The US Supreme Court and Plutocracy

Populist authoritarianism is a global phenomenon. However, the US is the only so-called consolidated democracy where its ascent has been eased by the systematic dismantling of legal limits on campaign donations. US elections are now not only the world’s most costly, but they are also directly subject to the inordinate influence of wealthy individuals and corporations. The Supreme Court of the United States’ (SCOTUS) 2019 Citizens United v. Federal Election Commission ruling has paved the way for the emergence of so-called “super” PACS (political action committees) that, while formally barred from coordinating with candidates or parties, can accept unlimited corporate contributions. The rise of super PACs has been a political bonanza for the wealthy. Even though neither main US party has been their primary beneficiary, their growth has made the new Trump Administration’s mindboggling fusion of political and economic power possible. Elon Musk, for example, spent at least $260 million via a super PAC founded earlier this year; his efforts paid off handsomely in Pennsylvania and other battleground states. The ever-transactional Trump has since tasked Musk with dramatically downsizing the federal regulatory apparatus.

A previous blog explored how the New Deal jurist Thurman Arnold’s Folkore of Capitalism (1937) explains Trump’s popular appeal, despite little evidence voters share many of his reactionary views. Here I highlight how Arnold’s neglected classic helps make sense of the stunning political influence the super-rich now enjoy in the US.

Myth of the personified corporation

Arnold knew that the “personification of the corporation” –the symbolic core of America’s longstanding political folklore– had far-reaching legal ramifications. It meant not only that corporations were conceived as legal persons, but also that such persons would be conflated with concrete individuals, e.g., the firm’s CEO or shareholders.

Doing so risked obscuring the knotty organizational realities of modern for-profit business organizations. It made no sense to assume core affinities between corporate and individual proprietors: ownership in large hierarchical corporations cannot be equated with the individual’s possession of a home or automobile, or a small proprietor’s ownership of a mom-and-pop grocery. How corporate legal personality relates to the natural persons engaged in business enterprises is similarly complex. Shareholders are denied some crucial attributes of property, as classically conceived. They typically lack, for example, effective control over company assets. The empirical realities of shareholding mesh poorly with the idea of the corporation as an individual entrepreneur writ large. By reducing corporations to individual owners and outfitting the former with extensive legal rights and privileges, courts risk legitimizing what Arnold described as coercive private governments that exercise massive power over workers, consumers, and local communities.

Here as well, Arnold’s analysis was prescient. Who today makes up the ranks of shareholders? In the US, 70% of stock is held by large institutional, not individual, investors (pension funds, mutual funds, hedge funds). In 1960, stock was owned for an average of eight years; by 2010, the average was down to a mere four months, with stockholders expecting rapid-fire gains.¹⁾ Stocks are typically owned for relatively fleeting conjunctures. By the early 2000s, “most shares changed hands at least once a year”.²⁾ Of course, institutional investors are tasked with “looking out” for concrete individuals whose investments they manage. However, the links between natural persons and corporations remain indirect and complex.

One example: like many other US college professors, my retirement savings are managed by mutual funds. However, I could not possibly name which corporations have been entrusted with those funds. My more economically savvy colleagues in the Business School could probably do a bit –but not much– better.

Nonetheless, SCOTUS has in recent years diligently upheld the mythology of the personified corporation as the individual proprietor writ large. Arnold observed that amid “clashing ideals and rapidly changing conditions”, in the US it is typically the courts that “are expected to preserve the fundamental principle of the ancient order”, and no principle, he emphasized, was more vital to American institutions than the ideal of the heroic individual entrepreneur (188). As Arnold anticipated, SCOTUS has indeed taken upon itself the task of serving as our national mythology’s “distinguished and revered priesthood” by upholding one of our holiest of holies, the sacred ideal of the legal entity of the corporation as in principle no different from an individual proprietor (337). In US constitutional history, corporate personhood has been interpreted in a stunning variety of ways. Yet crucial to SCOTUS’s recent efforts to extend political rights to corporations has been precisely that conflation of the abstract corporate legal entity with individual persons that so vexed Arnold.

