For those inclined, like me (and Andrew Gelman, representing most political scientists, as far as I can tell) to look at systemic reasons for the results of presidential elections, rather than to gaffes or brilliant speeches - and really, could five great debates really be a good reason to chance the country's leadership? - Nate Silver has a bracing challenge to the conventional wisdom.
Just in time for the season of commencement speeches, the New York Times has bleak news on employment prospects for graduates.
So far this problem has been seen primarily in economic terms. It has generated debate on whether college or professional school is a good investment. It has led to questions about whether the country overinvests in higher education or is over-subsidizing student lenders or under-regulating for-profit or non-profit institutions.
One question has been seldom asked: if bleak job prospects persist – if they are not just a temporary product of the economic cycle – how long until they become a political issue? And when would a political issue transform into a political movement? A highly-educated, underemployed younger generation has long been a volatile political catalyst in many countries, as witnessed most recently by the Arab Spring.
The United States, of course, still offers graduates much different economic prospects. It also has a much different political culture. The young are much less likely to vote than the elderly. At the risk of overgeneralization, they also may be less ideological, treating politics more as a matter of consumer choice of disparate issues (‘I’ll take one of these and a little of that’) while expressing more skepticism of entrenched movements.
Apathy and inertia might be overcome, however, by prolonged stagnation in employment markets. If graduate unemployment or underemployment becomes an issue, it may very well link to other issues that pit the younger generations against baby boomers and older cohorts. For example, will younger generations be willing to bare the increased burden of keeping social security and pension plans afloat? Will the personal – who is not retiring in the office, who is spending the inheritance, who is supporting whom in the family– become political? Will the legacy of previous generations in other areas – such as environmental policy – play into this political dynamic? Issues that have been framed as matters of “intergenerational equity” might become flashpoints in intergenerational conflict. It would be a striking development for the baby boom generation, which defined itself as fighting conventions of their parent’s generation, to find itself challenged by their children and grandchildren.
Earlier this week Gordon posted from the ALI meeting that the institute is considering several new law reform projects including:
- Corporate criminal liability;
- Copyright law;
- Financial regulation;
- Update of the Principles of Corporate Governance;
- Transmission of wealth;
- Tax; and
- International consumer protection.
Both Gordon and one commentator (Brett McDonnell, our frequent guest) noted that many of these topics would move ALI away from its traditional law reform role in common law towards more regulatory and statutory subjects. Of course, the ALI (together with the National Conference of Commissioners on Uniform State Laws) has played a role in drafting model statutes such as the U.C.C. and the Model Penal Code. But both of those projects largely involve state law. There are some big challenges with ALI venturing deeper into statutory and regulatory territory, particularly in federal matters. The first is maintaining relevance. Dodd-Frank already left the station without any systematic involvement from groups of legal academics (some would say to the detriment of the statute). Barring a fresh crisis, how likely is it that Congress will revisit financial reform in a wholesale manner any time soon? Would Congress leave any role for ALI in tax reform? How much timely influence would ALI projects with their long gestation periods have given the rapid spinning of Congress’s issue attention cycle?
I do see a value in introducing more deliberation into the legislative process. Even so, ALI is more likely to add value by linking into the regulatory process. But there is usually a shot clock to notice-and-comment rulemaking.
ALI should strongly consider taking a much different tack with respect to issues with a strong regulatory component. Instead of the slow cooking approach, ALI should assemble a pool of experts on given regulatory issues who either alone or in groups could quickly respond to proposed rulemakings.
There is a massive demand for this, particularly right now in the financial realm. Dodd-Frank still has dozens of rules in various stages in the sausage-making assembly line. Personally, I have been frustrated. There have been any number of proposed rules on which I would like to comment, but I have not had the time. Academics are also, unfortunately, not professionally rewarded for contributing to policymaking in this manner to a sufficient extent. But, participation in the ALI, on the other hand, remains a feather in an academic's cap.
This leaves a void and a serious imbalance in rulemaking. Wall Street can afford to hire law firms to comment extensively on each rule and outgun almost any other interest group. Even if you have doubt that such a thing as “the public interest” exists, this should give you pause. If you have a free market streak, aren’t you concerned that Wall Street will use its clout to defend implicit subsidies and restrict competition?
This points to a second challenge for ALI as it dives deeper into statutory and regulatory issues: getting entangled in intractable political issues. But is this anything new under the sun? Going back over 60 years, a number of legal realists questioned whether various ALI law reform projects were burying political questions and at times favoring commercial interests over other groups (even as many other legal realists participated in these projects). To some extent, this criticism may be leveled even today: when the U.C.C. defines concepts like “good faith” and “ordinary care”, it often tends to look to standards by businesses or banks and not from the perspective of consumers. (In the social realm, many faith-based groups have protested when states have adopted the Model Penal Code because, it did not outlaw sodomy, among other things.)
