week 4 notes

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Chapter 9 Business in

Politics

9-2

Paul Magliocchetti and Associates

o Paul Magliocchetti and Associates Group (PMA

Group) specialized in helping defense contractors get

project funding through insertions in defense

spending bills

o These insertions are called earmarks

o Legislators mostly do earmarks for programs that

create jobs in their districts and states

o Magliocchetti was a pioneer in the art of earmarking

9-3

Paul Magliocchetti and Associates

o One day FBI agents surprised him at his home

seeking records of his campaign giving

o Using other people as conduits to exceed contribution

limits is a crime

o In 2010 he was charged with 11 criminal counts of

illegal campaign contributions and false reporting

9-4

The Structure of American Government

o Several basic features of the Constitution shape the

political system:

o Sets up a federal system, or a government in which

powers are divided between a national government and

50 state governments

o Establishes a system of separation of powers

o Provides for judicial review

o The First Amendment protects the right of a business

to organize and press its agenda on government

9-5


o Federal system: A government in which powers are

divided between a central government and

subdivision governments

o Supremacy clause: A clause in the Constitution,

Article VI, Section 2, setting forth the principle that

when the federal government passes a law within its

powers, the states are bound by that law

9-6


o Separation of powers: The constitutional

arrangement that separates the legislative, executive,

and judicial functions of the national government into

three branches, giving each considerable

independence and the power to check and balance the

others

9-7


o Judicial review: The power of judges to review

legislative and executive actions and strike down laws

that are unconstitutional or acts of officials that

exceed their authority

9-8

A History of Political Dominance by

Business

o The Revolutionary War of 1775-1783 that created the

nation was fought to free colonial business interests

from smothering British mercantile policies

o The noted historian Charles Beard argued that the

Constitution was an “economic document” drawn up

and ratified by propertied interests, for their own

benefit

9-9

A History of Political Dominance by

Business

o The record since adoption of the Constitution in 1789

is one of virtually unbroken business ascendancy

9-10

Laying the Groundwork

o The economy was 90 percent agricultural, so farmers

and planters were a major part of the political elite

o Under the leadership of Secretary of the Treasury

Alexander Hamilton the new government was soon

turned toward the promotion of industry

o As the young nation’s economy expanded, so did the

political power of business

9-11

Ascendance, Corruption, and Reform

o In the period following the Civil War, big business

dominated state governments and the federal

government in a way never seen before or since

o Through ascendancy in the Republican Party,

corporations had a decisive influence over the

nomination and election of a string of pro-business

Republican presidents from Ulysses S. Grant in 1868

to William McKinley in 1900

9-12


o In Congress, senators were suborned by business

money and corruption was rampant

o Late in the century, farmers tried to reassert agrarian

values through the Populist party

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o Business adversaries that emerged:

o The populist movement

o Organized labor

o The Anti-Saloon league

o After 1900, reforms of the progressive movement

curtailed overweening corporate power

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o Big business also fought suffrage for women

o The great political reforms of the Progressive era

were reactions to corruption in a political system

dominated by business

9-15

Business Falls Back under the New Deal

o Conservative business executives argued that the

depression would correct itself without government

action

o After the election of Franklin D. Roosevelt in 1932,

corporations fought his efforts to regulate banking

and industry, strengthen labor unions, and enact

Social Security

o Corporate opposition to New Deal measures ran

counter to public sentiment

9-16

Business Falls Back under the New Deal

o Roosevelt was hurt by all the hate and felt that

through his major New Deal programs, he had saved

capitalism in spite of the capitalists

o One lasting legacy of the era was the philosophy that

government should be used to correct the flaws of

capitalism and control the economy

9-17

Postwar Politics and Winds of Change

o In the 1940s, industry’s patriotic World War II

production record and the subsequent postwar

prosperity quieted lingering public restiveness about

corporate political activity

o During the 1950s, corporations once again

predominated in a very hospitable political

environment

9-18

Postwar Politics and Winds of Change

o During the 1960s and 1970s, national politics became

dominated by a liberal reform agenda

9-19

The Rise of Antagonistic Groups

o During the late 1960s, the climate of pressure politics

changed with the rise of new groups focused on

consumer, environmental, taxpayer, civil rights, and

other issues

o The rise of groups hostile to business is part of a

broader trend in which new groups of all kinds have

been stimulated by growth of government

9-20

Figure 9.1 - Growth of the Federal Budget:

1940–2010

9-21

Diffusion of Power in Government

o A second change in the climate of politics, besides

new groups, has been the diffusion and

decentralization of power in Washington, D.C. caused

by:

