirements for disclaimer and disclosure by sponsors of advertisements. The case did not involve the federal ban on direct contributions from corporations or unions to candidate campaigns or political parties, which remain illegal in races for federal office.[5]

Contents

[hide]

[edit]Background

The Bipartisan Campaign Reform Act of 2002 (BCRA) (McCain–Feingold Act), 2 U.S.C. § 441b, prohibited corporations and unions from using their general treasury funds to make “electioneering communications” (broadcast ads mentioning a candidate) within 30 days of a primary or 60 days of a general election. During the 2004 presidential campaign, Citizens United, a conservative nonprofit 501(c)(4) organization, filed a complaint before the Federal Election Commission (FEC) charging that ads for Michael Moore’s film Fahrenheit 9/11, which was critical of the Bush administration’s response to the terrorist attacks on September 11, 2001, constituted political advertising and thus could not be aired 60 days before an election or 30 days before a party convention. On August 5, the FEC dismissed the complaint finding no evidence that the movie’s ads had broken the law.[6] The FEC dismissed a further complaint filed in 2005, holding:

The complainant alleged that the release and distribution of FAHRENHEIT 9/11 constituted an independent expenditure because the film expressly advocated the defeat of President Bush and that by being fully or partially responsible for the film’s release, Michael Moore and other entities associated with the film made excessive and/or prohibited contributions to unidentified candidates. The Commission found no reason to believe the respondents violated the Act because the film, associated trailers and website represented bona fide commercial activity, not “contributions” or “expenditures” as defined by the Federal Election Campaign Act.[7]

In the wake of these decisions allowing the promotion of the documentary Fahrenheit 9/11 during the 2004 campaign, Citizens United sought to run television commercials during the 2008 campaign promoting its political documentary Hillary: The Movie, which is critical of then-Senator Hillary Clinton, and to air the movie on DirecTV.[8] In January 2008, the United States District Court for the District of Columbia ruled that the commercials violated provisions in the Bipartisan Campaign Reform Act of 2002 (McCain–Feingold) restricting “electioneering communications” 30 days before primaries. Though the political action committee claimed that its film was fact-based and nonpartisan, the lower Court found that the film had no purpose other than to discredit Clinton’s candidacy for President.[9] The Supreme Court docketed the case on August 18, 2008,[10] and heard oral argument on March 24, 2009.[8][11][12] In the course of the original oral argument, then-Deputy Solicitor General Malcolm L. Stewart, representing the FEC, argued that under the Austin decision, the government would have the power to ban books, if those books contained even one sentence expressly advocating the election or defeat of a candidate, and were published or distributed by a corporation or union.[13] Under questioning from the Court, Stewart further argued that under “Austin” the government could ban the distribution of political books over Amazon’s Kindle, or prevent a union from hiring a writer to author a political book.[14]

On June 29, 2009, the Supreme Court issued an order directing the parties to reargue the case on September 9 after briefing whether it might be necessary to overrule Austin v. Michigan Chamber of Commerce and/or McConnell v. Federal Election Commission to decide the case.[15] Justice Stevens noted in his dissent that in its prior motion for summary judgment Citizens United had abandoned its facial challenge to Section 203, with the parties agreeing to the dismissal of the claim. Stevens argued that the Court chose to hear argument on issues the parties had agreed were not to be presented to the Court and that it reached a decision on constitutionality when it could have found for the plaintiffs on narrower grounds.[16]

The case, on reargument, was the first to be heard by Justice Sotomayor and the first case to be argued in the Supreme Court by Solicitor General Elena Kagan. Also arguing before the Court were former Bush solicitor general Ted Olson and First Amendment lawyer Floyd Abrams for Citizens United, and former Clinton solicitor general Seth Waxman defending the statute on behalf of various intervenors that supported the law.[17] Legal scholar Erwin Chemerinsky called it “one of the most important First Amendment cases in years”.[18]

[edit]Opinion of the Court

Justice Kennedy, the author of the Court’s opinion.

The majority opinion,[19] authored by Justice Kennedy, found that 2 U.S.C. § 441(b)’s prohibition of all independent expenditures by corporations and unions was invalid and could not be applied to spending such as that in Hillary: The Movie. Justice Kennedy wrote:

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.

Justice Kennedy also noted that since there was no way to distinguish between media and other corporations, these restrictions would allow Congress to suppress political speech in newspapers, books, television and blogs.[2] The Court overruled Austin v. Michigan Chamber of Commerce, which had previously held that a Michigan campaign finance act that prohibited corporations from using treasury money to support or oppose candidates in elections did not violate the First and Fourteenth Amendments. The Court also overruled the part of McConnell v. Federal Election Commission that upheld BCRA’s extension of the Federal Election Campaign Act’s restrictions on independent corporate expenditures to include “electioneering communications”. The court’s ruling effectively removed the limit on the amount corporations and unions can spend on “electioneering communications.”

The Court found that BCRA §§201 and 311 (provisions requiring disclosure of the funder) were valid as applied to the ads for Clinton and to the movie itself.[19]

[edit]Concurrences

Chief Justice Roberts, with whom Justice Alito joined, wrote separately “to address the important principles of judicial restraint and stare decisisimplicated in this case”.[20]

Chief Justice Roberts wrote to further explicate and defend the court’s statement that “there is a difference between judicial restraint and judicial abdication”. The Chief Justice argued that there are times during which overruling prior decisions is necessary. Had the courts never gone against stare decisis, “segregation would be legal, minimum wage laws would be unconstitutional, and the Government could wiretap ordinary criminal suspects without first obtaining warrants”. Roberts’ concurrence recited a plethora of case law in which the court had ruled against precedent. Ultimately, however, Roberts argued, “Stare decisis is a doctrine of preservation, not transformation. It counsels deference to past mistakes, but provides no justification for making new ones.”[20]

Justice Scalia joined the opinion of the Court, but also wrote a concurring opinion which was joined by Justice Alito in full and by Justice Thomas in part. Scalia addressed Justice Stevens‘s dissent, specifically with regard to the notion that the court’s decision was not supported by the original understanding of the First Amendment. Scalia stated that Stevens dissent was “in splendid isolation from the text of the First Amendment. It never shows why ‘the freedom of speech’ that was the right of Englishmen did not include the freedom to speak in association with other individuals, including association in the corporate form.” He further considered the dissent’s exploration of the Framers’ views about the “role of corporations in society” to be misleading, and even if valid, irrelevant to the text. Scalia principally argued that the First Amendment was written in “terms of speech, not speakers” and that “Its text offers no foothold for excluding any category of speaker.”[21]

[edit]Dissents

Justice Stevens, the author of the dissenting opinion.

A dissenting opinion by Justice Stevens[22] was joined by Justice GinsburgJustice Breyer, and Justice Sotomayor. To emphasize his unhappiness with the majority, Stevens took the relatively rare step of reading part of his 90 page dissent from the bench.[23] Stevens concurred in the Court’s decision to sustain BCRA’s disclosure provisions, but dissented from the principal holding of the majority opinion. The dissent argued that the Court’s ruling “threatens to undermine the integrity of elected institutions across the Nation. The path it has taken to reach its outcome will, I fear, do damage to this institution.” He wrote:

A democracy cannot function effectively when its constituent members believe laws are being bought and sold.

Justice Stevens also argued that the Court’s holding that BCRA §203 was facially unconstitutional was ruling on a question not brought before it by the litigants, and so claimed that the majority “changed the case to give themselves an opportunity to change the law.” Stevens concluded his dissent:

At bottom, the Court’s opinion is thus a rejection of the common sense of the American people, who have recognized a need to prevent corporations from undermining self government since the founding, and who have fought against the distinctive corrupting potential of corporate electioneering since the days of Theodore Roosevelt. It is a strange time to repudiate that common sense. While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics.

Justice Thomas wrote a separate opinion concurring in all but part IV of the Court’s decision (upholding the disclosure provisions). In order to protect the anonymity of contributors to organizations exercising free speech, Thomas would have struck down the reporting requirements of BCRA §201 and §311 as well, rather than allowing them to be challenged only on a case-specific basis. Thomas’s primary argument was that anonymous free speech is protected and that making contributor lists public makes the contributors vulnerable to retaliation, citing instances of retaliation against contributors to both sides of a then recent California voter initiative. Thomas also expressed concern that such retaliation could extend to retaliation by elected officials. Thomas did not consider “as-applied challenges” to be sufficient to protect against the threat of retaliation.[24]

[edit]Subsequent developments

There were a wide range of reactions to the case from politicians, academics, attorneys, advocacy groups and journalists.

[edit]Support

[edit]Politicians

Senate Republican leader Mitch McConnell, who attended the announcement of the ruling, said the court “struck a blow for the First Amendment”.[25]

Republican campaign consultant Ed Rollins opined that the decision adds transparency to the election process and will make it more competitive.[26]

[edit]Advocacy groups

Citizens United, the group filing the lawsuit said, “Today’s U.S. Supreme Court decision allowing Citizens United to air its documentary films and advertisements is a tremendous victory, not only for Citizens United but for every American who desires to participate in the political process.”[27] During litigation, Citizens United had support from the United States Chamber of Commerce and the National Rifle Association.[25]

Campaign finance attorney Cleta Mitchell, who had filed an amicus curiae brief on behalf of two advocacy organizations opposing the ban, wrote that “The Supreme Court has correctly eliminated a constitutionally flawed system that allowed media corporations (e.g., The Washington Post Co.) to freely disseminate their opinions about candidates using corporate treasury funds, while denying that constitutional privilege to Susie’s Flower Shop Inc. … The real victims of the corporate expenditure ban have been nonprofit advocacy organizations across the political spectrum.”[28]

Heritage Foundation fellow Hans A. von Spakovsky, a former Republican member of the Federal Election Commission, said “The Supreme Court has restored a part of the First Amendment that had been unfortunately stolen by Congress and a previously wrongly-decided ruling of the court.”[29]

Libertarian Cato Institute analysts John Samples and Ilya Shapiro wrote that restrictions on advertising were based on the idea “that corporations had so much money that their spending would create vast inequalities in speech that would undermine democracy.” However, “to make campaign spending equal or nearly so, the government would have to force some people or groups to spend less than they wished. And equality of speech is inherently contrary to protecting speech from government restraint, which is ultimately the heart of American conceptions of free speech.”[30]

The American Civil Liberties Union filed an amicus brief that supported the decision,[31] saying that “section 203 should now be struck down as facially unconstitutional”, though membership was split over the implications of the ruling and its board sent the issue to its special committee on campaign finance for further consideration.[32]

[edit]Academics and attorneys

Bradley A. Smith, professor of law at Capital University Law School, former chairman of the FEC, founder of the Center for Competitive Politics and a leading proponent of deregulation of campaign finance, wrote that the major opponents of political free speech are “incumbent politicians” who “are keen to maintain a chokehold on such speech”. Empowering “small and midsize corporations—and every incorporated mom-and-pop falafel joint, local firefighters’ union, and environmental group—to make its voice heard” frightens them.[33] In response to statements by President Obama and others that the ruling would allow foreign entities to gain political influence through U.S. subsidiaries, Smith pointed out that the decision did not overturn the ban on political donations by foreign corporations and the prohibition on any involvement by foreign nationals in decisions regarding political spending by U.S. subsidiaries, which are covered by other parts of the law.[34]

Campaign finance expert Jan Baran, a member of the Commission on Federal Ethics Law Reform, agreed with the decision, writing that “The history of campaign finance reform is the history of incumbent politicians seeking to muzzle speakers, any speakers, particularly those who might publicly criticize them and their legislation. It is a lot easier to legislate against unions, gun owners, ‘fat cat’ bankers, health insurance companies and any other industry or ‘special interest’ group when they can’t talk back.” Baran further noted that in generalconservatives and libertarians praised the ruling’s preservation of the First Amendment and freedom of speech, but that liberals and campaign finance reformers criticized it as greatly expanding the role of corporate money in politics.[35]

Attorney Kenneth Gross, former associate general counsel of the FEC, wrote that corporations relied more on the development of long-term relationships, political action committees and personal contributions, which were not affected by the decision. He held that while trade associations might seek to raise funds and support candidates, corporations which have “signed on to transparency agreements regarding political spending” may not be eager to give.[28]

