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Business political influence on agency regulatory decision making: The efficacy of corporate political activity in Taiwan's CATV license awarding

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Business political influence on agency regulatory decision making: The efficacy of corporate political activity in Taiwan's CATV license awarding

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Content BUSINESS POLITICAL INFLUENCE ON AGENCY REGULATORY
DECISION MAKING: THE EFFICACY OF CORPORATE
POLITICAL ACTIVITY IN TAIWAN’S
CATV LICENSE AWARDING
by
I-Jan Yeh
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(PUBLIC ADMINISTRATION)
August 2005
Copyright 2005 I-Jan Yeh
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UMI N um ber: 3 1 9 6 9 1 7
Copyright 2005 by
Yeh, l-Jan
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Signature Page
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iii
ACKNOWLEDGEMENTS
I have been working on this dissertation, on and off for so long, that my debts
have piled up because many individuals in various institutions have assisted me in a
myriad of ways. It is impossible to acknowledge everyone here, but I will try.
I still owe my greatest debt to my committee chair, Elizabeth Graddy.
Without the relentless supports and perennial encouragement from her, I would not
have completed this work. Thanks should go as well to the other two committee
members, S.Y Tang, a true mentor and long time friend, and John Matsusaka, who
provided extensive written comments on the entire manuscript. I especially
appreciate the efforts of Mark Zupan, Peter Robertson, Terry Cooper, Glen Melnick,
June Muranaka, and Joanna Yu during my stay at USC.
My greatest debt is to the many bureaucrats at GIO, many of them went far
beyond what any researcher could reasonably expect. Unfortunately, most asked to
remain anonymous. Appreciation needs to be extended to the Department of Public
Policy & Management at Shih Hsin University, where I worked with a group of
prominent scholars in the field of public affairs. I am grateful to all of my colleagues
there.
Finally, I wish to express my deepest gratitude to my parents for unwavering
support, and to my wife, Joannie, for standing by me through the entire, labored
process, and to my son, Jasper, for giving me the rare moment of pleasant company
and making me tick to complete this project.
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iv
TABLE OF CONTENTS
ACKNOWLEDGEMENTS.................................................................................... iii
LIST OF TABLES................................................................................................... vi
LIST OF FIGURES.............................................................................................. vii
ABSTRACT........................................................................................................... viii
Chapter
1. INTRODUCTION.................................................................................... 1
Background......................................................................................... 1
The Purpose of this Study and its Related Research Questions 5
Main Findings and Key Contributions............................................... 9
Organization of this Study................................................................. 14
2. THEORETICAL FRAMEWORK AND LITERATURE
REVIEW............................................................................................. 17
Introduction......................................................................................... 17
Business Political Influence............................................................... 19
Macro-Level Analysis of Business Political Influence................ 21
Firm-Level Analysis of Business Political Influence................. 26
The Sources of Political Influence by Cable Operators.................... 31
The Political Activities and Strategies of Cable Operators 31
Political Tactics.............................................................................. 32
PAC and Political Contribution.................................................... 34
Indirect Sources of Political Influence.......................................... 36
Nonprice Concessions................................................................... 37
Interlocks and Network Affiliations............................................. 42
Price/Quality Combination........................................................... 50
Firm Size........................................................................................ 53
Professionalism.............................................................................. 55
Models and Hypotheses of Agency Behavior................................... 56
Agency-oriented Framework........................................................ 56
Rationale for Agency-oriented Approach.................................... 58
Models of Agency Behavior......................................................... 60
Notable Hypotheses about Agency Behavior.............................. 62
External— Signals Model of Agency Behavior............................. 66
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V
Chapter Page
3. THE EVOLUTION OF TAIWAN’S POLITICAL INSTITUTIONS
AND ITS IMPACT ON CABLE TV INDUSTRY AND ITS
REGULATION................................................................................... 69
Introduction................................................................................... 69
Theoretical Perspectives on the Choice of Industrial Policy
and Regulatory Arrangement....................................................... 72
The Evolution of Political Institutions in Taiwan and Its
Implications for Regulatory......................................................... 75
The Evolution of Political Institutions......................................... 75
Implications of Political Transformation for Regulatory Shift... 80
Historical Development of Cable TV Industry and Its Regulation... 84
Industry Background.................................................................... 84
Regulatory History and the Licensing Process........................... 91
The GIO’s Regulatory Structure and Process................................... 98
Regulatory Structure..................................................................... 99
Regulatory Process........................................................................ 102
Concluding Remarks........................................................................... 105
4. DETERMINANTS OF GIO’S LICENSING DECISION:
EMPIRICAL ANA............................................................................. 108
Introduction........................................................................................... 108
Framework and Measures............................................................ I ll
Direct Sources of Influence.......................................................... 113
Indirect Sources of Influence....................................................... 116
The Ideology of Commissioners.................................................. 117
Methods................................................................................................. 120
Data Sources and Model Summary.............................................. 120
Data Sources.................................................................................. 121
Model Summary............................................................................ 123
Data Analysis and Results............................................................ 125
5. CONCLUDING REMARKS AND IMPLICATIONS........................... 137
Introduction......................................................................................... 137
Generalizations from the Empirical Results..................................... 138
Implications Explored......................................................................... 140
Business and Government Relationship in Contemporary
Taiwan..................................................................................... 141
Implications for Alternative Theories of Regulatory Behavior.. 143
Implications for Democratic Accountability............................... 146
REFERENCES....................................................................................................... 151
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vi
LIST OF TABLES
Table Page
1. Global Trends in GDP Per Capita and Monthly Average Revenue/
Subscriber (Y/E 2002)......................................................................... 90
2. Description of Independent Variables....................................................... 126
3. Summary Statistics and Correlation.......................................................... 127
4. The Logistic Regression Results of the Full Model................................. 128
5. Auxiliary Regression Results.................................................................... 129
6. Results from Binary Logistic Analysis..................................................... 131
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vii
LIST OF FIGURES
Figure Page
1. Taiwan Cable TV Penetration: Historical Growth.................................. 89
2. Latest Trends in Top Seven Global & DTH Satellite TV Penetration
(Y/E 2002)........................................................................................... 89
3. The Framework for GIO’s Licensing Decision....................................... 114
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viii
ABSTRACT
The main purpose of this dissertation is to examine the efficacy of corporate
political influence on the regulatory decision-making of Government Information
Office (GIO) regarding cable television (CATV) licensing process, and its
implications for the business and government relations in post-democratization
Taiwan. Although this research is not unique in suggesting the efficacy of certain
political strategies and tactics, this is the first empirical study of the responsiveness
of a Taiwanese regulatory agency to business influence.
In this paper, I pursue two lines of inquiry: (a) Why do certain regulations
take the form that it takes, or specifically, why are license awarded rather than
allocated by bidding in regulating Taiwan’s cable TV industry? (b) What determines
the political success of individual cable operator? Is it the effectiveness of individual
cable operators’ political activities, structural attributes, nonprice concession, or
networking capability that determines the likelihood of being granted license?
In answering the first question, I provide an interpretive account of historical
and institutional conditions under which cable television is regulated and the license
awarding scheme adopted. I interpret the reasons based on the “initial hardwiring”
behavior of government and contend that the seemingly inefficient practices of
awarding license administratively are revealed on closer scrutiny to be quite
creditable attempts to cope with difficult political transactions.
With respect to the second question, I conclude that actions taken by
regulated firms in political arenas can shape the outcomes of regulatory decision and
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the efficacy of cable firm’s political influence varies among different sources of
influences. The most significant determinant of political influence is network
affiliation. Such finding is consistent with the power elite theory and “industry job
incentive hypotheses.” In exploring the implications of business influence in
regulatory settings for alternative hypotheses regarding agency behavior, the
empirical evidences suggest that the congressional dominance theory, the agency
autonomy theory, and extemal-signals theory are shown to have predicative power at
GIO’s licensing decision.
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CHAPTER 1
INTRODUCTION
Background
In the wake of concurrent global trends toward privatization and deregulation
of infrastructure industries such as telecommunications, the 1993 decision of the
Taiwan government to regulate cable television via a centralized review committee
overseeing licenses awarding would invariably stun many students of regulation. The
decision seemed counterintuitive especially after decades of laissez-faire stance
toward the industry. Before the enactment of 1993 Cable Law, the cable TV industry
in Taiwan was a vibrant informal sector—highly differentiated, flexible, and run by
small-to-medium sized family enterprises (Cheng, 2002). The promulgation of the
Cable Act has resulted in a major reconfiguration of the cable industry since the life
and death of hundreds of atomized system operators were dependent upon being
awarded cable licenses. In scrambling for strategic advantages in the regulatory
proceedings, the system operators have every incentive to engage in corporate
political action or activity and to develop corporate political strategy or nonmarket
strategy aimed at influencing policymakers.
While business political influence over regulatory policies is a pervasive
feature of most industrial nations, the business as an interest group actively
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participating in national politics is only a nascent development in Taiwan.1 If politics
is about who gets what, when and how, there is serious doubt that business interests
in Taiwan were very successful in securing benefits from government until a series
of political transformations occurred. It is widely acknowledged that the existence of
liberal-democratic society is a prerequisite for corporate political activity to be a
possible venue because the exercise of political power is legally sanctioned under
such system. Unfortunately, in the ante-revision era of Taiwan the ruling party
(Kuomintang, KMT) has historically enjoyed a great deal of autonomy from societal
actors including business, and as such, except on an ad hoc basis, the business-
govemment relation in general was thin and distant. During that era, the political
nature of business was evidenced only in the party organizations parallel to each
level of business association (Kuo, 1995, pp. 67-73), and unless triggered by KMT,
the possibility of business power in governmental action was nil.
The political transformation to democratic regime during the late 80s and the
1990s marked the dawn of a new era of business leadership in national politics.
Against this backdrop, the significance of state intervention into the cable TV
1 In the literatures o f interest group and political economy o f regulation, the business is
generally treated as not different from other interest groups such as trade associations and peak
business associations in terms o f its ability to mobilize resources. But some researchers do not
embrace this assertion and contend that business enjoys over proportionate consideration in the
formulation and implementation o f public policy (Block, 1977; Lindblom, 1977; Przeworski &
Wallerstein, 1998). Hart (2002) by pointing out the mismatch between interest group theory and
corporation contents that business is not an interest group and should be treated individually and
accordingly.
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industry after decades of hand-off stance toward this industry is twofold. First, such
intervention paralleled the evolution of the newly established business-govemment
relation entailed by political transformation from being state-centered or
“bureaucracy dominance” to being electoral-centered or somewhat “legislative
dominance.” And second, cable regulation became an arena in which the major
players in both telecom and media industries scrambling for competitive stronghold
in the upcoming “digital convergence.” Consequently, the Cable Act leaves the
agency charged with regulating cable TV industry, Government Information Office
(GIO), open to various sources of influence since the incumbents seek to make the
original legislative deal stick to their intention, the losers seek out a second chance
during the implementation stage, and the consumers seek to register their complaints
as well as discontent about cable service delivering. The literature touting the
democratization and global competitiveness of Taiwan is not lacking. What has been
ignored is the effect of political transformation on the emerging government and
business relationship and its resultant impact on business political influence.
From institutional viewpoint, the using a review commission to regulate cable
operators through license awarding rather than devolving into local franchise bidding
certainly has its institutional origin which bring about such regulatory arrangement
as we see it. On one hand, the same institutional arrangements would also affect
cable systems’ capability to influence regulatory outcomes or decisions. On the other
hand, the cable firms or the interest groups representing them, in anticipation that
certain outcomes or decisions might be advantageous to them, organizes to secure
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favorable regulatory arrangements via influential political action. The reciprocity
between regulatory arrangements and business influence is animated by the rents
created by regulatory policy, and then reassigned within the political process to
maximize support for key public decision makers.3 At issues are the size of rents
accrued to different regulatory arrangements and who, public decision makers,
politicians, or agency regulators, will prevail in the political process. The political
process might favor politicians in the form of campaign contribution or nonprice
concessions. It might favor agency regulators in the form of industry transfer, post-
government employment, or nonprice concessions, or it might favor other interest in
the form of cross-subsidies. In general, the size of rents is smaller for franchise
bidding than that for commission regulation (see different results by Willamson,
1976). Yet it remains to be seen whether this is the case in Taiwan.4
2 In the lobbying literature in which the existence o f competitive groups generates rents for
the regulator is formally modeled and well documented (Austen-Smith & Wright 1992; de Figueiredo,
Spiller, & Urbiztondo, 1999, de Figueiredo & Tiller, 2001; Lupia & McCubbins, 1994).
3 The regulators can be either legislators or bureaucrats. But Spiller (1990) offers a different
perspective. He considers the Congress and special interests as principals, with the regulators as
agents. The principal-agent interaction is codified in a vertical relationship in which Congress creates
the agency and appoints regulators, who then convey rents to the special interests; these interests can
reward the regulators by offering them post-government jobs and Congress can extract these rents
using its appointment power.
4 There exists a great body o f scholarship which explores the implications o f American
political institutional structure on the strategies and tactics that interest groups employ to influence
institutional outcomes (Arnold, 1990; Bendor & Moe, 1986; Graddy, 1991; Grier, Munger, &
Roberts, 1994; Hansen, 1991; Hansen & Mitchel, 2000; Kingdom, 1981; Lowi, 1979; Milbraith,
1963; Moe, 1980; Olson, 1995/1996; Rehbein & Lenway, 1994; Rothenberg, 1994; Truman, 1971).
Unfortunately, there is no comparable works done with reference to Taiwan.
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The Purpose o f this Study and its Related Research Questions
The main purpose of my dissertation is to examine the efficacy of business
political influence on the regulatory decision-making of the Government Information
Office (GIO) regarding its cable television’s (CATV) licensing process. This study
has strong implications for exploring the business & government (business &
politics) framework in post-democratization Taiwan. It is widely acknowledged that
the extraordinary performance of countries such as Japan, Taiwan, and Korea were
characterized by close cooperation between business and government to gain world
market share in selected industries (Anisden, 1989; Cheng & Chu, 2002; Chu, 1994;
Johnson, 1987;Lodge, 1990; Wade, 1990). Yet, the forms of cooperation between
business and government among these countries are neither congruent nor static.
This can be evidenced by their divergent patterns of industrial transformation and
their different speed of recovery from the Asian financial crisis (Haggard, 2000). In
the case of post democratized Taiwan, the expanded electoral base, increasingly
assertive elected assembly, and growing importance of the internationalized SMEs
gave rise to a more polymorphous state-business relationship (Cheng & Chu, 2002).
One of the central concerns about the relationship between business and
politics is the degree to which political outcomes as well as institutional arrange
ments are influenced by interested parties or, specifically, business.5 In cable TV
5 C.f., Wilson (2002) for an up-to-date survey o f the literature on business and politics in
America.
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regulation/deregulation, this kind of business influence is manifested by the
distributional coalitions emerging to extract rent in the form of cross-subsidies, or
commitment in the form of nonprice concessions.6 The central claim of this
dissertation is that such analysis of the politics of cable regulation overlooks two key
sources of influence exerted by individual cable operator: (a) overt political
activities, and (b) covert structural characteristics. This research is not unique in
suggesting the efficacy of certain political strategies and tactics (see footnote 4 for
reference). Rather a key contribution of this research is that it provides a preliminary
sketch of business-govemment relation in post revision Taiwan by addressing the
following two sets of interrelated questions, with the second garnering the most
attention:
1 . Why does certain regulation take the form that it takes, or specifically, why
are license awarded rather than allocated by bidding in regulating Taiwan’s cable TV
industry? And what are the factors contributing to such regulatory form?
2. What determines the political success of individual cable operator? Is
it the effectiveness of individual cable operators’ political activities, structural
attributes, nonprice concession, or networking capability that determines the
likelihood of being granted license? Or alternatively, what are the implications of
cable operators’ political efficacy for alternative explanations of GIO’s decision
6 Most empirical evidences conform to the insight o f what Gilligan, Marshall, & Weingast
(1989) have noted once profits are created by regulators, they may be reassigned within the political
process to maximize support for key policymakers.
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outcomes? Does GIO’s licensing decisions reflect congressional dominance, its
autonomy, public interest, or captured by cable interests?
If the issues of regulation can be characterized as designing the leaves, trees,
and forests of regulatory institutions (Noll, 1999), the first set of questions is the
trees and forests part and the second set is the leaves part of regulatory institutions.
The forest is the overall institutional endowment of the nation. It determines to a
large extent the issues of regulatory origin and governance, e.g., formal governance
structures an institutional processes constraining policy choice and agency decision
(Levy & Spiller, 1996). The trees are the structure and authority of regulatory
agencies: the agency’s legal mandate, the relationship of the agency to the rest of the
government (ministers, legislators, courts), the procedures for appointing and
removing the agency’s leaders, and the budget and staff of the agency (Noll, 1999).
The leaves are the details of regulatory decision-making processes: how regulators
collect information, promulgate decisions, and enforce rules, and what specific
conceptual approaches agencies take to making decisions. The regulatory processes
which entail substantive agency decisions are the consequences of regulatory
arrangements. The efficacy of business political influence does not come out of thin
air and is mainly moderated by regulatory processes.
The first set of questions falls within the purview of regulatory origin and the
second of regulatory process. The theories of regulatory origin are normally geared
to explain the “why” which underlies the creation of regulatory organization, the
pass of certain legislation, the creation and adoption of specific forms of regulation,
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the circumstances under which regulation becomes politically possible, and the
pattern of regulation most likely to emerge from a given political context (Mitnick,
1980; Wilson, 1974). To a large extent, theories of regulatory origin are usually
termed as theories of “interest” because they share the core assumption regarding the
seeking of interest satisfaction or attainment (Mitnick, 1980). For example, both the
public interest theory and the capture theory of regulation are theories based on
regulatory origin since we may identify the regulatory origin according to who is
genuinely held interest would be served by the enactment of regulation. In contrast,
the theory of regulatory process seek to explain the forces that will influence how a
regulatory agency doing its job or make decision, e.g., what are the factors that
determine the outcomes of regulatory policymaking (Magat, Krupnick, &
Harrington, 1986). Most prominent among theories of regulatory process are the
congressional dominance theory and agency autonomy theory.7
However, questions about regulatory origin and process are often related. The
key to understand the ways in which a regulatory agency actually promulgates rules
and decisions lies in the administrative discretion borne by the delegation decision
made as the result of legislative battle among competing interests. Simply put, the
exigencies giving rise to regulatory origin will invariably impact on the regulatory
process through which an agency conducts itself. This is also illustrated vividly by
7 There are other theories o f regulation seeking to explain the ongoing behavior and process
o f regulation Joskow & N oll (1986) and Mitnick (1980) for a comprehensive review o f such theory.
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the congressional dominance literature. The congressional dominance approach is
purported to explain the processes and the outcomes of regulatory policymaking, but
at the core, its explanations hinges heavily on the “initial hardwiring” and
“deckstacking” behavior of the original enactment f the legislative deal (McCubbins,
Noll, & Weingast, 1987/1989; Weingast & Moran, 1983; Weingast, 1984) a major
part of regulatory origin. Moreover, if the regulatory process is concerned with the
structural and behavior consequences of the articulators of interests, then the
regulatory origin deals with the process by which the articulators of interests get
organized and become institutionalized.
Main Findings and Key Contributions
In answering the first question, I provide historical and interpretive accounts on
the political transformation that Taiwan has undergone, and its impact on regulatory
arrangements and on the relationship between business and government. The
interpretive accounts focus on the centrality t electoral environments and party
organizations that are essential to explain the reasons why Taiwan has adopted
different approach to regulate cable TV industry. The historical accounts stress on
the paralleled relations between political transformation and evolution of cable
industry. Most of my arguments are based on the “initial hardwiring” literature and
some are drawn from the theory of transaction-cost politics. The “initial hardwiring”
literature states that the institutional arrangements, which render administrative
review scheme the only viable alternative have also predetermined that regulators are
constrained to pay more attention to political than economic influence. The theory of
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transaction-cost politics contends that many seemingly inefficient practices of
political institutions are revealed on closer scrutiny to be quite creditable attempts to
cope with difficult political transactions (Dixit, 1998).
With respect to the question, it is hypothesized that the individual cable firm
can achieve political success by exerting both direct and indirect sources of influence
on the regulatory agency. It is also hypothesized that the efficacy of cable firm’s
political influence varies among different sources of influence. The direct sources of
influence capture the unique political strategy and skillful political tactics. The
indirect sources of influence represent the structural attributes and networking
capability. I conclude that actions taken by regulated firms in political arenas can
shape the outcomes of regulatory decision and the efficacy of cable firm’s political
influence varies among different sources of influences, because the agency is much
more receptive to influences emanating from networking with major cable
conglomerates, then from political tactics, and least from structural attributes.
Among different political tactics, the money-driven political tactics (political
contribution and congressional allies) are more effective than overt political
activities (participation in agency and congressional proceedings).
I also conclude that no single theory of agency behavior can explain the
agency’s licensing decision because the empirical evidence suggests that the
congressional dominance theory, the agency autonomy theory, and extemal-signals
theory are shown to have predicative power at GIO’s licensing decision. The
empirical evidence is consistent with congressional dominance theory because the
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significance of money-driven tactics indicates that the GIO’s decisions generally
reflect the preferences of the corresponding congressional oversight committee.
Moreover, the agency autonomy theory is shown to have predicative power at GIO’s
licensing decision because the effect of network tie may be viewed as a signaling
device for the inner circle that allow regulators to legitimately capitalize on such
signal in order to leverage their post-commission employment. The empirical
evidence is also consistent with the extemal-signals theory because GIO
commissioners make decisions by balancing conflicting demands from different
sources of influence. Just as a cable firm can wield its political power in order to
strategically solidify its competitive advantages, so too the agency regulators can
make decision strategically in order to bring about positive signals, or prevent “fire
alarms” from surfacing. The empirical findings are, however, not consistent with
outcomes predicted by public interest theory if promoting consumer welfare is
strictly construed as public interest.
This study contributes to the political theory of firm by exploring the firm-level
perspective on business political influence. The literatures from which we can draw
on to inform the topic of business political influence on regulation are extensive yet
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12
Q
fragmented. And often-times theories informing a single thread of literature are
diverse and fragmented either.9 Nearly every study on business political influence
has examined the industry or business level of political influence, therefore ignoring
a big chunk of political influence wielded by individual firm (Hart, 2002; Shaffer,
1995). The firm-level analysis is appropriate in determining the efficacy of corporate
political strategy or activity because the political attitude and behavior of
corporations in the same industrial sector often differ considerably from one another
(Hart, 2002). For example, the political style of AT&T is very much different from
that of former MCI. Further, in the era of globalization, the individual corporations
rather than industrial sector, should be the unit of analysis on political strategy
because the integration of global markets erodes national representative groups and
motivates firms to lobby individually for their perceived interests (Wilson, 2002).
This study also contributes to the agency-theoretic perspective on business
influence over regulatory policy. Regulation is an area of policy where corporations
are assumed to be influential. Scholars in the field of political economy base their
8 Related literatures include business strategy and public policy (Mahon, 1989; Mahon &
McGowna, 1996; Marcus, Kaufman & Beam, 1987), corporate political action (see Getz, 1997;
Mitnick, 1993: Mizruchi, 1992; Shaffer, 1995; Vogel, 1996 for an overview), and campaign
contribution and lobbying (Austen-Smith, & Wright 1992/1995; Balwin & Magee, 2000; Boies, 1989;
Clawson, Neustadtl, & Wellers, 1998; de Figueiredo, Spiller, & Urbiztondo, 1999; de Figueiredo &
Tiller, 2001; Grier, Munger, & Roberts, 1994; Lupia & McCubbins, 1994; Masters & Keim, 1985;
Pittman, 1976; Poole & Romer, 1985; Salomon and Siegfried, 1977; Zarkhoodi, 1985).
9 For example, Getz (1997) identified nine social science theories that the scholars have
applied to examine the corporate political action. They are: interest group theory, collective action
theory, public choice theory, transaction cost theory, resource dependence theory, exchange theory,
behavioral theory o f the firm, institutions theory, and agency theory.
