Research

Podcast: Money and strategy — campaign finance 2008

Since 1980, at least one candidate in every presidential election has been an incumbent president or vice president. This year's race has broken the pattern of incumbent candidacy, but that's not its only first. This is also the first race in the post-Watergate era where one of the candidates — Barak Obama — is choosing not to accept public financing for his candidacy. W. P. Carey Associate Dean and faculty member Gerry Keim studies and consults in the area of business and public policy. Recently he discussed this unusual presidential election with Knowledge@W. P. Carey.

2008-07-01

Since 1980, at least one candidate in every presidential election has been an incumbent president or vice president. This year's race has broken the pattern of incumbent candidacy, but that's not its only first.

This is also the first race in the post-Watergate era where one of the candidates — Barak Obama — is choosing not to accept public financing for his candidacy. W. P. Carey Associate Dean and faculty member Gerry Keim studies and consults in the area of business and public policy. Recently he discussed this unusual presidential election with Knowledge@W. P. Carey.

Transcript:

This is the first presidential election in the post-Watergate era during which one of the candidates has chosen not to accept public financing for his candidacy. Gerry Kiem, associate dean for the W. P. Carey MBA at the W. P. Carey School of Business, studies and consults in the area of business and public policy. Here, he discusses this unusual presidential election.

Knowledge: What type of impact will the general election have on the business world?

Gerry Kiem: Businesses have to be very concerned with changes in public policy. Public policy is basically the set of rules by which businesses operate. And so whenever there's the possibility of a change in leadership or a change in control of legislatures, businesses need to be very aware and very involved.

Because potential change in public policy — whether it has to do with climate change, trade policy, tax policy, healthcare policy, any of the major areas — will create winners and losers among organizations that are operating in the current business environment. This is going to be a very interesting election because we have two candidates, neither of whom are incumbents. We haven't had that for some time.

But, we also have one candidate who is extremely successful at raising money. That's Senator Obama. He has chosen, for the first time, not to accept the public financing that has been available to candidates in the post-Watergate era, and has been used by candidates who are running in the general election for president.

We've had a few candidates in the last public election who chose not to use public funding in the primary, but they did use it when they got to the general election. But, Obama is the first one in a general election who's indicated that he will not be using public financing.

Knowledge: It's pretty well known that the smart companies out there always give to both candidates.

Gerry Kiem: That's correct. Despite the fact that since the mid-'90s, the Republican party has tried very aggressively to encourage businesses to give only to Republican party, starting with people like Tom DeLay in the House and Trent Lott in the Senate. These people really tried to strongly encourage business to contribute only to Republican candidates.

Smart businesses resisted that advice, recognizing that not only will the Republicans not always be in control, but also that in our political system where we have relatively weak political parties (that is, there is not strong discipline in the parties) most successful public policy issues — those that pass — require coalitions from both side of the aisle. And so, businesses want to be able to communicate and discuss their concerns with members from both parties. Building relationships with them is smart business.

Knowledge: You even have something like NewsCorp, with Rupert Murdoch, throwing a fundraiser for some Democrats, because it's just a good business.

Gerry Kiem: Exactly. Exactly. The other issue that's interesting, if not widely understood, is that there are people in business who have strongly-held values that are more consistent with the Democratic party on some issues. It's not a monolithic set of interests that always aligns with the Republican party. There have always been business leaders who have supported Democratic candidates because of their personal values.

Knowledge: And I would think, especially after the primaries are done and both candidates start moving more towards the center, that's really a place where corporate America likes to be.

Gerry Kiem: That's right. That's right. The public policy positions that emerge in the center, that have the greatest support, are the ones that businesses will get involved in. And the other point of view that's important to understand here is that business does not have a monolithic interest on any public policy issue. I've spent a lot time consulting with corporations and trade associations on their public affairs, government relations activities, and on most of the issues that I've been involved in, the primary adversaries are always other businesses.

Knowledge: And so, you've got situations where you have the weak dollar that's affecting companies. When you have higher oil prices, it doesn't matter which company you're from, you're just looking for the candidate, the party, or the right makeup in Congress that might do something or might stay out of the way and not make things worse.

