Law has become a business. Health care has become a business. Unfortunately, politics has also become a business. That really undermines society.
High levels of economic inequality lead to imbalances in political power as those at the top use their economic weight to shape our politics in ways that give them more economic power.
The tyranny of a prince in an oligarchy is not so dangerous to the public welfare as the apathy of a citizen in a democracy.
Why have governments not stepped up to properly address the trends that are crushing their constituents? Unfortunately, the quality of the people leading governments really has declined over the past 50 years, for reasons that can be well documented. And the incentives facing those who remain in the halls of power have become more perverse. Political maintenance costs are up, rewards for political participation are lower, and the eroding power of soft corruption has become pervasive. In other words, just like our bridges, our political infrastructure is crumbling.
POLITICS: EXPENSIVE BUT NOT FINANCIALLY REWARDING
The election process, the maintenance exercise of democracy in Western countries, is steadily becoming costlier. This increase reflects at least in part the growth of voting populations and the economy.49 As a result of this increased cost, more stringent limits on election spending are generally imposed, especially in Europe, leading to more controlled political elections expenditures.50 In absolute terms however, getting elected has clearly been an increasingly expensive affair, an arms race of spending in extensive marketing campaigns. NPR
Nevertheless, while the cost of getting elected has tended to increase, the pay of elected and high-level officials has remained more or less stagnant. Members of Congress earn less today in constant dollars than they did in the ’90s. In the U.K., an MP is now getting about 2.5 times the median wage, a multiple that has collapsed since the ’70s. In sum, not only are politicians not well paid, but their pay has deteriorated, while the cost of getting elected has increased with the size of the economy.
IF YOU PAY PEANUTS, YOU GET MONKEYS?
At first glance, of course, this could seem like a positive development, as politicians’ wages are, after all, a cost to taxpayers. But this could hardly be more wrong. If the cost of getting elected has steadily gone up, and the reward has remained stable at best, the incentives for bright young minds entering politics have deteriorated. This help explains what has been happening in the Western world.
First, honest and qualified people who would have pursued civil service and politics in the past no longer do so, for the costs of political life have ballooned, while the rewards have remained paltry, especially compared to the skyrocketing compensation elites can receive for their skills in the private sector. You’re not just imagining it: The politicians really have gotten worse. Essentially, a brain drain from the civil sector to the private sector has taken place.
Second, because of this vacuum, careers in civil service and runs for office are becoming options that are often only feasible for those who already come from wealth. Not having to carry the debt of student loans or mortgage and health care bills, they can contend with the low income and, in the case of elected office, poor job security, that these positions offer. The compounded effect is that overwhelmingly people in politics and the highest level of civil service come from wealthy, or wealthier than average, backgrounds, whatever their abilities. The average wealth of a U.S. House representative is $8 million, or over 100 times the median wage. Legbranch
It is not necessarily a bad thing, far from it, that some of our politicians had been successful business people that no longer need an income and are ready to spend part of their time in government. They not only bring skills and experience, but a private sector perspective that can be extremely useful. But this raises the issue of over-representation of the wealthiest in making decisions that affect us all and are not of an economic nature. It also raises fears that government leaders, even if only because of training and background, will favor some special interest. For instance, in the U.S., recent Treasury secretaries have overwhelmingly been career bankers.
SOFT LEGAL CORRUPTION
Worst of all, because the cost of getting elected is so high, and the income comparatively low, this has also encouraged several forms of soft corruption. The amount of time and money spent by lobbyists on elections through various contributions to campaign funds has steadily increased all over the Western world.
There is also the well-known, and growing, problem of “revolving door” soft corruption. Politicians and regulators who are friendly to industry can expect a “golden parachute” exit when their time in government is up, landing plumb private sector gigs doled out by the people they had been charged with overseeing. We have seen politicians receiving board memberships, million dollar conference appearance fees, inflated “book deals,” or massive contributions to the “charities” and “foundations” they run as arms of their political empires. In the case of Bill and Hillary Clinton, they have profited from all of the above Forbes. This is legal, and may very well have been done in good faith, but it creates the wrong incentives for the next generation of politicians at the helm of the state. Financial Times
It is by no means an exclusively American phenomenon. Is it normal that a former deputy prime minister of the UK government is hired, no doubt on very favorable terms, by Facebook to defend it and interact with governments?51 What kind of message does this send to today’s ministers charged with overseeing Facebook in the face of recent scandals? This is unfortunately just one recent burial in the graveyard of political integrity. The examples of this custom are all too numerous, ranging from Tony Blair’s paid appearances,52 to David Cameron receiving Chinese money for his investment funds, to the Clinton Foundation’s large corporate and foreign government donations, to the former head of the European Commission taking a job at Goldman Sachs.53 The list is large and includes all party affiliations. All of this is legal and may well be justified. Yet each time it happens, the confidence of the public in the system is a little more shaken, and each time the system reveals itself to be slightly more compromised, a bit more tilted. While an accounting of the numbers involved is hard to come by, the intensification of soft corruption is unfortunately clear.
Over-extended monopolies and special interests actively seek state protection and lobby to prevent state interference. To do this, they invest in “political capital.”
I was first introduced to the notion of political capital while a researcher at the University of Tokyo. One of my lab researchers was a bright Harvard PhD student. Studying why companies were making donations to political parties and individuals, he had documented, in Japan and the U.S., that this was indeed a profitable investment for companies to make. An investment whose effect on the bottom line over the long term could be favorably compared to marketing or research.
Indeed, recent studies have estimated that the increase in operating margins for U.S. corporations for the last four to five decades from lobbying and regulation has been over 1%, a rate which is several times greater than the returns those firms see on R&D. Lobbying, open and less open, has become big business all over. Consider, for instance, that it is estimated that the European Commission, with a staff of about 31,000 civil servants, is being lobbied by no less than 30,000 lobbyists in Brussels.54 That is a one-to-one ratio, i.e., that for each civil servant whose job is to design, implement, and control the rules of the game, there is one person whose only job is to influence the process in favor of private special interests. It is estimated that 75% of European laws are influenced by lobbyists. Lobbying to inform and to represent interests, including corporate interests, is legitimate. But if the number of lobbyists exceeds the staff looking at the issue, if the political apparatus has to rely on lobbyists to gather the necessary information, this becomes an issue, even if there is no undue influence.
Investment in political capital is both legal and rewarding for private corporations. But there is a big difference between investing in political capital and investing in R&D or brand equity or human capital. Ultimately, the gains to private firms from investing in political capital are private gains, which more often than not, will come at the expense of the public, directly or indirectly.
In effect, what has happened is a progressive but certain deterioration of the ‘upper’ civil service, no longer recognized nor properly financed, a steady increase in political appointees with an agenda at its head and an auctioning off of influence in the political process, with various groups buying political capital through various elaborate strategies. This goes a long way in explaining the structural deficiencies that have made governments increasingly unable, or perhaps unwilling, to address the needs of substantial majorities of their constituents in recent decades.
