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The party funding conundrum

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

The South African Parliament has constituted a committee to look into increasing public funding for, and regulating private funding of, political parties. It will face a complex problem to which there is no pat solution.

To many political questions there are no easy answers. Sometimes, opinions are divided by ideology. Sometimes, there are several options and once one weighs up the pros and cons of each, all of them turn out to be bad ideas.

Such is the case with political party funding, which appears to come under the spotlight every 10 years or so. Parliament recently established an ad hoc committee under ANC MP Vincent Smith to look into the matter. As Judith February, senior research consultant at the Institute for Security Studies, writes, the committee’s mandate is to develop legislation to increase public funding for political parties and regulate their private funding.

On the face of it, the notion that private donations ought to be at least disclosed, and that parties ought to be less beholden to private donors, seems attractive. Who doesn’t want to know how money influences politics, and who is doing whom political favours in return for party donations?

In practice, however, the idea is fraught with difficulties. The idea of transparent private funding may have just as many drawbacks as the idea of confidential private funding, and public funding is also not a panacea.

Consider last week’s exposè by the non-profit Open Secrets of corporate donors to the National Party government during the apartheid regime. Explicitly named are E.L. Cooper from Barlow Rand (now Barloworld), Christo Wiese, then at Pepkor and now executive director of Shoprite Checkers, Bertie Lubner of PG Glass, and Bill Venter of Altech. Each offered to donate to the National Party and praised the apartheid government’s leadership.

This all seems damning, and certainly makes it appear that these figures both supported and helped finance apartheid. But that would be a rather simplistic assessment.

Remember the story of the emperor’s new clothes by Hans Christian Andersen. For fear of being thought fools who are unfit for their jobs, the emperor’s advisers and the townspeople all cheered the glory of his non-existent raiment, made for him by a pair of swindlers. It took a child to expose the vain emperor’s nudity.

There are powerful reasons people fear to speak truth to power. They fear becoming social outcasts. They fear being taken for fools. But most important, they fear losing the favour of those in power. When your income depends on it, you can’t afford to upset the emperor.

In any country, businesses are linked to government in three important ways: one is that they might depend on government contracts; another is that they seek policies and regulations that favour them specifically or are good for business in general, and a third is that they desire a stable economic and political climate.

The first of these is a particular problem in a country with a big government or a “state-led economy”, which South Africa then had, and still has. It didn’t do to offend the National Party in the 1980s any more than it serves business to offend the ANC government of today. The second is a problem in countries with a heavily regulated economy, and particularly when government can be prevailed upon to regulate in favour of certain competitors at the expense of others. Both were the case in South Africa then, and remain the case today. Any business, to best serve its shareholders, must seek a favourable policy environment and regulation that benefits the company. The third is a problem in any country: companies that are doing well are inherently conservative. They prefer a stable status quo to the uncertainty of change, and this has nothing to do with their political opinions or ideological position.

There are circumstances in which companies might end financial support for the ruling party, but they’re not common. When they can be sure they won’t win government contracts, because favoured cronies do, they may be prevailed upon to speak out against corruption. But the cronies, of course, will keep donating. When policy or regulation favours government cronies, and disfavours those who do not have an in, the outsiders may speak up. The insiders will not. And when the economy or political situation is not stable, or looks set to get worse, affected companies may make their voices heard.

Notice that this unholy relationship between corporate money and government not only existed under the National Party, but also exists under the ANC. Starting with Anglo American in Lusaka in 1985, big business rushed to throw its support behind the liberation movement as soon as it saw which way the wind was blowing. This may be why Mohammed Valli Moosa, then constitution development minister, rejected attempts to regulate private donations to political parties in 1997. Makhenkesi Stofile, then ANC treasurer-general, explicitly admitted that the ANC was acting as a facilitator for black business in return for political donations. Ten years ago, the relationship between Chancellor House, an ANC-owned company that exists to raise funds for the party, and Hitachi Africa, which won an R80-billion tender from Eskom, was exposed by Sam Sole and Stefaans Brümmer in the Mail & Guardian. I called it Corruption House. Today, the ANC has sold much of the state to a bunch of Indian merchants who a mere 20 years ago sold discount PCs for a living.

The ANC is no cleaner than the National Party about where it gets its funding and what it will do in return. And big business is no less complicit in government’s actions today than it was during the apartheid era. But corporate financial support for political parties did not then, and does not now, imply support for party policies. It speaks only to a desire to win government contracts, a desire for favourable policy and regulation, or a desire for a stable economy.

Companies are not political entities. It is foolish to expect them (or indeed individuals) to sacrifice their own well-being for the public good. In fact, directors that did so would probably violate the trust the shareholders placed in them, opening themselves up to dismissal, disciplinary procedures, or legal action. Companies are not charities and directors are merely trustees of shareholder capital. They can only spend corporate cash in ways that might benefit the company.

That also means they do not give cash away for free. When companies (or individuals) donate, they do so with the express purpose of influencing political parties. This is true even if there is no explicit quid pro quo attached to a donation. Politicians aren’t stupid. They know what their donors want, and they know the donations will stop flowing if they don’t get what they want. Attaching political strings to corporate money doesn’t require secrecy and collusion. It cannot be prosecuted. It is implicit in any and every party donation.

