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When charity buys influence

by Cynthia Macdonald
Jul 11 / 18
Money-banner Photo by Allef Vinicius on Unsplash

When an American business wants to influence a politician – to get a tax break, say, or to have environmental regulations relaxed – there are a couple of ways they can do it. Lobbying is one; contributing directly to the politician’s campaign is another.

These are not the only routes, however. There are limits on how much money businesses can give to campaigns, and lobbying is subject to complex rules. That’s why some businesses have found a third, seemingly useful channel of influence: charitable giving.

Such is the striking conclusion of a new paper entitled Tax Exempt Lobbying: Corporate Giving as a Tool for Political Influence. Published by the National Bureau of Economic Research, the paper’s co-authors include University of British Columbia economist Francesco Trebbi, associate director of CIFAR’s Institutions, Organizations and Growth program, as well as program Fellow Matilde Bombardini, also of UBC.

Bombardini is a long-time expert on the economic interplay between politics and business. Her team’s research began several years ago, when a series of news reports caught their attention. One of these described how a small Pennsylvania symphony supported by Representative John Murtha and his wife received “lavish” donations from defense companies – who were likely mindful of Murtha’s ability to hand out defense contracts.

Another reported that energy corporation Exelon Inc. had donated $25,000 to a charitable foundation operated by congressman Joe Barton; at the time of the donation, Exelon had been seeking approval to build a nuclear power plant in Texas. “This was under the jurisdiction of the energy committee on which Mr. Barton sat,” Bombardini says. Though he was ultimately cleared by the Office of Congressional Ethics, the economists remained curious. “We said, this is a very interesting phenomenon. How widespread is it?”

Very widespread, as it turns out. Analyzing contributions linked to over a thousand charities from 1998 to 2015, Bombardini and her colleagues established that a non-profit was more than four times as likely to receive corporate donations if a politician sat on its board. They estimate that just over 7 per cent of charitable giving by businesses is intended to curry political favour. This amounts to some $1.3 billion – almost four times as much as the U.S. business world’s total campaign contributions, and 40 per cent of their total lobbying expenditures.

What’s more, they found that when members of congress leave office, charitable donations in his or her district drop noticeably. Both Democrats and Republicans are equally implicated. “We looked for a differential effect, but didn’t find one,” Bombardini says.

“We do not want to reduce charitable giving – that’s definitely not our goal,” she continues. “But we think this process should be more transparent: donations that could benefit politicians should be disclosed more openly.” If not, high-quality charities unaffiliated with politicians could suffer. And the distortion of rules in a corporation’s favour will not necessarily be offset by their good works.

We think this process should be more transparent: donations that could benefit politicians should be disclosed more openly.

Tracking charitable giving can be difficult, however. Only donations granted by a business’s own foundation are reported, but no more than half of Fortune 500 companies have charitable foundations. Donations made otherwise are not subject to the same reporting requirements. “So the numbers we report are likely to be underestimates,” says Bombardini.

Bombardini and Trebbi believe that financial relationships between politicians and corporations should be monitored, and that economists can play an important part in doing so. “There are some doubters in economics who feel this should be left to political scientists, but we think this is something our profession should be pursuing,” says Bombardini. “This is a view that’s supported very much by the IOG group, and by CIFAR in general.”