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Press Release

    Media Bias on Campaign Finance

    03/04/2002

    The Senate’s reaction to two seemingly unrelated bills recently passed by the House of Representatives has crystallized the political class’s psychological confliction over campaign finance reform. One, identified as Shays-Meehan after its sponsors, would cap contributions to the national Democratic and Republican parties made by corporations, unions, and wealthy individuals. The other, dubbed Tauzin-Dingell after its sponsors, would deregulate the broadband Internet offerings of incumbent local phone companies.

    Although no one would deny that the confluence of money and politics animates both bills, the elite media and political class imbues Shays-Meehan with a moral significance not found in coverage of Tauzin-Dingell. A vote for increased regulation of campaign contributions is depicted as a vote for “raising the nation’s moral conscience,” while a vote for Tauzin-Dingell is regarded as morally equivalent to a vote against the bill because voting strongly correlates to contributions received from companies for or against the legislation.

    But no bill is more illustrative of the reason corporations invest millions in campaigns and lobbying activities than Tauzin-Dingell. Current regulations on the Bell telephone companies virtually bar them from entering the growing market for broadband Internet services. These regulations force the Bells to share broadband facilities with competitors at rates set below the cost of deployment. This means that the cost of new broadband facilities would be financed by private, discretionary risk capital, while the rewards of the new facilities would be shared with competitors through government-dictated wholesale contracts. As a result, only an executive with a suicidal impulse would sink billions of shareholder equity into pervasive broadband deployment.

    This virtual prohibition on investment in broadband comes at a time when the Bells’ traditional market shows signs of contraction. While no one should shed a tear for the Bells – 2001 local phone revenues exceeded $100 billion – the number of telephone lines in service has decreased for consecutive years. With increased competition from e-mail, instant messaging, nascent Internet telephony, and the fact that 17 percent of wireless subscribers consider their mobile unit their “primary” telephone, the future of the local phone market is not promising.

    Faced with an unpalatable choice between losing investments and fatalistic complacency, the Bell companies have come to Washington to remove the regulations that inhibit broadband deployment. A recent study produced by the Center for Responsive Politics (CRP) estimated that the Bells spent $31.7 million in contributions to political parties, candidates, and political action committees between 1999 and 2001.

    Seeking virtually the same regulatory treatment as cable companies who dominate the broadband market, their case is predicated on regulatory parity. Slumping sales have led telecom equipment manufacturers and other high-tech suppliers also to support passage, as billions in Bell investment would provide a shot in the arm to this depressed sector. But given the rapacious appetite of party fundraisers, this is not an issue that will be decided expeditiously.

    Politicians know how much the Bells have riding on this issue. They also know how much long-distance companies like AT&T, Sprint, and WorldCom – who invested $12.5 million in political contributions between 1999 and 2001 – want to keep the well-financed Bells out of the Internet services market. Delay is as lucrative to the political class as regulatory relief is imperative for the Bells. Thus, the Senate has postponed debate on the issue until both sides in the internecine industry battle can properly focus their attention, and contributions, on the world’s greatest deliberative body.

    In the meantime, the Senate will likely approve Shays-Meehan to cap the price that can be paid to the nation’s foremost political institutions to acquire regulatory services. Like all price caps, Shays-Meehan will create inefficiencies in the political market and reduce the marginal productivity of fundraising, which will increase the time politicians spend fundraising. But as long as economic regulations (as opposed to health or safety regulations) dominate the calculus of executives with a fiduciary responsibility to seek shareholder value, political contributions will remain an essential feature of business.

    That is why those in the political class and elite media who believe it morally imperative to reduce, or eliminate, the role of money in politics should regard deregulation as the morally superior policy course. Continued economic intervention heightens the importance of political decisions and swells the market for political contributions and influence peddling. Conversely, deregulation diminishes Washington’s influence and encourages businesses to invest in their customers rather than politicians. Intellectually congruous campaign finance reform would seek to limit political favors rather than regulate the price paid to acquire them.