The New York Times asked seven academics to opine on how corporate money would reshape politics as a result of the court’s decision.[36] Three of these wrote that the effects would be minimal or positive: Christopher Cotton, a University of Miami School of Business assistant professor of economics, wrote that “There may be very little difference between seeing eight ads or seeing nine ads (compared to seeing one ad or two). And, voters recognize that richer candidates are not necessarily the better candidates, and in some cases, the benefit of running more ads is offset by the negative signal that spending a lot of money creates.[36] University of California professor of law Eugene Volokh held that the “most influential actors in most political campaigns” are media corporations which “overtly editorialize for and against candidates, and also influence elections by choosing what to cover and how to cover it.” Holding that corporations like Exxon would fear alienating voters by supporting candidates, the decision really meant that voters would hear “more messages from more sources.”[36] Joel Gora, a professor at Brooklyn Law School who had previously argued the case of Buckley v. Valeo on behalf of the American Civil Liberties Union, said that the decision represented “a great day for the First Amendment” writing that the Court had “dismantled the First Amendment ‘caste system’ in election speech”.[36]

[edit]Journalists

The Editorial Board of the San Antonio Express-News, criticized McCain–Feingold’s exception for media corporations from the ban on corporate electioneering, writing that it “makes no sense” that the paper could make endorsements up until the day of the election but advocacy groups could not. “While the influence of money on the political process is troubling and sometimes corrupting, abridging political speech is the wrong way to counterbalance that influence.”[37]

Anthony Dick in National Review countered a number of arguments against the decision, asking rhetorically, “is there something uniquely harmful and/or unworthy of protection about political messages that come from corporations and unions, as opposed to, say, rich individuals, persuasive writers, or charismatic demagogues?” He noted that “a recent Gallup poll shows that a majority of the public actually agrees with the Court that corporations and unions should be treated just like individuals in terms of their political-expenditure rights”.[38] A Gallup poll taken in October 2009 and released soon after the decision showed 57 percent of those surveyed agreed that contributions to political candidates are a form of free speech and 55 percent agreed that the same rules should apply to individuals, corporations and unions. Sixty-four percent of Democrats and Republicans believed campaign donations are a form of free speech.[39]

Chicago Tribune editorial board member Steve Chapman wrote “If corporate advocacy may be forbidden as it was under the law in question, it’s not just Exxon Mobil and Citigroup that are rendered mute. Nonprofit corporations set up merely to advance goals shared by citizens, such as the American Civil Liberties Union and the National Rifle Association, also have to put a sock in it. So much for the First Amendment goal of fostering debate about public policy.”[40]

[edit]Criticisms

[edit]American politicians

President Barack Obama stated that the decision “gives the special interests and their lobbyists even more power in Washington — while undermining the influence of average Americans who make small contributions to support their preferred candidates”.[41] Obama later elaborated in his weekly radio address saying, “this ruling strikes at our democracy itself” and “I can’t think of anything more devastating to the public interest”.[42] On January 27, 2010, Obama further condemned the decision during the 2010 State of the Union Address, stating that, “Last week, the Supreme Court reversed a century of law[43] to open the floodgates for special interests — including foreign corporations — to spend without limit in our elections. Well I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities.”

Democratic senator Russ Feingold, a lead sponsor of the 2002 Bipartisan Campaign Reform Act, stated “This decision was a terrible mistake. Presented with a relatively narrow legal issue, the Supreme Court chose to roll back laws that have limited the role of corporate money in federal elections since Teddy Roosevelt was president.”[44] Representative Alan Grayson, a Democrat, stated that it was “the worst Supreme Court decision since the Dred Scott case, and that the court had opened the door to political bribery and corruption in elections to come.[45] Democratic congresswoman Donna Edwards, along with constitutional law professor and Maryland Democratic State Senator Jamie Raskin, have advocated petitions to reverse the decision by means of constitutional amendment.[46] Rep. Leonard Boswell introduced legislation to amend the constitution.[47] Senator John Kerry also called for an Amendment to overrule the decision.[48]. On December 8, 2011, Senator Bernie Sanders proposed the Saving American Democracy Amendment, which would reverse the court’s ruling.[49][50]

Republican Senator John McCain, co-crafter of the 2002 Bipartisan Campaign Reform Act and the party’s 2008 presidential nominee, said “there’s going to be, over time, a backlash … when you see the amounts of union and corporate money that’s going to go into political campaigns”.[51] McCain was “disappointed by the decision of the Supreme Court and the lifting of the limits on corporate and union contributions” but not surprised by the decision, saying that “It was clear that Justice Roberts, Alito and Scalia, by their very skeptical and even sarcastic comments, were very much opposed to BCRA.”[44] He pointed out that “Justice Rehnquist and Justice O’Connor, who had taken a different position on this issue, both had significant political experience, while Justices Roberts, Alito and Scalia have none.”[51] (In fact, Rehnquist had joined Justices Scalia, Thomas, and Kennedy in dissenting in McConnell v. FEC). Republican Senator Olympia Snowe opined that “Today’s decision was a serious disservice to our country.”[52]

Sanda Everette, co-chair of the Green Party, stated that “The ruling especially hurts the ability of parties that don’t accept corporate contributions, like the Green Party, to compete.” (In fact, 2 U.S.C. 441i, which was not altered by the decision in Citizens United, prohibits all parties from accepting direct contributions from corporations.) Another Green Party officer, Rich Whitney, stated “In a transparently political decision, a majority of the US Supreme Court overturned its own recent precedent and paid tribute to the giant corporate interests that already wield tremendous power over our political process and political speech.”

Ralph Nader, a lawyer who placed third in the popular vote in the last three presidential elections, condemned the ruling,[53] saying that “With this decision, corporations can now directly pour vast amounts of corporate money, through independent expenditures, into the electoral swamp already flooded with corporate campaign PAC contribution dollars.” He called for shareholder resolutions asking company directors to pledge not to use company money to favor or oppose electoral candidates.[54] Pat ChoateReform Party candidate stated, “The court has, in effect, legalized foreign governments and foreign corporations to participate in our electoral politics.”[55]

[edit]International

Ambassador Janez Lenarčič, speaking for the Organization for Security and Co-operation in Europe‘s election body, which has overseen over 150 elections, stated that the ruling may adversely affect the organization’s two commitments of “giving voters a genuine choice and giving candidates a fair chance” in that “it threatens to further marginalize candidates without strong financial backing or extensive personal resources, thereby in effect narrowing the political arena”.[56]

[edit]Academics and attorneys

Money Isn’t Speech and Corporations Aren’t People
David Kairys[57]

The constitutional law scholar Laurence H. Tribe wrote that the decision “marks a major upheaval in First Amendment law and signals the end of whatever legitimate claim could otherwise have been made by the Roberts Court to an incremental and minimalist approach to constitutional adjudication, to a modest view of the judicial role vis-à-vis the political branches, or to a genuine concern with adherence to precedent” and pointed out that “Talking about a business corporation as merely another way that individuals might choose to organize their association with one another to pursue their common expressive aims is worse than unrealistic; it obscures the very real injustice and distortion entailed in the phenomenon of some people using other people’s money to support candidates they have made no decision to support, or to oppose candidates they have made no decision to oppose.”[58]

Former supreme court Justice Sandra Day O’Connor criticized the decision only obliquely, but warned that “In invalidating some of the existing checks on campaign spending, the majority in Citizens United has signaled that the problem of campaign contributions in judicial elections might get considerably worse and quite soon.”[59]

Richard L. Hasen, professor of election law at Loyola Law School, argued that the ruling “is activist, it increases the dangers of corruption in our political system and it ignores the strong tradition of American political equality”. He also described Justice Kennedy’s “specter of blog censorship” as sounding more like “the rantings of a right-wing talk show host than the rational view of a justice with a sense of political realism”.[60]

Kathleen M. Sullivan, professor at Stanford Law School and Steven J. Andre, adjunct professor at Lincoln Law School, argued that two different visions of freedom of speech exist and clashed in the case. An egalitarian vision skeptical of the power of large agglomerations of wealth to skew the political process conflicted with a libertarian vision skeptical of government being placed in the role of determining what speech people should or should not hear.[61][62]

Three other scholars writing in the aforementioned New York Times article were critical.[36] Heather K. Gerken, Professor of Law at Yale Law School wrote that “The court has done real damage to the cause of reform, but that damage mostly came earlier, with decisions that made less of a splash.” Michael Waldman, director of the Brennan Center for Justice at N.Y.U. School of Law, opined that the decision “matches or exceeds Bush v. Gore in ideological or partisan overreaching by the court” and Fred Wertheimer, founder and president ofDemocracy 21 considered it “a disaster for the American people”.[36]

Subsequent research by John Coates, Professor of Law at Harvard Law School, has shown that corporations with weaker, less shareholder-friendly corporate governance have been more likely to engage in corporate political activity, and spend more when they do.[63]

Professors Lucian Bebchuk at Harvard Law School and Richard Squire at Columbia Law School argue that the interests of directors and executives may significantly diverge from those of shareholders with respect to political speech decisions, that these decisions may carry special expressive significance from shareholders, and that as a result of the Citizens United decision, new laws providing shareholders with a greater role in determining how corporate money is spent on political activity would be beneficial to shareholders.[64]

[edit]Advocacy groups

A year after the decision, the liberal advocacy group Common Cause asked the Department of Justice to investigate conflicts of interest on the part of two of the Justices in the majority. The organization said that Thomas’s wife was the founder and president of Liberty Central, a conservative political advocacy group that would be empowered to accept corporate contributions to run campaign advertisements, and that Scalia and Thomas had participated in political strategy sessions organized by David H. Koch and Charles G. Koch, who stood to “benefit from the decision” by taking advantage of the rights upheld by the Court.[65]

“Move to Amend”, a national coalition of hundreds of organizations and over 113,000 individuals was formed in response to the ruling.[66] It is seeking legislation or amendment that would restrict corporations and corporate interest groups from excessive influence in elections and lawmaking. A primary objective is to abolish corporate personhood and to hold corporations accountable to the public. The organization has local chapters in many states and sponsors public awareness activities.[67][68]

[edit]Journalists

The New York Times stated in an editorial, “The Supreme Court has handed lobbyists a new weapon. A lobbyist can now tell any elected official: if you vote wrong, my company, labor union or interest group will spend unlimited sums explicitly advertising against your re-election.”[69] Jonathan Alter called it the “most serious threat to American democracy in a generation”.[70] The Christian Science Monitor wrote that the Court had declared “outright that corporate expenditures cannot corrupt elected officials, that influence over lawmakers is not corruption, and that appearance of influence will not undermine public faith in our democracy.”[71]

Some journalists and politicians reacted strongly to the decision. An online media journal Veterans Today called for the “immediate arrest” of the justices voting in the majority fortreason.[72] Keith Olbermann of MSNBC said that with this decision “within ten years every politician in this country will be a prostitute” and compared it to Dred Scott v. Sandford, an 1857 case that held that African-Americans could not be citizens, specifically calling the Citizens United decision worse than Dred Scott.[73]

[edit]Super PACs

Citizens United paved the way for the creation of independent expenditure political action committees, sometimes dubbed Super PACs. These organizations may accept unlimited contributions from individuals, unions, and corporations (both for profit and not-for-profit) for the purpose of making independent expenditures. The Court majority wrote that, for purposes of establishing a “compelling government interest” of corruption sufficient to justify government limitations on political speech, “independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”[74] Accordingly, lower courts, most notably the D.C. Circuit Court in Speechnow.org v. Federal Election Commission, held that groups could pool contributions and make expenditures in support of or opposition to a candidate provided that the expenditures were made independently of a campaign or a candidate.[75] The effectiveness of this system remains a hot topic in American politics.

