Tuesday, April 7, 2009

The Subprime Court--The Roberts Court Is a Major New Tool of Business Power

By now everyone knows the new Supreme Court tilts to the right. Bush’s nominees, Justice Alito and Chief Justice Roberts, lead a conservative five-justice bloc, where reproductive health rights have been cut back and the President’s Office of Faith-Based Initiatives will keep getting very real public money.[i] No surprises from the Old Men In Black there.

But what’s less known is the court’s new major function, which is acting as an institution of corporate power. Since Bush’s appointments, the court has begun hearing far more business cases, and in case after case has “pushed the law in a direction favored by business,” as the Wall Street Journal reports.[ii] For example, the U.S. Chamber of Commerce, America’s most powerful business lobby, took a position on fifteen cases before the court in 2007, and its side won in all but two.[iii]

That makes sense, since Roberts previously represented and filed briefs on behalf of the Chamber and other prominent business organizations like the National Association of Manufacturers and other corporate clients.[iv] The Financial Times refers to Roberts and Alito as “pretty much the dream candidates of economic conservatism,” calling Justice Roberts himself “a white-shoe corporate lawyer” and noting “Justice Alito often sided with employers in his prior life as a judge.”[v]

The result is reviewed very well in Business Week, describing the views of Robin Conrad of the Chamber of Commerce’s litigation arm: “The judicial branch offers an alternative forum where business can seek changes it has failed to win from other branches of government. In the 1990s, the chamber and other business groups made this a vital part of their tort reform strategy, pouring money into local judicial campaigns to reshape state supreme courts...[now] the approach is playing out on a national level.”[vi] But “tort reform”—where barriers are raised to discourage suing companies—is only one part of what business expects from our court, in what will probably be decades of “business friendly” decisions.

Consider banking regulation, which is making a comeback these days with even the Federal Reserve Chair coming out for it. Our highest court recently ruled that national bank subsidiaries that extend mortgage loans, a major part of our current straits, can’t be regulated by state governments.[vii] Impressive, since mortgages and home equity loans were among the financial assets that were repackaged into forms that ended up bringing down the banks. The subprime legacy doesn’t seem to faze the court.

Additionally, the court ruled almost unanimously that banks, being “regulated” by the Securities and Exchange Commission, cannot be sued by investors—making them “generally immune from antitrust liability” as the International Herald Tribune describes.[viii] Companies face antitrust liability when they become large and powerful, so this decision looks great in our current environment of banking near-collapses. Because if there’s anything our “too big to fail” banks need, it’s to get even bigger.

The Supremes also decided that citizens have no right to legally challenge the tax breaks used by most of the U.S. states to “lure investment and jobs away from competing localities,” as the Financial Times reports. “Forty-six of the 50 states offer some form of investment tax credit. Big companies, many of them carmakers, get billions of dollars each year from states and cities in what critics call an ‘escalating arms race’ of tax incentives.”[ix] This is a big deal, since this type of tax concession is how firms drive the “race to the bottom” among states and countries—either you lower my taxes or I’ll build my plant somewhere that does. So for the Roberts Court, if the states want to oversee banks’ shady mortgage-issuing, no dice. But if they’re cutting taxes on Toyota so they’ll condescend to build a plant, no problem.

Business involvement in elections has been a recurring subject for the court. A 2007 ruling overturned a significant part of the McCain-Feingold campaign finance law, finding that corporations, unions, and interest groups can run “issue ads” immediately before elections.[x] The intention of the law had been to prevent a pre-election flood of campaign advertising, thinly disguised as advocating for a political issue, paid for by companies and other groups. The law was restricted to the period just prior to elections or primaries, and only to ads which were funded by corporations, unions, or other groups from their own general treasuries—a very limited restriction on how companies could use their massive financial advantages in an election environment.[xi]

The court set a very high standard for these sham “issue ads” to be found in violation of McCain-Feingold. The ads have to expressly urge a position on a candidate, or be subject to “no reasonable interpretation other than as an appeal to vote for or against a specific candidate,” to be found illegal.[xii] In other words, they won’t be, as described by Richard Hasen, Law Professor at Loyola Law School Los Angeles, in a paper on the court’s new ad-friendly stance. Noting that the “burden of proof is on the government to prove the advertisement is not subject to exemption” and that the decision expressly forbids considering the context of the election in interpreting the ad, he finds that most campaign ads of the issue-oriented variety “will comfortably fall on the permitted side of the line.”[xiii] In fact, “Very few ads broadcast close to an election” directly push for a candidate, but “almost always mention a legislative issue, even if they are also attacking a candidate.” In other words, the 2008 flood of corporate and other campaign ads in battleground states owes a lot to our highest court.