So confidential donations to political parties entrench a system that allows companies to influence government in ways that benefit them and could harm everyone else – as corporate donations to the National Party once did, and corporate donations to the ANC do today.

That means confidential donations are bad, right? But what would change if private donations to political parties had to be disclosed to the public? Transparent funding also has drawbacks, may strengthen the ruling party’s hand, and may weaken democracy.

We’ve established that companies donate to the ruling party in the hope of getting a slice of government contracts or policies or regulation favourable to them. But some companies donate to opposition parties because they hope that those parties will champion favourable policy or regulation in Parliament, or because they hope that the opposition will some day become the government and implement policies they prefer.

If the public gets to see corporate donations, ruling party funding would surely take a significant hit. Only the most blatantly corrupt will want to be seen to be buying favours. This may sound great, but if the ruling party is able to see all party donations, companies would also become reluctant to donate to the opposition, for fear of losing favour with the government.

Without knowing who donates to whom, we can never tell whether government acts in the interests of the public, or only intends to benefit party donors. With that knowledge we could take a guess, but it might still be down to coincidence. Transparency isn’t a magic wand. Yet with that transparency comes reduced political party funding, for both the ruling party and the opposition. This will hamper their ability to establish effective party structures, develop well-researched policy, and communicate with the public. Under-funding political parties harms participatory democracy.

Proposals to institute an intermediary between donors and political parties do not really resolve the issue. If the donors are known to the parties that receive the funding, the same strings will be attached and nothing will change. If they are known to everyone, it is no different from transparent direct donations, and party funding will suffer. So the only useful purpose of an intermediary would be to anonymise donations, so political parties are not beholden to private donors. But then most donors would have no reason for donating, so again, all political parties would be worse off.

Caps on donations have also been proposed, but those are equally problematic. Not only does that explicitly reduce party funding, but rules about corporate donations have a way of getting circumvented.

For example, instead of corporate donations, shareholders or directors could donate in their personal capacities. Or they could orchestrate mass donations by their employees. Either way, telling individuals they may not make donations to their favoured political parties would probably be a violation of their Constitutionally protected political rights. Even if not, monitoring these financial flows to detect underhanded party finance schemes would place a significant extra burden on authorities.

Faced with donation limits or other rules, companies may prefer to establish “political action committees” which do not campaign directly for any political party, but promote certain policy preferences. It is, after all, their Constitutional right to do so. At first, this would seem to be an improvement. Imagine, politics based on actual issues instead of crony influence!

But a lot of implicit campaigning for political parties will still go on: “vote for expropriation without compensation” will mean “vote EFF”; “vote for free enterprise” will mean “vote DA”; “vote for transformation” would mean “vote ANC”. And again, diverting funding to such nominally non-partisan organisations would mean that political parties themselves lose much of their funding and institutional capacity.

Could limits on or transparency in private donations be offset by increased public funding of political parties? The idea seems appealing, and nominally, they could. But limiting parties to government funding also has serious flaws. For one, to maintain effective parties capable of campaigning nationwide, the increase in public funding would have to be substantial. We’d have to budget three or four times what the government grants political parties today. South Africa isn’t exactly rolling in cash, but what is a few billion rand between friends?

Besides affordability, government regulation of political party funding is fraught with danger. It would enable the government – and by extension the ruling party – to audit the affairs of opposition parties, and such power can easily be abused. Or government could do what big business often asks of it: impose regulations that large incumbents can easily comply with, but create heavy burdens, or even insurmountable barriers to entry, for smaller competitors.

There’s the chicken-and-egg problem: if you’re a small political party, you can hardly expect to be granted as much public money as, say, the ruling party. But that also means you need more funding to get more votes, and you need more votes to get more funding. You might never get any bigger. Even the major opposition parties might find themselves permanently hamstrung by receiving less funding than the ruling party, if they cannot supplement their income with private donations.

Public funding of political parties, according to the votes they receive or their representation in Parliament, would also upset taxpayers. Some may be loath to know their hard-earned money goes to support people they perceive as corrupt or socialist. Others would be upset that their money goes to people they perceive as patriarchs of capitalist privilege or unreconstructed racists. Many ordinary people might object to paying for the luxury cars and mansions of political fat cats, no matter who or what they represent.

Political party funding is a conundrum all over the world. Every system and every rule has both benefits and serious drawbacks. Entire books have been written on the subject. Moreover, solving the problem of party funding is only a small piece in the puzzle to combat corruption. There are many other ways to funnel money to politicians in return for favours.

Ultimately, the only long-term solution to reduce corruption is to remove the ultimate source of corruption: the political power to do favours for friends, award contracts to cronies, and make regulations to favour some businesses over others. As long as that power exists, unscrupulous profiteers will try to buy it, and they will often succeed.

The parliamentary committee on party funding is expected to produce legislation by November. That is only three months away, which is a tall order for a debate that has been brewing for 20 years and is so fraught with complexity. There are three possible outcomes: no legislation, bad legislation, or good legislation. I’ll be betting against good legislation.

The public will keep being outraged at the influence of money on politics for decades to come. Sadly, many will blame donors, instead of public officials whose integrity is for sale, or the government power which makes it worth buying their integrity. DM


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