Reclaim Democracy!

Rank Divides America

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By Robert W. Fuller
First published by Newsday, August 3, 2003

The recent Supreme Court decision on the University of Michigan Law School’s use of race in the admissions process has stirred up an all-too-familiar controversy. By what means can we deliver on Thomas Jefferson’s proposition that “all men are created equal”? While the decision upheld a limited place for affirmative action, it was the hope of Justice Sandra Day O’Connor that 25 years from now affirmative action “will no longer be necessary.”

Without question, affirmative action has given teeth to the goal of equal opportunity. But it alone cannot bring about the society O’Connor hopes for because it fails to address a problem more fundamental than racism, sexism and the variety of other “isms” that still plague us. What underlies all these forms of discrimination is something less conspicuous but no less profound in its consequences. It is rank – in particular, low rank signifying a lack of power.

The most significant unexplored rift dividing America today – one that cries out for our attention – is not that of race, gender, age or religion. Rather, it is the gap between the “somebodies” – the relatively powerful and successful – and the “nobodies” – the relatively weak and vulnerable. The nobodies are not just another in the litany of identity groups. There is something different about this grouping, because each and every one of us can be a member of it just as all of us have at some point nominated someone else for inclusion.

It happens every day. A boss harasses an employee. A customer demeans a waiter. A coach bullies a player. A doctor disparages a nurse. A teacher humiliates a student. A parent belittles a child. Somebodies with higher rank and more power in a particular setting can maintain an environment that is hostile and demeaning to nobodies with lower rank and less power in that setting, much as most everywhere whites used to be at liberty to mistreat blacks.

Some 35 years of affirmative action have put racists and sexists on notice. But there has been no corresponding outcry against abuses that occur within a race or gender. Blacks insult and exploit other blacks of lower rank, whites do the same to whites and women to women, all with confidence that it will pass as business as usual.

We don’t have a ready name for abuse and discrimination based on rank, but it deserves one. When discrimination and injustice are race-based, we call it racism; when they’re gender-based, we call it sexism. By analogy, rank-based abuse and exploitation can be called “rankism.” Naming rankism, putting it in the spotlight, is half the battle.

Rankism occurs when rank-holders use the power of their position to secure unwarranted advantages or benefits for themselves. It typically takes the form of self-aggrandizement and exploitation of subordinates. It is the opposite of service. Good leaders eschew rankism; bad ones indulge in it. It can be found in governments, businesses, families, workplaces, schools and universities, as well as religious, nonprofit and health-care organizations. It distorts personal relationships, erodes the will to learn, fosters disease, taxes productivity, undermines public trust, stokes ethnic hatred and incites revenge. Recent front-page examples of rankism include corporate and philanthropic corruption, sexual abuse by clergy, school hazing, and abuse of elders.

At the societal level, rank-based discrimination afflicts none more inescapably than those lacking the protections of social rank – the working poor. Two recent books chronicle this widening fissure. In “Nickel and Dimed: On (Not) Getting By in America,” Barbara Ehrenreich makes a compelling case that the working poor are in effect unacknowledged benefactors whose labor subsidizes the more advantaged. In “Wealth and Democracy: A Political History of the American Rich,” Kevin Phillips explores how the rich and politically powerful create and perpetuate privilege at the expense of the middle- and lower classes.

I am not in any way proposing that we do away with rank. This would make about as much sense as doing away with race or gender. When earned and exercised appropriately, rank is a legitimate, virtually indispensable tool of an organization. But when the high-ranking abuse their authority, those of lower rank experience discrimination and injustice not different in their material and psychological effects from the discrimination and injustice we now disallow when their victims belong to the familiar identity groups.

To achieve a just society, we have to decide what it means to be a nation of equals. Indeed, at first glance, such a goal might seem absurd. How can we be equals when we are obviously unequal in skill, talent, beauty, strength, health and wealth – in any commonly recognized trait for that matter? The answer is that people are equal in a sense they have always considered fundamental to being human: They are equal in dignity.

This is not some utopian ideal. As Vartan Gregorian, president of the Carnegie Corporation of New York, once put it: “Dignity is not negotiable.” Rankism is invariably an insult to the dignity of an individual or group. If the aggrieved party dare not protest, it will nurse its wounds until a time when it can exact revenge. The 20th century has seen numerous demagogues who have promised to restore the pride and dignity of a people who felt they’d been “nobodied.” The long-term and most horrific consequences of rankism between peoples range from sabotage and terrorism to genocide and war.

It’s natural at first to wonder whether rankism is part of human nature. Not so long ago, it was widely believed that racism and sexism were, but now they are generally regarded as learned. While the impulse to exploit a power advantage for personal gain is hardly uncommon in our species, history shows it is equally in our nature to detest such abuses and to act together to circumscribe the authority of rank-holders.

To this end, we have overthrown kings and tyrants and placed political power in the hands of the people. We have reined in monopolies with antitrust legislation. We have limited the power of employers through unionization. Blacks, women, homosexuals and people with disabilities have all built effective movements that succeeded in replacing a once-sacrosanct social consensus with another that repudiated it.

People acquiesce in rankism because they fear the consequences of resisting: demerit, demotion, ridicule and ostracism. The muffled complaints, occasional whistle-blowing and sporadic outbursts we do hear echo those of blacks and women who resisted in solitary protest before popular movements made it impossible to ignore their demands.

By breaking the taboo on discussing rank, giving this kind of abuse and discrimination a name and revealing its costs, we can anticipate that the tacit social consensus that supports rankism will unravel. Like the members of other identity groups, victims of rankism can then be expected to join forces and make themselves heard. An auspicious example is the recently founded Roman Catholic lay organization Voice of the Faithful, whose goal is to limit the absolute authority of clerics. In time, we may see the emergence of a broad-based “dignitarian” movement dedicated to overcoming rankism in all its guises.

