On state funding of parties

The cash for Cameron affair, says Hopi, reignites the arguments for state funding of political parties. The economist in me finds the case ambiguous.

The case for state funding lies in the fact that private funding of parties is prone to a market failure identified by Robert Frank - that it produces too much competition.

A party’s spending on an election campaign is a positional good, in that its payoff depends not on the absolute sum spent, but upon how much it spends relative to its rival; spending £20m succeeds (ceteris paribus) if your opponent spends £15m, but fails if it spends £25m.

This rank-dependence means that party funding becomes like an arms race, in which both parties compete too hard to raise funds, with socially sub-optimal consequences such as the danger of corruption. As Frank writes:

The dependence of reward on rank eliminates any presumption of harmony between individuals and collective interests, and with it, the foundation of the libertarian’s case for a completely unfettered market. (The Darwin Economy, p11)

There’s an analogy with drugs in sport. Under free competition, every athlete would have an incentive to take drugs. But if everyone does so, each individual’s chances of winning doesn’t change. All that does change is that athletes jeopardize their lives.

A cap on party donations works like a drugs ban in sport. It removes the unhealthy element of competition. The case for state funding is that the tax-payer must make up the lost money.

There are, however, three other considerations:

1. State funding  would change politicians’ incentives. The Telegraph says that “forcing taxpayers to pay for party politics risks making politicians lazy and out of touch.” This, though, is not clear. If parties had to appeal for many small donations rather than a few large ones, they might actually try harder to stay in touch with the public.

Not that this is necessarily a good thing. If you take the Burkean view that politicians owe us not just their industry but their independent judgment, it might be no bad thing if they become out of touch with the populist mob.

The only point here is that incentives would change, and we should try to think how.

2. Political parties are not so much a public good as a public bad. They tend to limit the frame of debate - squeezing out worthwhile positions such as Marxism, libertarianism or anti-managerialism from public discourse. They encourage a narrow-minded tribalism. And they provide a career path for would-be MPs to become researchers and special advisors, thus encouraging the creation of a political class separate from the rest of society. These are negative externalities that should not be promoted with tax-payers' money.

3. A legal cap on donations is not the only way of preventing an arms race. As we saw on Sunday, a free, investigative press can also police party funding.

The economic case for state funding of parties is, therefore, not clear.

But the economic case is not all there is. There’s also the matter of freedom. This speaks against capping donations - a man should be free to donate to a party, as long as he’s not buying policy - and against using the tax-payers’ money. I’m not sure if any argument is powerful enough to trump this.

Comments

[Luis Enrique]

looks to me like the case for state funding is strong - what are your points against? point 2. isn't really relevant whilst we still have political parties and need to figure out how best to fund them. point 3 is pretty weak - we get the odd scandal but nothing that really addresses the arms race structure or removes the tendency for corruption.

[william]

"a man should be free to donate to a party, as long as he’s not buying policy"

But if your party needs the money, won't you just change your policy to improve the chances of large donations? So a large donation is going to influence policy more than a single vote.

[Paolo Siciliani]

One of the problem with state funding is that it is a barrier to entry and expansion for new parties when funding is based on past electoral results (which is the most obvious allocation mechanism). The other problem is that being a positional good there are a multiplicity of equilibria in that it isn't clear what would be the efficient overall level of state funding. Also who decides the quantum, the parliament itself? That would be a recipe for disaster and corruption believe me.
On why a man shouldn't be free to donate to a party, well, ever heard about how income inequality can bias democratic political representation? http://www.youtube.com/watch?v=JDXXqbAXz1k&feature=youtu.be

[Jim]

Simple. All donations (whether businessmen or unions) go to a independent body who packages them up according to which party they are for, and passes them on to the relevant Party Treasurer. The list of donors and the amount is made public. It is then illegal for there to be any contact between Party officials or MPs and the named donors. No dinners at the Prime Ministers private flat, no invites to Government events, no contracts from the State (if the party you have supported is in power), no block vote in Party affairs.

