Trends in Corporate Lobbying: Its Incentives and Socio-Economic Effects

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In sight of the White House, just across from Lafayette Square, lies the US Chamber of Commerce (AmCham) Foundation, which works to educate the public on the positive impacts of business. Such proximity signifies the intimacy of Congressional agenda-setting and its policy priorities with the lobbyists supporting unregulated, Big Business. Since the early 2000s, corporate lobbying has exceeded the Congressional budget, where $2.6 billion per year is spent in such a manner [1]. This increasing corporate influence in US politics culminates in the ‘Citizens United vs. Federal Election Commission’ Supreme Court Case, which determined that campaign spending by organization should remain without a ceiling [2].

This is in stark contrast to the 1960s, when public interest groups and labor unions were highly significant actors and corporate lobbies remained limited and inefficient. The government had gone on a ‘regulatory binge’, but growing compliance costs, rising wages and slowing economic growth spurred the formation of the Business Roundtable. This lobbying group was formed by the most senior executives of American Big Business, with objectives to decrease labor costs and union power and increase the ‘international competitiveness of American industry’. By the early 1980s, lobbyists triumph with successful labor reform, loss of regulation and lower taxes, as exemplified by the Labor Reform Law of 1977 and Economic Recovery Tax Act of 1981 [1].

Lobbyists assumed a ‘leave us alone’ relationship with the government in Washington. This attitude shifted to ‘let’s work together’ in the late 1980s with the advent of ‘advocacy advertising’. These programs are aimed to shape the political landscape by creating commercials and media to “[procure] a political climate conducive to business as a whole” [3]. And this chumminess between politics and business was not privy to the US alone.

The global influence of AmCham grew with the Europeanization of American business interests, as American firms adopted policies to hire specific European nationals to lead on specific business issues. However, the early 1990s saw the growing influence of the European Round Table of Industrialists, and so grows the divide between the influence of European and American lobbyists [4].

The informality and flexibility of the European Commission allows for its lobbyists to conduct long-run business-government relationships. The intimate relationship between administration bureaucracies and the business environment is exemplified by a common interventionist policy that a European government and business has with the EU, where such a relationship is symbiotic in the sense that both parties would prosper by stepping up their regulatory initiatives in the EU Single Market [4]. Conversely, the US Market is at odds with consistent quarrels between Big Business and the government over business-inhibiting regulations and transparency measures.

European and American differences aside, lobbying influence is a growing trend that is easily perceived when considering particular lobbying strategies of firms. Note that, naturally, some interest groups may have divergent interests. If the policy goals of different groups are not consistent, let’s say between a Business group and a Labor group, the amount of lobbying on the issue increases due to various viewpoints. More significant is the ‘free-riding problem’, which occurs when some firms benefit from the work of an interest group in their lobbying attempts without being part of the lobbying. A common solution is that the benefits from lobbying can be allocated solely to participants of the collective action, though consequently lobbying participation and amount of lobbying funding will increase [5].

As firms are incentivized to lobby, the socio-economic effects are consequently more prevalent. With solutions to the ‘free-riding’ and divergent interest problems being provided by the theory of collective action, the result is rising aggregate profits. This corresponds to a decreasing wage share and stagnant wages for lower-income workers, compared to higher-income ones in the same corporation, resulting in greater wage inequality [7].

Top Graph: Employee Compensation and Corporate Profits // Bottom Graph: Wages to Profit Ratio [6]

This rise in profits could be a result of a decline in competition, especially with sustained long-term aggregate profits, and firms are able to increase their prices and lobby for favorable regulations rather than using the wholesome tool of innovation to compete with other firms [7].

The social critique aside, with the increasingly present politic-skewing effects of lobbying, Western leaders like Trudeau and Trump have taken steps to ostensibly consolidate their power. Canada’s Trudeau legislates a ban to cash-for-access lobbying [8], requiring transparent lobbying being the only means to do so, and America’s Trump ordering a Five-Year Ban on lobbying and a permanent ban to foreign lobbying [9]. This allows these leaders to keep the Parliamentary and Congressional agendas their own and undermine efforts of political opponents, but can also lead to trends back to more moderate political-business relationships that were witnessed in the 1970s.

With a highly centralized government comes the reliance of cities on international lending and corporate borrowing with tight regulation, and a susceptibility to a long-term market slowdown, as seen during the 1960s in the US. A highly decentralized government results in deregulation and increased reliance of cities on corporate borrowing, with the effects of lobbying becoming more discernible. Both these national strategies seem to ‘give the man fish, without teaching him how to fish’. The prioritization of business entrepreneurship as the primary growth strategy has resulted in declining industrial productivity, as exemplified by the US Rustbelt states, especially with government opposition to the strategy. Today, it seems as though governance would rather be ‘the hand that feeds us’ rather than ‘teaching us how to fish’.

And so a tenacious tone rings through and is epitomized by the words of Napoleon Bonaparte at the dawn of the industrial revolution, when he says, “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes” [10].


Sources:

[1]http://www.theatlantic.com/business/archive/2015/04/how-corporate-lobbyists-conquered-american-democracy/390822/
[2] https://www.law.cornell.edu/supct/html/08-205.ZS.html
[3]http://publishing.cdlib.org/ucpressebooks/view?docId=ft5h4nb372&chunk.id=d0e2339&toc.depth=100&toc.id=d0e2246&brand=ucpress
[4] https://www.hks.harvard.edu/m-rcbg/Events/Papers/RPP_3-10-05_Coen.pdf
[5] http://www.nber.org/papers/w7726.pdf
[6]http://www.zerohedge.com/news/2013-12-04/wages-relative-profits-drop-all-time-low
[7] https://hbr.org/2016/05/lobbyists-are-behind-the-rise-in-corporate-profits
[8]http://www.theglobeandmail.com/news/politics/trudeau-cash-for-access-fundraisers-changes/article33788333/
[9] http://time.com/4652703/president-trump-lobbying-ban/
[10] http://www.globalresearch.ca/the-fourteen-year-recession/5375191

 

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