There was a “pro-business” Supreme Court ruling yesterday that scares me as a small business owner. At issue were campaign contributions from corporations to political campaigns (and I assume PACs and the like).
The losing side is lamenting that under the new ruling, the wealthy will have a greater influence over politics by using corporations as a proxy (though wealthy people already have more influence). The winning side is trumpeting it as a win for free speech (not free-speech for individuals, but the person-hood of corporations).
I am not overly concerned about corporations influencing wedge issues such as abortion, social security or even health care reform. Rather, I am worried about efforts by corporations to create seemingly innocuous laws that change the competitive landscape. Laws that will likely fly under the radar of the general (voting) public but create legislation that favors the big guys and hurts smaller businesses. To me, this ruling is not a threat to democracy; it is a threat to capitalism.
This issue has three main parts: motive and intent, the path of least resistance and the resulting feedback loop.
Motive and intent:
Corporations typically have a single goal: to make money for their shareholders. There has been debate about whether executive compensation has gotten so excessive that the motivation to make money for shareholders is threatened, but for argument’s sake, let’s assume the corporate boards are strong enough to ensure compensation is tied to profit. So the motive of the corporations is to make more money, not to take an ideological stance on issues that do not affect profitability.
When making political contributions it is generally safe to assume the intent is to make more money for the corporation.
The path of least resistance:
Startups, entrepreneurs and young small businesses are trying to gain market share, often times through innovations which lead to increased efficiency (i.e. creating value by removing inefficiencies in the marketplace).
These smaller businesses are often more in tune with the needs of the marketplace because decision makers are (by necessity) directly connected to the customers. The small businesses are more agile and quicker to adapt, whereas large corporations have more momentum. Think of a pickup truck versus a freight train. It is easier for a pickup truck to alter a course, but if the course doesn’t change, a freight train can transport more cargo to the destination with less energy.
There are generally two ways to increase profitability for shareholders: increase revenue or decrease costs. In a growing economy, the primary focus is on growth (more profit). In a shrinking economy, where growth is less likely, large corporations are first focused on maintaining their market position (some profit) and then on decreasing costs (more profit).
The competitive advantage of big corporations is momentum (market share, brand awareness, etc). The competitive advantage of small businesses is agility (innovation, increased efficiency, etc).
The resulting feedback loop:
When you combine the motive of increasing profitability for shareholders with the competitive advantage of momentum, you eliminate incentives for innovation in corporations. Primarily because it is costly and because it reduces the short-term profits that are the basis for executive compensation. Innovation by smaller and more agile organizations is also a threat to the continued success of the big corporations.
Given that big corporations have the cash flow necessary to spend meaningful amounts of money to influence political outcomes, the pressure on Washington will be for laws and regulations that favor the big corporations. This is already happening, but the Supreme Court’s decision yesterday has the potential to open the floodgates. The ruling reduces the checks and balances in place to protect capitalism in our economy.
It would be cost prohibitive for corporations to steamroll hot button issues like abortion or health care reform because the battle would be waged in the court of public opinion and would have strong opposition from ideology groups. The same is not true for issues where the general voting public has less entrenched positions. However, these are the same issues that prove vital to the continued strength of the United States economy, such as alternative energy, sensible patent and copyright laws, food safety, sustainable farming and net neutrality.
Increased political spending by big corporations will create a demand for laws that promote the status quo and stifle innovation.
