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Money provides access to the basic tools of a modern democracy—for example, political communication, political party operations, polling and policy-making—and for this reason, political finance affects almost every aspect of democratic politics. Not surprisingly, the reform of political finance regimes is high on the agenda in many new and old democracies. In fact, the degree of transparency and accountability a country achieves in its political finance regime determines, in part, how smoothly and quickly it moves towards democratic consolidation.

A country’s transition to democracy is a crucial time for establishing political finance norms because, as Michael Pinto-Duschinsky has suggested, ”[the] impact [of political finance] is likely to be greatest in times of rapid change or crisis, for instance when new states or regimes are established” (Pinto-Duschinsky 1986, 32). Based on extensive cross-country comparisons, this article makes three observations about political finance in transitional countries. First, it describes the systemic problems that give rise to unhealthy political finance practices. Second, it details the impact these practices have on the consolidation of democracy (particularly with respect to political parties). Third, it argues that such illegal funding practices can no longer be addressed by single interventions, such as introducing public funding, spending limits or campaign finance monitoring by NGOs. Instead, a comprehensive long-term approach is required.

Systemic Challenges to Transparent Political Finance
Political finance corruption operates in the cracks between state sectors. It is often linked to crimes such as (1) abuse of state resources (related to privatization or public procurement), (2) politically motivated violence, (3) protection of illegal activities (narcotics production, prostitution and human trafficking) and (4) extortion (forcing businesses to pay protection money).



No democracy is immune to the dangers of political corruption, and even the most established democracies have all recently been victims of political scandals. Such scandals have shown that a corrupt system of political finance not only separates the political elite from society but undermines the very concept of democratic representation (one person, one vote).1 Though any democracy is susceptible, certain conditions increase the likelihood of systemic corruption in a country’s system of political finance, such as:

1. Excessive competition between political factions over state resources;
2. Severe poverty, which fuels vote-buying and makes popular funding of politics more difficult;
3. Voter apathy, weak civic activism and a lack of independent media;
4. Control of the state by monied interests (state capture); and
5. Lack of enforcement (or partisan enforcement) of the existing political finance regime.

In regimes undergoing transition to democracy (which lack public awareness of the rules of the democratic game), these conditions can lead to endemic corruption in political finances.

Excessive political competition often produces political finance–related corruption in transitional democracies. When the stakes involved in controlling public office are high, winning the election becomes more important than following the rules governing the funding of fair political competition. This is particularly true if those involved see the political game as one where the “winner takes all.” For example, in countries where patronage jobs are a major source of employment, where state budgets offer the only source of funding or where illicit activities are being protected from the scrutiny of law enforcement, no price is too high to pay to win elections. As a result, political competitors focus on capturing public offices, controlling state resources, repaying funders of the last election and preparing for the next political confrontation.

Regimes with high levels of poverty are particularly vulnerable to systemic political finance corruption, which is a relatively common problem for many post-conflict societies and transitional democracies. Patronage politics target the poor, the unemployed, the dispossessed and the socially dependent. Vote-buying schemes would presumably be less successful (or more expensive) if aimed at the rich or educated. If politicians can secure votes (and win elections) by giving voters small gifts, they will have absolutely no reason to be accountable—after the elections are over—to those whose votes they bought. Thus, vote-buying and poverty reinforce each other. Given the costs of mounting political campaigns, high levels of poverty also mean that only wealthy citizens—or those able to “work the system”—can afford to run for office.

As voter apathy limits a source of legitimate funding (the voters), it thereby makes illegitimate sources more appealing. In transitional democracies (particularly those with significant poverty), a troubling tendency is the rapid decrease of volunteer labor and popular funding (e.g., small donations and party membership subscriptions) as important sources of campaign resources. In many countries, voters ask why they should contribute their time or money to politicians who—once in office—enrich themselves and do nothing for the average person. Furthermore, they ask why they should give money to politicians who are willing to pay them for their vote. Such views result in part from the popular perception that parties will survive with or without small donations by availing themselves of illegal funds. In many established democracies (such as the United Kingdom or Germany), voters’ financial responsibility for politics is decreasing drastically while, in many transitional regimes, it never became an important factor (e.g., Albania or Ukraine). Furthermore, in Asia, West Africa, Central Eastern Europe and Latin America, many party organizations—at both the local and national level—contribute very little to pay for constituency campaigns, and individual candidates are expected to generate the bulk of funds themselves. In reality, political organizations can be as business-oriented as commercial organizations, with elections serving as a “marketplace” for competing investors.

