Saturday, August 21, 2010

Citizens United, Politics, and the Lessons of Target Corporation

The backlash against Target Corporation’s political contributions offers important lessons about the brave new world of politics ushered in by the Supreme Court decision Citizens United v. Federal Election Commission. The lessons range from corporate marketing and governance to accountability.

Citizens United was a triumph for conservatives who believed that there was not enough money in American politics and that corporations lacked an effective voice in it. The 5-4 majority in Citizens United ruled that the free speech rights of corporations were violated in banning them from making express advocacy independent expenditures.

The decision freed corporations to make direct expenditures from their treasuries to endorse or oppose candidates of their choosing. That is exactly what Target Corporation did in Minnesota.

Tom Emmer is the Republican gubernatorial anti-tax and anti-gay rights candidate. Minnesota Forward was a PAC formed in Minnesota after Citizens United and it collected corporate donations to run ads endorsing Emmer. Target contributed $150,000 to the PAC, ads for Emmer ran, and then the sky fell in for Target. Immediately employees, gay rights organizations, and criticized the contribution, asking how the company’s donation squared with Target’s commitment to gay rights and its policy on same sex couple benefits. Target CEO Gregg Steinhafel tried to massage the protest, stating the company only endorsed the candidate’s views on taxes, not gay rights issues. But the rationalization was too late, and Target has been unable to contain the damage. Why?

Unlike other Minnesota companies such as Polaris and Best Buy which also donated to Minnesota Forward, Target occupies a unique place. Originally the Dayton and then Dayton-Hudson Corporation, this company is locally incorporated and was family owned for years. The Daytons had a record of community support and philanthropy, still expressed in terms of the company donating 5% of its profits to schools. Self-consciously, Target has curried this socially responsible, good corporate citizen brand in juxtaposition to its rival Walmart. For many, Walmart is the evil empire and Target’s progressive image made it a favored retailer for many. Steinhafel forgot all of this when he made the political contribution.

The donation supported a candidate who stood contrary to the image Target has sought to cultivate for years. Steinhafel violated the number one rule of business–know your customers.

The deterrent to corporate political contributions after Citizens United was that retail businesses would be loath to act, for fear they would alienate half of their customers. Target should have remembered that. It should have remembered how it had consciously built its image and thought about how this political contribution impacted it. Clearly Target failed to do that.

The half-hearted apology that the contribution did not mean it supported Emmer’s views on gay rights demonstrated a naivete about marketing. When companies employ celebrity spokespersons, they hire the entire package and it is impossible to separate off one part of their life or views from the rest. Think of Tiger Woods. Corporations cannot insulate themselves from criticism by saying they endorse only part of a candidate–they are stuck with the entire package.

What Citizens United and the Target donation revealed is that corporate political activity merges politics and marketing. Support of political candidates and causes are marketing and imaging statements, and companies in the future now must think about how their political activity affects their brand. Steinhafel and Target should have known that. In Target’s case, the contribution was bad branding but for other companies–such as a gun company supporting a pro Second Amendment candidate–such an expenditure might be a smart move.

Steinhafel thus violated a second rule of business–confusing his own self-interest or views with that of the interest of the company. This tells us something about corporate governance. The real power of corporations rest not with shareholders but management, and most of the major misdeeds in corporations occur when management comes to substitute their interests for that of the shareholders and stakeholders they serve. Steinhafel’s choice raises questions about how decisions are made in companies, who speaks for corporations, and whose First Amendment rights were furthered by Citizens United–the shareholder or the management?

Finally, what Target and the supporters of Citizens United forgot was that over the last 25 years corporations are increasingly being held socially accountable for the choices they make. Target understood that with its branding, but seems unable to grasp that point now that it has entered partisan politics. The brave new world of Citizens United does mean that corporations can speak, but they will be held accountable by their customers and shareholders for the choices they make.