[edit]Media coverage

[edit]Political blogs

Question book-new.svg
This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed(April 2011)

Most blogs avoided the theoretical aspects of the decision and focused on more personal and dramatic elements, including the Barack ObamaSamuel Alito face-off during the President’s State of the Union address.[citation needed] There, President Obama argued that the decision “reversed a century of law” (strictly, the federal ban on corporate and union expenditures dates from 1947) and that it would allow “foreign corporations to spend without limits in our elections,” during which Justice Alito, in the audience, perceivably mouthed the words “not true.” This event was extensively commented by most political bloggers, with a big chunk of the coverage concentrated on whether or not foreign corporations would be able to make substantial political contributions in US elections. “In 1910, Congress enacted the Federal Corrupt Practices Act. See 36 Stat. 822. The disclosure requirements of the Federal Corrupt Practices Act were upheld by the Supreme Court in Burroughs v. United States, 54 U.S. 287 (1934), as a Constitutional exercise of Congressional power to prevent corruption in elections: ‘The power of Congress to protect the election . . . from corruption being clear, the choice of means to that end presents a question primarily addressed to the judgment of Congress…. Congress reached the conclusion that public disclosure of political contributions, together with the names of contributors and other details, would tend to prevent corrupt use of money to affect elections. The verity of this conclusion reasonably cannot be denied.'”[76] Citizens United clearly impugned a century of jurisprudence that affirmed the constitutionality of legislative checks and oversight of election financing, i.e. the power of congress to regulate and protect the electoral process.

[edit]Election law blogs

On specialized blogs, the Citizens United v. FEC ruling increased traffic by about tenfold for a few days. Traffic also change in quality terms; a disproportionately large and diverse set of websites linked to their posts about the ruling, when compared to other topics addressed by these specialized blogs.

[edit]Opinion polls

ABC-Washington Post poll results.

An ABC-Washington Post poll conducted February 4 to 8, 2010, showed that 80% of those surveyed opposed (and 65% strongly opposed) the Citizens United ruling which the poll described as saying “corporations and unions can spend as much money as they want to help political candidates win elections”. Additionally, 72% supported “an effort by Congress to reinstate limits on corporate and union spending on election campaigns”.[77][78][79]

Gallup Poll conducted in October 2009, after oral argument, but released after the Supreme Court released its opinion, found that 57 percent of those surveyed “agreed that money given to political candidates is a form of free speech” and 55 percent agreed that the “same rules should apply to individuals, corporations and unions.” However, in the same poll respondents by 52% to 41% prioritized limits on campaign contributions over protecting rights to support campaigns and 76% thought the government should be able to place limits on corporation or union donations.[80][81]

Separate polls by various conservative organizations, including the plaintiff, Citizens United, and the Center for Competitive Politics found support for the decision.[82] In particular, the Center for Competitive Politics poll[83] found that 51% of respondents believed that Citizens United should have a right to air ads promoting Hillary: The Movie, although only 22% of the respondents had heard of the case.

[edit]Further court rulings

In December 2011, the Montana Supreme Court in Western Tradition Partnership, Inc. v. Attorney General of Montana upheld that state’s law limiting corporate contributions. Examining the history of corporate interference in Montana government that led to the Corrupt Practices Law, the majority decided that the state still had a compelling reason to maintain the restrictions. It ruled that these restrictions on speech were narrowly tailored and withstood strict scrutiny and thus did not contradict Citizens United. James C Nelson, dissenting, agreed with the majority in disdain for Citizens United, saying “Human beings are persons, and it is an affront to the inviolable dignity of our species that courts have created a legal fiction which forces people—human beings—to share fundamental, natural rights with soulless creatures of government”. At the same time he argued that Citizens United indeed took precedence.[84][85][86] Such a refusal to abide by a higher court’s ruling is rare. As Montana justices are elected, not appointed, Slate’s Dahlia Lithwick calls this “an early judicial campaign ad”.[84]

[edit]Legislative responses

[edit]Legislative impact

The New York Times reported that 24 states with laws prohibiting or limiting independent expenditures by unions and corporations would have to change their campaign finance laws because of the ruling.[87]

Senator Dick Durbin (D-IL) proposed that candidates who sign up small donors receive $900,000 in public money. Others proposed that laws on corporate governance be amended to assure that shareholders vote on political expenditures.[70]

In February 2010, Senator Charles E. Schumer of New York, immediate past Chairman of the Democratic Senatorial Campaign Committee, and Representative Chris Van Hollen of Maryland, Chairman of the Democratic Congressional Campaign Committee, outlined legislation aimed at undoing the decision.[88] In April 2010, they introduced such legislation in the Senate and House, respectively.[89] On June 24, 2010, H.R.5175 (The DISCLOSE Act) passed in the House of Representatives but failed in the Senate. It would have required additional disclosure by corporations of their campaign expenditures. The law, if passed, would also have prohibited political spending by U.S. companies with twenty percent or more foreign ownership, and by most government contractors.[90]

The DISCLOSE Act included exemptions to its rules given to certain special interests such as the National Rifle Association and the American Association of Retired Persons. These gaps within the proposal attracted criticism from lawmakers on both political parties. “They are auctioning off pieces of the First Amendment in this bill… The bigger you are, the stronger you are, the less disclosure you have,” said Republican Congressman Dan Lungren of California. Democratic Congressman Adam Schiff of California commented, “I wish there had been no carve-outs”.[91]

The DISCLOSE Act twice failed to pass the U.S. Senate in the 111th Congress, in both instances reaching only 59 of the 60 votes required to overcome a unified Republican filibuster.[92][93]

[edit]See also

Historical background

[edit]Notes

  1. a b “Summary Citizens United v. Federal Election Commission (Docket No. 08-205)”Cornell University School of Law.
  2. a b c Liptak, Adam (2010-01-21). “Justices, 5-4, Reject Corporate Spending Limit”New York Times.
  3. ^ Liptak, Adam (2009-08-29). “Supreme Court to Revisit ‘Hillary’ Documentary”New York Times.
  4. ^ Hasen, Richard (2010-01-21). “Money Grubbers: The Supreme Court kills campaign finance reform”Slate.
  5. ^ Carney, Eliza (2010-01-21). “Court Unlikely To Stop With Citizens United”National Journal. Retrieved 2010-01-21.[dead link]
  6. ^ FEC finding August 6, 2004
  7. ^ FEC finding August 9, 2005
  8. a b Barnes, Robert (2009-03-15). “‘Hillary: The Movie’ to Get Supreme Court Screening”The Washington Post. Retrieved 2009-03-22.
  9. ^ “Memorandum Opinion” (PDF). Citizens United v. Federal Elections Commission. District Court for the District of Columbia. 2008-01-15. Retrieved 2010-02-01.
  10. ^ “Docket for 08-205”U.S. Supreme Court. 2008-08-18.
  11. ^ Ross, Lee (2009-03-18). “March 24: Hillary Clinton Film Challenged”Fox News. Retrieved 2009-03-22.
  12. ^ Holland, Jesse J. (March 22, 2009). “”Hillary: The Movie” next on Supreme Court docket”Seattle Post-Intelligencer. Associated Press. Retrieved May 10, 2011.
  13. ^ Liptak, Adam (March 25, 2009). “Justices Seem Skeptical of Scope of Campaign Law”. The New York Times: p. A16.
  14. ^ Smith, Bradley. “The Myth of Campaign Finance Reform”.
  15. ^ Barnes, Robert (2009-06-30). “Justices to Review Campaign Finance Law Constraints”The Washington Post.
  16. ^ CounterPunch, 4 February 2010, Chucking Precedent at the High Court
  17. ^ “Hillary: The Oral Argument”The Washington Post.
  18. ^ Liptak, Adam (2009-08-06). “Sotomayor Faces Heavy Workload of Complex Cases”The New York Times.
  19. a b Syllabus and Majority opinion at the Cornell University Law School Supreme Court Collection site
  20. a b Roberts opinion et ibid.
  21. ^ Scalia opinion at ibid.
  22. ^ Stevens opinion at ibid.
  23. ^ McElroy, Linda (January 22, 2010). “Citizens United v. FEC in plain English”SCOTUSblog. Retrieved October 4, 2011.
  24. ^ Thomas opinion at ibid.
  25. a b Stohr, Greg (January 21, 2010). “Corporate Campaign Spending Backed by U.S. High Court”.Bloomberg.
  26. ^ Rollins, Ed (2010-01-22). “Another shock to the Washington system”. CNN. Retrieved 2010-01-26.
  27. ^ “Statement from David N. Bossie”Citizens United Blog. 2010-01-21. Retrieved 2010-01-22.
  28. a b “Who is helped, or hurt, by the Citizens United decision?”The Washington Post. 2010-01-24.
  29. ^ Dinan, Stephen (2010-01-21). “Divided court strikes down campaign money restrictions”The Washington Times. p. 2.
  30. ^ Samples, John; Shapiro, Ilya (2010-01-21). “Free Speech for All”Cato Institute.
  31. ^ “Citizens United v. Federal Election Commission”,American Civil Liberties Union, July 29, 2009, retrieved June 27, 2011
  32. ^ Goldstein, Joseph (2010-01-24). “ACLU May Reverse Course On Campaign Finance Limits After Supreme Court Ruling”New York Sun. Retrieved 2010-01-26.
  33. ^ Smith, Bradley (2010-01-25). “The Citizens United Fallout, Democrats plan to redouble their efforts to stifle corporate free speech”City Journal.
  34. ^ Smith, Bradley (2010-01-27). “President Wrong on Citizens United Case”National Review.
  35. ^ Baran, Jan Witold (2010-01-25). “Stampede Toward Democracy”The New York Times.
  36. a b c d e f “How Corporate Money Will Reshape Politics: Restoring Free Speech in Elections”The New York Times blog. 2010-01-21. Retrieved 2010-01-21.
  37. ^ “High court ruling protects speech”San Antonio Express-News Editorial Board. Hearst Newspapers. 2010-01-26. Retrieved 2010-01-26.
  38. ^ Dick, Anthony (2010-01-25). “Defending Citizens United”National Review.
  39. ^ Fabian, Jordan (2010-01-23). “Poll: Public agrees with principles of campaign finance decision”The Hill. Retrieved 2010-01-24.
  40. ^ Chapman, Steve (2010-01-24). “Free speech, even for corporations”Chicago Tribune Opinion. Retrieved 2010-01-24.
  41. ^ “Obama Criticizes Campaign Finance Ruling”CNN Political TickerTurner Broadcasting System, Inc.. 2010-01-20. Retrieved 2010-01-22.
  42. ^ Superville, Darlene (2010-01-23). “President Blasts Supreme Court Over Citizens United Decision”The Huffington Post. Retrieved 2010-01-23.
  43. ^ This has been argued to refer to the Tillman Act of 1907 and/or a 1912 Montana voter initiative that banned corporate contributions to state campaigns, and subsequent campaign finance laws like the 1947 Taft-Hartley Actbrookings.edublogs.wsj.com. Others suggested that he paraphrased a sentence in Justice Stevens’ dissent: “[t]he Court today rejects a century of history when it treats the distinction between corporate and individual campaign spending as an invidious novelty born of Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990).” jurist.law.pitt.edu
  44. a b Hunt, Kasie (2010-01-21). “John McCain, Russ Feingold diverge on court ruling”. Politico.com.
  45. ^ Baumann, Nick (2010-01-22). “Grayson: Court’s Campaign Finance Decision “Worst Since Dred Scott””Mother Jones. Mother Jones and the Foundation for National Progress. Retrieved 2010-01-26.
  46. ^ “Group Calls For Constitutional Amendment to Overturn High Court’s Campaign Finance Ruling”The Public Record. 2010-01-21. Retrieved 2010-01-26.
  47. ^ Hancock, Jason (2010-01-21). “Boswell pushes constitutional amendment to overturn SCOTUS ruling”. The Iowa Independent. Retrieved 2010-01-26.
  48. ^ Crabtree, Susan (2010-02-02). “Sen. Kerry backs changing Constitution to deal with Supreme Court decision”The Hill. Capitol Hill Publishing Corp.. Retrieved 2010-02-06.
  49. ^ Remsen, Nancy (December 8, 2011). “Sen. Bernie Sanders, I-Vt., offers constitutional amendment on corporate “citizenship””The Burlington Free Press.
  50. ^ Saving American Democracy Amendment
  51. a b Amick, John (2010-01-24). “McCain skeptical Supreme Court decision can be countered”. The Washington Post.
  52. ^ “Snowe troubled by U.S. Supreme Court ruling to remove limits on corporate and union spending in political campaigns” (Press release). United States Senate. 2010-01-21. Retrieved 2010-01-26.
  53. ^ Nader, Ralph (2010-01-22). “Time to Reign in Out-of-Control Corporate Influences on Our Democracy”.
  54. ^ Nader, Ralph (2010-01-22). “The Supremes Bow to King Corporation”CounterPunch.
  55. ^ “Decision May Mean More Foreign Cash”. Politico.com. 2010-01-21. Retrieved 2010-01-22.
  56. ^ “Head of OSCE election body concerned about U.S. Supreme Court ruling on election spending” (Press release). Warsaw: Office for Democratic Institutions and Human Rights. 2010-01-22. Retrieved 2010-01-26.
  57. ^ David Kairys (January 22, 2010). “Money Isn’t Speech and Corporations Aren’t People”Slate. Retrieved November 8, 2011.
  58. ^ Tribe, Laurence (2010-01-24). “What Should Congress Do About Citizens United? An analysis of the ruling and a possible legislative response”SCOTUSblog.
  59. ^ Liptak, Adam (2010-01-26). “O’Connor Mildly Criticizes Court’s Campaign Finance Decision”The Caucus Blog. New York Times Company.
  60. ^ Hasen, Richard L. (January 21, 2010). “Money Grubbers: The Supreme Court kills campaign finance reform”. Slate.com.
  61. ^ Sullivan, Kathleen (2010). “Two Concepts of Freedom of Speech”Harvard Law Review 124: 143-177.
  62. ^ Andre, Steven J. (2010). “The Transformation of Freedom of Speech: Unsnarling the Twisted Roots of Citizens United v. FEC”John Marshall Law Review 44(1): 69-127.
  63. ^ Coates, John (2010). Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth?. Harvard Law and Economics Discussion Paper No. 684.SSRN 1680861.
  64. ^ Bebchuk, Lucian A.; Jackson, Robert J., Jr. (2010).“Corporate Political Speech: Who Decides?”Harvard Law Review 124 (1): 83–117.
  65. ^ Cummings, Jeanne (January 19, 2011). “Reform group: Antonin Scalia, Clarence Thomas had Citizens United conflicts of interest”Politico. Retrieved 2011-01-22.
  66. ^ JULY 6, 2011 Ocean Beach Rag
  67. ^ Movement to Abolish Corporate Personhood Gaining Traction Thursday, July 14, 2011 Boulder Weekly
  68. ^ Move to Amend website
  69. ^ Kirkpatrick, David (2010-01-22). “Lobbyists Get Potent Weapon in Campaign Financing”New York Times. Retrieved 2010-01-27.
  70. a b Alter, Jonathan (2010-02-01). “High Court Hypocrisy: Dick Durbin’s got a good idea”Newsweek(Newsweek, Inc.). Retrieved 2010-01-27.
  71. ^ “A Bad Day for Democracy”The Christian Science Monitor. Retrieved 2010-01-22.
  72. ^ Duff, Gordon (2010-01-22). “Call for Immediate Arrest of Five Supreme Court Justices for Treason”Veterans Today. Retrieved 2010-01-22.
  73. ^ Olbermann, Keith (2010-01-21). “U.S. Government for Sale”Countdown with Keith Olbermann (MSNBC). Retrieved 2010-01-22.
  74. ^http://www.slate.com/articles/news_and_politics/jurisprudence/2011/10/citizens_united_how_justice_kennedy_has_paved_the_way_for_the_re.html
  75. ^http://www.cbsnews.com/stories/2011/06/30/eveningnews/main20075941.shtml
  76. ^ Siglman, Joel. “Reflections on Citizens United”. Retrieved 2011-04-21.
  77. ^ Washington Post-ABC News poll of Feb 4–8, 2010.
  78. ^ Gary Langer, In Supreme Court Ruling on Campaign Finance, the Public DissentsABC News, February 17, 2010.
  79. ^ Dan Eggan, Poll: Large majority opposes Supreme Court’s decision on campaign financingThe Washington Post, February 17, 2010.
  80. ^ Lydia Saad, Public Agrees With Court: Campaign Money Is “Free Speech” but have mixed views on other issues at heart of new Supreme Court ruling, Gallup, January 22, 2010
  81. ^ Jordan Fabian, Poll: Public agrees with principles of campaign finance decisionThe Hill, January 23, 2010.
  82. ^ Citizensunited.org
  83. ^ Campaignfreedom.org
  84. a b Dahlia Lithwick (January 4, 2012). “In Montana, Corporations Aren’t People”Slate.com. Retrieved January 19, 2012.
  85. ^ Amanda Bronstad (January 5, 2012). “Montana Supreme Court Defies Citizens United Ruling”.Law.com. Retrieved January 19, 2012.
  86. ^ Western Tradition Partnership vs. Montana2011 MT 328 (MT 2011). Also cited as DA 11-0081.
  87. ^ Urbina, Ian (2010-01-22). “24 States’ Laws Open to Attack After Campaign Finance Ruling”New York Times. Retrieved 2010-01-23.
  88. ^ Kirkpatrick, David (February 11, 2010). “Democrats Try to Rebuild Campaign-Spending Barriers”The New York Times: p. A19. Retrieved February 14, 2010. “Congressional Democrats outlined legislation Thursday aimed at undoing a recent Supreme Court decision that allows corporations and interest groups to spend freely on political advertising.”
  89. ^ Eggen, Dan (April 29, 2010). “Top Democrats Seek Broad Disclosure on Campaign Financing,”The Washington Post.
  90. ^ Thehill.com
  91. ^ “Who’s exempted from ‘fix’ for Supreme Court campaign finance ruling?”Christian Science Monitor. June 25, 2010.
  92. ^ “Bill on political ad disclosures falls a little short in Senate”The Washington Post. July 28, 2010.
  93. ^ “Disclose Act fails to advance in Senate”Los Angeles Times. September 24, 2010.