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13
researches of business political influence on the intricacy of the relationship between
interest group and legislator or between legislator and regulatory agency (Noll, 1989
for a review). For example, most recent researches on business power have
predominately looked for the link between legislative roll call voting and extent of
political expenditures.1 0 Similarly, researchers of regulation have sometimes
. incorporated the relationship between interest groups and regulatory agencies into
their studies, such relationship is oftentimes consciously engineered by elected
politicians, and therefore shed little light on how regulatory agency interacts with
various stakeholder organizations.1 1 Hence in most cases, the direct link between
corporate power and regulatory agency was rarely explored. The agency-theoretic
perspective is paramount when a business firm attempts to influence the regulators
directly because the ultimate test of its political success depends on how receptive
the regulatory agency is toward such influence.1 2
1 0 See Grier, Munger, and Roberts (1994) for a review o f researches before them. After
Grier et al., see Hansen and Mitchell (2000); Mitchell, Hansen, and Jepsen (1997); Romer and Snyder
(1994); Wawro (2001); and Wright (1996).
1 1 The legislatively oriented viewpoint could be traced to Weingast (1978). Weingast’s 1978
article is probably the firs tone to fill the gap between the external factors that affect groups and lead
them to seek regulation, and the operation o f the regulation. Stigler erected the sides o f the box,
Peltzman (1984) put a “politician” in it, and Weingast (1978) has made the politician a legislator with
an institutional environment to operate within.
1 2 There exist only a few regulatory studies adopting an agency-theoretic approach to explore
the factors, be it stimuli or signals, to which the agency as the focal decision-maker responds.
Notably among them are Magat et al. (1986); Olson (1995/1996); Spiller (1990); Rehbein & Lenway
(1994).
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14
In essence, this study is more comprehensive to understand agency behavior
because it allows alternative theories of agency behavior to be juxtaposed, compared
& contrasted. Past studies tend to focus on single theory, an either or situation, to
explain agency behavior, i.e., public interest vs. capture theory, or congressional
dominance vs. agency autonomy. By analyzing the revealed preference of agency
decision-makers (Joskow, 1972; McFadden, 1975/1976) regarding business political
influence, I can draw inferences about the determinants of GIO’s agency behavior
and conclude that the GIO conforms to several models of agency behavior.
Consequently, the business-govemment relations could then be generalized from
comparing and contrasting alternative models of agency behavior.
Organization o f this Study
Following this introductory chapter, chapter 2 draws on pertinent literatures
to develop a framework specifically designed to account for the agency regulatory
policymaking and business political influence. The framework comprises two major
streams of literatures: (a) literatures pertain to explain the structure, process and
outcome of regulatory policy; (b) literatures pertain to account for the determinants
of business political efficacy. The former stream of literatures emphasizes the
structural characteristics of a country’s institutional environment as well as
policymakers’ orientation. The latter stream of literatures take into account the
impact of variation in the strength of individual firm defined along the dimensions of
corporate political activity, networking capability, and structural attributes on its
ability to influence policy outcomes. This chapter reviews somewhat more
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extensively the related literatures and theories bearing on the framework amenable to
the study of corporate political influence/power on regulatory policymaking.
Chapter 3 is purported to answering the first set of questions this dissertation
has posed. This chapter offers an interpretive account of the institutional influences
over and discretion accorded with regulatory agencies. Attention is directed at the
institutional foundations giving rise to the kind of regulatory practices we have
observed. The institutional foundations following political transformation engender a
renewed business-govemment relationship for three reasons. The first is to absorb
external shock while maintaining internal stability. The second is to signal the
regulatory commitment on the part of government in order to attract the required
private investment in the telecommunication sector as well as to allow the
participating firms more leeway to coordinate collectively their entry, exit, or voice
decision. The third is that the ensuing regulatory policies will tend to mirror the
political equilibrium existing not in the legislative enacting stage, but in the time
when the country is just democratized. And this is vividly illustrated in the histories
of cable TV industry and regulatory backdrop against which the industry has tried to
respond.
The main thrust of chapter 4 is to test empirically whether a firm’s choice of
influencing tactics and activity has an impact on regulatory decisions. Another
purpose of this chapter is to derive the implications of business regulatory influence
for alternative hypotheses regarding agency behavior. The variability in GIO’s
decision making is explained as a function of factors representing individual cable
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firm’s political influence. The revealed preference approach is employed here to
arrive at implicit motives and decision rules under gird the GIO’s decision making.
The outcome of the analysis is then used to compare and contrast existing theories of
regulation that can best explain GIO’s regulatory behavior.
Chapter 5 is dedicated to the interpretations of the implications of empirical
results for theoretical advancement and future researches. Empirical results are
discussed as they relate to the outcomes of regulatory decision-making. Theoretical
implications are offered after comparing and contrasting competing theories of
regulatory decision-making. The implications of the results for generalizing the
business-govemment relationship in Taiwan are discussed and some concluding
remarks are offered in the end.
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CHAPTER2
THEORETICAL FRAMEWORK AND
LITERATURE REVIEW
Introduction
For many years, the study of regulation is not only hardly divorced from the
study of politics, but also inextricably intertwined with business influence. This is
evidenced by two facets of liberal democracy. First, corporations are not only
subjects of regulation but also active participants in the political process that
promulgates regulations that affect them (Baysinger & Woodman, 1982; Yoffie,
1978). Firms attempt to shape regulatory outcomes so that they complement private
profit-seeking goals (Hillman & Hitt, 1999; Mitnick, 1993). Specifically, in
regulated market, such as telecommunications and financial services, business firms’
strategic behaviors are not limited to their interactions in the product markets; rather,
firms embrace their interactions in political markets as well as interactions between
firms and the policymakers (Baron, 1995). Second, regulation is an area where voters
tend to condone sell-outs by policymakers to business (Peltzman, 1998).1 3 It is
shown that firms often seek relief from the pressures of a competitive market via the
1 3 As Peltzman (1 9 9 8 ) has succinctly pointed out, the articles on political participation
emphasize broad issues, such as the functioning o f macroeconomy, which matter most to the typical
voter; whereas the articles on regulation are concerned with narrower issues, such as the prices o f the
utilities, o f which nothing as consequential for the typical voter. The differential strength o f rational
ignorance between broad and narrow issues has presented the legislator some slack to give the
regulator certain amount o f leeway in serving the interest groups that have provided campaign
contribution, since the life-or-death issues animating the interest groups are often regulatory issues
(Peltzman, 1998).
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process of rent seeking in the regulatory processes (Buchanan & Tullock, 1980;
Stigler, 1971), and consequently, there is always a market for regulation.
While it is widely acknowledged that the analysis of regulatory policy and
the study of business political influence are inextricably linked, theoretical
perspectives informing business influence on regulatory policy are nonetheless
fragmented. Despite their disciplinary fragmentation, most of the literatures share
two commonalities. First, business is treated as no different from interest groups.
Second, there are two approaches/strategies through which interest groups typically
wield their influences. One focuses on the role of interest group’s ability to mobilize
resources and votes, e.g., constituency-building, grassroots mobilization, issue
management, political contributions, etc. The other focuses instead on the role of
interest groups as sources of information for politicians, such as lobbying and all the
tactics based on providing specific information to decision-makers (Banks &
weingast, 1992; Hopenhayn & Lohmann, 1996; McCubbins & Schwartz, 1984; see
also footnote 2 in chapter 1). As stated in chapter 1, what has been neglected by most
literatures is the individual level of business political influence on regulation and its
implications for agency behavior.
The main purpose of this chapter is to delineate how such a framework of
firm level political influence should entail and what are the implications for various
hypotheses about agency decision-making. Following the introductory section,
section 2 provides a review of literatures on business political influence with
emphases on some rationales for firm level of business political influence. Section 3
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is devoted to delineate the framework of firm level political influence as it applied to
GIO’s licensing decisions. The framework is employed to gauge the relative strength
of three sources of political influence as well as to determine the factors affecting
agency decisions. Section 4 provides a review of possible hypotheses about agency
behavior. In addition to widely advanced hypotheses, namely capture, public interest,
congressional dominance, and agency autonomy, I review in details the extemal-
signals hypotheses of agency behavior.
Business Political Influence
The central proposition of most studies on business political influence is how
corporations achieve success in the political process. One perspective stresses the
specific political activity, strategies, and tactics used by an industry or a firm to
influence political actors. These are direct/overt political influence wielded by
business corporations. Some scholars have tried to evaluate the effectiveness
particular political strategies (Keim, 1981; Keim & Baysinger, 1988; Keim &
Zeithami, 1986; Rehbein & Lenway, 1994; Yoffie, 1988; Yoffie & Bergenstin,
1985). Still, some have attempted to examine political strategies used during
different stages of a specific political issue (Bucholz, 1992; Getz, 1993; Hillman &
Hitt, 1999). One well-researched phenomenon has been the various corporate
political pressure activities on national trade policy (Lenway, Rehbein, & Starks,
1990; Lenway & Rehbein, 1991; Rehbein & Lenway, 1994; Rehbein & Schuler,
1999; Schuler, 1996). By and large, researchers in this tradition have indicated
several political tactics, such as constituency building, lobbying, petitions to the
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political decision-makers, coalition building through, for example, trade associations,
advocacy advertising, and testifying in political committees.
An alternative perspective was developed because researchers have
repeatedly found it difficult to explain legislative and regulatory outcomes by
reference to overt political pressure from interest groups, including business (Smith,
2000, pp. 115-141). This perspective states that corporations can achieve political
success via covert or indirect influence. Such influence comes from two different
sources. One stresses that an industry’s political efficacy is largely determined by its
structural attributes. The argument is that industries facing relatively low costs of
collective action are able to secure affirmative decisions from regulatory agency.
That is, more concentrated, sizable, and profitable industries are more effective
politically because of the low cost of collective action representing cohesive political
front (Esty & Caves, 1983; Salamon & Siegfried, 1977).On the other side, are studies
claiming that the owners and managers of private enterprises enjoy a structurally
privileged position that enables them to secure political outcomes even if they refrain
from using the political resources available to them. Following from the Marxist
tradition, these studies argue that business power rests on the structural dependence
of the state on capital (Przeworski & Wallerstein, 1988; Quinn & Shapiro, 1991;
Swank, 1992), or the structurally privileged position of business (Lindblom, 1977,
Miliband, 1969, pp. 146-178).
In addition to the direct and indirect classification, business political
influence can also be categorized by its macro and micro emphasis. Unfortunately,
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the bulks of researches focus on industry or aggregated level of business political
power almost to the exclusion of firm-level analysis. Yet, as noted in chapter one, the
significance of a theoretical framework based on and firm-level perspective should
not be overshadowed by the dearth of related literatures. In this section, I will
elaborate on literatures with a macro emphasis and the rationales for a firm-level
framework.
Macro-Level Analysis o f
Business Political Influence
The focus on political influence at macro level, e.g., industry or societal level,
mainly addressed the conditions under which an industry is unified— the firms within
such industry able to act collectively— and the implications of such unity on
democracy. When it comes to business political activity, the macro level perspective
usually investigates how and what collective approaches, such as the use trade
association (Staber, 1985) and PAC’ contributions (Clawson & Neustadt, 1990;
Grier, Munger, & Roberts, 1991/1994; Mizruchi & Koenig, 1986; Useem, 1984), are
most effective on the workings of the public policy process. Collective approaches
may be appropriate when firms in an industry are unified by external threats such as
new technologies (Russo, 1993), or when public policies or regulations exert
differential effects on market competition among different industries because of the
way they distribute the burdens and benefits among industries (Leone, 1981).
In addition to the above analysis of collective approach to political activity,
the theory of collective good or the theory of interest group mobilization also plays a
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significant role in determining the macro-level political participation and its ensuing
influence. Mancur Olson’s (19765/1971) Logic o f Collective Action provides the
theoretical cornerstone for most discussions corporate political participation. The
implications of Olson’s theory for industry political influence are twofold. One is
that the rational calculus of individual firm will lead to a decision to join in
pressuring (lobbying, petition, campaigning) the government or not. Since most
legislations regulations possess the property of public good, political participation by
any individual firm occurs only if the benefits to the firm offset its cost in engaging
in collective actions, or if there are incentives strong though to overcome a firm’s
tendency to free ride. The public good doctrine held that, given rational and
economically self-interested, the vast majority of business would avoid political
action. While this proposition from the collective goods literature describes
accurately the political involvement of most U. S. firms, namely, most firms in the
United States are either free riders or followers in an ad hoc fashion, the growth in
the numbers of business-related PACs (Vogel, 1989) corporations with offices in
Washington, DC, and corporation with public affairs unit (Mahon & Post, 1987,
Useem, 1984) are all evidences of growing business interest in government and the
active involvement of large and medium-sized firms in politics.
Another implication of Olson’s (1965) theory for industry political influence
is that an industry’s structural attributes, such as market concentration and industry
size, indicate its potential political effectiveness. Basically, these attributes suggest
that the costs of participation, rather than an industry’s resources, determine political
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success. In a relatively more concentrated industry, the potential for economic gains
for the dominant firms tends to counteract the tendency to free ride; thus suffer less
from Olson’s (1965/1971) collective action problem. In addition, the sparse numbers
in a concentrated industry make bargaining cheaper by minimizing the costs of
negotiating a political agenda among member firms (Esty & Caves, 1983; Salamon
& Siegfried, (1977).1 4 Further, in a concentrated industry, the larger per capita stake
for each firm implies relatively more conformity between individual and group
incentives to pursue favorable government treatment (Grier et al., 1991/1994). The
Olson’s (1965/1971) framework suggests a similar prediction of the impact of
industry size on political effectiveness with that of the impact of industry
concentration. In a large industry, Olson argues, individual firms receive a smaller
share of the collective benefits and have more of an incentive to free ride. In
analyzing industry tax rates, Salamon and Siegfried (1977) find that smaller
industries are more likely to have lower tax rates because they can organize more
easily for political action.
These two implications of Olson’s theory (1965), though provides the
theoretical underpinning for industry-level analysis of corporate political influence,
have oftentimes produced contradictory propositions about the relationships among
1 4 Esty and Caves (1983) argue that “seller concentration amplifies political influence not
through overcoming the free-rider problem to mobilize funds, but through fostering agreement within
an industry on the positions to be taken and political benefits to be pushed” (p. 35). This prediction,
according to Grier et al. (1991), is consistent with the Olson argument (1965), because agreement on
what to do is at least as important as enforcing the agreement once it is reached.
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structural attributes, political action, and the resultant political influences. What is
puzzling for Olson’s logic is the poor empirical support for this argument in the
domain where it should work best, namely explaining business political activity.
Less disputed is the proposition that legislators respond to the demands of a
politically cohesive industry (Olson, 1965/1982; Stigler, 1971) and such political
cohesion should depend on the structural attributes such as concentration, size, and
profitability (Salamon & Siegfried, 1977). That has been frequently debated is
whether these structural attributes constitute a compliment or an alternative to
political action or participation. Stated briefly, questions raised as to whether market
power is substitute or a compliment for political power cannot be resolved
theoretically because the empirical results are ambiguous. Researches following
Olson’s (1965) logic tend to argue that more that more concentrated and profitable
industries are more effective in the political process because they can organize for
political action more easily and present a cohesive political force (Esty & Caves,
1983, Salamon & Siegfried, 1977).
In contrast, there are studies (Munger, 1988; Zardkoohi, 1985/1988 for
empirical evidences), albeit acknowledging that firms in a concentrated industry can
more cheaply solve the collective action problem inherent in political action,
indicating that it is less likely for firms in a concentrated industry to participate in
political process because their market power could be translated into political power
more directly, rather than being forced to rely on actual political activities such as
PAC contributions. As Zardkoohi (1988) notes, “The notion that large firms will
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make larger political contributions than small firms is blunted . . . by the possibility
that market power may be a substitute for political favors.” Accordingly, as he
continues to argue, “Competing firms, or firms with low market share, would have
greater incentive to seek governmental favors than non-competing firms with high
market shares.” His arguments bear some resemblance to that of as given by
Demsetz (1973), who note that an industry is concentrated because efficient firms
pushed out inefficient one, and hence the efficient firms grow as a consequence of
superior economic performance, not as a result of any collusive arrangement.
While the connection between an industry’s structural characteristics and its
political influence is not yet conclusive, Rehbein and Lenway (1994) advance from
their empirical findings a contingent proposition that “perhaps industries with less
economic power find it easier to the gain access to relatively small government
bureaus such as the ITC (whose procedures are well specified) than to Congress
(whose rules are more tacit).” Their findings provide some clues to the question of
whether an industry’s political activities facilitate political influence by converting
an industry’s structural attributes into political power or whether political activities
have an independent impact on the political process. The institution over which an
industry try to influence, Congress vs. executive branch, or small government bureau
vs. large government bureau, play a mediating role in determining the connection
between an industry’s structural characteristics and in political influence.
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Firm-Level Analysis o f
Business Political Influence
The aggregated or industry level of analysis on business political activity is
widely adopted in political science, economics, and sociology because most
regulations affect the entire industry rather than individual firms and as such the
variation among the impacts of regulation is greater across industries rather than
within an industry. For example, the economic perspective on regulation is based on
the idea that government will be responsive to an industry’s requests for protection,
and that, particularly in Japan, government plays the crucial role in selecting
industries for targeting industrial policy purposes (Johnson, 1982). While the
economic perspective has much to offer as an explanatory tool applied to agencies
such as the ICC or the Civil Aeronautics Board— regulatory bodies that control single
industries tightly— it cannot accommodate the divergent competitive interests of
business within a regulated industry (Wood, 1986).
In an essay seeking to encourage scholarship on individual businesses in
American politics, Hart (2002) alert that “the deficit of scholarly effort is especially
noteworthy with respect to individual firm.” In his assessment, the fact that there are
too few studies of individual firms in the field o f Business and Politics reflects the
mismatch between theoretical apparatus informing interest group politics, Mancur
Olson’s (1965) Logic o f Collective Action above all, and the political behavior of
corporations. His argument is that political operation of individual business can
hardly square with what the Olson’s logic has predicted. In general, the Olson’s
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framework is most useful in explaining the aggregate level of business political
mobilization— the mechanism by which member firms in an industry, a sector, or an
association can deploy to overcome the free-rider problem in order to achieve their
collective end. But using this approach to determining the efficacy of corporate
political strategy or activity is in part problematic because the political attitude and
behavior of corporations in the same industrial sector often differ considerably from
one another.
The most important distinguishing feature of managerial perspectives on
business political activity is its emphasis on the use of the organization or firms as
the level of analysis (Shaffer, 1995).1 5 Implicit in the firm-level analysis is of
business political activity is that organizations operating in the same industry are not
all alike and that organizations have the incentives and capabilities to use
government, regulations to achieve comparative advantage. Moreover, the
differences between a typical interest organizations such as industry association, and
a typical business corporation are so fundamental that a political theory of firm is
urgently needed (Hart, 2002). Empirically, individual firms gradually becoming the
dominant force in Mahon’s lobbying activity also clinch this point. Specifically, data
compiled by Baumgartner and Leech (1998) under the Lobbying Disclosure Act
1 5 Mahon’s definition o f the firm-level perspective on corporate political strategy is
illustrative: “Corporate political strategies employ an organization’s resources to integrate objectives
and to undertake coherent action directed toward the political, social, and legal environment in order
to secure either permanent or temporary advantage and influence over other actors in the process”
(1989, pp. 51-55).
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indicated that firms formed a substantial plurality of both interest organizations (41%
of reports) and clients of lobbying firms (44%) in 1996. From a global perspective,
in an era in which most large corporations are engaged in different sectors and
across-country, it is much more difficult to use sectors rather than corporations as the
unit of analysis (Wilson, 2002).
One stream of literature in managerial perspective advocating the integration
of business political activity and strategic management also rely on individual
corporations as the unit of analysis. It is termed as the “theory of strategic use of
regulation,” a theoretical perspective developed by Mitnick (1981) and Wood (1986)
to depict how businesses seek to use public policy and regulation in their own
interests and in particular to gain competitive advantage over others in their industry.
In addition, regulation often has asymmetric effects on competing firms (Leone,
1986). Mitnick (1981, p. 76) proposes that the strategic benefits of regulation tend to
be reaped by “larger firms, firms with particular technologies or locations, and firms
with certain specialized expertise.” The idea of focusing on the political behavior of
individual firms, as opposed to accepting an industry as an aggregated and unified
interest, is that it is too monolithic to view all business within a single industry as
having similar approaches to political action. Corporations within a single industry
are of many types: They vary in size, in form, in employment of both labor and
capital, in design, manufacture, advertise, transport and sell, in location and market,
etc. Given such diversities among corporations, noted by Wood (1986), it is difficult
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to argue that businesses in the same industry could be in agreement on most public
policy issue, let alone adopting a unified approach on matters of regulation.
The focus on firm-level analysis of business political activity has in turn led
to the development of “the strategic use of regulation” hypothesis. This hypothesis
posits that the aim of business political activity is to gain competitive advantage and
that the effect of government on business firms’ competitive position is no less
significant than the market-driven competitive sources. The notion that business can
employ the powers of government to achieve comparative advantage is by no means
a new idea. The economic theory of regulation has well documented the proposition
that firms often seek relief from the pressures of a competitive market (Stigler,
1971). Public policies have turned out to be protecting many firms from the markets
judgment, an activity that Buchanan, Tollison, and Tullock (1980) refer to as “rent-
seeking." Yet, several features distinguish the strategic uses spective from economic
theory of regulation. The most obvious is its stress on firm level as opposed to
industry level analysis. In addition to acknowledging the diversity of interests among
firms in a single industry, the strategic uses approach does not require that the firms
in an industry act in concert to seek regulatory benefits. It means that some firms are
actively involved, some will oppose any regulation, and some will be quiescent
(Wood, 1986). In a review of Vietor’s (1977) study on the events and conditions
preceding the passage of the Hepbum Act of 1906, which gave the ICC the power to
set rates, Wood (1986, p. 33) notes that “Vietor’s study is sometimes cited as support
for the economic perspective on regulation, but what he actually shows is that rate
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regulation by the Interstate Commerce Commission was an outcome desired by only
some members of the rail transport industry.” In Wood’s (1986) view, Vietor’s
(1977) study conforms more to the strategic uses perspective than to that of
economic theory of regulation.
In general, it is not necessary for the strategic uses approach to demonstrate,
as has frequently done in the economic approach, that regulation has been actively
sought by business firms. In the strategic uses approach, the interdependence of
business firm and government regulation occurs at two levels. The firm can act as
interest group and attempt to influence policy development when government
develops public policies; this is somewhat paralleled to the economic approach. Or,
conversely, if the firms choose to be inactive or quiescent in the policy-making stage,
they can nevertheless respond to regulation by adaptation during the implementation
phase. Further, while the industry-level perspective (c.f., the economic theory of
regulation) relies heavily on the theory of collection action or interest group
mobilization to inform its research, the firm-level focus of strategic uses approach
suffers no “free rider” problem because the actions of one firm will not necessarily
benefit the whole industry; the crust of using regulation strategically is to outwit the
competition, not to help the whole industry (Mitnick, 1981; Wood, 1986). In sum,
the strategic uses perspective posits that the locus of political action, due to the
structural and other divisions within an industry, will remain at the firm-level; and
individual firms will continue to view politics as a means to achieve economic
objectives that cannot otherwise be obtained through market channels.
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The Sources o f Political Influence by Cable Operators
The Political Activities and
Strategies o f Cable Operators
The choice o f the form for influence. Before a firm chooses to participate in
public policy process, it become important for business policy makers to be
confronted with questions such as: should the issue be addressed by the firm or is it
an industry question; what forum or branch of government will be chosen by the
firm/industry to deal with the issue; how will the proposed public policy measures or
interventions affect the structure of the industry or the strategies of the firm in the
industry (Mahon & McGowan, 1998). After these questions have been addressed,
then it comes to considering which forms of political influence (e.g., lobbying,
testifying, political contribution, etc.) are the most effective. A variety of theoretical
approaches to the choice of tactics for political influence can be found in the
collection of papers edited by Mitnick (1993), with emphasis on agency theory.1 6
Arguments along this line are less likely to evoke the collective good theory or the
collective approaches because the individual-level analysis is stressed.
Instead, for individual firms, the choice of what direct signal to send and
through which political tactics is somewhat similar to the “make” or “buy” decision
usually applies to questions of vertical integration and corporate governance
1 6 The agency theory developed by Mitnick in 1973, is one o f the two earliest works in a
general theory o f agency the other one is Ross’s (1973) economic theory o f agency. Because most o f
the subsequent works in agency follow the economic perspective, the original status o f Mitnick’s
piece is not widely cited despite that the two papers were independently conceived and that Mitnick’s
work became the first application in political science.
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3 2
usually applies to questions of vertical integration and corporate governance
(Williamson, 1985), or to the “exit,” “voice,” or “loyalty” (Hirschman, 1970)
