Transcript A test of Olson`s “encompassing organization” hypothesis

Composition and Interests of Russia’s
business lobbies:
A test of Olson’s “encompassing organization”
hypothesis
HSE, April 2010
William Pyle
Middlebury College
Laura Solanko
BOFIT
Bofit Discussion Paper 5/2010, available at www.bof.fi/bofit
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Motivation
 Special interest groups (lobbies) seek additional favors from local
politicians at the expense of others (Grossman and Helpman 2001)
 In reality, however, the externalities caused by lobby group actions
differ, and some may even cause positive externalities
 On business associations in less than perfectly functioning markets:
– Doner and Scheider, 2000
– Coates and Heckelman, 2003
– Pyle, 2006 and 2009
 Why are some lobby groups less benign in their external effects than
others?
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Olson’s hypothesis
 Business lobbies have an interest to increase the welfare of their
constituents, but …
 Less-encompassing lobby groups with their constituents collectively
representing a narrow range of sectors are more apt to seek policies
(eg. subsidies, tariffs, tax benefits, and competition-limiting
regulations) that impose costs on the rest of the society (Olson,
1982)
 Basis for further analysis on collective action
 Due to lack of data this intuitive result has never been formally
tested !
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We have a formidable dataset to test Olson’s
hypothesis
 Two surveys across the
Russian Federation
 Face-to-face survey with
managers of 600+ industrial
enterprises (spring and
summer 2004)
 Face-to-face survey with
managers of 200 regional
business associations (spring
and summer 2004)
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Surveys on business associations (n=145)
Summary statistics on regional associations
8.4.2010
Mean
Median
Number of sectors represented (14 listed, includes 7
industrial branches, transport, trade, communications,
finance, healthcare, education, other)
7.43
8
Full-time employees
16.98
5
Years since founding
8.67
8
Founders – other business associations
0.428
Founders – individual(s), entrepreneur(s)
0.510
Founders – government (federal, regional, municipal)
0.228
Founders – unions
0.021
Founders – individuals formerly in government
0.620
Founders – former CP official
0.076
Members exclusively in single city
0.372
Located in Moscow
0.034
Located in St. Petersburg
0.048
Located in capital city of territorial subject
0.634
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Surveys on firms, n=606
Summar y statistics on firms
8.4.2010
Members of regional association
0.394
Members of regional, multi-sector association
Members of regional, sector-specific association
0.338
0.079
Full-time employees (2004)
First registered after 1991
State or municipal enterprise
Influence of foreign shareholders (0-4)
568.6
0.427
0.051
0.020
Relative condition of ”material/technical base” (1-4, 2 is Russian average)
Level of competition in primary output market (1-5)
Major competitors include firms in other Russian regions (0, 1)
1.94
4.11
0.611
Major competitors include firms in other countries (0, 1)
0.294
Sell primary output to firms in other Russian regions
Sell primary output to firms in other countries
0.614
0.317
Sell primary output to Russian government (zakaz)
Sell primary output to firms that are part of same commercial group
Purchase inputs from firms in other Russian regions
0.234
0.127
0.642
Purchase inputs from firms in other countries
Purchase inputs from Russian government
Purchase inputs
from firms
that |are
part of same
group
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0.315
0.072
0.114
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Setting the scene - survey results on the
importance of business associations
 Lobbying the local decision-makers is indeed an inportant
function of the business associations (Table 3)
 If a firm seeks to influence local legislation, it’s likely to do that
both via business associations and through direct connections
to decision-makers (Table 4)
 Firms are more inclined to use business associations in
politically more competitive regions (Table 5)
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Attitudes toward free markets and
government intervention: firms
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ С УТВЕРЖДЕНИЕМ: ГОСУДАРСТВО ДОЛЖНО
СОЗДАВАТЬ ОСОБЫЕ УСЛОВИЯ ДЛЯ РАЗВИТИЯ ПРИОРИТЕТНЫХ НАПРАВЛЕНИЙ
ЭКОНОМИКИ (ЛЬГОТНОЕ НАЛОГООБЛОЖЕНИЕ, ПРЕДОСТАВЛЕНИЕ СУБСИДИИ И ПР.)
