It is here that the analogy between business and politics breaks down. For there is a fundamental incompatibility between the ethos of modern democracy and that of modern business with respect to the returns on investment. In theory, a donor to a political party is making a gift, no different in purpose from a donation to a charity distributing medicines to the poor of Africa. The ‘return’ on a gift is the intangible fulfilment of an ethical imperative. In practice, most large political donors do expect a return; and in that sense they regard payments to politicians as investments, or at least insurance premiums, rather than pure gifts. But precisely this idea of a policy return on a political investment is regarded as illicit by most liberal political theorists – a view shared by the electorate. It is primarily for this reason that most democracies have introduced legislation to regulate political finance. The effect of this legislation, however, is to distort the political market so much that parties are simply unable to behave in the way that firms in other sectors do.
FROM PRIVATE TO PUBLIC CORRUPTION
Politicians have an interest in trying to limit the costs of electioneering. The public has an interest in limiting the influence of rich donors over policy.60 These may seem straightforward rationales for regulating political finance. But both statements need qualification. For politicians, the costs of election campaigns pose a classic game-theoretical problem akin to the famous prisoners’ dilemma. If two rival parties co-operate to limit campaign expenditure, the total cost of an election is held down to the benefit of both winner and loser. But the temptation not to co-operate is very great, since the benefit of winning – power – exceeds the cost of even an expensive election. Whatever the rules say, both ‘prisoners’ are likely to renege on any deal in the belief that doing so may secure victory. At the same time, the public has an interest in leaving the cost of running political parties to someone else. The reluctance of individuals to join political parties suggests a fundamental lack of interest in this form of representation. If rich individuals and corporations are willing to pick up the bill for election campaigns, the majority of voters may not object, even if the result is that elected representatives are ‘in hock’ to investor-donors. It is these dilemmas that make the regulation of political finance so difficult.
A clear majority of democracies now have some kind of statutory control of campaign finances: only the Netherlands, Sweden and Thailand do not. Most democracies have sought to regulate party finance in three ways: by trying to cap political expenditures; by trying to cap private donations; and by offering public funding to political parties as an alternative to private money. In Britain limits on local expenditures date back to the Corrupt Practices Act of 1882, which imposed a ceiling on candidates’ individual election expenses (excluding Returning Officers’ charges) according to the number of electors in a constituency. This had the effect of halving the average amounts spent by those contesting seats. The expenditure limit in the late 1980s, following successive revaluations in every general election since the 1960s, was £3,240, with an additional 3.7p for each voter in the counties and 2.8p in the boroughs.61 Certain types of expenditure by candidates have also been outlawed, such as radio transmissions, posters, transport to and from the poll, and bribery in cash or kind.62 Only recently has the idea of a cap on central spending been raised. In October 1998 the Committee on Standards in Public Life chaired by Lord Neill recommended that national general election spending be limited to £20 million per party; and that campaigns by pressure groups on behalf of parties should not exceed £1 million in cost. To adopt this would be to follow the example of Canada, where the Election Expenses Act of 1974 placed strict limits on party spending both at the centre and in the constituencies.63 The Canadian experience, however, shows that spending caps do not necessarily narrow gaps between different parties’ financial strength. Campaign expenditure limits have simply caused parties to focus their attention on their regular operating costs.64 Most countries now also impose at least indirect caps on expenditure by banning paid-for political advertisements on television (only 12 out of 45 countries in a recent survey allow these, while France also bans press advertising, posters and even freephone lines). Here too the effect is more to divert than to dam the flow of expenditure.
Attempts to restrict expenditure in the United States have been more limited. Amendments to the Federal Election Campaign Act of 1974 aimed to impose mandatory spending caps; but these were struck down by the Supreme Court in 1976 (Buckley v. Valeo), on the ground that they limited free speech and therefore violated the First Amendment. As a result, the main check on political finance is the $25,000-a-year ceiling on an individual’s political donations which was the 1974 Act’s main provision; and the more recent ban on foreign donations.65 In theory, companies and trade unions were also banned from contributing under the Act, though ‘voluntary contributions’ by shareholders or employees were declared legal in 1975.66 More importantly, the two main parties’ National Committees have been able to raise hundreds of millions of dollars in ‘soft money’ for ‘party building’, ‘getting out the vote’ and other purposes supposedly not specific to particular candidates’ campaigns. In practice, the ‘issue ads’ funded by soft money are indistinguishable from other campaigning propaganda.
