The Cash Nexus: Money and Politics in Modern History, 1700-2000

by Niall Ferguson

  As in the British case, it is true, there is a need for a long-term perspective. In nominal terms, the total cost of a presidential electoral cycle may have risen by more than a quarter between 1987–8 and 1995–6. But in real terms, adjusting for inflation, the cost was more or less unchanged. And in relation to GNP, the cost of a presidential election cycle has actually fallen from 0.016 per cent to 0.014 per cent. As those tiny numbers suggest, the cost of American democracy is not as burdensome as is commonly supposed. It is worth remembering that the entire amount spent on elections in 1996 was slightly less than the advertising budget of the Philip Morris tobacco company the year before.18

  Nevertheless, there are a number of crucial ways in which the cost of American politics has tended to rise. Adjusted for inflation, total spending by the two major parties on federal elections rose by more than a fifth between 1983–4 and 1995–6. The increase was almost entirely registered by the Democrats, whose inflation-adjusted expenditures rose by 86 per cent. Also in real terms, the amount of federal funds contributed to presidential candidates rose by 28 per cent between 1980 and 1996. Although total expenditures on Congressional Senate elections remained more or less constant in real terms during the 1990s, the decline in the number of contested elections concealed rapidly rising spending in contested seats. Spending by Political Action Committees has also risen in real terms: by 54 per cent in the case of contributions to candidates for the House, 64 percent in the case of the Senate.19 And there has been a surge in the amount of ‘soft money’, raised by National Party Committees for so-called ‘party-building activities’, from $86 million in 1992 to $262 million in 1996.20

  The difficulty is that parties are seeking to win votes, not to sell a product that generates revenues. They are therefore reliant on sources of finance which are, from a business viewpoint, abnormal. Membership dues can, of course, be likened to subscriptions to newspapers, but neither parties nor newspapers can rely on these alone (and parties cannot sell advertising). In any case, party political membership is nearly everywhere in decline.

  In Britain in 1953, as Table 13 shows, the Conservatives could claim to have nearly three million members. By the late 1990s the figure had fallen by 86 per cent to just 400,000. The number of individual members of the Labour Party peaked in 1952 at 1,015,000; there were more than five million corporate (mainly trade union) members.21 Despite the success of the New Labour recruitment drive, individual membership at the time of writing remains around two-fifths of its 1953 peak.22 The full extent of the crisis is best gauged by calculating individual party membership as a percentage of the UK population. Figure 25 shows that in relative terms Labour Party membership in the 1980s had sunk to a level not seen since the 1920s.

  Table 13. Individual membership of the three major British political parties, 1953–1997

  Sources: Webb, ‘Party Organizational Change’, p. 113; Butler and Butler, British Political Facts.

  A similar process is now discernible on the continent. In Austria, for example, membership of the main parties peaked in around 1980 and has since fallen. Despite the success of the Freedom Party (FPÖ) in attracting new members, total party membership as a percentage of the electorate fell from 29 per cent in 1962 to 23 per cent in 1990.23 In Denmark membership of the four main parties fell from 600,000 in 1960 to 220,000 by end of 1990; the four new parties which emerged in that period managed to recruit a mere 28,000 members, just 0.7 per cent of the electorate.24 Holland too has seen party membership fall from 745,000 in 1960 to 320,000 at beginning of the 1990s: from 15 per cent of the electorate in 1946 to less than 4 per cent.25 In Italy there has been a collapse of membership of the three main parties since 1993, which new organizations like the Northern League have not been able to compensate for. Labour and Conservative party membership is also down in Norway; and a large proportion of those who choose to remain party members do not pay their dues.26 As the distractions of modern life have multiplied, it seems, political activity has lost its social and economic appeal. Members are no longer content to turn up at party gatherings just to lick stamps and be addressed by some minor party figure; nor are many willing to spend their leisure time pounding the pavements to canvas local voters.27

  Figure 25. Individual Labour Party membership as a percentage of the UK population, 1928–1997

  Source: Butler and Butler, British Political Facts, pp. 146 f., 323.