Today’s N-word is “nobody.” The successes of affirmative action herald the day when the victims of indignity, injustice and inequity are as apt to be white as black, male as female, or straight as gay. Even now, what primarily marks people for mistreatment and exploitation is low rank and the powerlessness it signifies. Overcoming rankism is democracy’s next step. In taking it, we will have the opportunity to honor the dual commitment to both freedom and justice that our nation’s founders imprinted on the American psyche.

Robert Fuller is the author of “Somebodies and Nobodies: Overcoming the Abuse of Rank.” You can learn more about this issue at his website, dignitarians.org

© 2003 Robert Fuller
Used with permission of author

Argument Against a Bank of Wal-Mart

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Testimony of Terry J. Jorde
From FDIC hearing of July 16, 2003 in Washington, D.C.

Editor’s note: The following is Mr. Jorde’s testimony at 2003 sympsium held by the Federal Deposit Insurance Corporation.

Good morning. My name is Terry Jorde, and I’m pleased to be here to present a community banker’s perspective on the issue of mixing banking and commerce.

I am president and CEO of CountryBank USA, a community bank with two offices in Cando and Devils Lake, North Dakota. I also have the honor and privilege of being the only active banker to sit on the FDIC’s Advisory Committee on Banking Policy. I’d like to thank the FDIC and especially Chairman Powell for inviting me to participate today.

At the Advisory Committee’s last meeting, I offered my comments on the issue of mixing banking and commerce generally, and particularly on the issue of whether it is good public policy for a commercial firm to own a bank. My reward for speaking up was to be invited to sit on this panel today to present my views a little more formally-surrounded by others whose views likely differ from mine.

It will come as no surprise to most in this audience that I, like nearly all community bankers, oppose the mixing of banking and commerce. We have been accused of holding this view because we are afraid of competition. Now, I have just as much interest in self-preservation as the next person, and I think I’m a pretty good community banker, but if the competition overwhelmed me, I like to think that I’m probably still employable. Therefore, I would like to use my time this morning to consider the issue from a public policy standpoint, not from the point of view of a competitor, but from the point of view of consumers of banking services, both businesses and households alike.

U.S. law generally prohibits affiliations or combinations between banks and commercial firms. The historical reasons for separating banking and commerce are well known, and in my view are probably more valid today than in the past. They include:

  • Conflicts of interest and misallocation of credit that arise when banks and commercial firms affiliate;
  • Aversion to financial and economic monopolies; and
  • Concern about extending the federal safety net and increasing taxpayer losses.

Conflicts of Interest
Let’s put this into context by considering a bank or industrial loan company owned by Wal-Mart. Now, I really have nothing against Wal-Mart and a year ago I may have used Enron as an example, but I’m going to pick on Wal-Mart today since they are the largest company in the world, and it’s no secret that they really, really, really want to own a bank.

Now, imagine that you are a small business retailer in a town with a Wal-Mart SuperCenter (assuming that you haven’t already been run out of business by Wal-Mart). And you need an operating loan or a loan to expand your business. You are a hardware store owner, a Jiffy-Lube franchise owner, a pharmacist, a grocer, a florist, an optometrist, a used car dealer, or any one of a number of other small businesses that may compete with Wal-Mart. Would a Wal-Mart owned bank agree to lend you the money if you were creditworthy? Would you want to share your confidential business plans and information with this bank?

Well, you say, I would just seek credit elsewhere. But, what if there are no other local credit providers in your community because the Wal-Mart bank has underpriced them out of existence? You could try to get credit from outside your local market, but those banks and lenders don’t know you and your business, and you don’t fit their cookie cutter mold to qualify for a credit-scored small business loan, so they will not lend you money either.

Imagine you are a supplier to Wal-Mart. What if Wal-Mart tells you it won’t do business with you anymore unless you obtain your banking and credit services at the Wal-Mart bank?

These are examples of how commercial and banking affiliations can interfere with a bank’s role as an impartial financial intermediary-one whose credit decisions should be based on merit, and not competitive concerns. These affiliations would undermine one of the key strengths of the U.S. financial and economic system-the efficient and unbiased allocation of credit among competing borrowers. In my view, commercial and banking affiliations, such as a Wal-Mart owned bank, would be particularly harmful in smaller communities where there are fewer alternative sources of credit.

Small business financing is not just important in and of itself. Small business financing is key to economic development in local communities. Local banks that fund local businesses, and that can provide relationship banking that is so important to small business, are particularly attuned to this issue, and are uniquely equipped to facilitate the local economic development process, which can be time-consuming and resource intensive.

Community bankers provide tremendous leadership in their communities, which is critical to economic development and community revitalization. Last week alone, I spent six hours in a hospital board meeting, four hours in an economic development corporation meeting, and another four hours working with other local community bankers to develop a financial incentive package for a potential new business in our community.

You could argue that this was not an efficient and cost-effective way to spend my time, and in fact, Wal-mart might agree with you, as not one of their 1.3 million employees were at any of these meetings (and Wal-mart is in my community). But the difference is that, unlike Wal-mart, the survival of CountryBank USA depends on the economic vitality of Cando and Devils Lake, North Dakota, and I have a very real incentive to work to assure their success.

Consumers
Let’s consider consumers. Wal-Mart says 20% of its customers don’t have bank accounts. The answer isn’t letting Wal-Mart own a bank, but figuring out why the 20 percent are unbanked. It isn’t because of a lack of banks available to those customers. My local community of Cando has 1,300 people and is served by 3 community banks. Our branch location in Devils Lake has 7,500 people and is served by 8 banks, all of which have low or no-cost deposit and checking products that are affordable for customers of all income levels.

My bank offers one consumer checking account and it’s free. And our checks are free, our debit card is free, out Internet banking is free, our ATM card is free and thanks to the Fed, our loans are almost free!

