Montreal, June 15, 2010 • No 279


Adam Allouba is a business lawyer based in Montreal and a graduate of the McGill University Faculty of Law. He also holds a B.A. and an M.A. in political science from McGill.



Money, Money, Money: The False Hope
of Campaign Finance Laws


by Adam Allouba


          The year 2010 has seen a near-constant string of Quebec political scandals, among them a cabinet minister fired for using a private business’s credit card and allegations that judges are appointed based on recommendations from party fundraisers. Most recently, Premier Jean Charest and Parti Québécois leader Pauline Marois have traded barbs over whose party is the bigger offender under the province’s campaign finance laws.


          Scandal turned to farce after it was discovered that the Liberals had received the maximum legal donation of $3,000 from various low-ranking employees of big businesses. To Marois, this reeked of thinly-veiled unlawful corporate donations—doubly illegal because it was funnelled through third parties. To symbolize their “purity,” the Parti Québécois caucus donned white scarves. It was a great idea, until it emerged that Marois’ four children were major donors to her 2007 leadership campaign. Three of them (as young students) each gave a generous $3,000. The fourth, while working at a video store, donated a mere $2,600. As the Montreal Gazette put it, Ms. Marois found herself “hoist with her own foulard.”

          Whose side do Quebeckers take? A recent poll showed that they believe the best candidate for premier (by a nine-point margin) is “None of These.” Unsurprisingly, 87% called themselves “discouraged” or “disgusted” by politicians and exactly 0% “strongly agreed” that politicians are honest. Quebeckers seem to think that money is the problem: 61% agree that Liberal fundraisers “impose decisions on the government”—and the PQ’s “purity” notwithstanding, 80% agree that allegations of corruption could happen to any party. But if Quebec has strict campaign finance laws, why are we so disillusioned with money in politics?

You can take the money out of the politics, but you can’t take the politics out of the money

          Governments in Canada dole out huge sums of money to corporations. The Fraser Institute has calculated that between 1994 and 2007, our federal, provincial and municipal governments spent over $202 billion subsidizing business. In 2007, Quebec alone handed out over $6 billion—more than all other provinces combined. These figures include high-profile expenditures, such as the $15.3-billion auto bailout, and countless smaller grants too insignificant to show up in the headlines.

          Governments also make all sorts of other decisions with major economic implications. For example, they can ban the manufacture or import of a particular chemical. Or allow a uranium mine to open, overruling local objections. Or auction off parts of the electromagnetic spectrum for telecommunications use. Or do none of the above, which is itself a decision. Our political system gives the state vast economic powers that it must constantly choose how and when to wield.

          When government has powers of life and death over businesses, those businesses will fight for those powers to be used to their benefit—any way they can. Quebec law bans corporations from donating to a candidate, but they can promise a politician a job after leaving office. Or hire his relatives. Or create jobs by opening a factory in his district. Or give their employees time off to volunteer for his campaign. Or hire a former public official with the connections and the know-how to get things done. And a motivated entrepreneur will find many more such loopholes. You can try legislating them away—no lobbying your ex-colleagues, no working for a business that you regulated while in office, etc.—but where does it end? Politicians need to work after finishing their terms. They have family members with their own careers. Businesses must build their facilities somewhere. Should we forbid politicians from marrying? Give them (even more) lavish pensions and prevent them from working after leaving office? Outlaw even a polite “hello” by a former politician to his old colleagues? I suppose that we could breed politicians in vats, engineer them to live like hermits and kill them at the end of their terms. Any takers?

          More fundamentally, this is a question of freedom of speech (and political speech, no less, which is crucial to a free society). True, corporations are not real people with rights. But if legal persons can’t spend money on political speech, then Amnesty International can’t use its funds to lobby the government and The Globe and Mail can’t publish anything political. Why not except non-profits and “the media”? Well, first of all, try defining “the media” without drawing arbitrary and easily-flouted lines. Second, such a restriction would still be unfair. Imagine that the government threatens to hit Microsoft with hefty anti-trust fines or to break up the company. Aren’t its shareholders entitled to combat this threat to their property using political means? Some would allow them to do so using their personal funds, but not those of Microsoft. Remember, though, that a corporation only holds its assets on behalf of its creditors and shareholders. In other words, Microsoft’s money is their money—it just happens to be tied up in the business. Since the distinction between their resources and those of Microsoft is a bogus one, this line of reasoning is arbitrary and absurd.