o Reforms in Congress

o The decline of political parties

o Increased complexity in government

9-22

The Universe of Organized Business

Interests

o The most prominent groups are peak associations that

represent many different companies and industries

o Peak association: A group that represents the political

interests of many companies and industries

o The largest and most powerful peak association is the

U.S. Chamber of Commerce, which was founded in

1912

9-23


Interests

o The National Association of Manufacturers (NAM),

founded in 1895, represents a membership of 10,000

companies and 350 trade associations

o The Business Roundtable is the organization that

speaks for big corporations

o It was founded in 1972 and consists of about 160

CEOs whose companies’ dues support it

9-24


Interests

o More than 6,000 trade associations represent

companies grouped by industry

o Trade association: A group representing the interests

of an industry or industry segment

o Hundreds of corporations have staffs of government

relations experts in Washington

o Washington office: An office in Washington, D.C., set

up by a corporation and staffed with experts in

advocating the firm’s point of view to lawmakers and

regulators

9-25


Interests

o Business interests form coalitions to create broader

support

o Coalition: A combination of business interests,

including corporations, trade associations, and peak

associations, united to pursue a political goal

9-26

Lobbying

o Lobbying: Advocating a position to government

o Lobbyists articulate diverse interests in the great

sweep of American pluralism

o A lobbyist who lacks integrity loses access to the very

people he or she earns a living trying to influence

9-27

Lobbying Methods

o Contact lobbying: Direct interaction with

government officials or staff in meetings, phone calls,

or e-mail

o Background lobbying: Indirect lobbying activity

designed to build friendly relations with lawmakers,

officials, and staff

9-28

Lobbying Methods

• Direct interaction with government officials or staff in meetings, phone calls, or e-mail

Contact lobbying

• Indirect lobbying activity designed to build friendly relations with lawmakers, officials, and staff

Background lobbying

• The technique of generating an expression of public, or “grassroots,” support for the position of a company, industry, or any interest

Grassroots lobbying

9-29

Figure 9.2 - Paths of Pressure

9-30

Regulation of Lobbyists

o At the federal level there are three imperfect checks

on lobbyists activities

o Lobbying Disclosure Act

o The House and the Senate have adopted rules to

prevent the appearance of impropriety

o Criminal act for public officials to ask for or receive

any gift or gratuity tied to an official act

oBribery: An agreement to exchange something of value

for an official act

9-31

Efforts to Limit Corporate Influence

o An effort at reform came after the election of 1904,

when Republican Theodore Roosevelt, who

campaigned as a reformer, was embarrassed by his

opponent, Democrat Alton B. Parker, for taking large

cash contributions from corporations

9-32


o In 1907 progressive reformers pass the Tillman Act,

making it a crime for banks and corporations to

directly contribute to candidates in federal elections,

and this is still the law today

o Federal elections: Elections for president, vice

president, senator, and representative

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o After 1907 the spirit of the Tillman Act was quickly

and continuously violated

o Since the Tillman Act did not limit individual

contributions, wealthy donors stepped in

9-34

The Federal Election Campaign Act

o In the years following the Tillman Act, Congress

added to the body of election law although none of

these measures limited the influence of what

continued to be the main source of campaign funding

– corporations

o Democrats angry at Nixon passed the Federal

Election Campaign Act (FECA) in 1971 to stiffen

disclosure requirements on campaign contributions

and expenditures

9-35

The Federal Election Campaign Act

o In reaction to Watergate, Congress extensively

amended the FECA in 1974

o The intent of the amendments was to limit corporate

influence; however, over the next 30 years it failed to

do so

9-36

Political Action Committees

o Political action committee: A political committee

carrying a company’s name formed to make

campaign contributions

o To start a PAC, a corporation must set up an account

for contributions

o Corporate PACs get their funds primarily from

contributions by employees

9-37

Political Action Committees

o The money in a PAC is disbursed to candidates based

on decisions made by PAC officers, who must be

corporate employees

o There are no dollar limits on the overall amounts that

PACs may raise and spend

9-38

Figure 9.3 - Contributions to Candidates by Corporate

and Labor Political Action Committees in Two-Year

Election Cycles: 1986–2008

9-39

Soft Money and Issue Advertising

o Soft money: Money that is unregulated as to source

or amount under federal election law

o Hard money: Money raised and spent under the

strict contribution limits and rules in federal election

law

9-40

Soft Money and Issue Advertising

o Although corporations are barred from contributing to

federal campaigns, a series of advisory opinions by

the Federal Election Commission opened the door for

them to give unlimited soft money contributions to

national party committees

o In 1996 the Supreme Court held that soft money

could be used for issue advertising

9-41

Figure 9.4 - Soft Money Receipts by Democratic and

Republication National Party Committees: 1992–2002

Election Cycles

9-42

Reform Legislation in 2002

o Senators John McCain (R-Arizona) and Russell

Feingold (D-Wisconsin) pushed through a bill that

was enacted as the Bipartisan Campaign Reform Act

of 2002 (BCRA)

o National parties are prohibited from raising or

spending soft money

9-43

Reform Legislation in 2002

o Corporations can give unlimited amounts of soft

money to advocacy groups for electioneering activity,

with restrictions during blackout periods

o Contribution limits for individuals are raised

o The main purpose of the new law is to end the use of

corporate soft money for issue ads run just before

elections

9-44

Figure 9.5 - Current Contribution and

Expenditure Rules in Federal Elections

9-45

Figure 9.6 - The Fundamental Vision of

Election Law

9-46

How Business Dollars Enter Elections

o Political action committees

o Individual contributions

o Executive bundlers

o 501(c) groups

o 527 groups

o Independent expenditures

o State and local elections

9-47

Figure 9.7 - History of Efforts to Suppress

Corporate Money in Politics

9-48

Concluding Observations

o Corporations have a long history of participation in

the nation’s political life

o In each area the rights of corporations are protected

by the First Amendment

9-49

Concluding Observations

o Restraints on corporations cannot be absolute

o The challenge is to balance the First Amendment

right of corporations to free political expression

against the societal interest of maintaining corruption-

free elections

week 4 notes

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