(Image: Berrett-Koehler Publishers; Edited: to)
The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group.
— Franklin D. Roosevelt
I started my first business at the age of 17 with $25. I paid that amount to rent a shelf in a head shop (which sold mostly pipes, bongs, and cigarette papers) across the street from Michigan State University in East Lansing. The shelf had a sign: “The Electronics Joint—leave your stereo or TV here for repair, and we’ll return it fixed within a week. Free estimate of charges before work is done.” The guy who ran the head shop managed the shelf for 10 percent of our revenues plus the $25-per-month shelf rental; within two years the venture had grown to include five employees, and we moved into our own storefront down the street.
As the business grew, however, I didn’t manage it wisely and ended up about $3,000 in debt, which was a lot of money in 1968 for a part-time student and part-time DJ. Ultimately, I had to shut the company down and go to work full-time as a radio DJ.
That didn’t turn out so well either. I got fired when I played two black female artists back-to-back, a violation of station policy at the time, and then refused to promise to never do it again. With my unemployment check, I bought some herbs at a local General Nutrition Center store and started an herbal tea company—Woodley Herber—that grew over the next six years to having 19 employees. One of our products that contained ginseng (which was then hot as an aphrodisiac) was picked up by Larry Flynt to market through his brand-new magazine, Hustler, making him a million bucks and turning a nice profit for my partner and me. Louise and I sold our half of that company to our employees in 1978 to move to New Hampshire and start a community for abused kids.
We wiped out our savings buying land for the children’s village and living for almost five years on a salary of $25 per week.* I still had an American Express Platinum Card, a leftover from the prosperous Woodley Herber days, so in 1983, with a $10,000 (or was it $15,000?) line of credit and some income from writing for a few magazines (I was contributing editor to seven of them that year), Louise and I moved to Atlanta and opened International Wholesale Travel and its retail operation Sprayberry Travel. That turned out to be quite a success. Within three years we’d marketed the company to the front page of the Wall Street Journal and had about $6 million in annual revenues, so we sold the company in 1986 to retire to Germany for a year to do volunteer work for the international relief agency Salem International.
We moved back to Atlanta in 1987 and used about $50,000 we had left from selling the travel company to start an advertising agency, The Newsletter Factory, which quickly grew to generating several million dollars a year in revenue and had about 20 employees. We sold that business to our employees on a seven-year buyout in 1996 and retired to the backwoods of Vermont to write books and enjoy life.
All of this is a way of saying that I am a somewhat typical “serial entrepreneur,” and fortunately we have a lot of them in America. They are generally middle-class people (my dad worked in a tool-and-die shop for 40 years, and my mom was a full-time homemaker with four sons), they generally do not have an inheritance or family money to draw on, and yet they spend their lives pursuing the American Dream.
I have never relied on a member of Congress or a government agency to do me a favor or bend the rules. I have never given campaign contributions to politicians in hopes of getting favors that would help my business. I have never hired a lobbyist to try to amend laws that would serve my financial interest. And this is generally true of all the hundreds of thousands of sole proprietors and partnerships and small businesses across America.
But that is not how big-time corporate America operates. To them making large campaign contributions and spending millions of dollars each year on lobbyists is just another investment that pays off handsomely. Their motto (in behavior, if not in fact) is You’ve got to pay to play.
This flood of corporate money and influence in our government makes for a decidedly uneven playing field for businesses as well as taints and corrupts our government. Unfortunately, the trend is moving in the direction of allowing even more money to encroach into our politics, thanks to the Supreme Court. The absolutely necessary solution here is to bring honesty and transparency to our politics.
Tom DeLay famously (and apparently illegally—as of this writing he’s managed to keep postponing his trial for years) took all sorts of goodies from lobbyists when he was a Republican leader in the House of Representatives, ranging from campaign contributions to a golf trip to St. Andrews in Scotland, the (incredibly expensive) “home” of the sport. His major patron was Jack Abramoff, lobbyist, businessman, head of conservative organizations—and criminal, sentenced to prison for felonies related to defrauding Indian tribes and plying politicians with gifts in exchange for political favors.