          Quebec’s ban on corporate money, rather than being a healthy contribution to provincial democracy, is better described as an unnecessary, unhelpful, and improper limit on freedom.

"Quebec’s ban on corporate money, rather than being a healthy contribution to provincial democracy, is better described as an unnecessary, unhelpful, and improper limit on freedom."

Your money’s no good here

          Another key element of Quebec’s campaign finance legislation is the $3,000 annual contribution limit per person, per party. Even before donning her purity scarf, Pauline Marois proposed lowering this ceiling even further to $500 so as to boost “citizens’ confidence in their political institutions.”

          As we’ve seen, a major problem with legal limits on donations is their enforcement. So why not just apply the law? Sure, but tell me how we get there. Who enforces the law? The Chief Electoral Officer. Who benefits from violations of the law? Politicians. Who appoints the Chief Electoral Officer? Politicians. Every party has good reason to want election officials to look the other way. None has a good reason to want them to bring violations to light.

          So instead of being open and transparent, donations are driven underground. Rather than alleviate the problems that money causes in the political process, a donations ceiling may intensify them. Indeed, an international analysis by economist Thomas Stratmann—whose work argues that campaign finance laws have a positive effect—showed a correlation between tighter electoral spending regulations and corruption. In other words, countries with stricter laws were more corrupt. Correlation is not causation, and perhaps high corruption is what leads to tighter rules. But the finding should give pause to those who believe that laws such as Quebec’s keep politicians honest.

Campaign funds for all!

          A third plank of Quebec law, to help offset the lost revenue from low donations, is the creation of a compensation fund of $0.50 per registered voter, which parties can tap to reimburse electoral expenses (a party is entitled to the same portion of the fund as its vote share in the last election). The Canadian Parliament recently adopted a similar scheme that is even more generous: any party that wins at least 2% of the popular vote is automatically paid $1.75 per vote received in the last election, not just to reimburse expenses.

          Such schemes are antithetical to free speech, as they force taxpayers to subsidize political activities. Requiring Canadians to give money to political parties regardless of whom they voted for (or if they voted at all) is just as wrong as preventing them from donating money as they please. Is it fair to require NDP supporters to fund the Conservatives, or vice-versa?

          Some argue that the federal scheme gives people more reason to vote, since even if the race is a landslide, each vote means more money for your party. However, a study of the 2004 federal election (the first conducted after the reform) found no effect on turnout, while turnout for the 2008 election was the lowest on record. Indeed, the scheme gives people who don’t agree with giving political parties tax money one more reason to avoid the ballot box.

          Most importantly, subsidies benefit the entrenched parties. Small parties—Marijuana, Communist, Libertarian, etc.—now face opponents who not only have well-known brands and formidable electoral machines, but who can count on a guaranteed stipend from the taxpayer. The lone exception, the Green Party, went from 111 candidates and 0.8% of the vote in 2000 to a full slate of 308 candidates and 4.3% of the vote in 2004. However, they were almost halfway to the 2% threshold before the law changed and had the unique advantage of running under an internationally recognized name. They may be the last new party to enter even the fringes of mainstream politics for a very long time.

A better way

          If we want to avoid trampling on free speech and forcing people to support parties they may detest, there is an alternative. The reason such a wide range of actors—business, labour, community groups, etc.—are so willing to devote resources to influencing policy is that the stakes are so high. There remains virtually no sphere of human existence that is not drastically affected by the state, even in a purportedly free country such as Canada. Everyone wants a piece of the pie and everyone wants their voice to be heard above all others.

          But what if that pie shrank and the state’s coercive power were wielded more discretely? Rather than devise ever-more complex and restrictive schemes to bring about “complete” democracy (an abstraction that is impossible to define), the state should limit its spending, reduce its role in regulating the economy and generally avoid inserting itself in the private sphere in which individuals conduct their affairs through voluntary cooperation and exchange. If it did so, elected office might simply be a position to be filled, rather than a prize to fight over—since, after all, to the victor go the spoils.