And now, the court seems ready to overturn or seriously restrict even this weakened limitation on corporate campaign influence, as a combative film on Hillary Clinton from the primary season has fallen under the ban. Since the law could extend to any political speech, as long as it advocates a candidate and was paid for with general corporate or group funds, it’s conceivable that books or signs could be banned, if paid for by firms. This has lead to the conservative wing of the court issuing a good deal of weak-sauce posturing as defenders of the First Amendment.[xiv] The poor corporations are being slightly limited in their massive dollar advantage over the unions and other groups, so their political speech rights must be defended. Of course, the court also found that students can be censored and punished by schools for mocking school policy, in the well-known “bong hits 4 Jesus” case.[xv] If it’s people instead of capital, this court has little salt for free speech.

Another overturned McCain-Feingold provision, the “Millionaire Rule,” raised the ceiling on individual campaign contributions for candidates facing a self-financed opponent, whose vast personal resources tilt the playing field in their favor.[xvi] The court found that this was unfair for imposing more restrictions on one party in an election than another, but this doesn’t address the advantage held by rich candidates who can self-finance. In fact, the Rule itself was a response to a previous Supreme Court ruling overturning restrictions on wealthy candidates using their own cash to gain office. An outside observer might call all this a clear argument for publicly-funded elections.

Turning to elected judges, the Supreme Court ruled “an elected judge may rule on a case where one party spent $3 million to help get him elected,” the Wall Street Journal reports.[xvii] The question was whether this violates the constitutional rights of due process and impartial trials. Notably, conservative Justice Scalia held that due process was not violated because the judge’s conflict of interest was “vague.” 3 million bucks sounds pretty specific to me, but I’m no lawyer.

But I am an economist, and I’ll tell you that you can thank the court for some higher consumer goods prices as well. By 5-4, the Court overturned a 1911 Supreme Court ruling outlawing “minimum-price agreements,” where a manufacturer requires that retailers not mark down the prices of its products. The business press describes the corporate rationale for legalizing this practice: “minimum resale price agreements, although raising prices within brands, could be good for consumers as price competition between brands would be stimulated…the loss of competition on price would be more than made up for by the way a price floor would allow retailers to compete on service rather than on price alone.”[xviii] The Wall Street Journal describes them as “a means to enhance a brand’s image and for retailers to make enough profit on their merchandise to provide better customer service,” but they “have run into legal trouble in the past when federal officials found they resulted in higher prices for consumers.”[xix]

This is essentially what economists call “price fixing,” where firms work together to increase markups on products, and thus the price paid by consumers. In spite of the companies’ argument that the MPAs will encourage price competition between brands, the Journal observes that similar video games Guitar Hero World Tour and Rock Band 2 are being sold at the same mandatory retail price. And not a little one either, $189. The court’s opinion here is that when firms increase prices on us, the extra money will go into improving the product or customer service. Of course, it’s just possible that the higher markups will fatten the manufacturer’s profitability, instead. But at least the firm’s image is enhanced, in that you have to fork over more cash.

But the Roberts Court’s trademark has been its limitation of damages in corporate lawsuits and its moves to prevent firms from being taken to court at all. The court reduced the punitive damage settlement against Exxon for the 1989 Valdez oil spill by 80%, from $2.5 billion to $500 million.[xx] It also reversed a jury decision against cigarette manufacturer Philip Morris, which awarded $79 million to the widow of an Oregon smoker, on the grounds that the jury might have based that number on a desire to punish the corporation for harming other smokers (juries are silly that way).[xxi] The court now seems eager to further reduce the limited extent to which companies can be held liable through lawsuits for costs they impose on others, or “externalize.”

