The ROI on Lobbying

27 05 2013

Readers of this blog will know that  lobbying by business is an issue that runs through much of my historical research. Indeed, my first book was on the role of corporate lobbying in the creation of the Canadian nation-state in 1867. (Creating a whole government you can then lobby for subsidies is a sort of meta-lobbying).  There are many good reasons to restrict lobbying by businesses. One of them is that if firms can enrich themselves by lobbying, they will devote resources to lobbying rather than more socially productive forms of investment, such as R&D or building new factories to produce, you know, actual useful goods.

United Republic, which is a think-tank in Washington, recently published a study of the rate of return on lobbying versus other investments. They found that the ROI is, in some cases, extremely high. In other words, you will get much greater bang for your buck if you put your money into hiring K-Street lobbyists rather than doing something mundane, like buying a stock market index fund or building a house you plan to rent out.

Let’s think about the graphic above. The astonishingly high ex post rate of return to expenditure on lobbying raises the question of why anybody would ever bother investing in something that wasn’t lobbying. If the figures in this chart are both accurate and statistically representative of the ROI on all lobbying expenditures in recent history, then it become difficult to account for the existence of venture capitalists who put money into Silicon Valley or building new apartment buildings. That’s why I just don’t buy United Republic’s numbers.

Don’t get me wrong. I’m sympathetic to United Republic’s desire to restrict the influence of corporate lobbyists. However, I think that they may have cherry-picked the data here by only including the cases when companies spent a little bit of money on lobbying and then received a massive payout. I’m certain there are examples of companies spending a loads on lobbying and then not getting what they wanted at all.

Corporate lobbying is an important issue. However, publishing media bait and highly suspect social science isn’t going to bring us any closer to a real solution.

Read more here.