  The only exceptions to this flight from the parties are Sweden and Belgium. In the former, total membership has remained constant at around 1.5 million, so that its share of the population has only declined slightly (from 21 per cent in 1960 to 18 per cent in 1989).28 Remarkably, the Swedish Social Democrats can still claim membership equal to 46 per cent of their total vote.29 In Belgium, too, party membership as a percentage of the total electorate has held steady, albeit at the much lower level of 8–10 per cent.30

  The effect on party finances of declining party membership everywhere else can readily be imagined. In the case of the British Conservative Party, constituency income (that is, from party members) declined from 14 per cent of total party income in 1988–9 to below 6 per cent in 1994–5.31 In Austria membership dues have fallen as a percentage of the Socialists’ total income from 43 per cent (1975–8) to 36 per cent (1986–9).32 In Germany, it is true, membership dues still account for around half the Social Democrats’ total income, 40 per cent of Christian Democrats’ and 25 per cent of Bavarian CSU’s – rather more than in the 1960s.33 But no European party can expect to rely on membership dues as a source of income on this scale for much longer.

  The decline of party membership, coinciding as it has with the rising cost of elections, has plunged many parties into an acute financial crisis. The Conservatives’ accumulated deficit rose from just £500,000 in 1975 to £19 million in 1992, though this has since been reduced to around £10 million. In 1999 Labour’s debts were estimated at £3.5 million plus an overdraft of £4.75 million – and this despite the fact that a substantial number of the marketing experts working for the Shadow Communications Agency gave their services for free. In 1992–3 the Irish political parties were estimated to have debts of around I£ 5.5 million, an immense sum for such comparatively small organizations.34

  All this explains the increasing reliance of so many political parties on private donations. In recent years the veils that have traditionally concealed Conservative Party finance have been drawn back. In 1987, for example, the party raised nearly £15 million, of which £4 million came from public companies, another £4 million from private companies and around £6 million from individuals.35 As a proportion of Tory Party income, it has been estimated, company and individual donations rose from just under 78 per cent in 1988–9 to 83 per cent in 1994–5.36 For the following year a detailed breakdown is available of donations by public companies, which reveals that the Conservatives received 120 donations totalling £2.88 million, including seven of over £100,000.37 Between 1979 and 1993 United Biscuits led the field, donating more than a million pounds to the party.38 A more complete disclosure by the party itself in November 1998 revealed a list of thirty-three donors who had given £5,000 or more, though the total sums were not specified. The party was to all intents and purposes bailed out after its 1997 defeat by its party treasurer, the Belize tycoon Michael (now Lord) Ashcroft.39 This reliance on foreign money was not new: the party had received around £7 million from foreign backers before the 1992 elections. Among the foreign donors were the Greek shipping tycoon John Latsis and the suspected fraudster Asil Nadir.40

  A more novel feature of the past decade has been the increasing importance of business donations to the Labour Party, which had, as we have seen, traditionally relied on the trade unions for the bulk of its funding (92 per cent in 1974).41 Business fund-raising accounted for hardly any Labour revenue in 1986, while nine years later Labour Research was able to identify only twelve business donations totalling £1.25 million. By 1996 the figure was over £6 million, compared with trade union cont
ributions of £8 million.42 Altogether between June 1996 and March 1997 the party raised no less than £15 million from business.43 Despite talk of increasing trade union contributions in 2000, it seems unlikely that the party will ever be able to return to its previous reliance on organized labour.

  In many ways, the dependence of British parties on big individual donors represents organizational regression: a return to the political institutions of the age of Trollope.44 But British political donations are small change by American standards. According to the Washington-based Center for Responsive Politics, federal parties and candidates were able to raise around $1.5 billion in the form of individual contributions, donations to Political Action Committees and ‘soft money’ in the 1997–8 election cycle – a period in which there was no presidential election. Contributions from the Finance, Insurance and Real Estate Sector alone amounted to more than $154 million.45 Though most of this money comes from a relatively small number of rich institutions, there are some signs of an increase in ‘small political investors’. By July 1999 around 160,000 individuals had made donations to the campaigns of George W. Bush and Al Gore.46

  The question is: why not?

