Thursday, June 12, 2014

Should our political parties get big money in big sums?



Guest post by Adithya Reddy

As far back as in 1963, a nine judge bench of the Supreme Court held that corporations are incapable of possessing “citizenship” and are therefore not entitled to claim fundamental rights under the Constitution.  Therefore, unlike in America where the right of a corporation to make political donations is seen as an extension of its right of speech and expression (Citizens United Vs. FEC), an Indian corporation cannot claim to be deprived of any fundamental right if prohibited from making political donations. There are many reasons why permitting corporations to make political donations may not be desirable. First, unlike in the case of a socially responsible individual, even the most socially responsible corporation cannot, legally, sacrifice its commercial objectives for political policies that may conflict with such objectives. Secondly, in case of such a conflict a corporation is always in a position to exercise greater influence on the government which is supposed to act as the arbiter in the ensuing conflict thereby distorting policy-making. Thirdly, and most importantly, it is unhealthy for any democracy to allow political parties to become dependent on a few stakeholders in society.  With lesser legal hurdles and tax implications in dealing with large sums of money, a handful of corporations will wield disproportionately high levels of influence on political policy.  

The first jurist to sound a warning bell on the issue, while ruling on Tata Iron & Steel Co’s right to amend its Memorandum of Association to make contributions to political parties in 1957, was Justice. M.C. Chagla:

 “The very basis of democracy is the voter, and when in India we are dealing with adult suffrage, it is even more important than elsewhere that not only the integrity of the representative who is ultimately elected to Parliament is safeguarded, but that the integrity of the voter is also safeguarded, and it may be said that it is difficult to accept the position that the integrity of the voter and of the representative is safeguarded if large industrial concerns are permitted to contribute to political funds to bring about a particular result.”

By expressing concern for the integrity of the voter, Justice Chagla clearly suggests that permitting political donations  encourages  wealthy corporations to try and influence political policy in favour of their commercial agenda.  Despite this advice from a court of law and similar recommendations by many expert bodies like the Santhanam Committee of 1964 and the Justice Wanchoo Committee of 1971, the newly enacted Companies Act retains a provision from the old law that permits companies to contribute to political parties. Section 182 of the 2013 Act in fact raises the cap on contributions in a financial year to 7.5 per cent of the average net profits of the last three years, from 5 per cent in the previous Act.

I am not arguing for a ban on corporate funding of political parties as that will not drastically alter the dynamics of crony capitalism or lower levels of quid pro-quo corruption between corporates and politicians. In fact, when such a ban was put in place by the Indira Gandhi government  by amending the Companies Act, many corporate big wigs were busy buying American piper planes for which Sanjay Gandhi was the agent. So, be it “black money” or “lobbying”, there are ways of corrupting politicians and that is why I believe that banning corporate financing is probably not going to make any difference.  But there is a larger and more indirect impact of such funding that needs to be discussed more seriously at a policy level.  There is a century-old ban on direct corporate funding for politics in the United States and an American Court of Appeals has found this to be good law even as recently as February, 2013 in US Vs. Danielczyk. In that case, one P. Danielczyk, Jr., Chairman of Galen Capital Corporation co-hosted a fundraiser for Hillary Clinton’s presidential campaign. He and another Galen officer allegedly had Galen reimburse attendees for $156,400 in campaign donations. Both were charged with illegally soliciting and reimbursing campaign contributions in violation of several federal statutes, including U.S.C. § 441 b(a), which bans corporate direct contributions to candidates for federal office. Danielczyk filed motions to dismiss the charges on several grounds, including arguing that § 441b(a) is unconstitutional. The District Court allowed the motions holding that “if corporations and individuals have equal political speech rights, then they must have equal direct donation rights.” In a unanimous decision, the Court of Appeal for the 4th circuit reversed the District Court’s judgment and upheld the ban on corporate donations.

 A significant rationale for this position is what the American Courts have called the “anti-distortion” principle. This principle emphasizes  the distortive effect corporate financing can have on general public discourse and government choices in matters involving conflict of interest between various stake holders. Though this rationale was rejected in a 2010 decision by the American Supreme Court (Citizens United Vs. FEC) in the context of independent corporate expenditure for political causes, it was best described by Justice Marshall of the US Supreme Court in a 1990 case as “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.” The rationale is based on the incapability of an impersonal corporation to relate to larger political goals.

Recently, while upholding a statutory ban on corporate contributions to political parties and candidates, the Montana Supreme Court very interestingly relied on the report of a History Professor to find that Montana’s economy depended mainly on corporations in other states and therefore “corporate dominated campaigns will only work in the essential interest of outsiders with local interests of secondary consideration.” Wouldn’t this rationale also apply to corporate funding of a regional party ruling a state like Bihar or Orissa which has few or no large corporations within the state?

How difficult is it to envisage situations of conflict of interest between corporates and individuals or groups who would not be able to make the same kind of donations? And considering the fact that 26 of the top 50 companies which made political donations to the previous ruling party (Congress) at the centre are associated with mining of natural resources in one way or the other, how is the government going to act as a neutral arbiter in such cases of conflict? There are so many commercial ventures involving public-private partnerships which often involve negotiating terms and resolving disputes between the government-owned partner and the private company. The latter could well be a regular donor to the political party that runs the government which owns the former. Similarly, there’s little point in introducing an elaborate, pro-owner land acquisition bill when one side in the dispute is always likely to have a greater influence on the government which is the implementing authority.

There can be no greater evidence of a corporations’ inability to relate to political goals or policies than the fact that almost every corporate donor gives large funds to parties on various sides of the political spectrum at the same time. How can the same entity donate both to the ruling party and the principle opposition party whose only political goal is to unseat the former from power, during the same period? Can a corporation point to a specific policy or achievement of a political party which prompted it to make the donation? Can there be any motive other than to keep its commercial objectives hindrance-free, irrespective of the political dispensation in power?

The oft-suggested alternative to meet political parties’ large financial requirements is state funding.  While state funding is certainly a reasonable alternative, there is a genuine concern that dependence on one dominant source of funding, be it from corporates or the state, will cause political parties and politicians to remain distant from their members, cadre and the general public. In today’s situation it is difficult to say if there is any ‘cadre-based’ party left in the country. Encouraging funding from the “grass roots” has been the thrust of election financing reform in many Western Countries. Concerned about the dependence of UK’s three major political parties on a handful of large donors, in 2006 the Government ordered an enquiry by Sir Hayden Phillips, a former civil servant. One of Sir Phillip’s major recommendations was to link state funding to small donations collected by a political party from individuals. He proposed a matched funding scheme that would give parties £ 10 for each qualifying donation of £ 10 or more from any individual in any year. For a donation to be eligible for matched funding, the donor would have to be on the electoral register. In Canada, federal and provincial tax credits for political donations and legal provisions for issuing tax receipts have supported efforts to solicit small donations and have made “big money in little sums” a reality.

Alternatives and details of policy can always be discussed and debated. For instance,  financial dependence on one or a few large sources can be permitted if the interests of the recipient are so intertwined with that of the donor that there can be no scope for conflict. That such commonality of interest can never be achieved between a public figure and a corporate is best illustrated by the fact that even Mahatma Gandhi had to compromise his ideals. Gandhi was rebuffed by his mill-owner ‘patron’ GD Birla for complaining that people were buying mill-produced Khadi,mistaking it for the homespun kind/version. According to American historian Leah Renold, Gandhi did not wish to precipitate the issue because he was financially dependent on Birla.

(Adithya Reddy is a lawyer practicing before the High Court of Madras)
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