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Lobbying and Corruption: Review of the Relevant Literature on The Methodology of Social Sciences (JPB 150) Lobbying and Corruption: Review of the relevant literature on the correlation between the two concepts and the role of regulation as a preventive measure for lobbying not to become corruption By Anna Shabalina, Barbara Anabalon, Magdalena Montanaro and Nira Arapovic Table of Contents 1.Introduction…….. ………………………………………………………..…….. p.2 2.Overview on the History of Literature on Lobbying …………............................p.3 3. The correlation between lobbying and corruption……… ………..………..…..p.4 3.1. Hypothesis #1- lobbying and bribery as substitutes…..…………..pp. 5-6 3.2. Hypothesis # 2- lobbying and bribery as complements…….…..…....p. 6 4. The concept of transparent lobbying…....……………………….…………......p. 7 4.1. The lobbying regulation in EU…..……..………………………..pp. 8 5.Conclusion …….................................................................................................p. 9 6.Bibliography………………………………………………………………..pp. 10-11 1 1. Introduction The practice of lobbying has been actively applied in politics throughout the second half of the 20th century. As lobbying becomes a more widely used activity, it receives more interest in the field of academic research. Corruption has been associated with political activities for a much longer period of time, and unlike lobbying, is always viewed as an illegal and unethical activity. Nonetheless, over the past few decades there has been a tendency to interrogate the correlation between lobbying and corruption, since both can influence important government decisions. The present literature review looks at two broad areas of studies concerned with lobbying. The first part is related to the two central hypotheses about the correlation of lobbying and corruption: substitution hypothesis and complements hypothesis. The second part focuses on the regulation of lobbying and transparency policies that can ensure legal practices within the lobbying process. Before discussing these two main areas, a brief overview of the phases of studying lobbying is provided. 2 2. Brief overview of the literature on lobbying The Cambridge dictionary (2021) defines lobbying as the activity of trying to persuade someone in authority to support laws or rules that give your organization or industry an advantage. Nowadays, the growing interest in lobbying practices is explained by the increasing influence that lobbying has acquired particularly in the EU and USA. The number of special interest groups in the USA has been increasing over the past few years and is set to rise even further (Grossman &Helpman, 2001). As far as the European Union is concerned, Dinan and Wesselius (2010) found that there are at least 30,000 lobbyists in Brussels, which corresponds to the number of EU Commission employees. These tendencies have been growing over subsequent years. The research in lobbying can be divided into a few phases. Initially lobbying was part of economic and game theory studies,and later became part of political science. Since the 1960s, researchers traditionally agreed that interest groups lobby the legislators who are likely to endorse their favored position. However, more recent studies using theoretical and empirical evidence have shown that this is not the case. Austen-Smith and Wright (1994), for example, argued that lobbyists target the legislators who are likely to be lobbied by a competing group and not favor their position. This phenomenon is called counteractive lobbying. With the development of technologies, scholars began to develop various models in order to derive empirical results (de Figueiredo and Richter, 2014). The most recent research shows that the initial research was quite limited and most likely missed a very important issue related to the correlation between corruption or bribery, as it will be addressed further in the paper, and lobbying. The most recent research is still engaged with the relationship between lobbying and bribery. Additionally, authors question what will be the right type of regulation and application of transparency practices in lobbying in order to protect it from corruption. In the future researches will most likely continue applying quasi-experimental methods, as well as finding a way of quantifying the returns on lobbying (de Figueiredo and Richter, 2014). In the meantime, the present research will look into the two main parts of the research to date. The following sections will discuss the hypotheses and arguments about both activities. 3 The correlation between lobbying and corruption In the existing literature, authors generally concur that lobbying is a means of influencing state legislatures and regulatory agents in order to bend certain new laws on behalf of and for the sake of various firms and interest groups (Campos & Giovannoni, 2006; Harstad & Svensson, 2011; Goldberg, 2020). On the other hand, corruption is defined as a misuse of public office for the gains of private firms and groups (Rose-Ackerman, 2008). It is clear from the definitions above that both lobbying and corruption pursue the same final goal, which is to influence government decisions. Since both activities have the same purpose, the question arises whether they can use the same means to achieve this purpose. While corruption is always associated with bribery as an illegal activity, lobbying, on the other hand, is associated with a more democratic tradition. The authors like Kochan and Goodyer (2011) claim that lobbying helps minority groups and businesses to be part of the government decision making process and ensures their inclusion. Mukherjee and Bhattacharyya (2016) also advocated lobbying by arguing that this activity is prohibited in countries like India and China, which are considered to be highly corrupt countries. This argument implicitly means that if lobbying does not exist in highly corrupt countries, it should not be associated with corruption. Besides Mohtadi and Roe (2003) and Fjelde and Hegre (2014) stated that democratic countries have lower levels of corruption than countries with authoritarian regimes. Though the above-mentioned arguments attempt to make a clear geographic distinction between lobbying and corruption, they at the same time, do not exclude the possibility that lobbying can be used as a substitute of bribery in the counties with strict law enforcement. In their attempts to conceptualize the correlation between the two activities, scholars proposed two hypotheses: 1) lobbying and corruption can work as substitutes depending on certain conditions; 2) lobbying and corruption can complement each other and be integrated in the same process. The sections below provide an overview of each hypothesis and its coverage in the extant literature. 4 3.1. Hypothesis # 1 -lobbying and bribery as substitutes Given the nature of both activities, the academic literature relies heavily on the empirical research and the findings derived from cross-country comparisons. A prominent researcher in this field Goldenberg (2020) identified four main studies of private companies and their choice of either activity. The first study was conducted by Damania, Fredriksson and Mani (2004) who determined that companies tend to switch from lobbying to corruption, should political instability increase. The second study is concerned with the work of Campos and Giovannoni (2007 & 2017) who focused on both activities in post-soviet countries. The authors concluded that lobbying has a direct effect on political influence while bribery does not. Therefore, the authors suggest that lobbying is quite a complex activity to be replaced by bribery with an equal effect. The third study relates to the work by Bennedsen, Feldman and Lassen (2009), wherein the authors researched companies in 80 countries and determined that companies who value their reputation tend not to bribe. The authors also highlighted that large firms value their reputation more, and therefore use lobbying services. The most recent study belongs to Goldberg himself, who identified a number of limitations in the existing research, and proposed his own study based on interviews of lobbyists in Germany and USA. Firstly Goldberg determined that the more access lobbyists have to the legislation, the less inclined they will be to use bribery. Secondly, he rejected the hypothesis that firm size may influence the choice of either activity. He mentioned that his findings were different from the ones by his predecessors because of the differences in methodologies. Lastly, Goldberg acknowledged that some lobbyists do use bribery. However, this choice happens at their own risk, since their reputation may be at stake. Other influential authors in this field Harstad and Svensson (2011), argued that the level of development of a firm has an important role to play. For example, less developed firms will be more willing to use bribery since lobbying is more time-consuming and costly activity. The authors highlight an alarming tendency, which suggests that the more small companies engage in bribery, the more trapped the country will be in corrupt practices and consequently poverty. 5 As it can be seen from the main studies of the substitution hypothesis, it is clear that the authors attribute the substitution effect to a number of conditions. Due to differences in methodologies, the scholars may have different results, like for example the role of the company size in the choice of either activity. Discussing the current challenges in the research, Goldberg (2020) asserted that the main difficulty remains that the
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