Bryan Caplan  

Business, Lobbying, and the Big Picture

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When the sugar industry lobbies for sugar tariffs, economists are quick to cry "Rent-seeking!"  A concentrated interest lobbies for a concentrated benefit, paid for by a diffuse public - nothing mysterious.  Strangely, though, businesses also often lobby for Big Picture policies.  There's a "business perspective" on school reform, infrastructure, environment, health care, workplace diversity, and much more. 

You could say, "What's so strange?"  Businesses benefit from a disciplined workforce and top-notch infrastructure, so they naturally push for strict schools and shiny bridges.  But this objection ignores the standard public goods argument.  Most firms have no realistic chance of changing policy on education, infrastructure, or any other Big Picture issue; the polity is just too big.  So why don't they just free ride, hope for the best, and save their lobbying dollars for narrow issues where they are likely to change the outcome?

None of this changes the plain fact that businesses do engage in Big Picture lobbying.  But it does undermine the standard rent-seeking explanation of their motives.  What else could be going on?

The obvious story is that Big Picture lobbying reflects business leaders' sincere convictions.  When individuals give money to broad political causes, we usually infer a charitable motive - even if we loathe their causes.  You could see a lot of business lobbying through the same lens.  Firms spend money on Big Picture issues because firms are run by humans, and humans care.

Yet on reflection, there's reason for skepticism.  Firms, unlike the vast majority of individuals, have to worry about public relations.  A good public image is good for profits; a bad public image is bad for profits.  This is pretty obvious when firms loudly give to charity or brag about how green their products are.  If they're doing it solely out of the goodness of their corporate souls, why do they crow so loudly?  The same mechanism could easily explain their Big Picture lobbying, too.  Businesses lobby for schools and infrastructure because backing do-gooder causes is great public relations - even if the school and infrastructure spending is a big waste of money.

You could view this as an argument in favor of the business community's Big Picture policies, but you shouldn't.  While firms have a clear incentive to lobby for popular Big Picture policies, many popular policies are ineffective or counter-productive.  If businesses genuinely cared about good policy, they would be happy to publicly second-guess the wisdom of popular panaceas.  Each firm's profit-maximizing strategy, though, is to pander to public opinion, come what may.

HT: Inspired by several conversations with Bill Dickens, where he used 19th-century business support for the expansion of public education to rebut the signaling model of education.

COMMENTS (8 to date)
Handle writes:

Last time I checked, the business perspective on immigration was expansionary. Consistent with this post, am I unjustified in seeing their very public lobbying as both rent-seeking and public-relations signalling?

Tracy W writes:

I find myself doubtful. Given widespread ignorance about politics, shouldn't we expect widespread ignorance about corporate lobbying? Indeed, even wider-spread ignorance, I don't know how many voting opportunities you get where you live (eg federal government, state government, city council, school board), but I suspect that you probably buy stuff from an even greater number of businesses.

So why should a business have an incentive to lobby for popular public policies? Most of their customers and potential customers don't care, a fair few of the ones who do will be totally wrong about what the business is lobbying for anyway and pretty much immune to any actual evidence on this point (eg Koch-brother-derangement). Unless the business owner's views are well outside the mainstream they're not going to pay much of a cost for lobbying for what they think is right, as opposed to what's popular.

Tom West writes:

I agree with Tracy W's argument. There's no reason to think that in support for large-scale social policies business leaders are different than other individuals.

NZ writes:

Isn't a big part of it that having lobbied for this or that cause is a kind of credential? Someone representing a business likes to be able to say "...and we were one of the first businesses in the state to go green," in part by contributing to this or that cause.

It's a kind of dog whistle, not just to customers who might care about the cause itself, but to other people in the business community who are judging the company in a deeper sense by looking at its surface. For example, "going green" doesn't just mean meeting some arbitrary measure of environmental friendliness. It also to some extent signals a kind of hip-ness and with-it-ness. As if going green is a symptom of being highly competent in marketing or some other key area. Picture the headquarters of a company that has "gone green," and you envision sleek shiny computers, a comfortable, naturally-lit modern office space, an exciting, young staff, and leaders who are up on the latest innovations. It inspires confidence and desirability.

Steve Z writes:

My impression is that businesses give to these sorts of charities for tax purposes. Hence, the actual object of the charity is meaningless, and can be selected essentially at random according to the impulses of the board, officers, etc. The mostly-random big-picture charitable impulses of these people will, in expectation, be pretty similar to those of the general public, because these officials have no incentive to think about big-picture issues any more than the general public does. Hence, seemingly-random business support for ineffective big-picture causes.

To the extent there isn't a tax explanation, charitable giving always seemed like a breach of fiduciary duty to me unless it was for purposes of capturing an agency or the like. But that might be a tough argument to make to a judge.

Tracy W writes:

NZ: going green may be good signalling but it's also very vague. There's all sorts of things that could be lobbied for on the basis that they're "going green", some of them contradictory (eg is nuclear power green or not green?) A CEO I think has a fair bit of discretion even within that topic.

Glen Smith writes:

As has been stated, looking good to your clients is a part of marketing. There are many potential business opportunities created by the implementation of policies generated by big picture lobbying. Think of it as business development. Further, when it comes to much of the education lobbying, I know it is, in part, about keeping training cost as outsourced as possible.

MingoV writes:

I doubt that profits increase much when a company brags about the charities it supports and the lobbying it does. When a publicly held company does this, stockholders should demand data on whether such expenditures increase profits. If they don't, then shareholders should send a clear message that their company does not have a charter to donate profits. The stockholders can use their dividends and capital gains to make whatever donations they choose. This avoids disputes about company donations supporting charities that shareholders dislike.

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