Rather than attempt to paper over politics, a “pool of experts” would allow academics and jurists in the pool to generate either a consensus comment to a rule or individual comments. A multitude of comments might have less force than a consensus comment, but it also might present agencies with a broader spectrum of positions. Sometimes dissenting voices prove the most valuable.
Bailouts of megabanks preserved our financial system-for better and for worse. Next time around, Dodd-Frank allows winding down of big firms that cause systemic threats. But as I far as I can tell, the Act doesn’t require any liquidations—it’s up to the Treasury Secretary to decide whether to appoint the FDIC as receiver, (and up to the FDIC to pass the actual rules ). So it’s not clear whether there will be political courage to use this power in a future crisis; likely there will be bailouts again.
The obvious solution to the too-big-to-fail problem is to start breaking up the too-big ones that almost failed last time, and to prevent any more from getting that big. Then we can see a little creative destruction now and again. [How to do it? Luckily, I don’t have to bother with that part, since this forum is about the next two years and this is so not going to happen any time soon (if ever).]
Monetary policy: [Yes, I know this is mostly Fed policy, not legislative]
One has to wonder: the economy almost self-destructed because of easy credit, and the solution is…to ease up on credit?
I understand, and generally sympathize with, demand-side economics, and it may be the only way to mitigate the current pain of job losses. And I find it hard to believe there’s currently a real danger of inflation in the near term (those who claim to be worried about these days are probably most concerned about bond prices). But in the longer term, economic growth based entirely on expanding domestic demand seems like a snake eating its own tail. Is it prudish--or radical--to suggest there’s something wrong with our culture of consumption? If it needs fixing, punishing savings with low/negative interest rates ain’t the way to start. I don’t profess to have a palatable alternative. Maybe that’s the point—it’s time to take the nasty medicine….But I have tenure, so it’s too easy for me to say that.
Looks like I'm not the only wishing I'd written Dave Hoffman’s post, but since he got there first, let me polish the apple a bit: Instead of passing new laws, how about actually enforcing the laws already on the books? Oh, yeah, enforcement is the job of the executive branch. Then how about Congress just refrains from obstructing the enforcement of the ones it just passed? [Edit: Underbelly has more juicy stuff on this.] Just a thought.
Like Professor Zaring, I agree that the likely outcome of a Republican-controlled House and a razor thin Democratic majority in the Senate is to shift more of the policymaking action to agencies. What I would like to pick my co-blogger’s brain on is: what influence can the newly shaken up Congress have on the regulatory process? What influence will they have?
We’ll be having our first Masters Forum of the academic year on a business law “Agenda for the Next 2 Years” tomorrow (Thursday) and Friday here at the Conglomerate. Our panel of law professors will bring their expertise in a broad range of fields – corporate law, securities, bankruptcy, tax etc. – to bear on what the new Congress and the President should focus during the 112th Congress. To frame that discussion rather than preempt it, here are a few questions and thoughts on the potential role of Congress in the administrative process.
First, here is why the questions are important: both financial reform and healthcare reform left quite a bit of work to be done by agencies. Kim Krawiec, in our Masters Forum over the summer on Dodd-Frank, counted 243 rulemakings and 67 studies required by the Act. In some ways, the Dodd-Frank was like a rough outline of a novel and now the hard work of writing is left to agencies.
Second, if the election yesterday was a backlash against big government, the politics of different regulatory reforms vary considerably. Contrast health care reform, which united the GOP in opposition, with financial reform, which garnered support from several moderate Republican senators. In other words, opposing Dodd-Frank rulemaking may bring a much different set of risks and costs than opposing health care. Who wants to give a future election opponent material for attack ads on “shilling for Wall Street?”
Third, there are required studies and rulemaking galore in Dodd-Frank, but it is crucial to draw some distinctions: In some cases, an agency has a mandate to write rules. For example, the Federal Reserve is required to issue rules defining the prudential regulations that will apply to those institutions designated as systemically important by the Financial Stability Oversight Council. (Holy mole – that is a mouthful!) Of course, the Fed has quite a bit of leeway in writing these rules. In other cases, an agency may have to do a study and has authority to write rules, but can choose not to do so. Case in point – the SEC and fiduciary duties for broker-dealers. A third category are required studies that leave it up to Congress to figure out what to do. For example, the GAO must conduct a study on what the effects would be if Congress repealed the Tower Amendment, which prevents the SEC and Municipal Securities Rulemaking Board from requiring that municipal entities make filings with either agency before issuing securities. In this last category, it is clear what powers Congress has. By contrast, Congress doesn’t have a veto in ordinary rulemaking and adjudication by agencies (cases like INS v. Chadha cut back on attempts by Congress to insert themselves formally into the administrative process in creative ways).
