The federal government spends about $4 trillion every year and state and local governments another $2 trillion, not to mention the resources these governments control through regulatory activities.
At the same time, estimates of aggregate campaign and lobbying spending are well below than 1 percent of total government spending. For example, analysis of filings under the Lobbying Disclosure Act finds that $3.5 billion was spent on lobbying in the year 2010.
Although economists have trouble explaining why observed lobbying spending is so little in total, economic analysis has been successful at explaining why there is more lobbying in California than, say, Vermont and why lobbying expenditure often peaks at the height of legislative activity. More is at stake.
For better or for worse, an active government begets lobbying activity.
More from Casey Mulligan at The New York Times Economix Blog.
I think there is “so little” lobbying because of the social stigma that exists. No company prides itself on being the beneficiary of friendly government policies, regardless of the payoff. I think the profit potential has to be enormous before any company is willing to pony up, and even then they will do so in as low-key of a manner as possible.
I agree with Ambrose.
I also think its funny that we regard $3.5 billion spent on lobbying as only a “little”
Why Is There So Little Lobbying?
The decision whether or not to expend resources lobbying is a cost/benefit analysis. Economic theory suggests that under profit maximization, savvy producers would continue to lobby until the cost of lobbying equals the revenue derived from lobbying. Since there is an element of uncertainty in the outcome of lobbying; and some of the positive benefits to lobbying will accrue to competitors or others, firms probably have an incentive to lobby less than the optimal amount. That is also why lobbying is often done by trade associations, whose members all pay to belong.
An interesting analysis would be to compare the amount spent on lobbying with the success of lobbying. If the success rate is low, that would also help explain why there is “so little” lobbying.
Gordon Tullock was suprised that so little was spent on lobbying. If we assume that all government spending is the result of lobbying, we would calculate a return on investment of one hundred percent, given the figures cited by Prof. Mulligan.
Obviously, this cannot be the case, because every business would reduce its investment in productive activities and invest more in lobbying until the relative ROIs reached equilibrium at the margin.
An alternative is that the market for government favors is inefficient, in that there are barriers to entry and exit. But I think that this is highly unlikely in the U.S. Anyone can hire any lobbist to lobby for anything.
I think we have to conclude that most government spending is not driven by lobbying as strictly defined.
Medicare is obviously an exception, where lobbying is ruthless and unceasing. I believe that this explains much of the difference in growth between Medicare and Social Security. The former subsidizes supply, and is therefore more prone to effective lobbying. The latter subsidizes demand, and is therefore less prone to effective lobbying. (Please see article at http://www.pacificresearch.org/docLib/20080408_HPPv6n4_0408.pdf.)
Ambrose, the entertainment industry’s lobbying for the SOPA-PIPA legislation is a prime example of an enormous incentive to lobby. You would think that they would have seen the social stigma that was coming at them for supporting such an ugly piece of legislation.
In health care, at least, a lot of spending is on marketing and research campaigns designed to produce a particular legislative outcome. Technically it isn’t lobbying but it has been extremely successful in driving legislative outcomes just the same.
Heck, in my state the Robert Wood Johnson Foundation just gave grants to agencies that promised to work towards its goals. Much more effective than lobbying.
@Brian,
The entertainment industry did see that social stigma coming, and come it did. In that case, as @Devon mentions above, it was simply a cost-benefit analysis (though I would say that Devon’s CBA argument is incomplete without incorporating the downward social pressure on lobbying activity due to stigmatization). The profits from a possible SOPA implementation were too substantial to pass up, even if it means everyone hating you.
Further, some lobbying efforts are relatively immune to stigmatization. Sugar producers are notorious for their lobbying and, more importantly, can do so shamelessly. After all, no one will stop buying sugar just because they are disgusted by their lobbying efforts.
@Ambrose
The social stigma would be one of the negative externalities — but I’m not sure how big an externality. The degree to which social stigma deters lobbying probably varies from industry to industry.
It’s easy for public health advocates to lobby both the public and politicians to support universal coverage. But I can see how it might be more difficult for liquor store owners to lobby state legislators to restrict new entrants into their industry (it’s always about protecting the children; not about legacy stores’ profits).
Just wanted to thank NCPA and John Goodman for the excellent research and information they’ve provided in the healthcare reform debate. I’ve been able to use it to help develop the healthcare platform for a governor.
Keep up the great work!
Here’s how it is done. Johnson and Johnson have what they call their “philanthropic arm”, the Robert Wood Johnson Foundation. That foundation gives “grants” to non profits (sic) including the American Cancer Society and the Heart and Lung Associations, to do the lobbying for them. These “non profits” take that money and mix it with their money, and say that they are NOT using RWJF’s money to lobby, but their own. Since it is illegal for RWJF to lobby, but it is only illegal for the non profits if they use another Foundations money, it is sort of legal, in a really unethical way! ANyway, that’s how they’ve been getting smoking bans in private property. Buying Legislators and legislation. And J&J is selling the heck out of their Nicoderm and Nicorette, Nicotrol and Nicoderm CQ. Their “trustees” are in the WHite House, including DeParle, in the FDA Advisory Board, the EPA and HHS!!! Object of game? Sell J&J drugs and get them onto Medicare payout. Doesn’t matter if the patches don;t work. WHo cares. Most of Congress owns J&J stock!
By the way, the current and three former Surgeons General were associated with RWJF, and ex SG Satcher is currently on the CDC Foundation Board and J&J!!!
THe CDC says BUY THOSE PATCHES!!!!!