Public Finance and Post-Communist Party Development

Janis Ikstens, Steven D. Roper

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9780754671794
• eBook ISBN: 9781351907781
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This key volume explores how party and campaign finance in post-communist countries have influenced the development of the party system. Based on an analysis of nine case studies, the work examines how the implementation of public finance affects the pattern of party competition and the role of money in elections. One of the lessons from the post-communist experience is that, no matter how well-designed, public finance systems are subject to constant revision as parties, politicians and business elites exploit loopholes which can undermine the integrity of the entire system. Party and campaign finance systems must therefore be considered in a larger discussion involving party regulation and electoral rules.

Chapter 1
Introduction:
The Influence of Public Finance
on Post-Communist Party Systems

Steven D. Roper

While it is a worn-out adage that “money is the mother’s milk of politics,” understanding the influence of money in the political process is more difficult than it might appear. While the general wisdom is that only candidates and parties with access to significant funding have a chance to win, the relationship between money and votes is difficult to empirically study. There are a number of factors which contribute to this complexity including the lack of accurate reporting as well as numerous channels for legal and illegal funding. One would expect that understanding the influence of public finance on parties would be much easier since the funds come from the state treasury which should ensure better reporting and greater ease in empirically isolating the effects of finance as a source of party revenue. However as this volume shows, the provision of public finance does not replace private funding but only serves as a supplement. Indeed, empirically understanding the relationship among money, voters and parties is made more difficult with the introduction of a system of public finance not easier. However, if the development of individual parties and the party system as a whole is to be properly understood, then an exploration of the role of finance is critical.

While other aspects of the polity such as the system of government and the electoral rules are rarely significantly reformed, public finance systems over the last forty years have typically undergone substantial changes in many countries. These changes have often been motivated by concerns of the corruptive influence of money in the political process. Whether public finance significantly reduces the amount of electoral corruption is high debatable. Indeed, some argue that restrictive public finance laws may actually increase the level of corruption. Other scholars blame the lack of regulatory oversight for the failure of public finance to curb corruption.¹ Most of this prior research focuses on European and Latin American systems of public finance—only recently have post-communist scholars explored themes which include the relationship of corruption and finance, and how public finance reflects and influences party competition and development during the initial transition process.

The creation of new post-communist institutions offered the opportunity for parties to exploit the state for private gains. Governing party elites in the early transition period created a set of state administrative structures designed to enrich themselves and their party at the public’s expense. Sham privatization deals, loans for shares and pyramid schemes were just some of the most publicized efforts of individuals and party elites to use legislative loopholes and administrative resources to control vast parts of the economy. During this period, the design and the implementation of public finance was part of the general discussion concerning the exploitation of the state by parties and politicians. Grzymała-Busse argues that in post-communist states in which “the opposition parties were clear and plausible governing alternatives and powerful critics, governing parties did not take advantage of the full opportunities for private gain in state reconstruction.”²

If the opportunity structure influenced the design and the implementation of public finance, then we would expect finance systems to develop first in those post-communist states in which there was less party contestation. Public finance is often regarded as a form of party rent-seeking in which the provision of public finance allows governing parties to extract state resources and access additional funding. However as this volume shows, the introduction of public finance was not necessarily a function of the opportunity costs of party competition. Many post-communist states with limited opposition parties and a fragmented party system did not institute public finance which would have enriched the governing party by extracting further resources from the state. Indeed, some of the states to first adopt a system of public finance, such as Hungary, exhibited some of the most viable opposition parties. This is not to suggest that the adoption of public finance in post-communist states was isolated from the larger issue of party competition. However, party finance as a function of state resource exploitation is a very different phenomenon than other forms of state exploitation because by design, public finance can provide a more level playing field to opposition parties. While the governing parties may extract more finance than other parties, the provision of public finance cannot be completely dominated by these parties in the same way as the use of administrative hirings or local projects.