Friday, August 20, 2010

Election Day Registration: Debunking the Myth of Voter Fraud

Voter turnout is again an issue with the coming 2010 elections. With midterm elections producing turnouts dramatically lower than in presidential election years, some argue for election day registration (EDR).

Advocates for this point out that seven states–Idaho, Iowa, Maine, Minnesota, New Hampshire, Wisconsin, and Wyoming–permit EDR, with North Dakota not even requiring registration.

EDR critics raise the specter of voter fraud, contending that it would affect election outcomes. Even though there is no evidence that voter fraud is rampant or has changed the outcome of any election in a EDR state, claims persist.
The most recent salvo trumpeting the myth of voter fraud is a July Minnesota Majority report. They allege that illegal felon voting may have cost Norm Coleman to lose his senate seat to Al Franken. The Minnesota Majority argues that 1,400 felons may have voted illegally in the 2008 Minnesota elections and they have forwarded these names on to county attorneys for investigation. Republican Governor Tim Pawlenty commented on this report, echoing that illegal felon voting may account for Franken’s 312 voter victory over Coleman.

Does the Minnesota Majority report stand up to scrutiny? Hardly.

First, think about who makes up the Minnesota Majority. They are an ultra-conservative partisan political group that is a pro-property rights, pro-gun, anti-choice, anti gay, anti-immigrant, anti-sex education, and global warming denying organization. They are hardly politically neutral. They have repeatedly made unsubstantiated accusations about voter fraud in Minnesota, only to have their claims dismissed when critically examined.

Second, their initial July numbers asserting illegal ex-felon voting have been reduced based upon preliminary review by voting officials and county attorneys. That initial 1,400 has been whittled down to a few hundred–hardly enough to change the outcome of the race. Second, the Minnesota Majority did not investigate or examine whether any of the alleged voting occurred as a result of ex-felons who had their voting rights restored. Ex-felons in Minnesota are eligible to have voting rights restored upon leaving prison and that may have occurred here.

Third, the Minnesota Majority makes the assumption that any illegal voting that occurred favored Franken over Coleman. Why or how can one assume this? The political science literature indicates that, in general, people who are more affluent and better educated are more likely to vote than the poor and less well educated. Immediately this raises a series of questions regarding who exactly are the ex-felons that supposedly voted? Clearly the Minnesota Majority assumes that these individuals are more poor, uneducated, and therefore more liberal and thus voted for Franken over Coleman. Yet voting studies research suggests that this demographic is much less likely to vote.

Instead, think about who the felon voters might have been. Perhaps the most famous felon in Minnesota right now is Tom Petters–a middle aged affluent white male convicted of multiple counts of mail and wire fraud connected to a $3.5 billion Ponzi scheme he ran. He is a felon and, assuming he could vote, would he have voted for Franken? Probably not.

Moreover, think about all the other Wall Street felons from around the country–Jeffrey Skilling and Kenneth Lay of Enron, or Bernie Ebbers from Worldcom–if they could have voted in Minnesota in 2008 would they have voted for Franken? No. The odds are they would have voted for Coleman. Felons include white-collar criminals, drunk drivers, wife beaters, and middle class cocaine users. None of them fit the bill of those voting for Franken. We do not know the mix of the felons who allegedly voted in 2008. It is equally possible that if they voted they did so for Coleman, making the race even closer than it should have been.

Finally, the percentage of the vote of among illegal voters had to unrealistically favor Franken as opposed to Coleman to overcome the 312 vote victory. The Minnesota Majority states that perhaps up to 1,000 cases are possible for prosecution (although county attorneys have already cut this figure to one-third, and more, if not all will be dismissed). To overcome the 312 margin of victory, one would have to assume that of this 1,000, at least 656 votes went for Franken. In a race where Franken only received 43% of the popular vote, to assume he received nearly 2/3 of this vote is speculative.

