7 Business’s Involvement in Government

Alexandru Roman

Case Scenario: Zach’s original business idea 197

Introduction 199

Lobbying: Local, National, International 202

Sector Exchanges 212

Promoting Your Agenda Ethically 218

Analytical Case: Ethics involved in lobbying 221

Practical Skill: Lobbying government effectively 222

Summary and Conclusion 222

CHAPTER CONTENTS

CASE 7 SCENARIO

Zach’s original business idea

Zach graduated several years ago with a double degree in physics and engineering. Last summer, while helping Zoey with Happy Paws, Zach came up with a business idea of his own. If successful, the business will introduce a product and a service highly demanded on the market—an all organic pet product line, from foods and treats, to shampoos and medicines. The business concept is novel, with good potential for success. Zach was already thinking he could use all the blemished goods from his grandparents’ produce farm that weren’t suitable for grocers.

Unfortunately for Zach, the pressure of student loans, which he is now repaying, looms large over his finances. He doesn’t possess the funds or the credit history necessary to borrow money to start his business. He’d taken out that loan to help Zoey last year, too. Zach’s business idea is a long-term endeavor with a low initial return on investment; as such, most funding opportunities, such as raising capital from investors, currently seem unrealistic.

Zach’s idea doesn’t need much to become operational. The business would probably give him enough income to make his student loan payments. There must be something out there that could help. But what? For the first few years, until it

develops into a full-fledged, self-sustaining enterprise, Zach could work part time and dedicate the rest of his time to expanding his product line.

Thinking about his options, Zach remembered the concept of lobbying, to which he was introduced in his government–business relations class. Lobbying could be the solution to his situation. Zach had a hard time imagining he was the only graduate facing a similar dilemma; surely there were more like him. In addition, he remembered hearing that his city, Anyplace, had unveiled a new strategic plan that focused on business development. It dawned on Zach that the municipality’s interests and his needs (and the needs of many other recent grads) would align perfectly. The municipality could help local graduates with their student loans; in return, the grads would develop businesses that would help the local economy, attract investors, and could eventually evolve into large local employers.

With this in mind, Zach decided to bone up on the intricacies of local lobbying. He wondered if he could lobby himself or if he would have to hire someone. He was also unsure how long it would take to get a response. He did not even know whom he should lobby, or from what angle to approach the question. So many things needed to be answered. Zach was, however, excited for the first time in months that he may have come across a viable solution. His first step was to visit the municipality’s website and identify how to proceed with his plan in an ethical manner. He couldn’t wait to tell Zoey.

After scanning the website for Anyplace, Zach decided to visit the municipal Small Business Administration Office. Once there, he was introduced to the idea of small business incubators. Zach learned that Anyplace was among the cities that had small business incubators managed through its Department of Economic Development. Good news!

There were, however, several challenges. Although he met the basic qualification for an incubator award, it was highly competitive, and unlikely, as a first-time entrant, that he would receive it. Historically, the reviewers also favored graduates from the local college, and Zach had gone to Somewhere State. Finally, the decisions made by the community advisory board are rather political in character. All things being equal, those with political or social connections get the nod. Quality is necessary, as the saying goes, but not sufficient.

Still, not all was lost. In doing his homework, Zach found he indirectly knew someone on the committee, whom he could ask for “advice.” That would increase his visibility in the actual award meeting. There was another thing working in his favor. His father Zeddic was good friends with an Anyplace council member. He decided to find out if the council member would allow him to use his name as a referee. While Zach did not go to the local university, he did have a high-level contact at the local college where he had taken a summer course—another reference? Luckily, that college representative was the chair of the committee. Finally, Zach’s mother’s best friend was a freelance writer for the paper. He could write into the proposal his intent to get some free press for his business and the incubator program; his mother’s friend could also “conveniently” advertise the merits of incubators through other related articles.

198 Business–Government Relations in the Sociopolitical Arena

Zach now had a plan. He knew his goal, developed a strategy, and identified individuals who would help him get there. Everything seemed set for success. With all these things in his favor, one of the incubator awards was all but his. Yet something made Zach feel uneasy. Although everything he was doing was entirely legal and would be normal practice for anyone lobbying a certain issue, something still bothered him. Should he engage in advocacy to compete for the incubator award or should he leave the proposal to compete on technical merit alone? On the other hand, would the council appreciate the true merits of his proposal if they were not properly explained and pointed out?

It is within this context that Zach came face to face with an important lesson about the realities of the social matrix—science and business can rarely be separated from politics and there is a thin line between appropriate advocacy and unwarranted bias. Zach had had enough stress for today. It was time to meet Zoey and Tyler at Happy Paws.

Introduction

Regardless of what our personal perspectives or preferences might otherwise be,

the role played by government in the economy is far reaching and highly unlikely

to significantly diminish at any point in the near future. Government constructs and

manages the legislative and regulatory environment within which business operates.

One would be hard pressed to identify a legal economic activity that is not tied

directly or indirectly to a specific governmental activity. Indeed, any business

process is bound to the laws that regulate its field of operation. When considered

in aggregate, governmental actions become a critical variable in the equation of

business and economic success. A timely and orderly intervention by government

can make a difference in avoiding an economic crisis. At the same time, however,

unwarranted and misplaced governmental interference can also misalign the fragile

economic equilibrium.

Most of the popular debates regarding the interaction between government and

business could lead one to believe that the relationship between them falls in either

one of two extremes. Some might assert that business is meticulously controlled

by government through heavy regulation, while others might argue that business

routinely imposes its will on government. Although the former might be the case

within heavily centralized economies and the latter might occur on separate

occasions, most of the time, business–government relations are sure to be much

more complex than that. Extremes do exist, but so do golden middles. Government

gets heavily involved in business operations; nevertheless, business does also

command a great deal of influence in matters of governance.

The interaction between government and business is not a one-way street.

Influences, ideas, finances, and human resources travel with regularity in both

directions. In many ways, the business–government relationship can be described

Business’s Involvement in Government 199

as a dense network of interdependencies built on trust. Historically, the involvement

of government in business has received the bulk of public and academic attention,

leaving the other direction significantly underexplored. Yet, this does not mean

that the involvement of business in government is negligible or that it is some-

how inconsequential. Quite the opposite: business actively—and at times even

aggressively—gets involved in matters of government. In fact, within certain

contexts, especially in cases when government does not hold the necessary expertise

in certain matters, business becomes a de facto agent of governance.

Cornelius Kerwin and Scott Furlong, two scholars who are renowned for their

studies on rule-making, have suggested that the participation of private enterprises

in the design of rules, by which they will eventually be regulated, is often overlooked

and underestimated in terms of its impacts (Kerwin and Furlong 2010). According

to these scholars, many private sector companies, contrary to popular narratives,

are highly interested in regulation and often volunteer to Help governmental

agencies in their design. In some instances, since regulation can serve as entry

barriers, there is more push for regulation from business than from the government

itself. It is common, for example, that within an emerging industry govern-

ment might not have any expertise on the matter and might have to rely entirely on

private sector players to provide the knowledge and structure for designing a

specific regulation, or perhaps even allow the players to self-regulate. Currently,

there is a strong relationship between government, regulatory agencies, and the

industries that are being regulated. The strength of this relationship can be attributed

in part to the large involvement that business has in questions of governance.

Taken together, it would be a mistake to think that the involvement of business

in government is trivial. Even if this aspect of the relationship does not receive nearly

as much attention as the other side of the relationship, it is equally important.