Moreover as this volume suggests, public finance does not have a determinative effect on party competition. While many post-communist states have witnessed a tremendous increase in the amount of funding available to parties over the past decade, it is difficult to explain electoral outcomes and the development of the party system in these countries simply by looking at the amount of legal public funding available. State finance has increased concomitantly with private funding, and the institution of thresholds and changes in party registration requirements have been just as important to the nature of party competition and the development of a stable party system. In short, for those that advocate public funding as a means to consolidate the party system, this volume demonstrates that public finance in isolation has a modest influence on parties and the party system. Instead, the creation of public finance must be considered as part of a larger discussion involving the specific features of finance (for example, the role of private finance, reporting and accounting procedures) as well as party regulation and electoral rules.

Motivations for the Creation of Public Finance

While party and campaign finance are distinct mechanisms for funding parties, the difference between these two forms of finance becomes blurred in practice. Party finance is allocated to parties between elections, and campaign finance is provided to parties competing in a specific election cycle. However as Pinto-Duschinsky argues “since it is hard to draw a distinct line between the campaign costs of party organizations and their routine expenses, party funds may reasonably be considered ‘political finance.’”³ He argues that the public funds for parties, whether campaign-specific or designed for more general party operations, are ultimately used for electioneering purposes. Therefore in this volume, we use the more general term of public finance to include both forms of funding.

While the exact form of party and campaign finance varies among countries, there are some common characteristics associated with public finance. Direct public finance normally includes providing funds to parties (typically the party’s central headquarters). Indirect public campaign finance comprises in-kind subsidies including free media time or a tax holiday on the importation of campaign materials. While party and campaign finance legislation varies, the logic behind state subsidies is rather uniform, and the reasons often involve reference to the development of individual parties and the broader party system.

First, public finance has been advocated in many countries in order to create a more level playing field among parties. The increasing importance of mass media has changed the nature of campaigning over the past few decades and placed significant financial burdens on parties. Therefore, public finance is considered a mechanism for creating greater party competition by providing state finance to parties that do not enjoy significant financial resources compared to governing parties. Typically, public finance awards a subsidy based on parliamentary representation, and as the chapters in this volume show, the vast majority of public finance is awarded to governing parties and those with representation in parliament. Rather than stimulating competition, many of the authors in this volume conclude that public finance only serves the interest of the party or parties of power. Indeed, Katz and Mair argue that public finance can produce a cartel party system based on the collusion of parliamentary parties to provide state subsidies in order to prevent the establishment of new parties.⁴

For example in describing the influence of finance on parties in Hungary, Ilonszki argues that more than ninety percent of public finance has historically gone to the same five parliamentary parties. She concludes, therefore, that the public funding of parties has not assisted smaller, opposition parties or new parties but has entrenched parliamentary parties. Not surprisingly since the founding election, the Hungarian party system has become one of the most stable in Europe. Kostadinova concludes much the same in terms of the effect of finance in Bulgaria and notes that since public finance had to be approved by the major parties, the Bulgarian system of public finance has primarily benefited parliamentary parties, especially ruling parties. The chapters in this volume show that overwhelmingly public finance rewards parliamentary and governing parties at the expense of out-of-parliament parties. Therefore, it is doubtful that public finance has created a more level playing field among parties; rather, public finance has been used by parliamentary parties as a tool to benefit select parties which could stymie party competition.

A second reason why public finance is advocated is to reduce the amount of money in campaigns. Public finance is often introduced to limit party spending and the general costs of campaigning. However, this pre-supposes a specific type of regulatory framework which limits public and private money as well as empowers an oversight body to enforce the law. Several cases have shown that state finance does not decrease the costs of elections. Mendilow reports that in Italy in the mid-1970s, public funding nearly doubled, and in Israel, the major parties after 1988 passed an amendment to the public finance legislation to retroactively increase the expenditure ceiling.⁵ In this volume, numerous chapters describe the escalating amounts of finance that have been provided to parties by the state. For example, Sikk and Kangur note in Estonia that public finance has more than doubled in a decade. In addition, many of the country case studies point out that the provision of public finance has not stopped parties from seeking additional private revenue sources. Not surprisingly, Heywood concludes that public finance “was seen as a potential solution to the problem of escalating expenditure, [but it] appears to have little impact on the drive to seek extra funds.”⁶