The only real check on American political finance, then, is the fact that information on the sources of campaign funds is relatively easy to obtain: all donations over $250 have to be declared. Other countries (including Britain and Canada) rely mainly on disclosure rather than ceilings to regulate private donations. Thus Lord Neill recommended that only foreign donations to British political parties be banned, but that all national donations in excess of £5,000 should be declared. In Germany any gift of more than DM20,000 ($10,300) must be published; in France anything above a mere 1,000 francs ($150). The French also limit donations to Assembly candidates to 50,000 francs.
The regulation or limitation of private political donations forms part of a wider transformation of party finance, however. Nearly all democracies have gone a step further by offering substantial public funding directly to parties. Only around seven democracies today give parties no direct subsidies, though systems vary (the most common gives money to parties on a per vote or per seat basis). Today – startlingly – ‘it is only in the Netherlands, the UK and the US that “private” sources of party funds … still constitute a larger share of revenue than that which comes from the public purse’.67 Moreover, thirteen systems give additional indirect subsidies (such as tax breaks for contributions to parties, as in the United States, Canada and Germany); while at least twenty-three democracies give parties free television air-time.
Even in Britain public funding of parties is growing. Between 1979 and 1992 the principal Opposition parties received more than £9 million in so-called ‘Short money’ to assist their parliamentary work: Labour alone received £7.2 million.68 This is intended to counter the advantage enjoyed by the party in power in the form of civil service resources. In addition, meeting-halls, postal services and television air-time are provided free at election time; while gifts to political parties are exempt from some taxes.69 In the United States, too, state funding is more extensive than is generally recognized. The Presidential Election Campaign Fund matches the first $250 of each individual contribution made to primary candidates in return for a promise that they will remain within an inflation-adjusted fund-raising limit; and then gives presidential candidates a lump sum in return for not accepting any further private donations. In 1996 the two main candidates received about $13.5 million apiece in Federal Matching Funds. Each major party is also entitled to a public subsidy ($11 million in 1992) to cover the costs of the presidential nominating convention.70
The role of the state is proportionately greater in Europe. Already in 1989 state payments to Irish parties amounted to I£4 million, compared with total party income from other sources of just I£2.7 million.71 In Holland state funding as a share of party income ranges from 14 per cent to
31 per cent.72 German parties which gain more than 2 per cent of the vote have their election expenses automatically reimbursed, while the state pays increasing amounts to the ‘party-near’ foundations like the Social Democrats’ Friedrich Ebert Stiftung. The number of party Fraktion employees paid for by the state has also risen from 115 in the 1960s to 619 in the late 1980s; and Bundestag deputies contribute a share of their salaries to their parties, which could be regarded as a form of state funding.73 After a series of arms sales scandals, the French introduced state reimbursement of presidential candidates, amounting to 6 million francs if they attracted less than 5 per cent of the vote on the first round of the contest, and 30 million if they were able to get more than 5 per cent. Central parties were granted their own subsidies, which amounted to 262 million francs by 1991.74 Almost everywhere in Europe the story is the same:
In Denmark the total direct public subsidy to the main parties increased from 57,262 krone in 1965 to 72.4 million in 1990.75
In Austria national and regional subsidies for parties have risen in the past twenty years from less than 400 million schilling to around 1.75 billion.76
In Italy state funding to parliamentary groups and election campaign funds rose from 60 billion lire to 183 billion between 1974 and 1985.77
In Norway the total state subsidy to the parties has risen from 8 million krone in 1970 to 58.7 million in 1991.78
In Spain parties’ private fund-raising is limited to just 5 per cent of their state subsidy.79
Indeed, it is not too much to say that the political parties of the West are slowly being nationalized. They run the risk of becoming mere appendages of the state.
But is state funding a genuine remedy for the problem of corruption (to be precise, of conditional private donation)? Or might it be (as Karl Kraus once said of psychoanalysis) ‘the disease of which it pretends to be the cure’? In the first place, it is far from clear that public funding displaces private funding. It may just as easily supplement it, even when caps are imposed on private funding. Despite public subsidies, it has been estimated that Italian parties received a total of 60 billion lire a year (in 1986 prices) in illegal funding between 1979 and 1987. Another estimate of these tangenti in 1993 put them at a staggering 3.4 trillion lire a year, ten times the parties’ official income.80 State funding does not seem to have sufficed for the German Christian Democrats either: witness the sums raised illegally by the party under Helmut Kohl, some allegedly originating in bribes from arms deals, some allegedly from the French state oil company Elf, some perhaps even from the assets of the East German Communists.81
Even if such malpractice can be prevented, it must seriously be doubted whether the increasing identity between political parties and the state is desirable. If one views the modern state as the impartial arbiter of Weberian theory, this may indeed be a step towards the nirvana of ‘unpolitical politics’. But if one regards the state as possessing a ‘grabbing hand’ – as being the custodian of its own self-interest, rather than the public interest – then it is disquieting to see the political parties losing their traditional autonomy. In the old German Democratic Republic there were a variety of political parties when people went to the polls: but they were all integral parts of the state and therefore constituted no real alternative to the Socialist Unity Party. Western Europe will end up recreating a rather different but no less artificial democracy if once independent parties become beholden to Finance Ministries. What is the electorate to make of politicians who seek election in order to pay themselves money … to seek re-election?
