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The Need For Transparency in Political Donations

Are secrets necessary to protect freedom?

In a few instances they clearly are, such as when security officials must keep national vulnerabilities from becoming public or military commanders exploit intelligence in order to surprise an enemy. But most of the time, in a democracy, secrets give one party an unfair advantage over another and undermine trust in institutions. Disclosing everything should be the default policy, unless there's a compelling reason not to do so.

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Controversies involving government secrets usually center around the Pentagon and the CIA, but it's shifting to the Securities and Exchange Commission, which is considering new regulations that would govern corporate lobbying. Many good-governance advocates feel corporations' ability to contribute huge sums of money to political campaigns, without disclosing those donations, has a corrupting influence or politics and disserves shareholders.

The SEC, if it were to get involved, could require public companies to disclose all of their political donations. The issue isn't whether to put new limits on donations, only to require companies to disclose them.

Big-business groups depict the concept as a power grab by union-backed politicians that would muzzle free speech and harm innocent companies. The Wall Street Journal's editorial board, for instance, says big companies are victims of "bullying" on the issue. "The risk to shareholders is from disclosure, not from lobbying," the Journal wrote in an editorial.

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Campaign contributions are fraught with controversy because the law considers them to be a form of speech, and free speech is, of course, protected by the Constitution. Companies want their donations to politicians, political action committees and issue-oriented "Super PACs" to be confidential because they don't want to be subject to boycotts or other kinds of unwanted attention from people with opposing political views. That's why they claim that disclosing donations could harm shareholders: Boycotts can hurt business and drive down stock prices.

But the Constitution doesn't say that speech must by anonymous in order to be free. In fact, when somebody exercises their right to free speech, other people have a right to react to it by changing their spending decisions or doing anything lawful. Sometimes, in fact, there are painful consequences to speaking or acting your mind, even though nobody does anything illegal. Just ask gays who come out of the closet or married people who choose the hard road of divorce.

You could even argue that optimizing free speech for everybody - by allowing the maximum number of people to exercise their free-speech rights - requires everybody to know what everybody else is saying (or how they're influencing political outcomes). If companies have the right to exercise their speech through political activity that affects others, shouldn't other people have the right to know that and to respond?

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You could also argue that excessive secrecy backfires on big companies. It's probably no coincidence that trust in big business and other institutions has sunk to all-time lows while at the same time the Supreme Court's 2010 decision greatly expanded big companies' ability to fund political campaigns and causes without disclosure. Declining trust doesn't necessarily hit the bottom line right away, but it does turn public opinion against big business, making it easier for critics to vilify them and lobby for more regulation. Which is exactly what has been happening lately.

The business lobby argues that powerful unions such as AFSCME and the AFL-CIO would gain a lobbying advantage if corporations had to disclose political donations. But unions and every other interest group ought to abide by the same rules for the same reasons.

The burden of proof is backward on this issue. Since many political donations are now allowed to be secret, it's up to the SEC, if it chooses, to make the case for why they shouldn't be. But in a healthy democracy, everything about politics should be disclosed unless there's an extremely convincing reason not to. The more secrets there are, the more opaque and suspect democracy becomes.

Rick Newman's latest book is Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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