In the middle of his controversial demonetisation drive in November 2016, Prime Minister Narendra Modi used the occasion to call for a national debate to explore the possibility of public funding of elections and political activities in India. The idea of state funding of politics has gained currency internationally. According to the global democracy watchdog International IDEA, as many as 116 democracies now offer some form of state subsidies to reduce the influence of money in democratic processes. Richer and advanced democracies like the United States (US), the United Kingdom (UK), Germany, Finland and Italy have been experimenting with state funding for many years. In Asia, countries such as Japan, South Korea and Israel have adopted a public funding model for quite some time. Incidentally, the Latin American countries were the first to introduce state subsidies for political parties. It was Uruguay which introduced state subsidies in 1920s. Later the idea was borrowed by Costa Rica and Argentina. More than seven Latin American democracies now have a system for state funding (Sahoo, 2017).
A compelling case for public funding of politics
Public financing model is being widely propagated for its anti-corruption claims. Globally, anti-corruption theorists base their claim on intuitive and historically verifiable indicators, where election contributions in some instances, function as a kind of legalised bribery that prevents political actors from acting independently (Bradley, 1997). Analysts therefore push for public financing of elections to mitigate the importance of ‘private money’ by keeping ‘big money’ out of politics (Committee on Standards in Public Life, 2011). Public finance can help protect the political process from direct, quid pro quo kickbacks or corruption. State funding for them is an affirmative system, rather than just a restrictive one that seeks to prevent corruption, promotes diversity among candidates and acts as a public service to the entire society instead of helping the donors.
This is not to deny the original theoretical assumption for public financing of well known political philosophers, John Rawls and Ronald Dworkin. For them, public funding aspires to establish an ‘equalising influence’—an effort that goes on to ensure that certain powerful groups or individuals do not exercise undue influence in the electoral processes. According to this school of thought, political equality demands the concept of ‘equal political influence’, meaning no citizen has more power over the political process as compared to other citizens (Dworkin 1996; Rawls 1993). In other words, the equality view of public funding rests on one central fear that left to themselves, political actors will transform economic power into political power and thereby violate the principle of political equality.
There are thus three broad assumptions that clearly emerge from the above philosophical underpinnings. First, the anti-corruption argument about keeping big money out of politics demands that the state takes appropriate steps to address the challenges of private finance confronting political parties and candidates. Second, that public financing is necessary to equalise influence and promote competition—create a level playing field for parties and candidates with less resources vis-à-vis with parties and candidates with ex ante equality. Third, that a strong public interest rationale demands public financing of elections as they benefit democracy and serve the common good.
Are there any ways to measure these claims made by the advocates of public funding? The evidence emerging from the global experience raise plenty of doubts over the effectiveness of public financing scheme. Most pointers from the global experience indicate that the picture is far from rosy. For instance, countries like Italy, Israel, and Finland that embraced public funding in the previous decades are yet to witness any visible reduction in election expenditures (Zamora, 2008). Similarly, in the case of the United States, election expenditure continues to soar. In fact, the Obama years witnessed two of the most expensive presidential elections (Hudson, 2012). Only a handful of countries like Germany and Japan have been able to reduce their poll expenditures to a reasonable extent (Carlson, 2015; Sridharan, 2001). Yet, successes in these countries have come largely through strict transparency and disclosure norms, elaborate regulatory mechanisms and public scrutiny of expenditures by parties and candidates.
In terms of checking corruption and the growing plutocratic influence on party finance and corruption, the results are not all that encouraging either. (Londono and Zovatto, 2014). For instance, in the cases of Israel and the US, as noted above, public subsidies have not reduced the reliance on big private donations. Similarly, in several Latin American countries, particularly Brazil, Argentina, Colombia, Ecuador and Costa Rica, public subsidies have proved rather ineffective in limiting the role of business in political financing. Therefore, not only did public subsidies in this case fail in replacing the need to attract private donations, but it also became an additional source of income for the parties (ibid).
There are few successful examples, though. Take the case of Canada. The North American country which introduced public subsidies as a part of a whole set of reforms, including spending ceilings, tax incentives for smaller contributions has been able to reduce the role of interested money in party financing (Nassmacher, 2014). In Sweden, generous public subsidies, which far exceed private donations and minimal state intervention in party affairs have been successful in reducing temptation for parties to seek anonymous, interested money (Ohman, 2015). In both these cases, it is necessary to understand that other factors were also responsible for the resultant effect than mere introduction of public financing option.
Has state funding helped in motivating new entrants and promoted electoral competition? The jury is still out. The evidence from global experiences suggests that public subsidies fostering competition is a function of how public subsidies are distributed. In countries like Russia, it has been used to stifle political competition and promote authoritarianism. In fact, the 2001 public funding law in Russia has led to a situation where it is almost impossible to challenge the ruling party (Golosov, 2014). Thus, it has led to creation of a cartel party. However, there is modest evidence of the opposite too. In some instances, particularly in the cases of Israel, Italy and Mexico, introduction of public subsidies has brought greater competition by enabling entry of newer parties and providing smaller parties with the funds to compete with incumbents (Zamora, 2008).