decision when firms attempt to take strategic advantage of regulation, in general,
when theories such as “make” or “buy” decision is applied to manage governmental
interactions, it is submitted that what the individual firm seeks is the most efficient
way to engineer it interactions with regulatory agencies, and that business political
efficacy is determined more by the political tactics and skills of the firms and less by
the structural determinants. For example, during the debate on airline deregulation,
United Airlines broke ranks with the industry by endorsing deregulation. As a
maverick, United could not rely on the industry’s trade association; and instead it
developed its capability in political skills to represent its interests (Derthick & Quirk,
1985). This line of argument suggests that political efficacy is determined more by
the political resources and skills of the firm and less by the structural determinism
(Rehbein & Lenway, 1994).
Political Tactics
The political tactics used by the cable operators to signal their preference to
GIO are (a) not to participate or free riding on the efforts of GIO, (b) participation in
congressional hearing by CEOs or other representatives, (c) participation in GIO
rule’s making process, and (d) to pressure the firm’s congressional allies to send
signals in support of its position. Although by selecting the first tactic, a cable
operator might signal a lack of commitment in obtaining the cable license, the effect
of free riding can be nevertheless captured in the indirect signal—structural variables
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33
—received by the commissioners via proposals submitted by the applicants.
Including the first tactic provides test to whether the structural attributes of
participating cable operators are alternatives or compliments to the actual political
participation (see discussion in previous section).
There are few ways a cable operator can participate in GIO’s rule’s making
process. A cable operator can decide to (a) participate in its own name, pursuing
political tactic individually; (b) participate through a trade association, an industry
association, or peak business groups. It is generally admitted that the very existence
of a trade association or industry association is largely conducive to collective action
and, moreover, that participation through trade/industry association signals an
organized effect on the part of cable industry. But such tactic will be much less
useful because the outcome of GIO’s licensing decision is not a collective good for
the whole cable industry. Nevertheless, participation through peak business
associations is still a valid tactic for cable operators to signal their influence and
significance. This is especially evident in the deregulatory movement to the effect
that the Taiwan government has deliberately attempted to fragment authority among
different peak business associations in order to dilute their influence on the hand, and
solicit cooperation in major industrial policies in exchange for special regulatory
treatments, on the other hand.1 7
17
There exist, for a very long period o f time, three peak business associations in Taiwan.
They are: National Industrial Association, National Business Association, and Small Business
Association. The government has traditionally sought to fragment authority among the three peak
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PAC and Political Contribution
The use of corporate political action committees (PACs) is a major political
tactic widely adopted by industries and business firms, and is widely studied by
social scientists as well (cf., Clawson, Neustadtl & Scott, 1992) and Epstein (1984)
offer a good review of the uses of PAC data). More specifically, several studies
utilize PAC data to link industry structure and corporate strategy to political activity.
PAC data are used as a measure for testing broad topics such as the level of political
consensus (similarity of political behavior) between vertically related industries
(Mizruchi & Koenig, 1986), the effects of industry concentration on political
influence (Grier et al., 1991/1994), and the effects of corporate network structure,
especially the interlocking directorates, on business political activity (Koenig, 1979;
Mizruchi, 1992; Useem, 1984). While these studies provide substantial evidence of
general links between firms’ interests in public policy processes and patterns of PAC
contribution, this study will use this variable in a limited way for the following
reasons.
First, although it is submitted that firms employing corporate PAC
strategically will be more likely to receive favorable outcomes, it should be noted
groups by (a) instituting industrial policy measures favorable to certain sectors and by (b) concen
trating leadership in the hands o f a few keys figures with close ties the government. For a more
detailed review o f the key business leadership in Taiwan, please see Xiaoquing’s (1986), “Two big
central committee members from Taiwan’s business community.” It is no coincident to find that the
leader-ship o f past or current peak business groups also assumes the leadership o f major cable trade
associations.
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35
that it is not possible to obtain the PAC data for the reason that political contribution
and lobbying through PACs is not a legally accepted practice in Taiwan despite that
campaign contributions to party or members of elected officials are prevalent.
Second, as noted above, the PAC data is used primarily to support industry-wide
political activity rather than firm-level political activity. Namely, the primary focus
of most PAC studies is the similarity of political behavior among firms in a given
industry or across industries Mizruchi’s (1992) study of PAC contributions as an
indicator of business unity and power, rather than tapping into the variations of
political activity between individual firm. Third, drawing from most empirical
findings, the effect of PAC contributions as a political tactic extends only to the
outcomes of election (Green & Krasno, 1988/1990; Jacobson, 1984/1990), or to the
voting behavior of legislators (Chappel, 1982; Epstein, 1984; Esty & Caves, 1983),
and as such, PAC contribution is hardly a direct tactics of influencing agency’s
decision-making. Indeed, the casual link between political contributions and
regulatory agency’s decision is short circuited by the extent to which the oversight
committee is able to effectively control the agency’s decision-making process.1 8
Fourth, despite the usefulness of PAC data for analyzing business political influence,
1 8 Because it is legally prohibited in most countries for corporate contributions to be made
directly to government agency, there exists rarely any research exploring directly the causal link
between political contribution and regulatory treatments Burris’s article (1987) is the one that barely
touched upon the issue He found different contribution patterns between Sunbelt and non-Sunbelt
firms, as well as between heavily regulated and less regulated firms. Nevertheless, corporations doing
business with the government have the incentives to offer inducements to agencies in exchange for
favorable treatments even if outright political contribution is not legally sanctioned.
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3 6
it has some inherent limitations (Presto, 1986; Sorauf, 1992). In a study of
1986 and 1990 U. S. House of Representatives election, Sorauf (1992) found that
incumbency is the strongest predictor of PAC donations; that is, more than twice as
much money went to incumbents as to challengers. In addition, since most
corporations have broad political agendas, it is not easy to assign issue orientation
for PAC contributions except for single issue organizations (Shaffer, 1995).
Indirect Sources o f Political Influence
In addition to overt sources of influence, a cable operator can also rely on
indirect sources of influence to gain favorable treatment in the licensing process. As
noted in previous section, the theory of interest group mobilization was most
frequently invoked to predict kind of indirect sources of influence. The theory of
interest group mobilization (Olson, 1965) suggests that an industry’s structure
attributes, such as market concentration and industry size, indicate its potential
political effectiveness. But this line of argument is hardly sustainable when the
outcome of agency decision is not a public good in nature and involves a fight over
“turf’ among applicants because the cost associated to overcome the collective
action problem is not a concern to individual firm. From the individual firm’s
perspective, there are five categories of indirect influence could be identified from
the proposal data submitted to GIO’s review committee. They are (a) nonprice
concession offered as a form of “merit good,” (b) the percentage of interlocking
directorship or the degree of network tie/affiliation, (c) the price/quality
combination, (d) firm size, and (e) degree of professionalism. These five variables
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can further be partitioned into two categories. While it can be reasonably expected
that both the economic stake and political stake can translate to each other, albeit not
in one-for-one, the interlocking directorship and nonprice concession tend to
represent the strength of political signals from each firm, while the firm size,
price/quality combination, and degree of professionalism tend to signal each firm’s
economic strength.
Nonprice Concessions
Although the franchise bidding scheme makes more economically efficient
sense than simply awarding licenses through administrative measures (Demsetz,
1968; Posner, 1972), there are several potential important problems with franchise
bidding schemes (Williamson, 1976; Zupan, 1989a/1989b).1 9 Among the factors that
may impede the rate curbing potential of franchise bidding, importance attached by
policymakers to nonprice concessions may be the most significant obstruction. That
is, if nonprice concessions raise costs associated with constructing and operating a
cable system and yet prove desirable to policymakers, then the price curbing
potential of franchise bidding scheme will be curtailed.
The nonprice concessions, in the case of cable TV franchise awarding
processes, refer to the fixed costs sunk by cable operators to appeal to policymakers’
revealed preferences for such concessions. They may include: direct endowment;
1 9 These problems include imperfect competition at the time o f initial bidding, the pursuit o f
nonprice concessions by policymakers at the expense o f lower prices for general service, producer
“capture” o f the regulatory process, and the resemblance o f direct regulation once the cable franchise
awarded.
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free hookups for public institutions; community programming; institutional network
(I-nets) linking various public facilities in the cable zoning districts, and excess
channel capacity (Zupan, 1989b). Previous studies had pointed out the reasons why
the franchise awarding decisions maybe based partly on the nonprice concessions
offered by competing bidders (Hazlet, 1988, Posner, 1972; Shew, 1984, Zupan,
1989b), albeit its limited economic benefits and its inattentiveness to the very
interests of cable TV consumers (e.g, nonprice concessions raise cable cost). Posner
(1972) has termed such capture of the franchising process by the beneficiaries of
nonprice concessions as the “concession approach” to franchising. Under this
approach, the franchise is awarded to the bidder who promises to pay the largest sum
of concession for it. Given the inefficiency and limited economic benefits noted
above, one cannot rule out the possibility that there exist important, less easily
measurable nonpecuniary benefits associated with non-price concessions, which
prompt the policymakers to make decision based partly on such concessions.
The pursuit of nonprice concessions by the franchising authorities lies in the
political appeal of such concessions. Three reasons offered by Zupan (1989b)
suggest some rationale. First, any higher price necessitated by the cost of
concessions can always be blamed on the cable operator. A policymaker and his/her
affiliates may even get favorable publicity and win political support from putting up
a valiant, though unsuccessful, effort to protect cable consumers from higher rates.
Second, the benefits from nonprice concessions are both concentrated and
concentrated in the hands of individual who tend to be influential in politics. The
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beneficiaries of the dollars spent on direct endowment and institutional network are
those with an eye to mobilize public support or to solicit favorable public opinion on
their own behalf. Third, nonprice concessions may provide less visible and more
difficult-to-measure nonpecuniary benefits to a community. A commercially
nonviable studio and a system with a superfluous amount of channel capacity may
signal the prestige associated with having a state-of-the art system in the nation.
The preceding explication suggests that policymakers do not pay strict need
to the dictates of efficiency even when franchise bidding has been advocated by
many as a means of controlling natural monopolies. In countries such as Taiwan,
which award licenses to cable operators through regulatory reviewing process,
awarding licenses on the basis of the nonprice concessions promised by competing
cable operators should be all the more pronounced than countries adopting franchise
91
bidding schemes. That is because the institutional arrangements which render
licensing awarding through regulatory measures the only viable alternative have also
20 Whereas, by raising cost, non-price concessions lead to higher cable price, the institution
o f price-ceiling rate regulation serves to counteract such effect to the extent that cable cost is close to
the price-ceiling that a cable operator can charge. Under the circumstance, it is unlikely for the cable
operator to obtain a state-of-the-art system.
2 1 This assertion is not hold under what Williamson (1976) has pointed out that the
resemblance o f franchising to direct monopoly. Based on his analysis o f the city o f Oakland’s cable
franchising experience, one can easily conclude that opportunism is an unavoidable and unfortunate
fact o f cable franchising. If franchise bidding hold the promises for preventing monopoly pricing, then
the nonprice concession would be less a factor in determining franchising outcomes. Systematic
empirical evidence provided by Zupan (1989a) has suggested that franchise bidding schemes, while
successfully preventing monopoly pricing and operator opportunism, are not as successful as they
could be in promoting efficiency.
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predetermined that policymakers and regulators are constrained to pay more
attention to such political “merit good” than economic efficiency.
Whether the nonprice concession raises cable cost or is desirable in
franchising decision are both naturally empirical questions. Previous studies have
attempted empirically to measure the extent to which non-price concession raise
cable cost as the percentage of cable system’s construction costs or operating cost
(Noam, 1985; Owen & Greenbalgh, 1986; Shew, 1984; Webb, 1983; Zupan, 1989b).
In these studies, cost data are generally obtained from the proposal data submitted by
bidders at the time of initial franchising (Owen & Greenhalgh, 1986; Shew, 1984) or
from the regulatory bodies(Noam, 1985; Webb, 1983). These proposal data are
subject to gamesmanship problem because the amount of nonprice concessions
provided by winning bidders may be less than the amount promised by the bidders
prior to the granting of franchise, and information containing the amount sent by
operators on bidding for a franchise is lacking in the proposal data (Zupan, 1989b).
To overcome this problem, the technique of telephone survey is utilized, in Zupan’
research to obtain in-depth cost data associated with non-price concessions.
Yet, in the context of this study, proposal data submitted to the regulatory
body are to be used primarily as the estimate of the effect of nonprice concessions
along with a telephone survey to remedy and complement the regulatory data. It is
submitted that the survey data could contain more information such as the amount of
up-front endowments, free drops provided by an operator, the miles and channels in
a system’s institutional network, and the construction cost, etc. (Zupan, 1989b). With
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the above merits of survey data notwithstanding, the telephone survey is adopted in
this research for cross reference only. The rationale has been that, viewing from the
theoretical underpinnings upon which this study build, the policymakers or the
regulators are hypothesized to respond to signals from both direct and indirect
sources emanated from firms seeking to demonstrate their political efficacy. The
nonprice concession cannot be accounted for as indirect sources of signal if the
policymakers can not obtain such data through measures other than those provided
voluntarily by the cable operators or by the overseeing regulatory agency. Therefore,
the policymakers have no incentives in actively seeking alternative ways from which
to derive more cost information with respect to nonprice concessions in addition to
the information provided to them, as long as the data contained in proposal has been
audited by an independent agency.
Moreover, from a signaling viewpoint, the policymaker is less likely to
meticulously consider all the variables that have been hypothesized in previous
studies to capture the effect of nonprice concession. In regulatory decision-making
relying on proposal data, the variables most likely to represent the nonprice
concession are: the numbers of channel set aside for public purpose including
community education, community service, and political deliberation (the airing of
city council); the expenditure on campaigning for public causes. Unfortunately, data
on expenditure for public causes are not available from both the proposal data and
regulatory documents. But during the telephone interview, many cable systems
invariably identified the existence of local originating channel airing ethnic-oriented
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programs as one significant factor in currying political and regulatory support. Such
channel is normally aired in the language of local dialogue but cannot bring
sustainable commercial revenue, and yet become desirable since it is politically
correct to do so after the political transformation in early 1990s invoking the
ideology of “going native, embracing Taiwan” as the ammunition against the deep
rooted encroachment of Chinese influence.
Interlocks and Network Affiliations
The key task of the economic theory of regulation is to describe how
economic stakes map into political influence. Unfortunately, decades of regulation
studies clearly indicated that there is no reason to expect economic stakes to translate
one-for-one into political clout (Olson, 1971; Stigler, 1971). If the direct sources of
influence represent corporate political clout and the indirect the economic clout,
then, for the corporate to exert influence externally, there must be some existing
mediating mechanisms from which economic stakes can be translated into political
power, and political power into influence over policymakers. Earlier studies of such
mechanisms come from mainly the class theorists, who emphasized the organiza
tional tie as well as the circulation of personnel among various elite institutions, and
the movement of elites between their respective institutional bases of power
(Domhoff, 1967/1970; Miliband, 1969).2 2
2 2 The existence o f the mediating mechanisms is what distinguishes class theory from
pluralist theory. The class theory views that the mechanisms exist to resolve and mediate
intercorporate disputes (Pfeffer & Salancik, 1978), for a cogent discussion.)
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Mizruchi (1992) summarizes these mediating mechanisms into three types.
The first were those that helped create the appearance of united front among
networked firms. These included kingship ties (Zeitlin, 1974), social tie such as
attendance at elite colleges and shared membership in prominent social clubs
(Domhoff, 1974). The second were those that helped resolve conflicts between firms
and seniors. These included common stock ownership, financial institutions (Mintz
& Schwartz, 1985), and the notable interlocking directorates (Koenig, 1979; Koenig
& Gogel, 1981, Ratcliff, 1980; Roy, 1983). Finally, there were organizations whose
explicit purpose was to advance the political-economic goal of their member. They
included peak business association such as the Business Roundtable and policy
making organization such as the Committee for Economic Development (Domhoff,
1979; Whitt, 1982). The second and the third type of mediating mechanisms had
indeed invoked a full-blown of researches beyond those of class theorists. For
example, resource dependence theorists (Pennings, 1980; Pfeffer & Salancik, 1978)
have treated interlocks as attempts to coopt sources of environmental uncertainty (the
absorption of potentially disruptive elements of the environment into the
organization’s decision-making apparatus), while class theorists (Burt, 1983) has
treated interlocks as attempts to coopt sources of environmental constraint.
In a similar vein, Herman (1981) described three primary “channels through
which supracorporate linkages can influence corporate behavior”: (a) common
family ownership interest in several companies sufficient to dominate all of the
companies, (b) formal and informal methods of communication between autonomous
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corporations— ranging from telephone conversations to social affairs to interlocking
directorates— that facilitate common control or regulation of markets and that serve as
a means for resolving disputes, and (c) the feeling of community of interest among
corporate leadership and a sense of shared goals, which is strengthened by personal
contacts and business, social, and organizational ties. To capture the essence of
organizational network base of political power, Mizruchi’s (1992) observations are
to the point:
My argument is that to locate the sources of corporate political power, we
should identify firms that are tied together by economic interdependence,
common ownership ties, and interlocking directorates. Many of these firms,
of course, will be the largest in the most concentrated industries. But it is not
size or concentration per se, but rather corporations, economic, organiza
tional, and social interaction that unify and empower them. (p. 254)
The most commonly employed approach to the quantitative analysis of the
presumed mediating mechanisms has been to examine networks of interlocking
directorates. From its very beginning, the dominant firms of corporate order have
been linked by interlocking directorates. Herman’s (1981) findings have revealed
numerous interlocks between the 200 largest nonfinancial corporations and financial
institution, which point to the strategic position of financial institutions within the
web of interlocking relationships that connect the major industrial corporations
Penning’s (1980) study concludes a definite correlation between the frequency of
interlocks, the size of the corporation, and market concentration. These studies
echoed the concern of Blumberg’s (1975) about “the concentration of economic
power in the megacorporations and of potential control in the leading financial
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institutions interconnected as a result of multiple or interlocking directorships
presents serious questions for the nation.” The concentration of economic power
in the giant firms has also been a serious concern in Senate’s 1978 report on
interlocking directorates. The report states, “Indeed, the boardrooms of four of the
largest banking companies (Citicorp, Chase Manhattan, Manufacturers Hanover, and
J. P. Morgan), two of the largest insurance companies (Prudential and Metropolitan
Life), and three of the largest nonfinancial companies (AT&T, Exxon, and General
Motors) looked like virtual summits for American business.”
Most of the earlier studies on interlocking directorship emphasized its effect
on the concentration of economic power and presented no evidence about its political
consequences. The failure to demonstrate the political consequences of interlock
became a persistent criticism of these earlier studies.2 3 By 1980, only Koenig’s
(1979) study existed to demonstrate the causal link between interlocks and corporate
political activities. In his unpublished doctoral dissertation, Koenig found that
heavily interlocked firms were more likely than their less interlocked counterparts to
contribute to Richard Nixon’s reelection campaign. Thereafter 1980s, noteworthy in
this regard are the sophisticated empirical works of Michael Useem (1984) and Mark
Mizruchi’s (1992). In his study of the social and political significance of interlocking
directorates in the U. S. and U. K., Useem (1984) has defined the discrete group of
2 3 Mizruchi (1992) has argued that many o f them suggested or claimed that interlocks
matter, but as soon as researchers attempted to demonstrate effects, they resorted to unsystematic
descriptions o f individual cases.
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interlocking leaders that comprise the “inner circle,” an elite group that shares and
promotes “classwide rationality” or corporate political consciousness that transcends
individual corporations. The key point is, as he explains, that the “classwide
rationality” of the inner circle cannot be accounted for by traditional theories of the
firm that view corporate behavior strictly in terms of the economic goals and needs
of a particular corporation. In other words, a theoretical understanding of the large
corporation requires acknowledging political and pecuniary basis of corporate power
are related, and at the same time providing empirical evidence of the classwide
structure and linkage of this power.
Employing a structural model of interfirm political behavior, Mizruchi (1992)
demonstrates that similarity of political behavior is a function of economic
interdependence among firms as well as direct and indirect social network ties. He
concludes that both organizational and social network factors contribute to similar
behavior and that similar behavior increases a group’s likelihood of political success.
Mizruchi’s (1992) study provides significant empirical support for Useem’s (1984)
thesis concerning the political influence of the inner circle. His work, along with
Useem’s, are among the major studies of interlocks as mechanisms of business unity
And what set Mizruchi’s (1992) works apart from others is that he has enunciated the
behavioral consequences of interlocks. In his words:
Unless one could demonstrate that interlocks had actual behavioral
consequences, interlocks indicated little more than the friendship patterns of
business leaders or attempts by corporate managers to respond to
environmental uncertainty. In other words, the issue of whether business is
unified as a group or not lies in examining the extent to which members of
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the group behave similarly, rather than demonstrating that each member is
within, say, three or four steps reach to every other member, or within a
specified cluster, (p. 7)
Both Useem (1984) and Mizruchi (1992), in similar fashion, have outlined a
highly useful framework for us to examine the effectiveness of business political
activity. But their researches were built on an aggregate— industry or dyad— level of
analysis, which may not be applicable when investigating individual firm’s
respective political effectiveness. For an individual corporation to exercise its
political clout, it is not necessary to demonstrated that this very corporation has to
behave similarly with others in the same network; only the behavior outcomes of
political success will suffice. Whether the network of interlocks can contribute to
similarity of behavior within a business group is therefore not a concern from an
individual level of analysis. But for the purpose of signaling, interlocking
directorships indeed play a role in signaling a firm’s political and economic strength
to its oversight agency. The underlying logic is that, viewing from a class
perspective, central government officials in Taiwan coming disproportionately from
elite background along with the enabling mechanisms of “revolving door” have
facilitated a sense of “inner circle” when dealing with business. Agency regulators
are then more inclined to be sympathetic with specific firms and industries if they
expect eventually to seek their employment.2 4 Hence, interlocks may be viewed as a
24
This viewpoint subjects to criticism as well Simply because an official or commissioner o f
a regulatory agency came from or identified with the industry he or she was supposed to regulate did
not in itself prove that the agency was incapable o f acting in the general or consumer’s interest.
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4 8
signaling device for the inner circle and regulators then can legitimately capitalize on
such signal to leverage their post-commission employment.
The failure of this paper to admit interlocking directorship as the determinant
of cable system’s political effectiveness in securing a franchise is due not to the issue
of level of analysis cited above, but rather the inherent limitations come with any
research adopting interlocking directorates as a variable. From its very inception and
till now, researches on interlocks all have their focus on large corporations and hence
the sheer numbers and density of interlocks merely demonstrate the economic and
political power of those of megacorporations. The difficulty to study interlocks
among small and medium size firms is evident. For the most part, data on interlocks
are not readily available for small-to-medium enterprises because most of them are
not public corporations. Moreover, even if such data can be obtained via trade
publications or other business journals, the signaling effect of interlocking will be
significant only if influential figures and institutions are involved.
Besides the most commonly used interlocks as mediating mechanisms of
business power, leadership in associations (e. g., Business Roundtable, Business
Council) or affiliation with major trade associations is also a robust manifestation of
business power. For example, Useem (1984) includes, with respect to association
25
During a private conversation with an officer from GIO, he indicated anonymously that
some giant media groups including Time Warners, Inc. from U. S. and two largest domestic media
consortium had been secretly staking out positions through collusive agreements with many cable
systems that wanted their financial assistance or tried to merge with them eventually once the
franchise is obtained. But such data are difficult to codify empirically even if they can be verified.
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49
leadership, that “invitation into the highly select Business Council and Business
Roundtable seems almost always to require inner-circle status . . . ” For corporations
not big enough to ascend into the inner circle, they can form transcorporate networks
(e.g., trade association) or affiliate with industry leaders to establish a highly
organized and centralized force of influences. From an individual firm’s perspective,
just as interlocks can be viewed as signaling device, network affiliation too can
signal a business firm’s political power in the eyes of regulators.
The signaling effect of interlocks and affiliations depend, to a large extent, on
whether they can invoke the so-called political contestability (Mitnick, 1991) both
among fellow competing firms and in the eyes of policymakers. The working of
political contestability serves to deter the prospective competitors from head-on
competition with politically powerful firms in dealing with government. An
individual firm’s political contestability can also signal to policymakers the
opportunity of post-official employment in return for preferential treatment in
regulatory settings. While the theoretical underpinnings of business political
influence are largely informed by interest group theory— a process of cost calculus in
political participation— the effects of organizational network are due to political
contestability. As a result, the political contestability open a new venue for studying
business politics beyond which has been enlightened by interest group theory. The
political mobilization of business spearheaded by the Business Roundtable in recent
decades has attested to this new style of business politics.
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Price/Quality Combination
Price regulation of the services offered by cable operators has been one of the
most debated aspects throughout regulatory changes in the U. S. cable TV industry.
At issue are the questions of “Can regulators or price regulation really constrain
prices?”, and “What would happen to the quality of cable service if the answer to the
former question is yes?” The latter is especially important because the number and
the specifics of the channel offered and the quality of reception have been the cable
