Individual legislators, legislative committees and tax policy making

Posted: January 2, 2011 in Candidate-centered polities, CTRP, FVR, Legislative committees, Legislators, Legislatures, Philippine politics, Political institutions, Taxation

Through this blog entry and subsequent ones, I will continue sharing parts of a book on Philippine institutions and policy making which I started writing the middle of last year.


In candidate-centered democratic polities, individual legislators exert an inordinately heavy influence on policy making.  This is so since politicians need to develop personal reputations to get themselves elected into office and to stimulate their political careers.  Their party affiliations will not matter much in candidate-centered political settings and they try to develop their reputations as reliable representatives vis-à-vis constituents, supporters and financiers.  For the benefit of their constituents, they ‘bring home the bacon’ by way of pork allocations to finance local public works and other note-worthy projects that can generate local employment or bring desired goods and services like medicines, sports equipment, and the like to the home district.  To non-resident supporters and financiers, legislators must be able offer divisible policy favors such as subsidized credit, fiscal incentives, and tax breaks.

However, legislators do not participate in policy making only through their individual selves.  They do so through legislative committees.  Committees are institutions established to enjoy the scale economies and efficiency offered by division of labor.  Committee systems allow lawmakers to divide the various policy issues facing the legislature into distinct and separate jurisdictions, each delegated to a different committee.  Members of a legislative committee specialize in the aspects of their particular issues and the legislature capture some gains in efficiency due to the specialized division of labor (McCubbins and Sullivan 1987b).  These insights were drawn from the new institutionalist theory pioneered by Coase (1937) who sought to explain why economic agents coordinated their decisions via central authority rather than through market forces.  The basic approach is to study how institutions (qua rule-bound organizations) enable members within them to pursue their goals more effectively.

Alchian and Demsetz (1972) also noted a particular type of transactions cost and argued that firms reduce these costs better than markets.  Economic actors produce more by cooperating than by producing separately.  They therefore prefer to coordinate their actions.  However, coordinated action introduces the problem of measuring accurately the contribution of an individual to the joint output.  However, individual rewards are only weakly related to their efforts; and although they individually bear the full costs of their own efforts they individually receive only a part of the output they jointly produce.  Meanwhile, when individuals shirk by reducing their effort, the savings in effort accrue only to them and the resulting losses in team production are largely borne by other team members.  The rational behavior of each individual is to shirk or free ride on team effort but this will lead to sub-optimal results.  If everybody tends to shirk, then total team output will be reduced and individual benefits will likewise decrease (McCubbins and Sullivan 1987a).

The only way to mitigate shirking is to monitor the efforts of team members.  Alchian and Demsetz (1972) also argued that teams could be made better off if they hire a monitor and give her the authority to set payments on the basis of information with respect to productivity and individual contributions.  Since the monitor herself has an incentive to shirk, the team will give her marketable title to the team’s output and install her as the central contracting agent.  The approach of comparing institutions with respect to how well they enable members to pursue their goals is useful in studying firms and congressional committees.  Problems of monitoring and shirking are evident in legislatures as well as firms.  Transactions costs are incurred in building legislative coalitions no matter how tactical these may be. 

Labor in legislatures could also be divided through the party system.  While the committee system allowed legislators to specialize in issue areas of choice, parties also provide management and coordination.  In theory, parties reduce the transactions costs associated with building policy coalitions within legislatures.  Political parties should be looked at as ‘enduring coalitions’ and if parties were robust, the costs of negotiating bargains and securing legislative votes would be brought down since the process of cobbling coalitions on any issue does not have to take place anew each time a proposed measure was considered (McCubbins and Sullivan 1987b).

Notice the big ‘if’; parties rival legislative committees as mechanisms for coordination and management of collective effort only if parties themselves were robust.  In candidate-centered democratic polities where political parties are by definition weak and party discipline is practically non-existent, committees would emerge as the institutional agency of choice in legislatures.   Scholars and reformers for more than a century have acknowledged the central strategic position of committees in legislatures (Wilson 1885; Bryce 1893; McConachie 1898; Norris 1945; Bolling 1965; Eulau and McCluggage 1984; and Smith and Deering 1984).  While some difference of opinion persisted, there was a substantial consensus on a number of empirical regularities and stylized facts: (a) committees were ‘gatekeepers’ in their respective jurisdictions; (b) committees were repositories of policy expertise; (c) committees were policy incubators; (d) committees possessed disproportionate control over the agenda in their issue-area domains; and (e) committees were deferred to, and that deference was reciprocated (Shepsle and Weingast 1987a).

From the traditional literature on legislative committees, the foundation of committee power consists of gate keeping, information advantage and proposal power.  Committees, as an empirical matter, are veto groups that may choose to keep the gates closed on a particular bill.  Enjoying the advantage of smaller memberships (compared to the entire legislative chamber), a committee could study a question, obtain full information, and put the proposed legislation into shape for final decision.  The practice of referring bills to a standing legislative committee (and not debating them in full plenary until reported by that committee) gives legislative committees formidable proposal power.  However, Shepsle and Weingast (1987a, 86) argued that the ultimate source of committee power “resides in the rules governing the sequence of proposing, amending, and especially of vetoing in the legislative process.”  Both believed that the last stage of the legislative process—the bicameral conference where differences between the legislative chambers—was crucial since it confers relevant committees (or subsets of such committees) ex post adjustment power.  The deference given committees on the plenary floor was supposedly a natural consequence of this ex post power wielded by committees in bicameral conference.