As a result of the limited availability of popular funding for campaigns (among other factors), politicians’ need for new sources of money has increased. In many transitional countries, political parties and candidates turn to illegitimate funding from state enterprises or governmental agencies. For example, they demand contributions before granting public contracts or sector employment. These politicians/parties have captured the state and use its resources for their own advantage. They might also look for campaign funds from rich individuals, large corporations, labor unions or even organized crime. Under such circumstances, the absence of broad-based sources of popular financial support leads to a lack of party autonomy and to the risk of external party control.

Finally, in addition to the above problems, there is the universal challenge of weak (or biased) enforcement.2 Even established democracies are struggling with effective enforcement of political finance laws. In many less developed countries, basic political finance regulations often exist but lack implementation, which may be due to the nature of the regulations or to the resources available to the regulatory body. In the last decade, many countries have introduced over-ambitious regulations, usually in response to scandal or external pressure. As a result of such a normative approach, money in the politics of many transitional countries is subject to greater regulation than in established democracies. As a recent IFES study of 18 Central and Eastern European countries argued, “The Central and Eastern European experience confirms a general point: ‘Too many rules. Too little enforcement’” (Ikstens, Smilov and Walecki 2002, 10).

On the other hand, feeble enforcement of political finance regulations may be due to inadequate funding that does not enable the responsible regulatory body to administer the country’s ambitious regulatory framework. As scandals pass and new priorities emerge, countries can lose their enthusiasm for political finance reform, and for providing the financial and human resources needed to carry out the fight against political corruption. In some instances, the loss of interest in political finance reform can result from concerns that may indeed appear more pressing. As a senior politician in Afghanistan recently pointed out, “When it comes to enforcement, Afghan politicians—many of them warlords, war criminals and drug traffickers—and the law enforcement agencies have more serious problems to worry about than campaign finance violations.” Regardless of the reason, blatant disregard of political finance laws is among the most common problems for transitional democracies.

In another category of cases, weak enforcement arises from a lack of political will. Where parties and candidates have sufficient political influence (for example, the ability to determine the staff and budget of a political finance regulator) and a sense of political impunity, they will often develop strategies to sidestep reporting and disclosure obligations. Thus, many political finance regulators face a major challenge: should they just administer the political finance system—allowing politicians and rich contributors to interpret the rules as they see fit—or should they enforce it vigorously, undertaking thorough investigations if necessary. Unfortunately, the latter choice is rarely made in transitional democracies.

Impact of Unhealthy Political Finances: Crisis of Political Parties
When political candidates do not compete on a level playing field because some of them have access to money from illegitimate sources, voters can become cynical about the democratic political process and the role of their representatives—the political parties—in it. Under such circumstances, citizens view political parties as corrupt organizations that do not effectively represent their interests. As a result, people hesitate to join, finance or associate with them. The associated decline in the legitimacy of political parties helps produce problems like political apathy, antiparty rhetoric and attacks on democratic institutions.

According to the 2004 Transparency International (TI) Global Corruption Barometer, political parties were rated by the general public as the institution most affected by corruption in 36 out of 62 countries surveyed. Corruption scandals, abuse of state resources and nepotism appear to have taken their toll on the public’s trust of political parties and leaders. In TI’s 2003 Corruption Barometer, respondents from 33 countries indicated that if they could remove corruption from a single institution, they would choose to clean up political parties.

Parties are caught up in a damaging cycle. Too often, a weak party base means that party memberships and small donations generate limited income. In addition, newly emerged parties (or independent candidates) are often new to fundraising and badly organized to manage their resources efficiently. As a result, what money parties collect does not meet their needs (which might be large due to the requirements of old fashioned patronage politics). Given this situation, and the fact that it is easier to rely on a few large individual (oligarchs/godfathers) or corporate donors (including foreign companies) than to appeal to large numbers of supporters in order to gather many small contributions, politicians turn to monied interests. Their resulting lack of responsiveness to the average voter breeds cynicism and further decreases citizens’ willingness to contribute to party campaign funds.

The low legitimacy of parties (and thereby of elections that bring them to office) is a serious obstacle to democratic consolidation. In fact, the decline of political parties may directly threaten the process of democratization itself because it opens the door to political control by populist politicians and narrow interest groups. Citizens stop seeing political parties as desirable institutions and fundamental elements of a democratic polity. Already, antiparty feeling is common in transitional countries from Afghanistan to Zimbabwe. In Poland and Ukraine, voters who do not trust political parties constitute a significant majority.3

Successful Reform Requires Comprehensive Approach
The history of democratic transition demonstrates that transparency and accountability in political finance result from decades of reform rather than from a few short-term interventions. In the early nineteenth and twentieth centuries, electoral corruption was rampant in the majority of Western political regimes. More than a century passed before the publics in those democracies reacted to serious scandals by demanding better standards in the conduct of elections.

