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Politics - Big Money versus Democracy

published 17 September 2012 updated 17 September 2012
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"Money is the mother's milk of politics." Former Speaker of the California Assembly Jesse Unruh

When Speaker Unruh uttered his famous phrase in 1966, money lubricated the American political system to a much lesser degree than it does today. The Centre for Responsive Politics estimates that nearly six billion dollars will be spent in federal elections this year in the United States; this figure represents a significant growth over each election cycle.

Huge amounts of corporate money for financing campaigns, campaigning on issues and lobbying helped to produce the financial and economic crisis. It also makes it more difficult to resolve. And, as has become clear in much of the world, the crisis, but also measures to deal with it (the treatment is sometimes worse than the disease), are having a devastating effect on government, in particular, vital public services like education.

In the United States, campaign reform legislation came into effect after the Watergate scandal that took place during the Nixon Administration. [1] The fundamental rationale for the reforms was that, if transparency was required in the form of periodic reports, public pressure would ensure civil rectitude. As candidates without access to significant funds were effectively denied the possibility of becoming credible candidates, the transparency has, instead, revealed the extent to which politicians of both major parties are dependent on the same “paymasters”.

One of the reasons that campaign and “persuasion” spending has accelerated is the 2010 “ Citizen’s United” ruling ( text of the decision) of the US Supreme Court. Basically, the court ruled that money is “speech” and that companies are “people”. In other words, it extended the speech rights protected under the First Amendment of the US Constitution to corporations and other organisations (including trade unions) and decided that limiting campaign expenditures limited free speech. That led to the creation of “ Super PACS” with huge means, “independent expenditure only committees” that are not supposed to be directly linked with candidates. And because contributions to Super PACS are subjected to different rules than direct campaign contributions, they are more difficult to trace, bringing “hidden” or “dark” money back into the election process.

These various forms of campaign contributions are not traditional “corruption”; not direct payments for services rendered; but the mere fact of being legal does not mean that it is not corrupt. The raison d'être for legal and illegal corruption is the same; the protection of special, rather than public interests.

Although the US may be the world’s leading “democracy at risk” due to legal corruption in the form of campaign contributions and “mammoth spending” on issues, there are many other countries where campaign contributions—transparent, translucent or opaque—distort the political process. This leads to cynicism by many citizens and a feeling that their voice doesn’t count. When some citizens “drop out” of the political process, it increases the relative influence of others who do not and, therefore, undermines the breadth and representativeness of democracy.

Most of the campaign and issues expenditures are devoted to buying spots on television. They often stretch the truth as well as lowering the quality of political debate.

The Financial/Economic Crisis

Financial market deregulation produced the savings and loan crisis [2] in the US with major economic and political consequences. That crisis, and the resulting scandals, however, barely slowed down financial market deregulation in the United States.

An even more damaging piece of financial institution deregulation than the savings and loan changes was the repeal by the US Congress in 1999 of the Glass-Steagall Act [3]; one of the key measures of President Franklin Roosevelt’s New Deal that put the banking system back on its feet after the Great Depression that followed the stock market crash of 1929. Like savings and loan deregulation, Glass-Steagall was repealed by Congress with an overwhelming bi-partisan (both Democratic and Republican members) majority.

One of the voices of dissent was Senator Byron Dorgan of North Dakota. He was quoted in the “New York Times” as saying, 10 years before the full impact of the financial crisis, “We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

The repeal of Glass-Steagall did not just happen overnight, rather it was the culmination of a 300 million dollar lobbying effort. The rationale behind it was to improve the competitive situation of US banks; but by eliminating the line between investment and commercial banks, it riddled the US banking system with the faults that produced the financial crisis.

Many more millions were spent by banks to oppose the Dodd-Frank bill when it was before Congress. The legislation limited and regulated the prerogatives of banks and was designed, in part, to make up for the repeal of Glass-Steagall. There were more registered bank lobbyists working against the bill than there were members of Congress but, in spite of that, it passed, with significant amendment, in July of 2010.

The legislation addresses the complicated workings of financial markets. Therefore, it depends on detailed regulation to implement it. That resulted in many more millions of dollars in lobbying, promotion of damaging legislative initiates to weaken it. It has also been subject to court challenges. And, the battle is far from over.

The “made in the USA” financial crisis had a huge impact on other countries. It led, in particular, to the destabilisation of a number of European countries. It was and is everybody’s business.

Getting out of the crisis, although ideally addressed by coordinated global action, will depend on what happens to Dodd-Frank as well as by other measures taken in the EU and elsewhere. And, in all of these cases, often “below the radar” lobbying plays an important role in decision-making in vital areas of public policy. This presents the risk of “regulatory capture”, where the unbalanced presence, means and influence of those interests being regulated twists the results.

The Crisis in Education

The financial crisis led to the economic crisis and the budget crises. Ironically, it has put discredited financial market institutions back in a dominant position, where market “confidence” has often crowded out the public will in government decisions.  One consequence is that public services and public employees have replaced banks as “public enemy number one” in what passes for political discourse.

Among the hardest hit of public services has been education. In other words, the mistakes of a relative handful of bankers are being paid for by schoolchildren.

But teachers and their trade unions are also paying a price. Budget pressure means cuts in salaries, benefits and conditions in many countries. In the United States, in addition, it has provided fertile ground for attacks on the rights of teachers and other public employees. It has opened up “hunting season” on trade unions. Virtually unprecedented attacks on public sector unions have been financed by the deep pockets of the Koch Brothers [4] and other wealthy individuals and companies who seek to destroy trade union power so as to increase their own.

The political result is that the perpetrators of the crisis “go free” while the victims of their crimes are, instead, being punished. This bizarre turn of events, with the shift of the attention of governments from financial market regulation to austerity, has sowed confusion, has distracted attention from real problems like unemployment and precarious work, has stretched holes in safety nets as well as undercutting public services.

All of these developments are linked to excessive, uncontrolled private spending in elections and in influencing policy. Because of the integration of the global economy, such links go well beyond a few countries. And, they do not only result in confounding private interest with the public interest; they do not just produce bad policy; they threaten democracy itself.


[1] In June of 1972, burglars working on behalf of the Committee to re-elect the President entered offices of the Democratic Party at the Watergate Hotel and removed documents. This led to a series of revelations and scandals that culminated in the resignation of President Richard Nixon. As the burglary (and related activities) was financed with funds from campaign contributions, one of the resulting reforms provided transparency, with access to information on political expenditures in elections.

[2] Savings and loan associations were designed to accept savings deposits and make mortgage, automobile, and other personal loans. Deregulation measures in 1080 expanded their possible functions to include many also provided by banks. This resulted in the failure of 747 of the 3,234 US savings and loans. It cost taxpayers at least a hundred billion dollars and inflated the budget deficit. It was a “dress rehearsal”, if on a much smaller scale, for what happened in the financial/economic crisis that began in 2008.

[3] The major function of the Glass Steagall Act of 1933 was to prohibit commercial banks from engaging in the investment business. Its repeal removed that separation and exposed consumers and the entire economy to the impact of unwise decisions by investment banks like Lehman Brothers. It also facilitated complicated processes and “packaging” like derivatives that allowed the sub-prime crisis in the US to spread to the rest of the world. Such practices also made the financial markets less transparent, more difficult to understand and harder to regulate.

[4] Koch Industries and the Koch Brothers have financed a wide range of US right-wing groups including the Tea Party and several right-wing “think tanks “. A major priority is the destruction of trade union rights and they financed much of the campaign against public employee collective bargaining in Wisconsin and other states.

The opinions expressed in this blog are those of the author and do not necessarily reflect any official policies or positions of Education International.