On January 21st the US Supreme Court overturned a long-standing ban on corporate entities using their financial muscle to fund prospective candidates to Federal office. Why does this matter? The banks are among the richest companies in the US. Until the Supreme Court decision, they were restricted to making their anti-regulation case heard by funding armies of lobbyists. In future they will be in a position to fund preferred candidates to political office as lavishly as their war chests allow.
It remains to be seen just how this will enable US banks to resist the current enthusiasm for enhanced regulation of banks, but it certainly won’t help moves to reign in the banks, slim them down and get rid of the “too big to fail” free ride, whatever President Obama might say.
Of course, banks still have to persuade the electorate to vote for their candidates in sufficient numbers, but then again, that’s what campaign advertising is all about—and this is where the big bucks go.
The fact that money, via massive ad campaigns, can influence voters is news to no one, of course. The reason why the Federal Election Commission in the US was given the power to block corporates from funding candidates directly, on pain of criminal sanctions, was stated in the clearest terms by a famous judgment, known as Austin, which the Supreme Court judges overturned in their January 21 judgment. The Court in the Austin case recognized that the Government had an interest in preventing “the corrosive and distorting effects of immense aggregations of [corporate] wealth … that have little or no correlation to the public’s support for the corporation’s political ideas.”
So what led the Supreme Court judges, who cited the point made by Austin, to decide that, hey, that doesn’t matter, when common sense says that it definitely does matter? The judgment [PDF, 2.57MB] is clearly argued and I’d highly recommend reading at least the summary introduction. Learned counsel may construe the judgment differently, but my take is that the judges’ argument is roughly as follows.
- Free speech is essential to a democracy.
- The First Amendment is designed to stop Government imposing restrictions on free speech which disadvantage certain speakers.
- Corporate entities are “persons” for the purpose of free speech.
- Corporate entities are disadvantaged by Austin.
- Austin must go, and corporate entities should be free to speak, i.e. fund candidates to speak for them.
A second strand of their argument is that restrictions on political speech tend to “chill” political speech and that such chilling adversely impacts the democratic process. If you take the argument that being a (mega-rich) corporate entity distorts free speech, then “Congress could also ban political speech of media corporations,” the judges point out. Media organizations accumulate wealth and their views may not correlate with the public’s support for those views. Yet they can speak. So why not banks?
Personally, I find the US Supreme Court argument less than compelling, in fact, downright odd. But that is beside the point. The Court has spoken and until and unless its judgment is reversed in some other action, the deep pockets of the S&P 500 will now be brought to bear on the US political process directly. Is this likely to (a) help to protect the US and the world from the formation of future asset bubbles and financial crashes, or (b) make it more likely for such bubbles and crashes to occur? Feel free to comment…
- Viewpoint: Sir John Stuttard, Days of Reckoning
- Viewpoint: Viral Acharya and Julian Franks, Regulation after the Crash
- Viewpoint: Roger Steare, The Morals of Money—How to Build a Sustainable Economy and Financial Sector
Tags: banking , politics , regulation , transparency , US , US Supreme Court