Public choice theory and funding transparency
By Adam Bell
Fans of public choice theory should welcome the launch of Who Funds You? For those not in the know, you can find an excellent primer on the subject on the website of the Institute for Economic Affairs. Broadly, it covers the application of the methods of economics to Government and to its influencing parties. It rests upon the key insight that incentives apply to the people that comprise Government and the interest groups that attempt to lobby them – not just markets.
These incentives can lead to ‘Government Failure’ – regulation or Government action which fails to produce the outcomes it was ostensibly intended to deliver. This can be down to incentives on particular politicians or the corrosive influence of interest groups attempting to capture political action for their own cause. The primer puts it like this:
“In this struggle between interests, small groups with sharply focused interests have more influence in decision-making than much larger groups with more diffused concerns, such as consumers and taxpayers.”
“Because of the enormous benefits that can be won from the political process, it is rational for interest groups to spend large sums on lobbying for special privileges – an activity known as ‘rent seeking’.”
In order to be able to properly understand who is lobbying for special privileges, we need to understand who is spending large sums on doing so. In this context, whofundsyou.org is a welcome addition to the political landscape, by providing pressure upon interest groups to reveal their backers.
However, it has not been universally welcomed. This Guido Fawkes post highlights the response of the Adam Smith Institute to the site, which is to say that they have been ranked top for respecting donor privacy – the ‘E’ category of whofundsyou.org, reserved for the least transparent. This would be amusing, if the author of the primer on Public Choice Theory quoted above was not Dr Eamonn Butler, who is a Director of the Institute. It is difficult to not suppose that the large sums spent by the ASI on lobbying are being used to seek special privileges for their funders – not least for their advocacy of lower taxes for higher earners, which would directly benefit a minority.
Yet, somehow the ASI seems to be claiming that it is immune from incentives by declaring that it is independent and does not need to be transparent. It is bizarre for an organisation bearing the name of Adam Smith to claim that the fundamental insight of economics, that incentives matter, does not apply to it. It is difficult to believe that the kind of robust constitution advocated by Public Choice Theory advocates would not require any organisation seeking to influence Government policy to be wholly transparent, in order to ensure that all rent-seeking activities are on full display to the demos. Doing so is the best way of minimising the risk of Government failure, a fact to which the ASI seems to be blind.
Posted by Who Funds You? on 27 June 2012
- VIDEO: Newsnight ask who funds the Institute of Economic Affairs? (31/7/18)
- VIDEO: TaxPayers’ Alliance challenged in Parliament on funding hypocrisy (28/3/17)
- Think tanks that contribute to BBC programmes should disclose their funding (9/11/15)
- What we have achieved so far (10/2/14)
- Why I want to know who funds you (29/6/12)
- Public choice theory and funding transparency (27/6/12)
- First responses to Who Funds You? (26/6/12)