Furthermore, its dynamics are sometimes difficult to trace and are fraught with

complexities. As a result, when analyzing the involvement of business in matters

of government and governance, one should be rather careful when jumping to

conclusions or making sweeping generalizations. Although the popular press might

periodically suggest there are many questions and concerns that could be raised

about the democratic nature of business involvement in government, there are also

many benefits that come with the existence of these relationships and inter –

dependencies. As such, there is much to be gained from a detailed and systematic

exploration of business’s involvement in government. When it comes to these sorts

of discussions, it pays to take a broad perspective and to consider the influences of

all the variables that come into play.

Government’s attention is, like the attention of international non-governmental

organizations (NGOs) for that matter, or any other valuable resource, limited.

Although by its very nature government has to attend to any issue that is of import –

ance to its citizens and business, there are many instances when government simply

does not have the resources or knowledge base to address all ardent issues at once.

In developed democracies, it is expected that all interests have the right to have

their concerns voiced. Within this context of limited attention and resources, ideas

and goals—regardless of whether they originated from the citizens or business—

200 Business–Government Relations in the Sociopolitical Arena

Business’s Involvement in Government 201

have to compete in order to make it onto the governmental or inter-governmental agenda. While an issue might be important, government or NGOs might not address it until it is made known that a specific problem is of great importance and needs to be addressed. The communication between government and non-governmental actors, then, becomes critical in the larger scheme of things. In order to estimate the needs of business and develop practical regulatory environments, government needs both citizens and business to actively participate in the decision-making process.

Neither citizens nor business interests hold a monopoly over government’s agenda. John Kingdon, a renowned public policy scholar, has suggested that the manner in which a governmental agenda changes, commonly known as the Multiple Streams Theory (see Exhibit 7.1), is an extremely complex process that encompasses both rational and incremental aspects. One of the key roles in the entire process is played by those who advocate, for their own purposes or in the name of others, the merits of addressing a certain issue in a specific way. These policy entrepreneurs vie for attention from legislators (or international NGOs) and attempt to push an idea through whenever a window of opportunity is opened. The success of any policy being passed in a given form is in large part hedged on the ability of these entrepreneurs to effectively communicate and advocate the validity of their per spectives.

EXHIBIT 7.1

The multiple streams of public policy

Over a period of four years, John Kingdon studied multiple cases of how public policy was designed in the US, interviewing a total of 247 policy-makers. By the end of his research, Kingdon had developed a simple, yet powerful, perspective on the process by which the governmental agenda changes and public policy is formulated. His primary purpose was to understand how social issues make their way into government’s agenda and how that agenda is modified.

According to Kingdon, the policy arena—particularly the federal one—can be envisioned as a space filled with a “soup” of ideas through which three important and independent “streams” of policy activity flow: the problem stream, the policy stream, and the politics stream. The problem stream consists of those social questions that are believed by the public and policy legislators to be problems that should be addressed by government. The policy stream entails all possible “solutions,” developed and advocated by professionals, policy communities, or interest groups, which are available for legislators to pick from when addressing a specific policy issue. Finally, the politics stream is made up of macro-political factors such as public mood, elections, or national and international events that create the environment for a specific legislative action. Each stream flows independently of the others and is guided

Lobbying: Local, National, International

Communication between business and government takes on many distinct forms. Some means are more effective than others, but collectively they all have a place within the realm of governance. Lobbying, controversial in nature and often the attention of media and Internet scrutiny, is perhaps the most widely known and easily recognizable form of interaction, primarily due to its history. Currently in the United States, lobbying is perhaps one of the most direct, fundamental, and salient means by which interest groups pursue their political agendas. Lobbying has been a staple of the American political landscape for a very long time, but it is now also becoming an important part of the political makeup of other democracies such as France and the United Kingdom (Rival 2012).

In general, lobbying can be defined as the process by which representatives of certain groups are attempting to influence—directly or indirectly—public officials in favor of or against a particular cause. Lobbyists represent a professional group that specializes in legislative or administrative advocacy. Their services can be pur – chased, like those of lawyers or contractors, by any individual, organized interest, organization, or government. The purchasers of lobbying services are typically

202 Business–Government Relations in the Sociopolitical Arena

by its own rules. Change can happen at any point in time within any one of the three streams without affecting the flow of the other two. For policy change to occur, however, all three streams have to join when a window of opportunity opens. Only then can government’s agenda change and policy be formulated.

At the heart of the dynamics behind all this lie the policy entrepreneurs. These policy actors, such as lobbyists, scholars, and policy communities, follow each stream closely and try to influence the flow. When a “window of opportunity” opens up, they move fast to push the social issues they are representing on the agenda or to make the case for their preferred solution to be adopted. The process is not always rational. Sometimes policy entrepreneurs have an existing solution and they search for a problem to which they could attach the solution; at other times, problems and solutions might be created for the sole purpose of advancing one’s career.

Agenda Change/ Policy Outcomes

Window of Opportunity

Problem Stream

Policy Stream

Politics Stream

referred to as lobbying clients. Assuming that there is a paying client, almost anybody, given the right set of circumstances and experience, would be able to legally engage in lobbying. Exhibit 7.3 provides a glimpse at the general profile of a successful lobbyist.

Lobbyists can effect legislative actions in a number of ways—by promoting candidates, policies, raising money, engaging in strategic advertising, building advocacy coalitions, polling, developing get-out-to-vote (GOTV) strategies, or recruiting volunteers (Thurber and Nelson 2000). One should be careful, however, not to assume that lobbying always targets legislative action. For some interest groups, no action—that is, no new legislation or reform—can be viewed as positive, hence a desired outcome. For those parties that enjoy an economic advantage, it might be convenient to maintain the status quo; as a result, such entities will invest heavily in opposing any sort of change that might jeopardize their current standings and ways of doing business. This type of lobbying is often called defensive lobbying.

At first glance, the nature of lobbying and the manner in which it works might appear misleadingly simple; this is far from being the case. One should not think of lobbying as mere expenditure intended to support a certain position. Simply put, lobbying is not a simple exchange of funds for the passage (or filibuster) of a given legislation (although, often that might appear to be the case). It is also to a certain degree wrong to think of lobbying as being nothing else but an exchange of money

Business’s Involvement in Government 203

The Lobby of the House of Commons, 1886, by Liborio Prosperi

EXHIBIT 7.2

Source: Wikimedia Commons.

204 Business–Government Relations in the Sociopolitical Arena

EXHIBIT 7.3

Profile of a lobbyist

Name: Tony Podesta, Founder and Chairman of Podesta Group

Hometown: Chicago, Illinois

Education: BA, University of Illinois at Chicago MA, Massachusetts Institute of Technology (MIT) JD, Georgetown University Law Center

According to a number of accounts, Tony Podesta is among the most influential Democratic lobbyists in Washington, DC (Bedard 2009; Eisler 2007; Lichtblau 2010). He is highly connected with Washington’s elite; in particular, he is believed to have a very close working relationship with President Barack Obama and his Administration (Bedard 2009).

Podesta started his career in Washington in 1970 when he came to work for Common Cause. From 1981 to 1987, he served as the founding president of People for the American Way. In 1988, together with his brother John, he founded the Podesta Group. The firm went on to become one of DC’s top lobbying and public affairs firms. Among others, Tony Podesta has served on the transition teams of Presidents Bill Clinton and Barack Obama. In the early part of his career he was most often associated with media clients and issues of public relations (Eisler 2007). With time, however, his client list became highly diversified. Some of the high-profile names for whom he has lobbied include British Petroleum, Lockheed Martin, General Dynamics, and Bank of America.