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ С УТВЕРЖДЕНИЕМ: ОРГАНЫ ВЛАСТИ СУБЪЕКТОВ
ФЕДЕРАЦИИ ДОЛЖНЫ СОЗДАВАТЬ ЭКОНОМИЧЕСКИЕ БАРЬЕРЫ ДЛЯ ВВОЗА ТОВАРОВ
ИЗ ДРУГИХ РЕГИОНОВ (РЕСПУБЛИК, КРАЕВ, ОБЛАСТЕЙ) И СТРАН С ЦЕЛЬЮ
ПОВЫШЕНИЯ ЗАНЯТОСТИ, СОЗДАНИЯ БЛАГОПРИЯТНЫХ УСЛОВИЙ ДЛЯ РАЗВИТИЯ
РЕГИОНА?
For firms
1
2
3
4
5
Total
Average
Industrial policy
43
22
84
105
346
600
4.15
Import barriers
184
55
165
69
126
599
2.83
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Attitudes toward free markets and
government intervention: associations
Additional questions
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ СО СЛЕДУЮЩИМ УТВЕРЖДЕНИЕМ: НАШ РЕГИОН
(РЕСПУБЛИКА, КРАЙ, ОБЛАСТЬ, ГОРОД) В ЦЕЛОМ ТОЛЬКО ВЫИГРАЕТ ОТ ВСТУПЛЕНИЯ В ВТО?
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ СО СЛЕДУЮЩИМ УТВЕРЖДЕНИЕМ: РОССИЙСКАЯ
ЭКОНОМИКА В ЦЕЛОМ ТОЛЬКО ВЫИГРАЕТ ОТ ВСТУПЛЕНИЯ В ВТО
For regional associations
1
2
3
4
5
Total
Average
Industrial policy
4
4
15
32
90
145
4.38
Import barriers
53
16
34
23
19
145
2.58
WTO – good for region
21
22
49
18
11
121
2.80
WTO – good for Russia
24
24
58
23
15
144
2.87
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Testing Olson’s hypothesis
 Seek to explain the variation in associations / member’s
attitudes by
– variables proxing encompassingness (multi-sector / sectorspecific, n. of sectors represented/ founded by other association)
– plus a rich set of control variables including
• association / firm specific variables
• location, regional economic structure
 Standard ordered probit regressions
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Are less encompassing associations different?
Industrial Import WTO and WTO and
policy
barriers
region
country
Number of sectors represented in
membership
Founders include other business
association(s)
Full-time employees (log)
Years since founding (log)
Membership from one city
Political competition in region
Regional controls
Location controls
Founder controls
Number
Prob > chi2
Adjusted R2
-0.001
-0.070**
0.083**
0.049**
-0.794**
-0.534**
0.327
0.291
0.036
-0.006
0.196*
0.101
-0.061
0.135
-0.339
-0.072
0.201
0.222
0.420
0.045
0.112
0.103
-0.057
0.056
x
x
x
x
x
x
x
x
x
x
x
x
135
135
113
134
0.0000
0.0000
0.0000
0.0000
0.0874
0.0791
0.0935
0.0534
Ordered probit by STATA, robust standard errors, adjusted for clustering at regional level
***, **, * significant at 1%, 5%, or 10%
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Do members of less encompassing
associations view things differently?
All firms
Member of multi-sector association
Member of sector-specific association
Full-time employees (log)
Founded in post-Soviet era
State or municipal enterprise
Influence of foreign shareholders
Relative quality of capital equipment
Location controls
Sector controls
Regional controls
Competitor and trade partner controls
Number of observations
Prob > chi2
Adjusted R2
Members
Industrial Import Industrial Import
policy
barriers
policy
barriers
0.136
0.125
0.284
0.501**
0.355**
0.400**
-0.192**
-0.117*
-0.095**
-0.028
-0.484*** -0.322*
-0.224**
-0.042
0.706
-0.362
0.521**
0.045
-0.296**
0.022
-0.123
0.018
0.254
0.046
0.061
-0.120**
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
579
0.0000
0.0336
579
0.0000
0.0263
234
0.0000
0.0902
234
0.0000
0.0615
Ordered probit by STATA, robust standard errors, adjusted for clustering at regional level
***, **, * significant at 1%, 5%, or 10%
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Conclusions
 Less-encompassing associations view targeted government
intervention more favorably
 Also the members of the less-encompassing associations are more
favorable to government intervention
 Somewhat surprisingly, regional variation in political and economic
environment does not help to explain the differences in attitudes.
 We provide the first direct test confirming Olson’s view
that lobby group composition and its interests are related
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Thank you!
[email protected]
www.bof.fi/bofit
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