Government Contractors: They Need Campaign Finance Reform Too

Nearly all Americans believe too much money hurts our political system. Even small business owners strongly disagree with the Supreme Court's decision in Citizen's United. Unrestricted donations unleashed by Citizens United make life harder for innovative, entrepreneurial companies (as I've explained elsewhere.) These donations undermine the integrity of our political system.

Opponents of Citizens United seek a way to undo or limit the court's decision. Unfortunately, the best solution—a constitutional amendment—is politically impossible. But hidden in a dark corner of our politics, there's a solution that has worked well for years. This solution can be applied much more broadly. It can help restore honest, effective government. It can remove the stain of corruption from our elections.

US Capitol Sold (Washington, DC)

Rule G-37: A Glimmer of Hope

The glimmer of hope is a financial regulation called Rule G-37. It protects the relationship between cities (and other government entities) that borrow money and the banks that lend it to them. The risk of corruption is enormous in these transactions. What if a prospective lender could contribute to a city official who will then decide which bank will help the city raise money? The bank would steer donations in order to win sweetheart deals that profit the bank but hurt the city and its taxpayers.

To prevent this corruption, the Municipal Securities Rulemaking Board created Rule G-37. In essence, the rule says that if you want to lend to a state or local government entity, you can't contribute to campaigns of officials in that government. This rule works. Scandals involving municipal finance are rare.

Campaign Finance: Encourage Self-Restraint

Let's extend this tried-and-true approach to federal campaigns and government contracts. We can leverage the purchasing power of the government to encourage self restraint. Any company (over a certain size) that wants to sell to the federal government should be barred from donating to elected federal officials (or their so-called "independent" campaign affiliates). Any company that wants to do business with a state government must refrain from donating to elected state officials.

The limit on donations should be particularly strong where the donation would aid an official who regulates the company giving the money. This is where the potential for corruption is greatest. In no way, for example, should an oil company donate to the campaign of a senator on the Energy and Natural Resources committee. Nor should a defense contractor pay to re-elect a representative who sits on the House Armed Services Committee.

The limit on donations should apply to any business that receives benefits from government programs. It would apply to pharmaceutical developers receiving research grants and banks protected by federal deposit insurance. It's just common sense to prevent companies from purchasing influence over officials who can award them contracts, reimburse their losses, and regulate their operations.

This system I'm proposing would be entirely voluntary. It's a free market, and this system relies on market incentives. Companies that want to contribute to campaigns could do so; they just can't do business with the federal government for the next two years. Some companies will prefer the revenue from government contracts. Others will prefer the influence that comes from contributing to campaigns. Each company can choose its own path.

This system isn't perfect. Some industries would be affected more than others. Not all campaign finance abuses can be corrected with this mechanism. But the approach has many advantages. It is voluntary. It targets the relationships most at risk for corruption. And parts of it can be implemented through federal regulations without needing permission from obstructionists in Congress. Let's fix what we can, when we can.

(A version of this was posted earlier at usnews.com)

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