Lobbyists and pressure groups

 

Policies that are either logical, or which are in the interests of the majority, or which keenly affect a minority, are often blocked by politically influential interests. This almost goes without saying.

Big business typically resists most forms of taxation and regulation. Religious lobbies take activist stances against social policy changes, even as society’s views change. Generally speaking, tobacco companies resist restrictions or anti-smoking campaigns that save lives but affect their profitability, although leading up to 2012 the Australian government put an effort into fighting them.

But what we sometimes forget is that, even when policies do get support and are introduced, this resistance still often has the effect of watering them down, and usually reducing their effectiveness. The reduced effectiveness also, politically, can appear to confirm the resisters’ original arguments against them.

Common-sense policies that would benefit almost everybody are resisted by politically influential lobby groups, and influential individuals such as business leaders.

The phenomenon is most prominent for economic policies, or policies that have an effect on private businesses. In some respects, you might even say that it’s fair enough for business, especially small businesses, to oppose things that affect their profitability. I agree: running a business is a tough thing to do, and when the risks pay off they should be rewarded. On the other hand, some might make the argument that a lot of businesses in the modern economy are rent seeking. I’m not taking either side here, I’m just stating a fact that, whether justified or not, policies will often be resisted by sections of the business community, to the point that the effectiveness of policies is reduced.

For example, the level of Australia’s proposed tax on mining super-profits in 2010 was substantially reduced, not to mention delayed, after an advertising campaign from mining companies. The mining companies’ campaign was even partly responsible for the then Prime Minister, Kevin Rudd, losing his job. In America, the influence of big business is particularly obvious, and in general American environmental regulations are weaker than they ought to be because of pressure from lobbyists.

In one sense, it is obvious that lobbyists or pressure groups have an impact on policy. Over time, I hope that electoral laws change so that politicians like Sam and her party are less dependent on business and other groups to help fund their election campaigns. Saying this, pressure groups may always, or for a long time to come, have an influence on political debate.

Still, the central point of this chapter is not only that pressure groups or influential lobbies prevent governments from implementing policies. More than this, they also force governments to compromise policies, to water them down, or restrict who they apply to. This makes the policies less effective overall, and it’s one of the top ten reasons why government policies aren’t effective.

Here’s two examples. Church groups in various countries have often achieved exemptions from anti-discrimination laws that mean that they are allowed to discriminate in the choices they make about who works for them. Most churches aren’t equal-opportunity employers. Business groups often achieve concessions to changes in taxation laws that make the laws more complex, and allow companies to pursue creative ways of avoiding paying tax.

There are many different types of pressure groups. Five main types that seem to be present in most countries include business representatives, religious or conservative social policy groups, environmental activists, labour unions, and ad hoc community groups. Of course there are other types, too.

My question is this. Think of some examples of these four types of groups, and tell me which of them do you think generally are a force for democracy, and which aim to limit democracy. Which of the groups promote the free participation of all people in society, whether it is in the workplace or community groups, or wherever? Which of these groups have the effect of allowing people to participate in society more, and which have the effect of restricting participation?

 

On the topic of interest groups, I always love reading about environmental lobby groups. Too often, they make the best stories about how lobby groups impact government policies and activities.

In 2004, after a long negotiation process, the New South Wales and Queensland state governments finally agreed on a route to build a new section of highway, crossing the border between the two states, called the Tugan Bypass. In 2004 and 2005 the governments undertook community consultation. The focus of concern in the consultation process from environmental experts and community members was on the impact that the new road would have on two local species: the endangered long-nosed potoroo population at Cobaki, and the tiny Wallum Sedge Frog.

At the time this conflict attracted the interest of journalists and was prominent in the media, and the campaign by the activists was effective. The governments agreed to a range of measures, including the following:

 

 

•         Compensatory habitat of 71.3 ha has been purchased, with a further 11 ha under discussion.

•         Replacement of large/medium hollows with nest/roost boxes within compensatory habitat areas.

•         Construction of three frog ponds to provide compensatory habitat for the Wallum Froglet and Wallum Sedge Frog.

•         Frog/fauna exclusion fencing to prevent road kill.

•         Construction of underpasses to facilitate safe fauna passage.

•         Focus on predator control, fire management and habitat restoration.

•         Exclusion zone clearly outlined on the site around wetland areas.

