Financing Think Tanks

Think tanks are defined by the Oxford English Dictionary as “a research institute or other organization providing advice and ideas on national or commercial problems.” In modern democracies, think tanks play a crucial role in economic decision-making. They help the public to understand both sides of important policy decisions whilst holding governments to account. They also help policymakers: governmental entities, such as the Low Pay Commission, often hire think tanks to make independent inquires on the consequences/feasibility of legislation.

However, many supposed “think tanks” are not as admirable as they might seem. Some are simply mouthpieces for nefarious political agendas, while others provide research tailored to the interests of their donors and clientele. We will call these supposed institutions fake tanks.

Fake tanks are wolves in sheep’s clothing; many disguise themselves as reputable institutions by taking on similar-sounding names or logos. Usually, their finances are misleading, or at best opaque. Right-wing think tanks, in particular, have a peculiar tendency to have hidden business connections, although perhaps this is not very surprising. Successful businesses maximise their profits and, consequently, are incentivised to reduce taxes and regulatory barriers. Lobbying the government is costly and leads to poor PR if leaked to the public – much better to go undercover via a fake tank.

These insidious methods erode the rule of law and the value of representative democracy. They also leave governments vulnerable to what economists call regulatory capture. This happens when policymakers prioritise private interests over social wellbeing, leading to a deadweight welfare loss to society. First identified by Professor George Stigler in the 1970s, regulatory capture arises because it is in the best interests of regulated firms to pressure regulators, while the general public will not usually have such specific motivations. Furthermore, individual actors (i.e. specific industries) find it far easier to coordinate and focus resources on targeting politicians, while the concerns of citizens are so widely dispersed that any collective action is difficult to organise and impossible to enforce. 

The concept is intimately linked to ideas from political economy, including corruption and rent-seeking. Rent-seeking refers to the practice of acquiring wealth without creating new wealth through the misallocation of resources and heightened income inequality. It leads to reduced economic efficiency, which historically has led to social unrest and national decline.  

Some fake tanks will also approach students, which is particularly dangerous. Many opaque think tanks, such as the Institute for Economic Affairs and the John Locke Institute, offer programs to aspiring economists. Whilst allegations of a hidden agenda cannot be proven (because of the very nature of their opaque finances), these two examples remain wide open to donors with vested interests, which taints their credibility.

In general, younger minds tend to be more malleable than older ones when in an educational setting that does not encourage them to challenge or discuss what they are taught. When these students become policymakers and politicians, they may fall victim to cognitive or cultural capture, also called non-materialist regulatory capture. This perhaps is the most chilling type of regulatory capture, where the regulator begins to think like the regulated industry.

If sufficiently captured by special interests, governments fail to carry out their role as market regulators. They may ignore or worsen market failures.

Progress has been made in recent years to target fake tanks. A non-profit charity, called Transparify (itself a think tank), is entirely dedicated to highlighting the importance of financial transparency when dealing with think tanks. Transparify provides “the first-ever global rating of the financial transparency of major think tanks.”

In 2017, Transparify found that there is growing “momentum towards greater transparency.” Many think tanks are eager to distinguish themselves from fake tanks, enthusiastically adopting proposals that allow the public to see their revenue streams. Although transparency may seem like an extra burden on think tanks, many welcome disclosure.

They also compiled a list of the worst UK think tanks based on financial transparency. The list includes:

–         Policy Exchange

–         Institute of Economic Affairs

–         Civitas

–         Centre for Policy Studies

–         Adam Smith Institute

–         International Institute for Strategic Studies

These British institutions “take money from hidden hands behind closed doors. Fuelled by over £22 million of dark money, these organisations collectively employ over 200 people in their quest to shape public debates and influence politics and policies.”

The report continues: “Most think tanks disclose who funds them because they have confidence in their ability to maintain intellectual independence and research integrity despite possible countervailing pressures, and are committed to playing by democratic rules – no matter who funds them in any given year. In contrast, the organisations discussed [above] seem to lack such confidence, in many cases apparently for good reason.” Many of these institutions appear respectable. However, their opaque finances cast serious doubt on their credibility.

In response to these accusations, the Institute for Economic Affairs said it does “not place a list of our donors in the public domain. It is a matter for individual donors whether they wish their donation to be public or private – we leave that entirely to their discretion.”

Over the last two years, Transparify appears to have fallen dormant: its last most recent publication was in 2018. Consequently, the burden of examining think tanks has now fallen onto the individual; only our curiosity can allow us to make balanced judgements. Even if it is a mild inconvenience, we should always try to assess the credibility of our sources and – if any information is hard to access – wonder why that is the case. Our judgements collectively form the basis of our economic and political system. It is important that we keep them safe from misinformation.

Photo by Sora Shimazaki on Pexels.com

One thought on “Financing Think Tanks

  1. Great you have highlighted this. I would really recommend a book called ‘Dark Money’ written by a reputable journalist which documents how billionaires particularly in the US have subverted democracy and helped prevent action on climate change using ‘thinktanks’ and other methods lead by the Koch Brothers.

    See https://en.wikipedia.org/wiki/Dark_Money_(book) for more.

    Like

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