Democratic politics cannot proceed without financial resources. Political parties would be unable to organise themselves, politicians could not communicate with the public, and election campaigns could not be held if money was not collected. Therefore political funding is not only indispensable, it is also desirable.
Nevertheless, the financing of politics has led to severe problems in most democracies. The first lesson from Western experience is that there are no simple solutions to these difficulties.
Problems of Political Finance
Money lies at the root of several political evils:
(1) Corruption.
Politicians and parties may be tempted to give improper favours in return for political contributions. The search for funds has often led to corruption. See also Controlling Fraud, Corruption and Unfair Practices.
(2) Unfairness.
Money may lead to unfairness and may distort electoral competition. If one party is able to attract disproportionately large funds from some very wealthy supporters, it stands to gain a considerable advantage over an opposing party. A well funded campaign will be able to employ a larger staff and to pay for a greater number of posters and advertisements. It is hard to assess scientifically the extent to which superior resources win votes. A huge budget is no guarantee of success. Yet there are circumstances where the candidate with the largest budget has a clear advantage.
According to a sophisticated study by Professor Gary Jacobson, the size of the campaign budget has a vital effect on results of contests for the U.S. House of Representatives. In particular, a candidate who wishes to gain victory against an incumbent member of Congress has little chance without a large campaign budget. In 1972 and 1974, candidates who challenged sitting Congressmen gained an extra 1 percent of the vote for every $10,000 they spent on their campaigns. In view of the large sums spent in the elections, these results are striking. See also Level Playing Field, Fairness.
(3) Financial barriers against standing for political office.
If electoral success depends on access to money, citizens who are not rich may be deterred from putting themselves forward as candidates for public office. The health of democracy demands that members of every group - rich or poor - should be able to undertake a career in politics.
Recent Scandals
Events in Western countries show that these are dangerous problems. The verdict of the German scholar Professor Wildenmann on the position in his own country applies equally to others. German 'practices of party finance,' he wrote, ' are the dark spot of today's representative government'.
Some of the most serious political scandals of the 1980s and 1990s have concerned abuses and alleged corruption involving contributions to political parties. At worst, politicians have been charged with accepting money from criminals, either for their private benefit or for campaign funds.
The downfall of the Christian Democrats in Italy has stemmed largely from accusations of their financial connections with the Mafia. In Japan, the political crisis and the challenge to the ruling Liberal Democrats in the early 1990s also centred around a series of scandals involving payments to politicians for their (huge) election expenses. France is a third country where new regulations concerning the funding of politics have been introduced in the wake of allegations of corruption.
In Britain, the problems have been less serious. Nevertheless, charges in the national press against the Conservative party led in 1993 to an investigation by the Home Affairs Committee of the House of Commons into the funding of political parties. The Labour Government, which came into office in May 1997 is committed to introducing reforms. In November 1997, Prime Minster Blair asked a Committee on Standards in Public Life ('The Neill Committee') '[t]o review issues in relation to the funding of political parties, and to make recommendations as to any changes in present arrangements.'
In the United States and Germany regulations about political funding - originally introduced as a response to corruption - have produced new problems which have created a seemingly endless series of 'reforms of reforms'.
Leaders and parties of all political persuasions have been involved in scandals. In Belgium, the charges of misconduct relating to political funding concern the political Left, including Mr Claes. In Italy, the party most affected has been of the Right. In Germany, the most notable feature of the 'Flick Affair' of the early 1980s was the fact that senior politicians of all the main parties had allegedly disregarded the laws.
Types of Regulations
Since the Second World War, most of the Western democracies have introduced legislation designed to control the abuses related to political finance. Governments have attempted to regulate and subsidise political funding in a variety of ways:
- Limits on expenditures. For example, ceilings on permitted spending by each candidate for parliament or by each of the national party organisations.
- Contribution limits. Restrictions on the amounts an individual is permitted to donate.
- Disclosure regulations. Mandatory declaration of the names of contributors to campaigns and to parties and disclosure of the amounts contributed by each.
- Bans against certain types of contribution. For example, the regulation or restriction of political payments by business corporations, trade unions or foreign organisations and foreign citizens.
- Bans against certain types of expenditure. For example, bans on bribes to individual electors, on drinks and meals for electors ('treating') and bans in some countries on the purchase of advertising time on television for party propaganda.
- Measures designed to encourage donations: Tax reliefs, tax credits and other forms of tax remission on political donations.
- Subsidies-in-kind: The provision of free or below-cost facilities for parties and candidates. For instance, free postage for election literature, free or subsidised facilities to parties for broadcasting on television or radio.
- Public subsidies: Financial payments to parties or candidates from public funds.
Objectives of the Regulations
The purposes of legislation have varied from country to country depending on the particular problems which have acted as the spur to reform.
(1) Controlling Corruption.
This has been a primary aim of most reform efforts. A common argument for making it compulsory to declare political contributions is that this is likely to deter politicians from entering into shady deals in exchange for contributions, (see also Political Participation)
(2) Promoting Fairness.
The purpose of restricting the amount that politicians are allowed to spend is not only to control the demand for donations (and thereby to limit the scope for corruption), it is also to reduce the disparities of resources between rich and poor political organisations, see Level Playing Field, Fairness
(3) Controlling the rapid rise in the costs of campaigning.