Overall, keep in mind that county attorneys have not indicted anyone and no one has been convicted on voter fraud. The assertions of the Minnesota Majority are simply that, just unsubstantiated partisan assertions made by a group that is committed to the belief that if it denies enough people the right to vote they can successfully secure their agenda.

Thursday, August 12, 2010

Art Rolnick is Correct: Why Business Taxes are not that Important to Location Decisions

Today Art Rolnick questioned the evidence behind Tom Emmer’s claims that taxes in Minnesota are driving businesses to Minnesota. Rolnick is correct.

In a January 29, 2009 op-ed I discussed the impact that business taxes have on job relocation. There is little evidence that taxes are a major determinate in terms of affecting business location decisions.

I am linking to the original op-ed.

Why business tax cuts don't make sense now

Hope is great when it comes to miracles. Belief is terrific when it comes to the Tooth Fairy. But neither hope nor belief should guide the making of economic policy, especially during a recession. The making of public policy should be driven by social science evidence regarding what does work, otherwise taxpayer dollars may be wasted.

Gov. Tim Pawlenty's call in his State of the State Address to cut business taxes to spur economic development begs two important questions: Do tax cuts encourage economic development? If so, is this the time and place to cut taxes? Social science research is clear: Tax cuts will do little to help the state economy now and will probably hurt it as Minnesota confronts this recession.

The economic literature is clear — tax breaks to encourage economic relocation or investment are generally economically inefficient and wasteful. Hundreds of studies overwhelmingly reach this conclusion. When businesses are surveyed regarding factors important to their economic (re)location, taxes often come in way behind proximity to markets, suppliers and the quality of the labor force.

These other factors occupy a larger percentage of a business's budget than do taxes, and all of them are far more critical to long-term success than are taxes. Businesses occasionally admit this. Nearly 62 percent of those interviewed in a California study on hiring tax credits indicated that they had never or rarely affected their decision to employ individuals.

In the same study, nearly half stated that tax incentives for relocation did not affect their decisions. Tax incentives reward businesses for decisions they were already going to make.

A variant of the "taxes are important factors affecting location decisions" is the claim that high taxes are deterrents to economic growth and that cutting them will lead to investment decisions that produce jobs and new employment. For all of the same reasons that taxes are not a major factor in economic relocation decisions, the same is true in terms of the impact of taxes on business or individual activity. While taxes may have some minor impact alone in terms of marginal decisions to produce, the broader claim that they impede serious economic growth is vastly overblown.

Public investments in education, infrastructure and worker productivity rank significantly higher in terms of encouraging economic development and higher workers' wages than do tax subsidies and incentives. Adam Smith, writing in his 1776 "Wealth of Nations," first pointed that out, and this remains true more than 230 years later.

Overall, tax cuts and incentives are usually a dreadful way to encourage business development. Yes, some do point to tax cuts under President John F. Kennedy as an example of how they helped the economy. That was one of the rare circumstances where they worked. The country then was not in a severe recession and the cuts went mainly to consumers to encourage consumption, not investment.

Pawlenty's call for tax cuts is not that type of consumer relief. His cuts do little to help the economy. Instead, they may exacerbate the recession in Minnesota. During the early days of the 1930s Depression, many states cut state consumption and spending as a way to address their economic problems. The cuts only made matters worse as they left more workers unemployed and depressed economic output even more. Pawlenty's tax cuts for business, if accompanied by additional decreases in state spending, will repeat this foolish path and only damage the state economy in the short and long term.

Under some circumstances, taxes and cutting them do matter, but not now. Pawlenty has it exactly wrong in his call for tax cuts, and this policy should be rejected because it is based on hope and myth, not facts.

(Note at end of original op-ed: David Schultz is a Hamline University School of Business professor who teaches classes in economic development, planning and policy analysis. He is a former housing and economic planner and is working on a book tentatively entitled "Stupid Public Policies and Other Political Myths," which examines bad laws and why they are made).

Thoughts on the MN Primary: Looking to the General Election

What did we learn about the August 10, MN primary? A few interesting things.

