Funding Democracy

Changing the rules of campaign finance, one rupee at a time

01 January, 2012

AS THE WORLD WATCHES the three-stage Egyptian presidential election, it is the political parties involved and the colour and splendour of their campaigns that occupy our minds. What we concentrate on during Indian elections is not all that different. During Lok Sabha or state assembly elections, the carnival-like atmosphere is in the forefront. We rarely wonder who pays for the posters, the cutouts, the party workers’ food, the cost of bring-out-the-vote volunteers, the consultants, the astrologers, the psephologists, the salaries of professional staff, the media expenses—the list goes on.

According to the interim budget that Finance Minister Pranab Mukherjee presented in the Lok Sabha in February 2009, a total of R11.2 billion was allocated for election expenses that year. Add to that accounted expenses—via political parties—as well as unaccounted expenses—via friends, the private sector and, simply, black money—and the actual costs most likely ran into two or three times that amount. For the upcoming 2014 Lok Sabha elections, expenses are predicted to reach R100 billion ($2-2.25 billion).

As costs rise, campaign finance laws have increasingly struggled to regulate spending. In 1969, Section 293A of the Companies Act 1956 disallowed corporate funding, only to have it reinstated in 1985. And, in 2011, the Maharashtra State Election Commission ruled that expenses that “major political leaders” incur on “the travelling of star campaigners” are exempt from the permissible expense limit. The Election Commission of India stipulates that campaign expenses for Lok Sabha seats in “bigger states” are to be capped at R2.5 million and for Assembly seats at R1 million. The candidates’ supporters, however, can spend “as much as they like” as long as they have the candidate’s “written permission”. Insofar as the political parties can account for their expenses, they too can spend over and above the sanctioned expenditure limit. Expenditure restrictions in elections are therefore disadvantageous for all those who seek to follow the law. Without creatively working one’s way around these restrictions, electoral campaigns stymie, desiccate and eventually shrivel into empty sloganeering for an audience of one.

Anyone who has witnessed elections up close or spent time on the frontlines of a campaign knows that most politicians spend a large proportion of their time preparing for the upcoming election. Like wars, elections the world over are won on two grounds: money and logistics. Both of these are put to use in service of election-time promises. For example, politician A might offer constituents free kerosene and a sari, while politician B might promise free kerosene, a sari and a cycle. To pay for these expenses and the other costs of running an election, state and public resources become predictable sources of capture. These expenses are bankrolled, upfront, by private enterprises, which in turn expect a pound of flesh when the time comes. And so, before long, public resources like mines, flight routes, spectrum, and gas fields are auctioned off via less-than-transparent mechanisms. Given this state of affairs, it is tempting to see these actions simply as a sign of a “corrupt system” or a “corrupt” individual.

But the fact is that, given a cost-benefit analysis of the quid pro quo involved, irrespective of political party, corruption is an equilibrating solution for many.  This will remain true, regardless of whether or not we have an omnipotent ombudsman that any well-meaning Lokpal Bill will proffer.

To improve the functioning of a campaign finance system, and to increase the incentives for abiding by it, we must change the rules of the game.

What we need is to revive the debate on public funding of electoral expenses and recalibrate possible solutions. Research by E Sridharan, academic director of the University of Pennsylvania’s Institute for the Advanced Study of India in New Delhi, has shown that electoral reforms typically arise following corruption scandals, rising campaign costs and a lack of equal access to participate in the political process. India is a case in point in all three.

A prototypical public finance option for elections would allow legislature members to fund campaigns solely through “small-dollar contributions”. Some candidates may not opt for public funding, while other will. A priori, the choice of funding would distinguish between candidates who are beholden to unknown benefactors and those who are funded through the public exchequer. Lawrence Lessig, professor of law at Harvard University, in his book, Republic, Lost, argues that such publicly funded candidates generally spend more of their energies and resources engaged with the people rather than with big-moneyed donors. Germany, Canada and Sweden are among the countries that have begun experimenting with tax policies that incentivise small donations to political parties. But these are minor interventions. To create a sustainable system in the long term, we need to think more expansively. Lessig proposes one interesting solution that relies on what the economist Paul Samuelson had argued was the cornerstone of modern microeconomics: that people’s choices reveal their underlying preferences. At present, our electorates have no say in choosing who will contest elections to represent them. The powers that be in Delhi, Mumbai and the state capitals decide, and we either vote or abstain.

Instead, consider this variant of public financing: There are 33-37 million income taxpayers in India, or roughly three percent of India’s population. Say we collect R1,000 per taxpayer (directly and indirectly) each year, which is then exclusively set aside in an electoral fund. Call it a ‘Democracy Voucher’, as Lessig suggests. Over five years, assuming no growth in the taxpayer base, the fund would grow to about R150 billion. On her annual tax return, each taxpayer would be able to allocate her R1,000 contribution to the political party of her choice. Candidates who opt for public financing would then be required by law to relinquish contributions from their parties, corporations, outsiders or “friends”. The net result is that over five years, any one individual would only be able to give R5,000 as political contributions—a limit that would equally apply to Mukesh Ambani and to a public sector employee.

Naturally, there may be kinks to work out in the implementation of such a plan. But the underlying outcomes are clear.

The average Indian would have the freedom to fund candidates who she thinks best represent her concerns. Funds amassed in the name of the party would reduce dramatically as public funding would prohibit extraneous spending. As the taxpayer base increases, the funds available for electioneering would also increase. Urban centres, which generate greater tax revenues, would be allowed greater amounts of electoral spending in their constituencies. The absurd one-size-fits-all expenditure limit could be jettisoned. Taxpaying citizens would demand services and deny funding to politicians who fail to deliver. Politicians, in turn, would crack down on the bureaucracy. It would be in every political party’s self-interest to support a pro-growth agenda, championing taxable employment that would then increase their own campaign funding. If you, the citizen-taxpayer, were ambivalent about a party or were to change your opinion over the course of five years, you could split your contributions as you wished. Regional politics, with a single-issue agenda or identity-based platform, would have little long-term viability as identities diffused or agendas proliferated.  In a sort of positive arms race, political parties would be forced to choose candidates who are seen by taxpayers as competent, lest the other party put up a better candidate. Most importantly, taxpayer apathy to elections and politicians would end. After all, everybody likes a good return on his or her investment.

In essence, public financing could reconfigure the calculus of self-interest that governs the political class by affecting the source of its funding. It is a self-sustaining approach that would also be less prone to abuse.

An election is a social technology that can facilitate democratic norms and institutions. But like any technology, it can also subvert the original intent and be put to negative use. To put safeguards in place requires an investment of our energies, commitment, time and imagination.

If we don’t invest in our democratic future, who will? Failing which, we’ll find that we have no say in our democracy or in our future.