According to the Center for Responsive Politics (2013a), in 2012, Podesta Group had total lobbying revenues of $27,420,000. Its top three clients were Wells Fargo ($680,000), Lockheed Martin ($650,000), and the European Centre for a Modern Ukraine ($510,000).

for influence. The dynamics involved are somewhat more complex than typical descriptions would lead us to believe. To some extent, it is perhaps best to think of lobbying as a process of negotiation within a certain domain among a number of interested parties, with lobbyists acting as the representatives of some of the groups involved. Each party has its own interests that it wants to protect, since it most likely stands to lose if matters are not resolved in a favorable way.

As a rule, none of the funds spent by business on lobbying go directly to public officials; all the funds go to lobbying firms. The lobbyists use these funds to develop a case and a strategy on how to influence legislators on making a decision that would be favorable for their client firm. In order to do so, lobbyists engage in research,

reach out to political constituencies, and meet with administrative and legislative agencies. In this sense, lobbyists engage in a very important function; they supply public agencies, politicians, and their aides with a large amount of data that is used by legislators to reach more informed and educated decisions. By providing information to politicians and public agencies, lobbyists might indirectly save time and financial resources, which otherwise might have to be spent by public agencies to collect such data. Within the context of the overall process, given the fact that usually every organized interest will make use of lobbying services or will engage in lobbying on its own, the process develops into a negotiation rather than a money- for-legislation exchange. From this perspective, then, lobbying and lobbyists are an essential part of a healthy and effective legislative mechanism.

It would seem that there is not too much difference among lobbyists at first glance, but this is not necessarily true. Although lobbyists generally use a common set of tactics and have rather similar job descriptions, there are also many important differences among various types of lobbyists. Like many other professionals, lobby – ists become specialized within a certain area. Some lobbyists engage in defensive lobbying, while others search for opportunities within incoming legislation. Further – more, lobbying firms don’t always have the expertise to address every single issue in-house, so for certain issues, firms might have to go outside and hire someone else. As is the case with most endeavors, a lobbying firm’s previous suc cesses nurture future business. If a lobbying firm has proven to be effective in negotiating for their clients within a given policy domain, it is highly likely that it will continue to attract business from other interested parties for those types of policy questions. Once a certain level of trust and communication channels on a specific issue have been developed between parties, it is highly probable that these arrange ment will be resilient, in particular if a firm has shown to generate satisfactory results for both business and legislators.

There also are important differences between lobbying at the local, national, and international levels. At the local level, the questions addressed are often more limited in scope and more specific in terms of their outcomes. Local-level lobbying usually targets—again, directly or indirectly—procurement practices and ordinances. Lobbyists typically attempt to influence council members, city administrators, or public opinion through media campaigns or by attending public meetings.

The stakes at the national level are obviously much higher than those at the local level. At the national level, the number of competing interests is much greater than at the local level, which dramatically increases the level of complexity and ambiguity. As a result, lobbying is undertaken in a more systematic fashion—it is long-term oriented and takes on a more professionalized and specialized character.

Matters get even more complicated when it comes to international-level lobbying. National differences and the lack of one undisputed decision-making body add an additional layer of complexity to international lobbying that is not present at the national level. Those who lobby at the international level can approach a number of parties such as non-governmental organizations like the International Monetary Fund or World Bank, or can lobby foreign governments in part. Reaching consensus or change at the international level is much more difficult and expensive than doing so either nationally or locally. Lobbying at the international level seldom yields

Business’s Involvement in Government 205

immediate results and at times might take a decade for a desired change to take place.

Business has several decisions to make before engaging in lobbying (Rival 2012). First, it has to determine what kind of lobbying strategy is preferred—active, anticipatory, or passive. It then needs to decide on the number of issues to lobby and the desired outcomes. Usually firms either attempt to maximize gains or minimize losses. A third important decision that has to be made regards the entity engaged in the lobbying activity. For instance, businesses can choose between having internal lobbyists and hiring someone from outside. Firms also have the choice to lobby separately or collectively. In addition to determining who is going to lobby for the firm, the business has to also consider the target of the lobbying. Two particularly important questions are who (politicians, public agencies) or what level (local, national, international) the lobbying campaign will target. A final— and major—decision is the manner in which the lobbying will be done. There are several options available to business: they can use direct or indirect pressure, interact with legislators, or employ a combination of both.

One lesser-known fact about lobbying is that lobbyists’ work does not stop with the passage of a legislative package. Every piece of legislation that is ever created, even if it is hundreds of pages long, almost never goes into enough detail to account for all possible scenarios during its implementation. It is an accepted fact of public administration that public agencies have to interpret the ambiguity of legislative mandates, hence becoming active shapers of public policy. Legislators, for political reasons, habitually use vague terms and conditions; such tactics ensure that there will likely be fewer reasons to motivate a political impasse. Yet public agencies cannot rely on ambiguous language during implementation. They have to clarify what politicians were undecided about, couldn’t agree upon, or did not know how to resolve and therefore passed on to public agencies.

It is within this context that lobbyists often continue their work. In the same manner that they were involved in the design of a piece of legislation, they can actively participate in shaping its interpretations. The larger the room for discre – tionary interpretation, the more there is to gain from influencing public agencies’ perspectives. It is not uncommon with certain legislation, especially on highly technical topics, to let the public agencies decide on the majority of details. As a result, in their struggle to find the best way to implement a certain policy, public agencies regularly find themselves having to rely on lobbyists, among others, to provide them with additional information about the possible impacts of various scenarios. Yet one should remember that with the power to inform also comes the power to misinform. The same mechanisms that are brought into play by lobbyists to support a much needed policy can just as easily be triggered to kill an incoming reform or to mislead an agency in regard to any possible impacts.

In a very real sense, almost all major federal legislation in the US has been influenced—with significant parts even being written—by lobbyists. Lobbying is by any measure a big industry. According to the Center for Responsive Politics in 2012, total lobbying spending by clients added up to $3,304,408,348 ($3.3 billion), which is actually a 6.84 percent decrease from the peak spending of $3,546,997,235 ($3.5 billion) in 2010 (The Center for Responsive Politics 2013b) (see Exhibit 7.4).

206 Business–Government Relations in the Sociopolitical Arena

Business’s Involvement in Government 207

This is still quite a sizeable amount, representing spending of just over $21 million for every day that Congress was in session. The amount spent on lobbying in 2012 was larger than the Gross Domestic Product (GDP) of 33 countries in the world (The World Bank 2013). Yet, despite the fact that $3.5 billion is an imposing amount on its own, it still may represent only a very small portion of what is actually spent on lobbying activities. This number does not include funds spent on coalition building, advertising and media campaigns, grassroots or grasstops advocacy, research funding, or any other form of advocacy that is in essence lobbying, but is not necessarily reported as such. The $3.5 billion represents the amount disclosed by lobbying firms and clients due to extant regulation; there are many other types of lobbying spending that neither firms nor clients are required to disclose or that simply cannot be tracked accurately.