But what will happen to banking services for consumers and households in a world where Wal-Mart owns a bank? If the past is prologue, local banks, just like local retailers in towns where Wal-Mart has located, will no longer be able to compete. While the initial effect may be cheaper services at the Wal-Mart bank, the long-term effect will be reduced choices for consumers as the number of financial services providers shrinks, and as the products become more commoditized.

A Wal-Mart owned bank will not be able to look past a consumer’s credit score to understand the customer’s individual circumstances and can’t make the customer a loan based on a long-standing relationship and personal knowledge of the customer… something my bank does every day. (Source: https://www.crediful.com/)

Monopolies
Our country was founded on the ideals of separation and dispersion of political and economic power. A hallmark of our strong economy, which is the envy of the world, is our diversified economic system, with both a diversified financial sector and a strong and robust small and middle market business sector. Bank and commercial affiliations would undermine this strength, and enable huge conglomerates to dominate the American economy.

We have already seen alarming consolidation in the banking industry, and in a number of other industry sectors. The number of banks continues to decline while the market share of the largest banks continues to grow. In 1995, there were 10,168 commercial banks in this country. By the end of 2002, this number had dropped 27%, down to 7,482. Only 405 (or 6%) of the nation’s banks are greater than $1 billion in assets, yet they control 85% of the total commercial banking assets in the United States . The 80 banks with more than $10 billion in assets control 72% of industry assets, up from 52% in 1995.

When you consider that banks with only 15% of the banking assets provide nearly 40% of the small business loans, you understand that a policy that supports a strong system of community banks provides essential fuel to the economic engine of the United States . Allowing commercial and bank affiliations would only serve to undermine our cultural heritage and the financial and economic diversity essential to our nation’s well being.

Federal Safety Net
Mixing banking and commerce also presents the danger of extending the safety net protecting depositors of federally insured institutions. Commercial affiliates of banks may seek to shift losses to the bank, or financial difficulties at an affiliate could lead to loss of confidence in the bank, even where it does not try to tap the bank’s resources. While firewalls between the bank and its affiliates are important to help mitigate these dangers, firewalls tend to melt when there is a really hot fire.

Imagine if Enron or WorldCom had owned a large insured bank or ILC. Even if the Enron Bank were run safely and soundly, what would have happened to that bank upon news of its parent’s spectacular demise?

All of these banking and commerce issues were considered again by the Congress when it passed the Gramm-Leach-Bliley Act, which reaffirmed our nation’s long-standing policy against mixing banking and commerce. Congress specifically considered and rejected the notion of allowing financial holding companies to have a 15% “basket” of commercial activities.

In addition, Congress closed the unitary thrift loophole, which allowed a commercial company to own a single FDIC-insured savings institution. Congress was spurred to action to close the loophole, in fact, by an eleventh hour application by Wal-Mart to buy a unitary thrift-the specter of which Congress found unacceptable.

ILCs
I would like to close with a few thoughts about industrial loan companies. These hybrid FDIC-insured bank charters, available in a few states, have been the focus of a renewed debate about banking and commerce, as the Congress considers legislation that would expand ILC powers.

Because of an exemption in the Bank Holding Company Act, ILCs can be owned by any commercial company, and their owners are not subject to the same supervision and oversight by the Federal Reserve that applies to other bank holding companies. ILCs were granted this loophole in 1987, on the condition that the ILC either refrain from offering demand deposits withdrawable by check, or remain below $100 million in assets.

In 1987, there were a number of small ILCs that functioned as local institutions. Many converted to state bank or savings association charters. Today, however, deposits in a number of ILCs have grown into the billions of dollars, and ILCs have been acquired by a number of large corporations. In 1995, Utah’s loan companies had combined assets of $2.9 billion, but by the end of last year had more than $100 billion. The largest, owned by Merrill Lynch, has assets of $65 billion and would rank 17th on a list of the country’s largest banks. Other ILC owners include General Motors Corp., BMW, GE Capital, Sears, Volvo, and Morgan Stanley Dean Witter.

Wal-Mart applied to acquire a California industrial bank last year, but was thwarted when the state legislature passed end-of-session legislation allowing only financial companies to own ILCs. California now applies the activities restrictions of the Bank Holding Company Act to ILC owners.

Pending federal legislation would effectively remove the conditions for Bank Holding Company Act exemption imposed on ILCs in 1987. Interest on business checking legislation would allow ILCs that cannot currently offer demand deposits to offer their functional equivalent, Business NOW Accounts. This, in essence, makes ILCs full service banks, but outside the scope of the Bank Holding Company Act.

To make matters worse, pending regulatory relief legislation would permit ILCs (and other banks) to branch de novo across state lines regardless of existing state laws.

The combination of these two measures would allow large corporations to use the ILC charter to offer full service banking, nationwide, by setting up branches in each of their locations, and not be subject to the same laws and regulations as owners of FDIC-insured banks and thrifts.

ILCs have said it would be unfair to deny them these expanded powers as they are only asking for parity with other banking institutions.

If parity is appropriate, then why not parity of holding company supervision and holding company activities restrictions?

If it is appropriate to restrict ownership of banks to financial companies and subject bank holding companies to certain rules and oversight, then it is appropriate to do so for an ILC that is the functional equivalent of a commercial bank.

Supervision
And then there is the subject of supervision. The FDIC does have limited authority to examine bank affiliates in order to police transactions between the affiliate and the bank, but it pales in comparison to the oversight and supervision of bank holding companies provided for under the Bank Holding Company Act-including general examination authority, consolidated umbrella supervision, capital requirements and enforcement authority for unsafe and unsound activities at the parent or affiliate.

Chairman Powell has argued that the FDIC and the State supervisory agencies are perfectly capable of supervising and examining ILC’s. I couldn’t agree more. My bank has been examined by the FDIC and our state-banking department for all of the 24 years of my banking career and the quality of their supervision is outstanding. I have had the unique opportunity to serve on the FDIC’s Advisory Committee as well as the Board of the North Dakota Department of Financial Institutions. I have seen firsthand that their commitment to safety and soundness is beyond reproach.

