1. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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 18.4.2010HSE Conference Bofit Discussion Paper 5/2010, available at www.bof.fi/bofit

2. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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? 28.4.2010HSE Conference

3. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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 ! 38.4.2010HSE Conference

4. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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) 48.4.2010HSE Conference

5. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Surveys on business associations (n=145) 58.4.2010HSE Conference

6. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Surveys on firms, n=606 8.4.20106HSE Conference

7. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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) 78.4.2010HSE Conference

8. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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? Attitudes toward free markets and government intervention: firms

9. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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 В ТО Attitudes toward free markets and government intervention: associations

10. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Testing Olson’s hypothesis  Seek to explain the variation in associations / member’s attitudes by –variables proxing encompassingness (multi-sector / sector- specific, 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 108.4.2010HSE Conference

11. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Are less encompassing associations different? 118.4.2010HSE Conference

12. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Do members of less encompassing associations view things differently? 128.4.2010HSE Conference

13. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 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 138.4.2010HSE Conference

14. SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Thank you! laura.solanko@bof.fi www.bof.fi/bofit 23.12.201514