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Uncivil Liberties

March 9, 2006 by staff

ACLU ‘s argument that “money = speech” undermines democracy

By Jeffrey Kaplan
Published March 29, 2006

Editor’s note: We were surprised to get some replies to this article accusing us of being anti-ACLU. To the contrary, we value the overwhelming majority of the group’s work and our advocacy work in defending civil rights overlaps regularly. Indeed, we have collaborated with various ACLU state chapters and regularly find ourselves working as allies far more often than as opponents at the national level to the Senate Judiciary Committee.

We simply think the national directors are badly misguided in arguing that corporations and wealthy individuals have a constitutional right to use their money to wield power over others. The matter is central to our mission of revoking corporate control of our country and the ACLU’s active opposition to that work is a significant barrier. We aim to provoke an open and constructive debate.

The American Civil Liberties Union seems to believe that not only does money talk, it has a First Amendment right to do so. In keeping with that highly dubious notion, the ACLU is attacking a Vermont law that limits contributions to political candidates and candidate spending in state elections. In a case now being considered by the U.S. Supreme Court, (Randall v. Sorrell) the ACLU argued the law conflicts with the infamous “money equals speech” doctrine first promulgated by the Court in its 1975Buckley v. Valeo ruling.

Editor’s note: The Court struck down Vermont’s expenditure limit and ruled $200-$400 limits on the amount that one person can donate to any individual candidate per election to be unconstitutionally low.

Although Buckley did allow restrictions on individual contributions, the Court struck down a law limiting the funds a candidate could spend on a national political campaign. Many critics think this decision has hamstrung serious attempts to keep wealth from being a dominant factor in elections.

In its amicus curiae (friend of the court) brief in Randall, the ACLU, like the justices inBuckley, offers up a legal argument that uses “speak” and “money” as if the words were interchangeable: “Above all else,” the ACLU brief (pdf) states, “the Court concluded inBuckley that ‘the First Amendment simply cannot tolerate [the] restriction upon the freedom of a candidate to speak without legislative limit on behalf of his own candidacy’ whether the source of his money is personal wealth or funds raised from legal contributions.”

The ACLU seems oblivious to the fact that there’s a profound difference between who we are (human beings with an inalienable right to self-expression) and what we may possess (money or other forms of property). Democracy is simply not sustainable in any society that confuses the second with the first.

The argument of the Buckley Court was more appropriate to plutocrats who believe they are what they own than to the ACLU, which declares on its website, “If the rights of society’s most vulnerable members are denied, everybody’s rights are imperiled.” The Court reasoned that limiting individual contributions was OK to prevent potential corrupting influence on a candidate, but declared limits on expenditures violated the First Amendment because it created an unjustifiable “restriction on the quantity of political expression.” The Court majority claimed to believe that a candidate’s war chest would be commensurate “with the size and intensity of the candidate’s support.”

Even 30 years ago, that was a dangerously narrow view, especially in light of the Court’s warning in the same decision against “naively” underestimating “the ingenuity and resourcefulness of persons and groups desiring to buy influence.”

Resourceful they have been. Jack Abramoff, now under indictment in the most extensive political corruption scandal in a generation, was a “Pioneer” for President Bush’s re-election campaign in 2004, channeling over $100,000 in individual donations from wealthy donors (those who funneled $200,000 or more were dubbed “Rangers”). The list of the other 548 people who raised $100,000 or more reads like a roll call for Corporate America. Of course, John Kerry’s campaign also relied heavily on such elites.

“Naïve” is too weak a word to describe the ACLU’s attempt to ignore the likelihood such donations had much more to do with business than expressing one’s beliefs. We should beware that criminal acts by the likes of Abramoff and Tom DeLay don’t distract us from the more subtle and completely legal corruption that keeps our representatives from actually representing most citizens.

The Buckley Court ‘s rationale for banning limits on spending by independent organizations that support a candidate was equally suspect. The Court claimed, “The concept that government may restrict the speech of some elements of our society in order to enhance the relative voice of others is wholly foreign to the First Amendment.” So would the Court would consider an ordinance prohibiting the use of bullhorns at town meetings an unconstitutional attempt to “enhance the relative voice” of those without them?

Unfortunately the people with bullhorns are gaining ever-more control. According to a recent Congressional Budget Office report, as of 2003 the top one percent of households in the United States owned 57.5 percent of corporate wealth — a staggering 50-percent increase from 38.7 percent just 12 years earlier. During the same time, the wealthy and their allies in Congress repeatedly cut taxes for themselves, while mostbudget cuts targeted the poor .

Though corporations have been banned from contributing directly to candidates for a century, we’re still dealing largely with corporate money here. The Bush campaign gave code numbers to their elite fundraisers, allowing corporate executives to ensure their company was duly credited for donations they solicited. That credit later can be redeemed for access to the administration, if not overt favors.

It is state-granted privileges that allow corporations to amass great power. Governments grant privileges benefiting investors, such as like limited liability and perpetual existence, based on the notion that society as a whole will benefit indirectly.

Democracy is at risk when we permit vast amounts of money accumulated through these privileges to buy power over the political process itself. Even a majority of Supreme Court justices recognized this problem in 1990 when they noted, “the corrosive and distorting effects of immense aggregations of [corporate] wealth … have little or no correlation to the public’s support for the corporation’s political ideas.”

Those corrosive effects run far deeper than any corruption scandal. According to testimony at state court hearings leading up to Randall v. Sorrell, “party and party leaders urged legislators not to oppose pharmaceutical interests for fear of being ‘shut off in the next election cycle from any contributions.’”

In other words, the money big donors withhold, not just money they give, helps keep legislators in line. The result is a “chilling effect” — a term the ACLU often employs — whereby certain policies are not even discussed for fear of alienating wealthy donors.

As one witness at a Vermont legislative hearing commented, “there’s an agenda out there that is pretty much set by folks that are not elected.”

The result is a well-founded sense of political disenfranchisement on the part of Vermont (and U.S.) voters. As one former legislator put it, many citizens don’t vote because “They think it’s all wrapped up and that the special interests control it and, quite frankly, they aren’t that wrong.”

It’s not the few overtly corrupt politicians that leave citizen feeling powerless, but the legal and unspoken bias of politicians toward large donors. As a Supreme Court amicus brief by ReclaimDemocracy.org in Randall v. Sorrell states, “Decent people, after all, typically return courtesies with courtesies and favors with favors without keeping exact track or using quid pro quo calculations.”

In view of its ongoing denial of political reality, the ACLU’s position that the “power, even of a democratic majority, must be limited to ensure individual rights” is replete with irony. In this instance, what the ACLU is ensuring is the “right” of the moneyed minority to exercise political power commensurate with its wealth.

Nor is Randall an anomaly. The ACLU has a track record of helping wealth subvert democracy. In Nike v. Kasky, the ACLU supported Nike Corporation’s claim that its alleged lies about the abuse of Asian factory workers was constitutionally-protected “political speech.”

It’s not clear the ACLU’s advocacy for “corporate free speech” and against limiting the power of money in elections reflects members’ views or merely those of executive staff. Gregory Wonderwheel, a board member of the ACLU’s Sonoma County (CA) chapter has tried to provoke debate within the organization on these positions, but has found staff unresponsive. “The organizational leaders have their own opinions and don’t seem particularly interested in finding out how the grassroots members feel about this question,” said Wonderwheel.

The ACLU has been at the forefront of the legal struggle against the Bush Administration’s assaults on our civil rights and those efforts should be applauded. But given the increasing boldness of those attacks, it’s appalling the organization is diverting members’ donations to fight Vermonters’ right to govern themselves instead of focusing all available energy on those real threats to freedom.

It’s time ACLU members call on the leadership to stop undermining citizens’ right to self-governance and recognize the rights of human beings must take precedent over the power of property.

Jeffrey Kaplan writes for the San Francisco Bay Area chapter of ReclaimDemocracy.org.

Additional Resources

Find and contact your state ACLU chapter here to find out if they have a position on the issue and share your concerns.
An e-mail form to the ACLU national office is here.
To read the ACLU’s explanation on the closely related subject for why it argues for “corporate speech” to be protected by the First Amendment, and responses from ReclaimDemocracy.org, click here.
ReclaimDemocracy.org’s amicus brief in Randall v. Sorrell.

ReclaimDemocracy.org Amicus Curiae Brief to the U.S. Supreme Court in Randall v. Sorrell

February 16, 2006 by staff

in support of respondent (the State of Vermont)

By Daniel Greenwood
Submitted to the Court February 8, 2006

Editor’s note: Three related cases (04-1528, 04-1530 and 04-1697) have been consolidated and will heard together by the Court. As expected, the justices ruled against the citizens of Vermont, reinforcing our long-standing call for amending the Constitution to overrule the Supreme Court.

Interests of Amicus Curiae

ReclaimDemocracy.org is a 501(c)(3) organization with a national membership that includes Vermont residents. The organization works to build a genuinely representative democracy based on the principle that citizens’ ability to influence elections and government should result from the quality of their ideas and their energy and effectiveness in promoting them, independent of their financial status.

ReclaimDemocracy.org works to ensure we do not decay from a democratic republic to plutocracy. In its view, the constitutional promise of equal protection of the laws for all citizens requires we separate the opportunity to influence elections from wealth. Moreover, it maintains that the wealth discrimination of the current system results in de facto race and (to a lesser extent) gender discrimination, so “purging wealth discrimination from the electoral system is . a civil rights issue.” ReclaimDemocracy.org’s work would be severely undermined were this Court to determine that the First Amendment bars states from protecting their citizens and the democratic process itself by limiting the influence of wealth on elections.

ReclaimDemocracy.org asks the Court to affirm the right of the citizens of Vermont and their legislature to place reasonable limits on campaign investments and spending in order to further the purposes of the equal protection mandate of the Fourteenth Amendment.

Summary of the Argument

The Vermont statute at issue in this case regulates monetary contributions to political campaigns and the amount candidates spend in order to assure Vermont ‘s elections reflect the will of its citizens and the persuasiveness of candidates rather than the influence of domestic and foreign wealth.

Were it not for Buckley v. Valeo (1976), Vermont ‘s action would raise no substantial Constitutional issue. Buckley, however, equated money with speech and thereby introduced First Amendment principles of governmental abstention into campaign finance jurisprudence. By this misclassification, Buckley revived laissez-faire doctrines barring the government from protecting its citizens from the power of wealth. ItsLochner esque imposition of “the Social Statics of Mr. Herbert Spencer,” see, Lochner v. New York , (1905) (Holmes, J., dissenting), creates an appearance of Constitutional conflict that has no basis.

Campaign contributions often are economic, marketplace transactions-purchases by individuals and business interests of “access” or “influence.” Moreover, regardless of motivation, campaign contributions and candidate expenditures alike resemble economic activity far more than speech. Legislatures should be free to regulate them in order to protect our republican system of government from domination by wealth, just as they are free to create the rules for all other market transactions in order to harness the power of the market for the public good. U.S. v. Carolene Products (1938). Free speech anti-censorship principles which preserve individual liberty against overreaching power have precisely the opposite effect when extended to create special privileges for the wealthy to dominate the electoral system.

All democracies must separate the realms of two different decision-making processes. First, a political arena of equal citizenship and political democracy, characterized by the fundamental principle of one person, one vote, Reynolds v. Sims (1964). Second, a market arena of individual decision and regulation by price, where the anti-discrimination principle of equal access to markets co-exists with necessarily unequal wealth and economic power. Indeed, the separation of the spheres of market and law is basic to the rule of law itself: Both the Fourteenth Amendment and fundamental principles of justice dating back at least to Leviticus 19:15 teach that the law should favor neither rich nor poor.

