Undercover Economist

Cheap Tricks

The Undercover Economist – FT Magazine, April 1

The Labour party is accused of taking loans of £4.5m and rewarding lenders with life peerages. In the US, where everything is bigger, lobbyists spend at least that per congressman; annual spending is more than $2bn a year. Only an economist, then, would ask why there is so little money in politics.

We have seen countless hand-wringing books arguing that democracy is for sale, and, given the plentiful supply of scandal, this is easy to believe. But something doesn’t add up. Assume for a moment that the most pessimistic hand-wringers are right and the government really is for sale. How much would you pay for it? In the UK, government spending is nearly half a trillion pounds a year. If anything, this is an underestimate of how much it would be worth to control the government, since if I was an industrialist with the government in my pocket, I could order that foreigners be fended off with tariffs, and domestic competitors be bound fast with red tape.

So how much would I pay to control the government for a year? In an auction, I would be willing to pay at least half a trillion pounds. And I would have to, since other people would be willing to spend the same. Lobbying is a more chaotic process than a simple auction, but fancy economic theorems suggest that the total spending by lobbyists shouldn’t be influenced by whether it runs through an auction or not; it should simply be influenced by the size of the prize.

The reality could hardly be more different. The Labour party spent just £18m winning the last general election, but the government will spend at least £1.8 trillion across a four-year period in office. That’s like spending a tenner to get control of a million pounds: not a bad return. Even taking into account the money the losing parties spent in vain (less than £25m, according to the Electoral Commission), it appears the government is going for a song.

Political markets seem more competitive in the US, where a single senate seat attracts tens of millions of dollars in campaign contributions. According to the Center for Responsive Politics, Bush and Kerry each raised $300m to $400m for their presidential election campaigns. Yet, compared with the $2.5 trillion the federal government controls, these are still tiny sums.

What can we conclude from this? One possibility is that the people who have bought our governments have got a fantastic bargain. The economist Thomas Stratmann has estimated that just $192,000 of contributions from the American sugar industry in 1985 made the difference between winning and losing a crucial House vote that delivered more than $5bn of subsidies in five years. I’m not convinced. Think of Starbucks, McDonald’s, Coca-Cola or The Hershey Company. There is no shortage of candidates who would pay more than $192,000 to get lower sugar prices in America. That would mean a bidding war between sugar producers and sugar users to buy the right to rewrite sugar laws. Surely the price would be nearer to $5bn than $192,000?

The alternative view is the one you have been thinking since the second paragraph: thanks to checks and balances, our government is not really for sale at all, or at least only marginally. Some £1.8 trillion of government spending is controlled by a party that collected and spent just £18m – and that means that even if every penny is donated with the hope of buying political influence, the British system of government is, roughly, 0.001 per cent corrupt. I can live with that.

A US edition of this piece is available at Slate without subscription.
Some readers have requested footnotes. The economist who originally asked why there was so little money in politics was Gordon Tullock, in a 1972 article, “The Purchase of Politicians”. Stephen Ansolabehere, John de Figueiredo, and James Snyder revisited Tullock’s theory and the evidence thirty years later. Thomas Stratmann’s papers are here, or check the numbers yourself at the Center for Responsive Politics.