Role of Crowdfunding in Politics
There are many ways to address the inequalities in society and create equitable opportunities for everyone across the income spectrum. Most of the solutions can come from a top-down approach through government intervention in the form of larger structural changes like reform in taxes, restructuring finance fees, subsidies for the poor, universal healthcare, free education, and rural development policies, etc. In any democratic country, where the government works for the benefit of ‘all’ its people, there is bound to be an incremental improvement over time. But do rulers have the best interest of all people in mind? Do governments, for the most part, impartially work towards creating a society that serves everyone on equitable grounds?
Nobel laureates Abhijeet Banerjee and Esther Duflo shed light on this subject in their book, ‘Poor Economics’. “One problem is that rulers, who have the power to shape economic institutions, do not necessarily find it in their interest to allow their citizens to thrive and prosper. They may personally be better off with an economy that imposes lots of restrictions on who can do what (that they selectively relax to their advantage), and weakening competition may actually help them stay in power. This is why political institutions matter— they exist to prevent leaders from organizing the economy for their private benefit. When they work well, political institutions put enough constraints on rulers to ensure that they cannot deviate too far from the public interest.”
Rulers tend to have selfish interests that often take precedence over the interests of their electorate. Most rulers prefer being elected to power and staying in command for as long as they can. If there is anything that helps them achieve their private agendas, it is money. Since the inception of democracy, there has been a strong link between money and politics. As we will see throughout this chapter, money is strongly associated with political success for many reasons. Politicians need money to run their campaigns, buy advertisements, buy media coverage, pay campaign staff, organize rallies, logistics, and other front-end and back-end costs to mobilize voters. Money plays an undeniable and integral role in politics.
The total money spent during elections by political parties has also seen an exponential increase over time. Consider India’s case, in the last 6 Lok Sabha (lower house of India’s bicameral Parliament) elections held between 1998 to 2019, the election expenditure shot up by approximately six times from Rs 9,000 crore (9 billion) to around Rs 55,000 crore (55 billion). According to the nonpartisan Center for Responsive Politics, a similar trend can be observed in the US, where political ad spending for 2020 reached nearly $14 billion. That’s almost the combined spending figures of the last two election cycles wherein $8.7 billion was spent in the 2018 midterm congressional elections and $6.3 billion in the 2016 elections when Donald Trump was elected president. What does the correlation between increased campaign spending and political success look like? Let’s look at some graphs and find out.
Fig 1- Percentage of races won by top-spending candidates for US House and Senate Candidates.
In the US, on average, 91.88 percent of House candidates who spent the most won the seat. For the senate, on average, 78.28 percent of the top spenders won.
The trend can also be seen in the US presidential elections, where 70 percent of the candidates who spent more than their opponent(s) won the presidential race. All in all, seven out of ten times, the candidate who spent more money ended up winning the elections. Only in 1984, 1996, and 2016 did the candidate who spent less money win the presidential election. In 1984 and 1996, the candidates who won were incumbents and therefore had a primary advantage in terms of popularity and favorability. On the other hand, their opponents, who were far less popular, had to build their campaigns from scratch. Therefore, they were required to spend more money on PR.
Fig 2- Percentage spending between US presidential candidates.
Again, when we look at India, the data reveals a similar pattern, showing a positive correlation between increased campaign spending and winning. In the last four Lok Sabha elections, the party that spent the most won the polls.
What we are observing in the graphs is correlation and cannot be termed as causation. Sometimes money flows to candidates who are stronger and more likely to win, and therefore those candidates tend to outspend their weaker rivals. Nonetheless, we can safely deduce that money is positively correlated with political success and plays an essential role in political campaigning and therefore is important to politicians. But where does this money come from?
In politics, winners are likely to answer or be more favorable to the donors and organizations that support them. Donors, especially big donors, are more important than voters as they form the financial backbone of the politicians’ campaign. Essentially, mega-donors tend to leverage more lobbying power than the average voter. That’s why it is crucial to know where the money flows from in politics to assess politicians’ motivations.
Fig 3- Percentage spending between Congress and BJP in Lok Sabha Elections since 1998.
Today, most of the money in politics comes from the top 10 percent. In Brazil, Latin America’s largest country, roughly $2 billion was spent by parties and candidates in the 2010 presidential election. Nearly 98 percent of winner Dilma Rouseff’s campaign donations and 95.5 percent of her primary opponent’s contributions came from corporations. In the US, Big Money is a major concern that threatens to erode the fabric of democracy. Most congressional candidates do not raise the bulk of their funds from a cross-section of their constituents. Instead, they receive the majority of their money from individual donors who give $1,000 or more and from political action committees (PACs). For instance, individual donors who gave $1,000 or more were responsible for nearly 40 percent of all money given to House candidates and almost 50 percent for Senate candidates in 2016. On the other hand, small donors (with total contributions of $200 or less) were responsible for just 6 percent of the money raised by House candidates.