But the capability of the FDIC is not the question that we are here to discuss today. Rather, the question is whether the FDIC, or the Federal Reserve, or any regulatory agency for that matter, has the ability to prevent a meltdown from occurring if the parent company implodes. Back where I come from, if the dog that wags the tail gets sick, the whole dog is sick. If the dog dies, you can’t save the tail!

It is important to recognize that the policy issue here is not about which regulatory agency gets to be in charge. That’s irrelevant. The question is whether there is any regulatory agency that can prevent the systemic risk that will result from large commercial companies owning or controlling banks.

The U.S. policy of separating banking and commerce has served our nation and its economy very well. We are the envy of the world and our banking system is stronger than ever. The arguments for change are not compelling. The risks of getting it wrong are enormous.

Thank you very much for this opportunity to present my views.

Book Chains Versus the First Amendment

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By Jeff Milchen

Editor’s Note: This 2003 article was based largely on a piece first written for the Christian Science Monitor in 1999. Check with other sources or contact us if you need the most current data.

When a group of 26 independent booksellers accepted a cash settlement of its anti-trust suit against the Borders and Barnes & Noble Corporations on April 19 [2001], it was an ambiguous ending that both sides tried to spin to their favor.

Barnes and Noble Inc. (B&N) chair Leonard Riggio declared “total vindication” for his corporation against the charges of muscling illegal discounts from book wholesalers, in defiance of anti-trust law–a statement made less convincing by his corporation’s $2.35 million settlement payment to the plaintiffs. Borders will pay an equal amount to the independents.

But the independent stores and their trade group, the American Booksellers Association, hardly could claim victory either. Weeks earlier, Judge William Orrick ruled that regardless of the verdict, the two chains would not be forced to pay damages because of the impossibility of precisely defining the independents’ losses resulting from illegal discounts the chains allegedly strong-armed from publishers.

The crimes in question were violations of the Robinson-Patman Act, enacted to prevent the use of market power to eliminate competition. Among other provisions, Robinson forbids retailers to “request” and receive terms of sale that they know to be illegal (i.e., discounts not justified by economies of scale). The chains were accused of using their dominance to wrest secret deals with publishers for cheaper books, full refunds on unsold books and other perks unavailable to the independents.

Americans have paid little attention to lax enforcement of anti-trust law, but the concentration of power in publishing is especially concerning. It threatens the existence of independent bookstores that play a crucial role in maintaining freedom of speech and the diversity of published thought. The dominance of a few giants in the book trade not only influences where we buy books, but what books we are able to buy.

The two retailing giants each control over 1000 stores. B&N Inc.’s empire encompasses B. Dalton and other subsidiaries while Borders owns Walden Books and other smaller companies. Any given store in these giants’ domain often may stock more titles than a single competing independent, seemingly increasing our choices in individual locations. However, a wealth of independent bookstores, each serving their respective owners’ and communities’ tastes, create greater overall choices and provide access to more diverse ideas and opinions.

Independent booksellers often personally promote little-known books, creating opportunities for new authors and ideas that the chains carry only after success in independent stores.

In a world of chain stores and internet sales where books are a mere commodity, an important source of opportunity for unknown writers would suffer. As the now best-selling author Barbara Kingsolver said, “Authors like me would not have a career if it were not for independent booksellers.”

The growing concentration in publishing, like B&N’s merger of its online division with global media giant Bertelsmann A.G., the world’s largest wholesaler, seriously threatens the diversity created by a variety of independents. B&N’s attempted merger with Ingram Book Group, the largest book wholesaler, was thwarted by conscious opposition, but the concentration of power continues with the recent partnering between Borders and the dominant online book vendor Amazon.com.

Competition is fading quickly; independent bookstores sold just 15% of our books last year, an all-time low. Less obvious than vanishing stores, the number of publishers and book distributors has plummeted, and we never may have the chance to know many great books and authors as a result. Consider that Dr. Seuss’ work was rejected 24 times and Alex Haley reported over 100 rejections before Rootsfound a willing publisher. Today, these authors likely would run out of options before discovering a publisher that would allow us to enjoy their gifts.

We already have the disturbing precedent of publishers consulting with Borders and B&N prior to printing a book to see if they will buy sufficient quantities to make publication a good bet. Some authors now receive suggestions for “improvements” from the chains to make their work marketable, while others simply are not published due to lack of interest by those few buyers. We should weigh the potential consequences carefully. For example, we might wonder if the chain stores were predominant in 1860 whether the hugely controversial and influential anti-slavery book, Uncle Tom’s Cabin, would have found a publisher.

Of course, some argue that the “free market” will ensure diversity. This sounds appealing until one recognizes how far removed we are from such a mythical market. Consider these examples:

  • Though the independents settled their suit against Borders and B&N, the practice already has caused irreparable harm to many booksellers. A few years ago, several publishers paid up to $25 million in settlements to the American Booksellers Association, but the bookstores driven out by the crimes are gone for good and the two dominant retailers were untouched.
  • The growth of sales by Borders.com, Amazon.com, and BN.com largely is due to federal legislation preventing states and municipalities from collecting the same sales tax from the internet giants that they collect from storefront businesses, handicapping community-serving businesses. Public schools dependent on sales tax revenue are also often the victims of this grossly anti-free market law.
  • B&N Inc. and Borders Inc. have received direct subsidies as great as $4 million from individual municipalities. Though your community may not grant such a subsidy, those collected by these corporations elsewhere pervert the market and place community-based businesses in a grossly unfair situation. Further, traded corporations are able to operate at a loss to eliminate competition so long as public money and stock speculation funds their expansion. For example, Amazon.com lost an average of $376 million each of its first eight years [it finally turned a profit in 2003], yet has made a billionaire out of its founder.