In our dual system, we allow money to buy most things, but never the political system that determines the limits to what money can buy. See, e.g., Gordon v. Lance (1971) (“a percentage reduction of an individual’s voting power in proportion to the amount of property he owned would be similarly defective”).

Vermont ‘s statute limiting the influence of money on elections is an attempt to embody these basic norms in its electoral system in order to prevent democracy from degenerating into plutocracy. It seeks to protect the autonomy of the citizenry of Vermont and to ensure equal access to the electoral process, regardless of wealth, that has long been fundamental to this Court’s jurisprudence. See, e.g., Reynolds v. Sims(1964) (“the right of suffrage can be denied by a debasement or dilution of the weight of a citizen’s vote just as effectively as by wholly prohibiting the free exercise of the franchise”); Harper v. Virginia Board of Elections (1966) (holding poll tax unconstitutional).

Moreover, like Harper itself, the Vermont statute recognizes that the wealth distribution in our country reflects racial divisions, so serious attempts to remedy racial wrongs also must confront the power of wealth. Each of these goals is presumptively valid under our Constitutional regime of republican democracy, and the legislature’s choice of means is entitled to the usual deference granted to legislatively-enacted law.

Constitutional consideration of Vermont ‘s attempt to protect its electoral system is distorted, however, by the lingering effects of Buckley . Neither Free Speech values, Equal Protection principles, nor the requirements of Due Process require that Vermont ignore the problems created for democracy when private wealth dominates the public electoral system.

The Court should take this opportunity to remedy the damage Buckley did to First Amendment, federalism and democratic values by rejecting this flawed precedent. Money is not speech. Applying doctrines designed to protect dissent and democracy to campaign finance has the perverse consequences of entrenching incumbents, unfairly enhancing the power of those individuals and corporations with the assets to purchase access to politicians, and, consequently, diminishing public faith in our institutions of government.

The Court should clarify that objections to the particular way Vermont has chosen to protect its republican form of government should be addressed to the people of Vermont and their elected representatives, not to this Court. Courts “are not free to reject [legislative] views about ‘what constitutes wise economic or social policy,'” Lyng v. UAW (1988).

Argument

I. Buckley v. Valeo‘s Classification of Campaign Expenditures as First Amendment Speech Was Erroneous and Should Be Overruled

Buckley v. Valeo (1976) revolutionized First Amendment and campaign finance law alike by holding that political money is “speech” for purposes of the First Amendment. Later cases have assumed the same analysis applies as against the state legislatures, via the Fourteenth Amendment ‘s protections against violations of equal protection and due process of the laws.

But money is not speech. A regulatory regime appropriate to speech has perverse results when applied to money. After three decades of experience, the time has come to reexamine and reject Buckley .

First Amendment jurisprudence usually contains a strong presumption against governmental regulation, stemming from its core meaning as a ban on governmental censorship and governmental enforcement of religious and secular catechisms. Buckleytransformed the traditional bar against censorship into something radically different: restrictive scrutiny of legislative action meant to protect the citizenry from abuse of the rights of property.

The First Amendment ‘s protection against censorship is a critical element of our American system of republican self-government. First, the political freedom to criticize the incumbent officials is critical to majority rule: without it, government would be too free to manipulate, rather than respond to, public opinion. Open political debate is as foundational to democratic rule as elections. Second, we have long recognized free intellectual debate, cacophonous as it often is, as the only route to avoid the stagnation of vested interests and to encourage intellectual progress. Third, the freedom to speak on all matters, even the purely artistic, creates a realm of privacy and personal freedom in which individuals can act without concern for the opinion of the majority, thus ensuring democracy does not degenerate into a tyranny of the majority.

Buckley, however, by simplistically substituting money for speech, promoted none of these values. Purchased speech often does not enhance political self-determination, truth-seeking intellectual inquiry or personal freedom.

A. Buckley, like Lochner, has privileged the privileged by sanctifying the current distribution of wealth

Buckley ‘s equation of political money with speech repeats the infamous error ofLochner. In each case, the Court purported to derive an abstract principle from the Constitution’s language. It then applied it without regard to context to cut off political debate over the difficult and controversial issue of how a democratic republic should manage its economy.

Lochner ‘s invasion of the legislative sphere stemmed directly from its basic failing. The case assumed contractual agreements between bakers and their employers reflected the autonomous will of equal bargainers, and thus legislative imposition of terms was an invasion of the rights of both parties. This was a controversial view of contract then and remains one now. Others believed the very fact that bakers were willing to agree to work long hours in unsafe conditions was sufficient evidence that they had insufficient power to function as the autonomous beings the Lochner court imagined. Lochner was substantively wrong, first and foremost, because, by assuming equality when there was none, it further empowered the powerful at the expense of the weak. “Neutrally” enforcing agreements between bullies and their victims only worsens the position of the victims.

The Buckley framework suffers from a similar blindness to the realities of the world and a similar invasion of the legislative sphere with similar results: Reverse Robin Hood, it takes from the common person and gives to the rich. Buckley imposed a Lochneresque “free” market view on campaign regulation, in effect telling the people they and their elected representatives may not attempt to remedy the damage done to fair political competition by the distorting power of wealth. Like Lochner, Buckley wrongly interpreted the Constitution to protect a particular understanding of the rights of property, but not to protect more important rights-the true values of the First Amendment -from being subordinated to economic power.

Buckley mimicked Lochner in a third way. It made a major contribution to a political/economic complex that simply does not work on the ground, regardless of whether its particular conceptualization of the law can be made internally consistent.Buckley underpins the corruption and collapse of American politics much as Lochnerhelped lead to the collapse of our economy. The Great Depression demonstrated for many Americans that a market economy can succeed only if it involves and benefits a wide spectrum of citizens. Buckley ‘s imposition of Lochner esque “free markets” on elections has, similarly, led to the exclusion of most Americans from participation in and the benefits of democratic politics. This damages the legitimacy of and destabilizes our republican form of government. We should not wait for a political equivalent to the Great Depression before reversing course.

B. Property rights and the limits placed on the use of wealth to buy influence are matters of state law, not the First Amendment

The question of how best to define the rights of property and finance elections so as to protect citizens’ political rights and republican self-government is difficult and controversial. Many Americans today believe our representative democracy needs urgent repair. Campaign finance reform lies at the controversial core of that struggle precisely because it reflects multiple conflicting constitutional values.

Elections rely on the principles of “one person, one vote” and equal access to the ballot for their legitimacy. Similarly, the American conception of a republican form of government by “we the people” demands all citizens enjoy the equal protection of the laws and equal political rights regardless of wealth. See, e.g., Harper (1966) (invalidating poll tax) ; Bullock v. Carter (1972) (invalidating ballot-access fees); Lubin v. Panish (1974) (invalidating ballot-access fee). The rights and responsibilities of citizenship, like the law and its protection, cannot be for sale.

Our market-based economy has inherent tendencies to inequality and to expanding the range of items that can be bought and sold. Determining and maintaining the boundary between the realms of market and politics is a central political question in our society. How much should the legal system counterbalance market tendencies to give more to those who already have more? When should the legal system modify the rules creating the market system to price goods-such as security, social stability, or clean air-that other market-based legal rules might not? What things or rights ought not to be for sale at all?

Campaign finance reform is at the core of the great debate over the proper place of the market in a democratic republic. Under our Constitutional system, government cannot be for sale, nor can politics be reduced to a marketplace. But even equal access to the ballot ” does not necessarily require that all who participate in the political marketplace do so with exactly equal resources.” McConnell v. Federal Election Commision(2003). Instead, these are issues for legislative determination.

Advertising works, and more advertising than the competition generally works better. Otherwise, campaign finance would be of little interest. Of course, well-financed candidates sometimes lose, just as fine advertising campaigns cannot always make up for poor products. The Edsel has its political analogues. In general, however, participants in our campaign system assume voters, like consumers, often can be influenced or persuaded to act as marketers wish. Thus modern campaigns are about buying votes, even when quid pro quo bribery is not in the picture.

Because money matters, the equal protection principles of our republic are challenged deeply by any system allowing unfettered use of private resources to influence public political campaigns. Equal citizenship becomes meaningless when donors, not voters, become politicians’ major constituents or when candidates can run for office only if backed by institutional or individual wealth.

The Buckley framework fails because it does not recognize, let alone confront, the central issues of campaign finance reform. The First Amendment bars censorship, both to preserve the freedom of citizens to dissent from the majority and to preserve the integrity of our political system by preventing any incumbent government from molding the citizenry into its supporters. But ours is a government of the people, not of the dollars. Our politicians should be responsive to citizens’ opinions backed by their voting power, not to their wealth backed by their purchasing power.

Contrary to the implication of Buckley, our First Amendment nowhere states that wealth has a Constitutional claim to buy governmental access and influence. Instead, Buckley , like Lochner, simply imposed a discredited interpretation of “free markets” on an unwilling nation.

Freeing wealth does not free citizens. Ordinary citizens are not freer if wealthy individuals and institutions can dominate the public discourse or obtain privileged access to the corridors of power. On the contrary, the democratic system is deeply distorted. The distortion is only worsened by the fact that much of our wealth is corporate owned, controlled by fiduciaries who are required by state law and market pressure to use it for only limited purposes without regard to any citizen’s view of the public good.

In the end, Buckley, like Lochner, failed because the complex and often fact-dependent issues of appropriate economic regulation cannot be resolved intelligently based on interpretation of abstract notions of free markets imposed by the Court on our Constitution. A First Amendment seeking “to ensure that the individual citizen can effectively participate in and contribute to our republican system of self-government,”Globe Newspaper Co. v. Superior Court (1982), requires the rules of electoral competition be structured to open politics to all citizens. Instead, Buckley reduces most citizens’ participation to choosing from a menu predetermined by those who hold the real power in elections today-organized interests comprised of large donors.

C. Speech and political regimes are radically different from market and economic regimes

Our collective decisions result largely from two radically different processes: politics and economics. Our politics are founded in a basic concept of equal citizenship, enshrined in the guarantees of the Fifth Amendment and Fourteenth Amendment of due process and equal protection and vindicated by this court in its voting rights cases. Most political decisions are made by the people’s elected representatives, subject to limitations on the scope of collective decision-making designed to preserve a sphere of private freedom.

The religion, speech and press clauses of our First Amendment protect both this sphere of personal autonomy and the democratic process by a common core principle: No censorship and no mind control. American concepts of freedom bar our government from coercing the citizenry to agree with or support the current powers-that-be, whether political or religious.

Freedom of speech is, in its core, a negative right-a bar on governmental action that, by its nature, lends itself to absolutes. This is particularly true in light of the Court’s role in protecting the system and procedures of democracy even when temporary crises may make governmental officials, or even the population as a whole, think it expedient to sacrifice them in the name of security, stability or other important values. As Jefferson put it, in condemning the Alien & Sedition Acts: “[L]ibels, falsehood, and defamation, equally with heresy and false religion, are withheld from the cognizance of federal tribunals.”