Fig 4- Funding distribution for the US House and Senate.
Between 2010 to 2018, eleven influential donors injected over $1 billion into the US political races through super PACs, the big-money action committees that allow wealthy contributors to influence US elections. According to a Washington Post analysis of data from the Federal Election Commission and the nonpartisan Center for Responsive Politics, the donors — comprising hedge-fund billionaires, entrepreneurs, media magnates, and a casino mogul — contributed more than one-fifth of the $4.5 billion collected by these types of PACs since 2010. The massive amount of money funneled by a few donors shows how politicians are financially dependent on the top 1% to support their campaign bids.
The situation is worse in India, where ‘black money’ contributes to a staggering influx of undisclosed corporate donations that are used to buy voters and influence elections. For example, in 2018-19, India’s national political parties received over 67 percent of their total income from undisclosed sources. According to the Center for Media and Studies (CMS), 25 percent (Rs 15,000 crore) of the Rs 55,000 crore ($8 billion) spent in the 2019 Lok Sabha Elections was illegally distributed among voters. Money is even spent to confuse the voting population by propping up dummy candidates who have the same names as popular political figures. The Director-General of CMS India, PN Vasanti, mentioned in the report that the numbers represent only the tip of the iceberg. “Imagine how deep and wide is this iceberg beneath, and how it can damage our democracy,” she stated in the preface.
A survey conducted by Jennifer Bussell, an assistant professor at the University of California, Berkeley, reported that more than 90 percent of federal-level Indian politicians said their peers feel pressured to hand out gifts like cash, alcohol, or other personal goods such as blenders, television sets. Voters were even bribed with goats.
Over the past few years, anonymous funds for India’s political parties have skyrocketed. This development can be attributed to the murky electoral bonds launched by Prime Minister Narendra Modi’s government. Electoral bonds are interest-free financial instruments for making donations to political parties. The problem is that the bonds are non-transparent as the identity of the donor remains anonymous. If we look at the sale of the electoral bonds, we can see that most of the money comes from the top 1%.
Since the scheme’s inception, electoral bonds were sold in thirteen phases from March 2018 to January 2020. A total of 12,452 electoral bonds were sold in all these phases. Of these, the highest number of electoral bonds (5,702 bonds) purchased were in Rs 1 crore (10 million) denomination. The next highest number of bonds (4,911 bonds) purchased were of the next higher denomination, i.e., Rs 10 lakhs (1 million). In terms of value, a total of Rs 6,210.39 crore (62.1 billion) worth of electoral bonds were purchased, out of which the Rs 1 crore (10 million) denomination bonds amounted to Rs 5,702 crores (57 billion), i.e., 91.81 percent of the total worth of bonds purchased in the thirteen phases between 2018 to 2020. Less than 1 percent of all electoral bonds purchased were from lower denominations of Rs 1,000 and Rs 10,000.
Fig 5- Sale of Electoral Bonds in Denominations ranging from Rs 1, 000 to Rs 1 crore.
The donor anonymity in the electoral bond scheme was justified by India’s former Finance Minister Arun Jaitley as a means to encourage large scale small donations to political parties. However, the data paints an entirely different picture wherein bonds were purchased by corporates and the top 1%, rather than small donors.
When we look at the numbers, the broad conclusion is inescapable: The money in politics (at least in India and the US) comes overwhelmingly from wealthy individuals, who in return, exercise untrammeled influence in the form of political favors. This poses severe consequences for the development of any democratic country as citizens’ interests are at risk of being replaced by the interests of corporates and the top 1%. Due to the role of Big Money in politics, political candidates become more accountable to their patrons than their electorate. Such a dynamic has severe repercussions as it can lead to the erosion of social safety nets that prevent workers’ exploitation. When political policies are motivated by the influx of Big Money, workers’ rights are undermined as they face weakened unions, stagnant wages, unchecked automation, terrible working conditions, lack of insurance cover, inflation, and many other problems. Meanwhile, the billionaires enjoy massive tax breaks and continue to lobby vast amounts of money to influence public policy.
