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September 2002; Volume 20, Number 9

The Debate on Campaign Finance

D.W. MacKenzie and Christopher Westley

The Enron scandal fueled the drive for campaign finance reform well enough for a campaign finance reform (CFR) bill to get signed into law. However, immediately after this occurred, various interest groups presented legal challenges to the new legislation based on its questionable compliance with the First Amendment.

It is not surprising that CFR has been the subject of so much controversy and debate. Advocates of CFR contend that such reform is needed because without restrictions on political donations, private interests will further plunder public resources to advance their own ends rather than to promote the public interest. 

The notion that private interests subvert the public process strikes a chord with the American public. A CNN-Time poll in March 2001 indicated that 77 percent of Americans believe that the way politicians have been raising money is corrupt or unethical. 

On the other side, critics of CFR contend that it violates constitutional rights to free speech and equal protection. By restricting the ability of individuals to finance messages regarding political candidates, CFR prevents individuals from redressing the government. The exemption of the media from this legislation, ironically, creates special privilege where it did not exist before. 

The fight between proponents and opponents of CFR is difficult to resolve because both sides have valid points. Government ought not to serve particular private interests at the expense of others. Nor should people who have sworn to uphold the Constitution silence political speech. 

But both sides’ arguments would be muted if the government had not grown to its current gargantuan size, or if political power were more dispersed among the states as the Constitution’s framers initially intended. Indeed, the existence of this dilemma stems from reluctance on the part of many to address the underlying causes of the difficulties in question.

To understand these causes, it will help to understand the mainstream economic case for government intervention in the economy. This case provides the intellectual justification for many of the interventions that are the focus of political donations. When entrepreneurs supply services, they do so for the profit they earn from paying customers. If in some instances some consumers benefit from the purchases of others, then these consumers get a “free ride” from those who pay. If all attempt a free ride, then none pay, and the private market in question collapses. 

This implies that the good in question is a “public good”—a good that is both jointly consumed and is nonexcludable in supply. If by supplying a good to some (who pay) we automatically supply it to others (who do not), then there will be less profit in supplying this good relative to when all pay for what they consume. 

A theoretical social problem results because firms have less incentive to supply goods in such a situation. After all, how many hamburgers would McDonald’s supply if it could not restrict consumption of its output to paying customers? Economists often contend that such underproduction requires government subsidies as a remedy to these “market failures.” 

This issue relates to CFR in an important way. So-called public goods are public because private citizens refuse to spend their money and time in trying to get them. Advocates of CFR worry about special interests precisely because private interests are indeed willing to spend their money and time lobbying the government to divert specific governmental assets to their purposes. This strongly indicates that the goods in question are inherently private. 

Interest groups also lobby to induce authorities to reduce activities on the part of others that they find undesirable. If they are willing to spend their money and time lobbying the government, then why won’t they spend the same money and time bargaining in private markets to achieve the same result?

There is an obvious answer. Taxes pay for public efforts in such matters, whereas private entrepreneurs would charge their customers for their services. Thus, the public sector enables interest groups to free ride on taxpayers as they deal with alleged social costs, and in the process, it institutionalizes the very public-goods problems that justify its interventions in the market process in the first place.

There is no doubt that private activity can affect others who do not want any part in it. However, if private citizens are willing to deal with such problems with their own time and money, then there is good reason to doubt the need for government intervention into these matters. 

If the public-goods argument for government intervention is indeed overblown, as we contend that it is, then much of the growth of government to deal with public-goods problems is unnecessary. CFR proponents assume that, absent political donations, the nature of government would become more angelic. This is doubtful as long as government is as large and as powerful as it is now.

Given the immense authority that government officials wield, the notion that private interests always manipulate public officials is itself questionable. As law professor Fred McChesney points out, some politicians propose onerous regulations simply to extract funds from them. The implication is that many efforts to elicit funds for campaigns are in truth implicit extortion schemes that obey the letter, but not the spirit, of our legal rights as individuals. 

From an economic perspective, if both proponents and opponents of CFR were serious about curtailing the abuse of the political process, they would make serious proposals for reducing the size and scope of the state. Instead, one side’s solution legitimizes graft, while the other side’s solution penalizes political speech. 

The solution lies neither in silencing political discourse nor in permitting corruption, but in the alteration or abolition of the governmental authorities that allow for the offensive practices in question.

The concerns of CFR advocates are real. However, the proper solution lies not in increasing the role of government in public life to regulate our access to it, but in reducing its influence so that we no longer have the ability to exercise this right in a manner that serves private interests at public expense. 

The current conflict between advocates and detractors of CFR has no reasonable answer. Since both sides have valid points, we can only solve one problem by causing another. But these issues ignore the true source of the problem. Government is too large. This being the case, both sides should redirect their efforts to the advocacy of privatization and deregulation. .FM 


D.W. MacKenzie is a doctoral candidate in economics and a Walter Williams Fellow at George Mason University in Fairfax, Virginia (dmackenz_2000@yahoo. com). Christopher Westley is an assistant professor of economics at Jacksonville State University in Jacksonville, Alabama (cawestley@msn. com).



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