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Crony Capitalism Has No Place in the Supreme Court Crony Capitalism Has No Place in the Supreme Court

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Washington Inside Out

Crony Capitalism Has No Place in the Supreme Court

Despite the Hobby Lobby ruling, the word "corporation" is still nowhere to be found in the Constitution.

Hobby Lobby supporters react to Monday's Supreme Court decision.(Mark Wilson/Getty Images)

Citizens United, Hobby Lobby, Walgreens, Medtronic, Stephen Schwarzman. If Ed McMahon had used these five as a setup for Johnny Carson's Carnac the Magnificent, Carson would have had a great punch line. Unfortunately, my punch line is not funny. I will get to it in a bit.

Monday's Hobby Lobby decision has understandably gotten a huge amount of attention, with its impact on women and its implications for religious freedom. I believe the most dangerous part of Samuel Alito's decision had to do with his definition of a for-profit corporation, and not just closely held ones. "A corporation is simply a form of organization used by human beings to achieve desired ends," he wrote.

"When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people."

 

He added, "Some lower court judges have suggested that RFRA [the Religious Freedom Restoration Act] does not protect for-profit corporations because the purpose of such corporations is simply to make money. This argument flies in the face of modern corporate law.... While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives."

Alito's stirring defense of corporations, of course, builds on that applied by Justice Anthony Kennedy in Citizens United, which was itself amplified by a paean to corporations delivered in a separate opinion and partial dissent by Justice Antonin Scalia—in which he asserted, remarkably, how much the Founding Fathers (other than Thomas Jefferson) loved corporations. In both cases, a corporate charter—the idea that these are separate, artificial entities created for narrow and specific purposes—is ignored, dismissed, or downplayed in the desire to equate corporations with individuals in granting rights. To Alito, corporations are collections of individuals, and deserve all the protections the individuals in the collective have. Of course, missing from his collective are the employees of the corporation.

Here is the textbook legal definition of a corporation: an association of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.

Why are for-profit corporations set up? The characterization tells us: to make profits. And the corporate charter has multiple benefits that go way beyond those of individuals. There are major tax benefits unavailable to individuals. There are stringent legal protections from liability unavailable to individuals.

For decades, the Supreme Court recognized that reality, and put limits on the ability of for-profit corporations to overwhelm or disproportionately influence elections. Kennedy blew that history apart in Citizens United, and Alito amplified it in Hobby Lobby. When Alito writes about humanitarian and other altruistic objectives, the fact is that for-profit corporations with shareholders justify charitable giving and other altruism to their shareholders as actions that are good for them in their goal of maximizing profits.

Alito tried to make a deep distinction for closely held corporations; reading his decision, one might think that these are mom-and-pop operations, small family businesses. Of course, as many observers have pointed out, Cargill, Mars, Koch Industries, and other closely held corporations have tens of thousands of employees (in Cargill's case, 133,000) and many billions in business and profit. Hobby Lobby is a huge business. Give the Hobby Lobby owners' family credit for their deep religious convictions. But if profit-making were truly subordinated to those convictions, which are strongly in opposition to abortion rights, Hobby Lobby would provide paid maternity leave for employees who shun contraception and abortion to have babies. It doesn't.

But for the majority on the Roberts Court, through a series of rulings that favor corporations over labor or other interests, it is clear that corporations are king, superior to individual Americans—with all the special treatment in taxes and protection from legal liability that are unavailable to us individuals, and now all the extra benefits that come with individual citizenship. Call it the new Crony Capitalism.

What has that got to do with Walgreen and Medtronic? Both are giant for-profit American corporations maneuvering to buy European companies to free themselves from U.S. taxes by moving their headquarters abroad. Walgreen is considering merging with Alliance Boots, a drugstore chain in Europe and moving its base from Illinois to Switzerland; Medtronic is buying competitor Covidien and moving its home from Minneapolis to Ireland. As Steve Pearlstein wrote in The Washington Post about Medtronic, addressing the Medtronic CEO, "The tax-avoidance scheme you have chosen is known as an 'inversion.' It involves buying a competitor, Covidien, for a premium price of $43 billion and then taking its legal headquarters in Dublin as your own. In reality, Covidien is no more Irish than Medtronic. The majority of the sales, employees, and profits (properly calculated) of both companies are still in the United States.

