1
IF MONEY TALKS, WHAT DOES IT SAY? VARIETIES OF CAPITALISM, IDEOLOGICAL POLARISATION AND BUSINESS FINANCING OF PARTIES
Do business contributions to political parties convey different messages in different countries, and, if so, why? This is the first cross-national study of firm behaviour in political finance. It understands motivations for contributions to parties as either ideological or pragmatic. Motivation is inferred by quantitatively relating the payments of 960 firms to variations in political competition in Australia, Canada and Germany over periods of between seven and seventeen years. The difference between pragmatic Australia and Canada and ideological Germany can be attributed to their varieties of capitalism. The difference between wholly pragmatic Canada and Australia’s mix of ideology and pragmatism can be explained by their different party system. The statistical analysis is supplemented by a qualitative investigation of the mechanisms of pragmatism in Australia and Canada, which argues payments were intended to create a diffuse obligation that produced a small increase in the probability of successful lobbying
Iain McMenamin,
Centre for International Studies,
School of Law and Government,
DublinCityUniversity.
Acknowledgment: This research was done with the support of the Irish Research Council for the Humanities and Social Sciences.
If money talks, what does it say? Whydo businesses contribute to political parties? Is money a universal language? Do business contributions to political parties convey different messages in different countries? Since parties and firms are the key collective actors of capitalism and representative democracy,[1] the answers to these questions are fundamental to our understanding of capitalist democracy and the variety therein. This article is the first cross-national study of firm behaviour in political finance. Australia, Canada and Germany were chosen as country cases because they have experienced turnovers under transparent and permissive regulations of political finance. The main part of the paper infers motivation by relating the strategies of 960 firms to variations in political competition in three countries over periods of between seven and seventeen years. This quantitative analysis is supplemented by a qualitative investigation of the benefits of financial contributions to political parties.
This article aims to measure and explain variation in the pragmatic and ideological motivations for business contributions to political parties. The pragmatic motivation seeks private goods from the political system. In other words, pragmatic money is interested money. Another popular, but very different, explanation is that business contributions to parties are ideological. Ideological payments promote a public good. They express a preference for government based on a particular set of values and assumptions. Businesses often support a free-market ideology, but can also support other views of government and business, such as a developmental state. These very different motivations should have important consequences for politics and the economy. Pragmatism’s effects on public policy should be disorganising and distorting. In the language of American politics, the more important is pragmatic business financing of politics, the more important is “corporate pork”. Pragmatism’s effect on political competition is conservative, in the sense that pragmatic firms will finance those in power and those likely to win power, disadvantaging newer or weaker competitors. Ideological payments are aimed at influencing political competition. They usually bolster right-wing parties and thus represent a different sort of conservatism to pragmatism. However, they should not have any direct effect on public policy, and only influence it by acting as a right-wing bias in the political system more generally.
Does the relative importance of ideology and pragmatism vary according to the political-economic context, and, if so, why? Pragmatism should be less likely in co-ordinated market economies. In these systems, the pragmatic messages of firms tend to be formulated collectively as public goods and communicated collectively to the political system through corporatist institutions. By contrast, in liberal market economies, pragmatism should be more important. In this sort of political economy, there is more competition and less co-ordination amongst firms. Firms tend to define their interests individually and pursue them individually in the political arena. In countries where parties are ideologically divided between left and right, ideological payments should be more likely. Where ideology does not separate the principal political parties, ideological payments should be less important. These variables should also influence the probability of a firm making a payment. Pragmatism is profit-seeking in the political arena and is thus linked to the very purpose of the firm. Ideology is a luxury, separate from the basic mission of a company. Therefore, where pragmatism dominates payments to parties, firms are much more likely to contribute than in systems where payments tend to be ideological.
In Canada, until the ban on corporate donations, money tended to speak pragmatically. A large number of firms sought an unlikely but potentially large benefit in exchange for a certain but small benefit for a party. In Germany, money tends to speak ideologically.A small number of companies grant a certain but small benefit to a party as an expression of a political preference. In Australia, pragmatism dominates, but there is also an ideological preference for the right. This mix of motivations is combined with a contribution rate between those of Canada and Germany. These patterns are associated with fundamental differences in political economy and party system. Pragmatic Canada and Australia are liberal market economies, while Germany is a co-ordinated market economy. Canada’s two traditional principal parties were almost ideologically indistinguishable, but Australia’s parties compete on a left-right basis.
The argument proceeds conventionally. The next section places this research in the context of the wider literature on business and politics. Then the dependent variable and independent variables are introduced in turn. A multinomial logit, and associated simulations, measure ideology and pragmatism in each country case. The penultimate section is a qualitative investigation of the causal mechanism, which links expected benefits and financial contributions in liberal countries. The conclusion summarises and considers the wider significance of this three-country study.