The press describes the court as “closing the courtroom door,” preventing lawsuits against corporations, very often from the firms’ own investors. The court has found that class action lawsuits alleging fraud must be brought in federal courts, where they’re effectively barred;[xxii] that investors can’t sue Wall Street banks over their losses from the cozy IPO agreements from the 1990s stock mania;[xxiii] and they face tighter standards for bringing suit for antitrust conspiracy. This series of decisions greatly reduced corporations’ liability to investor suits, leading Robin Conrad of the U.S. Chamber of Commerce’s legal arm to declare the Roberts Court in 2007 “our best Supreme Court ever.”[xxiv]

These aren’t ambulance-chaser lawsuits—the Roberts Court is essentially insulating corporations from suits from their owners and customers, when such suits are often the only recourse when firms “externalize” their costs in loose regulatory environments. Closing off that possibility of redress for victims of corporate destruction will save big firms millions and billions of dollars, hence Conrad’s grateful attitude. Interestingly, while many of these business cases have been won by the court’s five-justice conservative bloc, on these issues of limiting court damages the court has been more unanimous—even the other, “liberal” justices would see firms insulated from accountability for their behavior.

But there have been some cracks in the corporate lock on the court. One interesting example is the court’s treatment of employee discrimination cases. Businesses, of course, would like to see these restricted, and in the first such case the court heard, the now-famous Ledbetter case, the court ruled against the plaintiff, Lilly Ledbetter. Ledbetter, a supervisor at a Goodyear plant, learned that her employer had paid every male in a similar position more than her, to the tune of about a thousand bucks more per month. But the court threw out her case since she failed to meet a strict 180-day deadline in filing suit. This tightened statute of limitations meant that very few such cases could be filed. But this became a prominent national issue, after which the court changed its tune. As the press describes, Ledbetter lead to “loud protests…But since then, the court has consistently sided with employees who have alleged discrimination, and ruled…to allow lawsuits to go forward.”[xxv] This suggests that even the august Supreme Court can be made to feel the heat of public opinion, which is encouraging.

Another development suggesting incomplete commercial dominance of the Roberts Court is the recent decision on drug labeling. After having recently found that manufacturers of medical devices are shielded from lawsuits by their government-approved safety labels, the court found drug manufacturers aren’t, and that suits against them could go forward.[xxvi] This reversal for corporate power before the court has lead some observers to conclude that the its reputation as a business plaything was premature and that “something of a reevaluation of the court is underway.”[xxvii] But it should first be noted that Bush’s conservative appointees in fact dissented from this decision, along with Justice Scalia. So the question is what happened to the other two conservatives, Thomas and Kennedy.

The answer lies in the doctrine of federal “preemption,” where government regulation prevents state lawsuits. Preemption has only recently been extended to drugs from medical devices, mainly in a late policy of the Bush Administration.[xxviii] Apparently that took obedience to corporate power too far for a few conservatives, but over the long series of business rulings reviewed here, it’s a drop in the water.

So, if you’re a consumer who believes in punishment for corporate fraud, or just competitive pricing, this court is no great shakes. But if you’re a millionaire running for office, or a stockholder of a oil-spilling corporation, or a multinational firm demanding a tax break before you’ll make a hire, this Supreme Court hands out enough justice to redecorate your whole summer estate. But it’s still heartening that the court seems to have backed off in the face of wide outcry after the Ledbetter decision, which suggests that the aroused public can still exert pressure, even on a firm instrument of capital like the Roberts Court.

Sure, the Supreme Court’s an inherently conservative institution, and always sympathetic to the wealthy and powerful, from whose ranks the Justices have historically been drawn. But the escalation of the number of business cases on the docket suggests that Corporate America has tightened its grip. As the Economist has noted, Bush’s only lasting success in his “domestic legacy” probably lies in “shifting the Supreme Court significantly to the right.”[xxix] And in keeping with the pattern of the Bush Administration, the court’s public approval rating is falling as it lines up with corporate demands on case after case.[xxx]

Over the coming decades of corporate dominance of the highest court in the land, it will take a more thoughtful, organized and active version of the response to the Ledbetter case to make the court even approach the desires of American citizens, rather than the wet dreams of the Chamber of Commerce. But that popular organization and education is the only way to drag the Roberts Court, kicking and screaming, into the twentieth century and points beyond.

Rob Larson is affiliated with the Bar by his house. He’s Assistant Professor of Economics at Ivy Tech Community College in Bloomington, Indiana and blogs at http://theprofitmargin.blogspot.com.

[i] Wall Street Journal, Partial Reversal, April 19, 2007. Wall Street Journal, Roberts Rules, June 26, 2007.

[ii] Wall Street Journal, Roberts Court Unites on Business, June 30, 2007.

[iii] Washington Post, Court Defies Pro-Business Label, March 8, 2009.

