Political Money as a Force for Good

Early in 2007, campaign finance experts and editorial writers, looking toward the looming presidential campaign, began to talk of a "billion dollar election." In a February 2007 editorial, the New York Times invoked Watergate to warn that such a sum spent on an election would represent a breakdown of campaign finance regulation and mark a return to the corruption of the Nixon era. If Sen. Hillary Clinton was looking for a clever name for her big fundraisers, comparable to George W. Bush's "Pioneers," the Times said, she could call them "Recidivists." (After marveling at the millions that Clinton, Rudy Giuliani, and a few other candidates had already amassed, news stories at the time also mentioned in passing that presidential hopeful Barack Obama had raised $500,000.)

In the end, more than $1.6 billion was raised for the 2008 presidential campaign, more than twice as much as four years earlier. A single candidate -- Barack Obama -- raised and spent $640 million of that total. In addition, candidates for the House of Representatives and the Senate spent more than a billion dollars, even though, as usual, most contests were not competitive. All told, the predicted billion-dollar election actually cost $5.3 billion, according to the Center for Responsive Politics.

Only a few presidential candidates participated in the public financing system in the primaries. The Democratic Party nominee, Barack Obama, who ultimately raised hundreds of millions in private donations, was the first candidate since the system was created to opt out in the general election, passing up $85 million in federal funds with no strings attached, except for the requirement that a candidate raise and spend no additional money. Meanwhile, GOP nominee John McCain, once known as a maverick supporter of campaign spending limits, supplemented public financing with $19 million in coordinated funding through the Republican National Committee and at least $36 million through the General Election Legal and Compliance Fund, a loophole originally created to help candidates pay for the costs of complying with campaign finance regulations.

Only a few years ago, such staggering numbers and electoral circumstances would have caused campaign finance reform advocates to talk in terms of a dystopian future for American democracy. They would have been seen as evidence of the collapse of not only the Bipartisan Campaign Reform Act of 2002 (commonly referred to as the McCain-Feingold Act) but the entire edifice of post-Watergate election reform.

And yet, when the day came, many of these reformers described the 2008 electoral season as one of the brighter episodes in the history of American democracy. Voters participated in record numbers, and the public's enthusiasm was palpable, not just regarding Barack Obama, the ultimate victor, but with respect to other presidential candidates in the primaries, as well as candidates for House and Senate seats. Despite the record number of voters who told pollsters that the country was on the "wrong track," and unprecedented disapproval ratings of both President Bush and Congress, there were strong signals that voters were motivated by hope. According to a Pew poll, unusually high percentages of people said that they were voting for their preferred candidate rather than against the opposing candidate.

And while the amount of money spent in the campaign was staggering, so was the number of people actively involved. Some 2 million donors contributed to the Obama campaign alone. Although we don't have good historical data on donors who give less than $200 (the threshold at which the Federal Election Commission requires donation details), we know that in 1996, only 567,000 people gave $200 or more to any candidate or party, and only 200,000 people gave to any Democrat or the Democratic Party. By comparison, Obama had 322,000 donors who gave $200 or more, in addition to the roughly 1.7 million who sent smaller amounts. Altogether, 1.2 million people donated $200 or more to various campaigns in 2008, according to the Center for Responsive Politics. Such a broad and diverse base of donors, and the astonishing percentage of small donors (48 percent of Obama's funds and 34 percent of John McCain's came from individuals who gave less than $200), must alleviate concerns about corruption that stem from the leverage that any big individual donor, group of donors, or major fundraiser might gain over a candidate. In this new electoral world dominated by small donors, no single individual can have significant sway.

Two outcomes of the 2008 election -- the collapse of the campaign finance regulatory regime and the transformative success of small-donor fundraising -- call not just for new rules, but for an entirely new way of looking at money in politics. Existing campaign finance law treats money as a corrupting influence to be constrained or eliminated. The authors of existing law assumed that small donors were unlikely to play a major part in politics unless constraints on large contributions and on soft money contributions from corporations and unions forced candidates to seek small contributions as a last resort. In their minds, money, cynicism, and low participation were the elements of a vicious circle.

Those were valid assumptions in 1996, for instance, when only about half a million people contributed funds to political campaigns and political participation was at its lowest level ever. (The presidential election of that year was the only one in American history in which voter turnout fell below 50 percent.) We now know two things that we didn't know then, or that weren't true then: first, that small donors can be drawn to politics; and, second, that large sums of money in politics and an engaged electorate and participatory democracy are not incompatible. We need to begin to think about money as an essential form of expression that deepens participation. Money, positive engagement in politics and government, and voter participation can, under certain circumstances, form a virtuous circle.