Gerry Kiem: Yeah, that's right. But, even those examples you discussed there, companies that use fossil fuels intensively are very concerned with high energy prices, while companies that are primarily exporters are very happy to see the weak dollar.

Knowledge: Going back to companies that have successfully resisted this pressure from, primarily, the Republicans — but I'm sure there's pressure from some Democrats to give only to this party. What kind of, if any, skin do they have in the game regarding campaign finance? Does that affect how they give?

Gerry Kiem: It does, because the cost of running presidential elections has increased significantly, and the resources that are publicly provided have not grown at the same rate. For example, the public financing that we have is a system that was put in place after Watergate. It is funded by individual taxpayers who check a little box on their income tax return, that when it first started in the mid-70s would donate a dollar to the pot of money that would be used to finance presidential elections. It's now up to three dollars.

But, when it was first started, about 30 percent of Americans who were filing tax returns checked the box. Recently it's been less than 10 percent. So, it is a policy that has become less and less interesting, or draws less and less support from American taxpayers than it has in the past. But, basically, they take the amount of money that's in that fund and then divide it among the two candidates in the general election, and that's what's available. This year it's about $85 million.

John McCain has decided to accept public financing; Barack Obama has not. Up to this point, Obama has been much more successful at raising money than Senator McCain has. He's raised about two and a half times as much money as Senator McCain has up to the present time. And he appears to be planning a much more strategic presidential campaign than we've seen for some time.

By that I mean he has a very broad focus of trying to get Democrats elected to Congress, both in the House and the Senate, but also to try to get Democrats elected in state political offices. The states are often very effective lobbies in Washington for their particular interests. So, if you have a lot of Democratic representation in the states, Obama will have more support from the states to influence legislators in Washington for the policies that he's concerned with.

So, if he's successful and continues to raise a lot more money, and spend a lot more money than the $85 million John McCain will have to spend, he'll be able to count on more support, perhaps increase the control of the Democratic party in the House and the Senate, increase the representation of the Democratic party in a number of states, and that will make it easier for him to pursue his particular agenda.

Just winning the presidency often doesn't help a lot from the candidate's perspective in trying to push their agenda through the political process. They've got to have broad-based support. And so, Obama is pursuing a policy that has the potential to give him that support if he's successful. Of course on the other hand, if he's not successful, people will criticize him by saying, "Gee, you spread your money too thinly. You were focused on a lot of things other than just winning the White House yourself, and that was the cause of the downfall."

So, it'll be an interesting race to watch. There's another aspect of this that's directly affected by choosing to accept the public financing. Increasingly in this country we see groups that are referred to as 527s, which refers to a provision in the income tax code, which allows groups of interested individuals to make contributions that are then used to discuss public policy issues during campaigns.

These groups become increasing active as spokespersons during campaigns, but they're not controlled by the candidates. Perhaps the most famous of these in the last election was the Swift Boat folks who attacked Senator Kerry's war record. Not all Republicans were in support of that sort of attack on Kerry, but they really had little influence over these groups. There are groups on both sides. MoveOn.org is one of the better known groups on the Democratic side.

Senator McCain, I think, will have far less influence, or far less opportunity to get his own message out, because he'll have less money to spend, if he's not happy with the messages put the out by the 527s. Barack Obama on the other hand, because he will have more money, will have a better chance of getting his message out there.

Neither of these candidates can control the 527s, but I think, the more resources than one has, the easier it will be to get their message out, particularly when it differs from the message being put out by the 527 groups. So, I think, that's another factor that will come into play as a result of one choosing to accept the limits of public financing and the other one not choosing to do so.

Knowledge: It's interesting, because [the purpose of] asking people after Watergate to give money to the campaign was to help the candidates who weren't connected to the fat cats — which usually meant non-Republicans — [by] leveling the playing field. Well, you've got a situation now where you've got a Democrat who can out-raise money from the Republican candidate. So, it looks like any virtues that campaign public finance reform may have had just aren't relevant at this point anymore.