Economic decision-making is dramatically different from political decisions. Most importantly, economic decisions are made on the radically different basis of purchasing power. Additionally, collective economic decisions are made, at least in the first instance, by the market’s aggregation of many individual decisions, with none of the collective debate, voting or reasoned principles that characterize political, bureaucratic and legal governmental decisions. As a result, under the right circumstances, market decision-making can be both more conducive to individual choice and more likely to lead to economic growth.

The line between democratic and market decision-making, however, must be drawn by the democratic process. Votes, not wealth, must remain the ultimate source of legitimacy in a democracy. Ours is a republic of people, not dollars, based on equality of citizenship, not equality of dollars.

Since at least the Great Depression we have recognized that one of the great tasks of government is to define the rules and limits of markets to ensure the “invisible hand” of the markets work for the good of all. The meaning of the “good of all,” and the necessary compromises that must be made between sometimes-conflicting goals of economic growth, security, equality, decency and stability are often the central issues of politics. No constitution, and certainly not ours, which predates the modern economy, can remove such issues from ongoing political debate. The First Amendment model of governmental inaction is simply inapplicable.

D. Money can buy speech, but it is never speech itself

Citizenship is equal, but wealth is not. Indeed, the distribution of wealth in our society is extraordinarily unequal, with 1% of the population controlling approximately 40% of the total financial wealth of the country in 2001, while half the population controls only 1% of the wealth. If money is allowed to unduly influence votes, democracy descends into plutocracy.

The ability to speak and persuade is not, of course, equal and could not be in any decent society. But that inequality is limited by the range of human abilities. The inequality of audience is, in the ordinary marketplace of ideas, related to the persuasiveness of the speaker’s ideas.

Purchased advertising is different. A candidate with sufficient funds can buy talent he or she lacks, buy attention that the candidate’s ideas or eloquence would not command on their own merits, and multiply his or her presence beyond the possibilities of merely human abilities.

E. In its interpretation of the First Amendment, Buckley reverted to the discredited notion that the Constitution mandates laissez-fair economic policies

After the Great Depression and the demise of Lochner, Americans rejected the notion that government should, or even can, stand apart from economic affairs. Market-based capitalism requires an elaborate infrastructure of property, contract, anti-trust, anti-fraud, environmental protection and civil rights law, all of which are subject to the ordinary ebb and flow of political debate and legal change. Acknowledging this reality, the Court belatedly acknowledged it had exceeded the bounds of its legitimacy in preventing the political branches from debating the preeminent issue of democratic politics in a market economy. The New Deal “switch-in-time” acknowledged the issue of how to structure the rules of property and market cannot be constitutionally ordained for all time-in part because property exists only within a constantly changing regulatory regime. Instead, the proper structuring of property rights is-legitimately-the subject of hard-fought political battles and necessarily temporary victories to be reexamined with changes in the economy and political mores.

Buckley ‘s interpretation of the First Amendment to generally preclude explicit regulation of campaign-related economic activity-the direct and indirect purchase of advertising and similar media access-worked an inappropriate revival of Lochner. Constitutional principles require respect for the political process, see Carolene Products, just as they require respect for property rights. They do not require the State of Vermont to privilege further the already privileged by allowing the wealthy to purchase political access or influence not affordable to the rest of us. Nor do they sanctify property rules created for other purposes when they conflict with the needs of self-government.

No democracy can long survive if access to power can be bought. In an era in which special interests represented by K Street lobbyists are widely viewed as having influence on the national legislative process far beyond their voting strength, Buckley stands as a practical and ideological obstacle to this republic’s self-preservation and self-definition.

II. Constitutional Bars on Campaign Finance Reform Do Not Promote First Amendment Values

“The First Amendment is a rule of substantive protection, not an artifice of categories.”Alexander v. U.S . (1993) (Kennedy, J. dissenting). Vermont ‘s law is not censorship and does not run afoul of either of the two most important First Amendment values.

First, so long as campaign finance reform does not discriminate based on viewpoint or other improper bases, it does not restrict the sphere of privacy in which citizens may worship, study, think, write and express themselves as they see fit without legal requirement to consider the views of the majority or the last electoral victors.

Second, limitations on the amounts candidates may raise or spend do not, unless taken to an extreme, threaten the free political discourse which underpins any democratic or republican government. On the contrary, by freeing politicians from the necessity to adapt every statement to the needs of potential donors, expenditure limits allow politicians to debate more openly the good of the country or the desires of the marginal voter.

It is a matter of legislative judgment whether a political debate is more likely to be effectively held (1) under procedural campaign finance rules that ensure fair opportunities for all participants in a manner analogous to Robert’s Rules of Order; (2) in a free-for-all governed primarily by property rules created for different contexts and the particular distribution of wealth and access to private means of publicity they create; or (3) by some other set of rules altogether. The First Amendment mandates government neutrality as to content and a governmental commitment to open debate, but not any particular form or style of debate. Thomas v. Chicago Park District (2002) (upholding “time, place and manner” restrictions).

Many reformers believe that, ideally, a democratic society committed to equal citizenship and active political debate would provide open fora in which debate could take place-for example, by federal mandate that licensees of the public airwaves provide broadcast time to candidates without charge. Others prefer to have candidates purchase broadcast access on the same terms as commercial advertisers, with or without state funding and with varying degrees of control over private funding. Still others, undoubtedly, believe preserving the power of the market is the most important value to be vindicated in setting campaign finance rules.

These debates, however, belong in our legislative branches because they are debates about how most effectively to govern, not about the meaning of the Constitution. The details of campaign finance reform require legislative judgments which should be left to legislatures except in extreme circumstances. The primary role for the Court is not to police restrictions on monetary expenditures under the guise that they are “speech.” Instead, it should act to bar extreme legislative schemes that might violate the basic democratic values of Baker v. Carr (1962), and Reynolds v. Sims (1964), such as when a legislative scheme racially discriminates, or is designed to favor certain parties or incumbents to such an extent as to “unconstitutionally deny [a group] its chance to effectively influence the political process.” Davis v. Bandemer (1986); cf., Mobile v. Bolden (1980) (upholding multi-member districting scheme even against claim that at-large voting without proportional representation discriminates against minorities).

A. Unlimited campaign expenditures violate Fourteenth Amendment principles of political equality

Buckley conflicts with equality principles as well as democratic republican ones. The First Amendment applies to the State of Vermont only by virtue of the Fourteenth Amendment ‘s promise of “due process” and “equal protection of the laws” to every citizen. Yet Buckley perpetuated precisely the opposite of political equality: an unfair, racially biased system in which political equality is subordinated to the dramatic inequality of wealth in America .

The distribution of wealth in America is increasingly skewed. Moreover, the small minority controlling the bulk of our wealth does not reflect the racial and ethnic diversity of our country. Id. Any policy which, like Buckley, protects and increases the privileges of wealth also, necessarily, slows the process of setting historic discrimination behind us.

Under the peculiar regime of Buckley, wealthy individuals and institutions (whether or not citizens) have a constitutionally-protected interest in using their wealth to distort the equality principle in American elections. This is backwards. The Fourteenth Amendment’s promise of political equality ought, instead, to mean states have the authority to restrain the rights of wealth to purchase ever-expanding power.

Although the Fourteenth Amendment bars our state governments from creating classes of citizens, Buckley requires states to provide extraordinary justification for measures designed to level the political playing field and provide equal access to the electoral machinery to all citizens. Rather than promoting equal protection of the laws, Buckleyfurther privileged the already privileged.

B. Unrestrained campaign spending may tend to entrench incumbents, contrary to the First Amendment goal of encouraging self-governemnt

The self-determination goal of the First Amendment is meant to protect our ability to control incumbent legislatures. Buckley, however, fostered an incumbent protection regime by limiting the extent to which legislatures can regulate political money.

Vermont could reasonably conclude that incumbents can raise money more easily than challengers because incumbents have more influence to sell to economically-driven donors who see contributions as profit-maximizing purchases of access to the regulatory regime.

1. Advertising displaces political discourse

Campaign expenditures buy advertising. Given the vast sums politicians and business corporations spend on advertising, a legislature reasonably could conclude advertising, in turn, affects campaign results independent of the underlying merits of the candidates. To be sure, Americans are not vending machines, responding mechanically when a coin is inserted. More spending does not guarantee election any more than it guarantees successful product launches. But American ingenuity has long relied on advertising to create positive images that may have little to do with underlying reality, to influence news coverage and to use people’s semi-conscious desires to manipulate their behavior. This is a fine way to sell products, but a legislature is entitled to conclude that citizens determining the future of their country should debate in a context free of excessive manipulation.

When money buys advertising, and advertising replaces actual political debate, First Amendment values suffer. Democracy is endangered when the techniques of Madison Avenue replace those of reasoned or impassioned debate. Advertising can overwhelm intelligent debate if even non-purchased debate begins to look like a Madison Avenue production, or the media cover political elections as if they were referenda on the quality of the advertisements rather than candidate positions.

Political discourse does not exist in a vacuum. Rather, it is a continuing dialogue among citizens attempting to find a way to live together-expressing their common values and compromising or tolerating their differences. The influence of wealth and advertising distorts this process and makes it less likely to achieve a result that all citizens can live with.

2. Money can buy the appearance of credibility and thereby credibility itself

Significantly, this artificial, purchased, multiplication and dissemination of advertising is likely to create an aura of credibility that the candidate and the candidate’s ideas may not be able to achieve on their own.

Popularity breeds popularity for rationally explicable and sound reasons. People frequently rely on other’s judgments as a preliminary filter of what merits attention and a check on or confirmation of their own judgments. Widely distributed ideas, popular artists and successful celebrities have been seen and judged worthwhile by many independent viewers, editors or consumers, making it more probable that they are worth our attention. If we agree with the general view, other people’s positive judgments confirm that our own were not mere lapses, while if we disagree, ordinary humility suggests that if many people have come to the contrary conclusion, perhaps we need to reconsider.

Advertising can distort this rational process by allowing a candidate with access to wealth to mimic success in this filtering contest without actually having to succeed. Money can buy the appearance of the level of support that makes a candidacy serious. It can buy the repetition that can make a specious charge or an extreme argument seem plausible and ordinary. With enough funds, a candidate can buy a “bandwagon” that less-involved voters will see as worth joining simply because it exists.

3. Candidate expenditure does not reflect preexisting support

Buckley appears to have assumed that fundraising is a proxy for popularity, depth of commitment among supporters or soundness of ideas. Were this assumption correct, advertising would be less likely to be a distortion of the electoral system and therefore less troubling: rather than substituting wealth for talent or experience, it would simply amplify existing difference in support.

Unfortunately, the assumption that spending reflects support is deeply implausible. Given our highly unequal wealth distribution, a modest contribution from an American citizen in the middle of our wealth distribution may indicate a stronger level of support than a far larger contribution from a wealthy person. The median net worth for the roughly 42 million households in the bottom 40% of Americans is $5000 including home equity. Some 338,000 households, in contrast, had net worth exceeding $10 million. Several candidates in recent years have had even greater individual wealth. With this degree of disparity, Jesus’ teaching about the widow’s mite is truer than ever: small contributions from ordinary people often may reflect more support than large ones from the wealthy. Reflecting this gap between support and ability to give, fewer than one-tenth of one percent of the voting age population gave $1000 or more to any congressional candidate in 2002. Yet funds from that tiny sliver of the public comprised the majority of all individual candidate contributions to those candidates.