Congress can and does use its investigative powers to shape agency rulemaking indirectly. Here the numerous studies required by Dodd-Frank may provide members of Congress of both parties with a natural “conversation starter.” Congress can also wield its other powers – Senate confirmations and the power of the appropriations purse strings to “shape” agency behavior. Which is where all those fights in Dodd-Frank over whether an agency is independent, including how the agency is funded, will matter.
However, fights over nominations and appropriations are not without risks for Congressional opponents of agency action. Recall the government shutdown in 1995. Which brings us back full circle to the differences in the politics of health care versus financial reform (versus tax reform etc.)
That’s enough for now. Let’s see what the Masters have to say tomorrow.
The NYT is tracking pre-election Twitter traffic here. Among the shifting constellation of red dwarfs and blue giants, Christine o'Donnell is like a massive black hole, absorbing thousands of "at tweets" (click "play" when you get there) ... and that doesn't seem like good news for her.
Is soon-to-be-former Senator Reid is contemplating his new career as an entrepreneur?
Unfortunately, no. He is just confused about what should be happening in Washington.
Sharron Angle set him straight: "Harry Reid, it’s not your job to create jobs. It’s your job to create policies that create confidence in the private sector so they can create jobs."
My first memories of politics involve Richard Nixon, whose deceit helped me to develop a visceral distrust of politicians, especially those who occupy the White House. In this regard, Nixon is the gift that keeps on giving. In the new book, Poisoning the Press, Mark Feldstein details a plot by Nixon's henchmen to assassinate columnist Jack Anderson. Wow:
Q: The assassination plot by Nixon's operatives was really serious?
It was much more serious than anyone has realized to date. In my research, I found evidence showing that Washington prosecutors investigated this seriously.
This plot went beyond the talking stage. They acted on it by meeting with a CIA poison expert about how to poison him in a way that wouldn't be detected in an autopsy. This definitely got further along than anyone knew, and it got called off at the last minute because there was a more important target – to break into the Watergate complex.
By the way, when I was an undergraduate, I did a semester as an intern in Washington DC (at the DC Circuit). One of our speakers in the lecture series was Jack Anderson -- Anderson was a Mormon, and he regularly spoke to BYU groups -- and I remember thinking he was kind of nutty. "Paranoid" was the word we used to describe him. I guess that old bumper sticker was true: "just because you're paranoid doesn't mean the world isn't out to get you."
OK, first of all, I'm not a Meg Whitman fan. If I were a resident of California, I would not vote for her for governor. I also don't think I've voted Republican in 20 of my 23 voting years. I also have had a full-time nanny, who was a naturalized citizen, for whom I filled out a lot of paper work and paid money to various state and federal agencies.
That being said, I feel for Meg Whitman. Whitman is now having to answer for employing a housekeeper who was in the United States illegally for nine years. According to Whitman, Nicandra Diaz Santillan, told her about her true immigration status in July 2009, six months after her campaign began, prompting her to fire Diaz Santillan. However, Diaz Santillan (what's in it for her?) has produced a 2003 letter from the Social Security Administration to Whitman and her neurosurgeon husband, Griffith Harsh (would you go to a doctor named Dr. Harsh?), asking why Diaz Santillan's name did not match her SSN. Dr. Harsh allegedly wrote at the bottom a note to Diaz Santillan, asking "Please check this." Whitman's critics use the letter to show that Whitman knew of the housekeeper's illegal status no later than the date of receipt. First, let's probe that a little.
There are at least three plausible scenarios. One, that the Whitman-Harsh family always knew that "Nicky" was here illegally, but went along with the ruse with the SSA. I can think of at least two problems with this scenario. First, why would Whitman try to fool the SSA? She's no dummy. She can't have believed that this scheme would work. Second, why wouldn't Whitman just help Nicky get her citizenship through proper channels? She's the CEO of eBay, right? Surely she could figure out a way to get Nicky an employment-based visa. The only reasons Whitman would agree to this is to save money by hiring an illegal immigrant, which seems silly, or because Whitman is actually evil and wanted to use her illegal status as a way to blackmail her into indentured servitude, which seems even sillier. (Of course, Gloria Allred is representing Nicky, so this may be the narrative that gets played.)
Second, Whitman may have been duped by a fake SSN into believing Nicky was a citizen (Here are the papers Nicky signed when applying for employment), but then realized Nicky was here illegally when the SSA sent the letter. Then, Whitman could have felt really sorry for Nicky and realized that if she let the SSA catch her, she might be deported, along with her husband and possibly her two children. So, Whitman may have begrudgingly agreed to go along out of the kindness of her heart. This story resonates with me because it's pretty hard to look someone in the eye that you know and that is a hard worker with a family and send them back to the last place they want to go. Some are arguing that the scheme is horrendous -- stealing someone's identity -- and inconceivable that a citizen would play along. Well, the SSN may not have been stolen, it may have been shared with someone or belong to someone not working in her community. We need more facts here. Then, once the campaign started, they realized that Nicky's status could become a liability, so they let her go.