Legislative committees have three specific mechanisms to employ in order to influence their institutional influence on the rest of the legislature.  These include punishment, ex ante defensive behavior, and ex post defensive behavior.  A committee may discourage opposition to its decisions (on nonactions) by developing a reputation for punishing those who oppose it.  This explanation is particularly potent in the realm of distributive politics in which the committee’s bills are of significance to a substantial number of legislators; disaggregatable by individual legislators; and introduced on a regular basis. Examples of these bills include those involving the national budget, public works and revenues.  A committee may also induce cooperative, deferential behavior by ex ante accommodation.  It tries, when preparing its committee report, to anticipate what will pass in full plenary.  However, Shepsle and Weingast (1987a) argued that the third mechanism, ex post defensive behavior, is the committee’s most potent enforcement mechanism since it allows the committee to exercise a veto after the full chamber had ‘worked its will’ on the measure.

Recalling the process of lawmaking in the Philippines, we note that after a legislative chamber has passed a bill in third reading, a Bicameral Conference Committee composed of panels from both chambers is formed to reconcile bicameral differences.  It could be demonstrated that relevant committees would dominate their respective chamber’s panels in the bicameral process enabling them to exercise ex post veto power.  In the bicameral conference process, only a small subset of a legislative chamber’s members participates in the process of drafting a bill that can only be voted up or down (or the so-called closed rule as a take-it-or-leave-it proposal) by both chambers in plenary to determine if the measure could be sent to the President for her appropriate action.  Legislative plenaries cannot amend bicameral output and this restrictive rule gives relevant committees (or smaller groups) inordinate power and influence over the entire process.  The bicameral conference process allows the relevant committee (or a subset of that committee) a ‘second crack’ at a bill.  A committee with only the power to move first—by opening the gates or keeping them closed—possessed only blocking power.  Once it opened the gates almost anything can happen and the committee is virtually powerless to alter the subsequent trajectory of a bill.  In contrast, a committee (or a smaller subset) with powers at subsequent stages, especially the penultimate stage, not only affects the subsequent outcome but also influences the antecedent actions of others by conditioning their beliefs and expectations.  A committee (or a subset) with an ex post veto has the power to protect itself against unwanted changes wrought by the entire plenary.  In that sense, deference to the relevant legislative committee is endogenous to the legislative institutional structure and procedures and should be construed as a property of sequential equilibrium.  The conference process institutionalizes the relevant committee’s ex post veto and the closed ‘take-it-or-leave-it’ rule after the bicameral conference stage enhances the veto (Kreps and Wilson 1982; Shepsle and Weingast 1987a).

In response, Krehbiel (1987) argued that congressional committees had never possessed an insurmountable ex post veto and were very much constrained by their parent chambers.  For one, Krehbiel noted that parent chambers possessed ‘discharge’ powers; legislative committees may be ‘discharged’ or compelled to report bills against their wishes.  He added that parent chambers could exercise these ‘discharge’ powers vis-à-vis the bicameral conference committee itself.  Shepsle and Weingast (1987b) conceded that chamber majorities could attenuate ex post committee powers through various institutional devices, including bypassing the bicameral conference process altogether.  They nonetheless asserted that the exercise of such powers by chamber majorities involved greater transactions costs given the greater number of legislators involved.  This point is best illustrated if we consider what majorities face when they deliberate the bicameral conference report under the closed ‘up-or-down’ rule.  If they vote against the report, the status quo is preserved.  But majorities have already expressed a preference to change the status quo when they approved the measure in third reading and agreed to send a panel to the bicameral conference.  Rejecting the committee report meant returning to ‘square one;’ and returning to ‘square one’ did not guarantee that subsequent results would not remain unsatisfactory. Therefore, the greater difficulties involved in attenuating ex post committee powers indicate that these powers bias final outcomes towards the preferences of relevant legislative committees.   

For our purposes, the debate between Krehbiel, on one hand, and Shepsle and Weingast, on the other, remains an academic one.  Under existing rules of the Congress of the Philippines, chamber majorities do not have ‘discharge’ powers vis-à-vis standing legislative committees.  This means that legislative plenaries cannot compel committees to report out a disfavored legislative measure.  Furthermore, there is no way that the bicameral process can be bypassed.  Miral (2004) reported that even inconsequential bills have to go through the bicameral conference process.  The bicameral process for such bills would be ministerial; the bicameral process for substantial bills would be quite involved.  In all, the bicameral stage is an indispensable stage in Philippine legislation.  The ex post veto of legislative committees is more potent in the Philippines compared to their counterparts in the United States.

It is also true that while committees are crucial to the legislative process, participation in committee decision-making is not universal.  On any given bill, the membership of a committee abdicates its considerable legislative powers to some subset of self-selected members (Hall 1987).  In effect, while legislative committees matter, some committee members matter more than others.  Individual legislators wield such power by virtue of their seniority, acknowledged expertise, and legislative rank.  Officials of committees are obviously more powerful than ordinary members; issue experts rather than policy amateurs and neophytes, and grizzled veterans rather than greenhorns would enjoy a comparative advantage even within legislative committees.

  1. Jobless fund, redistricting, budget await state legislators – Fort Wayne Journal Gazette…

    I found your entry interesting thus I’ve added a Trackback to it on my weblog :)…

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