4 . Business donors are purchasing services, not speaking

Many of the largest campaign contributions in our system are not statements of political positions at all. Rather, they are economically motivated investments-often from business corporations, their political action committees, or their employees-to advance the economic interests of their institutions. Investing in political decision-makers often is a highly effective way of increasing private profit: small changes in regulations, taxation or allocations can mean windfalls to particular companies or their competitors.

When donors are profit-maximizers or fiduciaries required by corporate law to set aside their political views of the good of the nation, contributions and related expenditures will flow in support of three types of politicians.

First, the rare, actively corrupt politicians who sell their influence. This Court has repeatedly recognized that the people have a compelling interest in barring this type ofquid pro quo contribution. E.g., First National Bank of Boston v. Bellotti (1978). But quid pro quo contributions already are illegal and, presumably, most candidates have enough sense to avoid them.

The second option for profit-maximizing political investors is to fund politicians whose views generally favor the narrow economic interests of the donor. But most of the time, economic concerns of lobbyists are unlikely to be sufficiently salient to the general public (or candidates) to allow this type of maneuvering. The National Rifle Association or MoveOn.org can seek to fund candidates based on issues of concern to those groups, but most businesses cannot. Few candidates are likely to run on a platform openly favoring crony capitalism, pork barrel spending, corporate subsidies, or supporting an end to the environmental, securities, tort or civil rights laws that protect citizens’ rights and direct the pursuit of private profit towards the public good. Moreover, some business managers are less likely to see their duty as promoting handouts to business in general than in finding the particular tax break, regulatory change or pork barrel project that will help the balance sheet of their particular firm. For that project, the candidate’s general views are of little help.

This leaves a third, and quite disturbing, possibility. Businesses seeking to purchase political favors may fund candidates in the hope that implicitly–if not explicitly and illegally–the candidate will feel some obligation of reciprocity. Decent people, after all, typically return courtesies with courtesies and favors with favors without keeping exact track or using quid pro quo calculations. This is what is known in the industry as “buying access.”

For a corporate executive, funding candidates who may be more sympathetic to the type of handouts or regulation that management believes will improve the firm’s profits may well be good business, but it is not political participation that warrants First Amendment protection. The same is true of campaign contributions made to “buy access” in order to allow a firm to lobby for legislative or regulatory details that will be invisible to the general debate.

The proper scope of regulation is a political issue that should be resolved by citizens and their representatives in response to political debate and voting power-not put up for auction to the highest bidder by politicians who view donors rather than voters as their key constituency. The businesses that are subjects of this debate ought not to control it-particularly when they, as in the case of our publicly traded corporations, are legally structured so as to bar them from considering the welfare of the system as a whole. Cronyism that is profitable for particular businesses in the short run may be destructive to our market system as a whole in the long run.

5. Expensive campaigns entrench incumbents, making them more able to raise the funds necessary to continue their entrenchment

Investor-donors interested in buying access or influence rationally will direct most of their money to incumbents, and especially to those incumbents able to influence economically-important legislation. Incumbents have more to sell.

The more expensive campaigning becomes, the more important this incumbent fundraising advantage becomes. In a self-reinforcing system, the greater the incumbent’s advantage, the more likely the incumbent is to be re-elected and, consequently, the greater the influence the incumbent has to sell. In short, money attracts money and thus further distorts the system.

Buckley and its progeny have recognized the public’s interest in eliminating both the actual purchase of political influence (corruption) and its appearance. But Buckley ‘s understanding of corruption is too limited. The First Amendment ‘s guarantee of freedom of speech does not bar a state legislature from concluding that the detrimental effects of influence peddling extend well beyond quid pro quo corruption. Donors seeking to purchase political influence find legal ways of doing so; politicians seeking election or reelection fear the consequences of being outspent by a competitor; and as campaign expenditures spiral ever upward, politicians and donors alike find more creative ways to buy and sell access that should not be for sale.

First Amendment jurisprudence is based on the premise that unlimited speech promotes democratic government, by allowing criticism of incumbents and promoting discussion of alternative ideas. Unlimited campaign expenditures have the opposite effect: Incumbents are more able to raise large campaign chests because they are more likely to have the access and influence that most donors seek to purchase.

The need to attract wealthy donors reduces the ability of candidates to take positions in the public interest instead of their donors’ and thus reduces the range and quality of candidate positions. Even when multiple viable candidates are able to raise the funds necessary to contend in our increasingly expensive campaigns, to raise the necessary funds they must share a fundamental commitment to appeasing donor interests. A state legislature is entitled to conclude that low voter turnout both reflects popular dissatisfaction with the status quo and is a problem that could be remedied by limiting the influence of wealth on campaigns.

Judge Winter’s dissent below fails to recognize that, when selling access is the game, incumbents have an enormous advantage. The First Amendment’s guarantee of free speech offers insufficient guidance to allow courts to displace legislative judgment as to the relative harm of “sale of access” or limits on buying name recognition through advertising. Nor would any free speech value be promoted by inventing a new constitutional right to purchase name recognition. When purchases, rather than speech, are the issue, Buckley ‘s metaphors of First Amendment abstention become Lochner ‘s unjustifiable enforcement of unfettered laissez-faire in the name of the Constitution.

Conclusion

Speech is not money. Buckley was wrong to impose a rigid First Amendment -based analysis on the complex problems of campaign finance reform. After thirty years, it is clear that Buckley followed the mistaken path of Lochner, imposing an artificial classification on the world without any basis in Constitutional text or values. For us to remain free, the “free market of ideas” must maintain its independence from the “economic market”. The First Amendment, which applies to the states only by virtue of the Fourteenth Amendment’s egalitarian commitment to equal protection and due process for all citizens, should not be distorted from a protector of democracy into the enforcer of a new plutocracy’s grip on the political process.

This case involves less the First Amendment than the right of a state to attempt to further democracy and good government via economic regulation. Lochner’s failure taught us that economic markets can be free if surrounded by politically-controversial legislation; campaign spending reform is precisely that kind of freedom-enhancing economic regulation. It should be analyzed under the fundamental Federalist principle that states create the rights of property and their limits; under the Equal Protection principle that all citizens, whether rich or poor are entitled to have their vote given equal weight, and under the Republican Form of Government clause, U.S. Constitution, Art. IV, § 4 , committing this nation to a government of the people, by the people and for the people-not of wealth, by wealth and for wealth.

In the absence of statutes like Vermont ‘s Act 64, politicians must be inordinately concerned with the views of funders rather than voters. Moreover, successful fundraisers often avoid the spirit if not the letter of campaign finance regulations, leading to a general aura of sleaze. One consequence is that the Buckley framework gives independently wealthy politicians a double-edged advantage: they can outspend their opponents while maintaining the independence that used to mark statesmen when campaigns were cheaper. Unlimited campaign spending, far from preserving First Amendment values, corrupts our electoral process.

The Court should take this opportunity to disavow Buckley and uphold Vermont Act 64 under its ordinary voting rights jurisprudence.

Respectfully submitted,
Professor Daniel J.H. Greenwood

Also featured on our site by Daniel Greenwood: “Essential Speech: Why Corporate Speech is Not Free,” located in our library of resources on revoking corporate power over ballot initiatives and referenda.

Endnotes

Letters of consent have been filed with the Clerk of the Court. No counsel for any party authored this brief in whole or in part, and no person or entity, other than the amici curiaeand their members or their counsel, made a monetary contribution to the preparation or submission of this brief.

“Regulatory legislation affecting ordinary commercial transactions is not to be pronounced unconstitutional unless . it is of such a character as to preclude the assumption that it rests upon some rational basis . .” Id.

Cf. Exodus 23:6 , Deuteronomy 1:17, 16:9 .

See, e.g., New York Times Co. v. Sullivan , 376 U.S. 254 (1964) ; New York Times Co. v. United States , 403 U.S. 713 (1971) ; Brandenburg v. Ohio , 395 U.S. 444 (1969);Youngstown Sheet & Tube Co. v. Sawyer , 343 U.S. 579 (1952) ; Abrams v. United States,250 U.S. 616, 630 (1919) (Holmes, J., dissenting). As the Court said in Virginia v. Black , 538 U.S. 343 (2003) : “If there is a bedrock principle underlying the First Amendment , it is that the government may not prohibit the expression of an idea simply because society finds the idea itself offensive or disagreeable.” Thus, the First Amendment “ordinarily” denies a State “the power to prohibit dissemination of social, economic and political doctrine which a vast majority of its citizens believes to be false and fraught with evil consequence.” Whitney v. California , 274 U.S. 357, 374, (1927) (Brandeis, J., concurring) (some internal citations omitted).

4 J. Elliot’s Debates on the Federal Constitution 541 (1876), quoted in Columbia Broadcasting System, Inc. v. Democratic Nat. Committee , 412 U.S. 94, 157 (1973) (Douglas, J concurring).

Edward N. Wolff, Working Paper No. 407: Changes in Household Wealth in the 1980s and 1990s in the U.S. (2004) at 7 and Table 2. Financial wealth excludes owner-occupied housing and pension wealth and is therefore a reasonable proxy for wealth available for political purposes. Id. at 4. Income is less unequally distributed than wealth, but even so, the top 1% of families control about 20% of all income. Id. at 8.

See, e.g., Edward N. Wolff, Top Heavy: The Increasing Inequality of Wealth in America (1996).

The importance of money in politics is increasing at a startling rate. Between 2000 and 2004, total spending in Congressional races increased by one-third. Gary Kalman & Adam Lioz , U.S. PIRG Education Fund, Raising the Limits 2006 (Feb. 2006) at p. 23 .

See, e.g., Amos Tversky & Dan iel Kahneman, Judgment Under Uncertainty: Heuristics and Biases , in Judgment Under Uncertainty: Heuristics and Biases 11 ( Dan iel Kahneman et al. eds., 1982) (describing availability heuristic).

Figures from Wolff (2004) , supra n. 5, at table 2. Wolff’s numbers are for 2001, using 1995 dollars. Wealth calculations are difficult and other methods generate somewhat different results. However, the details are not important; all observers agree that the American economy generates extraordinary wealth and distributes it extraordinarily unequally.

Mark 12:43 -44 , Luke 21:3-4 . Modern economists refer to Jesus’s insight as the “diminishing marginal utility of money”: a dollar is worth far more to those who depend on it for basic necessities than for those who have more than they could ever spend.

In state races in the 2004 cycle, incumbents raised 58% of the total funds. Institute on Money in State Politics, State Elections Overview 2004 (Dec 2005), p. 2, available at http://www.followthemoney.org/ . The incumbents’ advantage in Federal House and Senate raises was even more extreme: incumbents outspent challengers by 4.6 to 1 in 2004. Kalman & Lioz , supra n. 8, at p. 23.

The Story of Wal-Mart and Chilean Salmon

February 1, 2006 by staff

By Charles Fishman
First published by Salon.com, January 23, 2006

The glass seafood display case in Wal-Mart Supercenter #2641 near Allentown, Pennsylvania, is small, but it is a mouthwatering testament to the power of global sourcing. From Thailand — sea scallops and three kinds of shrimp. From Namibia — orange roughy. From the United States — swordfish steaks and fresh shrimp. From China — squid, scallops, tilapia, and crawfish. From Russia — Alaskan king crab. From the Faeroe Islands — cod. (The Faeroe Islands are an archipelago in the North Atlantic, halfway between Iceland and Norway, population forty-seven thousand — no Wal-Mart, but some Wal-Mart effect.)