The Big Money Paradox

The election created a paradox: If there was a causal relationship between big money in politics and corruption, public cynicism, and low participation, then a year like 2008 -which featured big money, but, paradoxically, also public enthusiasm and high  participation - should not exist.  Longtime opponents of reform, such as former Ffederal Eelection Ccommissioner Bradley Smith, jumped on the results as proof that they had been right all along: "Obama''s fundraising shows us the emptiness of the arguments for campaign finance ‘'reform,''" Smith wrote in Tthe Washington Post.

Obama, who had earlier made a vague pledge to work out an agreement with his opponent whereby both would accept public financing, and was widely criticized for opting out, described his fundraising base as "a parallel public financing system where the American people decide; if they want to support a campaign, they can get on the Internet and finance it."

Candidate Obama was right in one sense and wrong in another. It is fair to think of the contributions of 2 million donors as constituting "public financing." Obama's broad base of support, reflecting such enthusiasm that roughly one out of every 30 people who voted for him contributed to his campaign in some form, can legitimately be thought of in those terms.

What it cannot be called, however, is a "system." The extraordinary polarization of the electorate in midst of an economic crisis and the passion for change after eight years of the Bush administration's policies, which combined with  Obama's personal appeal and superlative political skills to help him raise almost twice as much money as any previous candidate, are not reproducible. Certain congressional candidates, especially those who caught the attention of the online activists of the "netroots," also brought in astonishing numbers of small donations. However, for the most part there was no change in the cost of a competitive congressional race, or in the advantage enjoyed by incumbents and those with access to larger donors, according to an immediate postelection study by the Campaign Finance Institute.

Indeed, as 13 scholars writing in The Forum, a journal published by the University of California at Berkeley, agreed, the regime by which we govern money in politics has "collapsed." The regulations intended to control large contributions and soft money, bolstered by the McCain-Feingold reforms of 2002, were weakened by the Federal Election Commission and finally made irrelevant last year by the Supreme Court's correct ruling that issue advertisements mentioning a candidate near election time cannot be regulated. The 34-year-old public financing system for presidential campaigns, an outdated model whose flaws were evident, died from disuse.

While the constructed elements of the campaign finance system -- the legal limits and formal public financing -- collapsed, the system itself was saved by accidental developments outside the legal framework. The Internet, in particular, made a new kind of small-donor fundraising possible by dramatically lowering the transaction costs for identifying, soliciting, and collecting contributions. In the past, asking a donor for a second or third donation was costly, so it made sense to ask for a large donation up front -- or simply to target large donors. Beginning with Howard Dean's campaign in 2004, campaign finance managers began to understand that with a donor's e-mail address in hand asking for more than one contribution was cost-free. Now there was every reason to ask a donor for five or ten dollars to start, and nothing was lost by asking for subsequent donations even if the donor had no more to give. This was a small change, with huge consequences, made possible by technology.

Technology also slashed the transaction costs of organizing to raise money outside the campaigns or parties, in a way that until now has gone largely unrecognized. A decade ago, the only interest groups able to raise significant campaign contributions collectively were those whose prospective gains from organizing to influence government -- for example, the large trade associations of Washington's K Street or groups of single-issue voters such as gun-rights supporters -- provided the financial incentive to bear the huge costs involved. Thus a primary goal of reform was to limit the impact of such organizations, whether in the form of Political Action Committees (PACs) or the 527 committees that emerged in 2004. Since the ability to organize was distributed unequally, regulating such groups was seen as essential to equality.

But Internet intermediaries like ActBlue.com, an online clearinghouse enabling individuals or groups to raise money for candidates they favor, have completely transformed the nature of organizing by reducing the costs to almost nothing. ActBlue users, acting independently to form their own little interest groups -- sometimes literally, in the sense of supporting candidates they found interesting --  have raised $82 million for candidates since the site launched in 2004.

These new low-cost organizations in turn enabled candidates to raise money without having to go to the gatekeepers of the big, organized dollars -- the lobbyists and financiers -- and changed the range of issues that candidates had to respond to. When it's as easy to organize a group of activists concerned about constitutional protections against wiretaps as it is to organize business owners desirous of a change in tax law, the collective action problems that exacerbate political inequality are substantially reduced. Low-cost organizing also helped bring people together around broad, shared interests -- as political parties do -- not just narrow interests. (While the most notable achievements of low-transaction-cost political organizing have so far been on the left, it is only a matter of time before conservative organizations such as Slatecard.com catch up.) Numerous congressional candidacies, such as that of Tom Periello in Virginia, would never have been possible, much less victorious, without ActBlue and the thousands who used it to organize. Moreover, no one will be able to look for favors from Congressman Periello on the grounds of having singlehandedly raised $500,000 for his campaign.

