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Summary PBS
- Établissement
- Katholieke Universiteit Leuven (KU Leuven)
Summary of the course Political Business Strategy (based on the lectures) Professor : Crombez Christophe
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Alysson Yalman2022-2023
Political business strategy : class 1
- Any type of company -> think of the impact that the gvt has on your company
- Business plan : needed before founding any company ( product you offer, how you market it, and
the funds needed)
- Issues were the gvt plays a role : building permit, environmental concerns,…
o Lots of rules !! Sometimes rules about who can open a restaurant for example -> degree in
cooking for example
o You might decide to change your strategy because of these rules (ex. : in another country
where vat rules are less strict)
- Interaction : other companies, competition -> voluntary transaction : you go to a bar and want a
beer and you are served a beer and then you pay it = both are better off, one is getting paid and
the other has its beer -> both benefit otherwise you won’t do it
- Interaction with gvt : you have no choice, non-voluntary transaction)
- Political or non-market environment : you interact with gvt, or unions, or other legal branches
o Important in Europe !!!
o Political concerns are becoming very important ; environmental issues, product safety,… ->
people don’t care about these bc of their financial status (low income, you think about
surviving)
- Result of strategies in political environment : legislation, regulation and public pressure
o It is assumed that gvt is doing best for society, but in reality it is not always the case (they will
look at their voters, interest group, corporate group) -> their regulations are the results of the
input in political process (voters, companies).
o As a company it is not good to look at gvt as an external factor that is doing the best for us,
but it is better to say that politicians are setting policies that are results of all kinds of
influence/pressure exercised in the political process
o Industry is a participant in the political process that can influence the decisions
o What input do you need to make good decisions ? Information -> do your research, try to find
as much of info on the topic then you can make a good decision
o How is it for politicians ? It will be more so, usually they don’t know a lot about the topic ->
they know the issues about the political issues on the agenda at that time, so when they make
decision they don’t know a lot of that topic, they have to gather information but from whom ?
All the parties that have an influence on this issue
o You listen to everybody who has anything to say in this issue as a politician, after having this
information you make the decision
Political analysis 1 : Voting
Condorcet paradox
- 18th century
- Theory about 3 people/groups that make a choice on of three alternatives (A, B,C)
- Prof says you can chose with exam you want
o Alternative 1 : oral exam
o Alternative 2 : written
o Alternative 3 : paper
- (See slide)
- Questions that we can ask ourselves : see slide
First thing happening here :
- By majority rule, you compare alternatives -> there is a symmetricial problem : hard to tell what
is going to be the outcome here, when you use majority rule in pairs -> you will turn around in
circle
, Alysson Yalman
2022-2023
What outcome do we get ?
- Each of the alternatives beats one, and is going to be beaten also (all of the alternatives)
- Turning in cicles
- Even if all of the individuals are rational, this doesn’t mean that the group will behave rational
- The group will not behave as a rational person
- A group doesn’t behave as well-defined preferences (that’s why in politics you can have very
strange decisions)
- There were always be a policy that will beat the policiy that is in place !
- In a homogenous world, it is easier to make a decision but this is not the case
What outcome wins ?
- Best alternative ? Decision that maximizes social welfare , the total utility
o If you prefer C , you will say C is worth infinity to me and the rest means nothing
o I cannot now what the utility is of people, because they will lie about it (infinite or nothing,
only 2 options)
o You can try to estimate, but that’s not easy
o Even though we have calculated that A is the best, it can be that we can move in cirlces that
we don’t get there
o It is not clear what’s the best interest and even if it is clear it is not sure that we will end op
there !!!
What outcome is best for the group ?
Why does it matter for business ? Why wouldl you care ?
- Evertybody that has interest in these issues has an incentive to share information to politicians
- Transmission of information from businesses to politicians is very important in political process
- They have an incentive to misrepresent the information : people affected by the issue have an
opinion that is not consistent with the general interest -> as a result they might have an incentive
to provide information that is biased, they are going to hide some information maybe
- Better position to transmit information (some groups) : for example businesses, we as an
individual we are not necessarily good organised to provide information to politicians but
businesses are
- Providing information is good, but there are some drawbakcs (biased information, and that some
groups are better to provide information than others are)
Some sence we see kind of stability
France : plus ça change, plus ça reste la meme chose > things might change, but at the end it
remains the same
How come we have this stability ? And not this chaos that condorset paradox suggest ?
