McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 9

Business in Politics
This chapter:
Explains how corporations, now and in the past,
have exercised political influence.

9-2

The Abramoff Scandals

Opening Case
Rep. Tom DeLay (R-Texas) pressured lobbyists to support his
candidates and causes and rewarded the lobbyist through
the use of Congressional earmarks.
Jack Abramoff was a lobbyist whose style was to lavish
attention and favors on lawmakers.
Bob Ney (R-Ohio) accepted gifts and trips and then did
legislative favors at Abramoffs request.
Randy Duke Cunningham (R-California) was corrupt to an
unprecedented degree. He even had a bribe menu.
Corporations dominate the political area with huge
expenditures for lobbying and campaign donations. The
recent spate of Washington scandals teach that the area in
which business must pursue its political goals can be highly
compromising.
9-3

The Structure of American

Government
Several basic features of the Constitution shape
the political system:
Sets up a federal system, or a government in
which powers are divided between a national
government and 50 state governments.
Establishes a system of separation of powers.
Provides for judicial review.
The First Amendment protects the right of a
business to organize and press its agenda on
government.

9-4

A History of Political Dominance

by Business
The Revolutionary War of 1775-1783 that created
the nation was, according to some historians,
fought to free colonial business interests from
smothering British mercantile policies.
The noted historian Charles Beard argued that the
Constitution was an economic document drawn
up and ratified by propertied interests, for their own
benefit.
Yet the record since adoption of the Constitution in
1789 is one of virtually unbroken business
ascendancy.

9-5

Laying the Groundwork

The economy was 90 percent agricultural,
so farmers and planters were a major part
of the political elite.
Under the leadership of Secretary of the
Treasury Alexander Hamilton the new
government was soon turned toward the
promotion of industry.
As the young nations economy expanded,
so also did the political power of business.

9-6

Ascendance, Corruption,
and Reform
In the period following the Civil War, big business
dominated state governments and the federal
government in a way never seen before or since.
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.
In Congress, senators were suborned by business
money and corruption was rampant.
Late in the century, farmers tried to reassert
agrarian values through the Populist party.
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Ascendance, Corruption,
and Reform (continued)
Business adversaries that emerged:
The populist movement
Organized labor
The Anti-Saloon league
After 1900, reforms of the progressive movement curtailed
overweening corporate power.
Big business feared giving women the vote.
The great political reforms of the progressive era were
reactions to corruption in a political system dominated by
business.
While business was more often checked after the turn of the
century, it remained preeminent. Corruption continued.

9-8

Business Falls Back under the

New Deal
Conservative business executives argued that the depression
would correct itself without government action.
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.
Corporate opposition to New Deal measures ran counter to
public sentiment.
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.
One lasting legacy of the era was the philosophy that
government should be used to correct the flaws of capitalism
and control the economy so that prosperity would no longer
depend solely on unbridled market forces.

9-9

Postwar Politics and Winds

of Change
In the 1940s, industries patriotic World War
II production record and the subsequent
postwar prosperity quieted lingering public
restiveness about corporate political activity.
During the 1950s, corporations once again
predominated in a very hospitable political
environment.
During the 1960s and 1970s, national
politics became dominated by a liberal
reform agenda.
9 - 10

The Rise of
Antagonistic Groups
During the 1960s, the climate of pressure politics
changed with the rise of new groups focused on
consumer, environmental, taxpayer, civil rights, and
other issues, changing the political arena for
business.
The rise of groups hostile to business is part of a
broader trend in which new groups of all kinds,
including business groups, have been stimulated by
growth of government.
In the 1990s there were an estimated 23,000
organized interest groups, roughly 400 percent
more than in the 1950s.
9 - 11

Diffusion of Power
in Government
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:
Reforms in Congress
The decline of political parties
Increased complexity in government

9 - 12

The Universe of Organized

Business Interests
Literally thousands of groups represent business.
The most prominent groups are peak
associations that represent many different
companies and industries.
More than 6,000 trade associations represent
companies grouped by industry.
More than 700 corporations have staffs of
government relations experts in Washington.
These Washington offices are set up mainly by
big companies.
Business interests also form coalitions to create
broader support.
9 - 13

Lobbying
There are two broad areas of business
involvement in politics:
Government relations, or lobbying
The electoral process

Lobbying
Advocating a
position to
government.