operators’ discretion (Otsuka, 1995). In economics reasoning, rate regulation hold
out the theoretical possibility of enhancing consumer welfare by lowering market
price and concomitantly expanding outputs past the point where marginal revenue
equals marginal cost. But with the discretion to manipulate the level of quality, a
cable system can then respond to price control by lowering the quality of service.
This is because, to the extent that price control is binding, the system operator may
still have an incentive to exploit whatever market power is available at a lower level
of quality.2 6 Therefore, rate control may indeed make consumers worse off if the
welfare loss due to lower quality outweighs welfare gain from constrained price.
Unfortunately, the existent empirical studies that have investigated the
effectiveness of the cable TV regulation have either failed to consider the potential
26
This assertion was indeed the main skepticism over the effectiveness o f regulation, and
partially motivated deregulation o f cable TV industry in the 1980s. Deregulation o f cable TV
industry implies mainly the lifting o f control on service offered, and price charged, by cable operators,
but the entry restrictions remains intact (Hazlett, 1995).
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51
m
effect of price control on quality, or produced mixed and sometimes reverse results.
There are notable researches, while acknowledging that price really has no meaning
except in terms of an assumed quality of service, but arrive at opposite welfare
implications of price regulation. For example, in two studies, Hazlett (1991/1995)
hypothesizes that price increases along with decreases in penetration rate should be
observed post-deregulation if price regulation were to be binding. By examining
regulated and state-deregulated cable systems in California and the associated
movement of pricing and penetrating rate, both studies of Hazlett indicate that price
increases triggered by price deregulation are not accompanied by decreases in
penetration rate. He attributes the findings to quality improvements post
deregulation, and concludes that the price regulation not only lowered the basic
price, but also lowered the quality of cable service.
While Hazlett’s (1991/1995) findings confirm the textbook rendition (rent
control) of price control, which implies that the controlled product will deteriorate
into a quality-depreciated product, there are researches as well as congressional
hearing indicating that the price regulation extended not only to price but also to
quality. For example, in Senate Hearings (1982), cable regulators expressed their
concern that, absent price regulations, they would not have any resourse to force
cable systems to conform to the contract for which the franchise was awarded; and
2 7 There exist studies (Mayo & Otsuka, 1991; Prager, 1990; Rubinovitz, 1993; Zupan, 1989)
that do not take into account the quality o f service when investigating the effect o f price control.
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on the other hand, cable system frequently complained about the regulators’ demand
for more TV channels for any price hike request. And the research of Otsuka (1995)
builds on the Senate Hearings and finds this result for regulation in 1982 and
throughout different types of regulation. His arguments are that the regulatory
authority can informally control the quality under price regulation. If the regulators
acted as consumer-welfare maximizer, they may have succeeded in improving the
quality of service through the price regulation mechanism. Or, even if the regulators
acting as rent-seeker tried to maximize the franchisee’s revenue, welfare
improvement could be obtained as a by-product since franchise fees are normally
based on the franchisee’s revenue.
The mixed results about the welfare issue of rate regulation also imply the
difficulties involved in measuring exactly the quality of cable service. As an easy
measurement, researchers have used such measures as “total channels offered to
subscribers” as a proxy of the quality of cable service (Otsuka, 1993/1995). Such
measure was obviously incurred some criticism because not only are all channels not
created equally, but the cross-subsidization between particular channels or between
basic and premium service could distort such measure (Hazlett, 1986/1995/1996).
Quality is normally seen as subjectively measured by consumers. Namely, as the
consumer’s demand price for a unit changes, so is the quality. Hence, depreciation of
quality could result from lesser choices being included in the package, or cheaper
inputs being used to produce the same package (Hazlett, 1996). Consequently, the
observed levels of quality of cable TV are to be measured by the number of imported
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53
distant channels and cable networks as basic service, the quality variations among
every channel offered, as well as the advancement of the delivery technology, as
measured by the extent of channel capacities and signal interruption.
However, if the quality-adjusted measurement is used as a signaling device
for the objective reflection of price, rather than being used for gauging the welfare
implications, the number of total channels offered will suffice under this scenario.
This paper will adopt the ratio of the priced charged divided by total channels
offered as the measure of quality-adjusted price only, without regarding the
technological advancement and the quality variations. The rationales are simple.
First, the GIO’s commissioners have only limited time in reviewing every
application submitted, and hence would rely instead on data that are heuristic (e.g.,
price and total channels) without sophisticated calculation on quality variations and
update on technology. Second, quality variations are likely to occur whenever cross
subsidization exists between basic and premium cable tiers. In the time when GIO
started to license the cable operators, there were no tiering requirements and all
channels are bundled as one package. In light of this, it was unlikely that there
existed quality variations between channels.
Firm Size
Political exchange plays no less important role than economic exchange if a
firm seeks to manage successfully in its task environment. From the resource
dependence perspective, engage in both political and economic exchanges requires
resources, and a firm’s size can be a proxy for resource. Similarly, from the
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corporate political activity perspective, the size of firm represents a measure of likely
benefits to be garnered through participation (Grier et al., 1991/1994). It is posited
that the variations of firm’s size have positive impacts on political activities because,
on one hand, large firms often have complex public policy needs (Epstein, 1969) and
hence, have more incentives than smaller firms to share political information with
politicians and policymakers. On the other hand, resource constrained politicians
may be more likely to grant access to large firms that contribute to their political
bases (Schuler, Rehbein, & Cramer, 2002). Hence, as Salamon and Siegfried (1977)
have noted decades ago, there is strong belief that the magnitude of benefits a firm
can derive from specific policy is directly related to firm size. And policymakers as
well tend to favor large firms because they can provide extensive policy details.
In theoretical attempts to relate the size of firm to the efficacy of political
activity, firm size is typically employed to investigate the aggregate result such as
the industry size or the diversity in size (Munger, 1988; Pittman, 1988; Salamon &
Siegfried, 1977; Zardkoohi, 1985). In collective level, firm size is typically
operationalized by assets and/or annual sales (Burt, 1983, for a brief summary of
literature in this area). In economic exchange, annual sales become the more logical
choice for a measure of size, since most of a firm’s exchanges are due to its sales
(both the sales of the product and the acquisition of the inputs for the product at
exchanges). But when applied in business political activity, firm size tilts more
toward the firm’s size of asset such as capitalization or employment, since these
variables are easier to be translated into political clout. In addition to employment
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and capitalization, this study includes another variable, subscribership, to capture
firm size characteristic of cable systems. However, because these variables are likely
to have problems of multicollinearity. Yet, the choice of the appropriate variable will
be made in empirical test.
Professional ism
Although the concept of professionalism has a long tradition, it is used here
for its signaling purpose. Traditionally, the professional concept has three parts with
ethics ramification: (a) an occupation uniquely affected with the public interest;
(b) a growing body of knowledge with well defined basic principles, coupled with
the requirement that the practitioner have an accepted level of proficiency; and
(c) standards for determining competent practice and effective procedures for
enforcing accountability to both the public and the profession. Whether many of the
so-called professionals meet these criteria is disputable. But that higher education
became the principal path into professional fields and that institutions of higher
education came to dominate the credentialing of professionals are subject to lesser
dispute. Especially, using education as a signaling device for capability under hidden
information is well-founded (Akerlof, 1970).
I employ three variables to capture the degree of professionalism among
applying cable firms: the average educational level of owner representing entre-
2 8 In regulatory context such signaling suggests that regulated firms have the opportunity to
initiate regulatory actions and provide information without being commanded or induced by
incentives to do so (Banks, 1989; Banks & Weingast, 1992, for modeling).
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preneurial ability; the percentage of employee holding a college degree or above
speaking directly to the prospect of going concern; and the educational level of top
management team representing managerial ability. Just as firm size one of the
structural attributes of business, so is the educational attainment. Yet in managerial
economics researches, these three measures are related in a positive way. For
example, based on the model developed (Qi, 1983), one would expect that workers
with relatively little education and weak labor force attachment are more likely to be
employed by small firms than large ones. But from the signaling viewpoint, firm size
and educational attainment imply different regulatory orientations. If the regulatory
agency responds favorably to the signal of firm size, then it can be fairly stated that
the agency is somewhat captured by the economic interest of individual firm.
Whereas if the regulatory agency caters to the signal of the level of education, then
the agency is more likely to be efficiency oriented.
Models and Hypotheses o f Agency Behavior
Agency-oriented Framework
Before exploring the implications of business influence in regulatory settings
for alternative hypotheses regarding agency behavior, I advance some arguments for
the need for an agency-oriented framework in order to understand different models
of agency behavior because most researches focus on the electoral connection of
business political influence, and less studies center on the agency-oriented
perspective in which business firm is trying to influence the regulators directly.
Furthermore, throughout the electoral connection, the interaction between interest
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groups (or business firms) and political institutions, notably the legislature, is
paramount and, as a result, the regulatory agency serves only as receiving end of the
interaction.
Consequently, agency decision makers are depicted as either unimportant or
as vote-maximizing politicians who bow to the desires of organized interests (Olson,
1995/1996; Spiller, 1990). The most devastating caveat is that if the motives of
agency decision maker are treated as unimportant or monolithic, then the question of
“What motivate the agency decision-makers? Will collapse into “Do legislatures
control bureaucratic agencies?” Unfortunately, the answers invariably revolt around
the existence or nonexistence of control. Therefore, any empirical results that leave
the answers in the gray area will not help us to choose between existing theories.
Huber and Shipan (1998) assert that regulators, while at various points and under
certain institutional settings might have similar objectives to that which motivate the
legislator, their policy preferences must be independent of the policy preferences of
legislators; for were this not the case, the agency problem that characterizes many
institutional features of bureaucratic settings would be devoid of meanings.
The agency-oriented framework depicts the regulatory agency as an adaptive
entity responding multiple stimuli emanating from the larger political environment.
For example, interest groups exert constant pressure on agencies through lobbying
activities, issue management, litigations, mobilizing stakeholders, and publicity.
News media coverage of agency activities can alter the perception and visibility of
agency outcome. Moreover, the affected constituents of regulatory decision can
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sound “fire alarms” when they feel they have been wronged by agencies (McCubbins
& Schwartz, 1984). Past researches ignored the multiple stimuli that can flow from
political institution and failed to reflect the different stimulus types that can occur
(Wood, & Waterman, 1994).
For example, scholars of congressional dominance, ignoring the true stimulus
process emanating from Congress, used annual interest groups support scores to
measure the influence of committees or subcommittees. These scores are simply
tallies of multiple underlying stimulus processes; they do not truly reflect stimulus-
response processes. The various stimuli existing in the external environment present
the agency an inherently conflicting regulatory environment. Administrative
discretion follows from vague mandates will allow agencies to respond to some
stimuli or signals more attentively than others. The vagueness of most regulatory
statutes facilitates their use as symbols by agencies to placate some stimuli while at
the same time serving the dominant interest. Therefore, understanding the
complexity of the stimulus environment and the possibility of agency response
dynamics require us to disentangle the intricacy of agency adaptation in regulatory
policymaking.
Rationale for Agency-oriented Approach
The study of business political influence on regulation should be based on
agency-oriented approach for two reasons. The implications of such undertaking
employing the agency perspective are threefold. First and foremost, organized
business influence is treated as among other political institutions that are inevitable
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participants in the political process (Epstein, 1980; Spiller, 1990). Previous studies
applying the transaction costs framework to the legislature-agency context,
recognizing that interest groups, insofar as they affect the preferences of legislators
themselves, albeit clearly play a role in the type of decisions that agencies can make,
did not treat them as part of “contract” between legislators and bureaucrats. The
influence of interest groups is endogenized in the legislative choice as part of the
winning coalition trying to hardwiring the agency structure and process in order to
stack the deck in favor of the coalition (Macey, 1992; McCubbins et al., 1987/ 1989/
1992). The propositions of agency subversion of legislative dictates and shirking of
regulators become operative (Spiller, 1990) if business firms were to be posited as
political institution competing with other political institutions (e.g., legislature,
administrative presidency, court, consumer advocacy group, etc.). The agency
subversion refers to the implementation of regulatory policies that might have taken
other interests into account even if Congress’s interest were exclusively aligned with
a single interest group, and the shirking of regulator implies that interest groups,
when not perfectly aligned with politicians’ interest, will offer compensation to the
regulators for shirking. This feature of agency framework also provides plausible
plausible explanations for the existence of regulatory cross-subsidization not
explicable under interest group theory.
29 For agency subversion (Brehm & Gates, 1997; Kiewiet & McCubbins, 1991; Wood &
Waterman, 1994; Gailmard (2000) for an excellent explication o f formal model on subversion. For
shirking o f regulator and industry transfer (Quirk, 1981; Spiller, 1990).
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Second, the agency perspective portraits a more realistic view of regulatory
agency in which regulators possesses different objective as distinct from other
institutional member, and hence adaptive concurrently to external stimuli or signals
of different type from various sources in the policy environment. Since regulatory
agencies operating under broad or vague mandates typically possess substantial
authority to legislate, execute, and adjudicate, the regulatory process is then viewed
as a combination of the executive, legislative, and judicial power into a single agency
rather than separation of powers into distinct institutions (West, 1995). The
regulatory agency, under such stipulation, operates as a surrogate political process
that has the purpose and effect of adjusting the competing claims of the various
interests affected by agency policy (Ferejohn, 1987). Such depiction of regulatory
behavior is also consistent with part of Moe’s (1990) argument about political
compromise. Whereas McCubbins et al. (1987), implicitly treat the enacting
coalition as a monolith, Moe argues that in order for policies to be enacted and
implemented there must involve compromise embodying some concessions to the
current loser either in the enacting stage or in the agency implementation stage.
Therefore, the agency regulatory decision-making becomes the forum in which the
losing interest groups might get a second chance and prospective group might get a
say in regulatory proceedings.
Models o f Agency Behavior
A complete explanation of the structure of an agency’s decision making must
begin with a description of the objectives and motives of its decision makers. Most
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models of agency behavior are predicated on assuming some particular set of
motives possessed by policymakers and the mechanisms by which to satisfy these
motives. The identity of policymakers clearly has some impact on the kind of utility
(e.g., reelection, budget maximization, post-official employment, on-job
consumption, consumer welfare, etc.) from which to derive. In regulation, the
regulator can be modeled as a politician who seeks reelection by choosing regulatory
policies to serve parties offering him the support, or the regulator is modeled as a
bureaucrat constrained by the structure of agency setting and accorded with reward
opportunities. This is called the focal decision-maker approach. Apparently, the
regulator as a politician has very different implications for behavior consequence
from that of regulator as a bureaucrat. Elected officials seek resources that can help
them get reelected, namely votes, as well as resources that can be deployed in the
quest for votes, namely money, organization, volunteers, etc. Appointed officials
seek resources that help them do their job and gain political support their quest for
bigger budgets, programmatic discretion, and political stability (Bendor & Moe,
1985; Niskanen, 1971).
In addition to the focal decision-maker approach, the quasi-organizational
model posits that the agency be analyzed at the organizational rather than the
individual’s level. The leading proponent of the quasi-organizational, some time
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called the revealed preference view of regulatory agencies, is Paul Joskow (1972).3 0
Simply put, this view posits an agency as characterized by rational goals and
behaviors, but buffeted by conflicting external constraints and mutually exclusive
demands of interest groups. The organizational imperative is to lessen such conflicts
and demands. This view of agency emphasizes the procedural aspects of decision
making aimed at seeking survival and maintaining autonomy in the wake of
externally generated demands brought to bear on the agency to act and to present a
rationale for its action. Agency members may disagree as to who should share power
and which goal to pursue within the agency, but they prefer not to see agency
decisions appealed or challenged in other forum (Ferejohn, 1987).
Notable Hypotheses about
Agency Behavior
Different models of agency behavior give rise to different hypotheses about
regulatory decisions and outcomes. In general, there are four hypotheses frequently
invoked to explain regulatory decisions: (a) agency autonomy, (b) congressional
dominance (sometimes called “deck-stacking” or “initial-hardwiring”), (c) producer
capture, and (d) public interest. The agency autonomy hypothesis holds that agency
regulators possess a varied set of motivations and thus having informational
30 Joskow (1972) has applied the revealed preference approach to the following settings. In
1972, he pioneered in analyzing the implicit decision rules the N ew York Public Service Commission
us in estimating the allowed rate o f return by a regulatory commission; in 1973, he modeled the
d ecision by regulated firm s to appeal to the regulatory commission for price changes; and one year
latter in 1974, he modeled the dynamic interaction between regulatory agencies and regulated firms.
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advantages over their overseers.3 1 As such, regulatory agencies have considerable
leeway in selecting their own rules for making decisions Wilson (1980/1989)
stipulates that agency members possess different but interrelated motivations. Many
regulators are oriented toward serving professional norms and expectations; others
are concerns primarily with organizational maintenance; and still others exhibit
career interest in the industry they oversee. The varied set of motivations in
conjunction with informational advantages prompt many to claim the difficulty in
monitoring regulator’s behavior (Banks & Weingast, 1992; Bendor, Taylorm, & Van
Gaalen, 1987; Miller & Moe, 1983; Niskanen, 1971; Noll, 1989). Under this view,
empirical results following from GIOs’ decisions reveal its own rules for responding
to cable firms’ political influence.
In contrast, congressional dominance hypothesis (Weingast & Moran, 1983;
Weingast, 1984) argues that agencies serve the wishes of congressional committee
well. According to the hypothesis, congressional committee are claimed to determine
the outcomes and performance of regulatory policy because of a variety of rewards
and sanctions at their disposal, despite the appearance of “abdication” on admini
strative matters. A host of studies argue that legislator influences can effectively
constrain and bias agency policy making in favor of their constituents. In this view,
elected representatives gain leverage over bureaucrats through informal oversight,
3 1 See Rothenberg (1997, pp. 24-25) for an excellent summary on this point. The section
above is mainly a recapitulation o f his arguments. Similar observations could be found in Mitnick’s
(1980); N oll’s (1985), and Quirk’s (1981).
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using such tool as decentralized information gathering or “fire alarms” (McCubbins
& Schwartz, 1984; Weingast, 1984) and through meticulously structured
administrative procedures and organizational design (Macey, 1992; McCubbins et
al., 1987/1989) to guarantee that the relevant legislative constituents are well served.
The congressional dominance hypothesis implies quite different interpretation about
GIO’s decision making. Under this view, GIO’s licensing decisions mirror
congressional preferences rather than its unbridled discretion.
The most prevalent school of though on the politics of regulation is the
“regulatory capture” hypothesis, which implies that regulatory agencies are created
in response to organized action of producer groups and continue to operate in the
interest of these groups. Originally developed by political scientists (Bemtein, 1955;
Huntington, 1953; Kolko, 1965), the prominence of capture theory was formalize by
George Stigler in his seminal article in 1971, and subsequently endorsed by
economists the public choice tradition notably by Peltzman 1976/1984/1989;
Mitchell, 1990; Romer & Rosenthal, 1987) using more extensive formal models of
the political process. The principal tenet of their formulation is the hypothesis that
regulation is a device for redistribute income to well-organized groups, which
reciprocate by supplying votes and campaign contributions. Under this formulation,
the capture theory is a special case of the theory of collective action or interest-group
theory, in which the distribution of benefit concentrates on the regulated industry and
cost on the diffused public (Olson, 1965; Wilson, 1980). From the viewpoint of
“regulatory capture” hypothesis, the GIO’s commissioner is prone be captured by
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cable firms offering nonprice concession as well as the opportunity of post-official
employment.
The oldest theory regarding government regulation of business is the so-
called “public interest” theory. This perspective holds that the creation of regulatory
agencies is seen as institutional manifestations of the victory of public at large in
their struggle against monopolistic abuses by corporations, e.g., market failures
(Horwitz, 1989). In most democratic reforms, “public interest” perspective became
the official justification of the interventionist state as the protection of the weak, poor
and the powerless. Under this view, regulation of business is a political response to
corporate power, and in so doing, it protect consumer from abusive business
practices. In this study, the GIO’s commissioners can be said to serve the public
interest if their decisions reflect consumer interests. But narrowly equating public
interest with consumer interest can be troublesome when empirical tests demonstrate
that regulatory policy decrease consumer welfare. In such scenario, researchers are
prone to look for private interest or captured explanations when regulatory outcomes
do not accord with their conception of public interest. In reality, since there is no
single public interest, there are other alternative explanations besides private interest
when public interest fails to account for agency behavior. For example, both
congressional dominance theory and agency autonomy theory are plausible
explanations when public interest theory fails.
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External— Signals Model
o f Agency Behavior
I
The underlying premise of the external-signal theory is that agencies try to
serve the public interest but have difficulty identifying it. Because the public interest
is an elusive concept, the obvious place to locate the sources of the perception of
public interest is therefore lodged in the institutions in which every democratic
regime has some legitimate claim to speak for the public: elected representatives, the
press, the courts, and leaders of broad-based organizations (Noll, 1985, p. 41).
Consequently, agencies judge the extent to which their decisions satisfy the public
interest by observing the responses of other institutions to their policies. This
perspective was developed by Noll following Joskow’s (1972) revealed preference
approach. In Noll’s (1985) conception of external signals, Congress approves
budgets for and holds noncritical oversight hearings on agencies that perform to their
liking; 0MB acts favorably on budget requests of successful agencies the courts
uphold appeals of decisions that are fairly reached; the press provides favorable
coverage to agencies that perform well; and constituents refrain from becoming the
“fire alarm” to Congress for the agencies they approved of. Such stipulation also
implies that agency policymaking is decentralized, open to various influences in
nature, and responding to all groups that can provide positive rewards or negative
sanctions to the agency.
According to Joskow (1974),
Agencies seek to minimize conflict and criticism appearing as ‘signals’ from
the economic and social environment in which they operate, subject to
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binding legal and procedural constraints imposed by the legislature and the
courts . . . (the) agencies’ organizational structure, regulatory instruments,
and operating procedures are chosen so as to achieve this goal. (p. 297)
The “signals” come from actors like consumers, firms or industries, interest
groups, and politicians pursuing their interest. Once the agency “satisfactorily”
balances the conflicting pressures from its external environment, it normalizes the
organizational structures and procedures that fashioned such equilibrium. Unlike
alternative theories of agency behavior implying that agencies take action to
maximize consumer benefits (public-interest theory), act to maximize its budget
from Congress (Niskanen, 1971) seek to maximize the benefits to the industry it
regulates (Peltzman, 1976; Stigler, 1971), or maximize some weighted sum of
consumer and producer surplus (Baron & Besanko, 1984), the extemal-signals
theory suggests that regulatory agencies based their decision on the relative strength
of signals received from various sources.
Despite only a handful of researches employing the extemal-signals model,
the model has proven to be very useful in analyzing different aspects of regulatory
decision making Magat et al. (1986), ina remarkably detailed study of water
pollution regulation by Environmental Protection Agency (EPA), examine both the
impact of an industry’s political efforts and its structural characteristics on EPA’s
development of industrial effluent standards, as well as model the ways in which
efficiency and distributional objectives were traded off by the agency Bawn (1992)
uses this model in a theoretical analysis of the different types of administrative'
arrangements that govern regulatory agencies such as EPA, Consumer Product
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Safety Commission, and Occupational Safety and Health Administration (OSHA). In
another study, Bawn (1992) apply the same model to specify agency preferences and
the resultant political responsiveness of agency. Olson (1995) uses the model to
explain how external factors influence FDA approval decision among competing
industries and the types of regulatory tools selected by FDA. In a latter article, Olson
(1996) employs the model to explain the reason for the observed policy change of
FDA enforcement actions between 1972 and 1992. Similarly, Rehbein and Lenway
(1994) applying the external signals model to the U. S. International Trade
Commission’s (ITC) decision-making processes, examine the impact of an industry’s
political tactics and structural characteristics on ITC’s regulatory decision.
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CHAPTER 3
THE EVOLUTION OF TAIWAN’S POLITICAL
INSTITUTIONS AND ITS IMPACT ON CABLE
TV INDUSTRY AND ITS REGULATION
Introduction
The cable TV industry in Taiwan was a vibrant informal sector— highly
differentiated, flexible, and run by small-to-medium sized family enterprises— before
the enactment of 1993 Cable Law (Cheng, 2002). The decision in 1993 of the
government of Taiwan to embark on regulating cable television via a centralized
review committee in awarding licenses invariably stun many students of regulation.
The decision to regulate cable television seems counterintuitive especially after
decades of laissez-faire stance toward the industry, and in the wake of concurrent
global trend toward privatization and deregulation of many infrastructure industries
like telecommunications. The reason is that if the market force of globalization has
its mark on government anywhere, it certainly will exert on the sectors where market
have been the most dynamic, i.e., telecommunication and financial services. These
sectors lie at the heart of the technological as well as informational revolution, which
many believe have und med existing patterns of regulation and changed the role of
government (Mckenzie & Lee, 1991). The case for Taiwan exhibits the
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characteristics that, like many other industrial nations, it has responded to similar
market pressures in strikingly different way even within the same sector.
It is widely acknowledged that both regulatory and deregulatory movements
had profound impacts on market structure and the resultant business strategy. What
was less recognized is the rationale of why certain forms of regulatory measurements
or instruments were adopted or consistently used instead of other alternatives. Or,
vice versa, why are some regulatory institutions or arrangements habitually denied in
the process. Because answering this question would invariably beg the focus on state
