Tag Archives: political finance

Guest Post: The Iron Square of Political Financing in Ghana

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Today’s guest post is from Joseph Luna, an economist and consultant on international development projects.

Many reformers hope that democratization in poor countries will foster improved economic and social development. But participating in democratic processes can be expensive. Where do candidates for office in developing countries get the money to pay for campaigns and other political activities? Over the course of 2013-14, I was embedded in 11 local governments across Ghana, observing their operations and interviewing nearly 200 public servants, politicians, construction contractors, traditional chiefs, and party officials. Perhaps unsurprisingly, many politicians told me that they faced numerous demands for money, not just for elections, but also to meet their constituents’ personal needs. As one District Chief Executive (essentially the equivalent of a mayor) from the Ashanti Region put it to me: “It is about the MONEY! The people keep coming to you. ‘I am bereaved, I have to pay school fees, my wife is admitted to hospital.’ And so forth. They expect money from you. It is especially bad with party people! They think that because you are District Chief Executive that you can just open up the district budget to them.” This story repeated itself all across Ghana. Where did local politicians get the money to meet these demands? Much of this political money was extracted from kickbacks paid by firms for public procurement contracts. Indeed, in my research, which I discuss at greater length in my new book, Political Financing in Developing Countries: A Case from Ghana, I found a complex system of collusion among politicians, party chairs, contractors, and bureaucrats—what I call the Iron Square of Political Financing. Continue reading →

Do Stronger Campaign Finance Disclosure Rules Reduce Corruption? A Critical Assessment of Transparency International’s CPI Report

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Transparency International (TI) released its latest Corruption Perceptions Index (CPI) last month. A couple weeks back, in what has unfortunately become a necessary annual tradition, I posted a warning that one should not attach significance to short-term changes in any individual country’s CPI score. Today, I want to turn to another matter. In recent years, whenever TI releases a new edition of the CPI, the organization plays up certain themes or claims that, according to TI, the CPI reveals about corruption’s causes or impact. This year, one of the main themes in the report is the connection between corruption and campaign finance regulation. As this year’s lead TI press release on the CPI declares, “Analysis [of the data] shows that countries that perform well on the CPI also have stronger enforcement of campaign finance regulations.… Countries where campaign finance regulations are comprehensive and systematically enforced have an average score of 70 on the [100-point] CPI, whereas countries where such regulations either don’t exist or are so poorly enforced score an average of just 34 or 35 respectively.” (On the CPI, higher scores indicate lower perceived corruption.)

How did TI arrive at this conclusion? The report accompanying the CPI, and the longer research brief on this topic, give a bit more explanation. TI used another index, from the Varieties of Democracy (V-Dem) project, on “Disclosure of Campaign Donations.” The V-Dem index rates countries’ disclosure requirements for campaign donations on a 0-4 ordinal scale. TI took this scale, collapsed the 0 and 1 categories into one (allegedly for “data visualization purposes,” though I’m not sure what this means), and then calculated the CPI score for the countries in each of the four categories. The results:

  • For those countries with a V-Dem disclosure score of 0/1 (no disclosure requirements or requirements that are partial and rarely enforced), the average CPI score was 34.
  • For countries with a V-Dem score of 2 (uncertain enforcement of disclosure rules) the average CPI was 35.
  • For countries with a V-Dem score of 3 (disclosure requirements exist and are enforced, but may not be fully comprehensive), the average CPI score was 55.
  • Countries with a V-Dem score of 4 (comprehensive and fully enforced disclosure requirements) had an average CPI score of 70

That looks like pretty strong evidence that strong campaign finance disclosure rules are associated with lower corruption, and that’s certainly the story TI wants to tell. As the report puts it, “Unregulated flows of big money in politics … make public policy vulnerable to undue influence.” The research brief similarly explains, “Shedding light on who donates and how much, can expose the influence of money in politics and deter corruption and other pay-to-play situations.”

The claim may ultimately be correct, but on closer inspection, the evidence TI adduces in support of that claim is deeply problematic. Continue reading →

India’s Political Party Finance Reform Falls Short of Ensuring Complete Transparency—But Is Still a Step in the Right Direction

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On March 1, 2018, India began its latest effort to clean up the financing of political parties and elections. This efforts involves the sale of so-called “electoral bonds” at select state banks across the country. The term “electoral bonds” is a misnomer, for these “bonds” are not linked to elections, nor do they involve paying back a loan or yielding interest. Rather, these instruments are simply a new means to facilitate financial donations to political parties, and are intended to displace the undocumented cash transfers that form the lifeblood of Indian politics. As India’s Finance Minister argued, this cash-based system causes two problems: First, “unclean money from unidentifiable sources” facilitates corruption and money laundering. Second, the reliance on cash allows parties to underreport both their budgets and spending. These concerns led the government last year to reduce the limit on anonymous cash donations from $300 to $30. Electoral bonds intend to further disrupt the system and achieve at least some increases in transparency of political spending.