[edit]External links

>

and just one example or two

Regulators collude in lawbreaking

by Wall Street banks

By Barry Grey, wsws.org, 7 February 2012

The US Securities and Exchange Commission (SEC), the main federal regulator of banks and financial firms, routinely grants major Wall Street banks waivers from legal penalties as part of cash settlements in securities fraud cases, the New York Times reported February 3.

In its own study of SEC records over the past decade, the newspaper said it uncovered nearly 350 instances in which the regulatory body exempted banks such as JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs from legal provisions stripping firms that violate securities laws of privileges worth billions of dollars in profits.

The article provides a glimpse of the corrupt relationship between Wall Street and the government that enables the financial elite to engage in fraud and swindling, knowing that it can count on the protection of the agencies that supposedly exist to police it. The Times report, which spans both the Bush and Obama administrations, points to the complicity of the entire political establishment in the orgy of speculation and criminality that led to the financial crash of 2008 and the devastating slump that followed.

The big Wall Street firms, as is clear from the article, wantonly and repeatedly break the law and factor in the cost of cash settlements with the SEC and other bodies as part of the cost of doing business.

Banks and executives who have been caught red-handed lying about the securities they market or other aspects of their business are not only shielded from criminal prosecution or civil trials, they are given waivers so they can continue to enjoy lucrative advantages in the sale and underwriting of stocks and bonds, the management of mutual funds and the raising of funds for small companies, while retaining immunity from shareholder lawsuits.

The Times quotes David S. Ruder, a former SEC chairman, as saying, “The ramifications of losing those exemptions are enormous to these firms.” Without the waivers, agreeing to settle charges of securities fraud “might have vast repercussions affecting the ability of a firm to continue to stay in business.”

The newspaper says it found 49 cases since 2005 where firms that settled fraud cases were granted waivers allowing them to fast-track stock or bond offerings, and only 11 instances where companies lost that privilege. There were 91 waivers since 2000 granting immunity from lawsuits and 204 related to raising money for small companies and managing mutual funds.

“Close to half of the waivers,” the Times explains, “went to repeat offenders—Wall Street firms that had settled previous fraud charges by agreeing never again to violate the very laws that the SEC was now saying that they had broken.”

It quotes Meredith B. Cross, the SEC’s corporation finance director, as saying, “The purpose of taking away this simplified path to capital [the fast-track privilege] is to protect investors, not to punish a company.” She fails to explain how giving a pass to companies that defraud investors and the public “protects” them.

JPMorgan Chase, the largest US bank by assets, has settled six securities fraud cases in 13 years. Nevertheless, it has been given at least 22 waivers since 2003, with most of the SEC settlements involving two or more exemptions. Last July, the bank agreed to pay $228 million (out of $2.9 trillion in total assets) to settle civil and criminal charges that it defrauded cities and towns by rigging bids with other Wall Street companies. It received three waivers as part of the deal.

The bank’s lawyers argued in letters to the SEC that the waivers should be granted because of JPMorgan’s “strong record of compliance with the securities laws.”

Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and been given at least 39 waivers. In eleven years, Citigroup settled six fraud cases and received 25 waivers.

All of these banks, as well as other recipients of waivers in fraud settlements such as Wells Fargo, Morgan Stanley and Goldman Sachs, were handed billions of dollars in taxpayer funds in the 2008 bailout and have received many multiples of those sums in virtually free loans from the Federal Reserve and other government subsidies.

Not a single major bank or top echelon bank executive has been criminally charged for violations of the law in connection with the frenzied speculation in and false marketing of subprime mortgage-linked securities that precipitated the Wall Street crash. In 2010, the SEC agreed to cash settlements with Goldman Sachs and Countrywide Financial ex-CEO Angelo Mozilo for fraud in connection with the housing bubble rather than bringing their cases to trial.

Last April, US Senate Permanent Subcommittee on Investigations released a 639-page report providing detailed evidence of rampant mortgage fraud by the bankrupt savings and loan giant Washington Mutual and deceitful marketing of mortgage-backed securities by Goldman Sachs. The report documented Goldman’s drive to sell off its large holdings of mortgage-backed securities and home loans beginning in 2007 and generate profits by betting against the very mortgage securities it was selling to investors.

The Senate report also detailed the complicity of federal regulatory agencies in Wall Street fraud and criminality and the role of the credit rating firms Moody’s and Standard & Poor’s in giving inflated ratings to subprime mortage-backed securities in order to boost their profits.

The Senate report, barely reported by the media at the time of its release, has remained a dead letter.


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Critics Call Delaware a Tax Haven

Published: May 29, 2009

Wall Street, Sand Hill Road, LaSalle Street: Some corporate addresses scream money. Then there is North Orange Street, which whispers it.

North Orange, a ho-hum thoroughfare in Wilmington, Del., is, on paper, home to more than 6,500 companies. Many of them are empty shells. They make nothing and sometimes employ just a lone clerk. But all are there for the same reason: to help corporations avoid paying taxes in other states.

The Obama administration has riled corporate America by cracking down on secretive offshore tax havens. But now a big onshore refuge — Delaware — is drawing scrutiny, too.

Squeezed by hard times, states are pushing to collect taxes that corporations are avoiding through Delaware shell companies. Maryland has reclaimed $267 million in such taxes, including interest and penalties, and has assessed an additional $143 million.

About 20 states have adopted laws that would effectively keep companies from using the decades-old tax loopholes in Delaware. At stake are tens of billions of dollars in annual tax receipts, funds that states say they need during this recession.

Critics of the arrangement in Delaware say it cheats state governments out of money. Delaware, these people say, has created its own onshore Cayman Islands. Even the Swiss are complaining, claiming that the United States is letting this homegrown haven flourish even as the I.R.S. pursues offshore shelters.

Defenders of the arrangement — corporate executives, tax lawyers and, unsurprisingly, Delaware officials — rebuff such criticism. Mailbox subsidiaries like the ones along North Orange Street do nothing to minimize companies’ federal tax bills, they say. Corporations must still pay Uncle Sam. Moreover, these people say, many companies are drawn to Delaware for its business-friendly laws and courts, not to save on taxes.

That is certainly the view at 1209 North Orange Street, a nondescript low-slung building at the corner of West 13th Street. This address serves as a tax minimizer for dozens of brand-name companies, among them Dillard’s, the department store chain based in Little Rock, Ark., and Kentucky Fried Chicken, which is part of Yum Brands of Louisville, Ky. All of them, and nearly two-thirds of the Fortune 500, have tax-exempt subsidiaries at this address to reduce their state tax bills.

Jerry Daniel, the vice president for government relations at the Corporation Trust Company, which runs 1209 North Orange, does not see what all the fuss is about. After all, the arrangements are legal.

“The image of Delaware as a tax haven is totally unfair,” Mr. Daniel said. “Even if you incorporate here, you still have to pay a full federal tax bill.”