Money as a Force for Good

The challenge for reformers will not be to try to rebuild the post-Watergate campaign finance regulations, but to ensure that big money in politics is a force for good, that it promotes political participation and robust political dialogue. The goal should be to take the innovations of the Obama campaign, ActBlue, and a few others, and create a system that can work for all candidates, parties, and voters.

Such a system will require incentives, interventions, and public money structured not to replace private money in political campaigns but to move us determinedly toward a broad-based, small-donor approach -- especially in the early stages of a campaign -- the possibilities of which we have only glimpsed. The road to small-donor democracy, however, will require something more than a legislative fix. It will require a change in how we think about money in politics, so that instead of trying to purge our electoral system of big money or organized money, we seek to use the lessons of 2008 to ensure that money can be a force for good. How we do this may vary from state to state and for congressional and presidential campaigns, but there are certain things we can do to get us started in the right direction.

Change the incentives for candidates to seek small donations. A generous match on small contributions, such as New York City's 6:1 public match, is one way to give candidates as much motivation to seek a $50 contribution as a $300 contribution. Even full public financing systems, such as Arizona's, use small contributions as seed money to prove broad public support. As Arizona governor Janet Napolitano said, it led her to approach the same people for money that she approaches for votes.

An expanded federal matching system is essential if we are to reform the presidential primary system, which is a complex series of iterated elections in which neither the 1:1 match of the current system (in which few viable candidates participate) nor full public financing is appropriate. Sen. Russ Feingold's proposal for the presidential system would raise the match to 4:1 on the first $200 contributed, but a more imaginative solution would be a flexible system that would give a bigger boost in the first stages of a campaign, with the matching rate flattening out as the candidate raised more money.

The biggest challenge in creating a matching system, coupled with a voluntary spending limit, is to make it flexible enough for candidates who face a well-funded opponent, especially one who is financing his or her own campaign from personal wealth. In Davis v. FEC, the Supreme Court recently overturned a electoral law provision that increased the contribution limit for candidates facing a self-financed opponent -- a good decision as a matter of policy, since self-financed candidates should not be treated differently than those heavily funded by lobbyists -- but one that raises questions about the viability of other public financing systems that attempt to boost a candidate's chances against a nonparticipating opponent. Some systems provide additional public or matching funds in such circumstances; others, like New York City's, raise the spending limit accordingly, and Mayor Michael Bloomberg's opponents have taken advantage of that flexibility.

Create new ways for small donors to give. Legal scholar Bruce Ackerman has long advocated providing every citizen with "Patriot Dollars" for the purpose of contributing to an individual candidate or a political organization. The goal of encouraging participation by small donors could also be achieved by means of a refundable tax credit for small contributions, especially if it were well publicized and made simple. Minnesota combines a matching system with a tax credit, appealing to both candidates and contributors, and it is easy to collect the tax refund. This combination looks a lot like the Patriot Dollar system, without the complicating factors of giving political scrip to citizens who may not feel knowledgeable enough to make a contribution or unintentionally reinforcing the advantage of the better-known candidate.

Add new incentives for small-dollar organizing. To offset the power of big political organizations, we could add new incentives for small-donor PACs, such as those organized on ActBlue, by making contributions to certain qualified political organization eligible for a match or a tax credit as well. At the very least, platforms that allow citizens to organize themselves should not be treated the same as single-interest political action committees or bundlers. When everyone can organize, the economic advantage of organized money disappears.

These provisions could be combined in various ways. A public financing system could have both a matching component for candidates in the early stages of a campaign and full public financing once a certain level of public support were reached. Such systems would need to be flexible, and not lock candidates into spending limits or other restrictions that would limit their ability to respond if outspent by a richer opponent, the core problem of the old presidential system. As such, they would respect the role of money as a legitimate expression of political enthusiasm and a form of participation. They would build on healthy trends in our politics rather than continuing the futile quest to build a wall against unhealthy trends. And while expensive, by using public money strategically to encourage smaller donors and more broad-based private giving, they would cost less than proposals that seek to fully replace private money with public funds.

Our focus should be on making sure that the profound inequalities of the economic sphere are not reflected and reinforced in the political realm. But the 35-year experiment in trying to achieve this by limiting the amount of money in politics has failed. Small-donor democracy promises less, but it can achieve more.