institutions to account for distinctive patterns of regulatory treatments, be they under
the name of liberalization, deregulation, reregulation, or privatization of both the
orientation and organization of state institutions should be analyzed. This chapter
3 2 Alternative approaches practiced by different countries to accommodate market forces
have been widely documented. For example, the competitive market structure o f telecommunications
in U. S. was established by the official declaration o f Congress in the 1996 Telecommunications Act
whereas by contrast, Canada has introduced competition in its telecom sector through administrative
decisions o f its regulatory authority (Crandall & Hazlett, 2000) With respect to the area o f financial
deregulation in the Big Bang o f 1986 the British government allowed the market force to gobble up
the inefficient British firms at will; while, in contrast, the Japanese Ministry o f Finance (MoF)
structured financial reform aimed at securing the survival o f domestic financial institutions (Vogel,
1996).
33
Scholars tend to use different terminologies but cannot similar meanings to depict the
variations among state actors or government. For instance, Noble (1998, p. 12) said that governments
vary in both goals (objectives) and capacities, Vogel, 1196, p. 20) refer to both the orientation and
organization o f a regulatory regime as the constraints o f policy choices, Hart (1992) used the
variation among industrial nation’s state-societal arrangements, rather than the focus on industrial
policy, as a credible explanation o f changes in competitiveness Levy and Spiller (1996, pp. 4-6) found
that the institutional foundations and endowments o f a nation determine its regulatory framework
(including regulatory governance and regulatory incentives) for an industry such as telecommun
ications. Here I use V ogel’s characterization, but others are also used interchangeably throughout the
paper.
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addresses foremost the institutional foundations behind the decision to regulate cable
television industry after long period of laissez-faire stance, and then the issue of why
is the license awarding scheme through administrative measures adopted, instead of
franchise bidding scheme, in regulating Taiwan’s cable TV industry. The issue of
how the cable systems evolve to adapt to the regulatory changes brought by the
institutional changes designated to absorb external shock on one hand and to
maintain regulatory control on the other hand will be addressed to some extent.
After the introductory sections, section 2 describes the theoretical
perspectives that have impacts on the choice of industry policy as well as regulatory
arrangements. Four elements are extracted from these perspectives to construct the
framework I use to understand the implications for political behavior and regulatory
outcomes of the differences in the institution and processes that govern policy
making. Section 3 illustrates the historical and interpretive accounts of political
transformation that Taiwan has undergone and the resulting business and
government framework. Under the newly invented business-govemment
relationship, the centrality of the electoral environments and party organizations
becomes essential to account for the reasons why Taiwan has adopted different
approach to regulate cable TV industry in relation to that which has been done in
U. S. Section 4 outlines historical development of cable TV industry in Taiwan, from
its inception, the subsequent booming to become an informal sector in an era of
political upheaval, the post-transformation regulatory control, and the current status
of the industry and its role in the face of digital convergence. Section 5 explores the
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regulatory measures that the GIO has adopted, before and after the political change,
toward the cable TV industry, and the regulatory structure and process currently
employed by GIO in its day-to-day implementation. Section 6 provides some
concluding remarks.
Theoretical Perspectives on the Choice o f Industrial
Policy and Regulatory Arrangement
Theoretical frameworks are not lacking in explaining the emergence of
institution or organizational structures as well as the reasons why certain governance
structure, or regulation in this paper, takes the form that it took. For example, the
issues of industrial policy or industrial arrangements and its impact on international
competitiveness can be approached from the vintage point of state-societal
arrangements (Hart, 1992), cultural or ideological explanation (Lodge, 1987)
efficiency/market explanation (Williamson, 1975/1981/1985) statist explanation
(Johnson, 1982), innovation systems (Nelson, 1993). Some approach the same issue
from a multiple theoretical construct. For instances, Hamilton and Higgart (1988)
combine the political economy perspective with a Weberian emphasis; Jin (2001)
adopts a sectoral approach that takes into account the coevolution and the resultant
isomorphism of cultural paradigms, governance mechanisms, technological
trajectories, and organizing principles for knowledge creation in understanding the
dynamics of national competitiveness. Whereas advocates of industrial policy
consistently affirm the importance of the state actor or institution (c.f., in most times,
state is both an actor and an institution) in explaining East Asian political economy,
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market force explanations gain some grounds, especially in the deregulatory
movement and the prolonged recession in Japan, as the prime determinant of policy
reform. Yet, market-centered perspective can not account for the national variation in
responding the influence of market force, e g, why have some countries responded to
market pressures in a variety of different ways (Vogel, 1996). Nor can it account for
the divergence of regulatory treatments within a single agency overseeing many
industries (Magat et al., 1986 for analysis of the stringency of EPA’s industrial
effluent discharge standard across different parties). Generally speaking, market
force serves as stimuli for government and agency to respond, but it rarely dictates
both the policy choices and the instrument choices after empirical scrutiny. Like
many situations of structural choice (Moe, 1989) or sectoral choice (Ferris &
Graddy, 1991/1994), the choice of regulatory form— policy and instrument— is
generally traced to its institutional foundations. Following this venue, comparative
analysis of industrial policy or regulatory regimes among East Asia (Hamilton &
Biggart, 1988; Nobel, 1998; Wade, 1990) or between West and Asia (McCubbis &
Nobles, 1995; Noble, 1995; Vogel, 1996) has shed much light on the institutional
accounts for the industrial structures, competitive advantages, and industrial policies
that have been observed in East Asia.
Two common themes emerged from these comparative studies. One is that,
notwithstanding the many historical, demographic, cultural, and economic
similarities among many East Asian countries, there exist surprising disparities in the
ways Japan, Taiwan, and South Korea have handled collective action in many policy
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areas (Noble, 1998). A simple investigation of the elasticity of supply and demand,
the optimal pricing system, or the best plan for the development of new regulations
fail to appreciate many of the forces that will decide the next form of governance
structure for regulatory purpose. Moreover, the disparities can best be understood in
terms of explicating the institutions that link state and enterprise, in particular, and
the ways in which the institutions of political economy evolve to absorb external
shock and to maintain internal legitimacy of control. The other is that government
policies, albeit affect industry structure and competitiveness, cannot explain why
certain institutional arrangements take the forms that they took. For example, Hart
(1992) argues that, by only examining the industrial policies, it is prone to fail to
appreciate why Japanese firms, in stark contrast to German firms, do so well in areas
lacking administrative guidance (Hart, 1992). Similarly, Jin (2001) has unveiled that
many approaches to the persistent disparity in the sectoral patterns of American and
Japanese technological.
There are significant implications of these comparative analyses for
understanding regulatory origin and behavior. For the most part, the findings of these
analyses run counter to what many scholars of comparative political and economic
systems have believed—that the values, cultures, and political structure of countries
are so different that attempts to generalize across national boundaries are worse than
useless. However, there are five major themes could be generalized from the works
of comparative studies. First, institutional endowment matters, especially the
institutional aspect of decision process, in affecting both the national pattern and
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75
sectoral orientation of the regulatory policy (Levy & Spiller, 1996). Second, the
focuses on state actors are likely to be more parsimonious, for there are fewer
important state actors than private groups (Vogel, 1996). Third, for democratic
regime, the choice of regulation matches political incentives operating upon elected
decision-makers, regardless of the match with normative economic theory (Noll,
1987). Fourth, regulatory changes can be accounted for by the corresponding
institutional changes that are caused by external shocks, be it the changes in external
electoral forces (Brady & Epstein, 1997), party structure (Noble, 1998; Noll &
Rosenbluth, 1995), or the liberalization pressures (Noble, 1998). Fifth, policy or
regulatory choice is a part of the historically developed authority relations that exist
between government and business (Hamilton & Biggart, 1988).
The Evolution o f Political Institutions in Taiwan,
and Its Implications for Regulatory Arrangements
The Evolution o f Political Institutions
From a comparative standpoint, governments vary in both objectives
(ideological orientation) and governance capacities (institutions/organizations). In
most East Asia countries, objectives are crucially shaped by two interlocking factors:
the economic ideology of the ruling party and the degree to which it depends on big
business for votes, contributions, and legitimacy (Noble, 1998, p. 12). If objectives
are largely a function of the ideology of the ruling party and its relations wit
domestic business, capacity is shaped by the party system and the ruling party’s
relation with the regulatory apparatus. Speaking of the influence of parties and
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7 6
politics in Taiwan, one has always come away with the impression of its
resemblance to that of Japan because both had a great deal in common. Both suffer
from a paucity of natural resources, and are densely populated by homogeneous
societies. Both inherited the Chinese cultural tradition and transmission of Buddhism
and Confucianism. Furthermore, Taiwan was once colonized by Japan in the Meiji
Restoration for five decades and consequently most of its infrastructures were
established under that era of colonization.
Like that of Japan, a conservative party also governed Taiwan, yet under
strikingly different constitutional order and structure. The influence of ruling parties
over the form of any given policy depends on at least four attributes of the party: its
electoral support base, sources of funding, structure of policymaking, and
mechanisms for delegating authority to the bureaucracy. Taiwan’s political structure
grew out of the turbulent events of 20th century Chinese history: the nationalist
revolution that overthrew the Qing dynasty in 1911, decades of warlordism,
resistance to Japanese invasion, and civil war with the communist party, ending in
the nationalist party’s (KMT) defeat and retreat to Taiwan in 1949.
Until the constitutional revision in 1991, which culminated into series of
political and bureaucratic reform, the organization and orientation of the KMT were
quasi-Leninist rather than electoral. The long lasting ruling party strove to maintain
autonomy and domestic control while strengthening national capacities in the wake
of an uncertain external environment. The KMT was highly authoritarian, but not
totalitarian. The party accepted in principle the ideals of western democracy, and
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77
local and supplementary national elections were held not only to legitimate political
competition as a principle but also created a group that based its position in the party
on the ability to mobilize votes and with elections. Respect for private property,
market competition, and limited political contestation marked the KMT as
potentially different from communist regimes.
The sources of funding have strong implications for the form of business
relationship that is chosen. Where most of the parties relied on business or individual
for financing, the KMT controlled its own sources of funding. The ruling party’s
coffers were connected directly to the national treasury (dangku tong guoku). The
party used government funds to establish a large number of party-owned enterprises
and for its won purposes. There are over seventy enterprises under party control,
much less the minority interest the party had acquired in many listed companies. The
Taiwan Stock Exchange was a prominent example. Even after the rise of opposition
party and the pressure to democratize, the party still owned a substantial stake in
Taiwan’s economy (Chen, 1991).
Suspicion about the corrupting influence of business on the party is the both
cause and effect of KMT’s relying on its own sources of funding. After the bitter
experience of losing the mainland, party elders were extremely cautious about the
possible impact of cartels. On the other hand, when the government perceived
economic dilemmas or opportunities, it relied on numerous state-owned enterprises,
despite their inefficiencies, to make direct leadership, or even preempt private firms.
Mechanisms of party/enterprise relationship ran one way. Heads of large and
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important businesses sometimes assumed political roles, serving as KMT
representatives to National Assembly or Taipei City Council in return for special
benefits. A few served as representatives of business on the KMT’s central
committee. However, business could never exert significant influence over major
policies since none had assumed an important post within the party or government.
The government stood ready to crush any attempt to organize business as an
independent pressure group.3 4
Control over policymaking rested in the hands of the top party leadership and
was delegated not to formal bureaucracies, but to a few trusted individuals with
personal ties to the leadership, all out of the fear that the government and party
machinery could be hijacked from within. Bureaucratic organizations were
structured in the same fashion by building networks of trusted officials personally
loyal to the leadership and played them off each other in a game of checks and
balances. Like autocrats, the leaders were careful to check the development of
potential successors. This bureaucratic arrangement and career structure were
complex and ambiguous so that has led Little (1979) argue that there are no
implementation procedures of economic planning and that state planning is done in a
34
Even the election o f chairmanship for major business peak associations is controlled by
the nationalist party. Only influential business leaders with allegiance toward KMT (mobilize
resources and funds on KMT’s behalf) stand a chance to win the post o f chairmanship. The three
national peak organizations are the Federation o f Industry, the Federation o f Commerce, and the
blue-ribbon National Council o f Industry and Federation. Interestingly, the two major conglomerate
MSOs (multi-channel system operators)— CNS and EMC— mentioned in this paper are now
substantially owned by figures who had once assumed chairmanship for long period o f time.
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“loose, noncommand style, is unsupported by control,” and has “no importance” in
determining economic behavior. In sum, the KMT encouraged an atomized, fluid,
and diverse industrial structure and repressed, divided, and controlled business
associations (Noble, 1998). Only when the political transformation began in late
1980s has this patterned relationship among party, government, and business
changed.
Reforms in political institution proceeded apace after a formal opposition
party (Democratic Progressive Party, DPP) emerged in 1986, and after the martial
laws was lifted in 1987. Thereafter, censorship and control of newspaper and
magazines ended, and the emerging cable and satellite television networks proved
congenial to the freedom of speech. Pressure from the opposition gradually forced the
ruling party to relinquish its special privileges by agreeing to the revision of the
constitution in 1991, and also began to corporatize and privatizes state-owned
enterprises. The Nation Assembly (originally a combination of electoral college and
constitutional convention) was completely reelected in 1991 and the legislative yuan
in 1992. The provincial governor and the mayors of Taipei and Kao Hsiung were
selected in free elections in 1994. The president was directly elected for the first time
in 1996, helping to counter the effects of a legislative electoral system. In year 2000,
a turning point in Taiwan’s political history was marked by a peaceful governmental
transition from the incumbent KMT to the opposition DPP.
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Implications o f Political Transformation
for Regulatory Shift
Accompanying the political transformation was the erosion of the established
framework between government and business. The govemment-business relationship
started to take its cue from representative democracy as the government in Taiwan
began to embrace a more solicitous attitude toward cooperation by private business.
With the dismantling of its old techniques of electoral mobilization, the party for the
first time called openly for business to support KMT candidates. The ruling party
came to rely partly on the business community for financial support. Politicians at all
levels scrambled for contribution from business to sustain heightened competition in
elections and ever increasing spending in elections. For its part, the government
opened the policymaking process to more systematic input from business.
Consequently a host of new industry associations and major peak business
associations burst onto the scene, combined with the external pressure on liberali
zation and deregulation, scrambling to gain access and form conglomerate with the
aim to enter areas once monopolized by the public sector, i.e., banking, utilities,
refinery, and telecommunications.
In short, the liberalization of finances, trade, and inward and outward foreign
investment all limited the levers by which the government could use as policy tools.
Though the government retained considerable policy tools, on balance, it has to rely
more on the electoral politics and industry participation to achieve regulatory
objectives. Moreover, a decade of democratization divested KMT and its
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81
government from an authoritarian regime that blocked national elections, allowed no
organized opposition, maintained a strong state and party owned sector, and a
cautious distance from the private business, into a democratic system with gradually
shrinking state and party sector and close relations with private business.
The period of political transformation has entailed some prominent shifting in
the ways regulatory policies were formulated and implemented. First the formulation
of regulatory policy was strongly affected by electoral systems. The incentives built
into the Taiwan’s electoral system provide the key to understanding the internal
organization of the ruling party. For most elections currently conducted in Taiwan,
an electoral system call SNTV-MMD (single nontransferable vote in multimember
districts) coupled with party-list proportional representation is used. Under the
system, electoral competition among members of the same party is guaranteed. The
competition among copartisans makes it impossible for them to run simply on the
party platform. The incentive to create a personal campaign and to cultivate a
personal vote in one’s constituent is thus large. It follows that the only remedy for
the party to discourage shirking and slippage is to invest heavily in a centralized
authority structure (party leaders) and a set of tools and sanctions at those leader’s
disposal (Cox & McCubbins, 1993). Both the electoral systems in the U. S. and
Taiwan give candidates an especially strong incentive to advocate narrow, special
interest policy in return for campaign contributions. The incentive to engage in such
behavior is present in any system in which voters choose from among individual
candidates rather than parties, but it is stronger in a system of multimember districts
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with SNTV. Hence, the regulatory process is more susceptible to the influence of
special interest in Taiwan.
Second, the period of political transformation also altered the internal
organization and decision processes of regulatory agencies. The immediate outcome
was that the agency decision tends to be less arbitrary, less dominated by party and
agency personnel, and more attuned to the oversight or statutory control provisions
of congress, especially the committee with jurisdiction over the agency, though
legislators are often time under the influence of private business when conducting
their oversight duties. This development has made theoretical endeavor to predict
and explain the outcomes of agency decision processes more tractable, since in
democracy the ground rules for the competition and control over regulatory
processes are established by electoral systems. Yet, given the present state of the
theory of organization, a complete explanation of the organizational aspects of
agency decision-making is unlikely feasible. Therefore, we do not wish to assume
that agency leaders or regulators are interested only in maximizing their budgets,
personal perquisites, or ideological objectives. Rather, we will assume only that
agency personnel prefer to maintain a fair degree of internal autonomy for those in
leadership positions within the agency. They prefer not to see agency decisions
appealed in other forums. Thus, the theory of regulatory decision making must begin
with a characterization of what political officials are likely to expect if they decide to
undertake regulation (Noll, 1987). In this sense the political context in which the
agency makes regulatory decision can induce it to take account of the interests of
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those with politically recognized interests in agency decision (Ferejohn, 1987). Here,
regulatory bias occurs not because the regulators share any tangible interests with the
regulated but because the regulated are being “stacked the deck” to appeal those
agency decisions they oppose.
Third, the post-revision policymaking environment is characterized by the
emergence of many institutions that serve to lubricate govemment-business
relationships and facilitate policy formulation and implementation. For example,
there are many ad hoc deliberation councils that send corporate employees to work at
a government agency at the law drafting stage, or bring together businessmen and
bureaucrats at various points of policy processes. Such mediating institutions present
three different sets of incentive faced by government, government official, and
business. First, the government aims to ensure the implementation of regulation.
Second, the government official opts for increasing his lifetime employment income
by occupying several positions simultaneously at party committee, state-owned
enterprise, party-owned corporation, or peak business association, or by assuming
higher-paying position after early retirement. Third, business pursues three
simultaneous goals: to ensure access to information in an environment of not so
transparent regulation; to ensure intermediation in times of clashes of interests with
the government; and to lobby under the framework of encompassing regulation,
thereby managing the dependency on the regulator in an environment of
administrative guidance.
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8 4
Yet, such deliberate approach toward introducing business involvement in
policymaking has proceeded far more cautious than in other countries in Asia, given
the size and growth of Taiwan’s economy. It might be the result of two factors. First,
Taiwan has been subject to less significant external pressure than other countries to
open the telecommunications sector. The trend to liberalize the financial sector as
well as the telecommunications sector was largely precipitated by the governmental
response to the frustrated customers registering their frustration via electoral system.
Second, widely held concerns over the national security have prompted the
Taiwanese government to move deliberately to liberalize on one hand, and to
introduce more regulations on the other hand in sectors that are vital to the national
interest. Consequently, in most cases of deregulation, the Taiwan government has
combined liberalization with reregulation— the transformation of old rules and the
creation of new ones— to adapt to the post-revision policymaking environment. Such
development is consistent with what Vogel (1996) harmed the paradox of deregu
lation. He claims that deregulation is “a movement aimed at reducing regulation has
only increased it, a movement propelled by global forces has reinforced national
differences, and a movement purported to push back the state has been led by the
state itself.”
Historical Development o f Cable TV Industry and Its Regulation
Industry Background
The regulatory stance of Taiwan’s government toward the cable TV industry
has paralleled its political development described above. In the ante-revision era, due
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85
to the suspicion of business sector and relying on its own source of funding through
party and state enterprises to achieve economic ends, the Taiwan’s government
adopted a hand-off approach to let business free to work out its own patterns, as long
as it did not interfere with or undermined the going concern of state enterprise and
party coffer. As such, the cable industry was unregulated with respect to price,
content, and right-of-way to drop the line until the political transformation occurred
in late 1980s. During the time period, the industry was occupied by numerous small-
to-medium-sized cable operators, each with viewership less than 30,000 and the
degree of integration is very low. Prior to the 1993 Cable Law taking effect, the
industry was an embodiment of typical Taiwanese industrial system: informal
economy characteristics of vibrant, flexible, and run by family-owned SMEs; and
free from governmental regulation, lawless, politically affiliated market filled with
highly differentiated and highly competitive firms (Cheng, 2002; Cheng & Gereffi,
1994).3 5
Similar to its inception in North American, cable television began in Taiwan
as a mean to improve reception in regions where over-the-air television signals were
not readily available. The first community antenna system appeared in Hua-Lien
county, 1969, when a rural electronic shop tried to promote its sale of televisions by
erecting its own cable system to serve approximately 500 viewership. In the 1970s,
3 5 Such explication o f early cable market development resembles that o f the U. S.
telecommunication market in the late 19th century. As early as 1900, it was clear that U. S. telecom
markets were not natural monopoly, as evidenced by more than one competing firms in many regional
markets.
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86
there existed sporadically several community antenna systems, mainly in urban
areas, to provide foreign and domestic programming services to consumers for a fee.
Such service first began in Keelung and was labeled as the “fourth station,” which
meant alternatives to the then three national broadcast TV stations.3 6 Large scale
cable operators came into existence, after 1980, as more viewers grow tired of the
scarcity of their viewing option on one hand, and the fact that cable TV became
popular because it offered many first run movies and foreign syndicated shows
without the hassle of going to a theater or renting a video, on the other hand.
However, as more community antenna systems imitated such services, GIO was
forced to intervene because such practice by the “fourth station” violated the fee
guideline stipulated by Broadcasting and Television Law at that time, and since then
the GIO was systematically trying to gain control of the cable systems.
Whereas the historical development of Taiwan’s cable TV industry follow
the venue of an informal market, the spurt of growth in cable television consumption
was closely related to the market’s political evolution. The emergence of counter
vailing political party (DDP) along with the lifting of martial law in the late 1980s
spur the growth of both the system and channel operators as the popular alternative
to the then government-controlled terrestrial networks for local consumers. As such,
36
The three national TV networks are Taiwan Television Enterprise (controlled by the
former provincial government), China Television Company (controlled by the Nationalist Party), and
C hinese Television System (controlled by the Ministry o f Defense).
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87
the meaning of alternative “fourth station” also echoing the rebellious spirit of the
emergent opposition party; and henceforth, “democratic station” was often used as a
symbol representing the important role cable television played in the movement
toward democracy. Prior to the political transformation, sectors assumed monopoly
status were invariably appropriated by the nationalist party. Therefore, as an
alternative challenging force to the party/government affiliated networks and
telecommunications monopolies, cable operators in the 1980s organized themselves
as a de facto free market comprised of competing firms under the tacit consensus to
resist the interventionist state on one hand, and to protect each others geographical
•3 7
boundaries on the other hand.
The subsequent increase, after the lifting of martial law in 1987, in cable
political programming and the carriage of international news and entertainment
channels boosted both the cable penetration and viewership. As of 1991, there
estimated about 300,000 households receiving satellite TV via cable networks
primarily delivered by illegal cable systems, placingTaiwan second only to Japan in
the popularity of cable TV in Asia. Collectively, an average of 513,000 households
joined the cable viewing population annually between 1990 and 1997, and cable TV
subscribership increased over 400% (Cheng, 2002). According to data compiled by
Media Partners Asia, Taiwan’s cable television penetration surge from 17% of
3 7 See Chang (1998); Cheng (2002); Lin (1998); Yu (1997) for more detailed studies on the
early history o f Taiwan’s cable television industry.
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88
television households in 1990 to 72% in 1996 and to 83% in 2003 (Figure 1 for
reference). And, as data compiled by ACNielsen indicated, cable television
viewership has risen from 5% in 1990 to 74% in all home passed by cable in 2001.
In global comparison, worthy to be noted is that, albeit remains the only mature
cable market not offering consumer program packaging and tiering, Taiwan is the
second highest globally in terms of cable television penetration rate (Figure 2 for a
review; Taiwan is second only to 85% cable television & direct-to-home or DTH
satellite penetration in North American with 69% delivered via cable and 16% via
DTH).
Yet ironically, the practices of program tiering and packaging are normally
used to drive viewership and increase monthly per subscriber revenue at the same
time in most countries. The bizarre case of Taiwan exhibits both high growth and
penetration rate in cable service without the introduction of tiering. Possible
explanation for such phenomena could be, again, due to the rebellious yet democratic
nature in Taiwan’s cable television history. Or due to the historically low cable rate,
in terms of its share in GDP per capita both before and after the promulgation of the
Cable Act, which boosts the consumption of cable services. But the latter argument
is questionable in light of global data. As Table 1 (adopted form Media Partners
Asia’s data) clearly shows, there existed countries with cable rate lower than Taiwan
in terms of its GDP per capita share yet the cable TV popularity was substantially
lower than Taiwan. For instances, among the Asian countries, Korea and Singapore
are two indicative examples of cable rate in its share of GDP per capita and cable
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89
1995 1996 1997 1998 1999 2000 2001 2002
S o u r c e : M e d ia P a r t n e r A s ia
Figure 1. Taiwan Cable TV Penetration: Historical Growth
Finland
Germ any
Taiwan
100%
Penetration
