The Think Tank As Flack.

How Microsoft and other corporations use conservative policy groups

ON SEPTEMBER 18, The New York Times ran a breathless front-page account of corporate propaganda. The Microsoft Corporation, we learned, had bankrolled a California think tank--ironically named the Independent Institute--to run full-page newspaper ads supporting Microsoft's claim of innocence in the face of federal antitrust charges. The ads took the form of a letter signed by 240 academic "experts" and purported to be a scholarly, unbiased view of why the government had gone overboard in its case against the company. According to the Times article, Microsoft had not only paid for the ads, but was in fact the single largest donor to the Independent Institute, a conservative organization that has been a leading defender of the company since it first came under fire from federal prosecutors.

This revelation has been an embarrassment both to Microsoft and to the Independent Institute, which claims to adhere to the "highest standards of independent scholarly inquiry" But the Times is another institution that should be embarrassed, trumpeting the story as a shocking expose. To be sure, the article had timely elements, running on the eve of final arguments in the high profile Microsoft trial. But framed more broadly, the tale of right-wing think tanks propagandizing on behalf of their corporate masters is now many years old. What was truly remarkable about the Times story is that the paper has nm so few similar stories and has failed to report on one of the most important ways in which corporate dollars seek to influence public policy.

Three mighty rivers of private money now help shape American politics. The first, and most familiar, is direct campaign contributions to political candidates and parties. Little mystery surrounds this giving. Unmistakably, these donations are naked attempts by corporations and other donors, like unions, to influence the political process. In the past quarter century, untold numbers of news stories have exposed this dark side of American democracy and efforts to dam the campaign spending river have long been underway.

The second great river of money goes to underwrite a vast lobbying apparatus in Washington and state capitals. Again, this is a river that flows largely in public view, thanks to the efforts of muckraking journalists and good government groups. The shopworn image of special interest lobbyists circling around federal and state legislators like buzzards is one reason why so many Americans distrust government.

The third river of private money flowing into politics is less well-known, but nearly as wide and deep as the other two. It is the money which underwrites a vast network of public policy think tanks and advocacy groups. Historically, much of this money--on both the left and the right--has come from foundations. For public policy organizations on the left and the center, this source of money remains dominant, with some funds also coming from unions. However, the big development of the 1990s is that conservative institutes have had spectacular new success in tapping business money to fund ideologically charged policy research.

Over the past 10 years, a huge influx of private sector money has allowed conservative think tanks and advocacy groups to grow by leaps and bounds. Not only are well-known organizations like CATO, the American Enterprise Institute and the Heritage Foundation more flush with cash than ever, but giving by corporations and wealthy businessmen--all of which is tax-deductible--has underwritten the rise of a new generation of smaller and often brasher conservative think tanks like the Competitive Enterprise Institute (CEI and the Reason Foundation. Corporate money has also fueled the explosive growth of dozens of state-based conservative think tanks, of which the Independent Institute is a prime example. In 1996, according to data I published in a report early this year by the National Committee for Responsive Philanthropy the top 20 conservative think tanks spent $158 million, more than half of it contributed by corporations or wealthy businessmen.

Needless to say, hard-edged corporate executives like Bill Gates are not giving away money for nothing. They expect a return on their investment, and by and large they have gotten one. Corporate giving to right-wing groups has steadily increased as private sector leaders have seen the effectiveness with which conservative think tanks, and their armies of credentialed "experts," advance business interests in the political arena. Money, it turns out, can buy scholars as well as politicians.

The current gusher of corporate funding for right-wing policy work has its roots in the 1970s, when leading conservative thinkers appealed to corporations to fund intellectuals who supported their economic interests. In his 1978 book Two Cheers for Capitalism, Irving Kristol argued that corporations should make "philanthropic contributions to scholars and institutions who are likely to advocate preservation of a strong private sector." AEI scholar Michael Novak laid out similar arguments, and both men played a role in proselytizing this view in the corporate world, seeking to open up new funding sources for conservative policy institutions. At the same time, think tank entrepreneurs like Ed Feulner of Heritage and Edward Crane of CATO moved adroitly to cultivate corporate allies. At most conservative think tanks, corporate leaders now make up the overwhelming majority of board members. Even the American Enterprise Institute, among the most scholarly of conservative think tanks, has some two dozen corporate leaders on its board and only one academic, James Q. Wilson.