The Third thing that could have happened is that the Whitmans were duped by a fake SSN, and then Nicky allayed all of Whitman's fears when the SSA letter came. In addition, whatever story was told to Whitman also satisfied the SSA. The SSA should be able to produce whatever documentation they were sent that got them off the Diaz Santilla trail. Then, in July 2009, they fired her once they learned the truth. Due to the fact that Whitman and her husband are saying that they don't remember the letter or the incident at all, this third scenario, which is the best for Meg Whitman's candidacy, seems less probable at first. You would probably remember the time when the SSA falsely accused your housekeeper of not having a valid SSN. But perhaps the CEO of a big company and a neurosurgeon with high school boys were both really, really busy. (A variant would be that Nicky's second story didn't fool Whitman, but she and her husband turned a blind eye. But the SSA must either have been less savvy than Whitman or just as quick to look the other way.) (Another variant would be that Nicky intercepted the letter, and her employers never saw it. However, the husband says the handwriting may be his.)
Of course, the strange part of all of this is the housekeeper's motivations. She was fired over a year ago. Who came to her? Did someone threaten her with deportation if she didn't speak out against Whitman? Who is giving her advice?
For myself, I'm completely fine with Meg Whitman employing Diaz Santillan unless she was just trying to save money or she was an evil slaveholder. However, if she employed the woman (or continued to employ the woman) to help her out, then I personally can't condemn her. I understand that many other would-be politicians and political appointees have had career paths blocked because of the classification and taxation of domestic help. And I'm a little less sanguine about attorneys who didn't realize their full-time domestic help were "employees" and thus required withholding, unemployment tax, etc. This seems different to me. (Accepting IPO shares with millions of underpriced profit from your underwriter in exchange for throwing business its way, bothers me.)
In past decades, political opponents have become mum about a number of behaviors that some might find troublesome but that are common enough to catch people on both sides: draft-dodging and marijuana use come to mind. I would think that in some parts of the country, the employment of workers with less than legal status might be added to that list.
This was a civil RICO case filed by the United States in 1999 against several tobacco companies and two of their non-profit organizations, the Council for Tobacco Research and the Tobacco Institute. The lawsuit accused these entities of engaging in a conspiracy, taking place over a period of approximately 50 years, to mislead the public about a number of issues related to smoking including: the potential health consequences of smoking; the dangers of environmental smoke (second-hand smoke); whether nicotine was an addictive substance; whether the tobacco companies were manipulating nicotine content; whether the tobacco companies were intentionally targeting youth in their advertising and promotional efforts; whether they were intentionally marketing cigarettes as "light" or "low tar" to imply health benefits (or less detriment) the companies knew did not exist because of a phenomenon known as "compensation," and other claims.
The case went to trial in 2004 and lasted for about 9 months. In 2006 D.C. District Court Judge Kessler, issued an opinion with findings of fact and conclusions of law that ran about 1700 pages. The evidence buried in these pages is unequivocally damning.
Several years later, in 2009 the D.C. Circuit Court affirmed most of these findings in the per curiam opinion above. The defendants (and the government) filed petitions for cert. The petitions of the parties are available here. Whether the Supreme Court will agree to hear the case is unknown, but with the government seeking review as well it may do so. And issues of commercial speech and the First Amendment are raised through out the case. Indeed, the amicus brief filed by the Washington Legal Foundation and the National Association of Manufacturers explicitly says this case offers the Court the opportunity to answer the question that it left open in Nike v. Kasky, writing "This Court has recently reaffirmed that the speech of corporate actors may be entitled to full First Amendment Protection" (Page 19 of the brief which you can view here citing yes, Citizens United).
The 5th case down in the Table of Authorities is Citizens United and it is cited twice in the argument. The brief argues the lower court ignored that much of the misleading speech took place in the form of editorials, op-eds, press releases and the like and involved issues of "public concern" and thus was fully protected speech. Mind you these press releases, so-called informational pamphlets (some sent to school children purporting to educate them about the "debate"), came from a group of defendants who the record amply demonstrates did meet together with their public relations and law firms to come up with a strategy to manufacture a debate that really didn't exists since their problem was that there was scientific consensus on the basic facts about the health risks of smoking and that these facts would be very damaging to future business. Their strategy is succinctly captured in the phrase found in some internal documents and widely reported on since, "Doubt is our product." It is important to be clear on what they are asking for; they are asking for constitutional protection for the manufacture of a phony debate, to obfuscate rather than to clarify information about a product for which there is no safe level of use.
This seems an appropriate juncture to raise Justice Jackson's admonition that "the Constitution is not a suicide pact." It seems like the government ought to be able to regulate a potentially lethal product, and that regulation of advertising and marketing is a necessary part of such appropriate regulation in the public interest. Such a regulation has recently been passed in the form of the Family Smoking Prevention and Tobacco Control Act, Pub. L. 111-31, 123 Stat. 1776 (2009). The Act permits the FDA to regulate tobacco products and includes very strict limitations on permissible forms of advertising and promotion.