•         Rehabilitation and replanting plan for constructed wetland areas.

•         Reduce vegetation clearing and disturbance to a minimum via established ‘no-go’ zones.

•         Translocation of threatened, rare and regionally significant flora species.

•         Revegetation and rehabilitation using ecologically appropriate vegetation.

•         Protection of site significant flora.

•         Minimisation of weed infestation.

•         Temporary fencing to exclude fauna and establish buffer zone to protect flora.

•         Permanent fencing will be erected to protect and exclude flora and fauna.

•         Prior to clearing, areas will be fenced and surveyed for fauna species likely to be present within the project site by a qualified ecologist.

•         Equipment for emergency fauna rescue will be kept on site at all times.

•         Daily visual checks by site environmental officers.¹⁸

 

Because the new road would have an impact on the frogs, the governments agreed to a number of measures, including the revegetation of an area to help support them, and the relocation of frogs by environmental officers to three specially constructed concrete frog ponds. There were also measures, such as fencing, put in place to discourage the frogs’ predators. Here’s a picture of one of the frog ponds being constructed.¹⁸

 

 

 

Who can say, besides government officials, how much the three frog ponds costs? The cost of the overall project, however is listed on the government’s website. The Tugan Bypass, which is 7.5km long, including a 334m tunnel, cost $543 million. At the time this made it the most expensive road per kilometre ever constructed in Australia, at $72.4 million per kilometre.

The project is also an interesting case study because it crossed the border between two state jurisdictions. Despite this, the New South Wales government did not provide any funding for the project. Three governments had a stake in the project — two state governments and the federal government. In 2000, the two state governments made an agreement in relation to the project, but New South Wales later changed its mind about the project because of environmental concerns. In 2008, the New South Wales government sent a tax invoice to the Queensland Government for land taxes in relation to the project, which Queensland refused to pay.

The media and community pressure led to the building of the three concrete frog ponds. In hindsight, was that worthwhile? By 2009, an inspection of the ponds showed that there were no frogs in it. The media didn’t report this, presumably because they had forgotten all about the frog story — old news, now boring.

 

It seems obvious enough that pressure groups can make governments compromise their policies, or make them less effective. In the case of economic policy, however, it is possible to go deeper into the issue and analyse the main areas of conflict.

Over a century ago, Marx categorised the main objections that business often has to government policies. He called it ‘Capital’s mission’, arguing that business generally sought one of four things: control over the workplace and processes, the enforcement of private property rights, profitability as society’s criteria for all investment, and free market distribution of all resources.¹⁹ Of course, you don’t need to subscribe to all of the tenets and arguments of Marxism to understand the point. I certainly don’t subscribe to all the arguments of Marxism.

A few examples of these types of objections. A desire for control over the workplace is one of reasons why business resists ‘too many regulations’, such as safety or environmental regulations, or seeks to influence industrial relations laws that regulate how work is carried out, how disputes are resolved, and similar matters (ownership control).

The idea of business taxes, or increasing taxes or introducing new taxes, interferes with businesses’ right to keep their private profits (private property). Taxes mean that governments can provide services on the basis of need, such as hospitals or defence. Clearly we need public health services, but this is not something that is profitable, it is just provided because it is a service that is needed for many people who otherwise would not be able to afford to pay. Therefore, public health or other services are a form of non-market distribution of resources. Need, rather than profitability, is used in health as a criterion for investment.

Business will typically advocate ‘small government’; that is, most economic activity done by private businesses for the purposes of profit, rather than by governments providing things to citizens ‘for free’. Business often opposes subsidies or ‘hand-outs’ (non-free-market distributions of resources).

Of course, this doesn’t ignore the possibility that unreasonable demands can be imposed on business owners. Operating a business and making it profitable involves lots of work and a lot of risk. Where businesses face tough market conditions, they are right to ask governments for consideration of their situation before imposing extra costs or compliance requirements.

Probably the most significant example of a watered-down economic policy is the popularity of Keynesian economic policies following World War 2. Keynes proposed policies that reduced overall fluctuations in the level of economic activity, which in more free-market economic systems is prone to boom and slump drastically. He advocated ‘a comprehensive socialisation of investment’; that is, telling businesses when to invest and when not to. Under such an arrangement, the share market would never rise and fall, because the ability of people to invest or withdraw from the share market would be controlled.