[iv] Financial Times, Trade Group Backs Supreme Court Nominee, August 11, 2005.

[v] Financial Times, The Supreme Court Has Been Bad For Business, June 29, 2006.

[vi] Business Week, The Supreme Court: Open For Business, July 9, 2007.

[vii] Washington Post, Pro-Business Decision Hews To Patten of Roberts Court, June 22, 2007.

[viii] International Herald Tribune, Analysis: Roberts Supreme Court Is A Conservative’s Dream, July 1, 2007.

[ix] Financial Times, Supreme Court Backs US States’ Tax Breaks, May 16, 2006.

[x] Wall Street Journal, Roberts Rules, June 26, 2007.

[xi] See for example Center For Responsive Politics, 2008 Overview, http://www.opensecrets.org/overview/blio.php.

[xii] New York Times, Justices Loosen Ad Restrictions In Campaign Finance Law, June 6, 2007.

[xiii] Hasen, Richard. Beyond Incoherence: The Roberts Court’s Deregulatory Turn in FEC vs. Wisconsin Right to Life, Minnesota Law Review, April 2008.

[xiv] New York Times, Justices Seem Skeptical Of Scope Of Finance Law, March 24, 2009.

[xv] New York Times, Vote Against Banner Shows Divide On Speech In Schools, June 26, 2007.

[xvi] New York Times, Supreme Court Strikes Down “Millionaire’s Amendment,” June 27, 2008.

[xvii] Wall Street Journal, High Court Split Over Case on Judicial Ethics, March 3, 2009.

[xviii] Financial Times, Supreme Court Weighs Up Value Of Price-Fixing Against Discounts, March 27, 2007.

[xix] Wall Street Journal, Why Some Toys Don’t Get Discounted, December 24, 2008.

[xx] International Herald Tribune, Supreme Court Decision On Exxon Valdez Damages A Blow To Alaskans, June 26, 2008.

[xxi] Financial Times, Court Narrows US Money Laundering Law, June 3, 2008.

[xxii] Financial Times, Supreme Court May Limit Class Action Lawsuits By Investors, January 19, 2006.

[xxiii] Washington Post, Pro-Business Decision Hews To Patten of Roberts Court, June 22, 2007.

[xxiv] International Herald Tribune, Analysis: Roberts Supreme Court Is A Conservative’s Dream, July 1, 2007.

[xxv] Washington Post, Court Defies Pro-Business Label, March 8, 2009. Congress has since changed the law the undermine the Court decision; this will probably not be the only such episode.

[xxvi] Financial Times, Drugs Groups Fear Rash of Label Litigation, March 5, 2009.

[xxvii] Washington Post, Court Defies Pro-Business Label, March 8, 2009.

[xxviii] Ibid.

[xxix] The Economist, Supreme Success, July 7, 2007.

[xxx] Wall Street Journal, Roberts Court United on Business, June 30, 2007.

Friday, March 6, 2009

Radio Interview with WRUW, Cleveland, Ohio

I was on Cleveland People's Radio this week. I'm about 17 minutes in or so.


Friday, February 27, 2009

External Damnation--Companies are designed for destruction

3.6 million jobs into this recession,[i] insult has been added to injury. The Peanut Corporation of America, nut supplier to Kellogg and the lower-rent peanut butters, deliberately sold peanuts contaminated with the salmonella bacterium. Twelve times in the last two years. The current headline-grabbing salmonella outbreak is the most recent result of these knowingly–tainted shipments.[ii] Now, the FDA could have been on top of this, but companies aren’t obliged to inform the food regulator of the results of their own tests. And then, even after the contaminated plant was found by the FDA, the full recall couldn’t be announced for almost three more weeks because the FDA has to obtain corporate approval of the wording of product recall announcements.[iii] While a few hundred more people enjoy nausea, vomiting, and diarrhea.

Pretty cold, I know, but this is just another example of what economists call “externalities.” An externality is an impact of an economic transaction that falls on someone outside the transaction. The nice smell of your neighbor’s barbecue is an example of a positive externality, and your insomnia when he buys new sub-woofers would be a negative one. These externalities are treated as rare occurrences in economic theory, but the reality is that external effects of our actions are everywhere. As the Harvard Business Review puts it, “Virtually every activity in a company’s value chain touches on the communities in which the firm operates, creating either positive or negative social consequences.”[iv] And for the business world, negative social consequences can mean big corporate savings.

