Take the money and run: the uses and abuses of political funding

financing democracyBill Below, OECD Directorate for Public Governance and Territorial Development (GOV)

There is something ominous in the words ‘money in politics’. It evokes payoffs and payolas, fat cats, power brokers and kingmakers dealing in smoke-filled rooms, deciding the future of people not present. Perhaps more to the point, it highlights the natural tension between egalitarian ideals embedded in a strictly non-egalitarian society. Economist Arthur Okun talked about the double standard of capitalist democracy “professing and pursuing an egalitarian political and social system and simultaneously generating gaping disparities in economic well-being.” With those gaping disparities widening to historic levels, could it be that the political apparatus of democracy is failing to deliver?

Financing Democracy, The Funding of Political Parties and Election Campaigns and the Risk of Policy Capture, recently published by the OECD, explores the state of political finance reform in the OECD and beyond. It presents the positive role money plays in our democracies, but also expresses important caveats.

We live neither in oligarchies nor in libertarian free-for-alls. Our democracies are based on the principles of fairness and equality of opportunity (although not equality of outcomes). Castes and pre-determined assignments within social hierarchies are abhorrent to the democrat. While competition is a natural feature of life on earth, equality of opportunity is an artificial notion that has been added with care to the equation. It’s part of the part we built when we built our democracies. As such, it requires active protection.

How can we do that? First, by ensuring that the widest number of people participate in democracy. In the most recent elections for which data are available, one-third of the voting-age public in the OECD did not vote. Further, because the rich vote more than the poor and the older more than the young, essential voices in our democracies consistently go missing.

Second, votes have to be meaningful. When the needs of the rich and powerful are given priority, citizens lose faith. Trust in government is already low. But more importantly, we see a growing gap in trust levels between the educated public and the general public—signs of a society that delivers for some but not for all. Campaign finance reform sets out to ensure that the apparatus of democracy is responsive to all citizens and produces fair outcomes.

From an OECD-wide perspective, some interesting data emerge. For example, 35% of OECD countries set no limits on the amount a political party or candidate can spend. This can create problems not just in establishing a level playing field, but also in preventing runaway spending races. Yet, in some cases, no limits exist because there is no real need for them. A handful of countries on the list enjoy strong reputations for corruption-free politics. It offers a reminder that one-size-fits-all solutions don’t always apply in campaign finance reform.

If you limit contributions to parties and campaigns, spending becomes a non-issue—theoretically. Restricting private contributions is intended to limit the possibility of undue influence by vested interests. 35% of OECD countries have outright bans on contributions to parties and candidates from corporations. Of 25 OECD countries examined, 15 had ceilings on private donations from individuals to parties, candidates or both.

For most countries, the origin of contributions matters. 50% of OECD countries ban anonymous donations and 38% have bans above certain thresholds. 68% of OECD countries ban donations from foreign interests to political parties and 56% ban them to candidates. This said, globalization has made it increasingly difficult to separate domestic from foreign interests. At least USD 18.1 million, and likely much more, was directed by foreign banks, telecom operators, liquor manufacturers and other industries to the US 2012 presidential campaign. Of the top 20 contributions to the campaign from foreign-owned firms, nearly 60% went to Republican candidates.

State contributions help political parties conduct their daily business and reduce dependence on private funding for parties and campaigns. All OECD countries, with the exception of Switzerland, provide public subsidies, most allowing mixed systems of public and private funding. But rules matter. Public funding ultimately helps to make the state an arbiter of who competes in elections. International recommendations suggest that the threshold for public funding should be lower than the electoral threshold to ensure that new parties and small parties have access to the political arena and can compete under fair conditions. Not doing so could lead to a cartelization of political parties, according to the report.

A variety of oversight arrangements exists across the OECD, with 47% of members having either an electoral management body (EMB – 29%) or other specialized institution (18%). In the majority of countries, the oversight function is handled by one or more existing institution. But not all bodies are granted effective monitoring and enforcement powers or possess sufficient resources. Also, sanctions can be insufficiently dissuasive.

