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Campaign Finance Reform:
Public Incorporation vs Voluntary Mandated Sharing

rev: 01 Nov 2004

Introduction

This document began in 1996 with a somewhat idealistic proposal: Voluntary Mandated Sharing. Times change, and in 1999 I added a grimmer and more practical alternative: the politician as public corporation. The latter seemsmore in keeping with the times.

The Publicly Owned Politician

Campaigns need money. Powerful people need good things. Both needs can be satisfied by transforming politicians into publicly owned corporations. After meeting standard accounting requirements, a politician would be sold through an IPO. The usual futures and options markets would develop. Standard reporting and accounting regulations and SEC enforcement would apply. Cheaters would be delisted, and thus be effectively removed from future campaigns.

There are several advantages to this approach:

1. There are no constitutional issues.
2. It's very simple.
3. It's honest and transparent.
4. It would bring in so much money that other forms of funding and bribery would become irrelevant. Federal, and some state and city politicians, would be all multi-millionaires.
5. We would not need public financing of elections. Politics would no longer be limited to the wealthy.
6. The market would demonstrate a politicians' commitment to his/her owners through the share price. This would be visible for all to see.
7. At election time voters would know what a politician stood for, by knowing who the major shareholders were.
8. Politicians would no longer need salaries or pensions.
9. Politicians would not need to spend all their time raising money -- bending laws, and selling their souls in order to get elected. They would be available to govern.
10. Corporations and wealthy individuals would be able to buy and sell politicians more efficiently. Efficiency is good for the economy.
11. Powerful individuals and corporations would have their necessary control of the political process.

Voluntary Mandated Sharing

Proposal

Getting elected in America takes lots of money. The money comes from powerful (wealthy) people and corporations. Their money comes with strings attached, and if they don't get what they paid for, they don't pay any more. Politicians who won't play the game don't stay politicians. It's a cruel Darwinian process of irresistible corruption. Honest politicians loathe it, but the voting public remains unconcerned and inattentive.

Those of us who do worry about corruption in American politics consider campaign finance reform to be the most important item on the national agenda. We need to address this before we can make progress on our better known problems: racism, poverty, the tax code, entitlements, etc.

The problem is that American law and custom makes it very hard to regulate political donations. I wonder if the following proposal, called "voluntary mandated sharing" (VMS, need a catchier name), might be constitutional. It could be tried first at the local or state level. The goal of this proposal is not to save money, but rather to make it more expensive to "buy" a politician, and to generally reduce the influence of wealthy forces.

This proposal has 3 parts.

1. A neutral agency is needed, patterned after the Federal Reserve. This appointed panel, perhaps made of "distinguished jurists and citizens" decides who's playing the following game and who's not.
2. Changes in the Federal Matching Funds program. This program provides public financing to politicians who follow the current (weak) rules. Even Ross Perot took matching funds this year. I'd change the program to include a base payout (independent of matching) as well as a matching payout; this makes it more desireable. BUT, to be eligible, politicians have to participate in ....
3. VMS: voluntary mandated sharing. In the reformed program to get matching funds you must agree to this program. Assume than A, B, and C are 3 candidates for a senate seat. Philip Morris gives $240,000 to politician A. Under the program A gets to keep a percentage of that -- say 50%. The remainder goes into a general pool, that is shared equally between A, B, and C. So, A gets $120,000 + 120,000/3 = $160,000. Politicians B and C both get 120,000/3 or $40,000 (of course their donations are similarly distributed). All of them get matching funds plust a fixed fund amount from the matching funds.

All three parts are critical. Part 2 means that politicians will participate voluntarily in the program -- hence no need for constitutionally shaky restrictions. Part 1 means that cheating is hard -- if the Elections Board rules a candidate is cheating, they are out of the pool and get no matching funds. Part 3 is the key.

The VMS means that when Philip Morris wants to help out pol A, they're also helping out her competition. Pol A has less incentive to do deals, because not only are they losing some of the money, but (much more importantly), their opponent is gaining money. In fact, some challengers might opt to do not fund raising at all! They'd concentrate on communicating with the electorate, and work from their opponents funds and the matching funds program. They could spend their time campaigning or working. In some races we'd see a quick spiral to the bottom -- donors are less interested in buying a politician (now much riskier with less return), and some candidates would opt out of fund raising all together.

Feedback

I've received some feedback to an early draft of this proposal. Here's a summary of the feedback and my responses.

Politicians won't bother to use the program, because the incentives are insufficient.

That may be true, particularly at the national level. However those who opt out of the program will not receive matching funds. That's a lot of money; even Ross Perot took them this year. Also, I suggest increasing incentives by providing a flat non-matching grant from public funds. If one of two candidates opted out, the participating candidate would get matching funds and the grant. We could even increase the incentive by providing _double_ matching funds and _two_ grants to the candidate who's willing to participate (since the other candidate won't have them).

 

The program won't save money, it just makes it MORE expensive to "buy" a candiate.

I agree. Since my primary goal is not to save money, I consider this a "feature", not a "bug". In economic terms, a politician's favor is a "good" like any other. As Ben points out, the net politician purchase is the difference between what the politician gets and what his/her opponents get. Thus, the politician has become much more costly. Many buyers will invest their monies in cheaper areas, like marketing, product development, etc.
Also, in addition to making politicians more costly, this process also provides substantial resources to challengers who cannot raise funds by conventional means. If my opponent has 30 million dollars, and I have 10 million dollars, I can still put up a pretty decent fight. OTOH, if my opponent has 10 million dollars, and I have 100,000 dollars, it's no contest.

 

Citizen contributions will also have less weight, so their inflluence will also be diluted.

I agree, and I'm ok with that. Citizen weight should be applied by votes, not dollars. By funding challengers the mandatory sharing proposal will give citizens more choices. Citizens can save their money for important local causes and charity.

 

Does money really influence politicians, or is it simply that corporations support those who favor their biases? (ie. the politician would make the choices they make even without money.)

I think both things happen. Judging from the rest of humanity, I think money makes a VERY big difference in how politicians think. Why should they be better than doctors and professors and everyone else? I'm a doctor (and I've been a faculty person), and I can assure you that money influences what doctors believe. In medical education we go to some lengths to try to limit the influence of pharmaceutical corporations, far beyond any suggested political reform, and they are still too influential.
On the other hand, I also think that the current system exerts severe selection pressure. Only those politicians who can muster financial support from the trial lawyers (Clinton), or Philip Morris (Dole), are going to win and win again.
Either way, money buys and selects politicians. I want to make them more costly to acquire, and to increase the ability of challengers to face incumbents.

 

Isn't corruption a necessary compromise between true democracy and the wishes of the powerful?

This "feedback" is my own, and, not surprisingly, I find it the most persuasive. Imagine that we dramatically reduced corruption in the American political system through campaign finance reform and other measures. Imagine that the economic elite had no more influence over political decision making than the average citizen. Would this be tolerated? Perhaps American democracy works because it is not perfect. It gives the powerful a greater voice than the average person, and in turn for a greater voice the powerful are also willing to allow the people a democratic voice. We may argue over the amount of additional power the wealthy acquire by buying politicians, but perhaps we cannot risk eliminating it all together.

History

• Jan 9, 1999: Public Corporation Alternative.
• April 19, 1998: Revision 1.
• Nov 28, 1996: Voluntary Mandated Sharing.