But a group of tobacco companies is attacking this statute in a District Court in Western Kentucky (much forum shopping there?) on the grounds (among others) that it violates the First Amendment. The companies even wanted to claim First Amendment protection for marketing practices like giving out free samples! The district court denied most these claims, but nevertheless found that some of the statute's regulation of color and trade dress did violate the First Amendment. The opinion is here It was issued before Citizens United came down. But taken together with the arguments raised by the Washington Legal Foundation in the Philip Morris RICO case, I think we can expect Citizens United may well be used in the future in this case as well. Only time will tell. I would worry about giving them ideas, but the connection between Citizens United and commercial speech protection claims is clearly already out there amongst firms litigating these issues.
Later I will post some other aspects of the Philip Morris case which may be of interest to Glom readers, in particular whether a corporations can commit conspiracies or have specific intent.
Senator Dodd just announced that efforts to broker a bipartisan reform bill in the Senate have sputtered and the Democrats will go it alone. Does this mean that the Democrats will try to push a populist bill through by summer and paint Republicans as obstructionist and protecting Wall Street? My guess is yes.
Will it be politically successful? Part of the problem is execution -- particularly the President's self-created image (and possibly his temperment) of being the great uniter. Can and will he shift from the "let's have beers at my place and talk it out" to the LBJ "I'll bury you and your grandma" style of politics?
Will any bill that comes out be good policy? As I mentioned before, I have serious reservations about the bank risk tax. (Don't get Christine started). As I'll post later, the Volcker Rule may be better, but so far all we have are very vague outlines of what it will look like concretely. (The White House seems like a scholar that is really polished at writing abstracts for papers, but has yet to actually get something published. Good luck with the tenure vote).
As I mentioned before, I don't fully understand politically why the Obama Adminsitration did not lead off with financial reform. In the comments to my post, Brett McDonnell and Elizabeth Brown questioned my premise that financial reform would have been a net gain of political capital for the Obama Administration. They made some compelling points that the Administration was dealing with dissent from independent agency heads and did not have as clear an idea of what they wanted to do with financial reform as they did with health care.
I'm still not so sure financial reform is not an easier sell. Among agency heads, only Sheila Bair at the FDIC has built serious political clout during the crisis. And since when did politicians wait to have a clear sense of the problem before legislating? It is true that the Democratic base has been dreaming about health care and that it was a centerpiece of Obama's campaign. Perhaps the Democrats gambled that it was better to get the more ambitious program through first before they got bogged down in mid-term elections and then the next Presidential campaign. That worked really well.
Elizabeth made a good point that it is hard to overcome small cohesive groups with large stakes in a political fight. That likely explains part of why credit rating agencies have escaped any serious reform efforts so far. (But I think that same logic applies to healh reform. HMOs, Big Pharma, the AMA, AARP, all have well-run political machines).
There is something to be said for going slow (see Posner, Feibelman & Omarova, Cunningham & Zaring) with major reform and getting it right. But the political attention cycle will turn. And there is nothing to be said for doing nothing.
I couldn’t agree with Rachel more. The discussion on the role of corporations in society is not over, in fact two seemingly separate stories from last week – the standoff between Google and China and the landmark Supreme Court decision in Citizens United –together signal that we are a watershed moment in this question. I don’t claim to have done the type of deep thinking that Rachel or Gordon or Lisa or other corporate scholars who have written on corporate social responsibility have. But at the risk of interloping into territory others know and think about far deeper and better than I, consider a few quick thoughts on how contrasting Google/China with Citizens United suggests we are returning to some very old questions about the twin risks of not having corporations separated from government power and not having governments separated enough from corporate power.
I would argue that Google’s threat to leave China because of government intrusion into its operations can be seen as a victory for those who advocate for corporate social responsibility. And the Citizens United decision obviously represents a victory for those who want to see corporations as not being creatures of the state, but rather as persons that can check government action. But these two victories pose thorny intellectual problems for the victors. These problems, in turn, reveal something about the horrible tangle we find ourselves in after the financial crisis as we cut our way between the risks of government being captured by corporate interests and corporations becoming the playthings of the state. Bear with me, because I think these two stories also have something to tell us about New Governance and the need for even greater cross pollination between public and private law in scholarship and the classroom.
Google v China: Do we know corporate social responsibility when we see it?
Many (I won’t even attempt to embed links) have applauded Google’s threat to pull out of China on account of state censorship and cyberattacks on Google’s servers as a victory for corporate social responsibility. Some scholars, like Ribstein, complicate this interpretation, in part, because Google’s actions may stem more from pure economic self interest. Given Google’s business model -- particularly their need to reassure users of the sanctity of personal information -- it may be impossible to disentangle definitively whether this resistance to China is an example of self-interest or social responsibility.