The extent to which conservative think tanks rely on corporate funding support varies widely. The American Enterprise Institute and CEI have two of the highest levels of corporate support, with both getting roughly 40 percent of their 1996 revenues from corporations. CATO also received major corporate support, although it does not release the exact percentage of its revenue that comes from this source. In 1996, more than 100 corporations contributed to CATO, including Bell Atlantic, Exxon, Microsoft, Phillip Morris, Citicorp, Netscape, R.J. Reynolds, and General Motors. Substantial CATO money also comes from private businessmen.

The degree of direct quid pro quo that accompanies private sector giving to right-wing think tanks can be hard to document. At the most extreme end of the spectrum lies an organization like the Employment Policies Institute, which was started by a group of restaurant companies and gets most of its annual budget from corporate sources. EPI's sole purpose, it seems, is to produce studies opposing labor regulations, increases in the minimum wage, and other policies that benefit workers. Likewise, the American Legislative Exchange Council, which seeks to shape state policies, is also largely a creature of the private sector--so much so that business leaders sit on all the committees that shape ALEC's policy work.

The Independent Institute appears to be somewhat more autonomous. Its funding comes from a range of corporations, foundations and individuals. How beholden it is to a single one is hard to say. However, according to the Times article, Microsoft provided some 20 percent of the money that the Independent Institute raised during its last fiscal year, or over $200,000. In addition to the newspaper ads, Microsoft money helped pay for an Institute book that sought to systematically debunk the government's antitrust case.

Often, the link between the agenda of conservative think tanks and corporate interests is sporadic, tied to specific policies and projects. For example, in the mid-1990s, the Progress and Freedom Foundation, an institute closely tied to then-House Speaker Newt Gingrich, launched a major project on restructuring the Food and Drug Administration. Financing this work was at least $400,000 in contributions from drug, biotechnology, and medical-device companies. These companies have also given hundreds of thousands of dollars, perhaps millions, to a range of other right-wing groups that launched an unprecedented attack on the FDA during the 1990s.

Elsewhere, CATO's huge Social Security privatization project has been underwritten by $2 million or more in corporate money, much of it from financial service companies which would directly benefit from privatization. Hedging their bets, these same financial companies have paid for privatization work at nearly a half dozen other conservative think tanks as well. The campaign against the 1997 Kyoto global warming treaty waged by right-wing think tanks has been another area where corporate America has heavily invested in right-wing policy groups that advance its interest. The Competitive Enterprise Institute has been a particularly aggressive advocate of the notion that global warming is a "theory not a fact." Since 1991, CEI's budget has grown from less than $1 million to over $4 million.

Perhaps no conservative policy group works more closely with private industry than Citizens for a Sound Economy. With a board composed almost entirely of corporate leaders, and most of its funding coming from business, CSE is essentially a think tank and advocacy organization for corporate America, regularly tailoring its policy campaigns to suit the needs of its donors. The Koch family, which owns an energy conglomerate and has major interests at stake in Congress, is one of CSE's largest contributors, funneling as much $1 million a year into CSE's coffers, both through Koch-controlled foundations and direct gifts. Contributions from numerous other corporations and industry groups have helped make CSE one of the fastest growing policy institutions in Washington. In 1996, CSE spent up to $5 million in a vigorous fight to roll back environmental legislation, concentrating fire on the EPA's Superfund, among other targets. More recently, CSE has joined the battle against the Kyoto treaty, helped lead the fight against the Microsoft anti-trust prosecution, and launched a number of other anti-regulatory campaigns in the areas of liability law, technology, and health care. Despite being funded almost exclusively by corporations, CSE has had surprising success at positioning itself as the grassroots voice of an anti-regulatory American public.

For corporations, bankrolling conservative policy groups offers benefits not found in spending on lobbying or political contributions. Most of all, money spent on think tanks helps to buy respect for the self-interested positions of private companies. In public policy debates, scholarly experts and data-filled reports can legitimize certain viewpoints far more effectively than lobbyists. Also, while lobbyists typically focus on influencing the legislative process, conservative think tanks target their marketing efforts on many different audiences of "influentials," as well as the public at large. In this way they can shape the national discussion on a given issue in a way that lobbyists cannot. The Independent Institute's work defending Microsoft, for example, has clearly been designed to shape elite opinion.