Every item for sale is meticulously labeled — kind of fish and country of origin — but also whether the seafood is farm raised or wild caught, and whether it has been previously frozen. The signs themselves conjure exotic images. The squid are a “wild-caught product of China.” Wild, indeed.

Right down front in the display case, with fillets thick and long enough that they run from the front of the case all the way to the back, is a platter of Atlantic salmon. Each fillet, the flank of big fish, is gleaming and vivid pink-orange. The salmon is a “farm-raised product of Chile,” according to the sign, and it’s fresh. It managed to get from southern Chile to a small town seventy miles outside Philadelphia — more than five thousand miles — without even being frozen. The salmon fillets are priced at $4.84 a pound. Almost any American over thirty is old enough to remember a time when you could hardly buy a quarter of a pound of salmon for $5.00. Any American over forty can recall an era when salmon was a delicacy. A half pound of smoked salmon, the kind you’d put on a bagel, might have cost $16.00 or $20.00. But there it is, in the Wal-Mart display case — pink, oily, and alluring — salmon fillets for $4.84 a pound. That’s not a special; it’s the everyday low price, and available in most supercenters from one end of the country to the other. It’s a couple of dollars a pound cheaper than farm-raised salmon at a typical supermarket. It’s less than half the price of the farm-raised salmon sold by Whole Foods.

Salmon for $4.84 a pound is a grocery-store showstopper. If prices contain information, if prices are not just a way of judging whether something is expensive or affordable but contain all kinds of other signals about supply, demand, prestige, and even the conditions under which products are made (bad freeze in Florida, expensive orange juice; hurricane on the Gulf Coast, expensive gasoline), then salmon for $4.84 a pound is a new, unintended Wal-Mart effect. It is a price so low that it inspires not happiness but wariness. If you were so inclined, you couldn’t mail a pound of salmon back to Chile for $4.84. It’s a price so low, it doesn’t seem to make sense if you think about it for even a moment. Salmon at $4.84 a pound is a deal that looks a lot like a gallon jar of Vlasic dill pickles for $2.97 — it’s a deal too good to be true, if not for us as the customers, then for someone, somewhere. What exactly did Wal-Mart have to do to get salmon so cheaply?

The Atlantic salmon fillet in grocery display cases and on restaurant menus is, as one expert in the business says, “a factory product” — hatched from eggs, raised to adolescence in freshwater hatcheries, grown to maturity over two years in open-topped ocean cages of thousands of fish suspended in cold coastal waters. And most of the farm-raised salmon we eat comes from Chile — 65 percent of the farmed salmon sold in the United States is imported from Chile; most of the rest comes from Canada. As bemusing as it is to see how salmon has found a place on American menus and plates as a kind of affordable luxury, salmon really has conquered the economy of southern Chile. The area around Puerto Montt, six hundred miles south of Santiago, now has eight hundred salmon farms, and the salmon business provides nearly one in ten of the area’s jobs. In 2005, Chile expected to export $1.5 billion worth of fresh-packed salmon, with 40 percent of it coming to the United States. Salmon is the second largest export in Chile now, behind copper, ahead of fruit.

“Five years ago,” says Rodrigo Pizarro, “salmon wasn’t on the list of exports. Chile didn’t have any salmon twelve years ago.” Pizarro is an economist who heads Terram, a Chilean foundation dedicated to promoting sustainable development in Chile. Understanding the impact of salmon farming is one of Pizarro’s most urgent projects. When he says that twelve years ago Chile didn’t have any salmon, he’s not exaggerating for effect. He means it literally.

Not only is the Atlantic salmon not native to Chile — the Chilean coastline, of course, runs along the Pacific — but as Pizarro puts it, “Atlantic salmon is an exotic species in the whole Southern Hemisphere.” The Atlantic salmon doesn’t appear naturally anywhere south of the equator. Farming salmon in Chile is a bit like farming penguins in the Rocky Mountains. Now, however, not only are there far more Atlantic salmon in Chile than people, there are ten times as many, maybe even one hundred times as many. More salmon are harvested in Chile now than anywhere else in the world, including Norway. Even as the price has drifted down, the value of Chile’s salmon exports has risen nearly 70 percent in five years. Chile wants to increase the amount of salmon it exports by 50 percent again by 2010.

In just a decade, salmon farming has transformed the economy and the daily life of southern Chile, ushering in an industrial revolution that has turned thousands of Chileans from subsistence farmers and fishermen into hourly paid salmon processing-plant workers. Salmon farming is starting to transform the ecology and environment of southern Chile too, with tens of millions of salmon living in vast ocean corrals, their excess food and feces settling to the ocean floor beneath the pens, and dozens of salmon processing plants dumping untreated salmon entrails directly into the ocean.

Pizarro is thoughtful, direct, and passionate about his country without being excitable. “Anyone who is working in a salmon plant, it’s very much a factory-type system,” he says. “It’s an industrial-type system. If you were to see the factory, it’s just like Charlie Chaplin’s movie “Modern Times.” The plants are very clean, very modern, with proper apparel and gloves. The issue is not the health conditions of the fish. It’s the labor conditions of the workers” — long hours, a demanding pace using razor-sharp filleting implements, low pay. As for the farms themselves, he says, “All the information we have indicates that the environmental impact is considerable.”

Wal-Mart is not just another customer of farm-raised Chilean salmon. Wal-Mart is either the number-one or number two seller of salmon in the United States (the other top seller is Costco), and Wal-Mart buys all its salmon from Chile. Wal-Mart, in fact, may well buy one third of the annual harvest of salmon that Chile sells to the United States. That kind of focused purchasing in an arena of surging production is one part of how Wal-Mart delivers salmon for $4.84 a pound to supercenters around America. Chilean salmon needs markets; Wal-Mart has 1,906 supercenters. That kind of focused purchasing also gives Wal-Mart and its customers a unique window on the impact all that salmon raising, salmon buying, and salmon selling is having far away from Bentonville, in southern Chile. Does it matter that salmon for $4.84 a pound leaves a layer of toxic sludge on the ocean bottoms of the Pacific fjords of southern Chile?

Wal-Mart’s ability to reach in and remake the operations of its suppliers is unchallenged. And Wal-Mart’s single-minded focus on using that power to reduce price has sent waves of change across the U.S. economy and around the globe. But what if Wal-Mart imposed conditions on its suppliers that went beyond cost, efficiency, and on-time delivery? What would the ripples from that look like?

Rodrigo Pizarro has a calm appreciation for both the impact of the salmon industry in Chile and the opportunity. He also has a sophisticated appreciation for American business and consumer culture. “I know what kind of story Wal-Mart has,” he says. “I am not naive about Wal-Mart.” Pizarro’s undergraduate degree is from the London School of Economics, his Ph.D. is from the University of North Carolina at Chapel Hill. How does he think Americans should think about that salmon in the seafood display case at Wal-Mart, selling for $4.84 a pound?

“I remember when I was in the United States, you had a debate about Kathie Lee Gifford promoting clothes which were produced in an offshore factory with awful labor,” says Pizarro. In 1996, at a congressional hearing, a well-known labor rights activist revealed that the workers in a Honduran factory making a line of clothes under the TV personality’s name were children. The Kathie Lee Gifford line was sold exclusively at Wal-Mart. By the time the use of child labor became public, Wal-Mart had stopped using the factory. But the ensuing scandal took Gifford and Wal-Mart by surprise, and the publicity was scorching. Forbidding child labor is one of the absolutes of the global economy. But the larger issue of the overseas factory conditions where products sold in the United States are made is still being navigated gingerly by multinationals. They don’t necessarily want to assume the responsibility, and the cost, for monitoring everything that goes on in workplaces in countries that have their own laws, cultures, and enforcement mechanisms; they also don’t want to have to explain dramatic, unsettling revelations about how the familiar products they sell manage to have such low prices.

Pizarro is thinking not of child labor in particular, but of the widespread public outrage when American shoppers connected clothing they were familiar with a well-known personality, and sweatshop factory conditions.

Says Pizarro, “Increasingly, the American consumer is aware of these types of working conditions, and the salmon is the same as the clothes. The only difference is, what is being produced by these workers is something the American consumer is feeding to his children.”

If you look at the growth of three things between 1990 and 2005, the graphs are near perfect shadows of one another: farmed-salmon production in the world, farmed-salmon production in Chile, and Wal-Mart’s grocery business. They all start low on the scale, and go almost vertical after a few years. Wal-Mart did not create the farmed-salmon business; Wal-Mart did not plant the salmon farms in southern Chile. But the dramatic growth of domesticated salmon drove down prices for salmon and fed Wal-Mart’s ability to deliver salmon to the fish counter; and the dramatic growth of Wal-Mart’s grocery business created a huge opportunity, and a huge appetite, for salmon that has fed the salmon-farming industry.

The total world salmon harvest in 1985 was fifty thousand metric tons. It doubled in two years. By 1990, it was three hundred thousand metric tons. As the 1990s dawned, the Canadians and the Chileans started aggressively farming salmon, and the price started to drop dramatically as the worldwide supply surged.

Salmon farming in Chile was spurred by a business incubator called Fundación Chile, according to Rodrigo Pizarro. “A lot of young businessmen, in the late 1980s and early 1990s, men who were the sons of families with historical business ties, found out about salmon and went to the south to find out what was happening,” says Pizarro. “They went to a sort of frontier area — and they stayed in those places and built this industry. It took five or ten years.” Among other things, Chile’s rugged coastline is much like Norway’s, dotted with inlets and fjords that provide the kind of protection that pens of farmed fish in the ocean need.

James Anderson, an aquaculture expert at the University of Rhode Island, has visited the salmon farms of Chile as part of his academic work. “They had no history of aquaculture in Chile,” he says. “None at all. But there is a real entrepreneurial spirit in Chile. And they had cheap labor, and a cheap environment.” Salmon farming flourished.

Now, says Anderson, you can get salmon from farms in Chile up to the United States faster than you can get it down from Alaska. “In Chile,” he says, “they harvest the fish early, early in the morning, when it’s still dark. They get it to the processing plants near the farms right in the morning. Then it’s on a truck or a plane to Santiago, and then on a plane to Miami. There’s fish killed in southern Chile that is in Miami or New York in under forty-eight hours.”

In 1985, the total world farmed-salmon harvest for the year was fifty thousand metric tons. Twenty years later, in 2005, Chile sent ten thousand metric tons, just to the United States, just in January.

Salmon farming on a commercial scale is really only twenty years old, and on a mass scale, it’s more like ten years old. Aquaculture is an industry growing much more quickly than its impact can be measured, understood, and managed.

“Have you ever seen a hog farm?” asks Gerry Leape, vice president of marine conservation for the National Environmental Trust, a Washington-based environmental nonprofit group. “These fish are the hogs of the sea. They live in the same sort of conditions, it’s just in water. They pack them really closely together, they use a lot of prophylactic antibiotics, not to treat disease, but to prevent it. There’s lots of concentrated fish waste, it creates dead zones in the ocean around the pens.”

Jennifer Lash is executive director of the Living Oceans Society, a marine conservation group in British Columbia, which is one of two centers of salmon farming in Canada. “Salmon are generally raised in open-net pens,” she says. “There is a metal cage on the surface, with nets hanging down to a netted bottom.

“The density of fish depends on the nation, but they grow tens of thousands of fish per net, 1 million or 1.5 million per farm. Then they all go poo. There is a huge amount of waste going into the ocean. People say, oh, that’s natural, all fish go poo in the ocean. But not in that kind of concentration. It just smothers the seabed.” One million salmon produce the same sewage, says Leape, as sixty-five thousand people.

