Can Money Be a Force For Good?

Early last year, as the 2008 presidential campaign loomed on the horizon, campaign-finance experts and newspaper editorial boards warned preemptively of a "billion-dollar election." In a February 2007 editorial, The New York Times invoked Watergate to warn that such an expensive election would represent a breakdown of campaign-finance regulation and mark a return to the corruption of the Nixon era. If Sen. Hillary Clinton were looking for a clever name for her big fundraisers, something comparable to George W. Bush's "Pioneers," she could, the editorial suggested, 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 mentioned in passing that there was also a fellow named Barack Obama who had raised $500,000.)

In the end, more than $1.6 billion was raised for the presidency alone, more than twice as much as was raised four years earlier. A single candidate -- Barack Obama -- raised and spent $640 million of that total. Candidates for the House and Senate spent more than a billion dollars, even though, as always, 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 for the primaries. One, Obama, was the first candidate since the system was created to opt out of using it in the general election, passing up $85 million in no-strings-attached money in favor of continuing to raise hundreds of millions in private donations. Meanwhile, the other major-party candidate supplemented public financing with $19 million in coordinated funding through the Republican National Committee and at least $36 million through a legal loophole known as a General Election Legal and Accounting Compliance Fund.

Had these staggering circumstances been predicted to campaign-finance reform advocates a few years ago, they would have unanimously described them as a dystopia, a terrifying fate for American democracy and evidence of the collapse of not only the 2002 Bipartisan Campaign Reform Act (the McCain-Feingold law) but the entire edifice of post-Watergate election reforms.

Yet when that day came, many of the same reformers described it as one of the brighter days in the history of American democracy. Voters participated in record numbers, and enthusiasm was palpable, not just for Obama but for other presidential candidates as well as House and Senate candidates. Despite the record number of voters who told pollsters that the country was on the "wrong track" and the unprecedented disapproval ratings for both the president and Congress, there were strong signals that voters were motivated by hope. Unusually high percentages of people told the Pew poll that they were voting for their preferred candidate rather than against the other.

And while the amount of money was staggering, so was the number of people involved: More than 3 million donors gave to the Obama campaign alone. Though we don't have good historical data on donors who give less than $200 (the amount required to be reported), 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, 322,000 donors gave $200 or more to Obama's campaign, in addition to the roughly 2.7 million who sent smaller amounts. More than 1.2 million people donated $200 or more to campaigns -- not only Obama's -- 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) have to significantly alleviate concerns about corruption resulting from the leverage that any individual donor, group of donors, or major fundraiser would hold. In this new world dominated by small donations, no one individual has much sway over the candidate.

Two facts revealed by the 2008 election -- the collapse of the campaign-finance regulatory regime and the transformation of small-donor fundraising -- call for not just new rules but an entirely new set of assumptions about money in politics. Campaign-finance law treats money in isolation as a bad and corrupting force that should be constrained or eliminated. The authors of the existing laws 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 go small. And they assumed that money, cynicism, and low participation formed a vicious circle.

These are the assumptions of 1996, when only half a million or so people were involved in politics as contributors and when political participation was at its lowest level ever. (That was the only year in American history when voter turnout fell below 50 percent.) We now know two things we didn't know then: Small donors can be drawn to politics, and large sums of money in politics and engaged, participatory democracy are not incompatible; money can, in fact, be an essential form of expression that deepens participation. That is, money, positive engagement with politics and government, and participation can, in certain circumstances, form a virtuous circle.

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The election created a paradox: If there were 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 also public enthusiasm and high participation -- should not exist. Longtime opponents of reform, such as former Federal Election Commissioner Bradley Smith, jumped on the result 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 The Washington Post a week before Election Day.

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."

He was right in one sense and wrong in another. It is fair to consider his 3 million donors "public financing." A broad base of support, reflecting such enthusiasm that roughly one out of every 30 people who voted for him also made a contribution, can legitimately be called public.

What it cannot be called, however, is a "system." The circumstances that led to Obama's ability to raise almost twice as much money as any previous candidate are not reproducible. And some of the circumstances -- such as the extraordinary polarization of the electorate and the passion for change after eight years of George W. Bush -- one would never want to reproduce. Certain congressional candidates, especially those who won attention among the online activists of the "netroots," also brought in astonishing levels of small donations. But for the most part there was no change in the price of a competitive congressional race or in the advantage held by incumbents and those with access to larger donors, according to an immediate post-election study by the Campaign Finance Institute.

