Campaign finance regulations stifle ‘political entrepreneurs’

The Institute for Justice recently published new research by University of Missouri Prof. Jeffrey Milyo on the harmful effect of burdensome campaign finance regulation in the states. Milyo’s research focuses on the issue of “political entrepreneurship” and why citizen engagement is essential to a democracy. He lays out a persuasive argument that onerous regulation serves no valuable governmental purpose and significantly hinders the ability of citizens to participate in the political process in the most basic ways.

Keep Out: How State Campaign Finance Laws Erect Barriers to Entry for Political Entrepreneurs analyzes how contribution limits to—and regulation of—political action committees act primarily to keep regular citizens from speaking out on important issues. Milyo notes that “these regulations are so burdensome, it is apparent that they are intended to deter political entrepreneurship” because they hamper the ability for groups to grow and communicate effectively.

Milyo looks at the activity of several notable 527s and PACs from the past several election cycles and concludes that without significant financial backing from a few large donors, most organizations wouldn’t have the resources to grow into larger and more established organizations able to attract a more diverse group of both large and small donors. He writes that a large donation from a well-known patron “sends an unambiguous signal to prospective donors that the new organization has the potential to be effective and resolves the uncertainty of latent donors.” By making the clear distinction between regulating contributions to political candidates and making contributions to independent organizations, Milyo resolves persistent doubts, primarily by pro-regulation groups, that a legitimate anti-corruption rationale exists for regulating independent groups.

This analysis tackles the issue of regulation of independent groups with the same logic: citizen engagement in elections should be protected, not discouraged by excessive red tape. For example, Milyo reports on an experiment he conducted in 2007 where he asked people to fill out the forms required to register a political committee in California, Colorado and Missouri. Even with the incentive of a financial benefit if the forms were filled out correctly (which ordinary citizens certainly don’t get!), the average score for all the forms was 41 percent. 

Most notably, in the written feedback after the experiment, 60 percent of respondents indicated that this red tape would probably deter many people from engaging in independent political activity, and almost 90 percent suggested that fear of civil and criminal penalties for making even a single mistake on the forms would deter people from getting involved.

One of Milyo’s concluding points bears repeating: he writes that today’s rampant cynicism of our political system often results in people calling for ever stricter campaign finance regulation, when in reality, it’s that sort of regulation that makes independent advocacy so difficult to engage in for the average citizen. The solution, then, is not more regulation, but less, so that a myriad of independent voices can speak up and challenge incumbent politicians.

The Center for Competitive Politics is now the Institute for Free Speech.