Lamentably, regulations seem to be ineffective for the most part, and even election commissions have failed to regulate the flow of Big money in politics. The Money, Politics, and Transparency Project (MPT) report of 2014 assessed campaign regulations and practice in 54 countries across the world. The report came to a conclusion that while 48 out of 54 countries had legally defined political finance violations and sanctions, only 36 countries had oversight bodies that had the power to both impose sanctions and pursue prosecutions of violators. It was found that the effectiveness of oversight bodies (such as the election commission) was highly restricted due to a lack of merit-based independent leadership, capacity constraints, and operational opacity. Violations of regulatory frameworks were not an exception but a norm in the MPT sample. Political parties, candidates, and their supporters frequently found ways to undermine existing legal frameworks to funnel money into campaigns while bypassing oversight mechanisms.
Moreover, the report pointed out that third-party actors (ex. Super PACs) were able to exercise unbound influence in elections and were barely subjected to any oversight regarding their electoral activities in most countries. Only a few countries (11 percent of the sample) prohibited third party actors from all political activity or legally required them to report their independent political expenditures and contributions to the electoral oversight authority.
Big Money plays a critical role in politics, but it also does so with a high degree of opacity, depriving the voters of crucial financial information regarding the candidates and political parties. To understand why such a convoluted system exists, we must look at the rulers’ motivations. Having an opaque political finance system that depends on Big Money helps the rulers retain and expand their power even if it jeopardizes public interest.
So, do we live in an oligarchy with a democratic facade? If yes, then how do we as individuals tackle such a problem within our capacity? One way is to tackle Big Money with Small Money by using crowdfunding to democratize campaign finance. There are numerous examples where the crowd has helped politicians emerge victorious, not just with their votes but with their donations.
In the 2008 US Presidential Election, Barack Obama made history by becoming the first African-American president. However, the road to his success was paved by the collective efforts of the American community. Obama revolutionized campaign financing by raising over $660 million with the help of over 3.95 million individual contributors on his website barackobama.com., Obama received around 34 percent of his donations from small donors who contributed $200 or less. Another 23 percent of donations came from people who gave between $201 and $999, and the rest 42 percent came from people who gave $1,000 or more. Even though Obama’s campaign relied on Big Money and small donors nearly equally, it challenged the misconstrued limitations of crowdfunding, prompting many politicians to follow in his footsteps.
Six years later, Bryan Parker of Oakland, CA, used crowdfunding to assess support for a mayoral run before officially entering the race. Parker pledged that if he could raise $20,000 on a crowdfunding platform Crowdtilt within ten days, he would run for the mayor’s position. He crossed his target on the first day of the campaign, raising $23,000 from 79 supporters. After ten days, Parker had raised over $50,000 from 167 small donors, with an average contribution of $299. “Crowdfunding helps make this election about what’s best for everyday Oaklanders, not just the political insiders,” he remarked.
However, it was Vermont Senator Bernie Sanders who unleashed the full potential of crowdfunding in the domain of politics. During the 2016 US Democratic Primaries, nearly 57 percent of Sanders’ donations (a whopping $134 million) were under $200, with the average donation being $27. A total of 126,421 contributors donated less than $200, while 64,576 people donated amounts between $200-$499. With the help of crowdfunding, Sanders started a grassroots socialist campaign, eschewing wealthy mega-donors and Super PACs to drastically alter the way the US Democratic Party approached campaign finance. By crowdfunding most of his presidential primary campaign, Sanders was able to claim the moral high ground as he owed no favors to the top 1%. The democratic left soon began to emulate Sanders’ crowdfunding model, appealing to small donors instead of Wall Street. Many on the democratic left realized that crowdfunding could challenge the political dominance of corporate America. By distributing the campaign’s financial burden among the citizens and lowering the donation threshold, online crowdfunding freed many politicians from the economic dominance of Big Money.
In 2018, Rashida Tlaib became one of the first two Muslim women, along with Ilhan Omar, to be elected to US Congress after she won the Democratic party nomination for the United States House of Representatives seat from Michigan’s 13th Congressional District. She also became the first woman of Palestinian descent in Congress, running a platform supporting a $15 minimum wage, free health care, and opposing military intervention. Overall, the 13th District candidates fundraised around $2 million, with Tlaib raising over half of that amount. The money was crowdfunded with the help of 62,000 individual supporters who helped Tlaib become the first Muslim woman to serve in the Michigan legislature.