Thus if you genuinely want to support a political party you can, but you are then completely forbidden to have any contact with them, on penalty of imprisonment for both donor and recipient (Party leader and head of any collective donor body should do, if not a private individual).

[A Facebook User]

Perhaps the only way to limit abuses of power would be to take a leaf from the justice system. Maybe our elected representatives should be selected at random from the general public. These people could then be briefed on the major issues facing the country before using their personal conviction to make the "fairest" choices on policy. That's right, make parliamentary attendance equivalent to jury duty.

Maybe if being an MP felt like a massive inconvenience, but your wages were unaffected, we would get the sort of politics most people are crying out for. As an additional bonus, almost all of the major political scandals during my lifetime would never have happened. No expenses fiddling, no conflicts of interests (beyond what naturally occurs in the population) and no Mandelson figures with power but no direct accountability.

Who's with me?

[Luis Enrique]

I guess you could deal with the new entry problem by allowing unrestricted private donations until you have a certain number of MPs.

the problem with this argument "a man should be free to donate to a party, as long as he’s not buying policy" is with the "as long as he’s not buying policy" part - even if you can be confident party policies are not influenced by individual donors (which there is no realistic way of ensuring), if rich donors are able to assist parties with policies they like, they influence their electoral prospects, and they get to influence what policies are likely to be enacted in this country in a fashion that the rest of us cannot.

[Account Deleted]

'A Facebook User' is suggesting sortition, the appointment of decision-makers by the drawing of lots, as was practiced in ancient Athens.

This can work in relatively small societies, such as city states, where there is cohesion around a common set of values and public office requires no specialist skills, but it is impractical in a large, complex, modern state.

One major problem is that it endows the "briefers" (i.e. the permanent civil servants) with excessive power due to their experience and prior knowledge. They would then become the target for corruption, as they would be the de facto levers of power.

Sortition might work if used for a reformed second chamber, however the independently-minded could be drowned out by the self-publicists and random nutters who mistook it for The X Factor.

[Account Deleted]

@Jim, if you make something illegal, you don't stop it happening, you merely drive it underground. I can't see this lessening corruption.

[Keith]

The conclusion you reach is wrong as it involves a misunderstanding about freedom. Freedom and power are the same. The distinction between positive and negative liberty is in fact false. There is no such difference, freedom is always a power to do what you, the exerciser of power wishes to do. To buy politicians with "donations" or privilege for your children or a fine house in the Hamptons etc.

In the area of party politics or in the courts we have an ideal about democracy or justice; yet this ideal is surely inconsistent with how people view other aspects of life where people desire to use their economic power to advance their self interest.

When divorced from self interest people see the value of socialist or social democratic ideals but not if they are threatened with higher income tax! Yet they expect the rich not to buy parties or bribe judges. Why not? They can buy all else. Why not the PM or the Chief Justice? Make up your minds people, do you want to follow ideals or naked self interest? You cannot do both.

[The Thought Gang]

Jim

I thought your plan was going to end up having the independent body pass the money on to the relevant political party but not actually tell them who it came from. I prefer that option. If a party can see that they get a large amount of finding from [insert interest group here] then they don't have to attend a swanky lunch to have their policy decisions influences.

The problem with any kind of limitation is, surely, that this doesn't prevent someone with a special interest going out and spending their money themselves. Rupert Murdoch has had far more influence over UK voters than any party machinery could ever have. He has great influence over the current government, and had it over the last… did he donate to the party funds of either?

Instinctively I favour a limit on individual donations set at an agreed and affordable level (say, no more than a weeks work at the minimum wage). But I cna't see how that wouldn't simply lead to more 'non-party' interests spending money to have their say. We already have a multitude of 'think tanks' filling airtime and newspaper inches pushing the agenda of whoever pays for them under the supposed banner of impartiality. That will only get worse if the parties find it even harder to pass on their message directly.