Business was, naturally, not ready for this idea. It interfered with the right of companies to control their own money. As a result, the policies associated with Keynes that were implemented were merely increases or decreases in government spending at different times in the economic cycle, to try to stimulate economic activity. This works, of course, in a limited sense. The watered-down version of Keynesian policies was called ‘Bastard Keynesianism’ by academic Joan Robinson.

It’s not uncommon now to hear arguments that Keynesianism failed. As was noted above, business will sometimes cause a compromise to government policies, call for them to be watered down, and thereby be less effective. Then those who opposed the policies use this to argue that they were right in the first place.

Keynesian ideas are not entirely out of favour now, though. An even more watered-down approach to using government money to reduce fluctuating boom and bust cycles is the use of interest rate monetary policies. The overall amounts of money used in adjusting interest rates are relatively small. Adjusting interest rates is ‘like using a feather to try to stop a gale’.¹³

Right now it is interesting to see how governments in Europe and America are responding to the Global Financial Crisis and government debt problems. These countries clearly have followed a broken economic model. It is a model where the finance sector dominates. In America, the finance sector clearly lent money to people that could not afford to repay. The American government’s response was to bail out some of the banks, preserving the existing failed economic system rather than trying to change it. In Europe, the European central bank is playing with monetary policy tools, and the Euro countries are providing packages (money) to governments that are having problems paying their debts. Both America and Europe have been involved in quantitative easing, which is like printing money except it is done electronically, as a way of trying to manipulate the economic system into growing more.

These examples are clear signs that economists and political leaders are trying to save the existing economic system, rather than seeking to change or improve it. Those who benefit from the current system, such as the owners of the debt, want to preserve the current system. This current system is based on a free-market model that treats the supply of money as the main economic problem.

However, in Greece and Italy, perhaps the problem is caused by their governments’ inability to raise taxes? These countries are famous for having a weak ability to enforce the payment of taxes, mainly by companies and other types of business such as the Mafia (perhaps one of the most influential lobby groups possible!).

Perhaps, on the other hand, a more significant problem is that money in a free-market economic system is raised using banks, and then lent for any purposes that are profitable. In other words, banks lend money to institutions that waste it, rather than investing it in producing needed goods and services. Profitability is used as the only criterion for investment, and whether a bank will lend money. This means that a lot of money in the economic system may be spent on things that are profitable, but which do not actually add anything to the economy, do not contribute to infrastructure that might make the economy more productive and efficient, or are simply not needed.

For example, if a country has a certain amount of income to invest, should that country prioritise investment in speculatory activities such as real estate, the art market, or fads like web-based companies? To borrow the economists’ term, doesn't this ‘crowd out’ investment from areas of the economy where money is better spent, for example manufacturing, or in building infrastructure, or any form of actual production?

The German banking system provides a case study example of a different type of economic system. Germany has a lot of publicly owned banks, and unlike in Western countries with more free-market economic systems, very few banks are independent banks where their only business is banking for other companies or industries. The publicly owned banks exist not specifically to make a profit for their shareholders, but as a business or developmental bank, as well as to finance infrastructure and industries that generate exports. Some German banks are actually owned by manufacturing companies, for example the Volkswagen Bank and the Mercedes-Benz Bank.

The banks in America or Britain are treated as though they are just another type of business. In contrast, these forms of German developmental or industrial banks exist for the specific purpose of financing business. They prioritise lending for things that develop wealth for the country and create jobs.

Such a system is opposed by economists. The free-market system, which is not controlled in any way by governments, allows private investors to invest in banks and lend money to anyone on the basis of whatever will provide them the most profit. Unfortunately, such lending leads to property speculation and things such as credit card spending. Both of these are inflationary and reduce the national savings rate.

The big financial interests in America are motivated to maintain a system where they are allowed to make big profits on the basis of speculatory or inflationary activities, at the expense of the rest of the American economy. Following the global financial crisis and the debt crisis in Europe, banks and other finance companies pressured governments to pursue band-aid policies. They want governments to try recovery strategies based still on maintaining the current financial system at all costs. This includes bailing out banks, which is in effect paying them a reward for risky lending practices. Banks should not be rewarded for their casino approach to financing speculative activities rather than prioritising lending to real industries that actually create wealth and jobs.