Indeed, as 14 scholars agreed in the journal The Forum, published by the University of California, Berkeley, 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, an outdated model whose flaws were evident, died from disuse.

While the constructed elements of the campaign-finance system -- legal fundraising limits and formal public financing -- collapsed, the system was saved by accidental developments outside of the legal framework. The Internet, in particular, made a new kind of small-donor fundraising possible. In the past, asking a donor for a second or third donation was costly, so all the incentives were to ask for a large donation up front. Beginning with Howard Dean's campaign in 2004, campaigns understood that, with a donor's e-mail address in hand, asking for more money was cost-free. Now there was every reason to ask a donor for $5 or $10 to start with and nothing lost if the donor had only $5 or $10 to give. This is not some technological miracle but 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. A decade ago, the only interests that could organize to raise and contribute money collectively were those with the financial incentive that made it worth the huge costs of organizing to influence government -- the large trade associations of Washington's K Street, for example, or a few organized groups of single-issue voters such as gun-rights supporters. Thus a primary goal of reform was to limit 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 organizing was essential to equality.

But Internet intermediaries such as ActBlue.com, a clearinghouse for individuals or groups to raise money for candidates they favor, have completely transformed the nature of organizing. ActBlue users, acting independently, have raised $83 million for candidates since the site launched in 2004. This, in turn, enabled candidates to raise money without going through the gatekeepers of the big, organized dollars -- the lobbyists and financiers -- and changed the range of issues that candidates had to respond to. (While the most notable achievements of low-transaction-cost political organizing have been on the left, it is a matter of time before comparable conservative organizations such as Slatecard.com catch up.) Numerous congressional candidacies, such as that of newly elected Rep. Tom Periello in Virginia, would never have been possible, much less victorious, without ActBlue and the thousands who use it to organize.

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The challenge in the next wave of reform is not to try to rebuild the post-Watergate campaign-finance regulations but instead to see money as one factor in a larger system and intervene to turn money into a force for good (participation, robust communication) rather than for ill (corruption, massive inequality in the ability of candidates to be heard). Neither the laissez-faire view that opposes reform nor the traditional reform approach based on limiting contributions and closing loopholes recognizes these possibilities. The goal should be to understand the achievements of Obama, ActBlue, and others and institutionalize them into a real system that works for voters and all candidates.

Such a system would seek to create every incentive for small donors to participate and for candidates and parties to seek small donors, especially in the early stages of a campaign. Small-donor democracy is not a single legislative fix. Rather, it is a change of orientation, so that instead of trying to purge politics of big money or organized money, we use the lessons of 2008 to ensure that money can be a force for good. There are a few key ways to fashion a small-donor democracy system that can work for all candidates:

  • Change the incentives for candidates to seek small donations. A generous match on small contributions, such as New York City's 6-to-1 public match, is one way to give candidates as much motivation to seek a $50 contribution as a $300 contribution. Even systems of full public financing, such as Arizona's, use small contributions as seed money to prove broad public support. As that state's governor, Janet Napolitano, has said, it led her to approach the same people for money that she approaches for votes.
  • Create new ways for small donors to give. Legal scholar Bruce Ackerman has long advocated a system of "patriot dollars"—a voucher given to every citizen to contribute to a candidate or a political organization. The same goals can be achieved through a refundable tax credit for small contributions, especially if it were well publicized. Minnesota's system combines a matching system with a tax credit, appealing to both candidates and contributors.
  • Add new incentives for small-dollar organizing. To offset the power of big political organizations, add new incentives for small-donor PACs, such as those organized on ActBlue, by making contributions to certain qualified political organizations eligible for the match or tax credit as well.

These provisions could be combined in various ways so that a public-financing system could have both a matching system for candidates to get started and then full public financing once a certain level of support were reached. Such systems would be flexible, not locking candidates into spending limits or other restrictions that limit their ability to respond if outspent, the core problem of the old presidential system. They respect the role of money as a legitimate expression of enthusiasm and a form of participation. And they build on healthy trends in our politics rather than continuing the futile quest to build a wall against unhealthy trends.

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