The ocean pens suffer from another source of pollution — excess feed. Any food that isn’t consumed settles to the ocean floor, adding to the layer of feces. The waste itself contains residues of antibiotics and other chemicals used to keep the fish healthy during the two years it takes them to grow to harvestable size.

All those problems are manageable; it’s just that managing them costs money, and if there is no reason to spend that money, no incentive, then no one does.

In southern Chile, says Pizarro, the impact on the daily lives of the local people comes not so much from the pens of fish as from the processing plants built to prepare them for export. “What salmon farming has done is move the people from subsistence agriculture to factory work,” says Pizarro. “Salmon farming for the people is about the processing plants, it’s not about the farms.”

The plants themselves are modern and hygienic, in part because American companies fear nothing so much as importing tainted food that sickens their customers. Despite the cleanliness, the processing plants suffer by most accounts from the kinds of sweatshop issues more commonly associated with garment factories in developing nations.

“The hours worked are not respected,” says Pizarro. “There are a lot of women working in the processing plants. There are a series of issues in terms of sexual harassment, in terms of hours worked standing up. They are not allowed to go to the bathroom. And there are antiunion practices.”

Pizarro is quite careful in discussing the labor issues. “Much of this is denied by the companies,” he says. “But currently, the labor standards are very weak, and they are very difficult to enforce. These plants are very far away from Santiago.”

Part of the reason Wal-Mart can sell a salmon fillet for $4.84 is that, as Leape puts it, “they don’t internalize all the costs.” Pollution ultimately costs money — to clean up, to prevent, to recover from. But right now those costs aren’t in the price of a pound of Chilean salmon. Salmon-processing facilities that are run with as much respect for the people as the hygiene of the fish also cost money — for reasonable wages, for proper equipment, for enough workers to permit breaks and days off. Right now those costs aren’t in the price of a pound of Chilean salmon either.

Groups like Pizarro’s and Leape’s, concerned about salmon’s impact in Chile and elsewhere, agree on two things. The salmon industry isn’t going away — Chile has declared that it intends to increase production another 50 percent by 2010. And the key to managing the impact of salmon farming, to making the business sustainable for both Chileans and their environment in the long term, isn’t self-regulation or government regulation. It’s the customers, the big corporations who buy salmon by the ton. Even the corporations realize that.

“When the guys with the checkbooks talk,” says Bill Herzig, “the producers listen.” Herzig knows because he is one of the guys with the big checkbooks. He’s senior vice president of purchasing for Darden Restaurants — Red Lobster, Olive Garden — for all proteins, including seafood. “We own thirteen hundred restaurants,” says Herzig. “We have to have something to feed those customers, not just this year, but five years and ten years from now. We won’t put something on our menu if we don’t believe the supply is sustainable.”

That’s why someone like Rodrigo Pizarro thinks a company like Wal-Mart could have such a rapid and positive effect on improving conditions in the salmon industry in Chile. Wal-Mart buys so much salmon that if it imposed and enforced a set of standards on how salmon was to be raised, and how salmon workers were to be treated, salmon farming and processing companies would need to comply, either to keep Wal-Mart’s business or to stay competitive. And because the volume of purchasing is so high, and because Chile is driving to further expand the supply of farmed salmon, the improved conditions for both the salmon and the people would not cause much of an increase in the price of a pound of salmon in the seafood case.

“It wouldn’t be considerably more,” says Pizarro, who is working on just such a set of standards, backed by research, that he plans to present to Wal-Mart and other companies in early 2006. “The increase in cost is not something to pick a bone about. It would be 10 or 20 or 30 percent, a minor cost when you are making a long-term investment.”

The result could be a completely new kind of Wal-Mart effect — Wal-Mart using its enormous purchasing power not just to raise the standard of living for its customers, but also for its suppliers.

In July 2005, four Wal-Mart staff members traveled quietly to Chile to look at conditions in the salmon industry. It wasn’t a Wal-Mart trip; the Wal-Mart staff members were part of a larger group of twenty buyers, industry representatives, environmentalists, and others who spent four days talking to Chileans, looking at salmon farms, and touring processing plants.

Gerry Leape of the National Environmental Trust had two staff members on the trip, along with representatives from several marine conservation groups in British Columbia, where regulation of salmon farming and salmon processing is further along than it is in Chile. Rodrigo Pizarro met the group in Chile.

Part of the goal of the trip was to start developing a consensus on what needs to be done to make salmon farming sustainable in Chile, across a wide group of constituencies. The Wal-Mart staff members were in the group for a couple reasons, according to Leape, Pizarro, and others: to learn the dimensions of both the industry and the problems, and to hear for themselves what Chileans have to say.

Wal-Mart, according to Leape, realizes that issues around salmon farming in Chile are a potential flashpoint for it, a vulnerability, a food version of the Kathie Lee Gifford problem. Indeed, for most of 2005, Wal-Mart was in quiet but consistent conversations with several environmental groups to try to understand what kind of standards, and what kind of enforcement, would solve the salmon-sourcing problem. The conversations are a delicate dance, especially in a year when in the United States, the Sierra Club and two major unions joined forces to create an organization to publicly challenge Wal-Mart across a broad front of its practices.

The environmental groups in conversations with Wal-Mart want to bring along the big company toward a view that it can, that it must, use its power to solve some of the environmental and labor problems that the industries it relies on create. They think Wal-Mart could ultimately do for corporate environmental stewardship what it has done for corporate productivity and efficiency. Wal-Mart wants to be seen as taking criticism seriously, and it wants to be seen as a responsible citizen. But the environmental groups don’t want to be duped, or co-opted, by a Wal-Mart campaign that turns out to be more public relations than substance. And Wal-Mart does not really know that much about taking “externalities” into consideration in managing where its products are coming from and how they are made. If salmon poo needs to be cleaned up and properly disposed of, well, that’s not a way of making salmon cheaper — it’s potentially a way of making salmon more expensive. And Wal-Mart must surely be worried that once you open the door to considerations other than what’s required by law, to considerations other than what’s required to improve efficiency and decrease cost — well, where will the demands end? What won’t people ask of Wal-Mart?

Indeed, it is possible to argue that it’s not Wal-Mart’s job to worry about salmon farms in Chile. Protecting the waters of Chile, and the workers of Chile, is the responsibility of the government of Chile. Wal-Mart’s job is to obey the law, and to deliver low prices.

Editor’s note: We like to make clear that we agree with this assessment and reject the approach of asking Wal-Mart to voluntarily exercise “responsibility.”. To hope directors of a publicly-traded corporation will choose not to maximize profit and instead “do the right thing” is a foolish expectation that reveals ignorance of how corporations are designed to function. It is indeed the repsonsibility of the citizens of Chile and any country concerned about the impacts of this activity to dictate to Wal-Mart exactly what it may and may not do and make the privilege of producing or selling salmon in their country contingent on obeying those demands.

That, in fact, is pretty much how things have looked from Bentonville for forty years. But the global economy is turning out to be much more complicated.

In Chile, according to four people who were with the group, the Wal-Mart staffers were reserved, polite, and kept their own counsel. They listened, but revealed little.

At one meeting, Rodrigo Pizarro got to speak directly with the Wal-Mart representatives. “I was very insistent to them about the social conditions of the workers,” says Pizarro. “My impression is, they were very impressed by the sanitation conditions of the processing plants they were taken to. But they were surprised by the claims of the labor issues. On the other hand, they were very polite and willing to understand the issues.”

The Wal-Mart representatives got a potent illustration of the importance of the labor problems. The meeting was interrupted by labor unions coming into the building and holding a rally inside to protest the working conditions at the salmon-processing facilities. Pizarro says the concerns of the workers cannot be lightly brushed over.

“What I told the Wal-Mart representatives,” Pizarro says, “is that I am convinced if the labor conditions are the way they are, it wouldn’t be surprising to me if an American consumer found a nail or a knife in their fillets. Once Wal-Mart realizes that the same workers who are producing the food product may sabotage it, then surely, for their own self-interest, they will have an interest in seeing labor conditions improved.

“When I said that to them,” says Pizarro, “clearly they were more interested.”

Leape, of the National Environmental Trust, is not directly involved in Wal-Mart’s conversations about the salmon standards, but he knows the people who are. “Wal-Mart will adopt standards. The question is how strong they will be,” Leape says flatly. “They dictate terms to their suppliers all the time — how to produce it, what should be in it, what they’ll pay for it. They’ve got a responsibility, if they want a sustainable product.”

Pizarro, too, is optimistic. “We don’t have to impose very high conditions to make a considerable improvement in people’s lives,” he says. “What I would say is, in a global economy, we’re all globally responsible. I think Wal-Mart will make changes. It has to.”

From the outside, the changes look easier to impose than they will be. For Wal-Mart, it’s not simply about adding a few new bullet points to the existing list requiring companies to deliver products on time, on price, packaged the way Wal-Mart requires. Using Wal-Mart’s purchasing power to improve the environmental and working conditions under which those products are produced requires a radical shift in thinking at the home office, a willingness to admit that not every cost squeezed out is good. But forty years of discipline and culture at Wal-Mart, from the buyers in Bentonville out to the pallets lined up in Action Alley of every store, runs counter to the hopes of Rodrigo Pizarro.

Pizarro knows one point of leverage that Wal-Mart never ignores: shoppers. And he thinks if American consumers understand what’s required to deliver salmon at $4.84 a pound, they won’t think the price is worth the cost. “I wouldn’t think American parents would want to feed themselves or their children with something being produced by a worker who is miserable, and who works in terrible conditions,” says Pizarro. “And I don’t think Wal-Mart should tolerate that.”

Excerpted from “The Wal-Mart Effect: How the World’s Most Powerful Company Really Works — and How It’s Transforming the American Economy” by Charles Fishman (Penguin Press, 2006).

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The Root of Sago Mine Disaster: Corporate Crime Pays

January 14, 2006 by staff

By Jeff Milchen
Published January 14, 2006

In the aftermath of the Sago mine disaster, the Bush Administration issued familiar and predictable promises to conduct a full investigation and take “necessary steps to ensure that this never happens again.”

Administration officials could learn a lot about improving mine safety by talking with any miner for just a few minutes. But the most crucial step to prevent tragedies like Sago has little to do with the specifics of mining — it involves changing the cost-benefit analysis made by corporate executives in workplace safety decisions.

Consider the decisions by managers of the Sago mine, which received more than 200 citations last year from the Mine Safety and Health Administration (MSHA), the federal agency charged with enforcing safety compliance. These were not just minor infractions; in the last quarter of 2005, inspectors cited 18 “serious and substantial” violations capable of causing major injuries or deaths. Not surprisingly, Sago’s accident rate tripled the national average and more than a dozen serious roof falls — in which huge slabs of the mine roof simply collapsed — were recorded last year. Many citations were for violating ventilation standards that exist specifically to prevent explosions like that which doomed Sago’s victims.

“This mine [Sago] should have been closed… the record is very clear,” says Jack Spadaro, former director of the National Mine Safety and Health Academy.

Instead, MSHA continued issuing fines and the managers at then-owner Anker Mining Co. simply wrote them off as a cost of doing business on the cheap. It made perfect sense for the corporation’s bottom line; the fines for those 205 violations total about $25,000. This was a pittance to Anker, never mind International Coal Group (ICG), which bought the Sago mine last November. ICG’s most recent quarterly earnings were $158 million, meaning the average fine levied in 2005 — about $150 — equals a few seconds of income. Such “enforcement” has a deterrent effect akin to punishing drunk driving with fines of a few nickels.