Along similar lines, although decreasing in recent years, the number of registered and active lobbyists in Washington is still relatively large at well above 10,000 individuals (Exhibit 7.5). According to the Center for Responsive Politics, there were a total of 12,411 registered and active federal lobbyists in 2012; this represents a 16.39 percent decrease from the 14,845 lobbyists that were active in 2007 (The Center for Responsive Politics 2013b). Again, just as for spending, this total does not include every individual who engages in lobbying activities. Many professionals regularly involved in what can be considered lobbying might not have to register as such. Hence, even if 12,411 sounds like a large number, in reality it may be only a fraction of the actual number of individuals engaged in some form of lobbying.

The US Chamber of Commerce is by far the leader in terms of spending among lobbying clients. The US Chamber of Commerce represents the interests of over 3 million businesses of different sizes, from many regions and from a variety of sectors (US Chambers of Commerce 2013). It is estimated that for 2012 alone it has spent $136 million on lobbying (Exhibit 7.6) (The Center for Responsive Politics 2013c). This is almost as much as the next six lobbying clients have spent on aggregate for the same period. In terms of lobbying firms, the numbers are somewhat more evenly distributed. Patton Boggs LLP ($45 million), Akin, Gump et al. ($31 million) and Podesta Group ($27 million) were the top three firms by revenue in 2012 (The Center for Responsive Politics 2013d). Judging by their revenues, these three firms have been the top lobbying firms since 2009.

Lobbying, Politics, and Influence

Common wisdom would suggest that money buys attention and influence, which eventually leads to desired outcomes (Green 2004). Although this seems relatively plausible, there is only scarce empirical evidence that this is indeed the case. For the most part, scholars tend to think that in a developed democracy the link between the two exists, but it is generally quite weak. For example, it has been suggested that the idea that campaign contributions by business lead to direct beneficial legislative outcomes is mostly a myth (Sorauf 1992). Quantifiable evidence that traces spending on lobbying to concrete benefits for the firms that have spent the funds is difficult to verify. Overall, there are many reasons why there is not more

208 Business–Government Relations in the Sociopolitical Arena

research on the topic; the most important, however, might be the fact that many of the variables are difficult to trace and objectively quantify. In fact, lobbying data was not readily available until the Lobbying Disclosure Act of 1995. The Act forced firms to declare their spending on lobbying services, which, for the first time, provided researchers with a systematic set of relatively reliable data.

Some of the more recent academic accounts do, nevertheless, find that there might be a strong link between what business spends on strategic lobbying, and eventual positive legislative outcomes. By some accounts, it was estimated that firms in the US that increase their lobbying expenditures by 1 percent in a given year might be able to reduce their effective tax rates, which is the actual rate paid once all deductions have been factored in. In other words, for each extra $1 spent on

Lobbying spending, 1998–2012 (in billions of dollars)

EXHIBIT 7.4

$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: The Center for Responsive Politics.

Number of unique registered and active lobbyists

EXHIBIT 7.5

0 2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000

Source: The Center for Responsive Politics.

Alternative Plan

Education Plan Plan Plan

lobbying, firms might receive anywhere from $6 to $20 in tax breaks (Richter, Samphantharak, and Timmons 2009). These reductions in effective tax rates come through such means as research credits or modified tax depreciation schedules for certain types of equipment and they are advantageous only for particular industries or just for a small number of firms (McIntyre and Nguyen 2004). Political connections are often, if not always, quite valuable for American business (Vidal, Draca, and Fons-Rosen 2012). The link between economic benefits and political connections appears to be even clearer in other countries. Studies have shown that in France (Bertrand, Kramarz, Schoar, and Thesmar 2007), Indonesia (Fisman 2001), Malaysia (Johnson and Mitton 2003), Germany, Russia, and many others (Faccio 2006), com – panies that have direct connections with political appointees stand to gain financially from such associations. See Exhibit 7.7 for an example of a lobbying firm’s claims.

Lobbying, both domestically and internationally, has been receiving increased levels of criticism and scrutiny in recent years. Part of the criticism might be unwarranted, as lobbyists do make for a convenient target when things go wrong.

Business’s Involvement in Government 209

The biggest spenders on lobbying in the United States in 2012

Lobbying Client 2012 Spending

US Chamber of Commerce $136,300,000

National Assn. of Realtors $41,464,580

Blue Cross/Blue Shield $22,489,532

General Electric $21,120,000

American Hospital Assn. $19,230,200

National Cable & Telecommunications Assn. $18,890,000

Pharmaceutical Rsrch. & Mfrs. of America $18,530,000

Google, Inc. $18,220,000

Northrop Grumman $17,540,000

AT&T, Inc. $17,460,000

American Medical Assn. $16,505,000

Boeing Co. $15,640,000

Southern Co. $15,580,000

Lockheed Martin $15,347,350

Verizon Communications $15,220,000

Comcast Corp. $14,750,000

National Assn. of Broadcasters $14,510,000

Royal Dutch Shell $14,480,000

United Technologies $14,444,750

Business Roundtable $13,890,000

Source: The Center for Responsive Politics.

EXHIBIT 7.6

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When blame needs to be assessed, individuals who are engaged in advocacy are labeled “lobbyists,” yet when lobbyists’ support and expertise are needed, they are conveniently called “stakeholders.” Part of the blame is, nevertheless, well deserved and has been raised due to valid and serious concerns. The events associated with Jack Allan Abramoff are a case in point. Abramoff, once a lobbyist for Preston Gates & Ellis and Greenberg Trauring, was the driving force behind one of the biggest lobbying scandals in US history. Due to the role he played in the infamous casino lobbying scandal, he received a six-year sentence in a federal prison in 2006 (Smith 2011). Abramoff was convicted on charges of mail fraud, tax evasion, and conspiracy to bribe public officials. He was released in December, 2010, after serving 43 months behind bars (Smith 2011; The Federal Bureau of Prisons 2013).

EXHIBIT 7.7

An example of lobbying specialization and claims

Patton Boggs describes itself as follows on its website:

GAME-CHANGING ADVOCACY AND LEGAL SERVICES At Patton Boggs, we go beyond the obvious. By combining legal expertise with lobbying know-how and business savvy, we offer insights and perspectives that others can’t. Over the past fifty years, we have established ourselves as a trusted partner and have formed strategic alliances with government and industry leaders within the United States and abroad. This collaborative approach means that we can represent our clients’ best interests through legal, legislative, and executive action. As a result, we are consistently ranked among the top law and advocacy firms.

A HISTORY OF INNOVATION Founded in 1962, we were the first major law firm to recognize that all three branches of government offered avenues to achieve our clients’ goals. What started as an international law firm specializing in global business and trade has since evolved into a full-service firm covering all areas of legal practice.

THE STRENGTH OF DIVERSITY The Patton Boggs team comprises more than 500 lawyers and professionals in offices around the world. Supported by a firm culture that encourages collaboration across political, geographical, and practice-area boundaries, our clients benefit from a dynamic group of problem solvers with access to cutting- edge resources and ideas.

Patton Boggs. Your partner in all matters where law, government, and business intersect.

Source: Patton Boggs website, 2014.

Business’s Involvement in Government 211

A number of other lobbyists, aides, and political actors who were implicated in the scandal, including US House of Representatives member Robert William “Bob” Ney (R-Ohio), were also found or pleaded guilty to various charges of unethical behavior as a result of their direct involvement with Abramoff. Even for those who do not follow American politics closely, the story and some of the names might be familiar, since it was the subject of the popular 2010 film Casino Jack, with Kevin Spacey playing Jack Abramoff.