Gerry Kiem: Well, "leveling the playing field" is language that most of us who work in and study political activity cringe at whenever it's used. Because the reality is that if you limit candidates to the same amount of money, you don't limit the playing field, unless both of the candidates have exactly the same name recognition among the general public. It's very much like brand recognition in the business world.

Whenever there are limits on advertising, the well-established brands benefit, the new brands trying to get into the market are put at a disadvantage. And while we've certainly seen a lot of Senator Obama during his campaign on television, the reality is that Senator McCain, I think, is far better known by most Americans, starting with his prisoner of war status, the fact that he's a war hero, that he's been a senator for a long time form the state of Arizona, that he's been a previous presidential candidate.

That he has been a champion of causes that often run counter to the administration. I think, he is just a much better known brand than Senator Obama is. So, I think, it makes sense, once again, given that Senator Obama has this ability to raise lots of money, interestingly enough, from small donations — millions of people supporting him. It makes sense for him not to accept the limits, because that would make the playing field less level, I think.

Knowledge: And it doesn't seem to really matter to the American public that he reversed his decision on accepting that.

Gerry Kiem: I don't think it does. That's something that Republicans try to make an issue out of, and obviously if Senator McCain had done that the Democrats would try to make an issue of it as well. But, it's not the sort of issue that most Americans are concerned with.

I would guess that most Americans don't pay much attention to public financing. The tax return data suggests that most Americans don't support public financing by their actions. [laughs] So, I think, it's an issue that's of very little consequence to Senator Obama.

Knowledge: But, do you really think it would be of little consequence to McCain, who has focused a lot of his career on campaign finance reform to all of the sudden …

Gerry Kiem: No. I think, it would be more difficult for Senator McCain because he has been so closely associated with campaign finance reform. But, quite frankly, I would think that even he could successfully choose not to accept this, particularly after Senator Obama indicated that he was not doing it. McCain could say, "I'm going to have to do this in order to compete."

But, I think, Senator McCain's problem, at least from my perspective, is that he hasn't shown the fundraising ability to raise hundreds of millions of dollars. He's not a mainstream Republican. [For] the last 10-15 years, he's not been one that's very associated with the right wing of the Republican party that has very strong support among social conservatives. He's not really their person. And so, it's not clear to me that he has the ability to raise the same kind of money that Barack Obama has been able to raise.

Knowledge: Yeah. And that's the thing that you hear, Obama has been like this movement candidate who's getting people who may not have been interested before, or who felt they were disenfranchised somehow, to get excited. Whereas the core of the Republican party, or the stronghold, a lot of them are saying, and I hear them saying, "I don't know what I'm going to do in November. I don't like McCain, but I'm not going to vote for Obama. I don't know, I may just sit it out." And these are people who have never sat out an election.

Gerry Kiem: That's right. That's the Republican's worst nightmare. I mean, Ralph Nader, in essence, did that to the Democratic party in 2000. And furthermore, now the Libertarian candidate, Bob Barr, is likely to attract some of the more right wing supporters of the Republican party, the social conservatives. And that will only hurt Senator McCain's chances.

Knowledge: Right. And Bob Barr is a Libertarian, but he was known before this as being really popular among the right wing of the Republican party.

Gerry Kiem: Right. Correct.

Knowledge: And you don't think him being a Libertarian and having an ACLU card — that was the latest I heard — is going to hurt him with this party? Or they do feel he represents them better than McCain?

Gerry Kiem: Oh, I think, the Republicans would love to see him go away and step out of this race. They need every vote they can get.

Knowledge: I'm talking outside of the Republican machine, Republican voters.

Gerry Kiem: Oh. Well, it's interesting. You have a subset of voters — and I don't really know how large it is — on both sides, who feel voting for a person as an expression of their beliefs is the most important thing that they can do. Where I think, the leaders of a party are much more focused on, "Who can get that can win the election, even if they're not consistent with all our points of view on all issues?" And I think, that's what many of the Republican operatives who, while they may not agree with Senator McCain's position on all issues, he is their person and they very much want him to have the best chance at winning the election.

