March 15, 2006

Political financing

During the beginning of it's reign New Labour did some good things, one of them was to try and reform the way that political parties finance themselves. Subseqquently when, hit by reality, they have turned to all sorts of clever tricks to get around the limitations that they themselves set in place such as multi-million pound loans at unknown rates of interest. Like in so many other areas they tried to regulate without changing the basic incentives, and where so doomed to fail. People are smart, put up a barrier and they will find a way around it if the incentive is strong enough. To change behaviour you need to change the incentives rather than just commanding the tide of dodgy money to retreat. As Daniel Finkelstein says today in the time:
The only way to clean up the political system is to ensure that the price of underhand behaviour is too great to make the risk worthwhile. This means doing everything to make the system more open and competitive, rather than more regulated and restrictive.
Of course some will use this as a way of pushing the idea that political parties should be funded out of general taxation via central government, even more than they are at the moment, this might sound like a simple solution the problem is that it will not work. Any political party burns money at a high rate, and there is always more research that they can do, more pamphlets that they can publish. Giving more money from central government will to satisfie the appetites of political parties for money it will just allow them to subsidise other areas of their operation. Again as Mr Finkelstein says:
Yet there is another strong argument against state funding — it wouldn’t work. In order to attempt to prevent any further sleaze scandals, it would not be enough simply to give parties state cash. They are in a competitive business and would want more. In fact, this already happens. Millions of pounds of taxpayers’ money goes to the parties to fund essential parliamentary work, but all it does is free up cash for discretionary spending. The fundraising continues. So what state funding of parties really means is preventing them from receiving private funds at all.

Would this do the trick? Of course not. The Conservative Research Department would simply become an independent think-tank, providing data that just happens to be of use to Tory MPs. The unions would increase their advertising budget just as the local elections come round. Politicians would be, how shall I put this, grateful to those donating to the new organisations. And given the independence of these bodies, it wouldn’t be reasonable to expect them to reveal the source of their money, would it? A layer will have been inserted, allowing deni- ability without cleaning up politics at all.
So the only solution is to try and change the incentives. Make dodgy financing so politically dangerous that it is not worth the risk.


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