Many members of the political elite, while diverging on other issues, are making a habit of agreeing when it comes to lobbying. President Barack Obama and former Alaska Governor Sarah Palin, for instance, have very little in common it terms of their individual and political profiles, yet they seem to agree when it comes to the role of lobbyists in Washington. At one point in time, the President was quoted stating that if “you don’t think lobbyists have too much influence in Washington, then I believe you’ve probably been in Washington too long” (Bacon 2007). In light of his beliefs, Barack Obama went as far as refusing, at least directly, to accept any campaign contributions from federally registered lobbyists.1 One of the primary points of the President’s dissatisfaction was associated with the “army of lobbyists” attempting to sabotage the passage of a bill that changed the practices in the student loan industry. Palin, too, has been very vocal in criticizing lobbying practices.

EXHIBIT 7.8

Lobbying by business example: Whirlpool Corporation

Whirlpool Corporation is an American manufacturer of home appliances. Its headquarters are located in Benton Harbor, Michigan. According to the company’s website, “Whirlpool Corporation is a leader of the $120 billion global home appliance industry” with its appliances being marketed “in nearly every country around the world” (Whirlpool Corporation 2013). Whirlpool markets such brands as Maytag, KitchenAid, Jenn-Air, Amana, Bauknecht, Brastemp, and Consul.

Whirlpool Corporation usually lobbies along a number of issues. A multi – national manufacturer, the company is interested and generally lobbies for such matters as trade, finance, taxes, and manufacturing. In 2009, 2010, 2011, and 2012, tax lobbying represented one of the top foci for the corporation. Taken together, during this period the company spent approximately $3.2 million on lobbying (The Center for Responsive Politics 2013e). The company, with the support of a strong Michigan political representation, lobbied for favorable tax treatment, in particular for tax credits. The company’s main argu ment revolved around the fact that it provided Americans with jobs. As a direct result of the lobbying efforts, Whirlpool managed to secure the renewal of energy tax credits for producing high-efficiency appliances for 2012 and 2013, with an estimated worth of $120 million (Rowland 2013).

According to her, among other things, lobbyists played an important role in the

lax regulatory oversight which eventually led to the failures of Fannie Mae and

Freddie Mac (Powers 2008).

Lobbying is an effective means of channeling governmental attention, but it is

also an extremely expensive one (see Exhibit 7.8). Only those who can effectively

organize or afford it can call on it. Moreover, on occasions lobbying has been used

to support actions that are not generally considered to be in the best interest of the

public. If one’s voice being heard becomes a direct function of the financial clout

one can command, this raises a serious problem. What happens to the interests and

needs of those who are not able to properly organize or lobby? Should they be

deemed as unimportant? Recently, a large number of political figures and scholars

have become very concerned about the nature of lobbying and about some of its

direct and indirect effects. Some have even gone as far as to equate with corruption

the growing power and resources being poured into lobbying in recent decades

(Harstad and Svensson 2011). Their main concern rests primarily with the fact that

linking governmental attention to lobbying expenditure can lead to significant

challenges and dangers to the overall workings of a democracy.

However, the moral dilemmas that are associated with lobbying are by no

means recent occurrences. Concerns about the voices of the majority and the

“haves” being heard over those of the minority and the “have-nots” are present

in all democracies and have troubled many great Americans. James Madison, the

fourth US President and the “Father of the Constitution,” asserted that there is

a degree of truth in the fact “that our governments are too unstable, that the

public good is disregarded in the conflicts of rival parties, and that measures

are too often decided, not according to the rules of justice and the rights of the

minor party, but by the superior force of an interested and overbearing majority”

(Madison 1787/2011). These powerful words remind us that for a democracy to

be successful, there is a need to strike a delicate balance between all interests

involved. It is not an easy balance to achieve or maintain, and yet, it is an

indispensable one.

Sector Exchanges

In typical discussions of business–government interdependence, the two sectors are

often depicted as clearly separable. Indeed, it is much easier to think of the public

sector standing on one side of the aisle and the private sector on the other. For

simplification purposes this dichotomy is very practical and useful, but it also

introduces a lot of ambiguity. It is not always clear or easy to determine where

government ends and private sector begins. Similarly, it is difficult to decisively

delineate the difference between what makes something of public interest or of

private interest alone. Philosophers and public administration scholars have struggled

with these types of questions for centuries and it is highly unlikely that they will

provide a completely satisfactory answer any time soon. What is important to

remember here is that the relationship between business and government is much

more fluid than is typically portrayed by general accounts.

212 Business–Government Relations in the Sociopolitical Arena

Hiring Former Officials from and into Businesses (The “Revolving Door”)

Many individuals who are currently employed in high-ranking positions by governments have at one point in time worked in the private sector. Many of them, once they leave their public positions, will return to jobs in the private sector. Most of the time these individuals will return to positions with the same companies that employed them before they assumed office. This practice of hiring former officials into and from businesses is known as the “revolving door.” It is a legal and accepted practice for a number of governments around the globe.2

There are several important rationales for the continued existence of such practice. First, business lies at the foundation of any economy. The livelihood of any country is highly dependent on how well its economy performs. In order for the economy to perform as desired, it is critical that government is able to understand the needs of business and communicate effectively with the private sector. Hiring public officials who have long tenures in a given sector or industry allows government to tap into their experience and networks when attempting to fulfill its role. Having former business leaders on board maximizes the chances that government and business can communicate effectively.

Second, it is often believed that officials with extensive private sector back – grounds can bring expertise that otherwise might not have been available to government. These officials can provide guidance and insights into how to develop legislation that would better serve the needs of the overall economy.

Business’s Involvement in Government 213

A lobbying cartoon

EXHIBIT 7.9

Source: www.cartoonstock.com.

Alternative Education Plan Alternative Education Plan Alternative Education Plan Alternative Education Plan

Plan

http://www.cartoonstock.com
214 Business–Government Relations in the Sociopolitical Arena

Third, it is expected that public officials hired from business would bring with

them not only new perspectives, but also new practices that would allow them to

reshape—and perhaps even reform—some administrative processes. Incoming

Presidents regularly use the political appointee positions available to them as

mechanisms to redesign, reshape, or refocus certain public agencies.

Finally, public officials are hired from business in order to serve as checks for

the agencies or administrative processes of which they are put in charge. The new

officials who come in with a business background have no alliances to the public

agency or institution they are supposed to oversee. In this sense, they are not

obligated to be loyal to any outdated practices or personnel who might not be

performing up to par. As a result, the new officials will not abide by existing

unwritten rules, since it is highly unlikely that they will be aware of them. By not

being in touch with their agencies’ informal cultures, they can check and restrain

their actions when agencies might act outside of the parameters that were envisioned

by their mandates.

The motives for the private sector hiring public officials, regardless of whether

they have a previous business background or not, are in many ways similar to those

behind hiring business people into government. Throughout their government

employment, individuals learn a great deal about how government works. When

they are brought on board by businesses, they can use their knowledge about the

dynamics of government to help their new companies in dealing with government

in a more effective way. Among other things, they can ensure that businesses remain

compliant with the regulations that govern them. In addition, bringing on board

former high-ranking public officials can lend important levels of reputation and

legitimacy to companies hiring them. By employing such officials, companies are

perhaps also increasing their chances of obtaining positive results in their future

contacts with government. Taken together, there are a great number of benefits

that government and business can receive from exchanging expertise by means

of employing experts from one another and by maintaining open channels of

communication.