Citizens United: Plutocracy Made in the USA?

In an illuminating recent study, Adam Winkler shows how US business corporations and their lawyers have regularly exploited the idea of corporate legal personality to acquire the same rights as individuals; to a remarkable extent they have succeeded in doing so. Most striking about Citizens United (described by Winkler as “the culmination of a two-hundred year struggle for constitutional rights for corporations”), is that it rests on an aggregational or associational interpretation of corporate personhood, with Justice Kennedy’s majority opinion going so far as to describe corporations as persecuted or “disfavored speakers”, a claim that strongly suggests that he might have been residing in some alternative universe. Citizens United –and related rulings– have justified empowering corporations politically by viewing them as nothing more than groups of individuals, e.g., owners or shareholders. Because corporate persons are structurally akin to actual individuals, they should enjoy basic rights to free expression, religious liberty, and so on.

This conflation of the corporation as a legal entity with natural persons makes some sense with small-scale incorporated businesses, where core attributes of proprietorship, as traditionally conceived, remain in place. Many of us might not be too worried about mom-and-pop groceries setting up PACs to support their favorite causes; their limited donations seem unlikely to undermine democratic equality. In justifying its controversial ruling, the SCOTUS majority in Citizens United conveniently asserted that most corporations are small-scale. Whatever its merits, that claim’s inference that our complex, transnationally operating corporate-dominated economy consists of little more than a collection of individual proprietors or mom-and-pop businesses is nonsense.

The ruling’s most egregious problem is that it obscures the decisive economic role of large-scale, hierarchical, for-profit corporations. Citizens United effectively empowers managers to use corporate resources to make unlimited political donations, absent real-life accountability mechanisms. It remains unclear how shareholders, dissenting or otherwise, could realistically oversee managerial decisions about political donations, given the limited influence shareholders exercise over corporate decision making.³⁾ And never mind the employees: SCOTUS seems uninterested in the fact that workers have no say in allocating corporate political donations that may very well end up conflicting with their interests and policy positions. Any intimation that corporations might best be viewed as coercive private governments seems utterly anathema to today’s SCOTUS.

Even if we endorse orthodox views of business goals, this sloppy assimilation of their efforts to those of ordinary citizens makes little sense. Since corporate managers are widely conceived as tasked with maximizing profits and increasing stock values, the likely result will be political donations that aim primarily to favor “corporate-friendly” candidates and parties.⁴⁾ In contrast, ordinary citizens usually take a wide variety of concerns in mind when making political donations or participating in the political process.

SCOTUS’ jurisprudence means that corporations get to have their cake and eat it as well.  One reason businesses incorporate in the first place is to gain limited liability, meaning that managers and shareholders are only financially responsible to a limited degree. Abstract corporate personhood bestows tangible economic benefits by delineating natural persons from the corporation as a legal entity. Yet SCOTUS has now made it clear that when it comes to exercising political influence corporations can be viewed as groups of individuals no different from ordinary citizens and thus deserving of a range of civil and political liberties. Corporations get to don the veil of abstract legal personhood when it suits them economically. But that veil can be removed when politically opportune.

Note that ordinary citizens do not enjoy the same impressive range of liberties: if I fail to pay my credit card debt or home mortgage, I remain financially liable. While ordinary citizens enjoy the full liberties provided by our august Bill of Rights, unlike Elon Musk and others, most of us do not have $270 million to donate to a super PAC of our choice.

I wish that I could conclude on the hopeful note that recent controversies about Citizens United might encourage SCOTUS to rethink its move to outfit large businesses with what are effectively special political rights. Given Trump’s reelection and his selection of a Cabinet dominated by representatives of big business, the courts are unlikely to move in new, more fruitful jurisprudential directions. Writing in 1937, Arnold hoped that the “personification of the corporation” was on the way out. There are few grounds for such optimism in the US today.