Would blind trusts solve the privacy vs. improper influence donations dilemma?

Andrew Leigh asks if I have a view on his suggestion that Australia should create blind trusts for political donations.

There are several pages on this in Andrew L’s co-authored 2004 book Imagining Australia, with the idea also summarised in this SMH op-ed. Instead of giving money directly to political parties, as now, donors would give anonymously to trusts that would then pass on the money to the donor’s selected party or candidate.

The argument is that the parties would have no way of knowing for sure who their donors were, and therefore would have less of an incentive to improperly favour their financial supporters. The anonymity of donations would also get around the problem, which I have discussed in the past, of people being reluctant to get involved in politics because they fear negative consequences if they back the losing side.

Blind trusts are, I think, a more persuasive solution to the latter problem than the former. Given it would be near-impossible to prevent donors telling parties about their donations (in the book, it is acknowledged that donors could provide a receipt), as a method of limiting corruption it’s hard to see that this is much more than the pre-disclosure system with some added bureaucracy. Some donors would prefer to remain anonymous – if only to save themselves future pestering by party fundraisers – but those hoping for something in return for their money are likely to make sure that the relevant people know about their donation.

I’m not a big fan of disclosure laws, which I think are very limited in their capacity to contribute to good government. In most cases, whether or not a policy is good or bad cannot be determined by examining the motives of those who introduced it – only consideration of its likely advantages and disadvantages can do that. In Australia, well-intentioned but misguided ideas are a much bigger problem than corruption.

And the ‘bribery’ that does exist is mostly the pollies bribing the voters, rather than the other way around – as the recent election campaign demonstrated yet again. This is because the main incentive in the system is not to favour interest groups, but to win over voters – no political party is likely to favour the interests of any donor over the wishes of potential voters. It seems that the dubious political donations by the Australian Hotels Association weren’t in the end enough to prevent changes to NSW licensing laws, when the pressure built for Sydney to match Melbourne’s thriving small bars and restaurants.

Improper influence is most likely to be a problem where officials have wide discretion on issues that don’t interest the general public. Even here, disclosure laws are likely to be only modestly useful in joining the dots between particular donations and particular decisions. But I can see the case for some disclosure in preference to laundering the money through blind trusts.

There is no easy formula for striking the right balance between letting would-be donors participate in politics without fear of reprisal and avoiding improper influence. On balance, however, I prefer the current system of donations being disclosed, but only if they exceed $10,500. It’s hard to believe that lesser sums could have any influence, given the overall income of political parties. I oppose Labor’s policy to bring this back down to $1,500. Particularly with coast-to-coast Labor governments, this would intimidate Liberal supporters with interests that can be affected by government decisions.

8 thoughts on “Would blind trusts solve the privacy vs. improper influence donations dilemma?

  1. I can’t help but think that, in proposing blind trusts, Andrew Leigh has a solution looking for a problem.

    It is irrelevant how much money an individual or organisation donates to a political party if that party is not in government. If a party proposes or implements policies that are electorally unpopular, that party will not win elections and the donor is unable to influence government policies or programmes.

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  2. It’s a really silly idea. The ALP receives a huge amount of support from the unions. Blind trust or no blind trust would anyone doubt where the mass of support came from for the ALP?

    And the idea that the information would not get out is frankly naive.

    Rather than create more problems ensure the donor record is wide open that we can all see.

    Hre’s another idea. Reduce influence by making the government smaller.

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  3. Andrew, thanks for taking the time to blog on this. I think claiming credit for a donation isn’t as simple as you suggest. In places where this operates (Chile, S.Korea), they get around this by doing things like aggregating the donations each month, and giving donors receipts that don’t specify the recipient. So the Liberal Party gets a monthly cheque for $500,000, and Westpac gets a generic donor receipt for $100,000. They can tell the Libs that they gave the money, but they have no way of proving it.

    The only instance in which this system has real limitations is where there’s a single big donor (eg. registered clubs in the ACT). (JC, if you look at the AEC returns for union donations, you’ll see that they mostly comprise lots of modest-size cheques from different unions.)

    Stephen, the problem is that very large donations allow parties to buy advertising that convinces the electorate that bad policies are good. A classic example of this is the US sugar industry, for whom donations buy subsidies and protectionism.

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  4. AL – Maybe not as simple as I suggest, but it is relying on donors being likely to lie and parties not believing what donors say. That might be a reasonable assumption for a certain type of donation – say a shonky property developer getting approval for a development – but not for donations more generally. Fundraising often works through established networks of people who have reputations for integrity. In your example, I think most parties would give a senior Westpac executive the benefit of the doubt.

    Would the vague receipts also create problems for auditing in the donor organisations?

    On your sugar example, alas the public (either here or in the US, according to Bryan Caplan) needs little persuading that protectionism is a good idea. Surely the problem in the US is the lack of strong political parties in the Congress, with decentralised decision-making and fundraising.

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  5. Vague receipts? I think Andrew L wants to substitute real corruption for imagined corruption. Sorry Andrew L – this is a crap idea. The notion that big business bribes politicians is over-sold at best. But picking up on JCs point, the unions do ‘own’ the ALP, they are also the single largest ‘shareholder’ in the ALP. To the extent that the ALP does not follow directives from their majority controlling interest there is an agency problem at work. Now, I’m conflicted by this because I think the ALP should have less to do with big labour but also think that agency problems are a problem. (The Nationals also have this problem to some extent).

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  6. Andrew L says:
    The only instance in which this system has real limitations is where there’s a single big donor (eg. registered clubs in the ACT). (JC, if you look at the AEC returns for union donations, you’ll see that they mostly comprise lots of modest-size cheques from different unions.)

    Andrew, audited union accounts would clearly show political donations. Would you stop that form of disclosure? Would anyone for a moment think those funds actually went to the Libs or the LDP for that matter?

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