That argument does not sit well with David E. Brunori. A professor at George Washington University School of Law and a specialist in state taxes, Professor Brunori said the Delaware loophole was not harmless.

“It is a vehicle for avoiding otherwise legitimate tax liabilities at a time when states need money badly,” Professor Brunori said.

Shirley Sicilian, the general counsel of the Multistate Tax Commission, an intergovernmental state tax agency, said that “states increasingly want to make sure that income that’s earned in their state is actually taxed in their state, particularly in a bad fiscal situation like now.”

At the center of the dispute are legal entities known as Delaware holding companies, which have been around for decades but took off in the 1990s, when accountants began pushing them aggressively. Corporations are allowed to establish these shell companies in Delaware, as well as in Nevada and Wyoming.

Typically, they then transfer to these subsidiaries ownership of things like trademarks, patents and investments. Delaware does not tax holding companies set up to own and collect income from such lucrative intangible assets.

The parent companies of these shells usually pay royalties to the Delaware subsidiaries to lease back those assets. By doing so, they can claim income tax deductions in states where they actually do business. The shells also funnel profit, tax free, back to their parents, in the form of dividends and loans.

Some corporations have abused the system. Before WorldCom collapsed in 2002, it shifted $19.4 billion in intellectual property tied to “management foresight” to a Delaware holding company.

Emboldened by recent court decisions that have challenged such arrangements, a growing number of states are moving aggressively to claim taxes that they say are rightfully theirs.

It will not be easy, tax experts say. Many corporations have found new ways to exploit the loophole, said Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities. The moves include creating “embedded royalty” companies, in which corporations set up Delaware holding companies that license their assets to other Delaware entities. The secondary Delaware entities buy goods or services from other parts of the company, add in the price of the royalty, and sell them back to the operating company, giving it a tax break on the royalty.

In recent months, the Delaware loophole has drawn heated criticism from the world’s leading offshore tax havens, including Switzerland and the Cayman Islands.

In April, a senior official of the Cayman Islands Financial Services Association asserted that Delaware, along with Nevada and Wyoming, promoted tax evasion and money laundering, thus qualifying the United States as a tax haven. Federal officials view the issue as a state matter and are not pushing for changes in Delaware, the home state of Vice President Joseph R. Biden Jr.

In any case, Delaware officials dismiss the idea that their state is some sort of shady tax haven. Richard J. Geisenberger, Delaware’s assistant secretary of state, said that the loophole “is simply a state tax law.” It does not enable tax evasion, he said.

Still, the loophole — and potential for companies to abuse it — worries Peter L. Faber, a prominent lawyer specializing in state tax at McDermott Will & Emery in Washington. In some cases, a single clerk may tend dozens of shell companies. Even the paperwork associated with these companies is back at the home office.

“I’ve seen a lot of companies with solid structures, and more with not,” Mr. Faber said of the Delaware entities.

More Articles in Business » A version of this article appeared in print on May 30, 2009, on page B1 of the New York edition.

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October 4, 2011 – News Journal: Colbert Takes Satirical Swipe at Abuse of Delaware Spending Disclosure Laws
By Chad Livengood

The anonymity of Delaware’s incorporation laws could be used as a conduit to legally launder millions in corporate campaign donations during the 2012 election cycle.

A former managing director of the investment firm that Republican presidential candidate Mitt Romney founded has already done so by creating a company in Delaware to conceal the source of a $1 million donation to a group supporting Romney.

In August, former Bain Capital managing director Ed Conard publicly acknowledged that he “formed and funded W Spann LLC,” in Delaware in March.

Now, comedic anchorman Stephen Colbert has formed a corporation in Delaware with the satirical intent of skirting political spending disclosure laws that apply to political action committees.

Colbert formed a Delaware company called “Anonymous Shell Corporation” with the expressed intent of attracting “big corporate money.”

A 2010 Supreme Court ruling in the Citizens United case now allows corporations, unions and trade groups to spend unlimited amounts of money in political advertising.

Some major corporations, however, may be reluctant to give directly to a political candidate or advocacy group because the donation would become a public record, exposing them to scrutiny, experts say.

“People might object to what they’ve done — their shareholders, their customers,” said Richard Briffault, a law professor at Columbia Law School.

One mechanism for getting around public disclosure would be to donate the money to a not-for-profit corporation, which are formed in Delaware every day, experts said. Under certain circumstances, they can make political contributions and conceal the identity of the donor.

In Conard’s case, his $1 million donation was concealed until a controversy erupted after he anonymously dissolved the corporation in Delaware three months after donating to the pro-Romney Restore Our Future PAC.

The nonprofit corporation can donate unlimited amounts of money to a political action committee, concealing the donors’ true identity, said Paul S. Ryan, attorney at The Campaign Legal Center in Washington, D.C.

“We will have very little information about the true sources of money in U.S. elections,” Ryan said.

As the 2012 presidential election heats up, Delaware’s incorporation industry could be used to further conceal the source of money in politics, experts say.

“Once you tell corporations that they can engage in [campaign spending], there’s no limit on the number of corporations that can be created to hide the other,” Briffault said.

Exposing a loophole

For several months, Colbert has been lampooning federal campaign-finance laws by setting up his own Political Action Committee (PAC) and accepting donations from ordinary Americans who watch his Comedy Central show, “The Colbert Report.”

Colbert has specifically drawn attention to GOP political strategist Karl Rove’s creation of the American Crossroads Super PAC and accompanying not-for-profit corporation, Crossroads GPS, which can raise anonymous donations and funnel cash to the PAC without publicly disclosing donors’ names.

“Colbert got it wrong,” American Crossroads spokesman Jonathan Collegio said. “American Crossroads and Crossroads GPS are separate organizations with separate budgets and one does not fund the other.”

Priorities USA Action, a liberal organization formed by former Obama White House deputy press secretary Bill Burton, was formed earlier this year to counteract Rove’s advertising for Republican and conservative candidates.

By law, traditional political action committees have to disclose their donors.

On Sept. 9, Colbert’s attorneys filed incorporation papers with the Delaware secretary of state to create a 501(C)(4) nonprofit called the “Anonymous Shell Corporation.”

Last Thursday, Colbert’s attorney, Trevor Potter, was a guest on “The Colbert Report” to guide Colbert through the process of creating a 501(C)(4) nonprofit in Delaware.

“Lawyers often form Delaware corporations which we call ‘shell corporations’ that just sit there until they’re needed,” Potter told Colbert.

“I don’t have to go to Delaware, do I?” Colbert asked Potter as he prepared to sign the documents.

“No, it’s already been done for you,” Potter replied.

For emphasis, Colbert let out a sigh of relief and wiped his brow.

Colbert pulled out a gavel at his news desk and called to order a board meeting of Anonymous Shell Corporation. Potter advised Colbert that he would be president, secretary and treasurer of the corporation.

“Sounds like a great board,” Colbert quipped.

That same day, an attorney at Potter’s Washington, D.C., law firm filed an amendment in Delaware to change Anonymous Shell Corporation’s name to Colbert Super PAC SHH Institute, according to the Secretary of State’s Office.

Potter, who was general counsel to Republican John McCain’s presidential campaign in 2008, advised Colbert that forming a Delaware corporation would allow him to accept unlimited donations and hide the identity of his donors.

Legally, Colbert could bundle donations to his Delaware nonprofit corporation and write a check to his political action committee, Potter said.

“What is the difference between that and money laundering?” Colbert asked.

“It’s hard to say,” Potter said as the audience burst into laughter.

No laughing matter

Experts say Colbert’s actions are perfectly legal and shine a light on how the financing of elections has dramatically changed since Supreme Court ruled that corporations have free-speech rights to spend money defeating and electing candidates for office.

“It’s fair to say this is largely legalized money laundering,” Ryan said. “The deregulation of money in politics that [Colbert is] talking about is a very real problem.”

Under the law, not-for-profits organized under Chapter 501 of the IRS code are free to spend money on advertising against or for a political candidate so long as it’s not their primary mission, Ryan said.

Since the Citizens United case, so-called Super PACs have been forming 501(C)(4) organizations to give donors a choice, Ryan said.

“What they will say very blatantly to their supporters, ‘If you don’t want to be disclosed, give to our (C)(4). If you’re willing to be disclosed, support our Super PAC,’ ” Ryan said.

Potter is president of The Campaign Legal Center, but has had no interaction with the organization as he has represented Colbert in his private law practice, Ryan said.

Briffault, an expert in campaign finance, applauded Colbert for bringing attention to the issue of corporate money flowing into the political system.

“I think the hard part for me to figure out is whether people will just laugh or take it seriously,” Briffault said.

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OH by the way what are these corporations playing with, beside lots of chemicals, etc

oh yes Derivatives

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP

By Peter Cohan Posted 10:45AM 06/09/10 Economy, Investing, Investing Basics

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One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost — and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.

To understand the concept of “notional value,” it’s useful to have an example. Let’s say you borrow $1 million to buy an apartment and the interest rate on that loan gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly fixed rate. If all your expenses including interest are less than the rent, you make money. But if the interest and expenses get bigger than the rent, you lose.

You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you’d need to find a counterparty who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one.

The actual cash amount of the interest rates swaps might be 1% of the $1 million debt, while that $1 million is the “notional” amount. Applying that same 1% to the $1.2 quadrillion derivatives market would leave a cash amount of the derivatives market of $12 trillion — far smaller, but still 20% of the world economy.

Getting a Handle on Derivatives Risk

How big is the risk to the world economy from these derivatives? According to Wilmott, it’s impossible to know unless you understand the details of the derivatives contracts. But since they’re unregulated and likely to remain so, it is hard to gauge the risk.

But Wilmott gives an example of an over-the-counter “customized” derivative that could be very risky indeed, and could also put its practitioners in a position of what he called “moral hazard.” Suppose Bank 1 (B1) and Bank 2 (B2) decide to hedge against the risk that Bank 3 (B3) and Bank 4 (B4) might fail to repay their debt to B1 and B2. To guard against that, B1 and B2 might hedge the risk through derivatives.

In so doing, B1 and B2 might buy a credit default swap (CDS) on B3 and B4 debt. The CDS would pay B1 and B2 if B3 and B4 failed to repay their loan. B1 and B2 might also bet on the decline in shares of B3 and B4 through a short sale.

At that point, any action that B1 and B2 might take to boost the odds that B3 and B4 might default would increase the value of their derivatives. That possibility might tempt B1 and B2 to take actions that would boost the odds of failure for B3 and B4. As I wrote back in September 2008 on DailyFinance’s sister site, BloggingStocks, this kind of behavior — in which hedge funds pulled their money out of banks whose stock they were shorting — may have contributed to the failures of Bear Stearns and Lehman Brothers.

It’s also the sort of conduct that makes it extremely difficult to estimate the risk of the derivatives market.

How Positive Feedback Loops Crash Markets

Another kind of market conduct that makes markets volatile is what Wilmott calls positive and negative feedback loops. These relatively bland-sounding terms mask some really scary behavior for investors who are not clued into it. Wilmott argues that a positive feedback loop contributed to the 22.6% crash in the Dow back in October 1987.

In the 1980s, a firm run by some former academics came up with the idea of portfolio insurance.

Their idea was that if investors are worried about their assets losing value, they can buy puts — the option to sell their investments at pre-determined prices. They can sell everything — which would be embarrassing if the market then started to rise — or they could sell a fixed proportion of their portfolio depending on the percentage decline in a particular stock market index.

This latter idea is portfolio insurance. If the Dow, for example, fell 3%; it might suggest that investors should sell 20% of their portfolio. And if the Dow fell 20%, it would indicate that investors should sell 100% of their portfolio.

That positive feedback loop — in which a stock price decline leads to more selling — boosts market volatility. Portfolio insurance causes more investors to sell as the market declines by, say 3%, which causes an even deeper plunge in the value of investors’ holdings. And that deeper decline leads to more selling. Before you know it, many investors are selling everything.

The portfolio insurance firm started off with $5 billion, but as its reputation spread, it ended up managing $50 billion. In 1987, that was a lot of money. So when that positive feedback loop got going, it took the Dow down 22.6% in a day.

