Of Democracy and Lobbycracy

Posted on 08/14/2012

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By R. Nastrania

“Democracy is the government of the people, by the people, for the people,” said President Abraham Lincoln long ago in 1863, implying that democracy is a form of government in which all eligible citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal – direct or indirect – participation in the proposal, development and passage of legislation into law. It encompasses social, economic and cultural conditions that enable the free and equal practice of political self-determination.

As etymologists point out, the term democracy originates from the Greek: δημοκρατία (dēmokratía) “rule of the people”, which was coined from δῆμος (dêmos) “people” and κράτος (kratos) “power”, circa 400 BC, to denote the political systems then existing in Greek city-states, notably Athens.

A democratic government contrasts to forms of government where power is either held by one, as in a monarchy, or where power is held by a small number of individuals, as in an aristocracy or oligarchy. Nevertheless, these oppositions, inherited from Greek philosophy (including the classification by Aristotle, except that the government of one was then designated as tyrannical), are now ambiguous because contemporary governments have mixed democratic, oligarchic, and monarchic elements. Karl Popper defined democracy as opposed to dictatorship or tyranny, thus focusing on opportunities for the people to control their leaders, and to oust them without the need for a revolution.

Popper is absolutely right that democracy is a type of government, in which the rulers can be removed without violence,  the fact is that such a government is being increasingly subject to the growing influence of lobbyists whose interests are far from idetical with those of the people at large who are preoccupied with providing their families with as decent life as possible.

This phenomenon has been termed as ‘lobbycracy’. As the Corporate Europe Observatory (CEO) points out, “Brussels is at the centre of EU decision-making and as such attracts thousands of lobbyists, promoting the interests of big business. Easily outnumbering and outspending public interest groups, corporate lobbyists are also given privileged access by the European institutions. The emerging lobbycracy results in flawed policies that put commercial interests above those of people and the environment and undermines the very basis of democracy.”

ALTER-EU, the Alliance for Lobbying Transparency and Ethics Regulation, presented its new report on July 12 on the dominance of corporate lobbyists in DG Enterprise’s (European Commission – Enterprise and Industry) expert groups at a packed event in Brussels, organised in partnership with the Austrian Trade Union Federation and the Austrian Federal Chamber of Labour. Dennis de Jong MEP and Lluís Prats representing DG Enterprise, both speaking on the panel, said the Commission had sent a paper to the MEPs just a few hours earlier recognising ‘industry over-representation’ in 17 expert groups. “We say action is still needed,” insisted ALTER-EU.

Corporate Europe Observatory filed a complaint in July which has prompted the EU Ombudsman to launch an inquiry into European Central Bank President Mario Draghi’s membership of the Group of Thirty (G30). The Ombudsman case on Draghi’s G30 membership has made headlines across Europe (and beyond). CEO was asking: “Will this make the ECB answer the questions that CEO has been asking since November 2011? And will Mr. Draghi now step down from the G30?”

The Group of Thirty is an exclusive club that meets in private to discuss monetary policy and banking regulation issues. Draghi and his predecessor Trichet share the club with chief executives from some of the biggest banks. The group is chaired by Jacob Frenkel of JP Morgan Chase who often acts as the group’s public face. Other members include E. Gerald Corrigan of Goldman Sachs, Guillermo de la Dehesa Romero of Grupo Santander, David Walker of Morgan Stanley. According to its website the G30 is “influential”:

It delivers “actionable recommendations” to public policymakers – most people would use a simpler word for that: lobbying.

Back in November 2011 CEO wrote:

“Given the eurocrisis, the huge bailout operations of big banks, and the ongoing debate on how to regulate banks in the light of the financial crisis, it should be obvious that safeguards are needed to ensure that the President of the European Central Bank remains independent. He should not be mixed up in any way in lobbying activities to defend the interests of private banks. Shouldn’t that include a ban against membership of a club like the Group of Thirty?”

In a letter addressed personally to the incoming ECB President CEO urged Draghi to withdraw from the Group:

We believe that any president of the Bank has to make it absolutely clear that he or she is not under the influence of the financial lobby at any time. In particular at this dramatic point in the history of the EU, with the eurocrisis and an ailing banking sector –recipients of trillions of euro in aid – it is completely unacceptable if doubt can be cast on the independence from the financial lobby of the Bank’s president.

We therefore strongly urge you to withdraw from the Group of Thirty.

In response the ECB Press and Information Division wrote us:

“[…] please be informed that it is part of the President’s tasks to represent the ECB in international conferences, fora and groups to exchange views on international economic and financial issues and to communicate the ECB’s positions and policies. When representing the ECB in such conferences, fora or groups, the President of the ECB acts in accordance with the principle of independence and integrity.”

This did not really answer our concerns over the specific nature of the Group of Thirty which provides the banking industry with an opportunity to influence policy.

On 14 February 2012 we filed a formal complaint to the ECB’s executive board, referring to several potential breaches of the internal rules of the ECB concerning President Draghi’s participation in the work of the Group of Thirty. At the same time we submitted a request for access to documents on the case.

On 8 March the ECB replied that Mr. Draghi’s membership of the Group of Thirty did “not require any advice of the [ECB’s] Ethics Adviser nor consultation of the Governing Council and that therefore there are no related documents”, adding that “You will be explained in greater detail in a separate reply why the matter does not raise any conflict of interest.”

After we sent a reminder we finally received a short ‘explanation’ from the head of the ECB’s Press and Information Division suggesting that his participation was undertaken in a personal capacity, and that  this was compatible with the Code of Conduct.

As we didn’t seem to be getting any further, we decided to take our complaint one level higher, to the EU ombudsman.

In our complaint we repeated that we consider Draghi’s membership of the ‘Group of Thirty’ – a banking lobby group to be at odds with the ECB’s rules on ethics, and that the ethical principles of the ECB have been sidelined in five different ways, endangering the independence and reputation of the bank.

The ECB Staff Rules provide that members of staff shall obtain the ECB’s authorisation if they participate in “unremunerated private activity” other than “simple conservative management of family assets and activities in domains such as culture, science, education, sport, charity, religion, social or other benevolent work”. But Draghi did not ask or obtain authorisation for his participation in the activities of the Group of Thirty. CEO considers this a clear violation of the rules.

The Ombudsman has accepted CEO complaint and the case was opened on July 24. In a letter to the ECB, the Ombudsman has asked the central bank for an opinion on the allegation that “the ECB President’s membership of the Group of 30 is incompatible with the independence, reputation and integrity of the ECB” and on the claim that “The ECB should ask its President to withdraw from the Group of 30”.

Interestingly the ombudsman has also asked the ECB to include in its answer comments on whether the ECB considers that the fact that the membership of the Group of 30 also includes persons currently working in the private sector could result in the appearance of a conflict of interest, as defined in the OECD’s 2003 Recommendations on Guidelines for Managing Conflict of Interest in the Public Sector.

In fact, a 2007 OECD report on implementation of these Guidelines noted that “Increased media focus made it necessary in many countries to pay more attention to appearance issues, in particular at the top level, in post-public employment and lobbying.”

This seems to apply directly to Draghi’s membership of the Group of Thirty and it adds another argument in favour of Draghi’s withdrawal from the Group of Thirty. There also appears to be quite some scope for the ECB to improve and clarify it’s internal rules on conflicts of interest and to start handling those rules properly. [Aug 14, 2012]