The cumulative effect of the revolving door is rather impressive (Exhibit 7.10).

According to the Center of Responsive Politics, President Barack Obama’s

Administration employs at least 390 individuals who have “passed” at one point

in their careers through the “revolving door” (The Center for Responsive Politics

2013f). George W. Bush’s Administration employed 665 such individuals (The

Center for Responsive Politics 2013f).

Along similar lines, a total of 79 out of 118 members of Congress who lost

their bids for re-election or left in 2010, and 44 of out 97 who have done the same

in 2012, have found employment elsewhere, as illustrated below in Exhibit 7.11

(The Center for Responsive Politics 2013f). Most of the time, their new positions

were in the private sector, either with lobbying firms or a lobbying client. In 2007,

the Washingtonian magazine comprised a list of the top 50 lobbyists operating in Washington (Eisler 2007). Out of the top 50 lobbyists, 13 were previous congress –

men, three were family members of congressmen, 21 were former staffers, and only

13 had no explicit government affiliation.

Business’s Involvement in Government 215

The hiring of former officials into and from businesses is not without negative aspects. Questions are often raised about the conflicts of interests that arise in such cases. For instance, it is hard to believe that a political appointee could indeed remain unbiased and objective if assuming a position with an agency that regulates his or her former employer. On one hand, the public agency might be in dire need of the expertise that the appointee brings; on the other hand, there are many ways in which former loyalties can affect one’s decision-making. Political appointees with a business background might have the incentive and the opportunities to influence procurement practices, regulation, oversight, and governmental strategic planning in ways that would favor, directly or indirectly, their former industries or companies (Leaver 2009).

By many accounts, “schmoozing” government officials in order to obtain procurement contracts is a common occurrence in Washington (Palmer 2005), and

The number of “revolving door” professionals by agency

Agency “Revolving Door” Professionals

White House 1,118

Department of Defense 582

Department of Commerce 464

US House of Representatives 400

Department of Army 340

Department of Health & Human Services 332

Department of Agriculture 266

Department of Justice 236

Executive Office of the President 220

Department of Treasury 214

Department of State 212

Vice President’s Office 182

Department of Energy 164

Federal Communications Commission 160

Environmental Protection Agency 149

Department of Transportation 145

Office of US Trade Representative 138

Office of Management & Budget 135

US Diplomatic Missions 128

Obama–Biden Transition Project 122

Total 5,707

Source: The Center for Responsive Politics.

EXHIBIT 7.10

216 Business–Government Relations in the Sociopolitical Arena

appointing former business leaders to political positions might only further facilitate the process. Moreover, at some point, many business professionals will most likely return to working for the private sector. Given that their former employers may well become their first choice once they leave government, it is only rational for them not to burn the bridges connecting them to the companies that employed them before assuming their official position. In order to maintain the possibility of a swift return into business in the future, these public officials might be inclined toward providing favors for their former companies.

Another, less often discussed, point of concern with the revolving door phe – nomenon is that the time that individuals from business spend in a government position gives them the opportunity to gain intimate knowledge about how government works. These experiences allow them to understand better how to maneuver the administrative and political environments, hence increasing the probability of successfully obtaining a desired decision for their companies once they return (Merle 2004). In addition, serving as political appointee provides the fertile ground for developing working and personal networks. These new relationships can be exploited at any point in the future should the need for a favor arise. During their government employment they can learn specific details about the competitors of their previous employers. They can also acquire subtle details about how decisions are swayed one way or another; for instance, what criteria are used by government to award a certain type of contract or to allocate a certain type of spending.

Once they return to the private sector, these former public officials can use the information and knowledge they have collected during their tenures to help their new employers land lucrative contracts. The information, especially when it deals with competitors or future governmental actions, can be very valuable for any company in terms of its strategic placement. For instance, if government is expected to invest heavily in a certain type of equipment or service at some point in the future, but only a few individuals are aware of this, then the companies that have access

New positions for former members of 111th and 112th Congress

EXHIBIT 7.11

31.6%

22.8%

5.0%

20.3%

11.4%

8.9% Lobbying Firm

Lobbying Client

Private Organizations

Federal Government Agency

State Government

Political Action Committee

Source: The Center for Responsive Politics.

to this insider information will be in a greater position to profit by supplying the new demand. Given that private sector salaries are much higher when compared to public sector service, many public officials might decide “to cash in” their government experience and connections (Public Citizen 2005). Many scholars are extremely concerned that the prospect of a huge payoff post-public-employment might distort the motivational frameworks for those who aspire to work for government, which in the long run could change the type of individuals attracted to public service (Besley 2005; Kaiser 2009; Mattozzi and Merlo 2008).

Regardless of its wide existence in practice, one should not underestimate the level of disapproval that “revolving door” practices can sometimes motivate. In fact, President Barack Obama’s 2008 election campaign was in large part hinged on fighting extant lobbying and “revolving door” dynamics. On his first day in office, on January 21, 2009, the President signed Executive Order No. 13490—Ethics Commitments by Executive Branch Personnel (Obama 2009). The order imposed a ban on gifts from lobbyists. It also, among other moves, extended the “revolving door” ban to two years. This meant that all new employees, who were not lobbyists before their appointments, would not be able to participate for two years in matters that were substantially related to their former employer or client. The ban was also valid for a two-year post-employment period. The restrictions imposed by Executive Order on former lobbyists entering new positions with government were even stricter. Judging by the White House’s visitor access records, however, it seems the order has had little effect in terms of significantly diminishing the communication and meetings between public officials and their private counterparts (Sunlight Foundation 2013; The White House 2013).

Placement of Electoral and Appointed Candidates with a Business Perspective

Although there are no conclusive results to support this (Goodsell 2004), stereo – typically it is believed that private sector, pay-as-you-go structures are much more efficient than public bureaucracies. Throughout the years, a number of reforms have attempted to make government run more like a business. An example of such reform initiatives was the “Reinventing Government” movement in the 1990s. The initiative itself was inspired by a book published in 1992 by David Osborne (consultant) and Ted Gaebler (consultant/practitioner) (Osborne and Gaebler 1992). The reform sought to transform government under business-driven tenets. To this end, many professional business practices, philosophies, and routines were brought in from the private sector and applied to public administration. Often these practices were imported without consideration of the fact that public service and private sector work differ in important ways in their underlying ethos (Denhardt and Denhardt 2007). Even if the actual movement wasn’t a success (Denhardt and Denhardt 2007), the reliance on private sector expertise and professionals for purposes of governance has not stopped. It will probably always be the case that for one reason or another, private experts will find their way into high-ranking government positions with interests in privatizing education, social security, parks, roads, prisons, and other public services.

Business’s Involvement in Government 217

Every President who takes office is faced with the similar challenge of how best to fill the federal administration with political appointees. There are many important implications that ride on these decisions. The presidency and its effectiveness in political maneuvering and policy implementation will in large part depend on how the available positions are filled. Business, with its leaders and professionals, provides one of the main resources of expertise that the President can tap into for this purpose. The decisions on whom to appoint are not solely based on expertise, however. There are many other variables that enter the equation when deciding on a specific political appointee. Politics usually play a significant role in deciding on which business professional to appoint. Presidents normally use such appoint – ments to steer the administration within a certain philosophical direction. Given that most appointees from business lack an attachment to public agencies’ histories, they might be much more willing to stir things up and control and direct public bureaucracies in a manner that is desired by the President. In this respect, the placement of appointed political candidates with business perspectives serves the important political function of refreshing adminis trative practices and reshaping administration under the vision of the incumbent President.