The big problem back then was the absence of a sufficient number of traders using a negative feedback loop strategy. With a negative feedback loop, a trader would sell stocks as they rose and buy them as they declined. With a negative feedback loop strategy, volatility would be far lower.

Unfortunately, data on how much money has been going into negative and positive feedback loop strategies is not available. Therefore, it’s hard to know how the positive feedback loops have gained such a hold on the market.

But it is not hard to imagine that if a particular investor made huge amounts of money following a positive feedback loop strategy, other investors would hear about it and copy it. Moreover, the way traders get compensated suggests that it’s better for them to take more and more risk to replicate what their peers are doing.

Traders Make More Money By Following the Pack

There is a clear economic incentive for traders to follow what their peers are doing. According to Wilmott, to understand why, it helps to imagine a simplified example of a trading floor. Picture yourself as a new college graduate joining a bank’s trading floor with 100 traders. Those 100 traders each trade $10 million: They “win” if a coin toss lands on heads and “lose” if it lands on tails. But now imagine you’ve come up with a magic coin that has a 75% chance of landing on heads — you can make a better bet than the other 100 traders with their 50-50 coin.

You might think that the best strategy for you would be to bet your $10 million on that magic coin. But you’d be wrong. According to Wilmott, if the magic coin lands on a head but the other 100 traders flip tails, the bank loses $1 billion while you get a relatively paltry $10 million.

The best possible outcome for you is a 37.5% chance that everyone makes money (the 75% chance of you tossing heads multiplied by the 50% chance of the other traders getting a head). If instead, you use the same coin as everyone else on the floor, the probability of everyone getting a bonus rises to 50%.

When Traders Say ‘Jump,’ Risk Managers Ask ‘How High?’

Traders are a huge source of profit on Wall Street these days and they have an incentive to bet together and to bet big. According to Wilmott, traders get a bonus based on the one-year profits of those on their trading floor. If the trading floor makes big money, all the traders get a big bonus. And if it loses money, they get no bonus — but at least they don’t have to repay their capital providers for the losses.

Given that bonus structure, a trader is always better off risking $1 billion than $1 million. So if the trader, who is the king of the hill at the bank, asks a lowly risk manager to analyze how much risk the trader is taking, that risk manager is on the spot. If the risk manager comes back with a risk level that limits how big a bet the trader can take, the trader will demand that the risk manager recalculate the risk level lower so the trader can take the bigger bet.

Traders also manipulate their bonuses by assuming the existence of trading profits before they are actually realized. This happens when traders get involved with derivatives that will not unwind for 20 years.

Although the profits or losses on that trade have not been realized at the end of the first year, the bank will make an assumption about whether that trade made or lost money each year. Given the power traders wield, they can make the number come out positive so they can receive a hefty bonus — even though it is too early to tell what the real outcome of the trade will be.

How Trader Incentives Caused the CDO Bubble

Wilmott imagines that this greater incentive to follow the pack is what happened when many traders were piling into collateralized debt obligations. In Wilmott’s view, CDO risk managers who had analyzed a future scenario in which housing prices fell and interest rates rose would have concluded that the CDOs would become worthless under that scenario. He imagines that when notified of that possible outcome, CDO traders would have demanded that the risk managers shred that nasty scenario so they could keep trading more CDOs.

Incidentally, the traders who profited by going against the CDO crowd were lone wolves whose compensation did not depend on following the trading floor pack. This reinforces the idea that big bank compensation policies drive dangerous behavior that boosts market volatility.

What You Don’t Understand, You Can’t Properly Regulate

Wilmott believes that derivatives represent a risk of unknown proportions. But unless there is a change to trader compensation policies — one which would force traders to put their compensation at risk for the life of the derivative — then this risk could remain difficult to manage.

Unfortunately, he thinks that regulators aren’t in a good position to assess the risks of derivatives because they don’t understand them. Wilmott offers training in risk management. While traders and risk managers at banks and hedge funds have taken his course, regulators so far have not.

And if regulators don’t understand the risks in derivatives, chances are great that Congress does not understand them either.

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A Secretive Banking Elite Rules Trading in Derivatives

By
Published: December 11, 2010

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

Fred R. Conrad/The New York Times

PROTECTING THE CUSTOMER Daniel Singer runs a heating oil company in Elmsford, N.Y., and is a derivatives customer. In order to offer homeowners fixed-rate oil plans, he buys derivatives contracts. But since the trading system is not transparent, he can’t tell whether the prices he gets are fair or not.

House Advantage

Writing the Rules

This series examines how Wall Street tries to gain an upper hand.

Previous Articles in the Series »

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A COST TO EVERYONE Gary Gensler of the Commodity Futures Trading Commission says the current system “adds up to higher costs to all Americans.”

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Readers shared their thoughts on this article.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.

This fall, many of Mr. Singer’s customers purchased fixed-rate plans to lock in winter heating oil at around $3 a gallon. While that price was above the prevailing $2.80 a gallon then, the contracts will protect homeowners if bitterly cold weather pushes the price higher.

But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.

“At the end of the day, I don’t know if I got a fair price, or what they’re charging me,” Mr. Singer said.

Derivatives shift risk from one party to another, and they offer many benefits, like enabling Mr. Singer to sell his fixed plans without having to bear all the risk that oil prices could suddenly rise. Derivatives are also big business on Wall Street. Banks collect many billions of dollars annually in undisclosed fees associated with these instruments — an amount that almost certainly would be lower if there were more competition and transparent prices.

Just how much derivatives trading costs ordinary Americans is uncertain. The size and reach of this market has grown rapidly over the past two decades. Pension funds today use derivatives to hedge investments. States and cities use them to try to hold down borrowing costs. Airlines use them to secure steady fuel prices. Food companies use them to lock in prices of commodities like wheat or beef.

The marketplace as it functions now “adds up to higher costs to all Americans,” said Gary Gensler, the chairman of the Commodity Futures Trading Commission, which regulates most derivatives. More oversight of the banks in this market is needed, he said.

But big banks influence the rules governing derivatives through a variety of industry groups. The banks’ latest point of influence are clearinghouses like ICE Trust, which holds the monthly meetings with the nine bankers in New York.

Under the Dodd-Frank financial overhaul, many derivatives will be traded via such clearinghouses. Mr. Gensler wants to lessen banks’ control over these new institutions. But Republican lawmakers, many of whom received large campaign contributions from bankers who want to influence how the derivatives rules are written, say they plan to push back against much of the coming reform. On Thursday, the commission canceled a vote over a proposal to make prices more transparent, raising speculation that Mr. Gensler did not have enough support from his fellow commissioners.

The Department of Justice is looking into derivatives, too. The department’s antitrust unit is actively investigating “the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries,” according to a department spokeswoman.

Indeed, the derivatives market today reminds some experts of the Nasdaq stock market in the 1990s. Back then, the Justice Department discovered that Nasdaq market makers were secretly colluding to protect their own profits. Following that scandal, reforms and electronic trading systems cut Nasdaq stock trading costs to 1/20th of their former level — an enormous savings for investors.

“When you limit participation in the governance of an entity to a few like-minded institutions or individuals who have an interest in keeping competitors out, you have the potential for bad things to happen. It’s antitrust 101,” said Robert E. Litan, who helped oversee the Justice Department’s Nasdaq investigation as deputy assistant attorney general and is now a fellow at the Kauffman Foundation. “The history of derivatives trading is it has grown up as a very concentrated industry, and old habits are hard to break.”

Representatives from the nine banks that dominate the market declined to comment on the Department of Justice investigation.

Clearing involves keeping track of trades and providing a central repository for money backing those wagers. A spokeswoman for Deutsche Bank, which is among the most influential of the group, said this system will reduce the risks in the market. She said that Deutsche is focused on ensuring this process is put in place without disrupting the marketplace.

The Deutsche spokeswoman also said the banks’ role in this process has been a success, saying in a statement that the effort “is one of the best examples of public-private partnerships.”

Established, But Can’t Get In

The Bank of New York Mellon’s origins go back to 1784, when it was founded by Alexander Hamilton. Today, it provides administrative services on more than $23 trillion of institutional money.

Recently, the bank has been seeking to enter the inner circle of the derivatives market, but so far, it has been rebuffed.

Bank of New York officials say they have been thwarted by competitors who control important committees at the new clearinghouses, which were set up in the wake of the financial crisis.

Bank of New York Mellon has been trying to become a so-called clearing member since early this year. But three of the four main clearinghouses told the bank that its derivatives operation has too little capital, and thus potentially poses too much risk to the overall market.

The bank dismisses that explanation as absurd. “We are not a nobody,” said Sanjay Kannambadi, chief executive of BNY Mellon Clearing, a subsidiary created to get into the business. “But we don’t qualify. We certainly think that’s kind of crazy.”

The real reason the bank is being shut out, he said, is that rivals want to preserve their profit margins, and they are the ones who helped write the membership rules.

Mr. Kannambadi said Bank of New York’s clients asked it to enter the derivatives business because they believe they are being charged too much by big banks. Its entry could lower fees. Others that have yet to gain full entry to the derivatives trading club are the State Street Corporation, and small brokerage firms like MF Global and Newedge.

The criteria seem arbitrary, said Marcus Katz, a senior vice president at Newedge, which is owned by two big French banks.

“It appears that the membership criteria were set so that a certain group of market participants could meet that, and everyone else would have to jump through hoops,” Mr. Katz said.

The one new derivatives clearinghouse that has welcomed Newedge, Bank of New York and the others — Nasdaq — has been avoided by the big derivatives banks.

Only the Insiders Know

How did big banks come to have such influence that they can decide who can compete with them?

Ironically, this development grew in part out of worries during the height of the financial crisis in 2008. A major concern during the meltdown was that no one — not even government regulators — fully understood the size and interconnections of the derivatives market, especially the market in credit default swaps, which insure against defaults of companies or mortgages bonds. The panic led to the need to bail out the American International Group, for instance, which had C.D.S. contracts with many large banks.

In the midst of the turmoil, regulators ordered banks to speed up plans — long in the making — to set up a clearinghouse to handle derivatives trading. The intent was to reduce risk and increase stability in the market.

Two established exchanges that trade commodities and futures, the InterContinentalExchange, or ICE, and the Chicago Mercantile Exchange, set up clearinghouses, and, so did Nasdaq.

Each of these new clearinghouses had to persuade big banks to join their efforts, and they doled out membership on their risk committees, which is where trading rules are written, as an incentive.

None of the three clearinghouses would divulge the members of their risk committees when asked by a reporter. But two people with direct knowledge of ICE’s committee said the bank members are: Thomas J. Benison of JPMorgan Chase & Company; James J. Hill of Morgan Stanley; Athanassios Diplas of Deutsche Bank; Paul Hamill of UBS; Paul Mitrokostas of Barclays; Andy Hubbard of Credit Suisse; Oliver Frankel of Goldman Sachs; Ali Balali of Bank of America; and Biswarup Chatterjee of Citigroup.

Through representatives, these bankers declined to discuss the committee or the derivatives market. Some of the spokesmen noted that the bankers have expertise that helps the clearinghouse.

Many of these same people hold influential positions at other clearinghouses, or on committees at the powerful International Swaps and Derivatives Association, which helps govern the market.

Critics have called these banks the “derivatives dealers club,” and they warn that the club is unlikely to give up ground easily.

“The revenue these dealers make on derivatives is very large and so the incentive they have to protect those revenues is extremely large,” said Darrell Duffie, a professor at the Graduate School of Business at Stanford University, who studied the derivatives market earlier this year with Federal Reserve researchers. “It will be hard for the dealers to keep their market share if everybody who can prove their creditworthiness is allowed into the clearinghouses. So they are making arguments that others shouldn’t be allowed in.”

Perhaps no business in finance is as profitable today as derivatives. Not making loans. Not offering credit cards. Not advising on mergers and acquisitions. Not managing money for the wealthy.

The precise amount that banks make trading derivatives isn’t known, but there is anecdotal evidence of their profitability. Former bank traders who spoke on condition of anonymity because of confidentiality agreements with their former employers said their banks typically earned $25,000 for providing $25 million of insurance against the risk that a corporation might default on its debt via the swaps market. These traders turn over millions of dollars in these trades every day, and credit default swaps are just one of many kinds of derivatives.

The secrecy surrounding derivatives trading is a key factor enabling banks to make such large profits.