Like drunk or reckless drivers, most corporate executives would never break the law deliberately if they knew action X would cause the deaths of persons one through 12. But that’s never the case. The structure of corporations tends to separate decision-making power from accountability for those decisions, and executives are expected to weigh only economic costs against benefits, not the human impact of their decisions.

At Sago, it seems management performed the same calculations their counterparts at Ford, Firestone, and other corporations employed with deadly results. When money saved by ignoring the law far outweighs the cost of minuscule fines and the occasional lawsuit, corporations often will endanger workers, customers or all of us.

The Bush administration reflexively blames “bad apples” rather than addresses a broken system and its own role in perpetuating it, but Rep. Major Owens, D-NY, was on target when he noted last year, “the federal government is itself guilty of gross negligence in efforts to deter corporate manslaughter.”

Rather than solving that problem, Bush and Congress continue to exacerbate it. Since Bush took office, 17 proposed MSHA standards to protect miners’ safety and health were discarded, and the number of mines referred by MSHA to the Justice Department for criminal prosecution has dropped from 38 in 2000 to 12 last year.

Compromising the agency’s mission already driven away dedicated staff. Celeste Monforton, former special assistant at the MSHA for 6 years under the Clinton administration, told me she left a year after Bush took office because she “didn’t want to be a disgruntled employee.” Monforton believed Bush appointees were focused on “trying to be a friend and partner to industry instead of protecting workers.”

Bush appointees also have squelched the flow of information from MSHA, denying or heavily redacting information requests. Ironically, the agency was exceptionally transparent during his father’s presidency, according to Ellen Smith, editor of Mine Health and Safety News.

Preventing the Next Tragedy

When Rep. Owens introduced the Wrongful Death Accountability Act last year, to make corporate manslaughter a felony offense and double the maximum punishment for lying to federal safety inspectors, Republicans quickly killed the bill on a party-line vote.

In sharp contrast, government responded swiftly (if inadequately) when the corporate media and wealthy interests sounded alarms over the financial harm caused by fraud and accounting crimes at Enron. Forcing federal officials to change their political calculations and treat corporate crimes that kill as seriously as those harming investors will require a level of public outcry that dwarfs the response to the Enron and Arthur Andersen scandals.

Perhaps the outrage over Sago will prove the impetus to save the lives of other Americans. It’s not just to protect those toiling in mines. More U.S. workers are killed in workplace accidents in an average day than died in the Sago mine — most of them in equally preventable events.

Though the timing was unpredictable, let’s recognize the Sago tragedy is not rightfully called an “accident.” Corporate executives’ decisions will change when endangering workers’ lives carries the likelihood of painful fines or imprisonment. Only then will crimes like those at Sago, and the subsequent tragedy, cease to be regular events.

An earlier version of this story was first published by TomPaine.com.

Addendum: On Jan. 10, less than one week after the Sago miners were found dead, a roof collapse at a mine owned by Maverick Mining Co. in Pikeville, KY killed employee Cornelius Yates. The mine had been cited five times in two years for failure to protect against roof falls. The average fine was less than $70.

Selected articles of note

The Martin County Coal Mine slurry spill and the Bush cover-up of an environmental disaster (Salon.com)
Even safety inspections themselves were found to violate the law at Sago (Charleston Gazette)
March 2006 news report by The New Standard

More features on Corporate Accountability

Tax Increment Financing: A Bad Bargain for Taxpayers

January 1, 2006 by staff

By Daniel McGraw
First published by Reason Magazine, January, 2006

The decision was made easier by the financing plan that Fort Worth will use to accommodate Cabela’s. The site of the Fort Worth Cabela’s has been designated a tax increment financing (TIF) district, which means taxes on the property will be frozen for 20 to 30 years.If you’re imagining an attraction that will draw 4.5 million out-of-town visitors a year, the first thing that jumps to mind probably isn’t a store that sells guns and fishing rods and those brown jackets President Bush wears to clear brush at his ranch in Crawford, Texas. Yet last year Cabela’s, a Nebraska-based hunting and fishing mega-store chain with annual sales of $1.7 billion, persuaded the politicians of Fort Worth that bringing the chain to an affluent and growing area north of the city was worth $30 million to $40 million in tax breaks. They were told that the store, the centerpiece of a new retail area, would draw more tourists than the Alamo in San Antonio or the annual State Fair of Texas in Dallas, both of which attract 2.5 million visitors a year.

Largely because it promises something for nothing—an economic stimulus in exchange for tax revenue that otherwise would not materialize—this tool is becoming increasingly popular across the country. Originally used to help revive blighted or depressed areas, TIFs now appear in affluent neighborhoods, subsidizing high-end housing developments, big-box retailers, and shopping malls. And since most cities are using TIFs, businesses such as Cabela’s can play them off against each other to boost the handouts they receive simply to operate profit-making enterprises.

A Crummy Way to Treat Taxpaying Citizens
TIFs have been around for more than 50 years, but only recently have they assumed such importance. At a time when local governments’ efforts to foster development, from direct subsidies to the use of eminent domain to seize property for private development, are already out of control, TIFs only add to the problem: Although politicians portray TIFs as a great way to boost the local economy, there are hidden costs they don’t want taxpayers to know about. Cities generally assume they are not really giving anything up because the forgone tax revenue would not have been available in the absence of the development generated by the TIF. That assumption is often wrong.

“There is always this expectation with TIFs that the economic growth is a way to create jobs and grow the economy, but then push the costs across the public spectrum,” says Greg LeRoy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. “But what is missing here is that the cost of developing private business has some public costs. Road and sewers and schools are public costs that come from growth.” Unless spending is cut—and if a TIF really does generate economic growth, spending is likely to rise, as the local population grows—the burden of paying for these services will be shifted to other taxpayers. Adding insult to injury, those taxpayers may include small businesses facing competition from well-connected chains that enjoy TIF-related tax breaks. In effect, a TIF subsidizes big businesses at the expense of less politically influential competitors and ordinary citizens.

“The original concept of TIFs was to help blighted areas come out of the doldrums and get some economic development they wouldn’t [otherwise] have a chance of getting,” says former Fort Worth City Councilman Clyde Picht, who voted against the Cabela’s TIF. “Everyone probably gets a big laugh out of their claim that they will draw more tourists than the Alamo. But what is worse, and not talked about too much, is the shift of taxes being paid from wealthy corporations to small businesses and regular people.

“If you own a mom-and-pop store that sells fishing rods and hunting gear in Fort Worth, you’re still paying all your taxes, and the city is giving tax breaks to Cabela’s that could put you out of business,” Picht explains. “The rest of us pay taxes for normal services like public safety, building inspections, and street maintenance, and those services come out of the general fund. And as the cost of services goes up, and the money from the general fund is given to these businesses through a TIF, the tax burden gets shifted to the regular slobs who don’t have the same political clout. It’s a crummy way to treat your taxpaying, law-abiding citizens.”

Almost every state has a TIF law, and the details vary from jurisdiction to jurisdiction. But most TIFs share the same general characteristics. After a local government has designated a TIF district, property taxes (and sometimes sales taxes) from the area are divided into two streams. The first tax stream is based on the original assessed value of the property before any redevelopment; the city, county, school district, or other taxing body still gets that money. The second stream is the additional tax money generated after development takes place and the property values are higher. Typically that revenue is used to pay off municipal bonds that raise money for infrastructure improvements in the TIF district, for land acquisition through eminent domain, or for direct payments to a private developer for site preparation and construction. The length of time the taxes are diverted to pay for the bonds can be anywhere from seven to 30 years.

Local governments sell the TIF concept to the public by claiming they are using funds that would not have been generated without the TIF district. If the land was valued at $10 million before TIF-associated development and is worth $50 million afterward, the argument goes, the $40 million increase in tax value can be used to retire the bonds. Local governments also like to point out that the TIF district may increase nearby economic activity, which will be taxed at full value.

So, in the case of Cabela’s in Fort Worth, the TIF district was created to build roads and sewers and water systems, to move streams and a lake to make the property habitable, and to help defray construction costs for the company. Cabela’s likes this deal because the money comes upfront, without any interest. Their taxes are frozen, and the bonds are paid off by what would have gone into city coffers. In effect, the city is trading future tax income for a present benefit.

But even if the dedicated tax money from a TIF district suffices to pay off the bonds, that doesn’t mean the arrangement is cost-free. “TIFs are being pushed out there right now based upon the ‘but for’ test,” says Greg LeRoy. “What cities are saying is that no development would take place but for the TIF.…The average public official says this is free money, because it wouldn’t happen otherwise. But when you see how it plays out, the whole premise of TIFs begins to crumble.” Rather than spurring development, LeRoy argues, TIFs “move some economic development from one part of a city to another.”

Development Would Have Occurred Anyway
Local officials usually do not consider how much growth might occur without a TIF. In 2002 the Neighborhood Capital Budget Group (NCBG), a coalition of 200 Chicago organizations that studies local public investment, looked at 36 of the city’s TIF districts and found that property values were rising in all of them during the five years before they were designated as TIFs. The NCBG projected that the city of Chicago would capture $1.6 billion in second-stream property tax revenue—used to pay off the bonds that subsidized private businesses—over the 23-year life spans of these TIF districts. But it also found that $1.3 billion of that revenue would have been raised anyway, assuming the areas continued growing at their pre-TIF rates.

The experience in Chicago is important. The city invested $1.6 billion in TIFs, even though $1.3 billion in economic development would have occurred anyway. So the bottom line is that the city invested $1.6 billion for $300 million in revenue growth.

The upshot is that TIFs are diverting tax money that otherwise would have been used for government services. The NCBG study found, for instance, that the 36 TIF districts would cost Chicago public schools $632 million (based on development that would have occurred anyway) in property tax revenue, because the property tax rates are frozen for schools as well. This doesn’t merely mean that the schools get more money. If the economic growth occurs with TIFs, that attracts people to the area and thereby raises enrollments. In that case, the cost of teaching the new students will be borne by property owners outside the TIF districts.

Such concerns have had little impact so far, in part because almost no one has examined how TIFs succeed or fail over the long term. Local politicians are touting TIFs as a way to promote development, promising no new taxes, and then setting them up without looking at potential side effects. It’s hard to discern exactly how many TIFs operate in this country, since not every state requires their registration. But the number has expanded exponentially, especially over the past decade. Illinois, which had one TIF district in 1970, now has 874 (including one in the town of Wilmington, population 129). A moderate-sized city like Janesville, Wisconsin—a town of 60,000 about an hour from Madison—has accumulated 26 TIFs. Delaware and Arizona are the only states without TIF laws, and most observers expect they will get on board soon.

First used in California in the 1950s, TIFs were supposed to be another tool, like tax abatement and enterprise zones, that could be used to promote urban renewal. But cities found they were not very effective at drawing development into depressed areas. “They had this tool, but didn’t know what the tool was good for,” says Art Lyons, an analyst for the Chicago-based Center for Economic Policy Analysis, an economic think tank that works with community groups. The cities realized, Lyons theorizes, that if they wanted to use TIFs more, they had to get out of depressed neighborhoods and into areas with higher property values, which generate more tax revenue to pay off development bonds.