In addition to political appointees, many individuals come into office through the means of the electoral system. At times the majority of the citizens within a given jurisdiction might decide that an individual with a business background might better represent their needs and would improve the manner in which the business of government is undertaken. If there is a strong support for such a candi date, s/he will win the elections and bring her or his perspectives when assuming office. Electoral candidates who run on these types of campaigns usually claim that the knowledge and habits they have developed through their years in business would allow them to transform government and help find improved solutions to existing social issues.

When reviewing all the ways in which business can be involved in governance, it becomes fairly obvious that, in sum, business has an extensive access to government and a vast impact on its overall decision-making. It would be misleading to claim that government does not listen or react to the needs of business. On the contrary, government is well aware that in order for it to operate as envisioned by its design, it needs to have a strong working relationship with the private sector. Allowing business to lobby its interests and keeping the doors open for professionals to move between business and government ensures that business remains involved in governance and government remains aware of business developments. Although such practices can often raise concerns due to unethical behaviors on the part of some individuals or firms, overall such arrangements have been shown to work fairly well.

Promoting your Agenda Ethically

Any pluralistic democracy is paradoxical in nature. On one hand, its structures allow for many voices to be heard; on the other hand, however, the more voices there are, the easier it is for them to drown in their own collective buzzing. As the number of voices increases, it becomes critical that there is a certain harmony in their timing

218 Business–Government Relations in the Sociopolitical Arena

and resonance. The latter cannot be achieved without trust. It is important that citizens trust their government to make wise decisions about what, when, how, and to whom to listen. Trust lies at the foundation of the smooth and effective operation of any country, its business, and its government.

In the last few decades public trust in government has unfortunately been steadily declining. One of the primary reasons behind this decline can be traced back to the way in which the lobbying industry, including the “revolving door,” works (Jacobson 2011; Lessing 2010; Maskell 2007). In the United States, the system of checks and balances, the presence of independent watchdogs, and the free press are highly likely to prevent major fraud and corruption from occurring. Still, sometimes they might not be enough. Recent times have seen several important steps being taken in order to improve political conditions and alleviate public concerns. These actions were designed to ameliorate some of the negative aspects of lobbying and the “revolving door” practice by imposing additional constraints and requirements through new regulation.

The 1995 Lobbying Disclosure Act (LDA) represents one of the more notable efforts to instill structure to lobbying in Washington. LDA defined a federal lobbyist as someone who is employed or retained by a client for compensation, has made more than one lobbying contact for his or her client, and spends at least 20 percent of his or her time working on lobbying activities for a client during a three-month period (United States Senate 2013). The LDA also defines the term “lobbying activities” as “lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others” (United States Senate 2013). The LDA was followed by the Lobbying Transparency and Accountability Act (LTAA) of 2006 (The Library of Congress 2013a). Among other things, the Act amended some of LDA’s language and requirements and added further restrictions and disclosure obligations on lobbyists and their lobbying activities.

In 2007, an additional effort to improve some of the conditions associated with lobbying and the revolving door phenomenon was made by passing the Honest Leadership and Open Government Act (HLOGA) (The Library of Congress 2013b). The Act attempted to limit or even exclude revolving door practices, to increase transparency, and to minimize the use of privately funded gifts and travel (The Library of Congress 2013b). All three legislative acts, LDA, LTAA, and HLOGA, require lobbyists to register and to disclose the identities of those whom they are working with or attempting to influence. Furthermore, lobbyists are also expected to disclose the subject matter of their efforts and the amount of money spent for such purposes. It is important to note, however, that the current definition of a “lobbyist” under LDA, LTAA, and HLOGA is rather narrow and does not account for every individual who might otherwise engage in lobbying.

Although not lobbyists by definition, there are many other individuals who interact with legislators, through testimonials, participation in rule-making, or via personal contacts, and attempt to influence their decisions in terms of public policy. Given that there are so many different means by which business can make its interests heard, the reported dollar amount spent by business on lobbying

Business’s Involvement in Government 219

(as illustrated in Exhibits 7.3 and 7.6, above) might only be the tip of the iceberg in terms of business’s involvement in government. Further, the actual number of individuals engaged in lobbying activities, between registered and unregistered advocacy activists, might well be over 100,000. It is simply too difficult to come up with an exact estimate, since the line between lobbyist and policy advocate is blurred. In addition, it is not totally clear how strictly the three legislative acts discussed above are enforced in reality; enforcement appears to be particularly lax when it comes to post-employment restrictions (Rasor and Baumann 2007). On many occasions, newly elected officials who would otherwise have to obey the restrictions imposed by extant regulation, can obtain waivers that would allow them to directly deal with their former employers as soon as they assume office.

The most important thing to remember here is the fact that business, through its lobbying activities, remains an indispensable part of the legislative process. The nature of the political system and political decision-making in a pluralistic democracy is such that even with all its associated negative aspects, business expertise and involvement in government is needed. It is needed to get issues on the agenda, to shape the eventual policy and solution, and to pass the corresponding legislation. As such, it is difficult to envision that even the most earnest of future reform efforts could ever remove inter-sector placement, lobbying, or lobbyists from the policy scene. It is always difficult, if not simply impossible, to get rid of something or someone that you need.

However, it is critical when promoting a given agenda that one does so in an ethical manner. In the long run, everyone—including the system as a whole—stands to lose more than they gain if those who advocate for a living are not guided by an ethos of ethics. Without lobbying, certain issues may never reach the governmental agenda and hence remain unaddressed. It is within this context that lobbying becomes a vital dimension of governance. Lobbyists also facilitate communication between the legislative bodies, public agencies, and policy communities, increasing the probability of a policy being successfully passed. Similarly, without lobbying and the “revolving door,” government would have less access to expertise, which would mean that the resulting policy might not be as effective as it could otherwise have been. Serious problems arise, however, when individuals engage in lobbying activities with a total disregard for the needs of others, without fully considering the impacts of their advocated position, and without following basic ethical principles. The more frequently that unethical behavior on the part of advocacy activists is observed, the less trust citizens will have in democratic institutions. Trust in government is an extremely valuable, but fragile, resource for any democracy; it cannot be nurtured, nor can it grow, if citizens believe that government is responsive only to a handful of elite interests.

Unethical promotion of an agenda might be effective in the short run, but over time the negative consequences of unethical behavior will take a toll on an individual’s standing. Any small gains that might have been made initially can be quickly erased by the negative attention that unethical advocacy can bring to an issue. As lobbying can be characterized as a negotiation, it cannot produce the expected results without all those involved respecting the fundamental tenets of the democratic process.

220 Business–Government Relations in the Sociopolitical Arena

ANALYTICAL CASE: ETHICS INVOLVED IN LOBBYING

A large parcel of land in the city of Ethicsland has become available for development. The property is conveniently located near the business and shopping center of the city. Many of the city residents believe that the downtown lacks enough green space, and the large parcel provides the perfect opportunity to address this public need. Previous city councils had attempted to correct the situation, but this is the first time that a real opportunity has presented itself. The Mayor of Ethicsland, Ann Principle, knows that most of Ethicsland’s residents would be in favor of the parcel being developed into green space; however, she is also aware of the city’s financial needs, and knows the city council would be open to listening to other proposals, particularly those with revenue-generating potential.

