Geo-Economics and Politics

Here’s what happened when Brazil banned corporate donations in elections

Demonstrators hold a banner reading "Enough of Corruption" during a protest against Brazil's President Dilma Rousseff at Paulista Avenue in Sao Paulo, Brazil, April 17, 2016. REUTERS/Nacho Doce - RTX2ADJZ

In the wake of corruption scandals, Brazil banned corporate donations to electoral campaigns Image: REUTERS/Nacho Doce

Teo Benjamin
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One of the major challenges to the democratic progress identified by the 2012 report of the Global Commission on Elections, Democracy and Security is the need to regulate uncontrolled, undisclosed and opaque political finance. The group, jointly created by the International Institute for Democracy and Electoral Assistance (IDEA) and the Kofi Annan Foundation, says that poorly regulated political funding can diminish political equality, provide opportunities for organized crime to purchase political influence, and undermine public confidence in elections.

Image: Deutsche Welle

All of the 180 countries included the IDEA Database use at least some form of monetary regulation in politics, such as bans on donations from certain sources, limits on spending and provisions for public funding.

According to IDEA’s report to Latin America, awareness of the importance of political finance regulation for democracy has never been greater in the region. This has to do with the consolidation of democratic systems, but also with high-level corruption cases that have unsettled the region’s political institutions recently. Over the past four years, far-reaching reforms of political finance rules have been enacted in five Latin American countries. In Chile and Brazil, corporate donations were at the centre of the political scandals that disintegrated political trust among citizens and fuelled regulation. Both countries banned corporate donations to campaigns.

Last October, the mayoral elections in Rio de Janeiro were Brazil’s first following the new rules. Here are four key findings that we learned from this experiment.

1. Falling donations

We still don’t have the final figures, but preliminary data indicates that donations fell by half compared to the last municipal election in 2012. From R$6 billion ($1.73 billion), we went down to R$3 billion ($868 million) this year. No surprises there. Not only were corporate donations banned in the 2015 electoral reform, but the campaign was shorter and some expensive street propaganda was prohibited. Cheaper elections are something to be pursued, but the change here was very fast. Many candidates did not receive a single donation and had to rely on the public finance system provided to the parties, as well as on their own resources.

2. Rich candidates benefit from this new system

Brazilian law allows donations by individuals, and establishes a limit of 10% of their last annual declared income. However, there is no limit as to what candidates can “donate” to themselves. According to the G1 newsportal, which drew on official data, 20% of the 5,500 mayors elected in Brazil this year are millionaires. Using a threshold of $1 million, the Capgemini consulting firm estimates that there are 150,000 millionaires in Brazil, which represents 0.07% of Brazil’s population. João Dória, the mayor-elect of São Paulo, Brazil’s largest city, received a total of R$12.6 million ($ 3.64 million) in donations, but added a further R$ 4.6 million ($ 1.33 million) – 36.5% of the total – from his own pockets. In an unequal country like Brazil, this is a great distortion.

3. Online donations are an untapped opportunity

There was an expectation that the veto of corporate donations would encourage online contributions. The final numbers are yet to be published, but at the moment it looks like online donations went from R$0.5 million before this election to R$ 2 million this time. More than half of it (R$1.45 million) went to federal deputy Marcelo Freixo, the runner-up, whose crowdfunding campaign we coordinated.

We both worked on the two pioneering crowdfunding platforms in Brazil. From the very beginning, we understood that this would be different to other fundraising efforts, and we devised strategies to reach different types of donors. In the end, there were more than 14,000 donors, a new record in Brazil’s electoral history – 10 times bigger than the one set by Dilma Rousseff in 2014, which, unlike this municipal campaign, was a presidential election.

Crowdfunding is still to be explored in Brazilian politics. Freixo was the only candidate that set up his campaign to be funded by regular citizens. The law is still confusing and has to be improved. For example, many of the online-payment companies didn’t want to get involved in politics, and each candidate had to build their own online system. More importantly, Freixo understood that crowdfunding could be a new form of political participation and embraced the idea. Almost 80% of donors gave money for the first time and 99% are willing to do it again.

4. Companies still influenced the election

If the objective of the 2015 electoral reform was to reduce the influence of economic power, then banning corporate donations didn’t work. As the law allows individuals to donate a limit of 10% of their income, people who have more money are allowed to donate (much) more and exert inflated influence on the election process. The “one person, one vote” principle of democracy didn’t apply directly to funding.

Pedro Paulo, the candidate chosen by Rio’s current mayor, required only four wealthy donors to raise the same amount of Freixo’s first 6,500 donations – and all donors were businessmen with ties to City Hall. Paulo still ended up losing the election in the first round, and the people instead chose evangelical bishop and Senator Marcelo Crivella.

Senator Marcelo Crivella, candidate for Rio de Janeiro mayor, gestures to photographers after voting during the municipal elections at a polling station in Rio de Janeiro, Brazil, October 30, 2016. REUTERS/Ricardo Moraes - RTX2R1ZP
Senator Marcelo Crivella Image: REUTERS/Ricardo Moraes

A way forward?

Brazil’s first election without corporate donations failed to meet many of its objectives. But instead of cancelling the experiment and returning to the old model, as some politicians are already suggesting, we believe the only way is forward. We have to improve our system.

We need to discuss, for example, a nominal ceiling for individual donations, irrespective of income. It’s also important to facilitate the donation process, create clearer rules and to make the rules more in line with this proposal. It’s important to create mechanisms that make it easier for any candidate to raise money online from their supporters. And, most importantly, we need to share knowledge about how to fund a political campaign collectively – increasing transparency, participation and trust.

It is urgent to build better tools for (real) citizen collaboration and oversight in government. People are getting more and more frustrated by our democratic institutions, creating highly unstable political systems all around the region and the world. Many feel they have no voice and see corruption as a systemic problem. Although the Brazilian electoral reform still needs to evolve a lot to achieve its objectives, crowdfunding has opened up a new space for political participation.

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