[Luke]

@fromarsetoelbow - for what it's worth, sortition was not universal in classical athens. Certain posts, I think those thought to require technical expertise, were exempted. Generals was one such position. Fast-forwarded, that might apply to, say, B of E governor (and probably still generals).

Chris, political parties probably do keep out interest groups we'd like to see represented even if we disagree with them, but also some unpleasant and/or single issue fanatics.

[Keith]

The Thought Gang is making the case for Socialism, if some people have too much money/ power, in one area they have it in others too. Excessive power is not limited to one area only; see my previous comment.

[Paolo]

@ Luis Enrique, I guess a prominent example of how your solution may (not) work is the Tea Party movement financed by the Koch brothers - see Santorum hanging on in the GOP primaries...but then there is the opposite example of the Occupy movement, although it is not clear to me whether it will have the same traction at the electoral box. We shall see...

[Chris]

So would state funding mean,like the union political levy, that you can opt out? I thought not.

And nobody has mentioned whether state funding would be exclusive and no outside, private donation would be allowed.

On balance, as a voter I don't want sate funding, but then the incumbents will decide as our 'representatives' even though it wasn't in any party's manifesto.

[Jim]

@The Thought Gang: I realise that merely making something illegal doesn't make it stop. But think of the consequences for any Party Leader if his party is caught out illegally contacting donors. He or she WILL do time, and if in power will lose it pretty sharpish. Each party would have a great incentive to dob the other one in for political reasons obviously, and there would be plenty of journalists or just members of the public who would be quite pleased to get a politician (and a rich donor/trade unionist) banged up. In this day and age of mobile communication, world wide media coverage and satellite communication there's not one place on the globe that a politician could safely meet a donor in secret. Someone would see them, and take pictures too. It would be self policing as the consequences of being caught would be too great.

[Jim]

Apologies - my last comment should be directed to Fromarsetoelbow not The Thought Gang.

[Tim Newman]

Are those making the case for state funding happy that taxpayer cash will be going to the BNP to pay for their campaigns? I expect the moment this happens there would be some highly subjective rule brought in whereby money would only go to "approved" parties, which happen to be those of the incumbent political class.

[Account Deleted]

@Jim, your suggestion is impractical. How would you prevent a politician accidentally meeting a donor at a public event? Making meeting someone a crime is too much of an infringement on liberty.

The "incentive to dob the other one" you mention sounds like a recipe for chaos. We want politicians to spend more time on politics and less on back-stabbing. The risk of false accusation would be massive, and could easily be exploited by anti-democrats to sabotage the whole system.

As for the ubiquity of communication technology making face-to-face meetings difficult, you can get round that by using the communication technology instead. Or you could go old-tech and rely on an intermediary.

[theartteacher]

"But the economic case is not all there is. There’s also the matter of freedom. This speaks against capping donations - a man should be free to donate to a party, as long as he’s not buying policy - and against using the tax-payers’ money. I’m not sure if any argument is powerful enough to trump this."

With the greatest respect this is naive. When you donate to a party you are always buying policy in some sense. Also, if you are saying it is a freedom, then some come to the table freer than others, without a necessary justification for this greater freedom/power. One's material assets should quite simply not inhibit one's, or another's, freedom in such a fundamental way - the democratic right to be heard and represented. We need to decouple them and the argument is that state funding or capping would achieve this. Clearly there needs to be a structure where this right is acquired and reinvigorated by all citizens (rather than consumers). Otherwise it is the interests of the rich and powerful that will continue to be represented rather than that of the broader population.

[theartteacher]

I should say that I'm not sure how this new funding system would work, and I'd be keen to see a serious proposal. The difficulty with using, say, share of vote, is that this inhibits new representatives and parties potentially, so you'd have to work that out, a way of avoiding a static politics (like we have now). But theoretically I'd be perfectly happy for the BNP to receive part of my tax for campaigning, providing the structure of funding was built on some assessment of a democratic legitimacy. I'd be pretty upset if they won anything, but I suspect in a much more representative democracy they would lose support rather than gain it.