Let me ask a more basic question. How do we define what corporate social responsibility is? And who gets to define it? When we discuss corporate social responsibility at the end of my Business Associations class, there inevitably seems to be widespread consensus in the classroom about what responsible behavior means. Everyone seems to agree that dumping mercury in the Rio Grande or employing child laborers is irresponsible. But then I ask students what if social activists were pushing a corporation either to include abortion coverage in their health plans or to exclude same sex partners from employee health benefits. Consensus evaporates.
Do we define corporate social responsibility through the public law process? There are real dangers with treating corporate social responsibility as a matter of positive law and state determination. Consider that Google may not be a good corporate citizen if you look through the lens of the Chinese government. They are violating Chinese law. That of course is an extreme, rhetorical example. But there is a deep concern though that by implicating public law or government intervention – however light and well-intentioned -- in the core purposes of corporations we are slouching towards treating corporations as a plaything of the state rather than as a potential check on government power. Which is the role many lauded Google for playing.
So the Google victory poses several questions for advocates of corporate social responsibility, including how do we know what is corporate social responsibility, who decides, and are we comfortable that we can draw principled distinctions that will ensure the public does not subsume the private? Are corporate social responsibility advocates putting great faith in the political process to check abuses?
Citizens United: spheres unseparated
Meanwhile, Google and all other corporations received a huge boost to their political power and their ability to check and shape government regulation by virtue of the Supreme Court’s landmark decision in Citizens United. I won’t pretend to be a public law scholar, but the sweeping aside of restrictions on corporate political speech clearly represents the culmination of a centuries long evolution of case law -- running from Dartmouth College to Bellotti – that has given corporations more and more of the constitutional rights of natural persons. If last week’s Supreme Court decision means anything, it is a clear refutation of the ancient idea that corporations are creatures of the state.
But in this victory too lies a deep intellectual challenge for the victors. In the precursor of the current debate on social responsibility, Berle espoused a view of corporations and government as existing in “separate spheres” a view that echoed 19th century political thought and was in turned echoed later by Milton Friedman and others who later argued against corporate social responsibility. To render a fine idea into a quick sausage: governments should set the rules of the game for corporations then stay out, and corporations play by the rules.
From a pure descriptive standpoint, after the Citizens United decision, it seems impossible to argue that these spheres can be neatly separated. Corporations are not just playing by the rules, they have the right to participate in setting them. Moreover, they may be the 800 lb gorilla in the room. One interesting morsel in reading through the dissent was to see Justice Stevens grappling, even briefly, with corporate law scholarship questioning whether shareholders have the realistic ability to control corporate speech through corporate governance.
More deeply, do we now need to worry more that corporate law rules are not merely the product of competition and economic efficiency but set through management’s use of the political process. (For an interesting comparative study of the intersection of politics and corporate governance, see Peter A. Gourevitch & James Shinn, Political Power & Corporate Control (Princeton 2005). There seems to be a danger of management using the political process to hardwire not only management entrenchment but the political preferences of those in control of corporations. Aren't those who laud Citizens United placing great faith in the capacity of markets and the competition for corporate control to prevent agglomerations of political power? If the Google/China standoff lays bare for the need for the separation of corporations from state control, Citizens United raises the question of how we ensure that governments can retain sufficient independence from corporate control.
Strange constellations: the alignment of corporate law scholars after the financial crisis
I don’t think these concerns about corporations capturing the government or the government overreaching into the private sector are just dystopian constructs. The bailouts during the financial crisis reveal that these concerns are festering. There is plenty in the bailout for people across the political spectrum to lament. Progressives lament that bailing out AIG and other firms represents government capture and the socialization of loss and the privatization of profit. Conservatives lament the government interference in the discipline of the marketplace and now government using its leverage from the bailouts to justify interventions such as in executive compensation.
In the wake of the financial crisis, is government becoming the plaything of corporations? Are corporations becoming the playthings of government? Or is the reality some complex and perverted mix of both? Forgive the metaphor, but we seem to be stuck in bad remake of some scene from Eyes Wide Shut. It’s not clear from the tangle and the masks who is in control, but it’s clear it is not G-rated.
Problems of power and the dangers of a lack of clarity between public and private power point to a reason to ask tough questions of New Governance – which I admit to being only at the beginning of understanding. Cindy Williams politely told me that there are different versions of New Governance. At its core, New Governance seems to look to public/private partnership in regulation. But blurring the lines between public and private, even in experiments, has dangers. Progressives should fear regulatory capture. Libertarians should fear government co-opting the private sector.
