Do Free Markets Tend Toward Concentration? The Case of Banking
Perhaps the most significant difference between my own views and those of my progressive friends is on the relationship between business and government, especially “big business”. I’ve on more than one occasion heard that government needs to be there to off-set the power of big business. That without government, corporations would just continue to grow. Well to me that sounds like an empirical question.
Thanks to the Economic Freedom of the World report, we have some good indicators of just how free-market oriented a country is. What we need are measures of concentration. Unfortunately, these are a little harder to come by. Fortunately, the Office of the Comptroller of the Currency (OCC) did a survey about a decade ago (1999), the data for which are reported in Barth, Caprio, and Levine’s Rethinking Bank Regulation. The measure of concentration is the percent of deposits accounted for by the five largest banks. One could argue for a better measure, but it’s all we have.
The results? It would appear that the freer an economy, the less concentrated its banking system. The chart below offers a scatter diagram, along with a regression line. The vertical Y axis measures concentration and the X axis economic freedom (the higher the number, the freer the economy). Admittedly, the relationship is not a strong one, with a correlation of only -0.11, but it is negative. If anyone knows of comparable measures for other industries, I would encourage them to either send me the data or reproduce this analysis for other industries.
Are Corporations People When They Make Video Games?
I note that I’m not hearing many critics of Citizens United decrying yesterday’s very welcome Supreme Court ruling, in which the majority held unconstitutional a California statute prohibiting the sale or rental of violent video games to minors. Perhaps that’s just because they’re concerned with corporate influence on elections as a policy matter, and not so much about Grand Theft Auto, but as a matter of First Amendment interpretation, it seems as though the elements that supposedly made Citizens United a travesty are present here.
As the conservative Justice Alito notes in dissent, for example, the statute at issue here does not prohibit anyone from creating, possessing, freely loaning, or playing violent video games: It regulates only their rental and sale. In other words: Money isn’t speech! The majority opinion—authored by Scalia, but joined by the Court’s most liberal justices—roundly rejects the relevance of that distinction, which “would make permissible the prohibition of printing or selling books—though not the writing of them. Whether government regulation applies to creating, distributing, or consuming speech makes no difference.” While, of course, money isn’t speech, the majority here understands that when the effect and purpose of a regulation is to restrict expression, the First Amendment is not some hollow formalism, and also limits regulation that functions by targeting enabling transactions rather than the speech directly.
None of the justices seem to make much of the obvious fact that the great majority of popular video games—and probably just about all of the ones exhibiting the level of graphical sophistication and realism at issue here—are produced, marketed, and sold by (uh oh) corporations. In fact, the passage quoted above focuses entirely on acts (“creating, distributing, or consuming”) rather than particular actors, just as the First Amendment itself prohibits government interference with speech not with this or that type of speaker. The Court simply observes that because the statute “imposes a restriction on the content of protected speech, it is invalid unless California can demonstrate that it passes strict scrutiny.” In dissent, Justice Thomas argues that the games are not “protected speech” in the context of the statute, because the Founders would have considered all speech directed at minors unprotected (a premise whose chilling implications the majority is quick to point out). Justice Breyer allows that video games—including violent ones—are indeed “protected speech,” but argues that studies linking them to violence are enough to give the state a “compelling interest” in limiting their dissemination. What nobody suggests, even in passing, is that video games might cease to be “protected speech” if the statute were limited to games manufactured and sold by corporations—which, in practice, is pretty much all the games we’re talking about.
Someone who welcomed this decision as a victory for free speech, but nevertheless supports regulation of independent political expenditures, can always take Breyer’s route: Maybe God of War III is not really harmful enough to make its prohibition a compelling state interest, but the degradation of democracy by corporate influence is a serious enough problem that its regulation survives “strict scrutiny,” overriding ordinary First Amendment protection even in the domain of political speech normally regarded as its core. That is not a position I find plausible, but it is at least coherent. The position I doubt can be made coherent is one according to which a prohibition of a commercial transaction instrumental to corporate-produced speech (and intended precisely to curtail that speech) should not even trigger First Amendment protections when the speech expresses a political opinion, whereas the same prohibition is unconstitutional if the speech is about Kratos impaling a minotaur on his Blades of Chaos. Though if that’s the form political expression has to take to enjoy constitutional protection, I look forward to the impending release of Palinfamous 2 and Barack Band III.
