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November 8, 2013

Lobbying: Is it better to legalise than criminalise?

The way to handle lobbying is to either legalise it or reduce the discretionary power that the ministry holds over the contracts and let the markets prevail.

The name Niira Radia is synonymous with crony capitalism. However it is not just Radia and her firm that helped corporate biggies earn a favour with the government. The Supreme Court judges actually remarked that there are middlemen in “every nook and corner” of the government. This encapsulates the extent of the state in not just business but also areas of social welfare, where we have ‘middlemen’ and ‘middlewomen’ lobbying for specific legislation.

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Lobbying when it comes to business contracts only explains a part of the story; it ignores the larger issue of discretionary power, vested with the politician or the bureaucrat in a democratic set-up. It is this power combined with the overarching presence of the government in business that leads to lobbying. The late James Buchanan, through his public choice theory, argued that a bureaucrat will try to increase his sphere of influence because it is in his self-interest to do so. One of the ways of increasing this sphere of influence is obviously holding power to grant licenses, permits, quotas and other favours to businessmen. Is it any wonder then that in our multi-party democracy and coalition politics, parties try to snatch the plum ministries? What then makes a ministry important enough to negotiate deals within parties, you may ask? It is simply the ministry that has either a lot of tax payers’ money to spend– like ministries that control schemes and dole outs like rural development, social welfare etc. The others are ministries that handle big contracts related to oil and petroleum, roads, industries etc.

The maximum lobbying by businesses and social workers, also happens in these two departments. Whether a bill for food security or guaranteeing jobs for all, the lobbyists, lobby with these  particular ministries. And the ones promoting big business, lobby with the others. The truth though is that in the former, it is the taxpayers’ money being spent on redistribution. Though we are not sure about the money even reaching the poor, it is deemed acceptable. It is the lobbying for contracts that is deemed bad, even though it is something that a corporate company would be forced to do, owing to any lack of self-interest that a bureaucrat might have in granting a contract to a particular company.  Lobbying happens by states and politicians themselves for specific ministries or for statehood. Do we know that money is not being exchanged in that case? Bihar would have lobbied for “special status”. Whether it bribed its way to it or whether there was a quid-pro-quo in kind, we don’t know.

Now there are two ways to handle this, one, legalise lobbying as has been done in the US, or two, reduce the discretionary power that the ministry holds over the contracts and let the markets prevail. The so called “government failure”, a term coined by public-choice theorists to explain how some interest groups gain at the cost of the larger populace, can be solved if we reduce the need for lobbying. So instead of the government handling out licenses for all contracts, it could just be contracts between those who own the property and the companies who want to mine for example in case of coal auctions. This can be done after implementing a good property rights regime.

Legalising lobbying would be supporting what James Madison called ‘factions’ when he wrote the Federalist Papers during the American independence movement supporting the differing groups who according to him would battle each other out and balance differences. Normally banning something, whether it is alcohol or drugs doesn’t prevent it from being produced and sold, it just so happens that politicians and bureaucrats make more black money than legally. Similarly, lobbying currently in the absence of a legislation means ex-bureaucrats getting plum posts after quitting a ministry and using their influence for getting licenses, or firms making pay-offs to regulators than using the tender/bidding route to get contracts. Thus a lot of black money circulates in the system because of the ban. A legislation that sets rules of this might be able to actually increase transparency in the process of handling out contracts and lobbying firms can be brought under the RTI Act.

Another idea can be what Hong Kong does that is elect half of its MPs from trade groups. So out of 70 legislators in the Hong Kong Parliament, 35 are returned from functional constituencies like textiles, banking etc. to represent their interests. If we have a representative elected by the groups themselves attached with each ministry, or CII or FICCI representatives, it might help to make the process of tendering easy for example. The groups would hold greater accountability to the sectors and would be in a better position to advice on policy and selection than a minister or a bureaucrat who might not be a technical expert.

The point remains that Niira Radia should not be made to wear the albatross of being a lobbyist around her neck and paraded around when it is evident that under the table deals are happening within every ministry. The mistake she made was to do it through an established company so it could be tracked easily. If only lobbying was legalised, then this tracking for every contract would have ensured a more transparent regime.

Photo: topher 76


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