Lobbying is an element of a relationship based system as opposed to a rule based system. The fact that it exists in the US, arguably the most rule based jurisdiction in the world, is proof of the durability of this pre law system. Lobbying is a process where the lobbyist uses his relationship capital to influence events. Relationships are important as evidenced by the large number of former politicians, who become lobbyists.
The problem with lobbying is that like any relationship it is reciprocal. The person getting lobbied must receive something to maintain the relationship. In democracies it could be help with elections or campaign contributions. In most other countries, there is some sort of monetary incentive that helps build the relationship. However, even in the US as the recent Abramoff illustrates, valuable perks are often exchanges.
One of the reasons why relation based systems are less inefficient than rule based system is that there is no transparency. The is no way the market can determine the amount or extent of any lobbyist’s relationship capital. Since there is an asymmetry of information the lobbyist may be representing more than one principal. In Abramoff case, Jack Abramoff was representing both sides of an issue for clients with different interests. This type of problem would exist anywhere.
Recently the Carlyle Group illustrated another problem with lobbying. The Carlyle Group is having problems buying a company in China. It is being blocked by the interests of a rival Chinese company. The problem is that Carlyle wants to solve the problem by hiring a "global head of lobbying". This is sort of an oxymoron.
The whole point of lobbying is to utilize your connections or guanxi to gain access and build trust. By its very definition, these relationships and connections are local in nature. The lobbying of the local guy will always prevail over the global, because the local guy has built more relationship capital by being there and holding out the promise of reciprocity. A global presence might educate, but he is not in a position to reward. He may be on the next flight out. The local presence is part of the system.
However as I pointed out earlier hiring the local guy is not always a good solution. Agents, if it is in their best interest, will cheat. If the local agent feels that his relationship capital will be increased by betraying his principal, her will do so. The asymmetry of information between principal and agent in a relationship system guarantees that you will never know about it. This is especially true when dealing with another country.
The level of the problem depends on the country. In the US where laws and a free press limit the power of relationship capital, there is the possibility that hiring a lobbyist could be both safe and successful. On the other extreme, in China, there would be no way to determine the effectiveness of a lobbying effort. Besides conflicts and lack of transparency relationship capital is always based on Communist Party affiliation. So any proposition that goes against the perceived interest of the Party, will go no where
July 13, 2006
William Gamble
EMERGING MARKET STRATEGIES
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