Independent booksellers are not the final victims. If the book chains continue displacing community-based booksellers, we all will lose out as prices climb higher (B&N already has eliminated the heavy discounting on which it built market share). More importantly, the diversity of published thought will erode in a market dominated by a few centralized powers.

Book buyers should weigh carefully the words of a Borders Inc. executive which came to light in recent trial. A recovered memo recorded his prediction that “in a couple of years there may only be a couple of players left who will dictate the game on their own terms.”

Of course we should keep all this in mind when choosing where to purchase books, but we should also speak up for meaningful enforcement of laws designed to protect us from the many harms of monopolies–harms that become more critical when we’re dealing with a vital source of ideas and information. This is not just for the sake of independent bookstores, but for the freedom of expression we all cherish and must never take for granted.

When Silence is Not Golden: Negative Free Speech and Human Rights for Corporations

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By Dean Ritz
Published July 1, 2003

When is silence not golden? When it supplants people’s authority by allowing corporations to remain silent on factual information, protected by the doctrine of negative free speech. Negative free speech is a Supreme Court expansion of the free speech provision of the First Amendment; it is a right to be free from forced association with a particular expression of speech. This legal existence has significant implications for social justice activists and serves to illustrate how the law is used to promote a narrow conception of democracy and human self-governance.

We find the origins of negative free speech in court battles over state laws intended to promote a diversity of views on issues of public concern. Two laws and the subsequent court battles over their constitutionality are worth noting. The first is a 1973 Florida state law that granted political candidates the right to equal newspaper space to respond to criticism of their record by a newspaper, often called “right of reply” statutes. The second is a 1980 administrative law passed by the California Public Utilities Commission that mandated access to the billing envelopes of the Pacific Gas & Electric Company for use by a ratepayer’s organization; if the utility company took a stance on an issue of ratepayer concern and distributed that stance in billing envelopes then ratepayers should have equal access to voice their divergent opinion. The Miami Herald Publishing Company successfully challenged the Florida law in the US Supreme Court, and the Pacific Gas & Electric Company successfully challenged the Commission’s administrative law. Both corporate victories helped establish the right not to speak negative free speech — as a First Amendment protection.

In numerous cases, US courts at all levels affirm informational diversity as one of the intentions of the First Amendment — the more voices, the better it is for a democracy. These good intentions have led to some decisions antithetical to democracy, such as the equation of money with speech (thus granting constitutional protection to corporate spending for political purposes) and the doctrine of negative free speech — particularly when it causes the withholding of factual information of public interest.

The federal courts permit some legislation to infringe upon constitutional liberties, inventing the doctrine of strict scrutiny as a tool to determine whether or not a particular piece of legislation will be “allowed” to do so, or whether it should be struck down. Strict scrutiny requires that the government prove a compelling public interest is being served. For example, a law that prevents people from falsely yelling “Fire!” in a crowded theater is allowed to restrict freedom of speech because that particular expression of speech poses an imminent threat to public safety (e.g., a human stampede can cause injury and death), and public safety is a compelling state interest. The second prong of the test asks whether or not the legislation implements a “narrowly tailored means” to satisfy the compelling state interest. To continue with our “Fire!” example, a law that forbids all speaking inside a theater may be applauded by those bothered by others who talk during performances, but it is far too broad to meet the compelling interest of public safety. Outlawing a falsely shouted “Fire!” is suitably narrow. Legislation is deemed unconstitutional if it fails either part of this test of strict scrutiny.

The Supreme Court applied strict scrutiny to both the Florida and California laws, decided that they failed the test, and overturned them. The Court noted the laws in question depended upon the content of speech; it was only in those cases where there was opposition to corporate speech that citizen access to the corporate-controlled communication channels was required. In Florida, this was space in the same newspaper that had printed criticism of a political candidate. In California, this was in the billing envelopes the corporation sent out to utility customers. In both cases the corporations claimed their free speech rights were violated because they were being forced to associate with speech the corporations did not endorse.

The Supreme Court hypothesized that if these laws remained on the books, the only way for the corporations to avoid the association with disagreeable speech would be for them not to publish any controversial speech at all. Thus the Court concluded that these laws impeded the informational diversity that the First Amendment seeks to foster and placed an undue burden upon corporate speakers. The Court thereby decided these laws infringed upon the fundamental liberty of free speech. Applying the test of strict scrutiny, the Court saw neither a compelling state interest being served nor a suitably narrow means of achieving whatever interests that state did possess. Thus both the Florida and California laws were revoked, and negative free speech became a new tool in the corporate fight against the potential for human self-governance.

There are two other assumptions of note in these Supreme Court decisions. First, the Court made no distinction based on who was speaking; that is, corporate speech and that of humans were considered equal before the law. Second, even a highly regulated company like a public utility warrants the same speech protections as a less or lightly regulated company. These assumptions magnify the impact of negative free speech because they remove from citizen authority the ability to distinguish between speakers, thereby creating the circumstances for conflicting claims over rights. This particular point is well illustrated by the 1996 federal Court of Appeals case of International Dairy Foods Association v. Amnestoy.

At the heart of this case were conflicting claims to the human right of free speech by humans and corporations. As readers of constitutional cases know, the framing of a case substantially determines whose rights, and thus whose interests, shall triumph: the right of human beings to be informed of factual information or the corporate claims to negative free speech? Current Supreme Court doctrine holds that both reside in the First Amendment protection of freedom of speech. International Dairy Foods concerns a Vermont labeling law that sought to provide factual information to consumers, enhancing their ability to make informed purchasing decisions.