But, I think, a lot of voters say, in essence, "I know my vote won't count, but I'm making a statement that these are things that I believe in. Maybe, this will have some impact over the long term." And to the extent that voters behave like that, then the Ralph Naders and the Bob Barrs of the world are the candidate that they choose to support.

Knowledge: Now, we mentioned the impact of 527s. John McCain certainly knows what it feels like to be at the receiving end of a nasty campaign.

Gerry Kiem: That's right.

Knowledge: So, he's probably very sensitive to it. Obama obviously doesn't want to get into that either. But, going back to what you said about raising funds, Obama may have a little bit more control over those 527 messages than McCain?

Gerry Kiem: He will. And he'll also have to do his share of defending, because I think, this is going to be the nastiest political race, the nastiest presidential race in my lifetime, certainly. I think, the 527s on both sides will take some pretty nasty shots at the candidates.

It's clear the race card will be played, I think, against Obama — the age issue certainly against Senator McCain. I think that the ability to respond to these issues will be important, and as I said earlier, I think that Senator Obama may have more resources to respond than Senator McCain will have.

Knowledge: Going back to what we were saying about it, the American CEO, if we're electing America's CEO, how much of our money goes into that?

Gerry Kiem: That's the other issue that we'll hear a lot about. People will talk about how much money is being spent. I just got back from Europe and my friends in Europe were all questioning me about, "Gee whiz, how expensive these primaries have been." And if you look at the absolute dollars that are being spent — sure, it's a big number and it grow with each election — but think about this in terms of the responsibilities these individuals will have if they're elected. Just think about managing the federal budget.

The federal budget over the four years that one of these gentlemen will be president will be in excess of $12 trillion. If in this presidential race, including the primaries, they spend somewhere around $1 billion or $1.5 billion, that's a very small fraction of 1 percent of the entire budget that they will be managing. It's about 1/100th of 1 percent, that's what we're going to spend to decide who should manage a $12 trillion budget, in addition to all the other decisions in foreign policy and so forth that will have to be made.

It seems to me that you could raise the question that maybe we're spending too little to decide who the president will be. Others who have looked at this in past years have noted that when you add up all the money that's spent on an election in the United States, the presidential races, the congressional races, the races at the state level, and so forth, in an election cycle when the president's running, in recent years we've spent more on Halloween candy in one year.

So, it's a big number, but I think, the number needs to be put into perspective. We're a big country with a lot of expensive media. And when you put the number in perspective, I don't think there's anything wrong with spending the kind of money we're spending to have candidates communicate with the voters.

Knowledge: Yeah. That number was startling to me, too. You say $85 million, and it's like, "Wow, what I could do with $85 million." But, when you add that we as a nation spend more money on Halloween candy, it's like, OK, where are our priorities on this?

Gerry Kiem: It quickly becomes a question not that we're spending too much on elections, but maybe spending too little.

Knowledge: How do you think the very expensive Democratic primary season is going to affect future primary campaigns?

Gerry Kiem: I think what we'll see is that people will learn, particularly from Senator's Obama's fundraising, [about] the ability to raise money [online]. Howard Dean was the first one to really be successful in raising a lot of money in very small contributions using the Internet. This will become standard practice.

It's in essence similar to a business adopting a new technology. All the rivals will adopt that new technology very quickly. And so, other candidates in the future, to be serious competitors, will have to have the same capabilities. So, in the same way that an arms race increases the expenditure, I think, we'll see all candidates raising more money, spending more money, to try and communicate with people during an election year.

Knowledge: I can't help thinking though, that because you had for the first time a woman and a black man who were viable mainstream candidates, an excitement created that perhaps a Kerry couldn't or a John Edwards couldn't, because it's more of the same coming from them.

Gerry Kiem: Perhaps. It certainly does require that the candidate do something to spur interest. But, in addition to being a charismatic speaker, you have to have an extremely well-organized and strategic operation to actually raise the campaign dollars. When you look at Senator Obama and the criticism that Obama doesn't have much experience, he certainly has been an extremely effective campaigner, which is a very complex process — to organize networks, to generate the kind of results these networks had in every state in the union.