o Political institiutions !! Bc they are stable and thus provide stability to a certain politcal
environment / group
o Condorset paradox : how stability ? Prof can say : I provide a structure that will lead to a
decision -> choise first between a and b, then a and c and then B and c
o But what is the problem with that ? The prof set out a process that will lead to C,
o That’s what political systems do
, Alysson Yalman
2022-2023
Ideally you want to set up a system without knowing where this will lead, veil of ignorance about
the position where you will end up (philisopher said)
Setting the agenda
- Insitutions wants to lead to a outcome that it wants
- So outcome depends on insitutions in a political process (in the example was the prof the
insitution)
- Who can also manipulate the outcome ? Group 2 and 3 are not happy, because they got the
outcome they liked the least -> so what can you do to change the outcome ? They can vote for C
in the first round, for at least getting their second preference. If you look ahead group 2 has to
vote C, they have to look ahead in order not to have their least preferred choice, they need to be
rational
- Bc if I vote B i will get A at the end, but I prefer getting C
Strategic or soffisticated voting
Strategic voting
- Subgame perfect nash
- A second way that you can manipulate the outcome here : in a more fundamental way -> you
misrepresent your preferences
Arrow :
- Eonomist , nobel price 1973
- Wrote a book on social choice, general equilibirum theory
- Impossibility theory
- No ideal rule that we can agree on that is the best for everyone and none to manipulate
Class 2 : Political analysis : spatial theory
Intro :
What do voters care about ?
- Financial needs , Basic needs fulfilment, personal safety, personal interest, favors/corruption =>
here people are more selfish, « i know christian democrats will have the back of farmers, so I as
a farmer i will vote for them, i don’t care about christian values » or one person might think it
pays too much taxes and one party says that it will reduce the taxes of the workers, they might
vote for them
o In most countries parties with a lot of voters handed out a lot of favors to them
o This category is referred as « Benefit »
o Is hard to tell why people vote for example for socialists ; distinction between policies voters
believe and benefits they receive as a motivation for their votes might not be clear
- Policy proposals (realism), ideology, ideas, past performance => knowable considerations : « i
share the same ideas, ideology, i like the policies they propose », you can make several
distinctions here too in this category ; it can go deeper -> reduce taxes for example is a more
specific policy proposal
o Past performance of politicians : voters don’t look at what politicians are saying, but what
they did in the past
o Or you can just believe in what they are saying
o Or vote regarding on what they expect is going to happen, what to I anticipate and based on
that I vote for a certain politician/party
, Alysson Yalman
2022-2023
o more extreme parties voting, since they expect them to get closer to what they want
They all have in common one thing : policy !! That is related to their ideology
Side note : one of the main trends in european politician recently -> number of people voting
regarding ideology goes down (in the past people always voted for the same party everytime !!),
but now it is going down. Bc they have failed to retain their voters (people get upset and vote for
an other party)
- Personality, loyalty, credibility, similar background, competence, experience and education, =>
« personalities » this has most to do with psychology
o It could be that people think that charismatic politician might think they will be more
competent
o Some categories may be related to one another
What type of policies do you think do matter ? Do voters care about ? Determine elections results ?
- Unemployement policies, tax policies, trade => economic policies
o Growth rate of the economy !! If the economy grows, then person is re-elected, if not or
moderately they throw out presidents
- Environmental policies, migration, foreign policy => other issues, all of the other kinds of policies
(belgium : regional issues)
- Pensions, poverty, health care, education, abortion => social policy
In Belgium : social policy was in the hands of the church (education, health,…) ; catholic institutions
were very important in the past, you couldn’t reform healthcare and education system without
catholic institution aprovement
These 3 dimensions in Belgium, are not the same but the parties all line up..
- Third issue in belgium : 3 important dimension -> regional issues
- Another issue : balance of power in EU (not an issue in belgium but other countries here)
The basics of spatial theory
Spatial theory comes in :
Where a party stands : prrogressive/ conservative or right/left ; where in the two dimensional is
it placed ?
In marketing it is also used : how you characterize a product and you can do the same think for
poiticians and policies in a political space
You do a market study, you talk to consumers and ask them what do you think about these
chocolats, to locate different chocolat in the pannel and whether they like it more or less than
products that are already in the market
o In politics politicians can do the same thing, put pannels together and they ask voters what
they care about, were they stand on different issues -> then they look « are we in the right
place ? Should we change positions ? More right /left ? »
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