In the same year, Alexandria Ocasio-Cortez created history when she won the US Democratic Party’s primary election for New York’s 14th Congressional District on June 26, 2018, with 57.13 percent of the vote, defeating the ten-term incumbent representative Joe Crowley. It was seen as the biggest upset victory in the 2018 midterm election primaries. She then went on to defeat Republican opponent Anthony Pappas in the November 6, 2018, general election, and at the age of 29, became the youngest woman ever to be elected to the United States Congress. A supporter of Bernie Sanders, Ocasio-Cortez characterized herself as a democratic socialist and ran on an unapologetic platform of free health care, gun control, and housing as a human right. Taking a leaf from Sanders’ book, Ocasio-Cortez started a grassroots campaign funded entirely by the crowd. For the 2019 – 2020 election cycle, she raised over $17 million, of which over $13 million (approximately 78 percent) was crowdfunded with the help of individual donors who all contributed less than $200 to her campaign.
Online crowdfunding has changed how politicians perceive voters from low or middle income groups. They are now seen as donors who, through their small contributions, can bring authenticity to political campaigns. While crowdfunding has empowered voters, it has also been an invaluable tool for aspiring politicians who don’t find mainstream support. In a world where women and minorities often have no access to high-profile donors and financial capital, it becomes impossible for them to compete against those who are backed by corporate donations. In such cases, crowdfunding can act as a powerful financial tool to empower people from marginalized communities like in the case of Ocasio-Cortez and Rashida Tlaib.
The growing popularity of crowdfunding as an alternative campaign funding mechanism can also be witnessed in other democracies. In the UK, when the election was called in 2017, within four weeks, more than £750,000 were raised for political projects on Crowdfunder, a crowdfunding platform that has raised over £1.2 million with the help of 44,000+ contributors for political campaigns in the UK., In Brazil, jailed socialist candidate Lula da Silva, who was Brazil’s first working-class president, managed to raise 268,000 Reais ($72,000) within ten days through crowdfunding.
In India, the Aam Aadmi Party (AAP) crowdfunded their way to power in the New Delhi assembly polls in which they defeated the ruling national party BJP in a landslide victory. Twenty-one AAP candidates raised Rs 1.2 crore (Rs 12 million) with the help of 2,876 donors through the online crowdfunding platform OurDemocracy.in. Eighteen of them won a seat in the elections. “We don’t take large donations– they come with a quid pro quo. We want to collect small donations with no strings attached, give people a stake in democracy,” Atishi Marlena, who raised over Rs 28 lakh (2.8 million), commented about AAP’s fundraising strategy.
|Nominee||Result||Money Raised in Rs||Number of Donors|
|Dilip K Pandey||Won||272,267||43|
Table-1 Aam Aadmi Party (AAP) money raised through crowdfunding by candidates
In Russia, crowdfunding played a vital role in both mobilizing support and fundraising for Alexei Navalny, who stood in opposition against Vladimir Putin. Navalny’s campaign had fundraised over $3 million, an unparalleled sum for political crowdfunding in Russia, where the regulatory system heavily discriminates against opposition parties who often struggle to obtain the funding necessary for meaningfully contesting elections., In another instance, Russia’s only opposition magazine, The New Times, crowdfunded nearly $370,000 in four days to avoid bankruptcy after a record fine of 22 million Rubles ($338,000) was imposed on it by a court that made the ruling in the absence of the magazine’s representatives.
From the US to India, crowdfunding as a political tool has empowered political parties to democratize campaign finance. It has provided a viable alternative to Big Money for political parties and candidates who don’t want to owe political favors to corporates or mega-donors. In other cases, crowdfunding has financially empowered opposition parties who face discrimination at the hands of a biased system that disproportionately favors the ruling class.
However, political crowdfunding should not be viewed solely as a financial instrument. Besides its use as a funding tool, crowdfunding can be seen as a community building tool, allowing a candidate to get their potential voters emotionally and financially invested in their political campaign. When a person donates to a candidate’s campaign, they will feel a sense of attachment towards the campaign. This will prompt them to participate in e-promotional activities for the candidate, which can be something as simple as sharing the campaign with their family and friends. These donors, most often, become voters.
While political crowdfunding has the potential to democratize campaign finance, currently, it remains mostly unexplored and unregulated, with problematic issues such as unregistered or untraceable donations and cybersecurity. There is also an issue pertaining to data ownership if political parties crowdfund through a dedicated platform. The smaller parties who don’t have the resources or technical expertise and cannot create their crowdfunding apps or websites often use the services of third-party crowdfunding platforms. In such cases, the ownership of data becomes a serious issue that must be resolved.
Political crowdfunding has the potential of tackling Big Money’s influence and strengthening the political processes in a democracy. It provides a platform for ordinary citizens to emerge as future leaders, making politics more accessible. Despite its challenges, it continues to be a powerful tool that can create and empower grassroots political movements, a tool that can protect the future of democracies. However, one must not assume political crowdfunding to be an infallible or incorruptible method.
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