Why power of corporations needs to be curbed

Efforts to curb the power of corporations and assert the power of citizens through democratic processes are vital, says Rajni Bakshi.

In January this year the United States Supreme Court struck down limits on the freedom of corporations to spend money on elections and in influencing political decisions. The US court overturned over 100 years of restraint on corporate spending.

The variety of reactions this evoked is a reflection of the turmoil within the American society. There are also lessons here for all those who seek to build economic democracy, in any corner of the world.

President Barack Obama described the court's ruling as "a major victory for big oil, Wall Street bankers, health insurance companies and other interests that marshal their power every day in Washington and drown out the voices of everyday Americans."

On the other side are those who argue that what is at stake here is universal application of the freedom of speech and political expression.

Supreme Court Justice Anthony Kennedy, who wrote the 5-4 judgment, reasoned that limits on corporate spending interfere with the open marketplace of ideas and freedom of speech which is protected by the First Amendment, which guarantees freedom of expression.

But can corporate speech be treated the same as that of individual human beings? The Supreme Court judges who wrote the dissenting view argued that it is a grave error to treat corporations as people. So at the heart of the controversy are two key issues: can corporations claim the rights of individuals and should they exert power in the making of rules?

There is a US Supreme Court ruling of 1886 which American corporations have used to claim the rights of individuals. This claim has been consistently challenged by people from across the political spectrum -- including those who are staunch believers in capitalism.

For instance, at present this critique is being sharply articulated by Bob Monks -- a Boston-based investor and an activist who is working for higher standards of corporate governance. The most harmful aspect of the recent Supreme Court judgment, argues Monks, is that it confuses modes of expression -- by flesh and blood human beings and chartered corporations.

Monks is the author of a book, titled Corpocracy: How CEOs and the Business Roundtable Hijacked the World's Greatest Wealth Machine -- And How to Get it Back.

After the meltdown on Wall Street in 2008, Monks has emerged as one of the leading voices raising fundamental questions about what ails American capitalism. It is vital to recognise, says Monks, that corporations are not just an aggregation of human beings -- they are a consequence of laws and processes designed to generate profits.

Corporations do not have the core traits of being human -- such as, the ability to feel joy or experience suffering and to express these and other feelings in language. Humans function on the basis of moral intuitions, such as fairness -- an ability to judge equality and inequality in social relations, as well as to seek reciprocity.

Corporations are driven primarily by the need to accumulate power and attain efficiency. Humans seek out cooperative relations, corporations compete for hegemony and thrive on a 'winner takes all' attitude.

In most societies, humans are committed to a wide framework of responsibility while corporations enjoy limited liability.

Yes, corporations are valuable to a society, writes Monks. But "they are valuable only insofar as the society effectively can proscribe the rules within which corporations function." Thus giving corporations greater power over the rule makers is a serious threat to a democratic society.

Since stockmarket-listed companies now control a big share of resources in many countries it is feared that the unrestricted use of corporate resources to influence political outcomes will benefit those rich enough to own shares in companies -- at the cost of the interests of consumers, employees and other citizens.

Besides, as Lucian Bebchuk of Harvard Law School has pointed out, corporate spending on politics can also hurt the interests of shareholders. For instance, the ability of corporate managements to influence political outcomes could weaken the rules that protect shareholders and ensure that companies are not hijacked by management in its own narrow interest.

When corporations decide which politicians to support and which political outcomes to seek, Bebchuk points out, their general investors are not consulted. Instead, such decisions are more likely to reflect the preferences and objectives of individual managers.

It follows that corporate meddling in politics is not just bad for those members of society who are not wealthy enough to be shareholders -- it could also reduce shareholder value.

Thus, there is a clamour to tighten controls on corporate spending in elections and on political decisions in the USA. There is demand for stricter enforcement of existing laws regarding public disclosure of corporate funding of elected representatives.

Another proposal is that corporations get prior approval from their shareholders for political financing.

Hazel Henderson, founder of a web forum known as Ethical Markets and a pioneer of the Socially Responsible Investment (SRI) movement, has urged that institutional investors now need to apply additional filters. They will have to examine corporate decisions for their potential political intent.

SRI funds, in particular, will have to seek detailed information on if and how a company wields political power -- through lobbying, campaign contributions, public relations, advertising, et cetera.

Given the murky ways in which political power and corporate power are actually mixed up -- many of these proposals may seem like idealistic fantasies.

Indeed, there is increasing despair about overwhelming corporate influence in virtually all democratic societies. And yet this is precisely why all efforts to contain the power of corporations -- by asserting the power of individual citizens through truly democratic processes -- are so vital.