A lobbyist presents the position of a

corporation, interest group, or trade
association to a government official.
Lobbyists provide critical intelligence to
lawmakers.
In Washington today, legislators are
receptive to lobbyists.
Lobbyists are only loosely regulated.
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Lobbying Methods
Major lobbying efforts now resemble
political campaigns in the way they
combine a broad range of methods
including:
Direct contact
Background lobbying
Public relations
Legal support
Polling
Policy analysis
Grassroots work

Grassroots
lobbying
The technique
of generating an
expression of
public, or
grassroots,
support for the
position of a
company or
lobbyist.

9 - 15

Paths of Pressure

9 - 16

Efforts to Limit
Corporate Influence
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.
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.
After 1907 the spirit of the Tillman Act was quickly and
continuously violated.
Since the Tillman Act did not limit individual contributions,
wealthy donors stepped in.
9 - 17

The Federal Election

Campaign Act
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.
Democrats angry at Nixon passed the Federal Election
Campaign Act (FECA) in 1971 to stiffen disclosure
requirements on campaign contributions and expenditures.
In reaction to Watergate, Congress extensively amended the
FECA in 1974.
The intent of the amendments was to limit corporate
influence; however, over the next 30 years it failed to do so.

9 - 18

How PACs Work

To start a PAC, a corporation must
set up an account for contributions.
Corporate PACs get their funds
primarily from contributions by
employees.
The money in a PAC is disbursed to
candidates based on decisions made
by PAC officers, who must be
corporate employees.
There are no dollar limits on the
overall amounts that PACs may
raise and spend.

Political action
committee
A political
committee
carrying a
companys
name formed to
make campaign
contributions.

9 - 19

Soft Money and

Issue Advertising
In 1979 Congress amended the FECA to encourage
support for state and local political parties by
suspending limits and prohibitions on contributions to
them.
These contributions came to be known as soft
money.
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.
In 1996 the Supreme Court held that soft money
could be used for issue advertising.
9 - 20

Reform Legislation in 2002

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).
National parties are prohibited from raising or spending
soft money.
Corporations can give unlimited amounts of soft money to
advocacy groups for electioneering activity, with
restrictions during blackout periods.
Contribution limits for individuals are raised.

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

of corporate soft money for issue ads run just
before elections.
9 - 21

Testing the New Law

The 2004 election cycle was the first under BCRA rules.
The new law did not stop the rise in overall spending.
Hard money contributions went way up.
New advocacy groups formed to take in the soft
money that corporations, unions, and individuals
could no longer give to parties.
Independent expenditures for and against
candidates increased.
So far, the new restrictions of the BCRA have worked to
cut the flow of unregulated soft money into federal
elections, but overall growth of campaign giving and
spending has not been slowed.
9 - 22

Tension Over Corporate

Political Expression
Tensions exists between two strong values in the
American political system, freedom of speech and
political equality.
Regulation to silence speech, including corporate
speech, goes against the grain of the First
Amendment.
Restraints on corporate giving have been permitted to
ensure political equality in elections and the implied
duty to maintain elections free of corruption and the
appearance of corruption.
Dissenters have argued that corporations have the
right to unlimited speech.
9 - 23

Concluding Observations
There is significant imbalance of resources
between corporate interests and other interests
such as poor people, small farmers,
environmentalists, and consumer advocates.
Business today is forced to deal with more, and
stronger, opposing interests than in the past.
The rise of soft money and refinements in lobbying
methods create a perception that corporation
money is undermining the independence of officials.
Because of disclosure rules, American politics is
cleaner than the politics of most other nations and
cleaner than in past eras.

9 - 24