If an investor trades shares of Google or Coca-Cola or any other company on a stock exchange, the price — and the commission, or fee — are known. Electronic trading has made this information available to anyone with a computer, while also increasing competition — and sharply lowering the cost of trading. Even corporate bonds have become more transparent recently. Trading costs dropped there almost immediately after prices became more visible in 2002.

Not so with derivatives. For many, there is no central exchange, like the New York Stock Exchange or Nasdaq, where the prices of derivatives are listed. Instead, when a company or an investor wants to buy a derivative contract for, say, oil or wheat or securitized mortgages, an order is placed with a trader at a bank. The trader matches that order with someone selling the same type of derivative.

Banks explain that many derivatives trades have to work this way because they are often customized, unlike shares of stock. One share of Google is the same as any other. But the terms of an oil derivatives contract can vary greatly.

And the profits on most derivatives are masked. In most cases, buyers are told only what they have to pay for the derivative contract, say $25 million. That amount is more than the seller gets, but how much more — $5,000, $25,000 or $50,000 more — is unknown. That’s because the seller also is told only the amount he will receive. The difference between the two is the bank’s fee and profit. So, the bigger the difference, the better for the bank — and the worse for the customers.

It would be like a real estate agent selling a house, but the buyer knowing only what he paid and the seller knowing only what he received. The agent would pocket the difference as his fee, rather than disclose it. Moreover, only the real estate agent — and neither buyer nor seller — would have easy access to the prices paid recently for other homes on the same block.

An Electronic Exchange?

Two years ago, Kenneth C. Griffin, owner of the giant hedge fund Citadel Group, which is based in Chicago, proposed open pricing for commonly traded derivatives, by quoting their prices electronically. Citadel oversees $11 billion in assets, so saving even a few percentage points in costs on each trade could add up to tens or even hundreds of millions of dollars a year.

But Mr. Griffin’s proposal for an electronic exchange quickly ran into opposition, and what happened is a window into how banks have fiercely fought competition and open pricing. To get a transparent exchange going, Citadel offered the use of its technological prowess for a joint venture with the Chicago Mercantile Exchange, which is best-known as a trading outpost for contracts on commodities like coffee and cotton. The goal was to set up a clearinghouse as well as an electronic trading system that would display prices for credit default swaps.

Big banks that handle most derivatives trades, including Citadel’s, didn’t like Citadel’s idea. Electronic trading might connect customers directly with each other, cutting out the banks as middlemen.

So the banks responded in the fall of 2008 by pairing with ICE, one of the Chicago Mercantile Exchange’s rivals, which was setting up its own clearinghouse. The banks attached a number of conditions on that partnership, which came in the form of a merger between ICE’s clearinghouse and a nascent clearinghouse that the banks were establishing. These conditions gave the banks significant power at ICE’s clearinghouse, according to two people with knowledge of the deal. For instance, the banks insisted that ICE install the chief executive of their effort as the head of the joint effort. That executive, Dirk Pruis, left after about a year and now works at Goldman Sachs. Through a spokesman, he declined to comment.

The banks also refused to allow the deal with ICE to close until the clearinghouse’s rulebook was established, with provisions in the banks’ favor. Key among those were the membership rules, which required members to hold large amounts of capital in derivatives units, a condition that was prohibitive even for some large banks like the Bank of New York.

The banks also required ICE to provide market data exclusively to Markit, a little-known company that plays a pivotal role in derivatives. Backed by Goldman, JPMorgan and several other banks, Markit provides crucial information about derivatives, like prices.

Kevin Gould, who is the president of Markit and was involved in the clearinghouse merger, said the banks were simply being prudent and wanted rules that protected the market and themselves.

“The one thing I know the banks are concerned about is their risk capital,” he said. “You really are going to get some comfort that the way the entity operates isn’t going to put you at undue risk.”

Even though the banks were working with ICE, Citadel and the C.M.E. continued to move forward with their exchange. They, too, needed to work with Markit, because it owns the rights to certain derivatives indexes. But Markit put them in a tough spot by basically insisting that every trade involve at least one bank, since the banks are the main parties that have licenses with Markit.

This demand from Markit effectively secured a permanent role for the big derivatives banks since Citadel and the C.M.E. could not move forward without Markit’s agreement. And so, essentially boxed in, they agreed to the terms, according to the two people with knowledge of the matter. (A spokesman for C.M.E. said last week that the exchange did not cave to Markit’s terms.)

Still, even after that deal was complete, the Chicago Mercantile Exchange soon had second thoughts about working with Citadel and about introducing electronic screens at all. The C.M.E. backed out of the deal in mid-2009, ending Mr. Griffin’s dream of a new, electronic trading system.

With Citadel out of the picture, the banks agreed to join the Chicago Mercantile Exchange’s clearinghouse effort. The exchange set up a risk committee that, like ICE’s committee, was mainly populated by bankers.

It remains unclear why the C.M.E. ended its electronic trading initiative. Two people with knowledge of the Chicago Mercantile Exchange’s clearinghouse said the banks refused to get involved unless the exchange dropped Citadel and the entire plan for electronic trading.

Kim Taylor, the president of Chicago Mercantile Exchange’s clearing division, said “the market” simply wasn’t interested in Mr. Griffin’s idea.

Critics now say the banks have an edge because they have had early control of the new clearinghouses’ risk committees. Ms. Taylor at the Chicago Mercantile Exchange said the people on those committees are supposed to look out for the interest of the broad market, rather than their own narrow interests. She likened the banks’ role to that of Washington lawmakers who look out for the interests of the nation, not just their constituencies.

“It’s not like the sort of representation where if I’m elected to be the representative from the state of Illinois, I go there to represent the state of Illinois,” Ms. Taylor said in an interview.

Officials at ICE, meantime, said they solicit views from customers through a committee that is separate from the bank-dominated risk committee.

“We spent and we still continue to spend a lot of time on thinking about governance,” said Peter Barsoom, the chief operating officer of ICE Trust. “We want to be sure that we have all the right stakeholders appropriately represented.”

Mr. Griffin said last week that customers have so far paid the price for not yet having electronic trading. He puts the toll, by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”

“It’s a stunning amount of money,” Mr. Griffin said. “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”

In, Out and Around Henhouse

The result of the maneuvering of the past couple years is that big banks dominate the risk committees of not one, but two of the most prominent new clearinghouses in the United States.

That puts them in a pivotal position to determine how derivatives are traded.

Under the Dodd-Frank bill, the clearinghouses were given broad authority. The risk committees there will help decide what prices will be charged for clearing trades, on top of fees banks collect for matching buyers and sellers, and how much money customers must put up as collateral to cover potential losses.

Perhaps more important, the risk committees will recommend which derivatives should be handled through clearinghouses, and which should be exempt.

Regulators will have the final say. But banks, which lobbied heavily to limit derivatives regulation in the Dodd-Frank bill, are likely to argue that few types of derivatives should have to go through clearinghouses. Critics contend that the bankers will try to keep many types of derivatives away from the clearinghouses, since clearinghouses represent a step towards broad electronic trading that could decimate profits.

The banks already have a head start. Even a newly proposed rule to limit the banks’ influence over clearing allows them to retain majorities on risk committees. It remains unclear whether regulators creating the new rules — on topics like transparency and possible electronic trading — will drastically change derivatives trading, or leave the bankers with great control.

One former regulator warned against deferring to the banks. Theo Lubke, who until this fall oversaw the derivatives reforms at the Federal Reserve Bank of New York, said banks do not always think of the market as a whole as they help write rules.

“Fundamentally, the banks are not good at self-regulation,” Mr. Lubke said in a panel last March at Columbia University. “That’s not their expertise, that’s not their primary interest.”

A version of this article appeared in print on December 12, 2010, on page A1 of the New York edition with the headline: HOUSE ADVANTAGE; A Secretive Banking Elite Rules Derivatives Trading.

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>

to get an idea

Derivatives Mother of All Bubbles exploding 

In 2003, Warren Buffett called

Derivatives:

“financial weapons of mass destruction”

Why?

What are they about to destroy

massively? 

>

a few charts to see magnitude

click on image to enlarge

>

and this

>

and

>

>

and for more info see

Also see

Hedge Hogs; Gold Man’s Sacks; “financial terrorist attacks;” and the Obama sellout: > HERE

SUPER COMMITTEE BIG BANK ROBBERY and “this sucker” going down > HERE

Terrorism by Economic Collapse, debt bondage, money as debt on interest, etc > HERE

Derivatives ‘Mother of All Bubbles’ exploding > HERE

Super rich 1% vs 99 %; Terrorism Cycle: Guillotines: Occupy “ALL” streets  > HERE

and so many more on those websites (under development with limited resources)

>

<><><>

A Secretive Banking Elite Rules Trading in Derivatives

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

Fred R. Conrad/The New York Times

PROTECTING THE CUSTOMER Daniel Singer runs a heating oil company in Elmsford, N.Y., and is a derivatives customer. In order to offer homeowners fixed-rate oil plans, he buys derivatives contracts. But since the trading system is not transparent, he can’t tell whether the prices he gets are fair or not.

House Advantage

Writing the Rules

This series examines how Wall Street tries to gain an upper hand.

Previous Articles in the Series »

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A COST TO EVERYONE Gary Gensler of the Commodity Futures Trading Commission says the current system “adds up to higher costs to all Americans.”

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The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.

This fall, many of Mr. Singer’s customers purchased fixed-rate plans to lock in winter heating oil at around $3 a gallon. While that price was above the prevailing $2.80 a gallon then, the contracts will protect homeowners if bitterly cold weather pushes the price higher.

But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.

“At the end of the day, I don’t know if I got a fair price, or what they’re charging me,” Mr. Singer said.

Derivatives shift risk from one party to another, and they offer many benefits, like enabling Mr. Singer to sell his fixed plans without having to bear all the risk that oil prices could suddenly rise. Derivatives are also big business on Wall Street. Banks collect many billions of dollars annually in undisclosed fees associated with these instruments — an amount that almost certainly would be lower if there were more competition and transparent prices.

Just how much derivatives trading costs ordinary Americans is uncertain. The size and reach of this market has grown rapidly over the past two decades. Pension funds today use derivatives to hedge investments. States and cities use them to try to hold down borrowing costs. Airlines use them to secure steady fuel prices. Food companies use them to lock in prices of commodities like wheat or beef.

The marketplace as it functions now “adds up to higher costs to all Americans,” said Gary Gensler, the chairman of the Commodity Futures Trading Commission, which regulates most derivatives. More oversight of the banks in this market is needed, he said.

But big banks influence the rules governing derivatives through a variety of industry groups. The banks’ latest point of influence are clearinghouses like ICE Trust, which holds the monthly meetings with the nine bankers in New York.

Under the Dodd-Frank financial overhaul, many derivatives will be traded via such clearinghouses. Mr. Gensler wants to lessen banks’ control over these new institutions. But Republican lawmakers, many of whom received large campaign contributions from bankers who want to influence how the derivatives rules are written, say they plan to push back against much of the coming reform. On Thursday, the commission canceled a vote over a proposal to make prices more transparent, raising speculation that Mr. Gensler did not have enough support from his fellow commissioners.

The Department of Justice is looking into derivatives, too. The department’s antitrust unit is actively investigating “the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries,” according to a department spokeswoman.

Indeed, the derivatives market today reminds some experts of the Nasdaq stock market in the 1990s. Back then, the Justice Department discovered that Nasdaq market makers were secretly colluding to protect their own profits. Following that scandal, reforms and electronic trading systems cut Nasdaq stock trading costs to 1/20th of their former level — an enormous savings for investors.

“When you limit participation in the governance of an entity to a few like-minded institutions or individuals who have an interest in keeping competitors out, you have the potential for bad things to happen. It’s antitrust 101,” said Robert E. Litan, who helped oversee the Justice Department’s Nasdaq investigation as deputy assistant attorney general and is now a fellow at the Kauffman Foundation. “The history of derivatives trading is it has grown up as a very concentrated industry, and old habits are hard to break.”

Representatives from the nine banks that dominate the market declined to comment on the Department of Justice investigation.

Clearing involves keeping track of trades and providing a central repository for money backing those wagers. A spokeswoman for Deutsche Bank, which is among the most influential of the group, said this system will reduce the risks in the market. She said that Deutsche is focused on ensuring this process is put in place without disrupting the marketplace.