A closely related collection of dairy industry corporations appealed the law. The Monsanto Company, the producer of the only FDA-approved rBST product, filed an amicus brief. Their lawyers claimed the statute violated the corporations’ negative free speech rights of the First Amendment. But the court recognized that the human beings who were to be the beneficiaries of this factual information were also making claims upon the First Amendment — specifically the right to be well informed.The law required that dairy products produced by cows treated with genetically engineered recombinant growth hormone (rBST) be labeled as such. The labeling technique detailed in the law was simple: either producers of affected products would add a blue rectangle to their packaging or retailers would affix a blue dot to the package. The Vermont merchant would also post a sign in their store defining what that blue symbol meant to the purchaser:

The court decided on behalf of the dairy corporations, agreeing with their lawyers’ claims that the statute required them to make involuntary statements in violation of their First Amendment rights. The court then failed to see any substantial state interest as being served by the labeling law. Unlike food additives, rBST is not directly added to food but rather added to dairy cows. “[T]he state itself has not adopted the concerns of the consumers; it has only adopted that the consumers are concerned. Unfortunately, here consumer concern is not, in itself, a substantial [state] interest.” Ideologically speaking, the court presumed that consumers had no interests other than curiosity, which is inadequate justification to pass a law restricting corporate speech. The court decided that the knowledge of how products are produced – including such unsavory production practices as child labor and environmental damage resulting from production process — is beyond the authority of its citizens’ demands and not of legitimate concern for the purpose of labeling laws.

The Court of Appeals recognized this power of law to influence ideology and thus public consciousness. If mere human concern alone were sufficient to compel corporations to label products with details on how a product was produced, then it is reasonable to infer that any and every request for informational disclosure could be justified. So the Court of Appeals used the law to temper such human expectations and ideals:

“Although the Court is sympathetic to the Vermont consumers who wish to know which products may derive from rBST-treated herds, their desire is insufficient to permit the State of Vermont to compel the dairy manufacturers to speak against their will. Were consumer interest alone sufficient, there is no end to the information that states could require manufacturers to disclose about their production methods. For instance, with respect to cattle, consumers might reasonably evince an interest in knowing which grains herds were fed, with which medicines they were treated, or the age at which they were slaughtered. Absent, however, some indication that this information bears on a reasonable concern for human health or safety or some other sufficiently substantial governmental concern, the manufacturers cannot be compelled to disclose it. Instead, those consumers interested in such information should exercise the power of their purses by buying products from manufacturers who voluntarily reveal it.”

The Court of Appeals, because of its limited definition of “safety,” did not recognize any legitimate safety issue because the FDA had already determined there were no health or human safety issues related to the use of rBST in dairy cows. In the end, basing their opinion on “sound science,” i.e., that what the FDA does not know (or tell us) cannot hurt us — the court struck down the Vermont labeling law.

International Dairy Foods decided that humans do not have the right to even know where rBST is used. And inconveniently for consumers, the Monsanto Company’s filing of lawsuits against two Vermont dairy producers, [similar to this case] and their threats of legal action against two thousand others, effectively prevent the public from knowing where rBST is not used. This arrangement grants corporations the right to silence people’s right to know, thwarts the concept of “enlighten[ing] public decision-making in a democracy,” and denies citizens the ability to “exercise the power of their purses” as the Court of Appeals cynically suggested would be a viable alternative to the labeling law.

The dissenting opinion of Justice Leval took a different tack on this case. He recognized that the labeling law dealt with factual information, not opinion. The judgment arising from facts comes from the reader, not the speaker of the facts. This factual information is exactly the kind of information that citizens have a right to request, and the government has the legal capacity to procure an answer. He wrote:

“[T]he true objective of the milk producers is concealment. They do not wish consumers to know that their milk products were produced by use of rBST because there are consumers who, for various reasons, prefer to avoid rBST. . . . In my view, the interest of the milk producers has little entitlement to protection under the First Amendment. The case law that has developed under the doctrine of commercial speech has repeatedly emphasized that the primary function of the First Amendment in its application to commercial speech is to advance truthful disclosure — the very interest that the milk producers seek to undermine.”

In other words, consumers have a legitimate right to know factual information, and manufacturers do not have a legitimate grant of authority to remain silent. Compared to the majority opinion, this dissent reflects a very different understanding of citizen sovereignty and self-governance, in particular that citizens possess an authority superior to those of their corporate creations. It also reflects an understanding that the case represents a conflict over authority, not a conflict over rights. This issue of authority deserves additional attention as it widens the scope of ethical investigation in thinking about the corporate claims to free speech rights in the specific context of this case, and claims to any human rights in general.

In theory, a government should provide for the safety of its citizens and for keeping the peace. Towards fulfilling these responsibilities, citizens tacitly accept the need for an enforcement “branch” of government, populated by the police and military. Additionally, these state responsibilities are considered valid justification for laws that infringe on constitutional rights. The recurring questions for self-governing people are whose safety, whose peace, and who is being forced by police power to be peaceful? In International Dairy Foods we can see that it is safety for corporate markets and that citizens do not have the sovereignty to demand that police power instead be used to ensure that self-governing people be well informed in order to be effective in their practice of self-governance. Here the police power was applied to keep people uninformed.

International Dairy Foods represents rivalrous claims upon the First Amendment: the corporate claim upon the right not to be associated with certain speech versus the human right to be informed. It calls attention to the immoral arrangement of granting human rights –those few recognized in the Constitution — to corporations. And this arrangement calls attention to a presumption that people and corporations have equal claims to rights, and thus are equal in the eyes of the law and of the courts. Ignoring this arrangement and its presumption perpetuates the ideology that conflicting claims upon the Constitution by human beings and corporations must be settled on the merits of individual conflicts of rights, whereas the whole conflict could be settled swiftly by conferring upon human beings sole claim to all constitutional and human rights. By this arrangement, conflicting rights claims by human beings and corporations would not be possible, and human beings would recover a sovereignty in practice now asserted only in US mythology.