Further afield, experimentation to insulate government decision-making from the political process has again become a constitutional issue as revealed by the Supreme Court taking up the challenge to the Public Company Accounting Oversight Board. This case – about an obscure and odd agency duckling created in the wake of the Enron scandal to insulate the regulation of the accounting profession from the political influence of the accounting profession – brought together strange constellations of law professors to support and oppose the constitutionality of the agency. If you look at the professors who filed briefs as amici, you might seem some striking lineups. I don’t presume to place scholars in political pigeonholes, but their previous scholarship suggests we have seen truly strange alliances of professors with very different political beliefs. And within the various alliances, the professors likely have very different opinions on the relative risks of state versus corporate power. I am sorry I missed the AALS Hot Topic Panel on the case, because I hear it cast a sharp spotlight on the strangeness of these political constellations.
Is this a one-off phenomenon, or are we seeing an ideological realignments in the legal academy? If you are outside the academy, you might ask: who care what we eggheads think on this technical topic? It sounds trite, but ideas matter and will spill over into the political arena -- perhaps after years of gestation. Perhaps the gestation period will be much shorter; the political arena seems ripe for a tectonic shift. We already see stark examples of strange political bedfellows – the Kuciniches of the left and the Pauls of the right -- in Congressional opposition to bailouts and to the political independence of the Federal Reserve itself.
Unchecked Power – Public and Private
So in debating the risks of concentrated corporate power versus concentrated government power, we are likely revisiting the same debates we had at the turn of the last century. History didn’t end. Nor does it repeat. It rhymes and samples. Indeed, to sample from my favorite poem, “All the new thinking is about concentrated power. In this it resembles all the old thinking…”
We are also likely to hear some familiar motifs in the political noise – such as calls to break apart corporate conglomerates to reduce perceived threats to democratic values. Is this perhaps an unspoken aim of the Volcker plan to limit the size of financial institutions. Will we return to trust busting?
If we are concerned about democratic values, we need to pay attention to agglomerations of control in the media. Without a critical and independent media, we will have no way of gauging how corporate and state powers are intersecting. But we may come to find a genie let out of the bottle during the Clinton presidency when few were watching closely. If few really understood what the repeal of Glass Steagall would mean for the consolidation of power in the financial sector, are we considering enough what the Telecommunications Act of 1996 means for the consolidation of power in the media industry? Do we understand how competition and consolidation among broadcast, cable, phone, internet, newspaper, radio corporations will play out in terms of concentrations of political power? I certainly don’t because communications law and the economics of those industries lie far outside my understanding.
When historians look back to the Clinton era, they will likely see the most radical shifting in economic and political control since FDR – all the more radical because its magnitude was obscured by its technicality and by the fact that the President who squired it cast himself as part of some “Third Wave” in politics. Beware those selling easy ways to transcend and triangulate across political divides. Here is a third example of a statute passed during the Clinton years that will have far reaching consequences for concentrations of political power: cyberlaw scholars have been trying to get us for years to pay attention to what the Digital Millenium Copyright Act of 1996 means for who holds the power over the intellectual commons.
Looking for checks
Cyberlaw scholars first made their mark by alerting us to the subtle and far-reaching consequences of seemingly technical questions on how both the state and corporations could use the internet as a means of social control. So we are now full circle to the conflict between Google and China. One of those scholars, Larry Lessig advocated making the “code” of the internet “open” to allow civil society to check these subtle forms of control. This last fall, Lessig notably balked at a broadbrush application of these same open source ideas to making politics more transparent.
Indeed, citizens would have trouble making sense of raw government transparency – in terms of the volume of information and the complexity of issues. This is not because people are stupid, but no individually has time to master complex issue and process reems of raw data. We need to rely on experts to edit and filter information for us. The forms of political, economic, and technological control are subtler and potential threats to democratic value harder to grasp.
But how do we trust those experts? Trust throughout society has long been thought to have been declining for decades, and perhaps accelerating in an age of political polarization. Moreover, we also decry how the digital age has left us with shorter attention spans. We also live famously in an age of irony. It is often remarked now that some of our most intelligent commentators on public affairs are fake newscasters. This irony may lead to a particularly unfunny kind of political paralysis (“Ha ha – that’s really funny what Colbert said about our country going to hell. LOL ;-).”)
It’s not easy to make sense of the new dangers of concentrations of political power. Bolshevism and trusts were simple compared to understanding interconnections between complex corporate ownership structures, telecommunications regulations, and how the technology of the internet functions.
Understanding this landscape requires the involvement of scholars who are independent of corporate and government power. Which is why sources of university financing during an age of budget cuts looms as so large an issue.
All the New Thinking: cross pollination in legal scholarship and public law in the business law curriculum
If legal scholars must play a valuable role in sorting through the risks of concentrating political power, it suggests that faculties need to foster greater dialogue among private and public law scholars. Understanding new constellations of power might require minds in corporate law, constitutional law, cyberlaw, communications law …
Integrating scholarship in corporate law with public law is not a new idea. In fact, this essay has clearly trampled all over ground covered by many scholars who’ve looked at the intersection of public law and corporate law -- Kent Greenfield, Larry Mitchell, Lyman Johnson, Lynn Stout, Cindy Williams, Margaret Blair, Lynn Dallas. Not to mention our own Lisa and Gordon and our guest Rachel. I’m likely making enemies galore by the dozens of scholars I am leaving out including scholars -- like Bainbridge -- critical of corporate social responsibility.