(4) Promoting vigorous political parties.
Proponents of financial subsidies to parties stress that democracy requires strong and competitive parties. If parties are to be able to present themselves to the electors, and if they are to be able to research into alternative policies, they require the finance to employ adequately sized staffs. The best way to ensure that parties have sufficient resources to carry out their democratic functions is to give them subsidies from the public purse. This argument comes typically (though not exclusively) from the political Left.
(5) Encouraging grass roots participation.
An opposing view is put forward, especially from the political Right. According to this view, the essential characteristic of democratic parties is that they are voluntary organisations that rely on the support and efforts of members. They should depend neither on the state nor on large, private contributions. Their finances should be based on a large number of small subscriptions.
In one-party systems, under which membership of the ruling party brings material advantages, people are likely to join for the sake of their jobs and careers. By contrast, participation in political activities in a competitive party system does not bring these benefits. Leaders of democratic parties in multi-party systems need to attract followers who will give their support for idealistic reasons. It is therefore important for democratic parties to receive financial donations, but in addition to receive help in the tasks of electioneering from ordinary members. It follows from this view that a main aim of regulations of political funding should be to encourage wide individual participation through small-scale payments and subscriptions. This objective is of particular importance in a new democracy in which party organisations are weak and need to recruit members, also see Political Participation.
It is sometimes argued that it is unrealistic to expect political parties in areas of the world where incomes are very low to collect significant funds in membership subscriptions. In these conditions, the only available sources of money are grants from public funds or from foreign donors. But there are strong grounds for objection to this view. There is a special danger in such countries that the organic growth of parties may be stifled by 'gold poisoning' in the form of such grants. If party leaders
are able to benefit from financial aid, they will frequently lose their local roots. Parties in a considerable number of new democracies have been damaged by well-meaning, over-generous, short-term financial subventions.
Why are Political Financing Regulations Often Evaded ?
It will be useful to outline some of the ways in which the reforms of recent years have been evaded. An examination of these techniques by which laws are ignored will provide warnings, as well as the benefit of experience, for the legislators of today. The leading German scholar, Karl-Heinz Nassmacher, has summarised the difficulties experienced by reformers in Western nations:
Political practice of almost two decades has re-emphasised the general paradox of constitutional reform measures. Implementation of reform legislation breeds the need for more (and more complex) reform legislation. The elaborate restrictions designed to control the flow of money into the political process have encouraged the professional politicians to engage in a creative search for potential loopholes either in the application of the existing law or when drafting necessary amendments.17
Similarly, Herbert Alexander, has stressed the 'pitfalls' of ill-considered reform proposals. Reform legislation has a tendency to create new and unexpected problems. Evidence for this is the series of unending 'reforms of reforms' in a number of countries such as France, United States, Italy and Germany.
See also Loopholes.
Why has it proved so hard to devise satisfactory laws to regulate political finance? There are at least two basic reasons.
(1) Loopholes.
Although contributions to political parties and to election campaigns are two of the most important and most direct channels through which money may be use to influence politics, they are not the only ones. Restrictions on the financing of parties and elections are likely to prove ineffective if other forms of 'politically relevant' financing remain unchecked. The vital issue of loopholes is discussed in another entry, see Loopholes
(2) Inadequate enforcement.
In a field as controversial and complex as the funding of parties and campaigns, laws require effective supervision and implementation. As Khayyam Paltiel put it:
'Enforcement demands a strong authority endowed with sufficient legal powers to supervise, verify, investigate and if necessary institute legal proceedings. Anything less is a formula for failure.'
See also Breaches and penalties.
Germany provides a dramatic example of non-enforcement of the law relating to political money. The revelations of the early 1980s surrounding the 'Flick Affair' suggested that there had been some 1,800 cases of infringements of the law involving all the main parties, some of the most senior political figures and many of the country's top business corporations.
Writing in 1994, Alexander and Rei Shiratori reported that in Italy a belated investigation was uncovering abuses of many years.
'The inquiry, called 'Operation Clean Hands,' has claimed the lives of seven high ranking officials, including a former minister who committed suicide after being formally notified that they were under investigation for violating laws on party financing. So far, 1,500 politicians - including two former prime ministers - and businessmen have been imprisoned or interrogated and six Government ministers and four heads of major political parties have resigned their posts'.18
The issue of enforcement nevertheless poses another dilemma. On the one hand, laws are of little value unless they are enforced. On the other hand, the demands of accountability may prove so onerous that they will themselves add greatly to the costs of campaigning and will deter ordinary citizens from standing for political office. This has been the experience of the United States. Here, regulations about the disclosure of political donations and about maximum permitted payments by each donor have become so complex that candidates have been obliged to employ specialist lawyers and accountants. Election law has been a burgeoning field of activity - and of profit - for the legal profession.
These warnings are not intended as a counsel of despair. However, they are intended to encourage care and caution. It is vital to consider the details as well as the principles of any intended legislation concerning political finance.
In light of the many complexities involved in controlling political financing, laws need to be considered with care. Regulations are valueless unless a well-planned, professional and neutral system of implementation is created. Two of the most promising types of regulations are those providing for free broadcasting time for parties during election campaigns, and for tax incentives (or matching grants) for small donations.
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