Figure 2. Latest Trends in Top Seven Global & DTH Satellite TV Penetration (Y/E
2002)
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Table 1. Global Trends in GDP Per Capita and Monthly Average Revenue/ Subscriber (Y/E 2002)
Cable
DTH
Satellite
GDP per ARPU/mo. GFP per ARPU/mo.
Market capita (US $) (US $) capita (US $) (US $)
United States 36,780 42 United States 36,780 47
Japan 31,581 34 United Kingdom 24,300 46
United Kingdom 24,300 32 Japan 31,581 33
Hong Kong 23,909 30 Australia 20,244 32
Thailand 1,983 28 Thailand 1,983 28
Australia 20,244 27 Zealand 14,300 27
Singapore 25,743 21 Malaysia 3,800 22
Indonesia 807 20 Indonesia 807 18
Taiwan 12,538 16 Korea 9,946 12
Philippines 953 12
Korea 9,946 8
India 469 4
China 967 2
Notes.
1. GDP Per Capita data from Goldman Sachs Research estimates and OECD
2. Monthly APPU from Media Partners Asia Estimates, based on basic, e x p a n d e d basic,
premium, pay per view& digital pay and interactive TV services. Excludes high
speed Internet and telephony
Source: M edia P artners A sia
service popularity both lower than Taiwan (comparison between Figure 2 and Table
1).
The historical development of cable sector, according to the aforementioned
explication, has evolved from a fragmented and politically charged free market to
nowadays become a consolidated, heavily regulated market. As a result, the number
of system operators has constantly decreased while the market expanded due to
vertical and horizontal integration.
According to GIO, rightly before 1993 Cable Act, there were well over 600
cable systems with over 800,000 subscribers and over 4 million viewerships. A
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91
decade latter, there were 63 system operators serving near 4 million subscribers in 47
operating franchises with three major VIMS05 (Vertically Integrated Multiple
Systems Operators) accounting for 65% of the reported subscriber market with the
remainder split between ISOs (Independent System Operators) and Pacific
Broadband Communications (PBC).3 8 In a report titled “Current Issue in Taiwan’s
Cable Television Industry,” Media Partners Asia (2003, p. 10) concluded that “With
the exception of poorly managed cable program distribution mechanisms and the
continued adoption of programming cartels, cable television in Taiwan is, today, a
consolidated and well-managed industry, driven by credible strategic local and
international media investors, institutions and venture capitalist groups.”
Regulatory History and the
Licensing Process
The prevalence of cable TV (then called Fourth Channel System or
Democratic Station) in 1980s has caught the attention of government as severe
competition often involved obscene and pirated material. Two measures were
adopted. One was to study the feasibility of CATV in Taiwan and its impact on the
telecommunication infrastructure by the directorate general of telecommunications
(DGT) under Ministry of Transportation and Communication (MOTC). The other
3 8 The three VIMSOs are China Network Systems or CNS (1 million subscribers), Eastern
Multimedia or EMC (979,000 subs.), and Taiwan Broadband Communications or TBC (575,000
subs). Not incidentally, CNS and EMC are controlled by K oo’s and Wang’s families respectively, two
families who have constantly dominated the major business peak associations regardless o f which
party is in power and unaffected by political transformation.
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92
one was to work out a proposal under the jurisdiction of Government Information
Office (GIO) for including the cable TV industry in its regulatory framework. In
1983, an ad hoc working group was established in DGT to study CATV systems and
services. The main purpose was to study if the CATV system can be integrated with
the existing broad band ISDN development and with then undergoing project of
constructing a nationwide fiber-optic loop. After 18 months, the group issued
recommendations suggesting that it was technically feasible and economically viable
to develop cable TV in Taiwan. The recommendations were then submitted to the
Executive Yuan (the Cabinet) in 1985; however, CATV policy was still pending in
the early 1990s.
As government intervention into business was prompted, repeatedly
elaborated in previous section, by the electoral change aimed at attracting political
contribution from major industries, thus, many conglomerates, from both domestic
and international, had tried to stake out a foothold in the will-be opening
telecommunication market by participating more actively in regulatory proceedings.
The most expedient way is to lobby the policymakers to erect entry barriers through
licensing to weed out the weak, small-scale cable operators. As a result, the
beginning of 1990s has witnessed massive pressures both from abroad and domestic
on the government to intervene into the cable TV industry. Trade sanctions were
threatened from major trading partners for the ongoing airing of unauthorized
intellectual products in the right time when the government was engaging in all-out
globalization and liberalization to revamp its image and to gain international
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exposure as well. In domestic, pressures from program suppliers, video industry, and
film industry as their market shares gradually encroached by unfair practices of cable
operators have forced the legislature to expedite its law making process. Moreover,
many then existing family-run cable operators were either merged with by or
strategically allied with major conglomerates or politically-affiliated with major
parties to gain more clout in the face of imminent government intervention.
Government Information Office conducted its business of regulation CATV,
along with its existing regulatory oversight over network televisions, broadcasters,
and radios, in late 1980s by first administered an intensive research into the practice
and experiences of major industrial nations with cable TV regulation, while at the
meantime severely prosecuted those violating the infringement of intellectual
property right.3 9 The research was documented as the preliminary draft of Cable Act
in 1990, but was not subject to legislative deliberation until 1992. The long delay
was largely due to the objection to some sections in the act by some ranking
committee members, who are themselves, cable operators. The controversies were
centered on the composition of the commissioners, and on demanding concession
from GIO to allow multiple cable operators in any given cable district. Thus, after a
3 9 Before the 1999 draft bill to establish an independent National Communications and
Broadcasting C om m ission (NCC), Taiwan’s media and telecommunications industries were
separately regulated by GIO and DGT, with GIO assuming regulatory oversight o f media and DGT
providing technical standards, technology guidance and telecom licenses to cable television
operators. In addition, the Fair Trade Commission (FTC) regulates fair competition issues and merger
& acquisition activity o f cable TV industry.
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long period of sluggish movement, the Cable Act was passed and signed into law in
1993 with many sections and codes were altered to balance the political make-up of
the legislative Yuan on one hand, and, on the other hand, to meet the deadline of
possible section 301 trade sanction imposed by the United States. During the
meanwhile, the Act also promulgated a phase-out period to encourage the voluntary
registration of all then underground cable systems, granting them the legal status
called “cable TV broadcasting systems” for temporarily operation until the whole
licensing process was done.
Following the dictum of the 1993 Cable Law, the nation is to be divided into
51 districts according to its geographic and demographic make-up; and every district
will be granted at least one but no more than five licenses for operating cable system.
The Cable Law has entailed an ad hoc independent Review Committee which
comprised of 15 commissioners with its very duty to award licenses to qualified
applicants, to conduct a performance appraisal, once in every two years, on every
cable operator, and to oversee the license renewal process every 9 years. The fifteen
commissioners were nominated by the premier and subject to congressional
confirmation. The Cable Law also stipulates the need for every applicant to submit
an application along with an operation plan in which qualifications for review are
detailed. As of October 1994, the Review Committee began soliciting applications
from interested parties and embarked on a five-staged review process that span
almost two years ending in late 1996. The 2-year span of license awarding process
was marked by extensive rent-seeking activities—generally termed as the “gold
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rush” period for local cable license (see next section for the rationale for regulatory
lag).
Of the more than 600 cable systems that had voluntarily registered with the
GIO, there were only 208 applications submitted for official review. This implied
extensive consolidation ex ante the reviewing process. Such ex ante consolidation
was due largely to the uncertainty faced by individual system operators as to their
future fate and the aggressive acquisition by the major MSOs and MCPs (multiple
channels providers). There were 129 licenses awarded in total when the whole
process ended (chapter 4 delineates the framework on which the likelihood of
securing licenses can be modeled). Yet the actual numbers of system operators were
significantly less than the numbers of license awarded due to another wave of ex post
licensing mergers and acquisitions. According to GIO, in 2003, there existed 63
cable systems in 47 franchise areas. This indicated that about 30 franchise areas were
cable monopolists. To remedy, the GIO proposed, as part of the Three-In-One bill,
that the franchise areas be reduced to 18 (to 4 eventually) in order to encourage
competition.
There were two major attempts at amending the 1993 Cable Television Law
to accommodate rapidly technological changes occurred in telecom sector that
brought about the convergence of multimedia. In 1999, the Law was modified and
renamed the “Cable Audio & Television Broadcasting Law” (CAT Law), and at the
same time government also passed “Satellite Audio & Television Broadcasting
Law,” which officially legalized the provision of DBS and DTH services to the
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market. The 1999 CAT Law effectively loosened the limitations on cross-ownership
and foreign investment cap, but the cable rate and restriction on program tiering were
nevertheless remained intact. In January 2003, in an effort to end en era of restrictive
law and facilitate Taiwan’s smooth entry into the World Trade Organization, the
GIO drafted proposal to merge the CAT Law, the “Satellite Audio & Television
Broadcasting Law”, and the will-be amended “Radio & Television Broadcasting
Law” into a single Three-in-One Bill, designed to weed out the perennial asymmetry
among all kind of media regulations.
In addition to the relaxation of restrictions on cross-media business
operations, the 1999 CAT Law also removed the ban on the chairman or CEO of a
print news enterprise, broadcast television station or radio enterprise being the
applicant for a cable TV station license. It also abolished the original stipulation that
“those operating a central telecommunications enterprise” may not apply to operate a
cable TV station. It added the restrictions that no single operator, together with its
affiliates, may account for more than one-third of all systems in operation or one-
third of all households in the country; and not more than one-fourth of the stations on
a given cable network can be owned by the network itself. Moreover, the domestic
cable television market has increased its openness to foreign investment, and
foreigners can directly or indirectly own up to 50% of the stock. The central
government has also authorized local governments to manage local cable television
operations, stipulating that operators grade their programs and sign formal contracts
with subscribers to ensure the rights of consumers. The or indirectly own up to 50%
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of the stock. The central government has also authorized local governments to
manage local cable television operations, stipulating that operators grade their
programs and sign formal contracts with subscribers to ensure the rights of
consumers. The “Satellite Audio & Television Broadcasting Law” also covered a
variety of uses for direct satellite broadcasts, including Internet transmission and
pay-per view channels. It legalizes and opens up satellite television operations in
Taiwan, ending the era of unregulated satellite broadcasting, and also opens this
sector to foreign investment, with a 50% investment ceiling.
The creation of NCC, which stipulated in the Three-in-One Bill, also implies
an initiative to centralize the policy-making capacity of cable television in one
regulatory commission. The regulatory structure of cable television used to be
fragmented and inefficient, with GIO regulates cable television at central
government level and Bureau of Information exercising similar responsibility at
county/local government level. This structure suffered much criticism emanated
from the supply side of cable industry because county and city governments lack the
managerial skills and resources so that often fail to grasp issues vital to the industry,
and instead opting for winning elections at local level. It is hoped that with the NCC
in place, managed by globally experienced experts, the policy toward cable industry
will be more coherent, especially in the wake of “digital convergence.” However, as
is evident in the constant shake-up of GIO, with more than 8 director-generals
changing hands over the past decade, it is difficult for the industry to expect the will-
be invented NCC to display consistency in its policymaking. Yet, with regulatory
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authority of telecommunications lodged in one commission, the associated cost of
regulatory compliance, “nonprice concession,” and business political activity could
be greatly reduced.
The GIO’ s Regulatory Structure and Process
The structure and process of regulatory agencies are the organizational and
procedural aspects of decision making. The institutional features of how a regulatory
agency is organized reflect the basic principle of controlling the principal-agent
problem that exists between the political actors and the bureaucrats. The aged
popular criticism about public agency’s lack of incentive for effective performance
has much to do with the ways in which public agency is structured. The public
bureaucracy is not organized so as to achieve optimal efficiency, but to offer the
trade-off between coalitional drift and bureaucratic drift engendered by constitutional
arrangements (Horn & Shepsle, 1989; Macey, 1992).
The American separation of power and the resulting uncertainties of political
property right have done much to the observed administrative arrangements being
practiced. Thought it is a stylized way to view that the supply price for which the
elected officials exchange their authority depends on what they can deliver and on
how long lived it is (Shepsle, 1992), this is the first step to tie together the
preferences of various private interests, the ambition of elected officials, the enabling
legislation, the implementation decision, and the review by the court. For regulatory
agencies to implement decision, proper incentives and monitoring of performance
are needed to assure that whatever deal was struck legislatively stays stuck
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bureaucratically (Cox & McCubbins, 1993; Ferejohn & Shipan, 1990; McCubbins et
al., 1987). Accordingly, the price that legislators can charge depends ultimately on
how Congress grapples with agency problem arising from delegation.
The agency problem is likely to vary across agencies and countries. The
underlying principle of structuring agencies accordingly in terms of making the
legislative deal stick is the key to understand why certain structures of agency
decision making are adopted and remain intact. The elements of design structure and
process that are important .for understanding the GIO and the decision it makes are
the institutional arrangements of cable TV regulation that enable an elected
government to retain control over policy while delegating its day-to-day
implementation to agencies. As the political transformation and constitutional
amendment have moved the Taiwanese political institutions gradually toward a
presidential system, it is customary for its political officials to rely more on the
design of implementing agencies as a means to assure compliance with the general
policy agreement that is embodied in a statute.
Regulatory Structure
Most regulatory authority over cable TV industry is vested in the Cable
Television Reviews Committee formed by GIO. The Committee is delegated with
very broad discretion over the awarding or revocation of operation permit, the
license renewal, and evaluation of the execution of operations plans. The enacting
legislation only specifies very vague mandates with respect to the qualification of a
prospective applicant, thereby allowing the Committee to decide, independently as a
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whole, from the information provided by cable operators in their operations plans.
This design feature of independent Committee with broad delegation and case-by-
case decision making are the institutional solutions employed by the original
legislative deal to overcome the agency problem in the regulatory arena. This kind of
administrative arrangement suggests that the enacting legislature is more likely to
prefer committee or commission over the courts and to delegate broad authority
when it wants the enforcement of the legislative deal to be sensitive to changes in the
interests represented at enactment (Horn, 1995).
The ad hoc Review Committee formed by GIO is charged with the
responsibility over regulating the cable TV industry only; other related industries,
such as broadcasting and networks TV, are regulated via different Committee also
under the jurisdiction of GIO. The ability to structure an administrative agency as a
single-interest or a multi-interest organization enable Congress ‘to exert greater ex
ante control over the outcomes generated by the agency (Macey, 1992). In general, if
a single interest group or a single industry dominates the initial legislative decision
making that leads to a particular legislation, the resulting administrative choice will
be a single-interest or single-industry agency or Committee. This is consistent with
the well-known congressional tendency to design or initial hardwire regulatory
structures that “mirror” the political environment existing at the time of the initial
statutory enactment (McCubbins et al., 1989). In so doing, the agency problem is
largely contained by aligning the incentive of future bureaucrats and politicians with
the preferences of their counterparts in the initial coalition.
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The foregoing explication is not to suggest that regulators invariably act in
ways that are consistent with the interest of the firm they regulate. Rather, it is
argued that the original coalition determined only whether to structure an
administrative arrangement that is likely to be sympathetic or antithetical to a
particular set of interest. No coalitional interests will be willing to exchange
legislative IOUs for a particular enactment that involves the creation of a regulatory
agency or committee if it is not able to discern whether the agency or committee is
likely to be sympathetic or not.
Another rationale for the committee structure with broad delegation is that
this design feature makes it easier for legislators to appropriate rents by intervening
on behalf of constituents (Fiorina, 1982/1986). Fiorina’s rent-seeking argument
assumes that legislators are better off by being able to assist their constituents’
dealings with regulatory process over time than by delivering a more certain
outcome to constituents at enactment, namely, to alleviate the potentially future
coalitional drift. It makes sense in our case because the creation of a specialized
committee within agency often leads to the funding of some groups and to the denial
of funding to others-meaning life or death to an interest group. Under the
circumstances, the broad delegation allowed the enacting legislators to “shift the
responsibility” (Fiorina, 1982) avoiding the electoral repercussion from the groups
that had been disenfranchised in the decision process. In addition, the broad
delegation is an indication that the original coalitions were confident of their ability
to influence and control the agency ex post.
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Regulatory Process
As noted in previous section, the political context in which regulatory
policy arises plays a role in determining the structural as well as procedural choice of
regulatory agencies. The design feature of the agency’s structure also dictates how
the agency goes about making regulatory decision, i.e., the structural feature has
significant implications for the regulatory process being practiced inside the agency.
In general, there are two types of regulatory instruments available for regulators:
command-and-control instruments and incentive-based instruments. On the surface,
one would draw the inferences that because Congress tends to prefer fire-alarm to
police-patrol oversight strategy, so it would tend to prefer incentive-based to
command-and-control regulatory instruments. Yet, paradoxically many studies
support the opposite: Congress’s very preference for fire-alarm oversight entails a
preference for command-and-control regulatory decision-making (Fioria, 1982;
McCubbins & Page, 1982; McCubbins & Schwartz, 1987). For command-and-
control agencies are susceptible of case-by-case congressional intervention in
response to complaints, and hence susceptible of fire-alarm oversight.
In Taiwan, the congressional choice of Review committee with broad
delegation and case-by-case, command-and-control decision procedure are the most
prevalent institutional arrangements in most regulatory arena, especially for the
regulation of telecommunication and financial sectors. Both sectors used to be
regulated under the organizational form of state-owned or party-owned, with tax
break or subsidy; hence, a more direct way for government to supply particularistic
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benefits. For analytical purpose, the straightforward interest-group, supply-demand
analysis is prone to overlooking the important differences between regulation and
direct governmental supply of particularistic benefits through “industry/firm targeting
or subsidies. One difference is that the process of regulation consumes resources of
interest groups that could otherwise be spent on parties or government for the
prerogatives of monopoly. The other is that, for regulation, the decisions are
constrained by process and evidence, thereby limiting the effect of participation and
attenuating the connection between politics and administrative decision.
The foregoing analysis suggests two rationales for most nowadays regulatory
arrangements observed in Taiwan. One is that the political transformation introduces
electoral influences over the ways government conducts its business, as such
regulation through the instrument of case-by-case decision making has the advantage
of supplying particularistic benefit less cumbered by electoral forces. The other is
that the old arrangement of direct supply of benefit from government to target groups
will suffer severe coalitional drift in light of the newly developed political
environment. The original enactment would easily be upset by coalitional change,
which is characteristic of representative democracy, and hence reduce the value of
original deal sought by the coalitional groups as well as impair the ability of
legislators to deliver durable benefits to their constituents (Horn, 1995).
In short, the administrative arrangement of GIO is the rational outcome of
congressional choice to reduce the agency cost borne by the changes in the political
institutions. This arrangement endows legislative enactment with durability against
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both legislative and bureaucratic drift by customizing agency structure and design in
the ways noted (Macey, 1992). It facilitates the Congress to capture the gain from
trading the legislative IOUs, but nevertheless it also promotes inefficiency and
undermines accountability in administrative implementation stage. The most
immediate outcome is the severe regulatory lag inherent in case-by-case decision
making.
It took almost 3 years for the Review Committee to complete the license
awarding process. The long delay is the embedded feature of case-by-case decision
making procedures. This decision making method exhibits the disadvantage of
cumbersome and expensive for the reason that it tends not to treat similar cases
similarly. Some noted that the delay built into the decision-making process of
administrative agencies is designed to give politicians the opportunity to intervene
while the cost of influencing agency outcomes is still low (McCubbins et al., 1989).
Another explanation is that such delay results because interest groups often require a
substantial amount of time to assess the implications of any regulatory initiative
(Macey, 1992). Both explanations are plausible in our case. For one thing, the case-
by-case decision-making process enables the elected officials to intervene particular
agency decisions within the confines of existing rules and procedures because it is
less often for elected officials to intercede in an agency’s formal rule-making
process. The regulatory lag occurred in the long reviewing process was definitely the
driving force behind the drastic merger and acquisition activity during that era of
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formalization. Such lag afforded the system operators more time to cope with the
uncertainty associated with the outcomes of licensing.
In the U. S. the FCC, like other regulatory agencies, is subject to complex
procedural guidelines for conducting regulation. The 1993 Cable Law in Taiwan
makes no special provisions for judicial review of any GIO’s decisions, and requires
only a hearing for enforcement actions against licenses. In essence, the Review
Committee bears the burden of proof that a license should be denied, and also that it
has jurisdiction to decide the merit or denial of a case. This quasi-judicial function of
the Review Committee has hampered the “due process” protection in the
Constitution. The case-by-case decision-making of GIO has the drawback of
soliciting biased information. For formalized procedural decision making depends to
a large extent on information provided by the regulated, much of which is supplied
by groups having a stake in the policy. Consequently, the procedures are applied to
empower some group at the expense of others, by determining the extent to which
agency decisions are constrained by the information that these group provide.
Concluding Remarks
The government of Taiwan embarked on regulating cable TV industry with the
passage of 1993 Cable Law and the subsequent amendment titled “Cable Audio &
Television Broadcasting Law” in 1999. Although the Cable Law may not be the
landmark legislation in the history of telecom regulation, it has nevertheless served
as the harbinger for a series of subsequent telecom deregulations including the
proposal for revamping the Government Information Office into National
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Communication Commission (NCC), the counterpart of the U. S. Federal
Communication Commission (FCC). The ensuing telecom deregulation also
followed the footsteps of cable TV regulation in that the framework of granting
license via a centralized review committee was widely adopted with the only rare
exception of the auction off “Third Generation Mobil Communication” license.
Therefore, there exists not much difference between regulation and deregulation as
they are practiced in Taiwan, because both imply the combination of liberalization
with that of re-regulation, with liberalization indicating the leveling of the playing
field and re-regulation the centralization of regulatory authority.
The significance of the state intervention into the cable TV industry after
decades of hand-off stance toward that industry lies in that: (a) it paralleled the
evolution of the newly established business-govemment relationship entailed by
political transformation from state-centered or “bureaucracy dominance” into
electoral-centered or somewhat “legislative dominance”; and that (b) it became an
arena in which the major players in both telecom and computer industry scrambling
for competitive stronghold in the upcoming “digital convergence.” The significance
of agency regulatory decision-making lies in that it leaves the agency open to various
sources of influence since the incumbents seek to make the original legislative deal
stick to their intention, the losers seek out a second chance during the
implementation stage, and the consumers seek to register their complaints as well as
discontent about the cable service delivering.
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The preceding discussion of GIO’s regulatory behavior and both its
institutional and structural determinants suggests that bring together the components
of institutional evolution as well as the subsequent devolution into structural and
procedural constraints highlight the institutional conditions for group influence. That
is, the framework delineated in this paper can be viewed as the theoretical antecedent
for research efforts trying to explore the efficacy of interest group and business
firm’s influences over regulatory outcomes. The extent to which any group or
organization can exert influence over regulatory outcome is an empirical issue in its
own right. But, before any empirical test can be conducted against real regulatory
settings, the overarching concern should be how receptive is the political or
regulatory institution to group influence. The regulatory institution can ignore,
placate, or cater to such influence if it is so designed, and this is the very rationale
that we ought to heed closely to the impacts of political institutions on regulatory
arrangements.
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CHAPTER 4
THE DETERMINANTS OF GIO’S LICENSING
DECISION: EMPIRICAL ANALYSIS
Introduction
The ultimate test of whether a business firm’s political activities have an
impact on regulatory outcomes lies in whether such activities can influence
regulatory decision makers. As such, developing the logic of corporate political
influence over regulatory outcomes and specifying models of regulatory decision
making should go hand in hand. Indeed, models of regulatory decision-making are
often times served as the determinants of the outcomes of business political
influence. Unfortunately, the science of regulatory politics is such that no model of
regulatory decision-making could be described as widely accepted yet. However, a
growing body of literature on political decision-making comes ‘rely on the principal-
agent model to inform their endeavors (Denzau & Munger, 1986; Fiorina, 1977/
1982; McCubbins et al., 1987/1989; Mitnick, 1980; Peltzman, 1984; Shepsle &
Weingast, 1984; Weingast, 1981/1984). But the principal-agent model is probably
more widely adopted in legislative decision making than in agency decision- making.
As such, an agency-oriented perspective outlined in chapter two is deemed most
appropriate in determining decision outcomes when business firms can influence
agency directly.
In this paper, I pursue two lines of inquiry. I first establish the historical and
institutional conditions under which cable television is regulated and the form of
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regulation that it take, particularly the license awarding scheme. I interpret the reason
for licenses being awarded administratively as opposed to devolving into franchise
bidding scheme based on the “initial hardwiring” behavior of government, not
necessarily the congress, to strategically favor domestic cable firms with political
clout. Unfortunately, it is inherently difficult to derive predictions and create
empirical models that permit positive tests of theory-grounded hypotheses
concerning structures and processes. For example, the hypothesis of “initial
hardwiring” or “deck stacking” is sharply contested by critical legal theorists, who
have altogether different explanations for why regulation takes the form that it does
(Mashaw, 1990). Moreover, it is hard to falsify “initial hardwiring.” That is, it is
difficult to investigate the extent to which and how agency regulators thwart the
nature of the a priori purposes that are served by government activities. However,
hypotheses about regulatory structure and process can be implicitly inferred from the
revealed action/decision of its policymakers. This serves as the second inquiry of my
research.
In this chapter, I investigate two main hypotheses. The first hypothesis stems
from the view that the GIO commissioners will be more receptive to the sources of