Announcement of the new system has generated significant commentary, with the few admirers crowded out by the numerous detractors (see, for example, here, here, and here). The main focus of criticism is the new scheme’s guarantee of donor anonymity: Electoral bonds will carry no name and nobody, other than the bank and donor, can know who made the donation unless the donor willingly discloses her identity. The government has defended the anonymity guarantee as a way to prevent reprisals against donors, but critics understandably argue that the lack of transparency means that much political financing will continue to come from “unidentifiable sources,” allowing big business to keep lobbing money in exchange for policy favors while the public remains in the dark. (Moreover, the government’s emphasis on fear of reprisals as the rationale for anonymity suggests the government is unduly concerned with protecting the only class of donors for whom this would be a significant concern, namely large capitalists.) The electoral bond scheme has thus been painted as a move that potentially strengthens the crony capitalism responsible for India’s dire economic situation.

This strong negative reaction to the electoral bond scheme is, in my view, overwrought. True, the new policy does not solve the deep and serious problems with political finance in India. But it does have some notable advantages over status quo. Additionally, critics of the electoral bond system sometimes seem to treat donor transparency as an unalloyed good, when in fact donor transparency may have some drawbacks as well (even if one doesn’t take too seriously the government’s official line on political reprisals). Let me elaborate on each of these points: Continue reading →

The Charbonneau Commission’s Underappreciated Contributions to Fighting Corruption in Quebec

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This past November, the four-year saga of the Charbonneau Commission finally drew to a close. Established in 2011, the commission had three main goals: to examine collusion and corruption in Quebec’s construction industry, to identify the ways in which the industry has been infiltrated by organized crime, and to find possible strategies to reduce and prevent corruption and collusion in public contracts. The two thousand page final report (available only in French) was the product of 263 days of testimony from over 300 witnesses, ranging from union bosses to prominent politicians, low-level public servants, and even members of organized criminal syndicates. While the commission had the makings of a potential political bombshell, the final report was met with little acclaim, and commentators have been quick to dismiss the inquiry as an expensive disappointment and a failed mission.

Since the release of the final report, the validity of its findings has even been called into question, with the media seizing on apparent disagreements and infighting between the commissioners. One of the two remaining commissioners (the third had died of lung cancer in 2014), actually dissented from the part of the findings that claimed a link between political party financing and public contracts. Emails subsequently unearthed indicate that the disagreement between the two commissioners on this issue goes beyond simple factual disagreement, with suggestions that the dissenting commissioner had objected to unfavorable portrayals of prominent members of the governing Liberal party. Some sources report that the two commissioners were not even on speaking terms by the conclusion of the inquiry. In light of their fundamental disagreements on such a prominent issue, some critics have called the commission at best dysfunctional, or at worst tainted by political interference.

Given the generally negative coverage of the commission, it would be easy to write off the Charbonneau Commission as yet another failed attempt to stymie corruption. In my view, however, to dismiss the commission entirely would be unreasonable. Certainly, the commission was not perfect, but it did offer meaningful contributions to the promotion of good governance, and there is much that can be learned from it.

Continue reading →

Political Finance Regulation and Perceived Corruption: Some Preliminary Exploration

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Corruption is closely linked to problems associated with money in politics. Indeed, some have argued that an excessive/inappropriate influence of money on elections is corruption (even if it’s not necessarily illegal or currently viewed as unethical). Even for those who (like me) prefer a more restrictive definition of “corruption,” it is widely believed that these issues are related. Many hypothesize that countries with weak or ineffective systems of political finance regulation may experience higher levels of corruption—though at the same time excessively onerous, unrealistic regulations on political spending may also induce corruption in order to circumvent the official rules. Perhaps surprisingly, though, we do not have (or at least I have not yet seen) very much quantitative, comparative research on the relationship between the quality of countries’ laws on the regulation of political finance, on the one hand, and the extent of their corruption problems, on the other.

This may be starting to change, thanks in part to initiatives like the Money, Politics and Transparency (MPT) forum (a collaborative venture of the Sunlight Foundation, Global Integrity, and the Electoral Integrity Project). A few weeks back Rick posted a highly critical assessment of MPT’s volume Checkbook Elections, a collection of qualitative case studies. I haven’t yet read that report, but here I wanted to focus on another aspect of MPT’s work: a quantitative index that purports to measure how well 54 different democratic countries regulate political finance, based on responses to 50 survey questions in five different categories (public funding of elections, contribution and expenditure restrictions, reporting and disclosure, regulation of third-party actors, and monitoring/enforcement). The surveys include questions about both law and practice in all five categories; moreover, in addition to a composite index score, MPT also provides separate scores for the quality of electoral regulation both “in law” and “in practice.” (A detailed description of the methodology is available here.) All the usual caveats and concerns regarding these sorts of composite indexes of course apply here, but at first pass this seems like a useful resource, and potentially helpful in teasing out the relationships between political finance regulation and corruption more generally.

Real progress on this will front require careful research design, more extensive data, and the application of rigorous empirical methods—an enterprise for which I lack both the time and the talent. But just for fun, I played around a bit to see how the MPT index (and each sub-index) correlates with the 2014 Transparency International Corruption Perceptions Index (CPI). Are countries with better regulation of political finance (in law, in practice, or overall) perceived as more corrupt? Less corrupt? I’ll tell you what I found after the break, but just for fun take a guess now, before you know the answer!

OK, here’s what I found: Continue reading →