The Principle behind Campaign Finance Regulation
Democratic House leaders apparently have reached a compromise that may bring the DISCLOSE Act to a vote. The National Rifle Association, a group that enjoys some support from House Democrats, objected to the bill’s disclosure provisions. DISCLOSE’s authors have now agreed to exempt “organizations that have more than 1 million members, have been in existence for more than 10 years, have members in all 50 states, and raise 15 percent or less of their funds from corporations.” The National Rifle Association qualifies for the exemption. But you knew that.
I wonder what principle of campaign finance regulation justifies this exemption? Earlier the authors of DISCLOSE said the American people deserve to know who is trying to influence elections. Now it would seem that voters only need information about relatively small, young, geographically-confined organizations that receive more than 15 percent of their money from corporations.
There is no principle at stake here. The NRA had enough support to stop the DISCLOSE Act. House leaders had to compromise by cutting the NRA a deal, a special exemption from the proposed law. The deal does show, if nothing else, that House Democrats are really worried about new money entering the fall campaign. They are willing to go a long way — even as far as helping the NRA — to make sure other speech funded by businesses and groups is not heard.
Finally, imagine you are a member of a group not exempted from DISCLOSE. You have been treated unequally by Congress. The courts have said Congress can treat you unequally if they show that this exemption for the NRA has a rational relationship to an important government purpose. How does exempting older, bigger, more widespread groups with less than fifteen percent corporate funding help Americans cast an informed vote? Put another way, if the NRA deserves an exemption, doesn’t everyone?
Lawrence Lessig’s Constitutional Amendment
Lawrence Lessig has proposed a constitutional amendment in response to the U.S. Supreme Court’s decision in Citizens United. It reads:
“Nothing in this Constitution shall be construed to restrict the power to limit, though not to ban, campaign expenditures of non-citizens of the United States during the last 60 days before an election.”
In Citizens United, the Court said that the First Amendment concerns speech rather than speakers. Congress has no power to discriminate against speakers; hence, a source of speech – people organized as a corporation – could not be prohibited from speaking (or funding speech).
Professor Lessig hopes to introduce a discrimination among speakers into the First Amendment. His proposed discrimination will not lose a popularity contest. He wishes to allow Congress to control the speech of non-citizens. He follows two lines of argument in support of his amendment, one less rational than the other.
The less rational line of appeal to the reader is both implicit and predictable. The Chinese are invoked along with the Chamber of Commerce. A denial of xenophobic intent follows immediately, and “We the People” appear near the end. Carl Schmitt would recognize the rhetorical construction of “friend and enemy.” Rather cleverly, Lessig manages to equate the foreign devils with the internal demons of the liberal mind. Corporations (including the Sierra Club?) and the Chinese (or other foreigner) are on one side of political struggles while “We the People” are on the other.
Discouraging Speech through Disclosure
David Price, a Democratic member of the House of Representatives from North Carolina, has introduced a bill, the Stand by Every Ad Act, to mandate disclosure of support for political speech by business and union officials.
Rep. Price cites three harms from such speech: “the opportunity for corporations, unions and associations to dominate the playing field, intimidating public officials and drowning out the candidates’ own messages.”
Notice that these alleged harms are caused by the speech itself and not by the fact that the speech might be anonymous. Notice also that Rep. Price provides no evidence at all that such harms will take place. Where would such evidence be found? Prior to McCain-Feingold, corporations and unions could fund speech. Several states also have permitted independent corporate expenditures. What happened in those years or those states to support Rep. Price’s extreme claims?
It is striking that two of the three harms cited by Rep. Price concern only members of Congress. He claims members will be intimidated or have their “own messages” drowned out. What Rep. Price does not say is how these problems for members of Congress would translate into problems for voters. Of course, such arguments about the welfare of voters exist, but they are not obvious to most people. Rep. Price, however, saw no need to make the connection between an alleged harm done to a member and the interests of voters. His argument is centered on the interests and concerns of incumbent members of Congress. Apparently members consider first their own interests in thinking about campaign finance regulations.