In America and Britain, the banks have no incentive to lend money to industries that create lots of jobs. In fact, they have a disincentive. Their incentive is to encourage property speculation and similar activities, even though increases in demand for pre-existing houses and property are really just a way of re-distributing money to people who invested money in property before speculatory bubbles pushed prices up.

Banks shouldn’t be thought of as just any other type of business, existing to make a profit for their shareholders. Banks are a key part of any economic system. However, they are powerful enough to influence governments not to interfere with their business model.

It’s not only economic policies where resistance to what is the public good causes the government policy to be less effective, or encourages governments to pursue strategies that are less effective. Sometimes it might be church groups that seek exemptions from discrimination laws. Or it might be environmental groups that cause compromises. It might even be a different level of government or another country’s government that objects to a policy, and forces it to be rejected or watered down so that it is merely a token policy and barely effective. In other cases, politicians might need to appeal to particular community groups or sections of the community to retain their support for elections, which could reduce the scope of policies.

In many cases, these compromises or changes to policies may be justified. Nonetheless, the policy immediately becomes less effective. It also often creates complexity in policies, with exemptions, special processes for some people, or new opportunities to avoid paying tax. This may sometimes be justified, of course; nonetheless, complexity brings its own problems.

 

What should be done about resistance to policies that are in the public interest, especially from special interests groups? A number of strategies can be used by politicians, and by policy officers and members of the community.

First, timing is everything. For example, policies that aim to regulate the finance industry will be more supported by the public after or during economic recessions where it can be demonstrated that regulations are needed. The timing of the electoral cycle can be important, with politicians being more reluctant to take risks closer to elections. Within the public service, it is important to know whether the senior management at the time are likely to support a policy. In many other ways, timing is everything.

Second, make strategic demands during bargaining. The union movement, when making claims against business for improved wages and conditions, will often make ambit claims. This means that they will ask for much bigger pay increases than they really are hoping to achieve, and when negotiations bring the offered wage increase down, the end result may often be close to what the unions really wanted. In many other ways, ambit claims can be an important part of any negotiation.

Another version of ambit claims is where a policy proposal makes, say, ten suggestions, with five that are genuinely wanted to be achieved, supplemented by another five that are minor or unimportant. In negotiating, it is easy to initially fight strongly against any changes, but eventually relent and ‘compromise’ by agreeing not to pursue the five unimportant policies. In short, good negotiation skills are useful.

Also, if the group that resists the policies has good reasons for doing so, good relationship building skills, and skills in finding how to address reasonable and fair objections, are important.

If policies are going to be resisted, they should ideally be supported by someone or a group that is influential. If the group that would benefit from the policy is not organised, or is fighting internally, this restricts the ability of the policy to be introduced. In the longer term, groups may be able to better organise if they want to increase their ability to influence. Gay rights groups in Australia have generally been poorly organised, with too many independent advocacy or protest groups that don't cooperate closely.

Most importantly, politicians and public policy officers should learn more about alternative policies that have been tried in other countries. In New Zealand, government bureaucrats had little understanding of the interventionist types of developmental economic policies they were trying to implement. It’s quite common for lots of people to fall for the straw man argument, that the free-market economic approach is clearly the best approach because communism doesn’t work. This clearly ignores economic systems such as in Germany, Singapore, Scandinavia or parts of Asia that clearly do work.

To be effective, policies that are likely to be resisted by influential lobby groups should be well researched and well planned. This will help prevent them from being ridiculed, and help create public support for a policy. Policy proposals should follow a sophisticated ‘policy process’ to help them be successful.

 

 

Key points: ·        Policies that are in the interests of the country overall are often resisted by lobby groups. ·        Lobby groups can contribute effectively to government policy development, but often they cause policies to be compromised or watered down so that they are less effective. ·        The business community lobbies mainly for policies that: -   protect property rights (such as lower taxes) -   resist government interference in the workplace (for example to affect the wages and conditions of employees) -   promote market distribution of resources (such as through privatisation of government companies) -   promote profitability as the criterion for investment (rather than need). ·        It is often reasonable for business or lobby groups to resist government policies that impact on them negatively or make it difficult to remain profitable or viable.

Possible strategies for overcoming lobby group resistance: ·        Remember, timing is everything ·        Use strategic bargaining ·        Build relationships with stakeholders and lobby groups ·        Make sure policy proposals are researched and planned properly before they are proposed, to minimise criticism and legitimate objections