  THE POLITICAL ECONOMY OF SLEAZE

  Gibbon ironically called corruption ‘the most infallible symptom of constitutional liberty’.47 Certainly, the 1990s were marked by a rash of corruption scandals in nearly all the major democracies. By the end of 1996 two-thirds of the British electorate regarded the Conservative Party as ‘sleazy and disreputable’.48 Where power has changed hands more regularly than in Britain, such sentiments are felt towards politicians in general. For example, a survey in Austria in 1989 found that 69 per cent of people agreed that ‘politicians were corrupt or bribable’, nearly twice the figure a decade before.49 In November 1999, 61 per cent of French voters agreed with the statement that ‘elected politicians and political leaders in France are generally corrupt’. The statement was endorsed by 75 per cent of voters between the ages of 18 and 25.50

  But is modern politics especially venal? Suppose it was revealed that the British prime minister had taken a decision that had caused shares of a particular company to rise by 25 per cent. Such things are far from unknown. But then suppose it turned out that the prime minister personally owned shares in that firm with a market value before the decision of £17 million. As a direct result of his action, his shares had increased in value by £7.5 million. It is hard to believe that even the popular Mr Blair would survive such a scandal.

  It was in fact William Ewart Gladstone who in late 1875 acquired £45,000 (nominal) of the Ottoman Egyptian Tribute loan of 1871 at a price of just 38 per cent of par (£17,100). As the editor of his diaries revealed, he had added a further £5,000 (nominal) by 1878 (the year of the Congress of Berlin); and in 1879 bought a further £15,000 of the 1854 Ottoman loan, which was also secured on the Egyptian Tribute. By 1882 these bonds accounted for no less than 37 per cent of his entire portfolio (£51,500 nominal). Even before the British military occupation of Egypt in 1882 – which he himself ordered – these proved a good investment: the price of the 1871 bonds rose from 38 to 57 in the summer of that year. The British takeover brought the prime minister still greater profits, however: by December the price of 1871 bonds had risen to 82 – a total overall capital gain of nearly £20,000 on his initial investment in 1875.51 Assuming a 25 per cent rise in the value of his total holdings of Egyptian-Ottoman bonds in the second half of 1882, Gladstone personally made £12,785 from the decision to occupy Egypt. In today’s prices that amounts to at least half a million pounds. Allowing for growth as well as inflation, the present-day equivalent of Gladstone’s gain from the invasion would indeed be £7.5 million.

  The belief that modern-day politicians are more corrupt than in the past is almost universal. The 1997 British election campaign was dominated, and in some respects won, by allegations of ‘sleaze’ directed against the Conservatives by all the opposition parties. By Victorian standards, however, British politicians are remarkably scrupulous in separating their public role and their private interests.

  It is important when speaking of ‘sleaze’ to distinguish between sexual transgressions, a part of the human condition; inconsequential venality, another such; and authentic corruption, when government policy is constrained or determined by private interests, whether of donors or ministers themselves. Although there was no shortage of the first two kinds of scandal in the government of John Major, the third was largely conspicuous by its absence.

  Leaving aside the comical but essentially trivial first category, the majority of Conservative financial scandals in fact related to the efforts of MPs to bolster their own salaries by, for example, asking parliamentary questions in return for money, or otherwise acting in support of a private interest.52 Venality of this sort is tempting to professional politicians, not least because their salaries are pegged below those of their peers in other professions. In real terms British MPs’ salaries doubled between 1911 and 1964; but for the next thirty years they stagnated, averaging less than £30,000 a year (in 1997 prices). Although the allowance for office expenses was increased in real terms after its introduction in 1969 (and actually exceeded the basic salary in 1986), this cannot really be regarded as equivalent to pay.53 Even the 26 per cent increase to £43,000, agreed in 1996, can hardly be said to make the job a financially attractive one – though it may be asked what kind of private sector job is equivalent to that of a legislator. Moreover, the tightening of the rules requiring the declaration of MPs’ interests has made it hard for politicians to accept paid directorships or consultancies to supplement their income. Trollope would have been mystified by the notion of a Member of Parliament with no outside interests and income.