Streamlined, online reporting practices can enhance the effectiveness of oversight bodies. Yet, only a few countries in the OECD—Estonia is a shining example—have so far managed to ensure that political finance reporting is standardized, machine readable, comparable and easily accessible for public scrutiny.

Third-party spending presents an emerging challenge. It can constitute a means of re-channeling election spending through committees and interest groups that are independent in name only. Political Action Committees (PACs), ubiquitous in American politics but also present in different forms in other countries, fall within this category. These are sometimes referred to as non-party campaigners and may include charities, faith groups, individual or private firms that campaign but do not stand as political parties or candidates. Few OECD countries currently have regulations for third-party campaigning.

Super PACs may raise unlimited amounts of money from third parties in favor of a candidate (or against the candidate’s rivals) but are prohibited from giving money directly to the candidate or coordinating with the campaign. Super PACs grew in the US after a 2010 Supreme Court decision protecting the free speech rights of independent, expenditure-only committees. Yet, loopholes and disclosure issues present challenges. Super PACs are taking on increasing amounts of basic campaign work. Meanwhile, in the 2012 election cycle, $9.6 million was spent by non-disclosing groups (whose donors are generally known to party leaders but not made public), growing to $15 million in 2014 and $23.6 million for the present year, with elections still 7 months away.

But even with unlimited contributions, campaign spending can be notoriously unreliable for those seeking a solid return on investment. In July of 2015—a full year before the US presidential primaries—one candidate’s super PAC had raised 100 million dollars, 10 million of which was from a single corporate donor. By February, that candidate had dropped out of the race.

The length of campaigns impacts the money required by parties and candidates. In Australia, federal election campaigns last approximately six weeks. France’s presidential campaign lasts for two weeks preceding the first ballot. Campaigns for seats in France’s lower house last for 20 days prior to the first ballot. In the UK, the campaign period is typically six weeks. Combined party spending for the UK 2010 general election was estimated at USD 48.5 million. By contrast, in the US, where elections are long, the cost of elections in 2012 was close to USD 6 billion. Michael Toner, former Chief Counsel to the Republican National Committee and former chair of the Federal Elections Commission, added some perspective: “Americans last year spent seven billion dollars on potato chips – isn’t the leader of the free world worth at least that?” Surely. But long, protracted campaigns and uncapped spending contests have consequences, notably the huge amount of time politicians must dedicate to fundraising—from 30% to 50% of their day for a member of the US House of Representatives. Somewhat perversely, it is time spent listening to the needs and wishes of rich donors rather than the voices of a more representative selection of constituents.

Are our democratic processes more responsive to the rich than they are to the poor and the middle class? Studies in the US point to a distinct difference in policy concerns between the affluent and the middle and lower classes, and persistent bias in policy outcomes towards the rich (Gilens and Page, 2014). As hosts to growing inequality, it is incumbent upon governments to do everything in their power so that our democracies are able to deliver on their promise of equality of opportunity and fairness for all. The OECD’s Framework on Financing Democracy identifies pathways towards averting policy capture, ensuring transparency and accountability, fostering a culture of integrity and ensuring compliance and review.

In the meantime, power and money will continue to hold court.

Useful links

Fighting corruption in the public sector

OECD Directorate for Public Governance and Territorial Development

‘Financing Democracy, The Funding of Political Parties and Election Campaigns and the Risk of Policy Capture’, OECD, 2016

Arthur M. Okun, ‘Equality and Efficiency: The Big Tradeoff’, The Brookings Institution, 1975

Martin Gilens and Benjamin Page, ‘Testing Theories of American Politics: Elites, Interest Groups and Average Citizens’, Perspectives on Politics, Volume 12, Issue 03, 2014

Guest author

4 comments to “Take the money and run: the uses and abuses of political funding”

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  1. Charles Kovacs - 02/05/2016 Reply

    Charles Kovacs permalink
    May 2, 2016

    This is a very interesting post and given its subject matter it is presumably meant only for the OECD’s member countries, as in most non-member states free elections are scarce and consequently campaign financing is perhaps the least of their problems. With regards to functioning democracies, the following may be worth noting:

    1. A higher proportion of the rich may vote than of the poor, but since the rich are much fewer than the poor, this is not likely to have a great impact.