TOWARDS THE POLITICAL MARKET
Clearly, no amount of regulation is likely to reverse the organizational evolution of established parties from mass-membership voluntary associations in to quasi-firms, bidding with ever more sophisticated and expensive campaigns to manage ‘Welfare plc’. Increasing regulation of party finance may serve merely to increase the level of hypocrisy and mendacity in democratic life.
One possible development is that, partly because of the regulations imposed on them, the established parties may find themselves challenged, if not actually replaced, by single-issue pressure groups or (as they prefer to be called) non-governmental organisations (NGOs). In Britain today, around twenty times more people belong to voluntary or self-help groups than are members of political parties.82 The Royal Society for the Protection of Birds alone has more members (a million in total) than the three principal political parties in Britain put together.83 The protracted debate about whether or not to ban fox-hunting in Britain nicely illustrates the different forms such new ‘grassroots’ organizations can take: on the one hand, a number of comparatively small but aggressive and active animal rights’ groups; on the other, a loose ‘alliance’ of hunters, farmers, rural dwellers and suburban sympathizers. What is more, electronic communication clearly makes it easier than in the past to mobilize large numbers of people rapidly in support of a particular cause.
Yet it is striking that, to date, the opponents of hunting have come closest to achieving their aim – a nationwide ban on hunting with hounds – by donating, Eccleston-fashion, £1 million to the Labour Party. This kind of interaction between extra-parliamentary organizations and parties is not new: similar roles were played by the Anti-Corn Law League in the mid-nineteenth century, the Temperance movements in both Britain and the United States until the 1920s, or the Campaign for Nuclear Disarmament and its continental equivalents in the 1950s and 1980s. To say that single-issue groups will play an important role in the democracy of the future is to say, once again, that the future will be like the past. The difference is that today’s pressure groups, like today’s parties, must organize themselves in a far more business-like way than those of the past. And although they can currently count more on voluntary support than established political parties, sooner or later the NGOs are likely discover that the costs of effective lobbying in an increasingly expensive political market are outstripping their revenues from membership dues and one-off appeals. In strictly economic terms it is not efficient to create a new political organization, with all the attendant overheads, each time one wishes to achieve a policy objective. One reason the Liberal Party came into existence in the nineteenth century was precisely because a host of Victorian single-issue groups saw the wisdom of pooling their resources for the purpose of securing power in the legislature.84
The real question is whether or not the established parties should be freed from the present, largely perverse, constraints on their activities. What would be the effect of ending not only the restrictions on private funding of political activity but also the anomalies in the system of public funding? Suppose that instead of disbursing taxpayers’ money to all candidates for election to parliament, there was a redistribution of resources to make ministerial salaries comparable with equivalent private sector employment. It is at least possible that high ministerial salaries would attract more talented people into politics as a career, while reducing the pressure on ministers to act on behalf of rich backers when in office. Suppose too that the only regulation imposed on party finance was the requirement to disclose the source of donations and to publish accounts to the standard expected of public companies.
The conventional argument is that such a ‘free market’ in politics would benefit the rich and exclude the poor from political influence. Perhaps it would – though it would not change the fact that in a democracy all ‘shareholders’ in the state have equal voting rights, regardless of their contributions to party finances. A party whose platform consisted of tax cuts for the top 0.5 per cent of taxpayers might raise a fortune in donations from the rich, but would almost certainly lose to a party that campaigned to deliver improved public services without altering the tax burden – provided the second party could secure a donation of at least a pound from every beneficiary of such a policy. On balance the risks of a political free market may be less than the risks of excessive regulation.
The essential point is that political parties – tho
se essential institutions of a functioning democracy – are being denied the funding they need by rules aimed to curb private influence, and at the same time forced into an unhealthy dependence on the state. Yet the stigmatizing of private donations to parties is in many ways irrational; it is a little like saying that the rich should not be allowed to buy more shares in a company than small investors, or to donate more money to charity than average earners. Worse, the nationalization of the parties threatens to replace genuine competition between free political associations with the machinations of a homogeneous state apparat.
The Cash Nexus: Money and Politics in Modern History, 1700-2000 Page 33