- Neighborhood Effects - https://neighborhoodeffects.mercatus.org -

What would real reform in Virginia look like?

A couple of months ago, I blogged [1] about Virginia Governor Bob McDonnell and the gifts he and his family have received from businessman Jonnie Williams, Jr. The comments were eventually picked up by journalist Katie Watson, first in a column [2] and then in an interview with the local CBS affiliate [3]. Eventually the Richmond Times Dispatch invited me to turn the blog into an OpEd [4] and this last Sunday Bart Hinkle of the Dispatch elaborated on the point in an excellent post [5]. I suspect many readers will agree that Hinkle made the point far more eloquently than I:

Many have wondered why McDonnell, otherwise a paragon of rectitude, would take such swag. But nobody has asked why Williams would give it — because the answer is obvious. Star Scientific has not made a profit in a decade. But it might, if the governor were to place the weight of the state on the economic scales.…Virginia’s governor has a lot of quo to give whether or not he takes a fistful of quid.

Image by hin255 [6]

Image by hin255


In my view, Virginians need to think as constructively as possible about the sorts of reforms that would prevent scandals like this from happening in the future. Unfortunately, my guess is that the political response will focus—to use Hinkle’s words—on the quid and not on the quo. I believe this would be a huge missed opportunity.

In Virginia, gifts to public officials valued at $50 or more are permitted but must be disclosed, while gifts of any value to family members of public officials are permitted and do not need to be disclosed at all. Just about every article I’ve read on the matter emphasizes this point and I’d guess that a number of legislators are busy drawing up bills to change these laws as I type. For his part, the governor himself has indicated an interest [7] in changing the ethics laws, though he’s offered no specifics.

It’s understandable that this is peoples’ first instinct: If business owners are giving money to elected officials and their family members in return for special treatment from government, it seems only natural that there ought to be a law forbidding such gifts to elected officials and their families. I’m not opposed to such laws per se. But it would be a mistake to think that they are going to solve the problem.

Water flows downhill. And as long as elected officials are expected to dole out lucrative privileges to particular firms, particular firms will want to play in the political sandbox.

Even if Virginia adopted a complete ban on all gifts of any size to elected officials and their family members, I predict firms and their leaders would still donate to political action committees, they’d endorse candidates, they’d sponsor third-party political advertisements, they’d organize get-out-the-vote efforts, and they’d host fundraisers and campaign events. In an endless game of whack-a-mole, reformers could no doubt try to curtail these efforts too (with the First Amendment a likely casualty). But so long as businesses face such lucrative incentives to play politics, the reformers will always be one step behind.

A better—more permanent, and more direct—reform would strike at the heart of the quid-pro-quo problem. It would limit the government’s ability to favor particular firms in the first place. This would require the elimination of all targeted tax exemptions and credits. The state could then use the extra money obtained from closing loopholes to lower its corporate and individual tax rates. The state would also need to eliminate all programs that make grants or loans to particular firms (you can see a listing of such programs here [8]).

In one fell swoop, these types of reforms would instantly remove the incentive for firms to seek the favor of politicians. These reforms would also improve the economic climate of Virginia. Without government assistance, industries would be more competitive, lowering their prices and improving the quality of their products. Firms would pay more attention to trends in customer desires rather than political trends. This would help ensure that labor and capital would be allocated on the basis of genuine costs and benefits rather than political costs and benefits. And millions of dollars that are now wasted in seeking government-granted privilege could be put to more valuable uses.

This does not mean that the state would be powerless to entice firms to relocate here. Governors, legislators, and mayors across the state could and should work to make sure that Virginia’s tax and regulatory regimes are the least burdensome in the nation. Elected officials (and their spouses) could and should tout the state’s superior business climate.

And one of their talking points would be the fact that all businesses in Virginia get the same fair shake, whether they donate to politicians or not.