Given its central and possibly lucrative location, the parcel’s availability has attracted a lot of attention, especially from local businesses and developers. Although the issue has yet to reach the council’s agenda, the matter has motivated a lot of behind-the-scenes interaction. The Mayor, as an important decision-maker, has become the target of a number of advocacy efforts. Ann has been contacted by city residents, environmental activists, business lobbyists, and even state officials. A decision that appeared so clear in the beginning, has become increasingly ambiguous and contentious.

In all her years of public service, Ann has never before felt this overwhelmed and in need of advice. When she received an invitation for lunch from Elizabeth Craft, her best friend whom she hasn’t seen in a long time, she was very pleased. Elizabeth, besides being an old friend, was also a former public official with extensive experience on complex public matters such as the one Ann was facing. Given their common past and the trust that she had in her friend, Ann is sure that this lunch will be beneficial in terms of helping her make a final decision on the parcel. There is, however, one thing that makes Ann uneasy. After her last stint in public office, Elizabeth occasionally engaged in lobbying efforts for local construction firms. Ann isn’t sure whether the timing of Elizabeth’s call was purely coincidental or related to her lobbying activities. Still, Elizabeth is her best friend—can Ann really doubt her?

There are several ethical questions that enter the equation in this case:

1. Should Ann accept the lunch invitation from Elizabeth? 2. Should the Mayor consult with her best friend on a matter of public interest? 3. Should the lunch and the conversation during lunch be made public? 4. Is it morally acceptable for Ann to accept a lunch invitation from an individual

whose most recent professional involvement was in lobbying? 5. Should Ann allow Elizabeth to pay for lunch? 6. What if during lunch Elizabeth does not bring up the matter, but when Ann asks

her opinion on it she offers advice that would be favorable to developers for whom Elizabeth has lobbied in the past?

7. What if Ann ends up following Elizabeth’s advice—would that be morally acceptable?

Business’s Involvement in Government 221

222 Business–Government Relations in the Sociopolitical Arena

SUMMARY AND CONCLUSION

1. Business–government interaction is extremely complex. It is by no means a one- way endeavor. Similar to how government is routinely involved in private sector matters, business is often involved in governance. The involvement of business in government takes on numerous forms. Lobbying and inter-sector hiring are the two most common and well-known approaches by which business gets directly involved in policy decision-making.

2. Lobbying can be understood as the process by which a given interest group or policy community tries to influence the perspectives and eventual decisions of legislators and administrative regulators. In many ways, lobbying is a negotiation

PRACTICAL SKILL

Lobbying government effectively

Given the limited resources at the disposal of government, it simply might not be able to address all the complex issues that it is facing at one particular point. At times, even some of the most deserving and publicly critical issues might receive little attention from government. In addition, the nature of a democracy is such that major decisions take time, significant political regard, and concerted effort. Within this context, lobbying becomes an important mechanism that can be employed to correct the situation.

The number of issues that concomitantly vie for government’s attention— the decision of which issue warrants immediate attention and which should be left for later—is not easy and can quickly become a highly con tested political process. Although each case is different, many of the dynamics and strategies are common for lobbying activities at all levels. In order to effectively lobby, there are several general steps that should be followed:

• Become familiar with all local, state, and federal legislation guiding lobbying practices

• Develop an extensive body of expertise on the subject • Decide on the general lobbying policy and strategy • Bring together and align all the policy communities interested in the matter • Identify who will engage in lobbying and who will be targeted by the

lobbying efforts • Develop policy networks, communication channels, and working

relationships with legislators and public agencies • Be patient and attentive for windows of opportunity to open up • Don’t expect quick resolutions. One has to engage in lobbying ethically

and one has to realize that lobbying is a negotiation rather than a “winner-take-all”-type game. Effective lobbying is a process that requires long-term and persistent commitment.

Business’s Involvement in Government 223

process among a number of distinct groups of interested parties. Lobbying serves a number of positive functions. It provides legislators with research, it develops and maintains communication channels, and it raises awareness and support for a specific issue. There are, however, many serious concerns regarding lobbying. In particular, it is believed that lobbying leads to biased decisions favoring those who have the most financial clout. Another concern is that the dynamics behind lobbying can endanger the basic and fundamental principles of democratic deliberation.

3. It is common for public officials to be hired from and into business, a practice often referred to as the “revolving door.” Currently, a high number of high-ranking federal officials have at one point in time been employed by the industries that they help regulate. Upon completion of their work for government, a significant percentage of these officials will return to their previous employers. Similar to lobbying, the “revolving door” is often criticized for the fact that it could serve as the basis for biased and preferential treatment.

4. There have been a number of recent efforts to instill order and structure in terms of lobbying and “revolving door” practices. Among them, the most important are the 1995 Lobbying Disclosure Act (LDA), the Lobbying Transparency and Accountability Act (LTAA) of 2006, the Honest Leadership and Open Government Act of 2007, and Presidential Executive Order No. 13490. All these pieces of legislation define accepted practices and impose restrictions on lobbying and “revolving door” practices. Although some enforcement is rather lax, the progress made in the past two decades has been significant.

5. Trust in government is an important ingredient of economic success. This is especially true in the case of democracies. Trust is, however, a very fragile asset; it can be easily damaged. For democracies to operate effectively and as en – visioned by design, it is necessary that all those involved in the legislative process—including business—pursue their interests in an ethical manner and with a deep regard and respect for the public interest. Any unethical lobbying or “revolving door” practices will only decrease trust in government and will result in losses for the entire society in the long run.

Appointed official Conflict of interest Effective tax rate Lobbying Lobbying activity Lobbying client Lobbyist Multiple Streams

Theory Policy entrepreneur

Policy stream Politics stream Presidential Executive

Order No. 13490 Problem stream Revolving door Tax rate The Honest Leadership

and Open Govern – ment Act of 2007

The Lobbying Disclosure Act of 1995

The Lobbying Transparency and Accountability Act (LTAA) of 2006

KEY TERMS

STUDY QUESTIONS

1. What is the role of business in designing regulation?

2. According to Multiple Streams Theory, what are the three streams that flow through the federal policy space?

3. What is the role of policy entrepreneurs, such as lobbyists, in changing the agenda of government?

4. What are the main justifications for having “revolving door” practices? What are the main criticisms associated with such practices?

5. Why is conflict of interest on the part of legislators such an important issue?

6. Why might the numbers of officially registered lobbyists not be representative of the actual numbers of individuals engaged in lobbying or advocacy?

7. What is the length of the “revolving door” ban imposed by Presidential Executive Order No. 13490?

8. Which are the three major Acts that have targeted lobbying activities and “revolving door” practices since 1990?

9. Why is it important to advocate your interests ethically?

10. What are some of the steps that can be taken in order to ensure that you pursue your cause in an ethical manner?

Notes

1 Barack Obama did accept contributions from state lobbyists and from law firms associated with

lobbyists. See Morain, D. (2007). An Asterisk to Obama’s Policy on Donations: A Presidential

Hopeful’s Refusal of Lobbyist Money Has its Limits. LA Times. URL: http://articles.latimes.com/

2007/apr/22/nation/na-obama22.

2 Each country, however, might have different types of legislation governing the practice. Some

countries might have no rules at all, while other rules might be much stricter than those imposed

in United States. Regulation usually deals with the length of the “cooling-off” period; that is,

the amount of time that a public official has to wait before assuming a position in the private

sector after leaving government.

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