There is also a question of whether we corporate law scholars need to build a bigger public law component into basic business law courses. This is also not a novel idea. I admit being resistant to doing this; law students need to learn the nuts and bolts in order to get a job and have the intellectual tools to practice as effective lawyers. But I am reconsidering, because law students also need a set of intellectual tools to exercise their duties as citizens.
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My views on politics are worth what you pay for them, but I would caution Republicans not to gloat too much from last night's Senate win in Massachusetts. More than a referendum on healthcare or Martha Coakley, - what we are likley seeing is the anti-incumbency/anti-establishment cycle re-starting -- albeit at a much faster speed.
Since 1992, presidential and congressional candidates have successfully campaigned against the party perceived to be in power and against the Beltway establishment. Of course, there are examples from earlier in 20th century U.S. political history (for example, the post-Watergate shake-up in Congress, Carter in '76 and Reagan in '80), but the cycle kicked into a higher gear and shorter frequency in '92. Every two years since then underdog candidates have tapped into voter insecurity and discontent with the "same old politics."
George W. Bush got a reprieve from this cycle only because of September 11th. President Obama might take some solace in the fact that, even aside from September 11th, it is possible for an incumbent President to ride out the cycle and win a second term - witness Clinton in 1996. But is a second term all that it is cracked up to be? The national acrimony and divisiveness in Clinton's second term should give Obama pause.
The cycle may spin even faster now with the widespread discontent with the financial crisis and the bailouts. We've already seen the fringes of both parties -- the Kuciniches and Pauls -- make common cause against the establishment center in the past year. Outside politicians can now campaign against both Wall Street and Big Government at the same time because the bailouts blurred the distinction between the two like never before.
Regardless of who is on top at any given point in this cycle, there are some real dangers that this repetitive backlash is corroding faith in political institutions and the ability to govern. There may be a silver lining if you are sceptical of increases in governmental power -- George W. Bush's national security policies or Clinton and Obama's health care.
But unless you believe everything is hunky dory in America right now, narrowing the political window for governance to two years -- maybe we are down to one year now -- doesn't bode well for statesmen and women of any stripe. Nor does adding fuel to populist fires.
The Democrats lost the Senate race in Massachusetts tonight. I'm sure the armchair political quarterbacks will be out in force tomorrow in the Beltway discussing the implications for health care reform. (One of the things I miss the least about D.C.) What about the implications for financial reform?
I was surprised that the Obama Administration decided to focus on health care first rather than get some quick victories in financial reform first, then use the political capital to tackle health care. It is hard to imagine the Tea Party defending credit rating agencies and investment banks. Now whether quick, populist victories lead to sensible policy reforms is another matter.
That might be the problem with the election results tonight. We can expect both parties to begin appealing to populist sentiments, which will probably lead to financial reform proposals that may be politically appealing, but do little to address the root causes of the crisis.
Here is a really cynical thought: does Congress have an incentive to drag out health care and financial reform to get more lobbyist contributions?
The New Yorker has an interesting piece on budget protests at Berkeley. One lingering question from the article: why don't the protestors spend more time marching on Sacramento and less picketing the Chancellor's office? It may be more convenient to walk across campus, but how much blood can a university administration wring from the stone the legislature gives them? If the charge is that the UC leadership isn't making a good enough case in Sacramento, no one can do that better than students and parents.
The problem is that if you march on the legislature, you also have to confront the naked fact that universities are competing for dollars with other good claimants - like K-12 education.
This brings to mind two types of characters and arguments that you are all probably intimately familiar with no matter what kind of organization you work in.
First are the romantics who think that budget woes are simply a mirage or even a theater in which a battle between good and evil will play out. Romantics don't want to hear about scarce resources and opportunity costs. Or they will talk about how the pie can always get larger. Most of us academics are by nature romantics. Otherwise we never would have foregone private sector salaries for the joyless task of grading.
On the other hand. some administrators will trot out the simple "there isn't money in the budget" argument over and over again. This obscures the fact that there is almost always some money in the budget, with the real question being how it will be allocated.
Institutions can find more money too, but that can have consequences. Donors, even if they can be squeezed in a tight economy, may want strings -- a point the New Yorker article demonstrates. And the last three years should have taught us all a chilling lesson that incurring debt is never a free ride. Taxes can be raised, but no one ever wants to talk about that. Of course, there are significant costs of higher taxes too.
Ultimately, budgets for any institution are about tough value choices. Which sometimes makes for good political theater and sometimes not.