Moreover as the chapters in this volume show, one of the significant problems in designing systems of public finance is the disconnect between legislation and enforcement. While many states have legislation which limits contributions, financial transparency has been murky, and the administrative body tasked to monitor compliance often lacks sanctioning power that could enforce greater financial accountability. Even when the oversight body has robust sanctioning powers, legislative loopholes can thwart transparency. For example, Ikstens notes that even Latvia’s highly regarded Anti-Corruption Bureau, which has been very active in uncovering illegal funding, has not been totally successful because of legislative defects in the definition of covert political advertising. Because of the general lack of enforcement recounted in these chapters, not surprisingly, the costs of campaigning have not been controlled. Indeed most of these chapters, especially in Estonia, Lithuania and Hungary, note a dramatic increase in the costs of campaigns over the past two decades. As Linek and Outlý point out, the Czech Republic is unique among post-communist countries because the costs of campaigns have remained rather modest (undoubtedly due to the ban on political advertising on television and radio).

The country case studies in this volume highlight the fact that public finance has been used as a supplement not substitute for private money which means that wealthy donors still wield considerable influence within the party organization.⁷ In describing Russian parties, Gel’man likens party contributors to major shareholders of firms in which the contributor can take over the party, even through a hostile takeover. He concludes that even with public finance, the influence of wealthy donors affects the policy orientations and the electoral strategies of Russian parties. The question remains whether these donors would have even greater influence within Russian parties if there was no state finance. For example, the case of Moldova shows that in the absence of public finance, wealthy donors play a fundamental role in the internal decision-making of parties. Based on an elite survey, Protsyk and Osoian find that wealthy business patrons are considered to be more important to recruit than rank-and-file members. They argue that the need for finance affects the decision-making of the party and the party’s recruitment patterns which concentrates power within the national party headquarters at the expense of local party branches.

Because public finance awards the subsidy to the national party headquarters, the party center gains even greater influence over regional party offices. Indeed, the introduction of public finance can lead to a decreased effort to recruit new party members and a general decline in grassroots activities (as noted by Protsyk and Osoian in Moldova). Moreover, the importance of party elites increases at the expense of rank-and-file members since elites decide how and where the public funds are going to be used. For example, Mendilow argues that all national party headquarters in Israel were strengthened following the first campaign held under public finance.⁸ That said, private funding can offset this centrifugal tendency of public finance by providing local party elites an alternative source of funding outside of the party center. As the chapter by Gel’man points out, Russian regional party branches have continued to enjoy a certain amount of autonomy from the central office due to local patrons. Particularly in mixed-member systems such as Lithuania, local party organizations can benefit from candidate-centered elections, and as Unikaitė argues in her chapter, candidates can raise their own funds which benefits the local party.

One of the problems in understanding how public finance affects the broader political system is that finance is just one of the variables that can influence the nature of individual parties and the party system. For political scientists, this is an empirical problem as understanding the impact of public finance requires models which incorporate systemic political variables. The chapter on Bulgaria and Lithuania suggest that the attributes o...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Table of Contents
• Dedication
• List of Tables
• Notes on Contributors
• Preface
• List of Abbreviations
• 1 Introduction: The Influence of Public Finance on Post-Communist Party Systems
• 2 Russia: Public Offices, Private Money and Biased Contests
• 3 Lithuania: Political Finance Regulations as a Tool of Political Manipulation
• 4 Latvia: Disclosure yet Abuse, Volatility yet Stability
• 5 Estonia: The Increasing Costs and Weak Oversight of Party Finance
• 6 Czech Republic: Is it Possible to Buy Political Stability?
• 7 Moldova: Party Institutionalization in a Resource-Scarce Environment
• 8 Bulgaria: Three Finance Regimes and Their Implications
• 9 Hungary: Rules, Norms and Stability Undermined
• 10 Romania: The Secondary Influence of Public Finance on the Party System
• Index