The Small-Donor Fallacy

By Jay Mandle
Friday, June 20, 2008

Not long ago, Sen. Barack Obama criticized special-interest lobbies that "use their money and influence to stop us from reforming health care or investing in renewable energy for yet another four years." He has said that his army of small donors constitutes "a parallel public financing system," one in which ordinary voters "will have as much access and influence over the course of our campaign" as that "traditionally reserved for the wealthy and the powerful."

Obama has raised record-breaking sums from small donors, so his announcement yesterday that he would opt out of the public financing system for the general election did not surprise many. And the idea that the Internet and grass-roots donations will somehow reinvigorate our democracy is appealing. But this notion is not borne out by the evidence.

As of April 30, the Obama campaign had collected more than $120 million in contributions of $200 or less. In April alone, the latest month for which data are available, Obama raised more than $31 million, about 65 percent of which came from contributions of $200 or less. This seems good for democracy -- but it may not be as good as we think.

Despite the importance of small donors, both Obama and Republican Sen. John McCain are still taking lots of big donations from wealthy special interests. In fact, when the nominating system as a whole is studied over time, the evidence suggests that the role of big donors will turn out to be growing, not shrinking.

Through March, small donations amounted to 39 percent of the combined fundraising of Obama and Sen. Hillary Clinton. But over a comparable period four years ago, such contributions made up an even greater share (42 percent) of the fundraising of the two leading Democratic contenders, Sen. John Kerry and former Vermont governor Howard Dean. On the GOP side, small donors were much more important for McCain in 2007 than they were for George W. Bush in 2003. But for most of last year McCain was not the front-runner, and his campaign was famously broke. Now that he is the presumptive nominee, big donors are his bread and butter.

Contributions of less than $200 do not have to be itemized in reports to the Federal Election Commission, so we have no idea how many are made. We also cannot rely on the candidates' rhetoric to match the facts. During a Feb. 26 debate in Cleveland, for example, Obama said that "we have now raised 90 percent of our donations from small donors, $25, $50." His campaign's own data from January 2007 through January 2008 show that 36 percent of donated funds were from small donors. Obama probably meant that 90 percent of the individuals who contributed were small donors, but the number of donors has not been verified.

Small-dollar donations to Obama have surged this year, and those donors became crucial in the spring as the battle to secure the Democratic nomination intensified. But for most of his campaign, big donors have been Obama's mainstay. Employees of investment bank Goldman Sachs, for example, have contributed more than $570,000 to his campaign.

Another problem with asserting that small donors are an antidote to undue influence by wealthy contributors is that even small donors are almost certainly much richer than the average American.

In a study of $100 contributions to state campaigns in six states during 2005, the Campaign Finance Institute found that more than half of donors earned between $75,000 and $250,000 a year. The median U.S. income that year was $46,000. While it's tricky to extrapolate to the presidential race, it is unlikely that campaign giving has suddenly become a common pursuit of working-class families.

Meanwhile, big-ticket fundraising among the very wealthiest is surging into record territory. Even as he touts his base of small donors, Obama has continued to woo large contributors at events costing thousands of dollars per plate, as has McCain. This suggests that, by themselves, small donations do not offer a real corrective to the pay-to-play system.

Neither does the public financing available to the candidates. This funding is frozen at 1976 levels, which is why Obama has rejected it -- he can raise from private sources more than the amount of the government grant. McCain no doubt would have taken the same path if his fundraising had taken off.

The idea that small donors will somehow reinvigorate electoral democracy, without the trouble of fundamentally reforming our campaign finance laws, is attractive but not yet reality. For candidates to be equally responsive to all their constituents and to open to ordinary voters the same kind of influence and access now afforded a wealthy minority, the only realistic option is to increase the amount of money we allocate to the public campaign finance system. In fact, the small-donor illusion may even be functioning as a fig leaf, averting our gaze from the continued and intensifying stranglehold that big donors have on our democracy.

Jay Mandle, an economics professor at Colgate University, is the author of "Democracy, America, and the Age of Globalization."

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