Rep. Price also ignores the fact that voters are likely to receive more information about candidates for office after Citizens United since the hand of the censor has been lifted.
Rep. Price clearly believes mandated disclosure by business and union leaders will effectively discourage them from speaking out during elections. Given that motivation behind the new disclosures laws, at what point does mandated disclosure translate into chilled speech?
One other disturbing part of Rep. Price’s case for his bill: he hopes to extend disclosure to the Internet. Of course, disclosure of Internet speech may well lead to other restrictions on speech online.
When Individuals Form Corporations, They Don’t Lose Their Rights
The blogosphere has been abuzz on the heels of the Supreme Court’s landmark Citizens United opinion. Hysteric criticisms of the speculative changes to our political landscape aside — including the President’s misstatements in the State of the Union — one of the most common and oft-repeated criticisms is that the Constitution does not protect corporations. Several “reform” groups have even drafted and circulated constitutional amendments to address this concern.
This line of attack demonstrates a fundamental misunderstanding of both the nature of corporations and the freedoms protected by the Constitution, which is exemplified by the facile charge that “corporations aren’t human beings.”
Well of course they aren’t — but that’s constitutionally irrelevant: Corporations aren’t “real people” in the sense that the Constitution’s protection of sexual privacy or prohibition on slavery make no sense in this context, but that doesn’t mean that corporate entities also lack, say, Fourth Amendment rights. Or would the “no rights for corporations” crowd be okay with the police storming their employers’ offices and carting off their (employer-owned) computers for no particular reason? — or to chill criticism of some government policy.
Or how about Fifth Amendment rights? Can the mayor of New York exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he’d like to move his office there?
So corporations have to have some constitutional rights or nobody would form them in the first place. The reason they have these rights isn’t because they’re “legal” persons, however — though much of the doctrine builds on that technical point — but instead because corporations are merely one of the ways in which rights-bearing individuals associate to better engage in a whole host of constitutionally protected activity.
That is, the Constitution protects these groups of rights-bearing individuals. The proposition that only human beings, standing alone, with no group affiliation whatsoever, are entitled to First Amendment protection — that “real people” lose some of their rights when they join together in groups of two or ten or fifty or 100,000 — is legally baseless and has no grounding in the Constitution. George Mason law professor Ilya Somin, also a Cato adjunct scholar, discusses this point here.
In any event, as Chief Justice Roberts said in his Citizens United concurrence: “The First Amendment protects more than just the individual on a soapbox and the lonely pamphleteer.” Justice Scalia makes the same point, explaining that the text of the Constitution “makes no distinction between types of speakers.” The New York Times isn’t “an individual American” but its speech is still protected under the First Amendment (regardless of any exemption for “media corporations” — whatever those are in a world where conglomerates own interests not limited to media, not to mention the advent of blogs and other “new” media).
A related line of attack is that individuals acting through corporations should be denied their freedom of speech because corporations are “state-created entities.” The theory goes that if a state has the power to create corporations, then it has the power to define those entities’ rights. Somin rebuts the weakness of this argument here, correctly pointing out that nearly every newspaper and political journal in the country is a corporation.
In short, the contention that the First Amendment does not protect corporations ignores the fact that there is no constitutional difference between individuals and groups of individuals, however organized. Still, I give credit to the groups who are proposing constitutional amendments that would limit corporate rights: at least they recognize that, after Citizens United, there is no basis upon which to argue that the First Amendment does not protect corporate political speech. The Free Speech Clause, after all, is blind as to the nature of the speaker.
For further concise refutations of the basic arguments against Citizens United, see here (points 3-6 address issues relating to corporations and their rights).
An Appalling Breach of Decorum
This morning, Politico Arena invites comments on Obama’s SOTU attack on the Supreme Court.
My response:
I join my Arena colleagues, Professors Bradley Smith and Randy Barnett, in condemning the president’s remarks last night singling out the Supreme Court for its Citizens United decision last week, which overturned law that the government itself admitted would even have banned books. Not only was Obama’s behavior an appalling breach of decorum, but he didn’t even get his facts right. As Brad, former FCC chairman, noted in his Arena post last night, and a bit more fully here, the decision did nothing to upset law that prohibits foreigners, including foreign corporations, from contributing anything of value to an American election. Obama, the sometime constitutional law professor, should have known that. At the least, his aides had plenty of time to research the question before he spoke. This is just one more example of the gross incompetence or, worse, the indifference to plain fact that we’ve seen in this administration.