DeLay even went beyond just taking money and favors from lobbyists. He famously told lobbying firms on K Street in Washington, D.C., that they shouldn’t even bother to show up at his office looking for favors if they had any Democrats working in their offices. In 2005, DeLay was charged with violations of campaign finance laws and money laundering, while two of his former aides were convicted in the Abramoff scandal.
Similarly, former Republican senator Phil Gramm took a few million dollars over the years (and his wife, on Enron’s board of directors, took somewhere between $900,000 and $2 million) from the financial services and energy industries. And then, while still a senator, he slipped into the must-pass 2000 omnibus spending bill a sweet little feature, the 262-page Commodity Futures Modernization Act of 2000 (CFMA), which came to be known as the “Enron loophole.”
The CFMA allowed Enron to squeeze an estimated $40 billion out of California consumers, creating an energy crisis in the state in 2000 and 2001 and a political crisis for Governor Gray Davis that led to his replacement in 2003 by Republican Arnold Schwarzenegger (nominated for the job after he had a private and largely secret meeting with Enron CEO Ken Lay). It also opened the doors for Wall Street to use the new law to “create” what they called “new financial instruments” like credit default swaps, leading directly to the near-worldwide crash of the banking system in 2008.
After leaving Congress, Gramm followed in the footsteps of more than 100 of his colleagues in the past three decades and became a lobbyist himself in 2002, immediately going to work for UBS, a massive Swiss bank that is the world’s second-largest manager of “wealth assets.” In 2009, UBS was accused of helping American millionaires and billionaires evade taxes. The IRS filed a lawsuit in February 2009 alleging that 52,000 Americans secretly held up to $14.8 billion in accounts at UBS to avoid paying U.S. income taxes.1
As the cases of DeLay and Gramm show (and there are hundreds of similar congressional examples), for major corporations and very rich individuals and families, national or international, campaign contributions and lobbying do produce healthy returns. Invest a few million, make a few billion. Putting money into the careers of members of Congress, past or present, it turns out, is among the most consistently lucrative investments in the world.
As I noted in my book Unequal Protection, as of 2009 there were roughly 64 registered lobbyists for every member of Congress—more than 34,750 in total—and 138 of them are former members of Congress. Include state lobbyists, and there are more than 60,000 (because of variations in state laws on what is or isn’t a lobbyist, and who and how they should register, this may well be a significant underestimate: nobody really knows the true number).2
Senator Bernie Sanders noted on my radio show during the Senate debates on financial services industry regulation that the banking industry was spending more than $1 million per day on lobbying and had hired more than 250 former members of Congress to lobby their peers, including people who had previously been considered to have highly ethical and spotless reputations like former Democratic presidential candidate Dick Gephardt.
As Jeffrey H. Birnbaum noted in the Washington Post in June 2005, “The number of registered lobbyists in Washington has more than doubled since 2000 to more than 34,750 while the amount that lobbyists charge their new clients has increased by as much as 100 percent. Only a few other businesses have enjoyed greater prosperity in an otherwise fitful economy.” He added that “lobbying firms can’t hire people fast enough” and that salaries started at $300,000 per year. “Big bucks lobbying is luring nearly half of all lawmakers who return to the private sector when they leave Congress,” Birnbaum noted, citing a study by Public Citizen’s Congress Watch.3 The situation has only gotten worse since then.
From Lobbying to Regulating—Another Way Corporations Control Government
One of the primary goals of lobbyists is to affect legislation—introduce new bills or amendments, slip in key provisions, kill bills, and so on. But just as important is to affect regulations being considered by myriad federal agencies that could have huge financial impacts on the lobbyists’ corporate clients. So when the lobbyists have friends in the White House, as they did with George W. Bush and Dick Cheney, they actually get to take over the regulatory agencies through appointments.
A Rogues’ Gallery
During the Bush Jr. administration, more than a hundred very well paid lobbyists decided to forsake their big incomes for relatively paltry civil service paychecks for a year or two to become the actual regulators of the agencies they used to lobby.
