Summary of: Kozhikode, R.K. & Li, J. (2012). Political Pluralism, Public Policies, and Organizational Choices: Banking Branch Expansion in India. Academy of Management Journal, 55(2), 339-359
POLITICAL PLURALISM
Data on the expansion of 94 commercial banks in India from 1948 to 2003 were analysed to test the proposition that political pluralism – wherein competing parties control the state and national governments of a nation – can promote business expansion. The results confirm that such political pluralism reduces the power of either government to constrain business decision making but that pluralism might at times led to unhealthy competition between parties, harming local expansion opportunities. The data show that, in India, banks selectively exploit political pluralism to guide their expansion decisions.
In each subnational unit, the federal (or national) and the local governments share government power between them. Disagreements between policy makers at the different levels of government often lead to a greater variation in public policy outcomes and socioeconomic growth among the subnational units.
Political pluralism: An institutional arrangement wherein the political orientations of national and subnational policy makers differ, in such a way that one political party may dominate the national government while a political party with an ostensibly incompatible creed governs certain subnational units.
Political pluralism makes it more difficult for firms or other organizations to influence public policy or gain preferential treatment, as agents endorsing competing prescription may thwart any such influencing attempt at another government level.
Political pluralism normally tends to check and balance the power of various government factions, thus protecting the interests of citizens and organizations, but in certain situation in which political competition is weak, political pluralism may have negative, albeit indirect, consequences for organizations.
Organizations persuade key agents of governments through efforts such as lobbying and forming coalitions. However, political pluralism makes this more difficult as organization would need support from more than one level. Political competition under political pluralism can differ from one subnational unit to another, requiring organizations to assess a situation carefully as they pursue their interests.
Systems encouraging fragmented government are so designed to avoid concentration of power in the hands of a few and to divide responsibility for governing among different government braches -> check and balance.
This is in federal systems more complex.
Organizations prefer to operate in environments that afford them greater discretion in their decision-making. Hence, political pluralism may signal a healthy investment climate for organizations. If so, they should tend to expand preferentially in locations with political pluralism rather than in those with political hegemony (i.e. where a single party dominates both branches of the legislature or both the state and national governments).
Hypothesis 1: Political pluralism has a positive relationship with organizations’ decisions to expand in a subnational unit.
Political pluralism in a subnational unit might not lead to favourable resource distribution if there is only weak competition from opposition parties. At the extreme, when the national government considers a state’s loyalty impossible to
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