In a representative democracy, politicians who want to get elected often have to rely on fundraising to get money for their election campaigns. Additionally, politicians in power often receive donations from interested parties, in order to convince said politicians to support or oppose a certain law or take a particular stand in an issue.
I think this is bribery What this article is not is a report on the moral and political repercussions of this.
This post is a breakdown of the short-term economic effects of freeing or limiting campaign donations/spending, summarized and simplified. This does not include effects from the shift in economic policy influenced by campaign donations, because this is too speculative and too broad to be predicted with economics.
Here I assume two types of donors, corporations (which donate to politicians to influence business-friendly laws, such as tax breaks), and unions (which donate to influence labor protection laws, such as higher minimum wages); and two conditions of receiving donations, a politician in the process of campaigning, and a politician already voted into office.
A. Corporate donations to a campaign
Corporate funds → Election campaign → Broadcasters (i.e. TV Station)
- The corporate funds donated could have (and most likely would have) been used for more direct investment purposes. For example, a fast food chain could have kept donation money and opened up a new location.
- The money spent by the campaigners is given to the TV station (or the radio station, or the newspaper, or the store they bought their megaphones from), resulting in an upsurge of income to these firms which they are likely to use for their own investments too.
Summary: Corporations lose, Media firms win by the same amount. No effect on investment.
There are unpredictable, long-term effects of this too. See case C.
B. Union donations to a campaign
- Unions don’t do much in the way of investment. By the nature of unions, the money they spend is almost always on lobbying and other political activities. No investment lost.
- Broadcasters earn money, this money presumably used for investments as in case A.
Summary: Media firms get money. Boosts investment and the media industry.
HOWEVER, the money donated by the union could have been circulated in the economy as consumption money, making for a stronger economy overall. Therefore the overall effects cannot really be calculated. However, investments are the better option to bolster an economy in the long term. Make up your own mind.
C. Corporate donations to an active politician
- Corporation loses money as in case A.
- Politician pockets the money, presumably using it to power their own consumption.
Summary: Corporation loses money, some guy in power wins money by the same amount. Weakens investment.
However, the politician in question is more likely to propose, and vote in favor of, laws that serve the interests of this corporation, making for an overall more business-friendly environment in the long term. This is however one thing that cannot be predicted with any accuracy.
D. Union donations to an active politician
- You know the drill.
Summary: Union loses money, some guy in power wins money by the same amount. No effect on investment.
However, this leads to labor unions getting more power in legislation, as corporations did in case C. This would mean that businesses would be worse off on the whole, therefore weakening the economy in the long term. But again, as in case C, this is not cut and dry, and cannot be accurately predicted.
- Donations from corporations are forgone investment money, and therefore are bad for the economy
- Similarly, donations from individuals are forgone consumption money, and therefore bad for the economy too.
- Donations to broadcasters and advertisers are often used for investment – or just to keep the firm alive – and therefore are good for the economy
- Donations from unions aren’t lost investment money, because unlike corporations unions don’t invest in an economic sense but usually spend their money for political and community purposes. This means union donations don’t affect the economy in the short term.
- Donations to politicians are almost exclusively meant as an influencing factor to business legislation, and consequently have no short term effects, and no effects at all that can be predicted for the whole set.
Again, these are only the short term effects on an economy. There are effects on society, the political playground, and legislation that probably far outweigh the economic effects, but again, this isn’t the point of this post.
I may or may not write a follow up to this post about alternative ways of funding political campaigns. Maybe.
Let me know what you think. And if I missed anything, or got anything wrong.
Also, if you’re reading this and got some free time, I’d appreciate it if you could craft the basic points of this piece into an easy infographic/flowchart.
Until next post.