THE BLIGH GOVERNMENT has announced a ban on success fees for lobbyists. This follows the revelation that former Labor and Liberal party figures have received a success fee for securing Queensland government contracts for clients. Commentators have questioned whether simply banning success fees is enough, or more should be done including the possibility of simply instructing ministers not to deal with lobbyists who were previously MPs or staff of ministers.
A ban of success fees will be beneficial, but it is no panacea. These fees are common when it is efficient to transfer risk between a party requiring a service (or advice) and the service provider (advisor). For example, by paying a real estate agent a sales commission, the seller of a house transfers some of the risk of not selling the house to the party best placed to manage the risk: the real estate agent. No sale, no fees. This encourages the real estate agent to exert effort to achieve a sale. As this example suggests, success fees are appropriate when it is possible to measure and quantify success in achieving a particular goal (for example, the sale of a house and the price outcome) and when success is at least partly related to the efforts of the advisor involved.
Indeed, there are many other industries that use success fees regularly, usually in conjunction with a non-contingent payment (a retainer or an hourly rate). Governments, for instance, pay success fees to advisors that are commonly estimated to be in the range of between 0.02 per cent and 3 per cent of the transaction value, depending on the country concerned, the size of the transaction and marketing conditions. Success fees were used extensively during the 1990s Victorian privatisation process. There are many other industries in which success fees are common.
So why aren’t success fees appropriate in the context of lobbying for government contracts? In such circumstances success fees might lead to excessive (that is, inappropriate) levels of effort exerted by lobbyists in favor of their clients. This can be particularly problematic if lobbyists have close connections and influence over current government officials. Indeed, there are many jurisdictions outside Australia (certain states in the United States, for instance) where such fees are banned in the context of political lobbying.
The difficulty is that success fees simply exacerbate an existing problem: former government officials taking unfair advantage of their contacts and influence within the existing government to guarantee outcomes that otherwise would not eventuate. The widening of the gap between public officials’ remuneration and the rapidly growing top salaries in the private sector seems to be at least partially to blame for this state of affairs.
This might lead some to suggest a simple solution: ban former government officials from acting as lobbyists. This is not a practical solution for at least two reasons. First, where would one draw the line? Would we ban former government officials from holding any positions in private companies that deal with government? Given the share of our government in the economy, this would limit employment opportunities considerably. Second, by reducing the future employment possibilities of government officials, we would limit the pool of talent that is attracted to local, state and federal government. Faced with a ban on future work in any private firm that deals with government, a smart, well-meaning and ambitious young person will think twice before joining public office as doing so will considerably limit the options that he or she can pursue later.
The solution instead is to reinforce our existing institutions and regulations so as to promote further transparency. Many government officials already face a cooling-off period preventing them from conducting activities linked to their previous jobs for a period of time. The Queensland government and other state governments already have a register of lobbyists that require information such as the names of the companies for whom lobbying is undertaken, the identities of the lobbyists, and the nature of the remuneration.
Providing further transparency might be accomplished, for example, by requiring government officials to publish details of their daily agendas on the internet. Cooling-off arrangements can be made more stringent by allowing officials to go on extended paid leave (but not undertake any work) after leaving public office. Although costly for taxpayers, this would reduce the disadvantages from holding public office. Finally, the register of lobbyists could be extended to include all parties involved in dealing directly with ministers and senior government officials, not only those employed by third parties. This would require lobbyists such as government relations managers employed directly by firms to be listed in the register as well.
Although not as likely to generate headlines as the banning of success fees, improving existing regulations to promote further transparency is likely to have a more pronounced and long lasting effect.
Flavio Menezes is Professor of Economics at the University of Queensland