In France, Ireland, Italy, Spain and Poland, corrupt practices have only recently begun to shift from systemic abuses to more individual ones. Major political scandals, an increasingly sophisticated electorate and media, better transparency in public life and public pressure to reform legal frameworks all played a fundamental role in causing this change. Equally important was the development of a new understanding on the part of the public and enforcement agencies about what is—and what is not—acceptable behavior. Finally, political actors have had to recognize the new standards, change their behavior to secure re-election or depart from politics (as did former Italian Prime Minister Bettino Craxi or former German Chancellor Helmut Kohl).

Overall, combating political finance–related corruption purely by means of imported regulations is doomed to failure. This is not to say that successful practices cannot be borrowed and applied in a way that takes into account the political culture of a country. Rather, it might be the case that some transition countries need to go through financial scandals similar to those seen in Western democracies. Scandals can increase public awareness of political finance and galvanize coalitions among different anti-corruption agents to introduce preventive measures. Reformers must take a holistic approach to cleaning up political society because illegal political finance flourishes in a wider context of corrupt procedures tied to the allocation of state resources, public procurement and contacts as well as to the lack of financial discipline and an accountable civil service.

However, despite the fact that experience indicates reform will be achieved over the long term, many politicians—especially those in new and transitional democracies—promise to end corruption in politics quickly. To achieve this unrealistic goal, they introduce ambitious regulations (such as low spending and contribution limits) and try to take shortcuts to establishing transparency and accountability in their political systems. Many legislators assume that amending a few laws (for example, introducing generous public funding or prohibiting corporate funding) will automatically clean up their elections and restore public confidence. The same illusion can be held by anti-corruption activists, who advocate one-off campaign finance monitoring by NGOs. It took established democracies decades to build the capacity to detect political finance irregularities, move from systemic electoral fraud to individual acts of corruption, educate and train enforcement agencies and introduce some preventive measures. Given this fact, why would it take less time in a regime with limited governance capabilities? It will not.

In addition, limitingpolitical financeregulations to disclosure is not an option. The overall goal of a political finance system is to build public trust in democratic politics. Therefore, disclosure must be paired with enforcement, and the system as a whole must be adjusted over time to produce the best performance. Transparency in political finance does not automatically increase good governance, but it can expose poor governance practices. Disclosure identifies problems—likely long in existence—that must be addressed through reform. The public needs to trust the agency charged with enforcing any new rules. As a result, it is more important to create an independent enforcement agency with committed staff than to produce a large quantity of restrictions and bans. It is also important not to use political finance regulations for partisan purposes.

As transition democracies continue to search for a better system of controlling political finance, they should understand that success will come over the long term (at least two election cycles, in the best case scenario). First, realistic reforms emphasizing disclosure and effective enforcement need to be proposed. Then, the reforms must be implemented and evaluated. Finally, enforcement mechanisms must be enhanced.

Notes
1 As Diamond and Gunther (2001) suggest, “The combination of a more or less corrupt system of party and campaign finance with a stream of blatant scandals and a backlog of public aspirations for more responsive government that go unmet (while being amplified by a cynical media) generates growing public disillusionment with democratic politics and government” (p. XIII).
2 For more details on enforcement of political finance regulations, see Enforcing Political Finance Laws: TIDE Training Handbook.
3 For Poland, see CBOS (2003). For Ukraine, see IFES (2003).

References
CBOS (Public Opinion Research Center). 2003. The Attitude to the Political Parties. CBOS BS/38/2003. Warsaw, Poland: CBOS. Available from www.cbos.org.pl.

Diamond, Larry and Richard Gunther (eds.). 2001. Political Parties and Democracy. Baltimore: The Johns Hopkins University Press.

IFES. 2003 Attitudes and Expectations: Public Opinion in Ukraine (2002). Washington, DC: IFES. Available from www.ifes.org.

IFES. 2005. Enforcing Political Finance Laws: TIDE Training Handbook. Washington, D.C.: IFES.

Ikstens, Janis, Daniel Smilov and Marcin Walecki. 2002. Campaign Finance in Central and Eastern Europe: Lessons Learned and Challenges Ahead. Washington D.C.: IFES.

Pinto-Duschinsky, Michael. 1986. Political Money in an International Context. Washington D.C: Woodrow Wilson Center.

Walecki, Marcin. 2004. “Political finance and political corruption.” In Global Corruption Report. London: Transparency International.