influence representing political than economic strength of individual cable firm
because the structural arrangement of awarding license through administrative
measures dictates that policymakers are constrained to pay more attention to political
efficacy than economic efficiency. This view is based on the assumption that
franchise bidding scheme makes more economically efficient sense than simply
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awarding licenses through administrative measures (Demsetz, 1968; Posner, 1972).
It follows that a cable firm is likely to secure an operation license by offering
nonprice concession, networking with major conglomerates, affiliating with or
contributing to its congressional allies, participating in congressional hearing and
agency rule-making procedures, or hiring managerial and legal advisors.
The second hypothesis, which I called the “embedded capture,” stems from a
depiction of business-govemment relations in post-democratization Taiwan as
government being embedded but not captured by special interests or business (Cheng
& Chu, 2002). This hypothesis is a holdover from the first hypothesis. It follows
naturally from the first hypothesis that if the regulatory agency respond to any source
of influence representing political efficacy of business firms, then it is an indication
of captured and democracy is undermined as a result. Such inference assumes that
because policymakers do not serve public interest, then they must be serving private
interest including being captured by producer groups. It denies the possibility of an
agency responding to business interest while at the same time adapt to popular
preferences operating through institutions such as congress (Wood & Waterman,
1994). The “embedded capture” hypothesis attests to a situation where democracy
complicates the insulation of agencies from business interest while maintaining close
links to it.
This study uses the revealed preference approach to answer the question of
what models of agency behavior best capture the GIO’s regulatory decisions. This
approach allows us to infer the agency’s preferences for, or /trade-offs among
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various factors that enter into its decision calculus (Magat et al., 1986). Although the
GIO’s commissioners rarely develop explicit rules, except those specified in the
Cable Law, to be applied to each factor, analysis of the responsiveness to factors of
political influence allows identification of the implicit model regarding regulatory
behavior. However, since the primary focus of this study is agency decision making,
congressional decision-making are not specifically incorporated into this model.
Instead, congressional decisions are assumed to take place prior to the agency
actions. It is assumed that the initial hardwiring of the agency’s design done by the
congress has provided some mechanism for creating a political apparatus whose
outcomes will reflect the political equilibrium that existed at the time of legislative
enactment by aligning the incentives of future bureaucrats and politicians with the
preferences of their counterparts in the initial legislative deal (Macey, 1992).
Therefore, the congressional influence can be inferred from the organizational
design, both structural and procedural, and/the decisional outcomes of the agency
(Macey, 1992; McCubbins et al., 1987/1989).
Framework and Measures
The main thrust of this chapter is to examine whether a firm’s choice of
influencing tactics has an impact on regulatory decisions and how receptive are
GIO’s commissioners to such influence. To achieve this, all sources of information
presented before the committee regarding a cable firm’s application should be
investigated. In general, this information contains two major sources of influence
which can be used to gauge the political efficacy of individual cable operators. One
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is called the direct sources of influence and the other the indirect sources of
influence. Direct sources of influence reflect active participation made by
representatives or agents of the firm regarding the most effective way to present their
case before the GIO. They include political strategies and tactics such as lobbying,
testifying, participation in agency procedure, legal & managerial representation,
political contribution, and so on. In addition, a cable firm can achieve political
success through indirect influence which stem from the firm’s proposal submitted to
GIO for deliberations. The information contained in the proposal can convey both
the political and economic strength of each respective firm.
There are two major categories of indirect source of influence. One category
refers to a firm’s structural characteristics and management attributes. It contains:
(a) the price charged by a cable operator, (b) given a specified range of quality and
associated cost, (c) firm size, and (d) the degree of professionalism. By providing
this kind of information, the applying cable firm demonstrates its economic power to
the reviewing committee. The other category refers to the applying firm’s ability to
mobilize its political resources by offering nonprice concessions or by networking/
affiliating with influential figures or industry leaders. Although such information is
contained in the proposal submitted as well as in the regulatory data collected by the
agency itself, it serves purposes other than signaling economic power alone. In this
paper they are termed as the mediating sources of influence because they can
translate both a firm’s economic and political clout into political efficacy in the
absence of the direct sources of influence. For example, offering nonprice
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concessions, a “merit good” from the stance of applying cable operator, will
increases the cable system’s construction and operation costs, and proved desirable
to its oversight regulators (Zupan, 1989b/1992). The network ties or affiliations can
signal a cable firm’s political contestability—the potential to participate effectively
in the political process as well as the potential to mobilize resources whenever it is
necessary.4 0 The factors hypothesized to influence the GIO’s licensing decision are
illustrated in Figure 3.
Direct Sources o f Influence
Five variables are employed to examine the effectiveness of a firm’s political
tactics. The first variable, participation in legislative process (denoted CGHR),
denotes those firms that had CEOs or leaders in the conglomerate testify in
congressional hearing, or firms that had cable trade associations or peak business
groups participating in legislative process on their behalf. Because CEOs or the
chairmen of a conglomerate are probably the most prestigious witnesses available to
testify about how a proposed regulation might affect the business firm’s competitive
prospect, their participation should result in an affirmative decision. The second
variable, participation in agency rule-making process (denoted AGHR), examines
the number count a firm has had in participating in GIO’s rule making process. As
described by McCubbins (1987/1989) and his colleagues, structure and process is
40 This term is coined by Mitnick (1991) when he built on the theory developed by Epstein
(1969) to explain political competition among business firms. This is a political counterpart o f the
contestability in the economics literature (Baumol, Panzar, & Willig, 1982; Vining & Weimer, 1990).
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Direct Sources of Influence
Political Strategies and Tactics
1. Agency Rule-making 4 .Political Contributions
2. Congressional Hearing 5.Legal & Management
3. Congressional Allies Advisory Service
Commissioner GIO Licensing Decision/
Ideology Commissioners’ Votes
Indirect Sources of Influence
Structural Attributes Mediating
Firm Size—
1 .Employment
2.Capitalization
3.Subscribership
Quality-Adjusted
Price
Professionalism
1. % of College
Graduates
1. Educational Level
of Management
2. Educational Level
of Owner
Network tie/
Affiliation/
Interlocks
NP Concession
1. Public Purpose Chnls
2. Ethnic-oriented Chnls
Figure 3. The Framework for GIO’s Licensing Decision
used by elected officials to create a decision-making environment that mirrors the
political circumstances that gave rise to the establishment of the policy. The enabling
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legislation requires the agency to publish a general notice of the proposed rule
making which disclose, inter alia, the nature of the public rule-making proceedings,
a procedure generally recognized as” notice and comment” procedure that alerts
interested firms to any potential change.
The third variable, the political contribution (denoted PLTC), captures the
effect of campaign contribution to the oversight committee members on the
outcomes of agency decision-making. Although campaign contributions to party or
members of elected officials are prevalent in Taiwan, the PAC contribution is not
used here because political contribution and lobbying through PACs is not a legally
accepted practice. Political contribution is not funneled through corporate or industry PAC
for reasons discussed in chapter 2. Instead, contribution is funneled through legally
allowable tax deduction, or through executives, business partners, and other hidden
routes. The fourth variable, participation via congressional allies (denoted CGAL),
along with PLTC, represents a less direct route for signaling the firm’s ties to
Congress. A firm that has established a relationship with members of the GIO’s
congressional oversight committees may be able to exert indirect pressure on the
GIO commissioners. A firm’s ties to its congressional allies can also stem from
campaign contributions made by the firm to the member of congressional oversight
committees or from networking through business dealing or party affiliation. The
fifth variable, MAS, denotes the cable firms that contract or hire outside managerial
and legal service on their behalf during the whole process. This variable involves a
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“make or buy” decision and it also signals to the GIO the determination and
readiness to obtain licenses.
Indirect Sources o f Influence
As has shown in Figure 3, there are 10 variables altogether capturing the
indirect sources of influence. Among them, seven variables capture the structural
attributes of cable firms. The size of firm is captured with three variables—FSCB,
the total number of subscribership of each cable firm, FSEM, the number of its total
employment, and FSCP, its capitalization. These variables represent the economic
strength of individual firm. Nevertheless, they also signal to the policymakers the
political strength in terms of mobilizing votes and resources. The degree of
professionalism is also captured with three variables— MTEDU, the average
educational level of top management, PFODU, the educational level of the legal
owner, and PFMDU, the percentage of employee who had a college degree or better.
These variables indicate the managerial efficiency of the applying cable firms.
Another variable, QPC, denotes the ratio of the priced charged divided by total
channels offered as the objective measure of cable rate given a specified quality
level. This variable also measures the managerial efficiency; but nevertheless I use it
here as a proxy for public interested behavior on the part of cable regulators to
follow the dictate of consumerism. Since multicollinearity might exist in variables
reflecting firm size and professionalism further reduction of variables is performed in
data analysis.
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Three variables define the mediating factors. NWAF captures the existence of
network tie to the major conglomerate. The most commonly employed approach to
the quantitative analysis of the presumed mediating mechanisms has been to examine
networks of interlocking directorates. But as shown in chapter 2, the difficulty to
study interlocks among small and medium size firms is evident. For the most part,
data on interlocks are not readily available for small-to-medium enterprises in
Taiwan because most of them are not public corporations. Two variables, NPC1 and
NPC2, measure the effect of nonprice concession on licensing decisions. NPC1
reflects the number of channels devoted to public and community purposes. NPC2
indicates the existence of ethnic-oriented channels. The original measures adopted to
capture nonprice concession are much more complicated than the two variables used
here (Zupan, 1989b). Here the assumption is that the regulators are bound by the
information available to them and can not meticulously consider all the variables that
have been hypothesized to capture the effect of nonprice concession.
The Ideology o f Commissioners
The above discussions are devoted to fill the details of the framework.
However, examining the impact of commissioners’ ideology on decision outcomes
requires a bit more effort on clarifying the role of ideology in serving publicly
interested objectives. The studies of publicly interested objectives in determining
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policy outcomes are not lacking.4 1 But, in this study the emphasis is on how ideology
can serve as a signaling mechanism in a world of costly information. Political
institution is more plagued by free-rider problems than its counterpart of market
institution. In a world in which information on the correspondence between
constituent interests and the consequences of policy proposal is scarce, ideology is a
convenient device for economizing on information. Therefore, the representative
may serve their investment motive, i.e., reelection, by relying on the dictates of
ideology a shortcut to t service of their constituents’ goals (Buchanan & Tullock,
1965; Downs, 1957).
Yet, the public interest arguments incur less criticism in their theoretical
framework than in their empirical investigations. For example, the empirical measure
of the ideological orientation of congressman is typically based on rating scales
provided by ideological watchdog organizations (e.g., Americans for Democratic
Action, ADA; or the Americans for Constitutional Action, ACA). Less recognized is
that the Poole-Rosenthal (1992) methodology (e.g., D-Nominate program) is used in
both congressional voting and regulatory commissioners voting. However, Peltzman
(1998) has been always critical at findings using such approach. His criticism is
largely leveled at the difficulties involved in separating consumption motive from
investment motive using the above rating scales. He contended that most of the
4 1 A number o f researches, however, have suggested that policymakers’ self-defined notions
o f the “public interest” are dominate explanatory invariable in congressional outcomes (Kalt, 1981;
Kalt & Zupan, 1984/1990; Kupan, 1984/1990; Kau & Rubin, 1979/1981; Mitchell, 1979), in state
legislative outcomes (Graddy, 1988/1991), and in agency’s regulatory outcomes (Rothenberg, 1994).
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ideological components of economic policymaking could indeed be accounted for by
an extended array of constituent interest measures. That is, the ideological shirking
of policymakers is actually the left-out economic interest variable.
There are studies arriving at publicly interested explanation for regulatory
outcomes that have done away with ideological rating-scale approach. These
investigations use variables that approximate the policymakers’ own conception of
public interest. Such variables were constructed to capture the policymakers’
orientation tow rd consumerism (Meier, 1987), information asymmetry (Graddy,
1988/1991), or welfare improvement (Otsuka, 1995). For the sake of this research, if
the commissioners respond to the factors representing consumers’ complaints or low
quality-adjusted price, then it could be fairly stated that the commissioners adhere to
the dictate of public interest. Unfortunately, complaints about cable services
originated from consumers could not be received by the reviewing commissioners.
They are normally directed to the Fair Trade Commission or registered at lower level
of GIO’s bureau office. Although the commissioner could respond to lower cable
price per channel as a proxy for public interest, the notion of public interest need not
include the promotion of economic efficiency (Tullock, 1982). Indeed, public
interest arguments appear to typically center on the “equity” side of the economists’
equity-efficiency dichotomy.
It should be noted that measuring the agency’s regulatory decisions connote
different implications about regulatory behavior from measuring commissioner
votes. Examining votes, it is argued, will make it possible to assess whether regulator
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ideology has an impact net of other determinants of regulatory outcomes
(Rothenberg, 1994). But using the individual commissioner ideologies in an equation
to predict aggregate outcomes (e.g., agency rulings or decisions) is problematic.
Therefore, Rothenberg (1994) have suggested using both agency decisions and
commissioner votes in order to assess the stability of findings about the determinants
of regulatory behavior. Unfortunately, data on GIO’s commissioner votes are
severely incomplete compared to data on the licensing decisions. In light of this
plight, however, this study will use the quality adjusted price as a shortcut to gauge
the publicly interested orientation of the regulatory agency.
Methods
Data Sources and Model Summary
Arguably, to this juncture the GIO’s framework for regulatory decision
making sketched in Figure 4 is little more than a schematic. Proof of such a
framework’s utility is always in its empirical validity. Thus, it is time to turn to test
empirically whether such a framework can further our understanding of GIO’s
licensing decisions ex post the democratization era of Taiwan. In addition to test the
fitness of the model, perhaps the most interesting feature is to examine: (a) the most
significant factors contributing to cable firms’ political success; (b) the efficacy of
each political tactics after controlling all the indirect influences; (c) the effectiveness
of the mediating factors in translating economic power into political influence.
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Data Sources
This analysis is conducted over the period 1996-2000. The theoretical
framework from the previous section is investigated using the data set submitted by
the applying cable operators to GIO the data of the GIO’s own regulatory document
(including contracted researches), the data set from congressional report on hearing
regarding cable legislation (some are contained in the regulatory document collected
by GIO), the data from trade association of cable industry, and a supplementary data
set obtained by telephone interview. The data collecting process is as follow:
1. The proposal documents were coded manually at the premise of GIO
continuously from 1997 to 1999. Such document files are all classified and no copy
allowed since the reviewing process was not completed during that time. The raw
data set thus secured was highly incomplete. For example, many firms that were
granted licenses after all were not found in the GIO’s documents (may be due to
M & A activity ex ante and ex post the reviewing process, or due to the sheer
missing document).
2. The incomplete data set was compared and cross-referred with the
data collected from trade publication, cable association, few contracted researches,
and telephone interview to fill in some missing part of the sample. The problem of
these data sources is that they reflect more of the attributes of the firms that were
awarded licenses rather than the firm that are not (only the trade publications before
1997 contain information of some firms that are not granted).
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3. The raw data were arranged in ascending sequence according to firm
size and channel numbers, and then coded in Excel spreadsheet format, but in
Chinese version. The variables representing firm size were rounded (employment
was rounded in 5 and subscribership was rounded in 1,000). The capitalization
variable reflects the exact numbers. I call to question some CPA firms of why so
many cable firms have the same numbers of capitalization. They explain that it is a
customary practice of small to medium size firms in Taiwan to report the minimum
threshold of capital requirement rather than the actual numbers. The differences in
such numbers may reflect the differences in the region chartered and the intention to
become a listed company.
The data set thus obtained was then translated and transposed to SPSS data
editor for further empirical test. It is submitted that all the data sources cited above,
with the exception of telephone interview, are readily available to every
commissioner of the Review Committee. There exists, however, some extent of
duplication among these data sources. Variations are expected of the same variable
from different sources because different sources of data are prepared by different
parties or agencies. In cases where variations exist, I coded the data from the
submitted proposals primarily. And in cases where data was not contained in the
proposal documents, other sources are coded when available. In some occasions,
there exist variations between different sources of the same variable. Under such
circumstance, the average number is used. Of the 208 cable firms which submitted
their applications, 129 firms secure their licenses, which mean that 62% of the GIO’s
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decisions favor license awarding. This study obtains a valid sample size of 119.
Among the 119 sample firms, 69 are granted licenses.
Model Summary
The dependent variable, the Review Committee’s licensing decisions, is
modeled as a function of both direct and indirect source of influence representing the
political effectiveness of individual cable operator in obtaining the license to provide
cable services. Because the dependent variable is categorical, the binary logistic
analysis is employed to predict the probability of whether the GIO will award license
to a prospective cable operator or not. The dependent variable, coded as 1, indicates
that the Review Committee as a whole rules affirmatively in awarding license. A 0
indicates that an individual cable operator has been unsuccessful in bidding for
license. Using a logic model guarantees that probability will not exceed the range
between 0 and 1 (Pindyck & Rubinfield, 1976). The model from which I work is as
follows:
p = f [INDIR (QPC, FSEM, FSCP, FSCB, MTEDU, PFODU, PFMDU, NPC1,
NPC2, NWAF), DIR (MAS, CGHR, AGHR, PLTC, CGAL)]
Where:
P Is the probability that a prospective cable operator with
given characteristics and employing certain political tactics
will receive affirmative decision from the GIO
commissioners.
INDIR Is the indirect sources of signal.
DIR Is the direct sources of signal.
QPC Is the quality-adjusted price per channel measured by the
ratio of price over total channels offered.
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FSCB Is firm size measured by subscribership.
FSEM Is firm size measured by employment.
FSCP Is firm size measured by capitalization.
MTEDU Is the degree of professionalism measured by average
educational level of top management.
PFMDU Is the degree of professionalism measured by the
percentage of employees who hold a college degree or
above.
PFODU Is the degree of professionalism measured by educational
level of owners.
NW AF Is network affiliation, a dummy variable where a 1
indicates network affiliation with any one of the two largest
MSO (multi-system operator).
NPC1 Is nonprice concession measured by the number of channels
devoted to public and community purposes.
NPC2 Is nonprice concession, a dummy variable where a “1 ”
indicates the existence of ethnic-oriented channels.
M AS Is consultation by outside management or legal advisory
service, a dummy variable where a 1 indicates that the
proposal submitted by the applying firm was prepared by
outside consulting firms.
CGHR Is participation in congressional hearings, a dummy
variable where a 1 indicates that the applying firm
participated at least one time in congressional hearing.
AGHR Is participation in agency rule-making process, a dummy
variable where a 1 indicates that the applying firm
participated at least one time in rule-making procedure.
PLTC Is political contribution, a dummy variable where a “1”
indicates that the applying firm gave political contribution
to any of the GIO’s oversight committee members.
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CGAL Is participation via congressional allies, a dummy variable
where a 1 indicates that at least one congressional member
testified or spoke on the applying firm’s behalf.
Description of independent variables and summary statistics for these variables
and their data sources are presented in Tables 2 and 3.
Data Analysis and Results
The logistic regression analysis is used to predict the probability that a firm
with given characteristics will be awarded a license by the GIO. The maximum
likelihood procedures involve estimating the log of the odds that the Review
committee as a whole will vote affirmatively. In the logic analysis, four specifica
tions of the model are employed. The first equation is the full model, which
formulates the GIO’s licensing decisions as a function of all independent variables
specified in the framework. It tests the overall fitness of model specification, and
moreover serves as the full information model in which the commissioners are
postulated to make decision according to the information available to them.
Equations 2, 3, and 4 are the reduced models. Equation 2 serves as a controlled
model, which includes variables reflecting the structural characteristics of each
applying cable firm. It examines the effects of structural characteristics on licensing
outcomes. Equation 3 investigates the impact of indirect sources of influence on
decision outcomes. Equation 4 examines the relative impacts of direct sources of
influence on licensing decisions, after controlling the effects of structural
characteristics.
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Table 2. Description o f Independent Variables
Independent variables Initials Description
Expected sign
(data source)*
Price-quality combination QPC Quality-adjusted price per channel measured
by the ratio of price over total channels
offered.
+/-
(A .D )
Size o f subscribership FSCB Firm size measured by subscribership.
+/-
(A, D)
Size of employment FSEM Firm size measured by employment.
+/-
(A, D)
Size o f capitalization
Educational level o f top
management
FSCP
MTEDU
Firm size measured by capitalization.
Degree o f professionalism measured by
average educational level of top
management.
+/-
(A, D)
+/-
(A, D)
Percentage o f employees
holding college degree
PFMDU
Degree of professionalism measured by the
percentage of employees who hold a college
degree or above.
+/-
(A, D)
Educational level o f owner PFODU Degree o f professionalism measured by
educational level of owners.
+/-
(A, D)
Network affiliation NWAF A dummy variable where a 1 indicates
network affiliation with any one o f the two
largest MSO (multi-system operator).
+
(A, B, E)
Nonprice concession (1)
Nonprice concession (2)
NPCI
NPC2
Measured by the number of channels
devoted to public and community purposes.
A dummy variable where a 1 indicates the
existence o f ethnic-oriented channels.
+
(A, B, E)
+
(A, B, E)
Legal and managerial
advisory
service
MAS A dummy variable where a 1 indicates that
the proposal submitted by the applying firm
was prepared by outside consulting firms.
+
(B, E)
Participation in
congressional
hearings
CGHR A dummy variable where a 1 indicates that
the applying firm participated at least one
time in congressional hearing.
+
(C, E)
Participation in agency rule-
Making process
AGHR A dummy variable where a 1 indicates that
the applying firm participated at least one
time in rule-making procedure.
+
(B, E)
Political contribution PLTC A dummy variable where a 1 indicates that
the applying firm gave political contribution
to any o f the GIO’s oversight committees.
+
(A, E)
Participation via
congressional
allies
CGAL A dummy variable where a 1 indicates that
at least one congressional member testified
or spoke on the applying firm’s behalf.
+
(B, D, E)
*Data source: A= Proposal document, 1994-1996; B= Regulatory document, 1996-2000;
C = Congressional report, 1994-2000; D = Cable industry trade association, 1996-2000; E =
Telephone interview, 2002-2003.
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Table 3. Summary Statistics and Correlation
Mean SD 1 2 3 4 5 6 7 8 9 10 11 12 13 14
QPC 8.43 1.30 1.00
FSEM 7373 34.48 .27* 1.00
FSCP 120978 63533 .34* .73* 1.00
FSCB 24159 13284 .26* .89* .78* 1.00
MTEDU 14.92 2.04 .27* .64* .57* .61* 1.00
PFMDU .22 .10 .06 .40* .41* .38* .45* 1.00
PFODU 13.85 2.96 .06 .25* .29* .34* .31* .32* 1.00
NWAF .62 .49 .08 .30* .26* .44* .30* .11 .13 1.00
NPC1 3.76 1.32 .09 .52* .38* .07* .36* .20* .05 .26* 1.00
NPC2 .34 .48 .01 .01 -.03 .16 .13 -.07 -.09 .09 .04 1.00
MAS .23 .42 .08 .20* .03 .24 .28* .07 .15 .05 .11 .16 1.00
PLTC .53 .50 -.02 .21* .07 .33* .18* .02 -.03 .38* .20* .40* .16 1.00
CGAL .40 .49 .01 .30* .14 .23* .22* .19* .14 .47* .30* .16 .40* .36*1.00
CGHR .42 .50 -.04 .22* .07 .40* .23* .16 .06 .07 -.00 .31* .16 .19* .13 1.00
AGHR .143 .35 .14 .43* .30* 1.00 .54* .38* .21* .22* .22* .31* .31* .24* .20* .33*
The logistic regression results of the full model are shown in Table 4. The
results exhibit potential problems with multicollinearity and further reduction of
model may needed. First, two of the three variables capturing firm size, FSCB and
FSCP, exhibit zero coefficients, indicating both variables could be highly correlated
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Table 4. The Logistic Regression Results o f the Full Model
Variables Beta Sig.
Constant -13.592 .216
QPC .337 .641
FSCB .000 .786
FSCP .000 .351
FSEM .114* .045
MTEDU -.353 .436
PFMDU -.824 .886
PFODU .418 .186
NPC1 -.559 .402
NPC2 -.240 .900
NWAF 8.339** .001
MAS 1.619 .402
PLTC 3.680* .029
AGHR 10.280 .835
CGAL 2.509* .059
C G H R -.290 .883
-2 Log Likelihood 29.758
C ox & Snell R square .671
N agelkerke R square .902
Variable(s) entered on step 1: QPC, FSCB, FSCP, FSEM, MTEDU, PFMDU, PFODU, NPC1, NPC2, NWAF,
MAS, PLTC, AGHR, CGAL, CGHR.
+Significant at 10% level ** Significant at 5% level *** Significant at 1% level
with another variable (e.g., FSEM), and therefore, are not theoretically distinct
variables.4 2
Consequently, FSCB and FSCP are dropped from the model. Second, it does
not seem from the correlation matrix, that collinearity is a big issue on the three
42 T he variable FSCB w as first dropped com pletely from the m odel because it is likely to be
artificially “entangled” w ith th e dependent variable. T hen I ran the m odel once w ith FSCP as the firm
size variable and second tim e w ith FSEM. The results nevertheless indicated zero coefficient o f
FSCP. T herefore, FSCP w as not theoretically distinct either.
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variables representing professionalism, nonetheless three auxiliary regressions are
run using MTEDU, PRODU, AND PFMDU as dependent variables respectively.
The results are shown in Table 5. The results of the auxiliary regression did
not indicate a multicollinearity problem. As such, the three variables representing
professionalism were kept in the model. The revised full model, heretofore, contains
13 IVs.
T able 5. A uxiliary R egression Results
Dependent variables
Independent variables
Model 1
MTEDU
Model 2
PFMDU
Model 3
PFODU
QPC .091 -.047 -.019
FSEM .426** .276* ,206+
NWAF .111 -.049 .067
NPC1 .048 -.010 -.127
NPC2 .012 -,164+ -.132
MAS .113 -.057 .097
PLTC -.014 -.091 -.085
AGHR .282** .316** .163
CGAL -.051 .133 .087
CGHR .017 .064 -.019
Adjusted R2 .48 .20 .044
The R2 is from an auxiliary regression with dependent variable being the three professionalism variables
(MTEDU, PFMDU, PFODU) respectively.
+ Significant at 10% level ** Significant at 5% level *** Significant at 1% level
The regression results, including full and reduced models are shown in Table
6. The results show that a full model with 13 IVs would predict 93% correctly of the
time when a given cable firm is granted license. The results indicate that the full
model performs pretty well and provides a good fit of the data being estimated.
Moreover, both direct and indirect sources of influence affect how cable television
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franchises are granted. Four of the 13 independent variables (FSEM, NWAF, PLTC,
and CGAL) have significant coefficients. Looking first at the variable, FSEM, it is
the only structural attribute that has a small but real (meaningful but not dominant)
impact on the probability of a potential cable entrant being licensed. It also suggests
that, out of the five structural variables (QPC, FSEM, MTEDU, PFMDU, and
PFODU), the commissioners are most receptive to the size of employment of an
applying cable firm. Conversely, the network affiliation variable, NWAF, is the
single most important factor of the licensing decision (Table 6). Namely, of the three
mediating variables (NPC1, NPC2, and NWAF), the commissioners are most
receptive to the extent to which an applying cable firm is affiliated with any one of
the two VIMSO (Vertically integrated Multiple System Operators) conglomerates.
The results from the full model estimation also indicate that two (PLTC and