  Even harder to justify is the discrepancy between ministerial salaries and those of senior executives managing comparably large budgets. When the Senior Salaries Review Body looked into this it explicitly compared the prime minister’s job with that of the director of ‘a huge multinational company in a sector (such as oil) requiring massive capital investment and exerting a clear influence on the world economy’. But, on this basis, the prime minister ought to be paid at least £450,000; and his Cabinet colleagues, as executive directors of the same company, at least £375,000. Instead, it was recommended that Cabinet ministers’ pay should rise from £69,651 to £103,000, and the prime minister’s from £84,217 to £143,000. In his capacity as chairman of Unilever, the head of the self-same Review Body, Sir Michael Perry, had received a total annual package the previous year amounting to £2.94 million.54 It is hardly surprising that politicians seek to supplement their salaries as directors and consultants.

  But to repeat: to be meaningful, the term ‘corruption’ must signify that private interests influence government policy, presumably – though this is assumed more often than it is proven – to the detriment of the public interest. For this reason, payments to ministers give more cause for concern than payments to MPs, whose job it is to represent interests. The only serious complaint that can be made against an MP who accepts money for posing a question on behalf of a company is that he is neglecting to represent the rest of his constituents, who as taxpayers pay his salary, when he does so. But then every question an MP asks on behalf of a constituent implies a neglect of the interests of the rest. The idea that all interests can be represented equally is (as eighteenth-century parliamentarians understood) a fiction. When ministers accept cash or gratuities it is another matter. Jonathan Aitken’s gratis stay in the Paris Ritz in 1993 differed from Neil Hamilton’s a few years later mainly because Aitken was a junior defence minister at the time, and his bill was picked up by the Saudi government, which was bidding to lease some British submarines.55 Similarly, when it was revealed in 1998 that Peter Mandelson’s London home had been purchased with an undeclared loan of £373,000 from his fellow-minister Geoffrey Robinson, the real scandal lay in the fact that Mandelson’s own department was conducting an investigation into Robinson’s business affai
rs at the time he owed the money.56 In neither case, however, does it seem very likely that policy was influenced one way or the other: it was the denial or concealment of the transactions that constituted the mischief.

  One reason why overt purchases of policy have been relatively rare in recent British history is the role of the honours system. The sale of honours was supposedly made illegal by the Honours (Prevention of Abuse) Act of 1925, after Lloyd George had flagrantly auctioned off peerages for £50,000 apiece. However, the persistence of the practice can hardly be denied. No more than 6 per cent of companies make donations to the Conservative Party, but half of all knighthoods and peerages have gone to directors of those companies.57 On the other hand, it is far from self-evident that this is an unacceptable trade-off, particularly in the case of purely honorific knighthoods. As a form of recompense for political donations, decorations and titles – though not seats in the Upper House – are fairly unobjectionable, a point usually overlooked by critics of the honours system. In the United States no such system exists, though the offer of a night in the White House’s Lincoln bedroom for $250,000 might be considered roughly analogous.

  Somewhat less innocent is the practice of selling access to members of the executive. Here too Bill Clinton has been a pioneer, as videotapes of White House coffee mornings for donors revealed. In 1998 it emerged that advisers to Labour Ministers were also selling access to their superiors for cash donations to the party.58 Yet coffee with the head of the executive is just coffee: ground beans, hot water – but no binding policy pledge. The crucial question is how far donations are tied to specific political commitments. It seems clear, for example, that President Clinton gave licences to Democrat-funding companies to export high-technology equipment to China, with potentially deleterious consequences for American national security. This kind of transaction is particularly overt with respect to certain agricultural interests: some protective American tariffs and subsidies (notably those for peanut- and sugar-producers) undoubtedly owe their continued existence to conditional donations. The practice is less overt in Britain, though businessmen (and trade union leaders) have certainly attempted – who knows how often? – to secure policy pledges in return for money. Before the 1997 election, for example, Bernie Eccleston tried to secure, by means of £1 million donation to the Labour Party, an exemption for Formula One from the party’s proposed ban on tobacco advertising in sport.59