Take the energy industry, where gas prices increased in recent years as demand grew. BusinessWeek reports “Even though it seems like the market is working in this regard, it really isn’t. There’s widespread agreement that the current price of oil doesn’t reflect its true cost to the economy,” such as “the more than $100 billion cost of having troops and fighting wars in the Persian Gulf.”[v] It turns out that the market can’t make a price for everything: “The tricky part is pricing these externalities...More dollars come from adding in numbers for the costs of air pollution, oil spills, and global warming.” The magazine also invites us to “imagine” that “in an ideal world, we could settle on the size of the externalities.” This is one reason why economists prefer to sweep externalities under the rug—they make the economy much more complicated.

And speaking of complicated things, externalities are also a crucial element of the credit crisis. The immediate cause of the banks’ dire straights is their overinvestment in risky credit derivatives—financial products representing pieces of loans, often “subprime” ones. Banks spend millions on executives and staff who are expert at risk-management, yet clearly the risk of these assets was underestimated by the banks, as our billions or trillions of bailout dollars prove.

The Financial Times says the paradox “echoes a fundamental problem about banking…the social cost of a systemic disaster is greater than the private cost to the individual bank. In the end, it is the task of regulators, not investors, to address this externality.”[vi] So a bank will view its assets as representing a certain risk to the company, and cannot afford to think of the broader “external” risk created for the system if the bank collapses from holding excessively risky assets. In other words, the stability of the system is someone else’s problem, and while investors may not want to see the system collapse, “their fiduciary obligations prevent them from taking a broader, systemic view.” The result is that risk is chronically underpriced in the financial markets.

Beside external costs, other related developments lie behind the crisis, like the bipartisan consensus to bail out big companies. As the business press reports, “Private-sector companies and individual bankers have been making huge profits in the bubble. Their risk appetite has been enhanced by previous bailouts and…by the government’s implicit guarantee. Yet their market pricing does not reflect the potential cost to the system of their own collapse.”[vii] The business world recognizes that “This inability to handle externalities” has worsened the financial crisis at every stage, such as when hedge funds further weakened the banks and insurers by short-selling their stock.

In fact, the market’s failure to value external costs and benefits helped lead the banks to hold so much subprime debt in the first place. Law professor and corporate governance expert Janis Sarra explains that before debt was packaged into derivatives, the banks created a “positive externality” for investors: “corporate stakeholders…could be confident that the bank was engaged in a measure of monitoring and oversight of the firm’s solvency,” so bank loans created a standard of trust for investors[viii]. But since banks now package and sell off loans, “The exponential growth in use of credit derivatives has shifted the externalities in a way that may contribute to market destabilization…originating lenders may be less willing to expend the time and resources to undertake due diligence in undertaking credit arrangements, as risk is laid off through derivatives under the originate and distribute model…previous positive externalities are lost and new negative externalities are created, creating more systemic risks across the market.”

The foreclosure crisis also owes something to externalies: “credit derivatives impede the normal negotiations between creditors and debtors in that borrowers can less easily renegotiate terms and conditions with lenders…Spread across the economy, the freezing of such relationships may increase systemic financial risk.” Again, bad for everyone, but highly profitable in the short term.

So it comes out that corporations don’t pollute because they’re evil villains, but because the very real costs of pollution can be made to fall on others, or “externalized.” Likewise banks load up on unregulated, risky assets because they don’t consider the risks to the whole financial system, beyond themselves. In general, companies have compelling reason to externalize any costs they can—lowered costs improve profitability. So global climate change, air pollution, contaminated food, an unstable financial system—all are external impacts that firms are obliged to ignore.

Regulation has been the traditional way of limiting the external impacts of corporate activity, as the business press recognizes. But firms will always resist regulatory restraints on their income, and historically companies have worked together to cajole the government to relax regulations. Besides, in the end it’s not good enough to just put a leash on institutions that can’t sustain their own financial system, let alone value long-term ecological health. As long as our economy is run by companies that see the world as an externality, then your health, the environment, and the overall economy will be things the market has an “inability to handle.”

True, more regulation would lower profitability, so America’s executives and equity holders may have to cut back on the caviar and foie gras. Let them eat peanuts.

Rob Larson is sharing the external benefits of his cigar smoke with everyone else on the elevator. He’s Assistant Professor of Economics at Ivy Tech Community College in Bloomington, Indiana, and blogs at http://theprofitmargin.blogspot.com.