FIRMS, PARTIES AND DEMOCRACY
This paper contributes to the massive literature on the uneasy but vital relationship between capitalism and democracy.[2] The tension between the currencies of the market and democracy, between money and votes, is an inherent one.[3] The political influence of big business is usually divided into intentional and structural categories.[4] A useful way of thinking about intentional business behaviour is to distinguish between different actors.[5] The firm can approach politics directly,[6] or through intermediaries such as business associations[7] or political consultants.[8] On the political side, there are huge differences between the bureaucracy, the executive and the legislature. As a further complication, business may make contact with one type of political actor in order to influence a different political actor. For example, parties can influence the legislature and the legislature can influence the executive. Pragmatic firms can pursue their interests with political parties through two principal channels, lobbying and cash contributions. These are often, but far from necessarily, related. There are other methods of relating to parties, such as charitable giving[9] and various types of networking. These seem less important, and, of course, are also often, but not always, combined with lobbying or political finance. This article understands pragmatic business financing of parties as part of the lobbying process. The benefit of financial contributions for business is an increased likelihood of successful lobbying.
While this research is easy to locate within the wider study of business and politics, it does not fit easily into an existing research programme. Many of the above permutations of business and political actors have been intensely studied, but there is a very sparse literature on the relationship between firms and political parties. Beyond Grant’s discussions of the “party state”,[10] only a handful of systematic treatments are to be found.[11] Thus, inspiration has to be somewhat indirect. There is a well-established literature on comparative political finance. However, it tends to tabulate sources of party income and expenditure in broad categories.[12] There is a handful of interesting country studies based on firms.[13] Scarrow draws some interesting comparative conclusions from the absolute and relative size of corporate and individual contributions to parties in Germany and the UK.[14] Nonetheless, her study does not focus on the firm’s motivations as is done here.
The most relevant literature to this article is the voluminousresearch on business financing of politics in the USA. Like the present research, it exploits firm-level data on payments to politicians. When compared to the potential value of benefits, business spends very little on political contributions.[15] Surely, this reflects the costs politicians incur by taking business money. Politicians must be seen to represent their constituency in order to gain re-election. They cannot afford a perception that their political support can be bought. In a democracy, politicians need to emphasise that the currency of votes trumps that of money. Politicians have to manage their relationship with business supporters in such a way as to minimise this cost. In terms of fundraising, politicians can try to raise money from non-business sources, in particular, ordinary voters. To the extent that business funding in aggregate is important to them, they can reduce their reliance on any individual business, by raising small amounts from a large number of firms.
American business contributions are variously interpreted as more or less legal bribery,[16] purchase of access to politicians,[17] signals to bureaucrats[18] and legislators,[19] mere gifts,[20] and as “interested gifts”, which generate an obligation to reciprocate.[21] This last interpretation is the most convincing. It is consistent with a number of observations that are generally accepted in the American literature: contributions are small;[22]they are distributed strategically;[23]they are not routinely associated with policy benefits.[24] Business contributions are a small investment, with an uncertain and relatively low probability of a return at an uncertain point in time. Moreover, the size of the return is also uncertain, but is likely to be very large indeed.[25] So, this political investment is a little bit like a venture capital investment.
While the US literature provides a very useful discussion of possible costs and benefits of business financing of politics, it is not framed comparatively. Indeed, the US is a very awkward case from which to attempt to generalise. Its presidential system obviously works very differently to the largely parliamentary regimes of other older democracies. Its elections and political finance are candidate-centred, unlike the party-dominated systems of other countries. Finally, and perhaps most importantly, there are major limits on the source, size and purpose of business contributions in the US. The “bizarre and incongruous regulations”[26]pertaining to political finance in America mean it is actually very difficult to interpret the reported payments as indicators of the calculations of businesses. Therefore, the next section introduces a conceptual framework that can capture and measure ideological and pragmatic motivations.
DEPENDENT VARIABLE: IDEOLOGYAND PRAGMATISM
The distribution of ideologically motivated donations should be relatively stable over time. Party ideologies change slowly. Even if parties tack to the left or the right for tactical reasons, it is rare for the left-right ranking of parties to change. In contrast, the distribution of pragmatic donations should follow short-term changes in the distribution of political power. These two motivations may interact in a single decision about the distribution of political contributions. For example, take a firm that has an ideological preference for the right. Under a left-wing government it may be prepared to contribute to the left, while also continuing to express its ideological preference by funding the right-wing opposition. More generally, imagine an index of political power that runs from zero, when the right holds all power, to one hundred, when the left has a power monopoly. Also, let there be a measure of ideology: zero for a position at which any funding to the left is unacceptable and one for no ideological preference between left and right. The product of these two is the percentage of a firm’s political contributions donated to the left. So, a firm, which assesses all power to be held by the left, will contribute exclusively to the left if its ideological score is one, i.e. is if its motivation is purely pragmatic. It will contribute zero to the left if its motivation is a purely ideological commitment to the right. A firm, the right-wing preference of which is tempered by pragmatism, might split its contributions equally between left and right. To summarise, a firm’s distribution of cash to parties is a strategic decision taking into account political power and the firm’s ideological position, if it has one.
