Private funding does not always came from individuals. It may be derived from interest groups, see Private Financing or from economic institutions. The most important sources of institutional funding are business corporations, which usually support Conservative or other Centre-Right parties and trade unions, which usually support Socialist or other Centre-Left parties. In each country, the significance of institutional sources of political money depends partly on political traditions and partly on legal restrictions, see Bans Against Certain Kinds of Contributions.
Institutional Contributions to Party Politics
The basic justification is that individual businesses, trade unions, and organisations representing groups of corporations or groups of unions are affected by government policies. They therefore have direct and legitimate reasons to try to secure the election of parties and candidates that will forward their interests. For instance, if a trade union wishes to secure legislation that sets a minimum wage or regulations on maximum permitted working hours, it may be necessary to lobby the government of the day to pass these measures. It may be equally or more rational to aid the election of union activists to the legislature who will work from the inside or to secure the return of a new government that is committed to these reforms.
A second justification is that collective action may be more effective than individual action. A contribution by a single individual is unlikely (unless it is exceptionally large) to have an influence on the party or the candidate to whom it is offered. By contrast, a political donation given by a corporation or trade association will be more effective from the contributors' viewpoint. As far as donations by working-class electors are concerned, it may be essential to pool a large number of small payments if any political impact is to be achieved - hence the justification of political donations by trade unions.
Criticisms of Institutional Contributions
- It may be argued that any method that links contributions to the demand for a payoff is undesirable. Debates in the legislature for or against a minimum wage should not be based upon the relative amounts of money supplied to political parties by trade unions and by businesses. The very fact that institutional contributions are more likely than individual donations to be tied to expectations of influence over policy is a source of criticism.
- When an institutional body makes a contribution, it is uncertain whether members of that body have been consulted and whether they would have agreed had they been consulted. The absence of internal democracy within many trade unions and many corporations means that the decision whether or not to make a donation may depend upon the whim or on the personal ambitions of one of the leaders of the organisation irrespective of the wishes of the members.
In the case of business corporations, it is possible for an individual shareholder that disapproves of the corporation's policy on political donations to sell his shares. But there are many cases where this line of action is not available. For example, a member of an occupational pension fund will not have a say in its investment policies. Membership of a trade union will under many circumstances be compulsory for someone working in a factory or trade.
- A system of institutional contributions may result in an arguably unhealthy situation where there exists a semi-permanent connection between trade unions and one particular political party or between corporations and another party. The party-corporation nexus may lead to an inflexible system of politics.
Trends in Institutional Donations
Variations between countries are so distinct that it is dangerous to comment on overall trends. Nevertheless, one cautious suggestion is that the importance of institutional contributions to political parties and to candidates in established democracies has declined, though they remain significant in some countries. There are three reasons for this decline:
- The system of corporate versus trade union funding of politics probably reached a peak at the time when political conflict itself was based predominantly on class lines, with a party of business and of the middle classes competing against a party of the workers. Since the 1960s, the economies of Western countries have developed from an industrial to a 'post-industrial' stage. The percentage of the population employed in manufacturing has sharply declined. Worker-versus-employer conflicts in factories have become less relevant since fewer people now work in factories.
- Public funding has become much more significant.
- Corporate financing of political parties has become discredited in some countries following scandals (Japan and France, for example).
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