$RAFTBackground Paper FACTS, SCEPTICAL THOUGHTS AND POLICY IDEAS This draft paper was prepared by Mr. Michael Pinto-Duschinsky in coordination with Paloma Baena Olabe for the OECD Policy Forum on "Restoring Trust in Government: Addressing Risks of Influence in Public Decision Making" hosted by the Public Sector Integrity Network, OECD, Paris, 14-15 November 2013. TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................................ 4 1. INTRODUCTION: POLITICAL FUNDING AS PART ANY OVERALL STRATEGY TO ASSURE PUBLIC INTEGRITY AND GOOD GOVERNMENT ................................................................. 7 2. REGULATING POLITICAL FINANCE: TWO MYTHS AND AN UNPROVEN ASSUMPTION DRIVING THE POLICY DEBATE ............................................................................................................. 10 a. The first founding myth of political finance reform: the exploding cost of modern election campaigns .............................................................................................................................................. 10 b) The second founding myth of political finance reform: television advertising in election campaigns as the main cause of rocketing campaign costs ................................................................... 17 c.) Political finance as a reportedly major cause of scandal, public loss of trust in politics and low electoral turnout ..................................................................................................................................... 19 3. REGULATING POLITICAL FINANCE: SOME PRACTICAL PROBLEMS ................................... 24 a) Transparency rules .......................................................................................................................... 24 b) Spending and donation limits ......................................................................................................... 27 c) The problem of enforcement .......................................................................................................... 28 d) The role of the courts of law ........................................................................................................... 30 4. THE ROLE OF INTERNATIONAL ACTORS: POSITIVE OR DAMAGING? ................................. 32 a) Lack of in-depth research ............................................................................................................... 33 b) Simplistic, vague recommendations ............................................................................................... 35 c) "Civil society organisations" .......................................................................................................... 37 d) International standards and national sovereignty. .......................................................................... 39 e) Towards a selective approach ......................................................................................................... 39 5. NEW DIRECTIONS ............................................................................................................................. 41 ANNEX 1. POLITICAL FINANCE LEGISLATION IN MEMBER COUNTRIES OF THE OECD .. 49 ENDNOTES ................................................................................................................................................. 53 REFERENCES ............................................................................................................................................. 55 Tables Table 1. Total campaign spending in United States elections in presidential election years, 1952- 2008. In millions of dollars at 2012 values (GDP deflator) ...................................................................... 14 Table 2. Overall Conservative Party spending (approximate) in electoral cycles from 1874-80 to 2001-05 (in millions of pounds) and spending per elector (in pounds) ..................................................... 15 Table 3. Trends in political spending per citizen in Austria, Canada, Germany and Japan, 1971-2000. (indexed to spending in 1980) ................................................................................................................... 16 Table 4. Political Finance Laws In Member Countries of the OECD, 2012 ....................................... 50 2 Table 5. Political Broadcasting Regulations and Subsidies in Member Countries of The OECD, 2002- 50 Table 6. Estimated Percentage of Revenues of Eligible Parties Derived from Direct State Funding . 52 Boxes Box 1. Political funding, public integrity and good government ................................................................ 7 Box 2. The alleged "cost explosion” of modern election campaigns ........................................................ 12 Box 3. Modern mass media campaigning as the alleged cause of increased political spending ............... 17 Box 4. Political Finance, public disaffection and lower political participation......................................... 20 Box 5. Public subsidies and public attitudes ............................................................................................. 21 Box 6. Sampling of landmark legal judgements concerning political finance .......................................... 31 Box 7. Political Finance, Corruption and Organised Crime, mainly a local level problem ...................... 42 3 EXECUTIVE SUMMARY The financing of political parties and election campaigns has rightly become regarded as an essential subject for those concerned with public integrity and good government. Policy on such matters as lobbying, organised crime, drug trafficking, and public contracting abuses cannot realistically be considered without taking account of the role in many countries of political finance. Conversely, controls of party and election funding are likely to be ineffective if they exist in isolation. On their own, they are likely to result merely in the re-channelling of money spent to obtain political influence through lobbies and through organisations which are legally independent from parties but which are like off-shore islands of parties. The reality that political finance frequently causes severe problems does not mean that there are any straightforward remedies. Political finance reforms often fail because they have been based on myths and on a resort to laws which are largely unenforced, riddled with loopholes, and sometimes damaging in their unintended consequences. The paper starts therefore with a critical summary of the state of research into party and election campaign finance, with a focus on invalid or unproven claims. It then suggests an agenda of initiatives by scholars and policymakers, some of which may be followed up by the OECD and other bodies participating in the forum. There has been a global tendency toward greater regulation of the funding of political parties and election campaigns and toward public subsidies. However, the conventional justifications for these reforms have not been based on solid empirical evidence. Among the most common of these factually weak arguments are: 1. there has been an explosion in spending by parties and candidates, 2. this cost explosion has been driven by the expenses of modern media campaigning, especially television advertising, 3. increasingly expensive campaigns have been responsible for loss of public trust in democratic politics and thus for low electoral turnout. Debates about electoral and constitutional rules are inherently ideological and political. Though there is widespread agreement that elections should be both "free" and "fair", there is no consensus about the relative weight to be given to freedom of expression (which often implies a lack of regulation) and to fairness (which, on the contrary, normally involves regulation). There are legitimate arguments from the political right for systems which stress freedom of expression and from the political left for a greater priority for rules to assure fairness. Among all the different options for legislation concerning the control of political finance, the one that has the widest support is that of transparency. However, even here there is room for legitimate disagreement. Moreover, it is not easy to translate the ideal of transparency into reality. 4 Transparency may have distorting effects if political parties are subject to more onerous rules than lobbies and various indirect forms of money in politics. Carefully considered applications of the policy of transparency are needed. It follows that it is dangerous for international bodies to advocate and, even more dangerous, to seek to impose a common world order in the field of political financing. International bodies play their important roles most usefully when they refrain from proposing standards and codes about matters which are inherently political, ideological and subject to national variations. The attempt to find wording which papers over disagreements too often results in vague declarations which conceal practical problems. It is all the more important to be careful about legal reforms since a feature of political finance regulation and subsidy which seems to be increasingly important is the role of courts - both national and international - in making rulings on both the principles and on the details of political finance regimes. Political funding has already led to significant clashes between courts and national