As we can see, framing the International Dairy Foods case as one of conflicting claims to rights insures that many fundamental issues regarding democracy and self-governance will not be dealt with. Should commercial speech receive any constitutional protections? Is it rational to believe that corporations engage in any speech other than commercial speech (a crucial point to make regarding corporate claims to a “right to lie”)? Why do states fail to grant legal force to citizen concerns not sanctioned by regulatory agencies like the FDA and EPA? The largest question is ignored as well: should corporations possess any constitutional rights at all?

International Dairy Foods Association v. Amestoy failed to address any of these issues. The federal Court of Appeals instead framed this case as one of conflicting claims to the same right, and thus it only had to decide whose claim was superior and thus triumphant. The rule of law presumes that such conflicts can be impartially resolved but alas, that is a myth. The framing of this case imposes a distinct partiality, a bias perpetuating corporate ideology, and eliminating issues of legitimate concern for a self-governing people. Activists and lawyers should not shy away from these issues, as their public discussion will raise our standards and demands for democracy in the United States.

More on International Dairy Foods v. Amnestoy here. 

The Commission on Presidential Debates and Exclusion of Vital Issues

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The Poverty of the Debates

Below are cumulative mentions of specific words or phrases by either George W. Bush or Al Gore during their three Commission on Presidential Debates events in 2000. Transcripts were obtained from CNN and analyzed by Reclaim Democracy! staff.
Middle Class
15
Working Class
0
Prosperity
16
Homeless(ness)
0
Poverty
1
Wealthiest
20
Poorest
1
Crime (street)
23
Crime (corporate or
white collar)
0
Prison (s)
0
WTO
0
NAFTA
0
Corporation(s)
0
Labor
1
“Free Trade”
0
Immigration
0
Population Growth
0
Transportation or Traffic
0
Slobodan Milosevic
17
Taxes
144
Social Security
67
Seniors
64
Teenagers
0
Medicare
58
Drug(s) (prescription)
60
Prevention (of illness / disease)
0
Drug War or
War on Drugs
0

The nationally televised presidential debates should address a broad range of national issues that most concern citizens–especially issues that the major party candidates typically ignore when left to their own devices. But under the control of the Commission on Presidential Debates (CPD), many of the greatest concerns of the American public are excluded from discussion entirely.

The exclusion of deserving independent or “third party” candidates has generated the greatest criticism of the CPD, but the narrow range of discussion and lifeless formats also are critical problems.

The inclusion of the two third-party candidates with major national constituencies (Pat Buchanan and Ralph Nader) in 2000 likely would have changed the results of this survey dramatically, but we should insist on an entity and structure that ensures broad and substantive debates, regardless of who is participating.

The stiflingly narrow range of discussion is a direct result of the “debates” being controlled by the CPD–a private institution owned and operated exclusively by prominent Democratic and Republican party operatives. The major party candidates are granted near-total control over format, moderators, and who is invited to participate.

This control includes formats devoid of direct dialogue between the candidates themselves or between citizens and candidates. Even the promising “town hall” format has been turned into a spontaneity-free imitation of real discourse by preventing any citizen from actually speaking. The questions are screened and read from a card by moderators like Jim Lehrer, who consistently has declined to confront the candidates with uncomfortable questions.

Even former President George HW Bush decried the vapidity of the CPD’s events, “It’s too much show business and too much prompting, too much artificiality, and not really debate,” said Bush. “They’re rehearsed appearances.”

See our overview of the presidential debates and the need for reform.

Reclaiming the Bill of Rights, Building a Movement

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Published in the winter 2002-2003 issue of
By What Authority, the journal of the
Program on Corporations, Law and Democracy.

Jeff Milchen is the founder of ReclaimDemocracy.org, a young but increasingly influential organization in the Democracy Movement. Molly Morgan interviewed him about their strategy and campaigns.

BWA: What is the focus and mission of ReclaimDemocracy.org’s work?

Jeff Milchen: Well, our tagline is “Restoring Citizen Authority Over Corporations,” and like POCLAD we focus on effecting long-term structural change that cuts across many different issues. An ongoing part of our work is delivering radically democratic perspectives through mass media to people who don’t necessarily consider themselves radical or even progressive. We dissect current issues to expose how problems are rooted in the illegitimate power wielded by corporations and moneyed interests, and we try to show clearly how changing the system could directly improve people’s lives.

Another major component of our work is building concrete tools for change and replicable models that decentralize power so that average citizens and communities have more influence in the decisions that affect them. We think the more people experience democracy close to home, the more likely they are to value it and work to expand it. People across the political spectrum who may disagree on outcomes still have common goals in creating a more democratic society, but their differences may hide those shared interests. One reason is that so much of the “news” is alienating and disempowering — it obscures the work and impact of ordinary citizens while exaggerating the power of those in official positions.

BWA: How do you get your message out?

JM: Our media outreach has focused primarily on print media plus some talk radio programs. We’ve had significant success — from op-eds in mainstream newspapers like the Washington Post, Newsday, and the San Francisco Chronicle to strategy and solution-oriented pieces in publications like The Ecologist, Black World Today, and major Spanish-language newspapers like La Opinion and La Prensa. As an example of how revoking illegitimate corporate power concerns people across the political spectrum, our work has been written up in business magazines and conservative tabloids like American Free Press as well as progressive magazines like Utne Reader.

BWA: Describe your campaign to revoke corporate free speech.

JM: We’re helping to instigate what we hope will be the broad national coalition necessary to put this issue on the radar screen. We believe that corporate free speech is a desecration of our Constitution and that this is an especially good time to generate public debate about it because a case called Nike v. Kasky stands an excellent chance of being reviewed by the Supreme Court in 2003. The case centers around the issue of commercial speech — a category of communication created by the Court.

The Supreme Court is a political institution that responds to major shifts in public opinion. Our goal is to use Kasky to make the issue of corporate free speech a high-profile controversy, framed as a matter of justice, like other struggles for civil rights. We need huge numbers of citizens generating pressure on our courts and influencing their thinking, and it’s a challenge because the injustice is less direct and obvious than for other abuses of our rights.

