Campaign finance reform and the market for access

img_0928By Christopher Cotton, Queen’s University

Earlier this year, the government of Ontario was involved in a campaign finance scandal, accused of selling access to ministers in exchange for campaign donations. Most people see the exchange of contributions for access to politicians as obvious evidence of corruption. But, this view is too simple. Much of my academic research has focused on how special interests influence policy making. This research has led to a number of insights.

Politicians by and large want to do the right thing. But, they often don’t know (or agree on) what the right thing is. They can spend their time and government resources learning about alternative policies. But, even the most well-intentioned politicians don’t have the time and resources to fully understand all issues and to carefully assess all policy options before voting. This means that politicians must decide how to allocate their attention across the countless firms, organizations and individuals who each want priority.

As we know from our first principles of economics course, when demand exceeds supply, prices rise. When we combine high demand for policymakers’ attention and a shortage of time, the law of supply and demand tells us that the price of the policymakers’ time should rise. By charging for access, politicians can help ensure that their time is given to those who value it most. The seemingly corrupt exchange of political contributions for access may in fact be the invisible hand at work.

In a series of research projects, I’ve shown that selling access can lead to better, not worse, policy, as it leads to the more efficient allocation of time and resources (see for example the articles here and here). Also, selling access doesn’t necessarily favor the rich, as well-meaning politicians may charge banks and oil companies high prices for access, and charge very little or nothing to others including local organizations within their own ridings.

These arguments in support of money in politics hold the most weight when politicians are trying their best to identify the most pressing issues, and implement the most promising reforms. But, this isn’t the whole story.

In reality, politicians also care about raising campaign contributions. This was what we observed in Ontario, where the party was setting explicit fundraising goals for its ministers. And when fundraising takes priority, a party may focus on the interests of the rich and ignore the interests of the poor if doing so brings in more money.

In other research, I’ve shown how politicians may strategically cut poor organizations out of the political process in order to increase how much wealthy donors will pay for access. Surprisingly, the wealthy special interest groups typically do not benefit from this extra attention. This is because political parties ask for such large contributions from wealthy donors so as to completely offset any advantage the wealthy donors may have had. Even those who have been cut out of the political process can be better off compared to the rich, since it may be better to be ignored than to be targeted by the politicians’ aggressive fundraising. The only ones who gain from the selling access in such a situation are the politicians themselves.

This appears consistent with what was observed in Ontario. The government required such large payments in exchange for access that even those who could afford access were complaining about the system. This suggests that it was the governing party (rather than wealthy special interests) that benefited the most from the sale of access.

Placing strict limits on private donations or simply eliminating all private money from politics would go a long way towards removing the corrupting influences of money in policymaking. Such reforms would reduce the incentives that politicians have to prioritize wealthy interests for monetary gain.

However, it is important to recognize that such reforms may not fully eliminate the bias in favor of certain interest groups. In a recent article with coauthor Arnaud Dellis, I show that even in the absence of political contributions, policy may be biased in favor of special interests because of the reliance of policymakers on these groups for information. The best way to eliminate this bias would be to reduce the reliance on special interests for information, perhaps by increasing the government’s capacity for conducting and funding independent research.

There are other downsides to campaign finance reform as well. Eliminating private campaign contributions would shift more of the burden of funding campaigns to taxpayers. Earlier this year, the government of British Columbia claimed this as a major reason for not implementing campaign finance reform. The reforms would also mean that politicians couldn’t allocate their time based on contributions, making it more difficult for well-meaning politicians to efficiently allocate their time across the myriad of issues vying for their attention.

A promising alternative to many popular reform proposals involves taxing contributions rather than limiting or banning them. Some of my work shows that while both taxes and limits are effective at decreasing bias in favor of wealthy interest groups, taxes do so without as many downsides we discuss above.

This post was previously published as an article in the Queen’s Economics Department alumni newsletter.