In the following op-ed piece published in the Jan. 25 edition of the Financial Times, Harvard Law School Professor Mark Roe assesses the possible impact of last week’s Supreme Court decision (in Citizens United v. Federal Election Commission) permitting more corporate spending for and against political candidates. The decision, says Roe, may ultimately be bad for the economy.
Corporate consequences of the Supreme Court’s speech decision last week
from the Financial Times
Last week, the US Supreme Court ruled that the legal blocks on corporations and labour unions advertising for and against political candidates violates free speech principles.
Constitutional law scholars, the media and the public will debate whether corporations are entitled to free speech protections and Congress may revisit campaign contribution limits and public funding.
But the potential corporate, business and economic consequences of the decision, assuming it stands, are profound. Conservative and business media have thus far favoured the decision as helpful to business; but it is not at all clear that it is favourable to the economy. It is likely to hurt the dynamism of the American economy, perhaps severely.
The Court’s decision will strengthen the hand of incumbent interests over unorganised emerging interests. That is not good. Incumbent business interests often see upstarts as competing unfairly, as needing to be regulated, and as deserving of being suppressed. Incumbent businesses like politicians to squelch new entrants. With their chequebooks now opened up, they will support politicians who seek to regulate and suppress upstarts.
Upstarts do not have money yet to finance their own political campaigns, they are disorganised, and they don’t yet know the ropes in Washington and the state legislatures. They are new, weak, and inexperienced.
Consider whether it would have been easy for upstarts with weak funding to emerge to counter-balance, for example, efforts IBM would have been able to make under this new regime to suppress new competitors decades ago? Could Bill Gates, or Steve Jobs in his garage, really have matched IBM in campaign funding back then?
The campaign finance decision will encourage pernicious corporatist tendencies. Consider the most recent example of these tendencies: unions and incumbent corporate interests in the motor industry managed to get about $80bn in subsidies last year. Even without the ruling in favour of direct campaigning, the steel industry has often been able to suppress international competition. If incumbent industries’ corporate and union leaders see a common cause in Washington, we should expect them to use the campaign process further to increase their friends in Congress. There was always a public-oriented rationale – the economy needs this or that industry – but now there will be more muscle behind the campaign.
These two possibilities are not good for the dynamism of the American economy: politicians can suppress upstarts and they will now have more reason than before to curry favour with incumbent business interests. Yet, new entry when the old guard stumbles or sits on its laurels is what keeps the American economy moving. It has been one of our few advantages over continental European economies during recent decades, as politicians there were more beholden to existing industrial sectors and less interested in encouraging upstarts and innovation.
The ruling will also strengthen further the hands of managers and directors inside large American companies. They, after all, are the ones who decide whether to contribute to political campaigns, not shareholders.
Corporate and securities law in the US already strongly favours managers over shareholders. Usually, it is just fine that shareholders are distant from the corporation and its directors; shareholders don’t know the company’s business, while directors and managers do. But when directors or executives stumble, American shareholders (in contrast to British and other nations’) today have only weak tools to influence or replace the faltering chief executive.
Senators or regulators at the Securities and Exchange Commission who want to weaken managers and strengthen the hand of shareholders, as several have sought to do in the past couple of years, face a tougher time. Chief executives and directors now have another powerful tool to punish politicians and regulators who cross them.
Combine these two scenarios – strengthened managers inside a company who can now secure more rules to protect their position, and incumbent businesses (and allied unions) having more power to suppress upstart competition – and we have a prescription for potential sclerosis.
True, if a populist Washington decided to attack the foundations of capitalism directly, business interests would better be able to defend themselves now. But even if there are whiffs of populism in the air today, none of it threatens core capitalist institutions. With the corporate campaign finance ruling, it is even less likely to do so. In that dimension, the Court’s decision is good for American capitalism.
In all other business and economic dimensions, it is not.
Mark Roe is a professor at Harvard Law School, where he teaches corporate law.