Innovation Update

Return to Article

Lobby Reform Holds Risks for Obama, McCain

John Fout

But can the candidates really curb influence-peddling from business, and could their declamations help propel one of them to the White House?

Federal elections law prohibits corporations from donating money directly to candidates, but employees of those candidates remain free to do so. Enter lobbyists and bundlers -- powerful, well-connected people who can raise a great deal of money by influencing and rallying colleagues and others to donate to a cause.

According to the Center for Responsive Politics, the amount of money in the presidential elections that comes from businesses already totals close to $300 million -- much of it raised by bundlers. The financial industry leads all others -- including insurance and real estate -- in the amount of money donated to election campaigns, and Obama has outraised McCain in this sector by $19 million to $12 million.

What Obama Faces

In relative terms, Obama has a short political record. He served eight years in the Illinois State Senate and three-and-a-half years in the U.S. Senate. His record includes ethics reform in both of those legislative bodies. The U.S. Senate legislation forced politicians to name lobbyists who bundle for them. He has campaigned on changing the way Washington works, in particular making an effort to decrease the influence of corporate money and lobbyists.

Obama claims to have no lobbyists working on his campaign, though he has many former lobbyists working for him and an army of bundlers. One example would be his chief campaign strategist, David Axelrod. Axelrod formerly worked as a lobbyist for Exelon (EXC Quote), an energy company based in Illinois that is a leader in advocating for nuclear energy. Employees of Exelon have strongly backed Obama, donating more than $200,000 to his presidential campaign.

Obama may also face some backlash in the campaign for his past alliances in the rough and tumble world of Chicago politics. This week, a former supporter of his, Tony Rezko, was convicted on 16 out of 24 charges involving corruption and influence-peddling. Rezko had been more closely tied to Illinois governor Rod Blagojevich than Obama, but the Obama campaign clearly had concerns over the connection. In an effort to counteract the poor publicity of any ties to Rezko, Obama's campaign has donated more than $150,000 to charity, or the approximate equivalent to what the candidate has received from Rezko over the years,.

Nevertheless, Obama has convinced the Democratic Party to make a similar pledge of not taking money from lobbyists. Democratic Party Chair Howard Dean said this week:

"Our presumptive nominee has pledged not to take donations from Washington lobbyists and from today going forward the DNC makes that pledge as well. ... The American people's priorities will set the agenda in an Obama Administration, not the special interests."

The Democrats bet big on working a small donor base in the election to lead them to victory.

The financial support from small donors has been so amazing that many expect Obama could break his pledge to take public financing, a promise which he had issued last year before his advantage became clear. Choosing to do so would pose a risk. Going back on a pledge in order to limit financing represents a flip-flop on an important issue. If he chose to take public financing, his campaign would likely spin it, however, arguing the number of individual donors amounts to financing by the "people."

What McCain Faces

McCain has refused to cede the issue of reform to the Democratic nominee. He had expressed interest in challenging Obama to accept public financing for the campaign. Given that McCain has lagged in fundraising, it's an easy way to gain political advantage and take away a strength from Obama.

McCain has also become sensitive to the lobbyist issue. In May, his campaign issued a memo asking all staff members to reveal lobbyists ties along with potential conflicts and followed up by purging the staff of anyone who might hurt the campaign's image. Other important staff members like campaign manager Rick Davis and chief strategist Charlie Black have cut their lobbyists ties in recent weeks.

Despite his aggressive actions, McCain hasn't managed to remove the lobbyist controversy from his campaign. McCain relies on former Senator Phil Gramm for economic advice and serves as a co-chair for the campaign. Gramm remains a vice president at UBS (UBS Quote), a Swiss banking giant. A recent expose in Texas Monthly argued that Gramm has direct responsibility for the current subprime crisis. In December of 2000, Gramm inserted a late provision into an 11,000-page government re-authorization bill. The bill halted regulation of credit swaps and aided in accelerating the creation of financial devices leading to the present credit crisis. Furthermore, Gramm was responsible for doing away with Depression-era banking protections, which facilitated the merger of Travelers and Citicorp to become Citigroup (C Quote).

McCain has long walked a fine line on government reform. His original interest in reform came after his involvement in the Keating 5 scandal, involving corruption charges in the Savings and Loan crisis in the late 80s. He resurrected his career by becoming a reformer. This led to his work on campaign finance reform and the creation of the McCain-Feingold Act. The act attempted to limit the role of soft money by independent groups running advertizing. Provisions of the act were recently struck down by the Supreme Court for limiting free speech.

The legislation has helped McCain's image with independents but hurt him with conservatives. Many conservative special interest groups utilize advertizing. In fact, several of McCain's staff members removed their ties to anti-Obama 527 groups. Pundits have suggested McCain's history could splinter his conservative base.

This thesis may be tested soon. According to reports from The Hill, McCain has decided to work behind the scenes with Obama on a good government legislation joining Sen. Tom Coburn (R., Okla.). The bill updates previously proposed legislation called the "Google for Government" bill. It allows the public to track all government contracts and determine whether the contracts are the result of competitive bidding or earmarks. The backing of two presidential candidates may move the legislation to be passed.

It is laudable that the two Senators work together to improve government transparency. But both have to be careful of the political costs. Obama may lose an important issue that appeals to independents, while McCain has to be careful not to anger conservatives in his base.