Our initial focus in this effort is on the American Civil Liberties Union (ACLU). We want to persuade their leaders that their mission to defend civil liberties for human beings is undermined by their consistent support of corporate “rights.” This is especially disturbing when our civil liberties are under siege by the Bush Administration and Congress. The ACLU also expends resources to oppose most significant campaign reform efforts by supporting the doctrine that spending money to influence elections is protected “free speech.”

Our position is that all communication by for-profit corporations is inherently commercial speech and that no constitutional protection exists — it’s up to We the People, working through our democratic institutions, to decide what privileges commercial entities should enjoy. The Bill of Rights was intended to protect only human beings, but previous Courts have claimed that speech itself is protected by the First Amendment — that a thing is protected rather than the right of a person — which goes against any reasonable interpretation of the Bill of Rights.

BWA: Wouldn’t revoking corporate free speech diminish the First Amendment and limit opportunities for organizations like the ACLU and ReclaimDemocracy.org to speak?

JM: No. The Supreme Court has distinguished explicitly between advocacy groups and profit-centered corporations in two cases: Austin v. Michigan Chamber of Commerce (1990) and FEC v. Massachusetts Citizens For Life (1986). In FEC, the majority said: “Massachusetts Citizens For Life was formed to disseminate political ideas, not to amass capital. The resources it has available are not a function of its success in the economic marketplace, but its popularity in the political marketplace.”

It’s worth noting that in colonial times, the word “speech” often described discourse — an interactive communication, as in, “I’d like to have a speech with you.” The Constitution writers likely wanted to protect dialogue, not just broadcasting one’s views. How can people dialogue with something like the Nike Corporation, which has no mouth or ears, let alone a mind?

Restoring a reasonable definition of free speech would actually amplify the voice of small organizations like ours with a genuine human constituency. Individual citizens and grassroots organizations can never speak as loudly with our own voices as corporations can with the unlimited amplification of money. But if our relative impact corresponded to the quality of our ideas and how effectively we worked to promote them, rather than how much money we spend, we’d have a very different country.

Of course, corporate speech has been key to amassing wealth and power for corporations, and their hirelings will fight to retain it. Public relations departments will churn out messages framing corporations as the defenders of liberty. Corporate lawyers will argue about slippery slopes and the freedom of speech being sacrosanct. They’ll say even speech we don’t like needs to be protected and use examples of unpopular speakers like the Ku Klux Klan. Our work is to properly frame the debate: the Constitution protects the rights of human beings, not things, and only people have rights to free speech. The popularity of a speaker is not an issue, but the speaker’s humanity is!

BWA: How does corporate free speech affect public policy?

JM: Virtually every issue of consequence is affected by the illegitimate influence of corporations derailing democracy, but here’s one: both of the dominant political parties constantly espouse the value of “free trade,” yet they pass laws that preclude or destroy competition in countless industries. Take pharmaceuticals. The government creates and enforces monopolies [patents] on drugs, not for the benefit of taxpayers who fund the development of two-thirds of the most medically significant drugs, but for corporations. As a result, Bristol-Meyers-Squibb Corporation can gouge cancer victims for 20 times the production cost of its patented drug, Taxol. Did cancer patients and citizens have an opportunity to participate in the decision to give away the patent? Hell, no. We were never even informed that we paid for its development!

Squibb exercises its “speech” by spending millions for paid lobbyists in Washington, who shape issues and frame debate in ways that bypass the most critical questions entirely. This is why we never hear ideas like “let’s keep public control of these drugs and contract a corporation to produce it at a modest profit.” As long as we allow corporate wealth to translate readily into political power, these abuses of the public interest will be the norm.

BWA: What kinds of positive alternatives to corporate power do you work to create?

JM: Ultimately, corporate power comes from a single source — our money — so we work to divert money and power away from absentee-owned corporations and toward community businesses that are locally rooted. It’s tough to hide from the consequences of your business decisions when they have a visible impact on your neighbors and the town you live in. We show people that there are many alternatives to giant corporations — that, in most cases, local businesses can provide the bulk of communities’ needs and do it as well or better.

A few years ago we started the Boulder [Colorado] Independent Business Alliance (BIBA) with the goal of helping the community to stop chainstores from continuing to displace local businesses. We organized collaborative campaigns funded by independent local businesses, including public education, direct pooling of resources for group purchasing and marketing, and political organizing to promote local policies favoring community-rooted businesses. BIBA opened a lot of doors for democratic conversations that included many people and organizations who would have been difficult to engage through, say, POCLAD or ReclaimDemocracy.org.

We consciously worked to develop a model that others could employ, and last year we launched the American Independent Business Alliance (AMIBA) to help other communities use it. There are four more IBAs now with substantial paying memberships — Salt Lake City, Utah; Corvallis, Oregon; Austin, Texas and Santa Fe, New Mexico– and several other communities are in earlier stages of organizing. We’re helping to seed and connect these groups to build a national network that eventually will change trends on a larger scale.

I believe that owners of farms and other small businesses are essential to the success of the Democracy Movement. These folks know as well as anyone how destructive giant corporations can be, but not only have most activists failed to forge alliances with small-business owners, we tend to alienate them with broad-brush attacks on business. Sloppy use of language like “business interests” does great harm to our cause.

A long-term goal of ours is to develop a powerful counterforce to entities like the US Chamber of Commerce, which gains its legitimacy from thousands of small member businesses, but actually exploits them to promote the agenda of the transnationals that drive its agenda. We should seize the label of “pro-business” for ourselves, making it clear what kind of business we’re for and why. After all, small-business owners already know that “corporate speech” only helps those big enough to hire lobbyists and public relations firms.

Learn more about POCLAD at POCLAD.org