J. Steven Griles, for example, moved from a $585,000-per- year paycheck as a lobbyist for oil and gas interests to become the number two person in the Department of the Interior, right under Interior Secretary Gale Norton, accepting a salary of $150,000 (a pay cut of $435,000 per year). His department then opened 8 million acres of western lands for oil and gas exploration and gave $2 million in no-bid contracts to one of Griles’s former clients - while Griles continued to receive a four-year $284,000-per-year bonus from his former employer.4
Griles was also helping Jack Abramoff at the Interior Department (a government prosecutor said Griles was “Abramoff ’s guy at the Interior”); he eventually pleaded guilty to lying to the Senate about his relationship with Abramoff and was sentenced to 10 months in prison and a $30,000 fine.5
The Denver Post in 2004 looked into the revolving-door phenomenon in the Bush administration, tallying more than 100 “high-level officials under Bush who helped govern industries they once represented as lobbyists, lawyers or company advocates.” The newspaper reported:6
In at least 20 cases, those former industry advocates have helped their agencies write, shape or push for policy shifts that benefit their former industries. They knew which changes to make because they had pushed for them as industry advocates. The president’s political appointees are making or oversee- ing profound changes affecting drug laws, food policies, land use, clean-air regulations and other key issues.
Government watchdogs call it a disturbing trend, not ad- equately restrained by existing ethics laws.
Among the cases the article identified were Charles Lambert, a 15-year lobbyist for the meat industry in its effort to block labeling and mad cow disease investigations, who went to work for the U.S. Department of Agriculture (USDA), where he officially determined that mad cow disease wasn’t a threat and shouldn’t be investigated and that meat shouldn’t be labeled with regard to its safety.
Then there was Daniel E. Troy, a lawyer who worked for a lobbying firm representing Pfizer Inc., Eli Lilly & Co., and others in Big Pharma. In 2001 he left the lobbying firm and became the chief counsel for the Food and Drug Administration (FDA). Mysteriously, the main focus of the FDA’s position on regulating the drug companies moved “to discourage frivolous lawsuits, which drive up costs,” making it harder for consumers damaged by prescription drug side effects to sue Troy’s former employers.
The Denver Post story also pointed out the case of Thomas A. Scully, a lobbyist who represented HCA, a huge hospital corporation originally started by Bill Frist’s family. HCA was embroiled in a fraud investigation by the federal Centers for Medicare and Medicaid Services, started by a whistleblower. In 2001 Scully left his job to head the CMS. By coincidence, eight months later, the agency worked out a $250 million settlement—which critics said was far too lenient—that kept the feds from looking further into HCA’s books and kept the Justice Department away. Under pressure from some members of Congress, the settlement was delayed and eventually HCA ended up paying the $250 million plus $631 million in civil penalties. Scully then left the Centers for Medicare and Medicaid Services and went back to work again as a lobbyist for Medicare providers.
Then there was the case of lobbyist Jeffrey Holmstead, who worked at a law firm that represented big utility companies and which had proposed 12 paragraphs of changes in Environmental Protection Agency (EPA) regulations affecting those utilities. Holmstead then went to work for the EPA as a regulator overseeing the air pollution division, and soon thereafter those 12 paragraphs—which would have given a pollution exemption to 168 of 232 western-based power plants—appeared in proposed EPA rules changes. The case was so blatant that 45 U.S. senators—including three Republicans—and 10 states’ attorneys general wrote a letter asking the EPA to void the proposed rule because of “undue industry influence.” Their complaints were largely ignored by the Bush administration.
Lobbying as Big Business
Given how lucrative lobbying is as an investment, it’s become a huge business. In February 2010 the Center for Responsive Politics laid out which industries had invested how much in Congress the previous year. Overall it found that in 2009 the number of registered lobbyists who actively lobbied Congress was 13,694 and the total lobbying spending was a whopping $3.47 billion—a 240 percent increase since 1999.
The report showed that the top federal lobbying spending was carried out in 2009 by the health-care sector ($543.9 million); followed by the finance, insurance, and real estate sector ($465 million); and energy and natural resources ($408.9 million) (see Table 1 below). Among the biggest lobbying clients were the U.S. Chamber of Commerce ($144.5 million), ExxonMobil ($27 million), and the pharmaceutical industry group PhRMA ($26 million) (see Table 2 below).