First, I confess, I was wrong. I predicted an August primary would produce a 12% turnout or a 2% decease from previous years. Instead, it went up to 15%. I am glad I was wrong. Instead of people being confused by a new date perhaps candidate groundwars and the novelty of the new date increased turnout.

Second, because of increased turnout, the winning number for the DFL primary was much higher than I predicted. Moreover, given how many voted in the DFL primary, this suggests more passion or hunger by the DFL to win the governorship. This is why the primary turnout increased, and it does give Dayton some momentum heading into November.

Why Dayton?
Many DFLers expressed shock that Kelliher lost. I never thought she would. All along I said that Dayton had the name recognition advantage, the money advantage (over Kelliher but not Dayton), and was at least second in terms of ties to organized interests (AFSCME) in terms of organized interests. All this counted a lot. But I also suggested his strength would be with the Iron Range and his Lt. Governor. This is what paid off. Kelliher was really an urban Twin Cities candidate but never really one with broader appeal across the state.

I also think there was a certain arrogance on display with the DFL establishment on Tuesday. As I listened to MPR on Tuesday night Brian Melendez and others in the DFL seemed self-confident and cocky that their machine would deliver for Kelliher. Why believe that when the track record for the last two decades demonstrates the contrary. I think Kelliher’s shock and late concession on Wednesday reflected this arrogance too. Neither she nor the rank DFL get it in terms of understanding that they do not speak or represent the broader spectrum of those who consider themselves Democrats.

What is significant about Dayton are two things. First, he won with rural and blue collar support. The GOP should be worried about this. Generally, Emmer and the GOP can count on rural votes and some blue collar. However, Dayton ran strong where the GOP normally do. Assuming that the DFLers can bring their organization statewide and in the metro region to support Dayton, the DFL has a good campaign.

Second, Dayton won with a coalition and themes that bring back to life the old Perpich era. He did well with workers and the Iron Range and he ran on populist themes that harken back to that era. His emphasis on education returns the DFL to the Perpich one of making MN the brainpower state. Normally I do not think the past beats the future in politics, but here Dayton is cementing together one last time the old Perpich themes and coalition and updating for 2010. It might work again.

The General Election
It is trite to say that Dayton versus Emmer represents the broadest liberal/conservative divide in decades and that this sets up Horner for the center. All this is true. This also sets up the old Perpich coalition v. the new Tea Party brand of the GOP. Two different populist movements in conflict.

Emmer faces some weaknesses. Support for him among his base is a little soft, leaving Horner with room to grab GOPers. Also, Dayton has a stronger hold on moderate swing voters and female suburban voters (the soccer moms) than does Emmer. This is the battleground and Emmer is way behind here. He needs to figure out a way to remessage and move to the center. However, thanks to Matt Entenza and bad campaigning on his own account, the DFL has already defined Emmer. Emmer made the same mistake as Kerry in '04–he let others define him instead of defining himself. Once defined it is hard to undue.

Emmer also faces a McCain problem. In '08 McCain knew Bush was unpopular and that “change” was the mantra of the year. He needed to figure out how to run against Bush, a member of his own party, and also recognize that America was going in the wrong direction. If you are of the same party how can change mean staying with the same party? This is a tough trick to perform and McCain failed.

Emmer has a similar problem. He says MN is on the wrong track and it needs a new direction on taxes and regulation. He seems to forget that Pawlenty was governor for the last 8 years. How can he run against is own party? This is the McCain-Bush problem repeated here. Yes, Emmer represents a different wing of the GOP compared to Pawlenty (it is the Reagan v. Palin wing), but the DFL have already linked Emmer to Pawlenty.

Finally, the issues. Briefly, it is the economy and jobs. Average voters do not care about the record of Dayton as senator or the budget deficit. If the GOP talk about Dayton’s senate life that get away from core issues of the economy. Conversely, if the DFL talk too much about DWI and the deficit that also lose focus.