    2. If “one third of the voting-age public in the OECD did not vote” it is not because they were prevented but because they were not interested or did not think it was worth the bother. This is worrying for the future of democracy and perhaps a justified sign of alienation from the way democracies have performed.

    3. There is an assumption in the post that “the needs of the rich and powerful are given priority…” This is subjective, but I think few of the rich and powerful would agree that their needs have such. Governments and the political class have certainly lost credibility, but this has been due mainly to their inability of address issues of importance for the middle and working lower classes, e.g. law and order, immigration, declining standards of public sector schools, hospitals, etc. etc.

    4. These problems are unlikely to be solved by more regulations on campaign contributions, but the post certainly offers an excellent overview of the nature and scope of such regulations. The nit I would pick is that if the US election campaign in 2012 cost $6 bn, then the $18 mn of contributions from foreigners must be either a misprint or just irrelevant. Nota bene also, that right now Senator Sanders has been raising $40 mn per month from dribs and drabs while running against a candidate all but anointed by her party and most of the media.

    5. The poor have done quite well in democracies, considering the amount of money spent on them and considering that they are a small minority in most of the member states. Unfortunately, only a part of the money appropriated for the poor has reached them, blame it on inefficiency, bureaucracy, even corruption and if we had credible governments, the voters might well be inclined to spend even more; no one likes to see poverty. As it is, democracy is in crisis and one hopes that the OECD will examine this from something other than an economic and regulatory perspective.

  2. Philip Hodkinson - 05/05/2016 Reply

    I am quite old now, but I well remember this subject being to the fore in my youth some 60 years ago.
    It was the Communist chant about the “one percenters” holding 90% of the countries wealth.
    Within the democracies, give or take a few percent, this of course was very true. However it is all a matter of scale and information. It is one thing for radical (?) politicians to rant about it on street corners, but something totally different to have the situation highlighted in the press, showing perceived “celebs” flaunting their wealth. Social media is used by almost everyone under 40 where images and company advertising hammer home what can and can’t be afforded.
    As is said the gap is growing to obscene proportions.
    The result of this, in my view, has been the total deterioration in trust in our politicians of either hue. They are seen as cereer seeking opportunists with little or no integrity, political or otherwise. This disillusionment has reached epic proportions in UK, the attitude of, “well what can I do about it” prevails.
    I understand the appathy of the younger members of our society. 60 years ago you knew which side you were on from an early age, the 11 + categorised you initially. One side then separated into un-skilled work, or skilled work, with the chance of advancement. The other into higher education, again separating into grammar schoolers, to go into business or managerial situation and again higher into university and, dare I say it, Politics.
    In other words we knew our place which kept us politically motivated, well most of us anyway.
    Today, most of those situations are still there, despite relative notional improvements in opportunity of education. Mainly because the majority of those skilled jobs no longer exist, leaving a very large group saying “where do I fit in”?
    The situation of the other group has hardly changed, as we seem to see ever more managers in places there were never any before and advances in technology has given the group further room for expansion. Unfortunately the failings of our much interfered with education system, have disenfranchised what I classified as the skilled group from meeting the requirements for this type of work. Consistent attacks by government on our capacity to manufacture anything at least means the unskilled group have plenty of opportunities to work for basic minimum wage.
    My youths polarised society knew what we wanted and fought for a lot of the changes that have developed. Todays polarised society seems cast adrift some how. It knows what it wants but feels unable to get there leading to a growing anger.
    History tells us that if this situation is not resolved sufficiently well to re engage this large part of out society, those that have no will eventually take from those that have.

  3. Charles Kovacs - 05/05/2016 Reply

    I very much enjoyed and agree with Mr. Hodkison’s post. I would add to his concluding warning only that while historically true, taking from the rich did not bring much joy to the poor. The French Revolution may have been the single exception, but it brought lots of death with the Reign of Terror and the 24 years of war till 1815.

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