The Deutsche spokeswoman also said the banks’ role in this process has been a success, saying in a statement that the effort “is one of the best examples of public-private partnerships.”

Established, But Can’t Get In

The Bank of New York Mellon’s origins go back to 1784, when it was founded by Alexander Hamilton. Today, it provides administrative services on more than $23 trillion of institutional money.

Recently, the bank has been seeking to enter the inner circle of the derivatives market, but so far, it has been rebuffed.

Bank of New York officials say they have been thwarted by competitors who control important committees at the new clearinghouses, which were set up in the wake of the financial crisis.

Bank of New York Mellon has been trying to become a so-called clearing member since early this year. But three of the four main clearinghouses told the bank that its derivatives operation has too little capital, and thus potentially poses too much risk to the overall market.

The bank dismisses that explanation as absurd. “We are not a nobody,” said Sanjay Kannambadi, chief executive of BNY Mellon Clearing, a subsidiary created to get into the business. “But we don’t qualify. We certainly think that’s kind of crazy.”

The real reason the bank is being shut out, he said, is that rivals want to preserve their profit margins, and they are the ones who helped write the membership rules.

Mr. Kannambadi said Bank of New York’s clients asked it to enter the derivatives business because they believe they are being charged too much by big banks. Its entry could lower fees. Others that have yet to gain full entry to the derivatives trading club are the State Street Corporation, and small brokerage firms like MF Global and Newedge.

The criteria seem arbitrary, said Marcus Katz, a senior vice president at Newedge, which is owned by two big French banks.

“It appears that the membership criteria were set so that a certain group of market participants could meet that, and everyone else would have to jump through hoops,” Mr. Katz said.

The one new derivatives clearinghouse that has welcomed Newedge, Bank of New York and the others — Nasdaq — has been avoided by the big derivatives banks.

Only the Insiders Know

How did big banks come to have such influence that they can decide who can compete with them?

Ironically, this development grew in part out of worries during the height of the financial crisis in 2008. A major concern during the meltdown was that no one — not even government regulators — fully understood the size and interconnections of the derivatives market, especially the market in credit default swaps, which insure against defaults of companies or mortgages bonds. The panic led to the need to bail out the American International Group, for instance, which had C.D.S. contracts with many large banks.

In the midst of the turmoil, regulators ordered banks to speed up plans — long in the making — to set up a clearinghouse to handle derivatives trading. The intent was to reduce risk and increase stability in the market.

Two established exchanges that trade commodities and futures, the InterContinentalExchange, or ICE, and the Chicago Mercantile Exchange, set up clearinghouses, and, so did Nasdaq.

Each of these new clearinghouses had to persuade big banks to join their efforts, and they doled out membership on their risk committees, which is where trading rules are written, as an incentive.

None of the three clearinghouses would divulge the members of their risk committees when asked by a reporter. But two people with direct knowledge of ICE’s committee said the bank members are: Thomas J. Benison of JPMorgan Chase & Company; James J. Hill of Morgan Stanley; Athanassios Diplas of Deutsche Bank; Paul Hamill of UBS; Paul Mitrokostas of Barclays; Andy Hubbard of Credit Suisse; Oliver Frankel of Goldman Sachs; Ali Balali of Bank of America; and Biswarup Chatterjee of Citigroup.

Through representatives, these bankers declined to discuss the committee or the derivatives market. Some of the spokesmen noted that the bankers have expertise that helps the clearinghouse.

Many of these same people hold influential positions at other clearinghouses, or on committees at the powerful International Swaps and Derivatives Association, which helps govern the market.

Critics have called these banks the “derivatives dealers club,” and they warn that the club is unlikely to give up ground easily.

“The revenue these dealers make on derivatives is very large and so the incentive they have to protect those revenues is extremely large,” said Darrell Duffie, a professor at the Graduate School of Business at Stanford University, who studied the derivatives market earlier this year with Federal Reserve researchers. “It will be hard for the dealers to keep their market share if everybody who can prove their creditworthiness is allowed into the clearinghouses. So they are making arguments that others shouldn’t be allowed in.”

Perhaps no business in finance is as profitable today as derivatives. Not making loans. Not offering credit cards. Not advising on mergers and acquisitions. Not managing money for the wealthy.

The precise amount that banks make trading derivatives isn’t known, but there is anecdotal evidence of their profitability. Former bank traders who spoke on condition of anonymity because of confidentiality agreements with their former employers said their banks typically earned $25,000 for providing $25 million of insurance against the risk that a corporation might default on its debt via the swaps market. These traders turn over millions of dollars in these trades every day, and credit default swaps are just one of many kinds of derivatives.

The secrecy surrounding derivatives trading is a key factor enabling banks to make such large profits.

If an investor trades shares of Google or Coca-Cola or any other company on a stock exchange, the price — and the commission, or fee — are known. Electronic trading has made this information available to anyone with a computer, while also increasing competition — and sharply lowering the cost of trading. Even corporate bonds have become more transparent recently. Trading costs dropped there almost immediately after prices became more visible in 2002.

Not so with derivatives. For many, there is no central exchange, like the New York Stock Exchange or Nasdaq, where the prices of derivatives are listed. Instead, when a company or an investor wants to buy a derivative contract for, say, oil or wheat or securitized mortgages, an order is placed with a trader at a bank. The trader matches that order with someone selling the same type of derivative.

Banks explain that many derivatives trades have to work this way because they are often customized, unlike shares of stock. One share of Google is the same as any other. But the terms of an oil derivatives contract can vary greatly.

And the profits on most derivatives are masked. In most cases, buyers are told only what they have to pay for the derivative contract, say $25 million. That amount is more than the seller gets, but how much more — $5,000, $25,000 or $50,000 more — is unknown. That’s because the seller also is told only the amount he will receive. The difference between the two is the bank’s fee and profit. So, the bigger the difference, the better for the bank — and the worse for the customers.

It would be like a real estate agent selling a house, but the buyer knowing only what he paid and the seller knowing only what he received. The agent would pocket the difference as his fee, rather than disclose it. Moreover, only the real estate agent — and neither buyer nor seller — would have easy access to the prices paid recently for other homes on the same block.

An Electronic Exchange?

Two years ago, Kenneth C. Griffin, owner of the giant hedge fund Citadel Group, which is based in Chicago, proposed open pricing for commonly traded derivatives, by quoting their prices electronically. Citadel oversees $11 billion in assets, so saving even a few percentage points in costs on each trade could add up to tens or even hundreds of millions of dollars a year.

But Mr. Griffin’s proposal for an electronic exchange quickly ran into opposition, and what happened is a window into how banks have fiercely fought competition and open pricing. To get a transparent exchange going, Citadel offered the use of its technological prowess for a joint venture with the Chicago Mercantile Exchange, which is best-known as a trading outpost for contracts on commodities like coffee and cotton. The goal was to set up a clearinghouse as well as an electronic trading system that would display prices for credit default swaps.

Big banks that handle most derivatives trades, including Citadel’s, didn’t like Citadel’s idea. Electronic trading might connect customers directly with each other, cutting out the banks as middlemen.

So the banks responded in the fall of 2008 by pairing with ICE, one of the Chicago Mercantile Exchange’s rivals, which was setting up its own clearinghouse. The banks attached a number of conditions on that partnership, which came in the form of a merger between ICE’s clearinghouse and a nascent clearinghouse that the banks were establishing. These conditions gave the banks significant power at ICE’s clearinghouse, according to two people with knowledge of the deal. For instance, the banks insisted that ICE install the chief executive of their effort as the head of the joint effort. That executive, Dirk Pruis, left after about a year and now works at Goldman Sachs. Through a spokesman, he declined to comment.

The banks also refused to allow the deal with ICE to close until the clearinghouse’s rulebook was established, with provisions in the banks’ favor. Key among those were the membership rules, which required members to hold large amounts of capital in derivatives units, a condition that was prohibitive even for some large banks like the Bank of New York.

The banks also required ICE to provide market data exclusively to Markit, a little-known company that plays a pivotal role in derivatives. Backed by Goldman, JPMorgan and several other banks, Markit provides crucial information about derivatives, like prices.

Kevin Gould, who is the president of Markit and was involved in the clearinghouse merger, said the banks were simply being prudent and wanted rules that protected the market and themselves.

“The one thing I know the banks are concerned about is their risk capital,” he said. “You really are going to get some comfort that the way the entity operates isn’t going to put you at undue risk.”

Even though the banks were working with ICE, Citadel and the C.M.E. continued to move forward with their exchange. They, too, needed to work with Markit, because it owns the rights to certain derivatives indexes. But Markit put them in a tough spot by basically insisting that every trade involve at least one bank, since the banks are the main parties that have licenses with Markit.

This demand from Markit effectively secured a permanent role for the big derivatives banks since Citadel and the C.M.E. could not move forward without Markit’s agreement. And so, essentially boxed in, they agreed to the terms, according to the two people with knowledge of the matter. (A spokesman for C.M.E. said last week that the exchange did not cave to Markit’s terms.)

Still, even after that deal was complete, the Chicago Mercantile Exchange soon had second thoughts about working with Citadel and about introducing electronic screens at all. The C.M.E. backed out of the deal in mid-2009, ending Mr. Griffin’s dream of a new, electronic trading system.

With Citadel out of the picture, the banks agreed to join the Chicago Mercantile Exchange’s clearinghouse effort. The exchange set up a risk committee that, like ICE’s committee, was mainly populated by bankers.

It remains unclear why the C.M.E. ended its electronic trading initiative. Two people with knowledge of the Chicago Mercantile Exchange’s clearinghouse said the banks refused to get involved unless the exchange dropped Citadel and the entire plan for electronic trading.

Kim Taylor, the president of Chicago Mercantile Exchange’s clearing division, said “the market” simply wasn’t interested in Mr. Griffin’s idea.

Critics now say the banks have an edge because they have had early control of the new clearinghouses’ risk committees. Ms. Taylor at the Chicago Mercantile Exchange said the people on those committees are supposed to look out for the interest of the broad market, rather than their own narrow interests. She likened the banks’ role to that of Washington lawmakers who look out for the interests of the nation, not just their constituencies.

“It’s not like the sort of representation where if I’m elected to be the representative from the state of Illinois, I go there to represent the state of Illinois,” Ms. Taylor said in an interview.

Officials at ICE, meantime, said they solicit views from customers through a committee that is separate from the bank-dominated risk committee.

“We spent and we still continue to spend a lot of time on thinking about governance,” said Peter Barsoom, the chief operating officer of ICE Trust. “We want to be sure that we have all the right stakeholders appropriately represented.”

Mr. Griffin said last week that customers have so far paid the price for not yet having electronic trading. He puts the toll, by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”

“It’s a stunning amount of money,” Mr. Griffin said. “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”

In, Out and Around Henhouse

The result of the maneuvering of the past couple years is that big banks dominate the risk committees of not one, but two of the most prominent new clearinghouses in the United States.

That puts them in a pivotal position to determine how derivatives are traded.

Under the Dodd-Frank bill, the clearinghouses were given broad authority. The risk committees there will help decide what prices will be charged for clearing trades, on top of fees banks collect for matching buyers and sellers, and how much money customers must put up as collateral to cover potential losses.

Perhaps more important, the risk committees will recommend which derivatives should be handled through clearinghouses, and which should be exempt.

Regulators will have the final say. But banks, which lobbied heavily to limit derivatives regulation in the Dodd-Frank bill, are likely to argue that few types of derivatives should have to go through clearinghouses. Critics contend that the bankers will try to keep many types of derivatives away from the clearinghouses, since clearinghouses represent a step towards broad electronic trading that could decimate profits.

The banks already have a head start. Even a newly proposed rule to limit the banks’ influence over clearing allows them to retain majorities on risk committees. It remains unclear whether regulators creating the new rules — on topics like transparency and possible electronic trading — will drastically change derivatives trading, or leave the bankers with great control.

One former regulator warned against deferring to the banks. Theo Lubke, who until this fall oversaw the derivatives reforms at the Federal Reserve Bank of New York, said banks do not always think of the market as a whole as they help write rules.

“Fundamentally, the banks are not good at self-regulation,” Mr. Lubke said in a panel last March at Columbia University. “That’s not their expertise, that’s not their primary interest.”

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