Besides this, there are also peculiar experiences, particularly with regard to parties that have certain ideological preferences, like the left or parties with socialist leanings. It is widely known that these entities find it increasingly difficult to compete with right-wing parties due to the fact that huge private funds are readily available to the latter. In some ways, the introduction of public subsidies is helping left leaning entities, as is evident in the case of Latin America’s Uruguay (Zamora, 2005).
State Funding of Elections | Lessons for India
India is plagued by many problems related to the opaque and murky nature of political finance. It is in public knowledge that the 2014 General Election was said to be the second most expensive election after the 2012 US presidential election (Sahoo, 2017). As per a study by the Centre for Media Studies in 2014, the figure was stated to be about a mammoth INR 300,000 million (Sen, 2014). Buying votes by giving cash, alcohol, drugs and more is also a common practice.
Second, political finance in India is opaque. Income from known sources only forms a minor part of the finance of the major parties in the country. Between 2004-05 and 2014-15, parties were financed to the tune of just INR 113,670 million of which less than 20 per cent came from officially declared sources (Sahoo, 2017). It is common knowledge that a large portion of these funds are from illicit sources.
Third, like most democracies around the world, there is huge dependence on interested money from the corporate in financing elections and party activities. This, coupled with the major role played by the state in regulating the economy, has resulted in most of the money coming from corporations through illegal and undisclosed means which in turn has resulted in the increasing role of black money in elections and other party activities. Even tax benefits have not proven to be a good enough incentive for the corporate to reveal their identity as they fear backlash from parties in power (Gowda and Sridharan, 2012).
Fourth, there is an absolute lack of competition at the level of candidature within parties. Due to the increasing need for money, most candidates chosen by parties are individuals who can finance themselves and do not rely on party funds for campaigning. This has led to an increase in the number of rich candidates and has also resulted in an increasing number of criminals contesting elections (Vaishnav, 2017).
Finally, there is very limited internal democracy in parties as power lies in the hands of a few dynasts and regional satraps who control party finance. With the growing role of money in elections, most parties, with some exceptions, select rich candidates or the ones with ability to raise funds to fight elections. This has often led to businesspersons and even criminals self-selecting themselves as candidates while meritorious or talented candidates find it difficult to participate in the democratic processes (Vaishnav, 2017).
Successive governments in India have taken note of the challenges and introduced a series of reforms to curb the growing influence of money and the plutocratic tendencies distorting democratic processes (Law Commission, 2015). Among the many reform proposals, the idea of public funding of elections has been in the discussion for quite some time. Many committees appointed by successive governments in the last two decades have discussed various proposals of direct state funding of parties and elections, but have largely failed to build consensus on criteria, methods and quantum of such funding.
Given the nature of political finance and the increasing role of money in elections, India needs to take the public funding option seriously. Global examples, as cited above, can prove handy for India. While it varies from country to country, there are established processes and practices to learn from. From the policy perspective, it would make sense to pay close attention to success stories. The success stories of Sweden, Canada, and to a lesser extent Japan reveal that an effective public funding model has two elements: reducing the dependency on the corporate or private money (by strict restrictions on limits, strong regulations, disclosures) and infusing white money through state funding or incentivising various other funding options including tax free donations/loans, matching funds, etc. Nonetheless, as seen from the Canadian example, to a great degree, success came through strict transparency and disclosure norms, elaborate regulatory mechanisms, and public scrutiny of expenditures by parties and candidates.
Here again, India’s existing system of political finance laws and institutional processes is light years away from meeting those conditionalities for state funding. India’s broken political finance regime accompanied by lack of clear rules on transparency, disclosures, and the absence of a strong and effective regulatory agency makes it an unsuitable candidate for public funding. Yet, these are in fact the precise reasons why India needs to embrace state funding model to fund its politics. Given the fact that in nearly all countries that have introduced public financing option, this has been preceded by a regulatory regime of transparency and disclosure and regulatory body (in many cases empowering existing electoral commissions) to go after the violators. India’s underdeveloped and slack political finance regime and missing regulatory body would receive a big push from the new scheme (Sahoo, 2017; Gowda and Sridharan, 2012).
Secondly, by providing a ‘floor level fund’ for everyone, state fund scheme is critical for smaller and newer political entrants. For various factors, India has seen a huge proliferation of political parties, formed on ethnic, religious and other parochial grounds. However, due to growing costs of elections, many of them find it difficult to put up a decent campaign. It is here the public funding of elections, especially if that is channelised through candidates, can come very handy to promote competition for candidature and can bring internal democracy within these parties. Public funding, if adequately implemented, can strengthen lower levels of party units, helping them to demand democratisation. It can therefore solve the problem of concentration of power in the hands of few and creation of dynastic politics. Importantly, if public funding is used as a lever, it can help the state in securing compliance from parties on all these issues.
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