Political finance covers all funds that are raised and spent for political purposes. Necessarily such purposes include all political contests for voting by citizens, especially the election campaigns for various public offices that are run by parties and candidates. Moreover all modern democracies operate a variety of permanent party organizations, e.g. the DNC and the RNC in the U.S. or the Conservative Central Office and the Labour headquarters ("John Smith House", "Millbank Tower") in the U.K. The annual budgets of such organizations will have to be considered as costs of political competition as well. In Europe the allied term "party finance" is frequently used. It refers only to funds that are raised and spent in order to influence the outcome of some sort of party competition. Whether to include other political purposes, e.g. public relation campaigns by lobby groups, is still an unresolved issue.[1] Even a limited range of political purposes (campaign and party activity) indicates that the term "campaign funds" (used as subject heading in Library of Congress cataloguing) [2] is too narrow to cover all funds that are deployed in the political process. You may, however, also want to consult the Wikipedia page on campaign finance.
For details on selected countries see Campaign finance in the United States, Federal political financing in Canada, Party finance in Germany, Political donations in Australia, Political funding in Japan, Political funding in the United Kingdom.
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Most frequently and in most countries the organizations that (raise and) spend money for political purposes are parties (headquarters, branches and chapters). Party headquarters spend on public relations, mass media (including billboards), the expertise of consultants and(quite often glitzy) offices in the national capital. Local party chapters (e.g. constituency or riding associations), which rely on volunteers (party activists), cover telecommunication and mail charges as well as rent and heating for storefront offices, which they use as their centers of political activity.[4]
Political revenue may be collected from individual citizens ("grassroots fundraising", e.g. in small donations or party membership dues), interested money (like contributions by businesses, lobby groups, professional organizations and trade unions), assessments of officeholders (called the "party tax"), public subsidies or - sometimes even - corrupt exchanges (like graft, buying access to politicians, offices, honors or titles, extorsion of wealthy people and influence peddling). G.M. Gidlund has classified the available options of fundraising by three categories: Membership, plutocratic and public funding.[5] As the relevance of signed-up party members and their dues [6] can vary among the democracies the terms grassroots fundraising, plutocratic finance and public funding may offer a more adequate general framework.
Grassroots fundraising
As a normative concept popular government (vulgo democracy) would require that the people at large cover the costs of their democracy. However, this can only be done on a voluntary basis, because all forms of political participation in a democracy are voluntary in principle. At election times many people abstain from voting. Likewise at all times the majority of citizens also abstains from donating to political coffers. Nonetheless grassroots funding is a preferable source of political money. Political fundraisers should try "to exploit the latent giving power in the general population" and make every reasonable effort to raise "significant sums ... collected in small change."[7] This is especially true for all democracies with a high standard of living for the majority of their citizens.
Popular financing of politics can be an important source of political revenue (as it is in the U.S. and Canada, the Netherlands and Switzerland).[8] However, never and nowhere is it a constant and reliable source. Just like voters, party members and small donors are a volatile sort of citizens. The numbers of signed-up party members who pay their dues regularly fluctuate over time wherever democratic parties care to recruit them.[9] Today even the traditional mass-membership parties of the democratic left (Social Democrats or workers' parties) raise less than a quarter of their funds from the grassroots. Collection of small donations depends very much on the current mood of people's emotions [10] towards politics, policies and politicians and that means it is blowing with the wind. A variety of ways are available (nationwide lottteries, direct mail drives, peer, neighorhood or internet solitication, social events at the local level, even yard sales) for grassroots fundraising. Personal (door-to-door or peer group) solicitation was quite frequent in the fifties. Since the sixties it has been superseded by telethons and computerized mass mailings. Nowadays internet solitication has taken over.
Plutocratic Finance
In the old days landed aristocrats and successful entrepreneurs of the ruling classes supplied the funds necessary for democratic politics.[11] Later on lobby groups and others provided interested money in a quid-pro-quo to keep issues of their concern untouched by politicians in need of funds. Although trade unions that funded left-of-center parties were among the suppliers of interested money, the principle was plutocratic still: All citizens voted, but money ruled,[12] either on behalf of the wealthy or on behalf of those who were able and willing to collect millions of dollars, pounds, yens, francs or marks.
