Golems Unleashed (or, a Postmodern Prometheus)

Citizens United remains a hot-button issue, it seems.  At least, I am still hearing a great deal about it, so the lag between its announcement and my chance to blog on it should not prove fatal.

Certainly, my objection to it has not changed since I first read (of) it.  I haven’t had time to nail down the technical details, but as this is not Olympic gymnastics or ice skating, I do not believe that will much affect the score.  The heart of the matter is that the court extended First Amendment political speech protection to fictitious legal individuals, limiting the regulation of donations corporations and other labor unions make to campaigns.

Here’s the problem: those aren’t individuals.

Incorporation was an amazing, important, even (pardon the pun) vital legal innovation.  I find the German term, Gesellschaft mit beschränkter Haftung (GmbH), is the best way to explain the benefits of incorporation.  Literally, it is a society with limited liability.  You see, before incorporation, if you were a partner in a business, there was no separation between the business’ assets and yours.  So if the business had debts and went bankrupt, your personal assets were subject to seizure by creditors to pay those debts (and that used to include debtors’ prison, if your assets were insufficient).  In fact, this was true for small business owners until the more recent invention of the LCC (limited liability corporation) status, which allows an individual or small business the same benefits as incorporation, without the fuss of offering shares for sale.

The benefits, of course, are the limitation of liability to the business’ assets.  Incorporate, as a verb, means literally to put into a body.  So the law created the fictional legal person—a golem, an android, a Frankenstein’s monster, a soulless thing with human form—imbued it with some limited capabilities, and put that person in charge of the assets belonging to the business.  Then, a person was still liable for all of the business’ debts, up to and including all of the very real assets it held, but those wishing to invest risked only what they put into the pot, not everything they had.  The claims stopped with the assets that fictional person held.

This reduced the risk to investing and made a lot more capital available, and capital makes labor more productive, and increases in productivity make us all better off (though you may reserve the right to argue about the distribution if you wish—that is not the point here).  And we accomplished this by allowing an artificial and abstract individual the right to hold property and enter into contracts.  We allowed it these, however, because they were necessary to it performing its functions.

Of course, being an abstract individual, it requires real individuals to engage in its activities, to sign its name to deeds and contracts.  All of the investors could get together and decide every issue, but this is impractical in most situations, to say the least.  That is, think of getting all of Microsoft’s investors together to decide what avenues to pursue, what products to develop, which pestilences to inflict on the computing public.  The time and place to gather them would be expensive enough, let alone trying to get thousands (or hundreds of thousands) of individuals to usefully discuss and decide those things (or even ordering lunch).

So it has a board of directors, who represent the shareholders, and hire an executive to act in their stead on behalf of the whole body (apparently, they have day jobs).  Those actions include speaking on behalf of the whole body, including speaking politically by making campaign donations.  Theoretically, the board represents the interests of the corporation, and oversees the executive in pursuing those interests.  Unfortunately, however, the executive and the board may have interests that differ from those of the corporation, and even from those of each other.

To give an abstract an example, the executive and even the board may have a shorter time horizon than the (potentially immortal) corporation.  Thus, they may privilege immediate gains over long-term investment.  The executive may create a picture of health and prosperity by burning through resources, rather than husbanding them.  If the Potemkin village works, she is well on to her next (higher profile, higher paying) job when the hollowed-out corporation is left to collapse (or find Hercules to hold up its pillars long enough to rebuild what was consumed).

To make this more concrete, think of college football coaches who engage in recruiting violations to get a record that nets them a lucrative job elsewhere, and leaves the school (and the next coach) to clean up the debris from sanctions.  For that matter, think of Congressional representatives.  We likewise hire them to represent our interests when it is impractical for all of us to directly guard them (because we have day jobs, and what convention hall would hold a couple hundred million, or allow them to discuss reasonably?).  Once we elect them, their interest is in re-election; their time horizon shortens to the next election, whereas ours extends through our lifetime (if not to our progeny).

Would you then say that a Congressperson speaks on behalf of her district, and they should line up behind her?  If so, we no longer need the First Amendment.  The Constitution says that representatives may not be held liable for things they say in session, so all of our political debate can occur there.  After all, they are our representative, so they speak for all of us in the district.

I use this admittedly ridiculous picture to make this point: allowing corporations free political speech is really no more than allowing the executives of those corporations free political speech (which they already have as individuals), but with the co-opted (if partial) voices of all the shareholders (which the law otherwise forbids them to coerce).  Those shareholders already have the ability to speak, as does the executive.  All Citizens United does is allow some to pretend to have a much louder voice than they really do.

So, for example, union leaders get to co-opt some of their members’ voices to increase the leader’s volume, without having to adopt what the members would actually say.  It is not safe to assume that what the executive advocates is automatically in the interest of the whole group, either in labor unions or in other corporations.  If the executive is advocating the interest of the whole, she should be able to enlist the whole, and would not need the ability to force their speech.  It would be as silly as giving Elizabeth Warren or Barak Obama the right to speak on behalf of public goods like transportation networks and educational systems, to which they have no more claim than the other shareholders.

That is why the golem does not speak; pretending it can allows one person to use the power of many, separated from the will of those many.  As with Frankenstein’s monster so as with Hayek’s road, that hubris goes before destruction.

I would add that it frightens me to consider that political speech is necessary to the purpose of a corporation.  It is certainly necessary to lobbying, but hardly to limiting liability or productively using capital.  To say that it is essential to the purpose of a corporation is to admit that the line between private enterprise and public administration no longer exists.  I think that may well be true, but I find this no solution; the solution would be to make political speech (read: influence) inessential to running a business.  I could swear somebody tried that once.