Column : Understand lobbying to regulate it

Written by Tarun Ramadorai | Updated: Jan 14 2011, 06:01am hrs
Political lobbying has been the subject of intense controversy in our country ever since the leaked Radia tapes first hit the headlines. The prevalence of lobbying is clearly not restricted to India: WikiLeaks alleges that there has been significant lobbying by parties as diverse as BHP Billiton (attempting to block the acquisition of rival Rio Tinto by Chinalco), the US government (encouraging the EU to allow GM vegetables), and the Vatican (encouraging nations to sign climate change accords).

Our government is now mulling the introduction of a legal framework to govern lobbying, which has heretofore been largely unregulated, except when it crosses the line into outright corruption. Most would agree that some form of lobbying serves a useful function, since government would find itself hard-pressed to accumulate all relevant information about complex legislative topics. Decisions taken without the benefit of such information would risk endangering the interests of one or other group of stakeholders without the ability for these groups to influence the decision-making process. So, banning lobbying outright doesnt seem feasible.

In the US, the practice is widely prevalent, with over 12,000 lobbyists spending over $2 billion in 2010 to influence policy outcomes. Of course the US is not precisely the right comparison for a parliamentary democracy with a whip system such as India (in the US, there is no hard party line that Congressmen need to toe, unlike in India). The UK may be a more reasonable comparison, given that a whip system operates there as well. Again, the UK spends significant resources on political lobbying activitiesthe Chartered Institute for Public Relations estimates that (in the corporate sector) some 14,000 people are engaged in public affairs activities, with a capitalised value of over 2 billion. This figure doesnt include the large commitment of NGOs and charities to lobbying activities.

Despite the large size of lobbying activities in both countries, contrary to popular belief, well-established legal procedures for disclosure of lobbying activities have been instituted only very recently in both the US and the UK. In the US, following the Abramoff scandal, in 2006, 2007 and 2009, legislation and executive orders were instituted to make contacts between lobbyists and government officials more transparent, and disclosures more frequent. In the UK, there are few legal restrictions on lobbying, and no mandatory disclosure by lobbying firms is currently required despite several recent cash for influence scandals. Rather, lobbyists are self-regulated, with an industry body, the UK Public Affairs Council, instituting a code of ethics for its members.

What would be the appropriate design for a system of lobbying in India Clearly, we need to increase transparency in governance, and ensure that contributions by lobbyists are made available in the public domain as a matter of record. However, other important regulations on lobbying expenditures are trickier to formulate.

First, we might think that there should be caps on total lobbying expenditures by any single institution, firm or individual. In the absence of such caps, there is always a fear that the wealthiest members of society, or firms that dominate their industries, can influence legislature that greatly entrenches their position. However, Che and Gale (American Economic Review, 1998) show that introducing caps on total lobbying expenditures could perversely increase total lobbying expenditures. The intuition for this strange result is that a cap (or indeed anything that equalises the costs faced by different lobbyists) effectively constrains the wealthier lobbyist, thus levelling the playing field. This, in turn, intensifies competition, and raises total lobbying expenditures. This increase in socially wasteful expenditure imposes a cost that is counterbalanced by the benefit of levelling the playing field. So, if we are to have a system of caps, which seems desirable, we need to think hard about the size of such a cap and the likely consequences in terms of socially wasteful expenditures.

Second, where should we look to regulate the influence of lobbyists Hall and Wayman, (American Political Science Review, 1990), comprehensively review literature that shows that campaign contributions do not seem to affect voting patterns in the US Congress. They posit (and find evidence) that the main effects of lobbying expenditures are felt during the drafting of legislation in committees, and by increasing the involvement of specific legislators. In other words, the actual laws as drafted are the main target of lobbyists, rather than simply voting in one direction or the otherthis is even more relevant in a whip system like India where voting is strictly controlled. This makes life even harder for policymakers seeking to regulate political lobbying since this channel is extremely hard to detect.

We need to think carefully about the right framework for regulating lobbying. Whatever system we ultimately devise will have to grapple with these tricky issues, among others.

The author is a financial economist at Sad Business School, University of Oxford