Business Spending on Politics Pays Off
Corporate political spending yields a variety of benefits, such as lower taxes, more favorable regulation or in some cases earmarks that help the business. This improves returns for shareholders by 2% to 5% a year, depending on the study, but the authors find “no credible evidence” that political activity harms firms.
See full WSJ editorial on corporate participation in politics.
As corporate political spending increases, will benefits stay relatively the same? This would be an interesting analysis to do over time and could potentially indicate that there is really only a political pay off when only a few firms are involved.
This is another situation where I am rather unsure as what to support.
On one hand, businesses should be free to pursue their own economic interests. On the other, government needs to be responsive to all people, not just those who can afford to lobby.
I can recognize that sometimes businesses need to lobby, because sometimes there are legitimate complaints or problems that keep them from working well. Yet how do you stop a business from lobbying past the point of necessity and into the point of profiteering off of government?
The thing I’m concerned about is that the more money that gets spent in the political system, the more money is required to make the system actually responsive to your needs. Essentially, we’re putting a dollar value on speech, and when we do that some people end up with speech that is more free than others.
Not surprised.
Of course it works
Economic theory suggests firms should invest in political lobbying until the marginal cost of investment equals the marginal return. You can argue there is some uncertainty that clouds the decision-making process. However, if political spending didn’t generate a positive return, firms would stop spending resources this way. If I were to guess, it would be that firms under-invest in political activities. This makes sense because individual firms cannot always guarantee they (individually) will be able to internalize all of the positive externalities from their political activities. To counter this problem, firms often join trade associations and each member contributes into a common lobbying fund that is used to further the industry’s interests. However, there is always an incentive for individual firms to refuse to contribute and “free ride” on the contributions of other firms. Thus, the amounts of political activities that are industry-funded are probably lower than this optimal.
I’ll be curious to see if businesses geta superior return on their campaign investments in this post-Citizens United election.
This makes the case for campaign finance reform weaker.