Corporate lobbying as a subject in this day and age is contentious. Is it pervasive, perverse, or perhaps both? The unequivocal truth is – it has been around far longer than we think. One may date it back all the way to 1845, when Frederic Bastiat wrote to the French Parliament. In this letter, titled The Candlemakers’ Petition, Bastiat imbued his view of the protectionist climate with satire and talked about candlemakers facing “unfair competition from a foreign rival (the sun)”. While we can still find an example of lobbying that is 176 years old, it is certainly not the oldest. The oldest recorded case of corporate lobbying dates back all the way to the 1600s. Initially titled the Governor and Company of Merchants of London trading into the East Indies, the East India Company (EIC) were indeed the inventors of corporate lobbying.
In his 2019 book – The Anarchy – William Dalrymple so eloquently mentions, “Yet perhaps the most crucial factor of all was the support that the East India Company enjoyed from the British Parliament” and “In 1693, less than a century after its foundation, the EIC was discovered for the first time to be using its own shares for buying parliamentarians, annually shelling out £1,200 a year to prominent MPs and ministers.”
The peculiar thing about events in economic history, and often events in history altogether, is that they tend to repeat themselves. For instance, when we look at Andrew Jalil’s work, the panic of 1893 in the United States seems familiar to the infamous Financial Crisis of 2008. Quite similarly, the East India Company’s vulnerabilities during the Great Bengal Famine of 1770 poses an odd similarity to the same Financial Crisis of 2008. Therefore, it is quite important to observe the history of the East India Company as a nuanced lens to understand the competitive markets of today.
How can lobbying lead to corruption?
Economists of the time, the likes of Adam Smith, David Ricardo, James Mill, and John Stuart Mill fervently discussed the East India Company in their works. Now, while lobbying in itself isn’t bad, when it is done for the purpose of circumventing regulations illicitly it can be quite harmful and anticompetitive. This is greatly verifiable all through the history of the East India Company. One could argue, the EIC was a poster child of sorts for an argument for regulation.
For the purpose of this essay, we’ll look at corrupt lobbying through the lens of what it adversely and immediately affects – the rules and regulations, which in turn affect competition.
Rules and regulations happen to be a dual-edged sword. While on one end, they can make competition more efficient and responsive to consumers’ interests, they can also serve as the political “escape-route” from competition. Therefore, lobbying in circumstances where people with vested interests are responsible for making the “rules of the game” can be a recipe for disaster.
Take an instance where representatives of a corporation are illicitly lobbying with the players of a government department. Now, if these governmental players have vested interests in what the corporation is offering, for instance a position in the corporation post-retirement, there is an undeniable (personal) incentive to give in to the corporation’s demands. Therefore, when those responsible for making “the rules of the game” are provided self-serving incentives by corporations, lobbying can lead to corruption.
Here’s how Nicholas Shaxson put it – “The British East India Company was granted an English Royal Charter in 1600. This allowed it pretty much free licence to behave as it pleased so long as it could make the after-the-fact argument that it had acted on behalf of the sovereign to meet the country’s commercial objectives. From where, though, did those objectives originate? They were laid down in 1622, by the Standing Commission on Trade, which just so happened to have as one of its founding members Thomas Mun, who was also the Director of the British East India Company.”
What may also be of relevance here is the case of the 2G Spectrum Scam, with the weighty figure of 1.76 lakh crores. Rules and regulations in this case were alleged to have been bent to aid the motives of certain telecommunication players, which offers insight into blatant impediments to competition.
The Telecommunications Ministry under A. Raja had selectively issued 2G licences, that too at distorted prices. The auctions carried out were not free or fair. Counters were allegedly shut so that some players could physically not buy licences. Clearly, this led to saturation of power in the hands of a few. Earlier on, we established that lobbying where people with vested interests are responsible for making the “rules of the game” can be a recipe for disaster. So, what was in it for the telecommunication players that benefited from this? Well, licence owners made money off them. And what was in it for the telecommunications minister, responsible for allocating airwaves and licences? He was accused of getting Swan Telecom to invest 214 crores into Kalaignar TV Pvt. Ltd, run by some members of the DMK’s (Dravida Munnetra Kazhagam) first family. This twisting of the rules and regulations became blatant impediments to competition.
Therefore, the effects of illicit lobbying harm the very rules and regulations that’re supposed to foster competition in the economy.
Is lobbying always bad?
It is essential to promote and protect competition in the economy. However, even in the interpretations of what Adam Smith put forward, this is hardly competition in every immoral and unscrupulous means and ways possible – the ways that the East India Company went about it. In the words of Viktor J. Vanberg “To make only the most obvious point, we could compete with each other by means of fraud, threats and coercion, but we would hardly consider such a competitive regime a desirable social order.”
Lobbying is a sensitive matter, and while the East India Company and all of history will always be a lesson for reference, we must understand that lobbying in itself isn’t bad. In a sense, the idea isn’t to promulgate the absence of lobbying or rules and regulations altogether – a conducive legal-institutional framework for market competition is good. Lobbying in a way that fosters competition, integrity, and transparency is what is necessary. The idea is to stop the misuse of those rules and regulations for self-gain through anticompetitive means.
The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.