[i] Wall Street Journal, Soaring Job Losses Drive Stimulus Deal, February 7, 2009.

[ii] Washington Post, Peanut Processor Knowingly Sold Tainted Products, January 28, 2009.

[iii] New York Times, Peanut Product Recall Took Company Approval, February 3, 2009.

[iv] Harvard Business Review, Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility, December 2006.

[v] BusinessWeek, Taming the Oil Beast, February 24, 2003.

[vi] Financial Times, Watchdogs Must Not Kick Banks When They Are Down, February 4, 2009.

[vii] Financial Times, Capitalism In Convulsion, September 20, 2008.

[viii] Sarra, Janis. “Credit Derivatives, Market Design, Creating Fairness and Stability,” Network for Sustainable Financial Markets, January 2009.

Tuesday, February 3, 2009

The Least They Could Do--The Clinton Foundation's donors cause the problems it aims to solve

When president-elect Obama nominated Hillary Clinton for State Secretary, the Clintons agreed to release the donor lists of the Clinton Foundation, the huge charity created by Bill Clinton. The Clintons agreed to air their dirty laundry in a deal with the new Obama Administration, to help avoid conflicts of interest as the former Senator tries to undo the smoldering diplomatic wreckage of the Bush years. The donor list is extremely revealing, and not only for being “a who’s who of some of the world’s wealthiest people,” as the Wall Street Journal called it.[i] The donor list also shows that the Foundation is funded by the people, governments, and companies that help create the problems that the charity seeks to address.

Take development. The Clinton Global Initiative places charitable giving and development high on its list of priorities, and in fact recently began an initiative to encourage philanthropy in the Mideast and Africa.[ii] But one of the Foundation’s biggest donors, giving in excess of ten million dollars, is the Kingdom of Saudi Arabia. In addition to the Kingdom itself, rich Saudi citizens and Friends of Saudi Arabia gave several million more.[iii] The Royal Family of Saudi Arabia is reaching out to the struggling masses of the middle east.

But with a blindfold. BusinessWeek recently reported that “Saudi censorship is considered among the most restrictive in the world” as “the country blocks broad swaths of the Internet, from pornographic Web sites to calls for the overthrow of the government.”[iv] And Saudi subjects may have some solid reasons to throw out their Royal Family, such as the 2007 ruling by the Justice Ministry that sentenced a gang-rape victim to 200 lashes and six months in prison. The woman had been in a car with an unrelated man prior to the rape, and had appealed her original 90 lash sentence, leading the court to increase it and add a jail term “because of her attempt to aggravate and influence the judiciary through the media.”[v]

But conditions can’t be that bad—King Fahd finally approved a Saudi human rights “watchdog,” but with members chosen only by the government, after having withheld approval for a citizen group to organize one. The business press thinks it’s “unlikely” that the rights group would “openly embarrass” the monarchy.[vi]

So the Royal Family, having a guilty conscience, relaxes by plowing a few ten million bucks from its oil fortune into the Clinton Foundation, which accepts it in part to fund programs to increase charitable giving in the region. If the Saudis really felt generous they could give their subjects the vote.

Or consider Lakshmi Mittal, the Indian steel magnate whose global conglomerate Arcelor-Mittal produces 10% of the world’s steel. Mittal built his steel empire buying old plants or government sell-offs, with the explicit goal of becoming big and powerful, believing that the key to “heavyweight profits” was growing “big enough to negotiate on an equal footing with suppliers of iron ore and coal and with customers such as automakers…In the long run Lakshmi’s vision is an industry dominated by a handful of powerful companies, strong enough to cut output rather than prices in a downturn.”[vii] This is what economists call an “oligopoly,” and it doesn’t have much to do with the central Foundation goal of expanding economic opportunity. Once companies become large, they gain advantages against competitors, as Mittal describes: “as we are becoming more global…we are able to reduce our costs on a global basis. Like purchasing… [we] aggregate our demand. We are able to have stronger muscle power to negotiate with our suppliers.”[viii]

The scale of Mittal’s steel empire stacks the deck against smaller competitors. But a nice seven-digit check to Clinton’s global charity sufficiently levels the playing field. The Open Hand giveth, and the Invisible Hand taketh away.