CGAL) out of the five direct sources of influence have positive and significant effect
on the probability of securing cable licenses. Such results suggest that among all the
business political activities engaged by any prospective cable operator, the influence
emanated from the use of political contribution and congressional alliance have the
most significant impact on the outcomes of decision. In other words, the commis
sioners are more responsive to the business political tactics directed at the overseeing
congressional committee than those aimed at influencing the GIO directly (e.g., via
agency rule-making procedure and managerial or legal advisory services). Worthy to
be noted is that business participation in agency or congressional proceedings is not a
significant determinant of regulatory decisions, and further that participation in
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Table 6. Results from Binary Logistic Analysis
Equations 1 2 3 4
Intercept -6.51 -3.60 -3.42 -3.66
Indirect signals (structural variables)
QPC -.24 -.15 -.42 -.08
FSEM .08*
.02* .05* .02
MTEDU -.36
.22 -.01 .07
PFMDU -2.02
-2.29 -2.04 -3.72
PFODU .33
.06 .15 .11
Indirect signals (mediating variables)
NPC1 -.85 -.45
NPC2 -.12
2.23*
NWAF 7.58**
5.67**
Direct signals
MAS 2.18 -.13
PLTC 3.29*
1.78**
AGHR 10.27
7.68
CGAL 2.24+
2.67**
CGHR -.66
-.16
% of Prediction 93.00% 64.00% 91.00% 86.00%
Cox & Snell R2 .66 .16 .59 .46
Nagelkerke R2 .89 .22 .79 .62
Dependent variable: Probability of licensing (p)
Note. Data are shown as p coefficient.
> < .1 0 , *p<.05, *p<.0l
congressional level will even incur negative but insignificant results. To some
degree, this indicates that active participation may be less effective than the passive,
more subtle tactics aimed at campaign finance such as political contribution.
Similarly, congressional alliance forged via campaign funding should have
heightened the probability of affirmative decision. Unfortunately, the logistic results
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do not allow for determining the magnitude of the impact of political contribution of
agency decision-making because PLTC is coded as dummy variable.
Equation 2 (controlled model) examines the situation in which the applying
cable firm exerts political influence indirectly by way of their structural attributes
without using any political tactics. The analysis of Equation 2 reveals that it predicts
64% of the GIO’s decision correctly, only a small fraction of improvement (6%)
from the simple model. Again, the size of employment (FSEM) is the only structural
variable that is positive and significant at the .05 level. By and large, the results
from controlled model suggest that of the two categories of indirect sources of
influence, the factors reflecting structural attributes had only a mild effect on GIO’s
decision. Or vice versa, the committee as a whole does not pay close heed to
individual cable firm’s structural attributes except its size of employment. Accordingly, it
can be fairly stated that increasing managerial professionalism and efficiency
(reflected in QPC) on the part of the individual operator will not increase the chance
of obtaining license. And it is argued that the commissioners cater to the size of
employment probably because it can be translated into electoral strength of
individual firm.
Equation 3 examines the political efficacy of all indirect sources of influence.
Comparing Equation 2 and Equation 3 indicates that, by adding the mediating
variables (NPC1, NPC2, and NWAF) to the structural variables, the model predicts
91% correctly of the GIO’s licensing decisions, approximately 27% improvement in
explanatory power. Of the three mediating variables, NPC2 and NWAF are both
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positive and significant at .05 and .01 level respectively. Such results suggests that in
addition to the size of employment the commissioners are receptive to the system
operators offering ethnic-oriented channels to the viewing public, or affiliated with
major VIMSOs. Although it is submitted that the nonprice concession offered by
system operators in the form of public/community channels should positively
correlate with the licensing outcomes, the results, however, suggest otherwise. The
nonprice concession in the form of public/community channels has negative but
insignificant impact on the commissioners’ decisions. The results from Equation 3
are somewhat inconsistent with results obtained from Equation 1. The results from
full model indicate that both NPC1 and NPC2 are negative and insignificant
determinants of decision outcomes.
Or alternatively, Equation 3 could also be viewed as a scenario under which
the commissioners adhere only to the informational cue derived from indirect
sources of influence despite that all information, including political participation (direct
sources), were ready at their disposal. While Equation 1 represents the full
information model where the commissioners are hypothesized to heed to all sources
of information at the premise, Equation 3 models the scenario where the
commissioners rely on informational short-cut. This scenario is highly probable since
the time constraint on the commissioner would force them to bounded-rationally
consider first-handed the information that caught their attention or at their first sight.
As such, all the indirect predictors contained in the proposal data serve as the short
cut that afford the commissioners to economize on information cost. Such stipulation
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of Equation 3 is consistent with what Herbert Simon (1983) has termed the serial
processing capacity of human decision-makers. He implies that when dealing with
complex circumstances, decision-makers will attend to only a limited part of the
environment. And in political decision-making, shifting attention to different
domains of politics is even more pronounced because, noted by Iyengar (1990,
p. 161), “Information about public affairs is, therefore, likely to be domain specific.”
Hence, comparing Equation 1 and 3, the inconsistencies in NCP2 could be attributed
to the fluctuating attention of the commissioners under different light of
informational constraints.4 3
Equation 4 examines the relative impacts of direct sources of influence on
licensing decisions, after controlling the effects of structural characteristics. The
results from Equation 4 reveal that the model predicts 85% correctly of GIO’s
licensing decisions. It also indicates that two predictors of political tactics, PLTC and
CGAL, have impressive effects on agency decision— improving probability of
prediction from 64% to 85%— in the absence of mediating variables. Impressive
notwithstanding, the results are not generally consistent with other specifications.
Specifically, the structural variable FSEM is no longer significant in Equation 4,
meaning that further refinement is needed. Past studies (Keim & Baysinger,
43 The inconsistencies between Equation 1 and 3 could also be viewed as choice reversals in
which a choice made at one time is reversed at another. Moreover, Jones (1994) as shown that choice
reversals can occur n if the underlying preferences o f decision-makers are constant Similarly, my
analysis is close to Jones (1994): assertion that shifting attentiveness, rather than instability in
preferences, often accounts for choice inconsistencies.
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1982/1988; Rehbein & Lenwa, 1994) employing general linear model found no
significant interactive effects between the political tactic variable. This implies that
the impact of direct sources of predictors should be examined separately. I then ran
five variants of Equation 4 to test the impact of each direct signal, but the results
taken together from the five variants do not deviate from those of the full model.
Along with the full model, Equation 4 indicates that firms adopting passive, money
driven political tactics would be more effective than signaling their structural
strength, and signaling structural strength is sometimes more effective than active
participation. Intriguingly, the impacts of political tactics pale in the face of network
affiliation if I compare Equation 4 with Equation 3. This suggests that allocating
resources on political contribution and on establishing congressional ally turn out to
be less effective than networking with major cable conglomerates.
Although all the independent variables specified in the full model are
deducted from previous studies, suggesting that each variable is hypothesized to
have impacts on agency’s decision-makings, more than two-third of the variables in
my analysis are insignificant. This lack of significance does not necessarily imply
that these variables have no impact on GIO’s decision. It may suggest that, as stated
earlier, the commissioners rely heavily on information short-cut or cue that is easily
to comprehend or catch their attention. For example, both variables representing non
price concession are insignificant in the full model despite that, in many researches
(see chapter’s section on nonprice concessions), nonprice concessions are proved to
be significant in franchise bidding schemes. Therefore, from information processing
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perspective, the lack of significance in NCP1 and NCP2 could be attributed to the
fact that the commissioners are constrained to pay little attention to them because
there are some efforts involved in arriving at such numbers. Or, from a signaling
viewpoint, the lack of significance may indicate that these sources of influence are
not strong enough or are overshadowed by other influences.
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CHAPTER 5
CONCLUDING REMARKS AND IMPLICATIONS
Introduction
The completion of this study comes at a propitious time when tremendous
market forces push the government of Taiwan to reform its telecommunications
sector. If the market force of globalization has its mark on government anywhere, it
certainly will exert on the sectors where market have been the most dynamic, i.e.,
telecommunications. These sectors lie at the heart of the technological as well as
informational revolution, which many believe have undermined existing patterns of
regulation and changed the role of government (Mckenzie & Lee, 1991). But market
force rarely dictates the choice of regulatory regimes and instruments, as evidenced
in cable TV regulation of Taiwan. The case of Taiwan exhibits the characteristics
that, in stark contrast with many industrial nations, it has responded to similar market
pressures in a strikingly different way even within the same sector. While the local
telecommunications industry is also categorized as a utility and is regulated as such,
it has, to a certain extent, been liberalized and protected by the government. Cable
continues to be regulated as a utility and, instead of being liberalized, the sector
remains restricted and unprotected by the government.
Recent reform measures include institutional, such as the birth of NCC
(National Communications and Broadcasting Commission), as well as regulatory,
e.g., the Three-in-One bill aimed at leveling and liberalizing the playing field of
telecommunications. Although the reform measures subsequent to 1993 Cable Law
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are deregulatory in nature, in essence, they combined liberalization with reregulation.
Regulatory restrictions have still in place due to historical developments in the cable
television sector, which has evolved from a fragmented, lawless and politically
affiliated market to become a consolidated but overregulated industry. For instance,
the establishment of the ad hoc commission overseeing the license awarding and
subsequent renewal process is nevertheless in place, and this practice could prompt
GIO as the locus of political influences regardless of the regulatory shuffles among
regulation, deregulation and reregulation.
Generalization from the Empirical Results
The main purpose of this thesis is to examine the emerging regulatory
structure and arrangement in post-democratization Taiwan, and the consequences of
such structure for the efficacy of business political participation and its implications
for agency behaviors. The answers are divided in two parts. Chapter 3 offers an
interpretive account of the macro change in political institution and the micro change
in regulatory shift and its related agency decision making. Since the link between
the macro-institutional change and micro politics of regulatory behavior is hardly
straightforward, chapter 4 provides empirical verification of the GIO’s licensing
decision in the presence of business power wielded by individual cable firm. As
such, the implications to be drawn from these empirical results beget cross-reference
to the institutional explanations offered in chapter 3.
In general, the model outlined in chapter 4, incorporating 13 variables
hypothesized to influence GIO’s decision, provides a good fit of the data. This
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139
suggests that cable businesses influence indeed plays a key role in regulatory
policymaking. Two general conclusions can be drawn from the empirical results.
First, is that actions taken by regulated firms in political arenas can shape the
outcomes of regulatory decisions. By and large, my findings confirm to the notion
that actions taken by regulated firms in political/nonmarket arenas—political strategy
and tactics—can shape the outcomes of regulatory decision, and in turn, market
performance (Baron, 1996/1999; de Figueiredo, Rui, & Spiller, 2000; de Figueiredo
& Tiller, 2001; Henisz & Zelner, 2001; Grier et al., 1991; Krehbiel, 1999; Olson,
1994/1995; Schuler, 1996; Stigler, 1971). Although such a conclusion has become
the norm for U. S., as well as many other industrial nations, it is a novel observation
for a country starting to take on a solicitous attitude toward business. In the ante-
revision era of Taiwan, the regulated firms as a whole were passive and followed the
“administrative guidance” crafted by party affiliated policy committee and
administered by elite bureaucrats. My research in this regard conforms to the
assertion that political transition to democracy has sparked perennial business
interests in political influence on public policy, a new era of business involvement in
the national politics of Taiwan.
My second conclusion is that the efficacy of cable firm’s political influence
varies among different sources of influences. Given the widespread business political
influence, it does not mean every political action or tactics hypothesized to be
influential has its intended impact on regulatory decisions. To the contrary, my
research findings offer only reasonable support for a few tactics and activities.
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140
Among a variety of political tactics and actions, networking with the largest cable
conglomerate, making campaign contributions to committee members, and using
congressional allies are the key determinants for political success. Further analysis
also reveals that two of these three effective tactics are geared to congressional
oversight and one belongs to covert rather than overt political tactics. The plausible
explanations are the underdevelopment of corporate public affairs, the under
formation of corporate PACs, and the general public’s resentment toward overt
business political action. This may obscure the efficacy of overt political
participation such as congressional hearings and agency’s rule-makings. From the
GIO’s point of view, the agency embraces a solicitous attitude toward the cable firms
that are relatively large in size and affiliated with major cable conglomerates.
Moreover, in order to maintain its autonomy, the GIO are more receptive to the cable
firm’s political tactics directed at congressional oversight than those aimed at the
agency directly.
Implications Explored
The focus on one agency’s single decision may obscure an understanding of
the ways in which alternative institution can affect corporate political activity.
Nevertheless it is the first research done with respect to Taiwan that empirically
examines the extent to which the regulatory agency responds to business influence.
Therefore, there are immense implications as to (a) explore the business and
government framework in contemporary Taiwan in light of the empirical results;
(b) allow alternative theories of agency behavior and decision-making to be
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141
juxtaposed and compared; and (c) investigate whether or not the democratic
accountability is greatly undermined if corporate political activity provides
competitive advantages in the market for public policy.
Business and Government Relationship
in Contemporary Taiwan
Although the attempt by corporations to influence laws and regulation largely
depends on the relationship between business firms and government, such
relationship is not static or presumed a priori to be combative or cooperative
(Mitnick, 1981; Wood, 1986). In the history of U. S. cable legislation, the regulatory
shuffling among regulation, deregulation, and re-regulation (c.f., Hazlett & Spitzer,
1997) so indicates that the varying degree of political influence by cable industry is a
function of the varying pattern of business-govemment relationship. Since the nature
of business and government relations is hard to characterize empirically, in this study
such relations is to be inferred from how effectively and in what ways a firm can
attain its political success. What general lessons about the revived relationship
between business and government in post democratized Taiwan might be gleaned
from the analyses?
First, in post-revision era of Taiwan, many government agencies need to rely
on business cooperation to achieve their policy ends, and business needs to compete
for regulatory favors, the business-govemment relation has shifted from static and
monolithic dichotomy to dynamic interaction between them. More importantly, such
interaction is to a greater extent predicated on an electoral system based on SNTV-
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1 4 2
MMD. As a result, the regulatory process is more susceptible to business influence,
but at the same time the outcomes of agency decision become more tractable and less
arbitrary. Some (Cheng & Chu, 2002) had depicted the business-govemment
relations in post-democratization Taiwan as government being embedded but not
captured by special interests or business. It resembles the situation where an agency
responds to business interest and at the same time adapt to popular preferences
operating through institutions such as congress (Wood & Waterman, 1994).
Second, for business firms, they began to realize that the underlying
characteristics of political process are highly distinctive from market process, and
that political markets are expected to be even more beset by transaction costs.
Therefore, they are more than ever willing to divert resources to political activities
because the success of market strategies begins to hinge on its non-market
counterpart. For example, good quality of viewing service coupled with lower rate, a
strategy deemed to be successful in cable product market, was proved to be
suboptimal in securing favorable regulatory treatments; whereas the network
alliance, congressional allies, and part of nonprice concession, strategies that might
otherwise appear to be suboptimal from a narrow market-based analysis of short
term profitability, are in fact part of a successful nonmarket strategy.
Third, from a transaction-cost politics perspective, many seemingly
inefficient practices of political institutions are revealed on closer scrutiny to be quite
creditable attempts to cope with difficult political transactions (Dixit, 1996). For the
same rationale, the seemingly counterintuitive practice of regulating cable television
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143
via a centralized review committee, as opposed to the most documented practice of
franchise bidding scheme, may well be a quite creditable strategy for the government
of Taiwan to emphasize on liberalization on one hand, and on the other hand to
enhance government control over industries upon which the international pressures
are so overwhelming that might otherwise override domestic political concerns. This
strategy is termed strategic reregulation according to Vogel’s (1996, pp. 17-18)
categorization for different typology of regulatory reforms. Following Vogel’s
analysis, strategic reregulation possesses three main characteristics: (a) it confers
regulatory advantages to domestic firms, (b) it uses regulation to take away the
advantages of foreign firms, and (c) it promotes domestic firms so that they can cope
with liberalization. The government of Taiwan, in anticipation of imminent
liberalization trends to open its telecommunications markets, embarked on regulating
an otherwise informal market for cable TV occupied by numerous family-owned
system operators, in a hope to recon figurate the cable industry situated with larger
MSOs which were more able to compete with foreign rivalries.
Implications for Alternative Theories
o f Regulatory Behavior
One of the merits of the empirical framework employed in chapter 4 is its
multi-theory construct which allows for the test of competing theories of agency
behaviors. The results from my analyses imply that no single theory of agency
behavior can systematically explain the licensing decision of GIO. At the outset, this
is a rather weak conclusion because it is never the case that a single theory can
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144
explain a complicated regulation. Yet, most studies on regulations tend to focus on
single theory, i.e., public interest vs. capture theory, or legislature dominance vs.
agency autonomy, to explain agency behavior, and only a handful of researches
conclude with multi-theory explanations (see chapter 2 for a review).
On the surface, the GIO seems to cater to the political power wielded by
individual cable firm. Does this imply that the agency is captured by the cable
interest? The answer is no because the variables representing business political
participation do not overwhelm other variables. The empirical findings indicate that
the GIO responds only to the political activity that is funneled or mediated through
its congressional oversight committee, namely political influences wielded by
political contribution to committee member and by the help of congressional allies.
This implies that, instead of being captured by cable operators, the GIO’s decisions
generally reflect the preferences of the corresponding congressional oversight
committee. As such, the congressional dominance theory is shown to have
predicative power at GIO’s licensing decision. Or, as indicated in previous section,
the GIO is said to be embedded but not captured.
In addition, the empirical results also suggest that, in the absence of cable
firm’s political activities, the network affiliation is the most significant determinant
of political influence. Such finding possibly suggests the existence f networking
mechanism as instruments that allow some “power elite” (Mills, 1956), or “the
programmatic political party for the upper class and corporate community”
(Domhoff, 1998) the cable conglomerate to achieve their ends without resorting to
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145
political activity. Alternatively, the significant effect of network affiliation could also
imply that regulators either as legislators or bureaucrats foresee the possibility of
future employment in the networked cable conglomerate. This view is consistent
with what Paul Quirk (1981) had termed “industry job incentive hypotheses,”
according to which the specific orientation of regulators points to a “revolving door”
between the regulatory agency and the regulated firm. Since the dominant elites in
cable industry and regulatory officials are drawn from the same social class, the
“revolving door syndrome” does not deviate from the “power elite” or
“instrumental” explanation.
While the GIO’s regulatory decisions generally accord with the preferences
of its oversight committee, the “revolving door syndrome” reveals some autonomy
of regulators in pursuing their private interests or venality. This implies that both
congressional dominance and agency autonomy are not mutually exclusive in
accounting for regulatory outcomes. At issue is not who or which institution controls
the regulatory agency, but under what conditions the regulatory agency defers to its
overseeing bodies or pursues its autonomy. Past studies employing methodologies
that allow for an either-or explanation for agency decision-making have apparent
drawbacks vis-a-vis this study. The empirical findings in this study suggest that the
GIO regulators as a whole had certain autonomy or discretion to pursue private gain
while at the same time heeded to the preference of oversight committee which was
also strongly influenced by cable interests. In effect, such depiction corresponds to
what political scientists have described as “iron triangles” or “policy’ subsystem” of
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146
agency, oversight committee, and interest group relations except that in this study the
interest group is replaced by individual cable system.
The empirical evidence is consistent with the extemal-signals theory because
GIO commissioners make decisions by balancing conflicting demands from different
sources of influence. The extemal-signals perspective it is a multi-theory driven,
comprehensive model of regulatory decision making. By modeling the reaction of
public decision makers to perceived or anticipated signals from external groups,
researchers are able to juxtapose various influences by which an agency is
constrained, as well as able to examine the relative strength of each influence with
the objective to find out the needed theory of regulation under specific regulatory
setting. For example, support for the capture theory would be found if the strength of
the signal from the regulated industry overwhelms other signals. Moreover, the
multi-theory construct of external-signal theory is frequently employed to test the
variations observed in many agencies’ behavior, which also suggests that no single
theory of regulation can systematically explain the regulatory behavior within an
agency or across different agencies.
Implications for Democratic Accountability
Business political influence has immense normative implications for
democratic accountability and transparency. If business political influence is
manifested in corporate political activity, such activity represents narrowly targeted
rent seeking that increase the firm’s prospect in regulatory dealings. As such,
corporate rent seeking is socially undesirable and yet rational investors might favor
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147
it. This paradox is that corporate political activity is both a political problem, i.e.,
corruption and accountability, and a corporate governance problem, i.e., disclosure
of such activity and possible dilution of shareholders’ value. Whether or not
corporate political activity undermines democratic accountability is both a theoretical
and empirical issue. On the theoretical front, pluralism views business as among
many other manifestations of pluralist influence— citizens, media, interest groups,
political institution-that compete for favorable policies, whereas interest group
liberalism views business influence as bad politics that is detrimental to democratic
accountability by capturing bureau/agency.
On the empirical front, examining the processes and paths of political
influence on regulatory agency facilitate our understanding of how agency fits into
the democratic scheme. Such understanding would in turn enhance the legitimacy of
regulatory agency. The empirical findings indeed suggest that corporate political
action directed toward congressional committee is an effective tactic since the
agency responds mostly to the stimuli coming from congress. This implies that the
GIO does adapt to the major instrument of democratic power. To the extent that the
GIO does adapt, it is questionable that such adaptation is consistent with,
majoritarian or consumer preferences. Analysis of empirical results further reveals
that the GIO did not respond to the variable (QPC) representing consumer preference
for low price yet high quality cable viewing services. The bureaucratic adaptation not
consistent with consumer preferences pose serious dilemma for democratic
accountability.
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148
Wood and Waterman (1994) contend that bureaucratic adaptation does not
imply consistency with majoritarian demands or election mandates. They suggest the
need for political accountability in which legislators may push policy in a direction
contrary to majority preferences and the need for bureaucratic accountability in
which the bureaucracy, despite receiving consistent signals from politicians, may
shift policy away from majority preferences. The case of GIO exhibits problem
mainly with political accountability in which the licensing decisions did not live up
to the dictate of consumer preferences despite the agency is highly responsive to
democratic control of congress. There is reason for optimism about bureaucratic
democracy because of bureaucratic adaptation to politic institution. Yet there exists
irony behind such optimism Wood and Waterman (1994, p. 151) also noted that
“U. S. political institutions must accurately translate public preferences and send
consistent signals to the bureaucracy for bureaucratic democracy to work.” My
research confirms their skepticism that bureaucratic adaptation may indeed be
inconsistent with public preferences. The very disjuncture between political and
bureaucratic accountability cultivate elite influence through iron triangle, subsystem,
or capture politics.
The lack of democratic accountability in agency regulatory decision-making
underscores the severity of lacking transparency in both public and private sectors.
To curb any corporate political activity that might evolve into corporate rent seeking,
disclosure is paramount to ensure that the size of corporate treasury available for
political activity measures up with investors’ support for that activity. Similarly,
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149
transparency in regulatory decisions ensures the legitimacy of bureaucracy as a
representative institution by opening it up for public scrutiny. Unfortunately, many
so-called “sun-shine acts” drafted to enhance administrative transparency and to
regulate political lobbying and campaign funding are still pending after several
attempts. Even the most significant measure by which to demand openness and
transparency from administrative agency— Freedom of Information Act (FOIA)--was
severely handicapped by subsuming it under the Administrative Procedure Act
(APA). In so doing, the regulatory agency can avail itself with much more discretion
to collude with regulated firms under the acquiescence of congressional committee.
Such practice is perpetuated via the prevalent use of ad hoc review committee in
most regulatory agencies charged with the mandate of liberalization and
privatization. This centralized decision-making body violates decentralized
governmental institutions that are necessary to buttress democracy and gamer
managerial autonomy in the wake of liberalization.
To sum up, although we can not infer from this research that the cable
industry is uniquely privileged in the regulatory policymaking, or that business in
Taiwan dominates government policymaking, there exist, alongside the
democratization movement, multiple venues and accesses for individual business
firm to wield its political power. Superficially, overt corporate political activity is not
that epidemic in Taiwan compared to the numbers of corporate PAC, and lobbyists
in D.C. offices in the United States; but, this study indicates that covert political
activity becomes the dominant form of business political influences. Most
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importantly, this study provides the testament that governments do respond to similar
liberalization pressure in strikingly different ways by adopting seemingly
counterintuitive regulatory approaches that upon closer examination appear to be
highly creditable, and that business firms might engage in seemingly counter
productive political activities that turn out to be successful nonmarket strategies.
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Asset Metadata

Creator Yeh, I-Jan (author)

Core Title Business political influence on agency regulatory decision making: The efficacy of corporate political activity in Taiwan's CATV license awarding

School Graduate School

Degree Doctor of Philosophy

Degree Program Public Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag business administration, management,mass communications,OAI-PMH Harvest,Political Science, public administration

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Graddy, Elizabeth (committee chair), Matsusaka, John (committee member), Tang, Shui-Yan (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-469491

Unique identifier UC11342319

Identifier 3196917.pdf (filename),usctheses-c16-469491 (legacy record id)

Legacy Identifier 3196917.pdf

Dmrecord 469491

Document Type Dissertation

Rights Yeh, I-Jan

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA