Cato Studies

November/​December 1995 • Policy Report

Campaign Finance Limits Restrict Speech, Study Says

Restrictions on campaign contributions and expenditures have failed to limit the role of special interests in Washington, and there is no evidence that further restrictions would work any better. So writes Capital University law professor Bradley A. Smith in “Campaign Finance Regulation: Faulty Assumptions and Undemocratic Consequences” (Policy Analysis no. 238). Smith says efforts to regulate campaign finance have been little short of disastrous. He argues that the problems with finance reform measures begin with the faulty assumptions on which they are based. For example, although advocates of reform say Americans spend too much on political campaigns, total spending for candidates for all offices is less than $10 per eligible voter every two years. Moreover, because money is of much greater value to challengers than to incumbents, higher spending actually opens the political system to new people and ideas. While many people assume that large contributions are undemocratic, Smith notes that most challenges to the status quo and most working‐​class political movements have been financed by wealthy donors.

Smith says the reform laws are ineffective, restrict rights, and create perverse incentives. Such laws “have distorted the political process, hindered grassroots political involvement, infringed on First Amendment rights, and helped to entrench incumbents in office while doing nothing to address the allegedly corrupting influence of money in politics.” Proper reform would consist of dismantling the Federal Election Campaign Act and the Federal Election Commission bureaucracy; rejecting proposals for public financing, which force taxpayers to fund campaigns; and returning to the campaign “regulation” system found in the First Amendment — “Congress shall make no law … abridging the freedom of speech.”

Administration Would Force Pensions into Risky Investments

The “new ethic of stewardship,” touted by Secretary of Labor Robert B. Reich in an attempt to justify “economically targeted investments” (ETIs), is a highly questionable effort to promote the use of private pension funds for risky public purposes, writes Cassandra Chrones Moore in “Whose Pension Is It Anyway? Economically Targeted Investments and the Pension Funds” (Policy Analysis, no. 236). Under the common law, trustees, in addition to being generally prudent in the discharge of their duties, must act solely in the interest of the participants with the exclusive purpose of obtaining tangible benefits for them and their beneficiaries. The Employee Retirement Income Security Act (ERISA) of 1974 sought to safeguard private pension funds by codifying those duties. According to Moore, Reich now seeks to undermine the statute by proposing that trustees invest in ETIs, which might have some “ancillary” or “collateral” benefits for the economy as a whole. Clearly, such an approach contravenes both the letter and the spirit of ERISA.

There are also economic problems with ETIs, writes Moore, an adjunct scholar of the Competitive Enterprise Institute. The Department of Labor insists that ETIs will bring a risk‐​adjusted rate of return equal to or higher than that of traditional investments. Study after study, however, has shown that ETIs generally produce a subpar rate of return. Moore points out that public pension funds can ill afford philanthropy. Vulnerable to political pressures and unprotected by ERISA, a significant number of them are substantially underfunded. ETIs will further compromise funds that already show strain, leading to reductions in benefits or to higher taxes. Moore concludes that careful investment designed solely to benefit plan participants, whether in the public or the private sector, should be the exclusive objective of all pension fund managers. She argues that Congress should stop the Labor Department’s ETI initiative by passing the Pension Protection Act of 1995.

National ID Card on Its Way?

Republicans in the House and Senate are moving quickly forward with Orwellian legislation that would create a national computerized register of all American workers, warn John J. Miller and Stephen Moore in “A National ID System: Big Brother’s Solution to Illegal Immigration” (Policy Analysis no. 237). The new federal computer worker registry, which is intended to reduce illegal immigration, is the crucial first step toward the implementation of a national identification card system for all 120 million American workers. It would be the first time, the authors write, that employers would have to have the government’s permission to hire a new worker. Sen. Dianne Feinstein (D‐​Calif.) has even urged that the ID cards contain individuals’ photographs, fingerprints, and retina scans.

The computer registry and national ID card, which would confer on the federal government vast new police‐​state powers, are highly incompatible with the Republican theme of expanding freedom and reducing government, according to Miller, vice president of the Center for Equal Opportunity, and Moore, Cato’s director of fiscal policy studies. They point out other problems with the concept: (1) the identification system could be easily expanded for other purposes beyond deterring illegal immigration, such as implementation of a Clinton‐​style health security card, conducting background checks on individuals, and enforcing affirmative action laws and other government regulations; (2) the system would cost the federal government between $3 billion and $6 billion per year to administer; and (3) error rates that are commonplace for government databases would lead to hundreds of thousands of Americans’ being denied legal access to the workforce.

A computer registry would impose large costs on American citizens in terms of both dollars and lost liberties, the authors argue. Yet the impact on illegal immigration would be minimal.

Western European Union Should Replace NATO

Rather than expand NATO in an attempt to make it fit the post‐​Cold War security environment, Washington should encourage the West Europeans to take responsibility for their own defense by strengthening the Western European Union, writes Barbara Conry, Cato foreign policy analyst, in “The Western European Union as NATO’s Successor” (Policy Analysis no. 239). Conry argues that NATO is a relic of the Cold War and that it is in the best interests of both the United States and Europe to replace the obsolete alliance with a robust European security regime that is appropriate to the post‐​Cold War era.

American and European security interests are increasingly divergent, Conry writes, as the intra‐​NATO disagreements about Bosnia demonstrate. Strengthening the WEU would ensure that the West Europeans had the means to protect their interests without Washington’s assistance. Unlike NATO, the WEU is, not a traditional military alliance, but the defense arm of the European Community. It does not require an external threat to justify its existence. Conry writes that U.S. participation in NATO vastly increases the risk of American involvement in murky European conflicts that have no bearing on U.S. national security. That risk will increase substantially if NATO expands eastward. Russia is likely to view the WEU as less threatening than NATO, particularly an expanded NATO.

Conry notes that NATO costs American taxpayers nearly $90 billion per year and that the member nations of the European Union are capable of providing for their own defense and should no longer expect U.S. subsidies. A united Europe is in the best interests of the United States. But by insisting that the EU abdicate one of its major areas of responsibility to a U.S.-led organization, the United States hinders European integration, she adds. In the event of a major threat to common interests, the partnership of the U.S. military and a strong WEU would be a potent deterrent and, if necessary, battle force.

Supermarket to the World Is Big Welfare Recipient

The Archer Daniels Midland Corporation has been the most prominent recipient of corporate welfare in recent U.S. history, according to James Bovard in “Archer Daniels Midland: A Case Study in Corporate Welfare” (Policy Analysis no. 241). ADM and its chairman Dwayne Andreas have lavishly fertilized both political parties with millions of dollars in handouts and in return have reaped billion‐​dollar windfalls from taxpayers and consumers.

Bovard writes that thanks to federal protection of the domestic sugar industry, ethanol subsidies, subsidized grain exports, and various other programs, ADM has cost the American economy billions of dollars since 1980 and has indirectly cost Americans tens of billions of dollars in higher prices and higher taxes over that same period. At least 43 percent of ADM’s annual profits are from products heavily subsidized or protected by the American government. Moreover, Bovard writes, every $1 of profits earned by ADM’s corn sweetener operation costs consumers $10, and every $1 of profits earned by its ethanol operation costs taxpayers $30.

Corporate welfare has gotten much attention lately. Bovard’s paper examines the dynamics of corporate welfare somewhat differently by investigating ADM as a classic case study of how those subsidies are obtained, how the welfare state encourages such “rent seeking,” and how such practices fundamentally corrupt the political life of a nation. Bovard, a Cato associate policy analyst, concludes that Congress’s expressed desire to foster a free marketplace cannot be taken seriously until ADM’s corporate hand is removed from the federal till.