The Entire Western World Could Be Blighted
Until the 1990s, most states reserved TIFs for areas that could be described as “blighted,” based on criteria set forth by statute. But as with eminent domain, the definition of blight for TIF purposes has been dramatically expanded. In 1999, for example, Baraboo, Wisconsin, created a TIF for an industrial park and a Wal-Mart supercenter that were built on farmland; the blight label was based on a single house in the district that was uninhabited. In recent years 16 states have relaxed their TIF criteria to cover affluent areas, “conservation areas” where blight might occur someday, or “economic development areas,” loosely defined as commercial or industrial properties.

The result is that a TIF can be put almost anywhere these days. Based on current criteria, says Jake Haulk, director of the Pittsburgh-based Allegheny Institute for Public Policy, you could “declare the entire Western world blighted.”

In the late 1990s, Pittsburgh decided to declare a commercial section of its downtown blighted so it could create a TIF district for the Lazarus Department Store. The construction of the new store and a nearby parking garage cost the city more than $70 million. But the property taxes on the new store were lower than expected, as the downtown area surrounding Lazarus never took off the way the city thought it would. Sales tax receipts were also unexpectedly low. Lazarus decided to close the store last year, and the property is still on the block. Because other businesses were included in the TIF, it is impossible to predict whether the city will be on the hook for the entire $70 million. But given that the Lazarus store was the centerpiece of the development, it is safe to say this TIF is not working very well, and Pittsburgh’s taxpayers may have to pick up the tab.

If businesses like Lazarus cannot reliably predict their own success, urban planners can hardly be expected to do a better job. Typically, big corporations come to small cities towing consultants who trot out rosy numbers, and the politicians see a future that may not materialize in five or 10 years. “The big buzzwords are economic development,” says Chris Slowik, organizational director for the South Cooperative Organization for Public Education (SCOPE), which represents about 45 school districts in the southern suburbs of Chicago, each of which includes at least one TIF. “The local governments see a vacant space and see something they like that some company might bring in. But no one thinks about what the costs might be.…They are giving away the store to get a store.” Big-box retail chains such as Target and Wal-Mart seem to be the most frequent beneficiaries of TIFs. (Neither company would comment for this story, and local politicians generally shied away as well.)

Given the competition between cities eager to attract new businesses, TIFs are not likely to disappear anytime soon. “Has it gone overboard?” asks University of North Texas economist Terry Clower. “Sure.…But the problem is that if a city doesn’t offer some tax incentives, the company will just move down the road.” According to Clower, “In a utopian world, there would be no government handouts, and every business would pay the same tax rate. But if a city stands up and says they aren’t doing [TIFs] anymore, they will lose out.”

Instead, it’s the competitors of TIF-favored businesses that lose out. Academy Sports & Outdoors, which employs 6,500 people, has about 80 sporting goods stores in eight Southern states, including a store in Fort Worth. When the Fort Worth City Council was considering the TIF for Cabela’s, Academy Sports Chairman David Gochman spoke out against the tax incentives, realizing that his company is a big business, but not big enough. “This is not a nonprofit, not a library, not a school,” he said. “They are a for-profit business, a competitor of ours, along with Oshman’s and Wal-Mart and others.”

TIFs Have Become the Standard Handout
Al Dalton, owner of Texas Outdoors, a 10,000-square-foot hunting and fishing shop in Fort Worth, echoed the sentiment that the city was favoring one business over another. “We don’t have the buying power, and we don’t have the advertising dollars,” Dalton said. “It doesn’t make any difference even if we’ve got the best price in town if nobody knows about it. The deep pockets, in every way, [make] a lot of difference.”

And that may be the key to understanding how TIFs are now applied: The companies with the deep pockets are able to fill them with subsidies.

The Cabela’s location in Fort Worth does not fit any of the blight criteria people had in mind when TIFs were first created. The 225,000-square-foot store, with its waterfalls, multitude of stuffed animals, and wild game café, sits on prime property just off Interstate 35. It is a few miles down the road from the Texas Motor Speedway (which has its own TIF), and the 200,000 NASCAR and IRL fans who attend races there three times a year—not to mention the fans who come to the speedway’s concerts and other special events—might want to shop at Cabela’s.

The area around Cabela’s is affluent and has been growing for years. A half-dozen shopping centers nearby were on the drawing board well before the TIF was considered. Within a five-mile radius of the hunting/fishing megastore, 10,000 new homes have been built since 2000. That same area is expected to grow by 20,000 people in the next two years.

But the argument against the “but for” assumption is not being heard. In 2004 a state judge threw out a lawsuit against the Cabela’s TIF by a Fort Worth citizens’ group that claimed blight was never proven, and that the city was misusing TIFs in a prosperous area that needed no tax breaks for future development. The blight designation came from a pond and stream on the property. It was an odd designation, given that the property is in a prime development area and ponds and streams are not what one would classify as blighted.

The press releases and newspaper articles about the new Cabela’s emphasize that the store is going to draw more people to Texas than visit the Alamo (the studies were done by Cabela’s). The press release never mentions that a Bass Pro Shop store, part of a chain almost identical to Cabela’s, is just 10 miles down the road. While Cabela’s was negotiating its TIF with Fort Worth, it was also negotiating a TIF with the city of Buda, 120 miles away, outside of Austin. Cabela’s got about $20 million from Buda, and the same tourist claims are being made there. If each Texas store is going to draw 4.5 million tourists, as the chain claims, that means 9 million people will be coming to Texas every year just to visit the two Cabela’s stores.

“The notion that a hunting store would draw all these tourists is ridiculous,” says Greg LeRoy. “But what is even more ridiculous is cities thinking that tax breaks are the primary reason businesses relocate or expand in certain areas. There are so many other factors at play—transportation costs, good employment available, housing costs and quality of life for executives—that the tax breaks like TIFs aren’t very high up on their priority list. But these corporations are asking for them—and getting them—because everyone is giving them out. TIFs have become the standard handout, and the businesses have learned how to play one city off the other. Businesses would be stupid for not asking for them every time.”

If TIFs continue to multiply at the present rate, we may see the day when every new 7-Eleven and McDonald’s has its own TIF. That prospect may seem farfetched, but it wasn’t too long ago that cities wouldn’t even have considered giving up tens of millions of dollars in exchange for yet another store selling guns and fishing rods.

Daniel McGraw, freelance writer in Fort Worth, is the author of First and Last Seasons: A Father, A Son and Sunday Afternoon Football (Random House).

Recommended resources

The New Rules Project produces excellent material on problems with TIF andrecommendations for TIF reform.
Good Jobs First’s primer on TIF is a great introduction.
Openair.org offers more anti-TIF reading.
The Buckeye Institute provides a pro-TIF perspective.
Our webite section on Indepedent Business issues contains related articles of interest.

See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.

Visit our Merchandise Page to see these stickers, buttons, and more.

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Big Box Balderdash

December 18, 2005 by staff

Wal-Mart’s claim of “creating jobs” has no credibility

By Paul Krugman
First published by the New York Times, December 12, 2005

I think I’ve just seen the worst economic argument of 2005. Given what the Bush administration tried to put over on us during its unsuccessful sales pitch for Social Security privatization, that’s saying a lot.

The argument came in the course of the latest exchange between Wal-Mart and its critics. A union-supported group, Wake Up Wal-Mart, has released a TV ad accusing Wal-Mart of violating religious values, backed by a letter from religious leaders attacking the retail giant for paying low wages and offering poor benefits. The letter declares that ”Jesus would not embrace Wal-Mart’s values of greed and profits at any cost.”

You may think that this particular campaign — which has, inevitably, been dubbed ”Where would Jesus shop?” — is a bit over the top. But it’s clear why those concerned about the state of American workers focus their criticism on Wal-Mart. The company isn’t just America’s largest private employer. It’s also a symbol of the state of our economy, which delivers rising G.D.P. but stagnant or falling living standards for working Americans. For Wal-Mart is a huge and hugely profitable company that pays badly and offers minimal benefits.

Attacks on Wal-Mart have hurt its image, and perhaps even its business. The company has set up a campaign-style war room to devise responses. So how did Wal-Mart respond to this latest critique?

Wal-Mart can claim, with considerable justice, that its business practices make America as a whole richer. The fact is that Wal-Mart sells many products more cheaply than traditional stores, and that its low prices aren’t solely or even mainly the result of the low wages it pays. Wal-Mart has been able to reduce prices largely because it has brought genuine technological and organizational innovation to the retail business.

It’s harder for Wal-Mart to defend its pay and benefits policies. Still, the company could try to argue that despite its awesome size and market dominance it cannot defy the iron laws of supply and demand, which force it to pay low wages. (I disagree, but that’s a subject for another column.)

But instead of resting its case on these honest or at least defensible answers to criticism, Wal-Mart has decided to insult our intelligence by claiming to be, of all things, an engine of job creation. Judging from its press release in response to the religious values campaign, the assertion that Wal-Mart ”creates 100,000 jobs a year” is now the core of the company’s public relations strategy.

It’s true, of course, that the company is getting bigger every year. But adding 100,000 people to Wal-Mart’s work force doesn’t mean adding 100,000 jobs to the economy. On the contrary, there’s every reason to believe that as Wal-Mart expands, it destroys at least as many jobs as it creates, and drives down workers’ wages in the process.

Think about what happens when Wal-Mart opens a store in a previously untouched city or county. The new store takes sales away from stores that are already in the area; these stores lay off workers or even go out of business. Because Wal-Mart’s big-box stores employ fewer workers per dollar of sales than the smaller stores they replace, overall retail employment surely goes down, not up, when Wal-Mart comes to town. And if the jobs lost come from employers who pay more generously than Wal-Mart does, overall wages will fall when Wal-Mart moves in.

This isn’t just speculation on my part. A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, ”The Effects of Wal-Mart on Local Labor Markets,” uses sophisticated statistical analysis to estimate the effects on jobs and wages as Wal-Mart spread out from its original center in Arkansas.

The authors find that retail employment did, indeed, fall when Wal-Mart arrived in a new county. It’s not clear in their data whether overall employment in a county rose or fell when a Wal-Mart store opened. But it’s clear that average wages fell: ”residents of local labor markets,” the study reports, ”earn less following the opening of Wal-Mart stores.”

So Wal-Mart has chosen to defend itself with a really poor argument. If that’s the best the company can come up with, it’s going to keep losing the public relations war with its critics. Maybe it should consider an alternative strategy, such as paying higher wages.

Editors’ note: Krugman somewhat disingenuously selects just one of many studies about net employment / disemployment by big box stores. Other studies suggest a slight net gain in local employment when a big box store opens. His general point is valid, however: a primary advantage of chains (we won’t tackle market-distorting subsidies here) is they employ fewer people per dollar of sales than smaller businesses. When people cite Wal-Mart’s efficiencies, this is the greatest one.

Independent community-based businesses typically employ many other businesses. They hire or use the services of designers, cabinet shops, sign makers, accountants, insurance reps, computer consultants, attorneys, advertising agencies and others. Local retailers and distributors also carry a higher percentage of locally-made goods than the chains, creating more jobs for local producers.

In contrast, a new chain store typically puts in place a clone of other units, eliminates the need for local planning, and uses a minimum of local goods and services, centralizing those jobs at corporate headquarters. Some jobs are likely to be eliminated (or future jobs not created) in the community hosting a big box store as a result.

In addition to our own library of studies, the New Rules Project and the American Independent Business Alliance each collect many studies on the economic impacts of big box stores.

See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.
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