This Motley Fool series examines things that just aren't right in the world of finance and investing. Here's what's got us riled this week. If something's bugging you, too -- and we suspect it is -- go ahead and unload in the comments section below.
Today's subject: As a recent, highly controversial Supreme Court ruling reminds us, corporations are considered "persons" under U.S. law. If big businesses really did roam the streets in human form, I'd be scared to run into Monsanto (NYSE: MON ) or Halliburton (NYSE: HAL ) in a dark alley. And given their frequent social ineptitude, I doubt I'd invite any of the S&P 500 to my next cocktail party. (Well, OK, maybe Google (Nasdaq: GOOG ) would be a hoot to hang out with.)
All kidding aside, the Court's verdict in Citizens United vs. Federal Elections Commission reveals serious problems with the way our legal system deals with businesses, and the relationship between our government and special interests of every stripe.
Why you should be indignant: The Court's reasoning -- that corporations enjoy the First Amendment's protections of freedom of speech – does seem pretty humorous, since corporations were already doing a darn good job of donating to campaigns through political action committees. I'm not convinced that they really need more freedom to exert even more political speech.
Lest you think the Citizens United ruling falls strictly along party lines, take note: The Court has effectively given the same freedom of filthy-lucre-laden "speech" to labor unions and other special interests with clear and sometimes controversial agendas. President Obama may have emphasized corporations and their influence on politics in his State of the Union address last week, but let's not forget that his own campaign got a lot of help from the UAW and other labor groups.
Does the Supreme Court's contention really defend "freedom of speech"? Or does it simply allow special interests of all types to have their wicked ways with our economy? I suspect the latter, and while the Court bears the responsibility for its dubious decision, we shouldn't let politicians off the hook, either, since their campaigns do benefit from such donations. (A group of CEOs actually wrote a letter to Congress about the ruling, complaining about the current frequency of political fundraising calls to their offices, which they imagine will now get worse.)
It's no surprise that the Federal Trade Commission's asinine antitrust case against Whole Foods Market (Nasdaq: WFMI ) sparked conspiracy theories. Could it be that Whole Foods hadn't lobbied regulators hard enough -- or, perhaps, that its rivals had?
Indeed, many corporations' relationships with our government seem far too personal:
- Last summer, Wal-Mart (NYSE: WMT ) joined forces with its former union foes to promote an employer mandate for health care. That was probably less a change of heart than an awfully good way to get government to rewrite the rules in its favor (and financially hobble Wal-Mart's rivals).
- Parts of last year's landmark antismoking bill seemed more like a love note to Altria's (NYSE: MO ) American market share. Competitors like Lorillard (NYSE: LO ) dubbed it the "Marlboro Monopoly Act."
- Last but certainly not least, you'd better believe that health insurance companies have been wildly lobbying behind the scenes of current health-care reform efforts, to make sure things go their way.
These questionably cozy entanglements don't create a vibrant, competitive marketplace for us investors to navigate. Instead of weighing business rivals' true competitive advantages, we're left figuring out which companies have the most influence in the most powerful places, which effectively turns our economy into a rigged game. And I don't think our economy should be a game, any more than a corporation should be a "person."
What now?
In fairness, giving corporations some degree of legal "personishness" is not entirely absurd. I'm no lawyer, but apparently, corporations need those protections to conduct some very important "speechish" activities -- communicating about their products, for example, or waging lawsuits over violated patents. Plus, treating corporations as legal persons creates legal accountability, allowing corporations to be sued if something goes awry.
Still, the degree to which we've loosened campaign finance rules to accommodate these non-person persons should have you expressing outrage to your representatives. The relationship between politicians, special interests, and corporate "persons" was sketchy even before the Court's recent ruling. As investors, employees, and citizens, it seems our capital is too often used in ways we may not agree with -- ways that could damage our democracy and our economy over the long term.
No less than Adam Smith, the revered capitalist philosopher, distrusted the concept of collections of tradesmen, and what we now call corporations. As he wrote:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
As informed citizens and investors, we need to exercise a healthy suspicion about the swampy relationship between business and politics, which creates distortions of all kinds. In the wake of the Supreme Court's ruling, I suspect that mire is about to get even deeper.
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