Another advantage of funding conservative think tanks is that these institutions are able to advocate policy views that have not yet won acceptance within mainstream politics. Whereas many legislators will only embrace certain policy positions when it has become safe to do so, conservative policy institutions actively work to reframe the terms of political debate. In recent years, these institutions have helped push a number of previously fringe ideas--such as privatizing Social Security or abolishing the federal welfare entitlement-into the mainstream of political debate.

And the price tag for this policy work can't be beat. All corporate contributions to conservative think tanks have the advantage of being tax-deductible. While giving money to politicians is a direct non-deductible expense, giving money to AEI or Heritage--non-profits that must be non-partisan by law--confers the same tax benefits as donations made to the United Way.

Depending upon one's ideological outlook, the growing link between the private sector and public policy organizations can be seen as either wholly innocuous or decidedly ominous. Defenders of these ties, including David Theroux, president of the Independent Institute, argue that corporate donations don't affect the work of think tanks. "The academic process we use is independent of the sources of revenue," Theroux told the Times. Undoubtedly, there is much truth to this claim. Given their world view, Theroux and his colleagues at the Independent Institute would probably be bashing the government prosecutors after Microsoft regardless of who gave them money. Ed Crane, president of CATO, was a dedicated libertarian long before he turned that institute into a leading mouthpiece for corporate America's deregulatory agenda. In this view, the corporate underwriting of conservative think tanks is merely a happy marriage between free-marketeers and self-interested donors, just as Irving Kristol had originally proposed. It is, moreover, perfectly legal given current tax laws. Microsoft may have egg on its face after the revelations regarding the Independent Institute, but it won't be faring more charges from the Justice Department.

At the same time, something is clearly wrong with this situation. First, while these donations are indeed legal, they raise troubling questions about the intent of tax laws governing the non-profit sector. How is it that Microsoft gets the same tax deduction for funding advertising on its own behalf, via the Independent Institute, that it gets for donations to the arts or other charities? It seems unlikely that this is what Congress and the Treasury Department had in mind when it crafted the non-profit tax exemption earlier in this century. A rethinking of these statutes is long overdue.

Second, whatever the David Therouxs and Ed Cranes of the world may say, it is naive to imagine that conservative think tanks aren't extremely beholden to their funders in the business world or to the corporate leaders on their boards. This is simply the way that the power of the purse works. Just as politicians can't ignore the demands of major donors if they want to survive, neither can institutions ignore their benefactors. (Needless to say, this article was not submitted to Microsoft-owned Slate magazine.)

Finally, and somewhat ironically, the growing sophistication with which private funding of policy organizations can now be used to shape public debate raises major questions about the long-term effectiveness of campaign finance reform. Real campaign finance reform would largely dam not one, but two of the rivers of money flowing into Americ's politics. If big-time corporate giving to politicians was prohibited, the clout of private sector lobbyists would rapidly fade, since these lobbyists could no longer demand access and favors in return for campaign contributions. Deprived of more direct outlets, much corporate money intended to influence politics would probably be re-channeled into research and advocacy organizations, further boosting the size of the conservative policy colossus. Certainly this possibility should be taken into account by the liberal champions of campaign finance reform.

But whether campaign finance reform happens or not, there is an urgent need for better counterweights to the corporate propaganda machines that call themselves public policy research organizations. The familiar lament, of course, is that the money isn't out there to beef up mainstream and liberal public policy groups like the Economic Policy Institute or the Center for Budget and Policy Priorities. This is a myth. In truth, the philanthropic resources available on the left easily equal those on the right. The problem is that for the past two decades, liberal and mainstream foundations like Ford, Rockefeller, and MacArthur have seriously under-funded public policy work. Instead, they have put most of their money "on the street," seeking to effect change at the community level.

Meanwhile, the right gambled heavily on a top-down strategy aimed at dominating the elite national political discussion. This, it is now clear, was the superior game plan. Belatedly, foundations on the left may be learning from their historic blunder. More money is flowing to policy work, and several new progressive think tanks have been founded in recent years, including the New America Foundation and the Florence Fund (the sponsors of TomPaine.com) in Washington, D.C., and PolicyLink in Oakland, California. Still, the left remains years--and tens of millions of dollars--away from achieving anything close to parity in the war of well-funded ideas.

DAVID CALLAHAN is author most recently of Unwinnable Wars: American Power and Ethnic Conflict.