At a point in time, the distribution of a firm’s money can be to the left, to the right, a hedge between left and right, and, of course, a firm can decide not to contribute. If we consider two time points, shifts between the four basic distributions give us the sixteen cells in Table 1. If the two time points are divided by a change of government we can identify some of the strategies as clear indicators of ideological (colour-coded white) and pragmatic motivations (colour-coded black). In this example, a left-wing government has replaced a right-wing government. It can be inferred that firms that gave to the left in opposition, as well as in government, are ideologically committed to the left. Similarly, firms that continue to give to the right, even after its ejection from government, are committed to a right-wing ideology. Firms that shift from right to left, as power shifts from right to left, are classified as pragmatic. Those that hedge before and after the election, have no ideological preference, and are pursuing a pragmatic, low-risk strategy. Other strategies suggest an interaction of ideological and pragmatic motivations (colour-coded grey). Those that did not contribute while the right were in power, but contribute to the left when in power, combine an ideological preference for the left with a pragmatic desire not to signal hostility to a right-wing government. Firms that hedge under the right but, under a left-wing government, contribute exclusively to the left, suggest a similar mix of pragmatism towards right-wing governments and a preference for the left. The same logic applies to those that contributed to a right-wing government but abstain from political finance under the left and firms that plumped for the right in government but hedge after a turnover. The other seven cells do not have implications for the underlying motivations of the firms.
[Table 1 about here]
INDEPENDENT VARIABLES:
VARIETIES OF CAPITALISM AND PARTY POLARISATION
Variations in political economy and party systems should affect the choice of political strategies by firms in the three country cases.[27] Australia and Canada are regarded as liberal market economies.[28] They exhibit each of the institutional complementarities that form the basis of the comparative advantage of liberal market economies. Firstly, the stock exchange dominatesthe market for corporate governance. The value of domestic publicly listed firms is over one hundred per cent of GDP, a value very similar to that of the USA. Firms need to attend to their share price and current profitability. Secondly, in industrial relations, companies rely on the market to govern relations with their employees. Australian and Canadian levels of employment protection are relatively low, and similar to each other, only separated by New Zealand in an eighteen-country study.[29] This means firms have the flexibility to chase the short-term results that the stock market demands. Thirdly, both countries emphasise generalist training and education, rather than industry-specific apprenticeships. Thus, workers can adapt to changing firm strategies and, more importantly, to a number of jobs over their career. Finally, contracts and competition tend to define inter-firm relations. Crucially, business associations play little or no role in the basic economic strategy of the firm. Instead, associations offer lobbying functions or sell marketing and public relations services that could be, and often are, also offered by other firms. Once again, this fits into the relatively short-term focus of the firm in a liberal economy. In Australia and Canada, business associations have tended to be weak, divided, and only intermittently effective in politics. Attempts to give them a substantial, institutionalised role in policy-making and implementation have failed at both national and, to a lesser extent, at sectoral levels.[30]
Germany is presented as the archetypical co-ordinated market economy[31] and provides a contrast to liberal Australia and Canada in all four spheres. In the market for corporate governance, the stock exchange is complemented by networks of firms and banks that provide other opportunities for finance. They allow firms to pursue long-term strategies that do not necessarily maximise short-term share price and profitability. Germany’s domestically-owned publicly-listed firms are half as valuable as a percentage of GDP as their equivalents in Australia and Canada. Secondly, employment security is very high and the institutionalised equalisation of wages within sectors reduces incentives for workers to move from employer to employer. This encourages firms to commit to long-term specialisations and incremental innovation. Thirdly, training and education is often highly specific to a particular company or industry. Of course, this system matches employees’ qualifications and incentives to the relatively long-term and niche strategies of firms. Finally, inter-company relations exhibit institutionalised and informal co-operation, as well the market relationships of competition and contract. Business associations often play a vital role by facilitating the diffusion of technology across firms, and ensuring that the state plays an effective role in supporting and subsidising research and training, sector by sector.[32] Associations are powerful organisations, which tend to speak authoritatively for the interest they represent.[33] Their importance depends on, and reflects, their indispensability to the basic strategies of member firms.