He was far more effective than Senator Clinton was, who was much a more experienced politician. And also more effective than Senator McCain was. I think this is someone that is not just a good speaker, but is a pretty good manager as well, in terms of thinking strategically and then being able to set up an organization that can implement that strategy to be effective.

Knowledge: I guess, to those of us on the outside who have never worked in a campaign, we don't realize that, yeah, it's one thing generating the interest of people wanting to donate, but if you don't have the mechanism to get that money from them, or figure out a way to be able to get that message out or say, "This is where you can donate," that's not going to help you any.

Gerry Kiem: That's right. Quite frankly, there are people in business who come up with a great idea for a new product or a new service, but aren't very effective at actually building a business that sells that product or service in a profitable way.

Knowledge: Yeah, they can't market, they can't distribute.

Gerry Kiem: Right.

Knowledge: What right now is the challenge facing both candidates as they go out there to try to raise money, either from corporate contributions or from the small donors?

Gerry Kiem: I don't think they'll have a lot of trouble. It's going to be a function of their message. Both of them, I think, are seen as viable candidates. So, I think, they'll be able to raise money. I think, now the organizational networks on the ground will be a key factor. And Senator Obama appears to have very good organizations all across the country.

I'm not sure Senator McCain is quite that far along in terms of having really well-organized, smooth-running volunteers in all the states in the union. So, we'll see. I think both candidates will appeal to their segments of voters, but the challenge for the Republicans is to be as effective as the Democrats have been in raising campaign contributions from those who support their particular candidates.

Knowledge: The Republicans find themselves in an unusual situation in that even though as nasty as the Democratic race became at times, it seems like the Democrats this time are closing ranks behind their candidate. You're seeing maybe not out-an-out opposition to McCain from other Republicans, but more of a disinterest. Is this what we were talking about earlier of some rank-and-file out there saying, "I'm not even going to vote this year."

Gerry Kiem: Yeah, I think, that's an issue. I think another issue is that both of these candidates strike me as very honorable candidates. If you look at the campaigns they've run, they've done very little in the way of the negative advertising.

But, I think, the 527 groups will not abide by that same ethical standard, and will be much more willing to get nasty. And the fact that the Republican party is not quite so unified may mean that you even see more diverse sets of issues and arguments being put out by the 527s on the Republican side.

Knowledge: Who has more to lose if this campaign gets really nasty? And by nasty, we know the race card and the age card are going to be thrown down.

Gerry Kiem: That's hard to tell. I think that will depend very much on the polling data and whether Americans decide that some tipping point has been reached. Traditionally, going negative towards the very end of campaigns has been a fairly successful strategy for the candidates that have done that. However, I'm not convinced that that will continue to work, particularly if it starts early.

I think, there may be some backlash, that people may decide that enough is enough. So, that's part of what makes it a very interesting race. I think, we have not seen that kind of backlash before, but I think, many people watching this race have a sense that we could see a backlash this time against the negative ads. As I say, that's part of what makes it such an interesting race to watch.

Knowledge: Yeah, because questioning Kerry's war record, military service record, probably wouldn't cause the gasps that would happen if you saw a really racist 527 ad.

Gerry Kiem: Right. Right. And the fact that you still see that there's some effort to try to convince people that Senator Obama is a Muslim, and to exploit the confusion of his name and the similarity of his name to Osama bin Laden. I think, that's the sort of thing that could be very, very divisive.

Knowledge: And for McCain as well with the age. But, probably to a lesser degree.

Gerry Kiem: And I think, one of the things that happens is that these messages from the 527s tend to be associated with the candidates, and so attacks on Senator Obama, for example, if there is a negative backlash, at some point it would be directed towards Senator McCain, even though he would have had nothing to do with these and has already indicated in North Carolina earlier this year that he did not want these kind of negative ads being used.

Likewise, I think, Senator Obama would bear the brunt of criticism of the older baby boomers if they thought that John McCain was being attacked unfairly for his age, even though I'm quite sure Obama would not be doing that, but some of the groups on the Democratic left might choose to do that.

Economics Faculty