Or take AIDS, often seen to be the Foundation’s core issue. The Foundation recently negotiated heavy price reductions for certain AIDS drugs sold in the developing world, and has come to partially support moves by Brazil and Thailand to break the patents on AIDS therapy drugs held by U.S. companies.[ix] This position has been pushed for by AIDS activists and groups like Doctors Without Borders for years, but only recently has the hand of the Foundation been forced by Brazil’s and Thailand’s patent-breaking, which is seen by even conservative observers like the Economist as successful in fighting the disease.[x]

The business press describes the position of the most prominent AIDS activist in South Africa, Zackie Achmat: “Like many activists, he believes drug companies have been goaded into their recent donations…only by terrible publicity,” and that “contrary to what the industry said, patents were indeed an obstacle to affordable medicines.”[xi] The Financial Times elsewhere describes the limited giveaways or price reductions of AIDS drugs by the pharmaceutical industry as “part of public relations efforts by western companies to deal with an onslaught over the prices they charge for their drugs.”[xii]

So while the Clinton Foundation has gradually come to support production of some far-cheaper generics in the developing world, it has only been public and activist pressure, and the growing independence of developing countries, that brought them and Big Pharma around.[xiii] And some of the medicine can even be paid for with the hundreds of thousands of dollars donated to the Foundation by AIDS drug patent-mongers Pfizer and Ranbaxy.[xiv]

While the Foundation’s work is clearly valuable to the people and communities served, the point is that its money comes directly from parties contributing heavily to the problems in question, from the brutal Saudi tyrants paying to encourage human dvelopment, to the global steel tycoon kicking in for classes on entrepreneurship, to the drug patent-owner grudgingly granting licenses for generic production.

The Foundation would probably defend itself by saying that its thousands of small-scale donors gave a median amount of $45, that doesn’t get you to the $492 million total the Foundation manages.[xv] That comes from Clinton’s big-ticket donors, which also include Victor Pinchuk, the Ukrainian steel “oligarch” who built his empire from the Soviet Union’s asset sell-off;[xvi] and Blackwater, the U.S. mercenary company under legal sanction for its killings in Iraq.[xvii] Blood money still spends.

In the end, the Clinton Foundation’s big-ticket donors are a ruling-class rogue’s gallery with a guilty conscience. But in a world of tyrannical regimes, deepening economic crisis, and spreading disease, you can count on more ego-stroking from the guilty parties that keep the lights on at Big Charity.

Rob Larson is charitably donating free crutches to everyone he runs over. He’s Assistant Professor of Economics at Ivy Tech Community College in Bloomington, Indiana, and blogs at http://theprofitmargin.blogspot.com.

[i] Wall Street Journal, Clinton Reveals Donors—Charity Got $140 Million Abroad; Questions For Sen. Clinton, December 19, 2008.

[ii] New York Times, Clinton Foundation’s Success Was Buoyed by Donors’ Boom Years, December 20, 2008.

[iii] BusinessWeek, Saudis, Indians Among Clinton Foundation Donors, December 18, 2008

[iv] BusinessWeek, Internet Censorship, Saudi Style, November 13, 2008.

[v] Financial Times, Saudis Reject Rape Case Protests, November 22, 2007.

[vi] Financial Times, Saudi Arabian King Approves Selected Human Rights Group, March 2004.

[vii] BusinessWeek, Mittal & Son, April 16, 2007.

[viii] BusinessWeek, Ispat International’s Lakshmi N. Mittal: The Man Who Would Be JP Morgan, August 28, 2000.

[ix] New York Times, Clinton Foundation Announces A Bargain On Generic AIDS Drugs, May 9, 2007.

[x] Financial Times, Third World and Drugs Groups Remain Wary Of Each Other, July 10, 2000. The Economist, A Portrait In Red, May 13, 2008.

[xi] Financial Times, South Africa’s Positive Force, April 21, 2001.

[xii] Financial Times, Pfizer Extends Medicines Giveaway In Africa, July 7, 2001.

[xiii] See for example Wall Street Journal, Pfizer Makes Aid Pledge, Breaks Pact On AIDS Drug, November 12, 2003.

[xiv] Wall Street Journal, Clinton Foundation Donors Include Drug Makers, December 18, 2008.

[xv] Wall Street Journal, Clinton Reveals Donors—Charity Got $140 Million Abroad; Questions For Sen. Clinton, December 19, 2008.

[xvi] New York Times, Clinton Foundation’s Success Was Buoyed by Donors’ Boom Years, December 20, 2008.

[xvii] BusinessWeek, Saudis, Indians Among Clinton Foundation Donors, December 18, 2008