The only reason Covidien has its legal address in Ireland is that its previous home, Bermuda, was so transparent a tax dodge that better cover was needed when the company was spun off from Tyco International in 2007."

In The New York Times, Andrew Ross Sorkin writes the Walgreen story in a piece titled "At Walgreens, Renouncing Corporate Citizenship." He notes that when Walgreen's CEO sought tax breaks from Illinois a couple of years ago, he said, "We are proud of our Illinois heritage." He got the tax breaks, and now is breaking for Switzerland. Sorkin notes that Walgreen and its subsidiary Duane Reade get almost a quarter of their $72 billion in revenue from the US government—$16.7 billion from Medicare and Medicaid last year. Of course, Walgreen and Medtronic are not alone; many companies are using inversions and more will jump on the bandwagon before long.

Individual Americans have many motives and objectives, some selfish or self-centered or parochial, some more broad-based and altruistic; some focused on family or heritage, some on a region or on the country as a whole; some short-term and some more long-term. But all are based on being American and built around America's national interest. Companies, Alito notwithstanding, have one central motive: profits.

That is not at odds with America's national interest. When General Motors CEO Charles Wilson said to Congress in 1953, "What was good for the country was good for General Motors and vice versa," he had a point.

For many decades, corporations and corporate leaders took the long view and saw a strong American society as key to their own prosperity. But General Motors, in the global economy, is now a global company, even though it is still based in the U.S. and not yet tempted by inversion. Is what is good for a company with huge interests in dozens of countries necessarily good for America? Will it think first—or at all—about the prosperity and needs of the United States? Maybe—but can we say the same thing about "American" companies renouncing their corporate citizenship? When these companies get involved with politics—and you can be sure before long that the Supreme Court will extend the "speech rights" of corporations to include direct contributions to candidates—will they be thinking of America, or of what America can do to protect their interests in other countries? If the money comes from the "American" subsidiary of the foreign-owned company, will it only be reflecting the desires and interests of that American entity or will it reflect the interests of its parent? If a company with gambling interests in Las Vegas earns most of its money in Macao and gets involved deeply in American campaign finance, will it be most interested in promoting its interest in Macao—which might be counter to America's interest in its foreign relations with China?

When President Obama, in the aftermath of Citizens United, warned at his State of the Union message that the ruling could mean lots of foreign corporations putting money into U.S. campaigns, Samuel Alito visibly mouthed, "Not true." Of course, Alito was wrong. Foreign interests, especially given the increased role and prevalence of "dark money," with the donors concealed, often by laundering the money through multiple nonprofit entities, can find lots of ways to put resources into American campaigns in the new Wild West created by this Court. And now, defining foreign interests is going to become much harder.

All of this also has to be considered in the context of the growing inequality in the country, and the increased imperial attitude and detachment from reality of America's oligarchs. Prime among them is multibillionaire Stephen Schwarzman, chairman of The Blackstone Group, famous for likening President Obama's suggestion that it might make sense to raise the highly preferential tax rate on carried interest to "Hitler invading Poland." The New Yorker's James Surowiecki noted that Schwarzman, who has called for increasing taxes on the poor, recently opined that Americans "always like to blame somebody other than themselves for a failure."

Tech entrepreneur Nick Hanauer warned his fellow plutocrats in Politico Magazine that this imperiousness, among those who "live in our gated bubble worlds," is helping create a dangerous and destabilizing dynamic—that the kind of inequality we are seeing can never be sustained. A world in which corporations are kings, their employees are not considered as a part of their collectives, and individuals are not their equals, where the ratio of CEO compensation to average employee pay continues to skyrocket way beyond any level in American history, where money is the only significant quality the Supreme Court sees as speech, and where billionaires who are making out like bandits and doing better than ever feel that they are the victims, is not one where broad faith in American democracy can be sustained.

A few weeks ago, in testimony before the Senate Rules Committee on campaign finance, I said that I keep reading and rereading the First Amendment, and I am still looking for the word "money." Well, I keep reading and rereading the Constitution and I still can't find the word "corporation." This Supreme Court, with its new form of crony capitalism, seems to see the words everywhere.

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