Feeling the pressure between the lack of funds and the risk of scandal the democratic politicians fought back: Governing parties started to abuse their powers for rent-seeking. Some demanded graft for a license or a favor, others ristournes (in Quebec) or tangenti (in Italy) for public procurement. Finally all officeholders (including MPs, legislators and councillors) had to pay an assessment on their salaries for political jobs. Politicians invented influence peddling and the extorsion of businessmen by the sale of access (e.g. via tickets to $1,000-a-plate dinners with leading politicians). Money still ruled, until some (like Luis Munoz Marin in Puerto Rico, Gerhard Stoltenberg in Germany, Jean Lesage in Quebec and Tage Erlander in Sweden) found a way to put "the costs of democracy" [13] directly upon the taxpayer.[14]
Public Subsidies
Most modern democracies (in one way or the other) provide public cash subsidies for party activity. India and Switzerland (not the U.S. which has the Presidential Campaign Fund, and the U.K., which pays a Policy Development Grant) are the most notable exceptions. Public subsidies can be relatively small (as in the U.K.) or quite generous (as in Sweden, Germany, Israel and Japan). Most likely they are neither a mere stop-gap nor an all-purpose solution to funding problems. Party organizations, parliamentary groups (party caucusses) and/ or candidates are the recipients of public support (in cash or kind).[15]
In combination with rules that enforce fair access to and fair distribution of aid among the players of the political game, public subsidies are an acceptable policy option for democratic politics.[16] Because matching funds and tax credits depend on financial contributions by individual citizens such support is more compatible with participatory democracy than flat grants that do not require specific efforts by the fundraising organizations.
Taxpayers in continental Europe and non-western democracies (like Israel and Japan) provide higher amounts towards party activity than their Anglo-Saxon counterparts. Many party headquarters in the high-subsidy countries cover between 40 and 60 per cent of their annual budget via public grants. Such heavy involvement of the taxpayer calls for a maximum of transparency for political funds.
Many countries have regulated the flow of political funds. Such regulation, the political finance regime, may include bans and limits on certain kinds of income and expenditure, level and distribution of as well as access to direct and indirect public subsidies, transparency of political funds by disclosure and reporting as well as enforcement of rules and sanctions for infringements.
Bans on political expenditure concern either campaign expenses by non-candidates ("independent expenditures", "third party advertising") or media time paid for by political contestants. Both types of bans have to strike an adequate balance between two constitutional principles, the equality of opportunities (fairness) and the freedom of expression. Britain applies a spending limit for constituency candidates since 1883. Canada was the first democracy to add campaign limits for national party organizations in 1974 and spending limits for constituency nomination contestants in 2004. The U.S. Supreme Court (in Buckley v. Valeo 424 U.S. 1 (1976) has struck down spending limits because they interfere with "free speech". In order to be effective all limits require careful monitoring and serious enforcement backed up by adequate sanctions.[17]
Among the rules, which either restrict or favor speficic types of political revenue, incentives to stimulate specific fundraising activities (like tax benefits or matching grants) are still rare.[18] More frequent are contribution limits or outright bans. Many countries ban anonymous donations or contributions from foreign sources. In some democracies even corporate donations for political purposes are illegal. Quite frequently political finance regimes include contribution limits. The maximum donation allowed may differ either by type of donor (individual citizens, legal entities), by recipient (candidate or party) or by purpose to be funded (nomination contest, election campaign, routine operation). In some countries (e.g. Germany) there is no statutory limit on the amount of political contributions, which a person or corporation may give to a party or candidate.[19]
If rules for transparency of political funds stipulate the disclosure of donors' identity, the public's right to know about financial backers may interfere with the need to protect the privacy of political preferences, the principle of the secret ballot. The practical solution will distinguish between categories of donors and/ or define cut-off points for privacy, e.g. $100 or €10,000. Both ways serve to separate financial contributions as a means of participation from donations as means of buying access or peddling influence. Any disclosure regulation has to identify a person or an institution that is responsible for the transparent flow of funds to and from party coffers and the kind of information, which has to be disclosed timely and accessibly.[20]
The reporting of political funds (to be submitted annually and/ or after elections) usually includes various sources of income and specified items of expenditure, e.g. staff and offices, advertisements in print media, radio and TV, campaign material, direct mailing, opinion polling. Effective reporting by parties and candidates depends on the definition of useful categories for the funds raised and spent, the inclusion of data for all spending units as well as the procedure for examination and publication of financial reports. Currently no democracy provides for full transparency of all political funds.[21]
All political finance regimes require authorities and agencies that are responsible for monitoring, control and enforcement. Legislation has to strike a balance between practical independence of the agency in charge, effective enforcement of the rules for the funding of political competition and adeqate implementation of legal stipulations. Case studies show that highly sophisticated rules, over-regulation of some issues and lax implementation of such rules do not lead to best practice.[22]
The study of political finance was pioneered by James K. Pollock [23] and Loise Overacker.[24] Alexander Heard contributed a groundbreaking analysis for the U.S.[25] International comparison started with Arnold J. Heidenheimer, who also introduced the term political finance to comprise campaign and and party funding.[26] Thus he was bridgeing the gap of perception between North America and Western Europe.
Herbert E. Alexander studied the U.S. situation for many decades [27] and edited a couple of comparative volumes.[28] Arthur B. Gunlicks concluded this cycle of comparative studies.[29] The most important early studies on non-US countries were written by Khayyam Z. Paltiel (Canada) and Michael Pinto-Duschinsky (Britain).[30] More recent contributions to the literature include Marcin Walecki's monograph on Poland and Kevin Casas-Zamora's comparative analysis of public funding with two case studies from Latin America.[31]