But it’s the breach of decorum that most appalls. By constitutional design, the Supreme Court is the non-political branch of government. Like members of the military, Supreme Court justices are invited to the State of the Union event, but they do not stand and applaud when the president makes political points that bring others to their feet. For the president to have singled the justices out for criticism, while others around them stood and applauded as they sat there still, is simply demagoguery at its worst. I would not be surprised if the justices declined next year’s invitation. And Obama wanted to change the tone in Washington? He sure has.
Don’t Fear the Foreigner
You might have heard that the Citizens United decision will allow foreign corporations to become involved in American campaigns. You might have heard that from the President, in fact, whose speech decrying the decision said foreign corporations “may now get into the act” of pursuing their “special interests” in American politics.
Not true. Justice Kennedy explicitly says the Court did not decide whether Congress has the power to prevent “foreign individuals or associations from influencing our Nation’s political process.” Nothing in Citizens United prevents Congress from prohibiting such political spending by foreign corporations. The Supreme Court might uphold such a law or it might strike it down. The upholding or the striking down of such a law was left for another day. (Other parts of existing laws would also probably preclude foreign nationals or corporations from getting involved in American elections, as Brad Smith argues).
I don’t think I like the new populist Obama as much as I did the old rationalist Obama. The old Obama would have read a Supreme Court opinion before talking publicly about it.
Giving Away the Keys to the Kingdom?
The New York Times editorial board must be baffled by this news story about a few dozen present and former corporate executives appealing to Congress to expand public funding of political campaigns.
The appeal comes one day after the Supreme Court re-extended (some) First Amendment rights to corporations in a move the editorial board branded a “blow to democracy” that will lead to corporations “overwhelm[ing] elections and intimidat[ing] elected officials.” But now some corporate executives want to be dispossessed of the keys to the kingdom immediately after SCOTUS returned them — say what?
The executives’ appeal makes sense if you’ve read this article by law professor Robert Sitkoff (then of Northwestern, now the John L. Gray Professor of Law at Harvard ). Sitkoff argues that the 1907 Tillman Act, which placed the first federal limits on corporate involvement in campaigns, was not adopted because elected officials wanted protection from corporations, but because corporations demanded protection from donation-seeking politicians like William McKinley and his bagman Mark Hanna. Now, in the wake of the Citizens United decision, corporations are asking for renewed protection — this time on the taxpayers’ dime.
As others have argued, corporations are subject to federal laws, regulations and taxation, just like citizens, and therefore should have First Amendment rights just like citizens. If corporations are afraid their regained rights will expose them to politicians’ demands for corporation-financed political ads, then corporate officers should follow their duty to shareholders and learn how to say no.
As for the New York Times Company’s concern about corporations having undue influence on democracy, there are a couple of things it can do to reduce that influence. For one, the New York Times Company can stop endorsing candidates for office — a practice that undermines newspapers’ claims of fair and objective reporting. For another, the New York Times Company can stop using its reporters to electioneer.
Citizen United’s Concept of the U.S. Constitution
The Citizens United decision and the talk that has followed imply two different and incompatible ideas of the Constitution.
The majority in Citizens United believe that the U.S. Constitution establishes a government of limited and defined powers. They asked: “Does the Constitution give government the power to prohibit speech by corporations (and others)?” The First Amendment indicated the government did not have that power.
The critics of the Citizens United decision assume the Constitution created a government of plenary powers with limited exceptions. They recognize that free speech for individuals is one such exception. But that exception is limited to natural people, not legal constructs. If there is no exception to the plenary power of government, the critics conclude, then there is no right to speak. Congress may prohibit speech by corporations (and others).
The Citizens United decision depends on an idea of the Constitution that forces government to justify its powers to citizens. The critics of the decision assume an idea of the Constitution that forces citizens to justify their rights to the government. Absent such justifications, the government has plenary power over speech and much else.
Which concept of the Constitution do you find most appealing?
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