A Commoners’ Manifesto 2. How corporations capture the state, part 3: pestering and manipulation

Lobbying and regulatory capture

‘Real lobbying reform must end the practice of corporate lobbyists writing our laws.’ - Marty Meehan

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This is one of a series of articles that I hope to compile into a book – working title, The Commoners’ Manifesto: Neither Capitalism nor Communism. Here’s an introduction to the series. Comments welcome, including disagreement and debate.

I’ve argued that anti-capitalists should reject state communism as the route to a post-capitalist world, and that community-based, commons solutions are more likely to succeed. In fact I’m arguing that corporations have captured and now control the states that created them, so that a post-capitalist world can’t be built via a ‘democratic’ state either.

I looked at how states and corporations have been united since the birth of corporations, and how corporations set the agenda and lay the groundwork for getting politicians to implement the policies that benefit them. This article is about how corporations add more pressure to get what they want, via pestering and manipulation. Next I’ll look at bribery, money and the ‘revolving’ door, and then at threats and punishment.

I want to argue that corporate dominance wouldn’t be possible without states, and that their dominance has allowed them to capture and control the states that created them. Later posts will look at how states respond to this pressure to ensure that corporations retain their size and power.

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Introduction

Here’s how corporations add pressure on governments with a range of techniques, in ascending order of nastiness:

• Pestering (lobbying)

• Manipulation (regulatory capture)

• Bribery (with money and jobs)

• Threats (of capital flight, investor strike, the wrath of global institutions, credit rating agency downgrades, or violence)

• Punishment (actually doing those things)

Now, we’ve all done a bit of pestering and manipulation, and maybe even had a go at mild bribery or threats, but can we all agree that bribing elected officials or using violence against opponents shouldn’t be tolerated? It’s only because we’re so familiar with these techniques in the political world that we don’t see them as too bad. Just like witch-burning back in the day, we become accustomed to terrible things. Outsiders would be horrified, but it just washes over us. That’s why I want to label these things for what they are. Apart from the violence, they’re not breaking the law when they do any of this; it’s all perfectly legal, which isn’t surprising once you understand how corporations have captured the legislative process. From a corporate perspective, these aren’t bugs in corporate capitalism – they’re features.

Pestering: the lobby industry

Lobbying is the attempt to influence government decisions on behalf of particular interests. Lobby firms can be large in their own right – Ballard Partners, for example, has an annual revenue of over $80 million – but are tiny compared to their corporate clients, and aren’t household names. Their value is in their employees, who have close connections to politicians. In fact they’re often former senior government officials and political insiders themselves. Lobbyists can represent trade unions, NGOs or citizens’ groups too, but corporations and their collective organisations make up the vast majority of lobbying clients and spending.

The line between the lobby industry and think tanks is often blurry, and they frequently overlap. But they’re different, in that think tanks generate the policy ideas and produce research to support them, while lobbyists use their connections and direct communication with lawmakers to try to get those ideas adopted, or to suppress ideas their clients don’t want. They usually have specific, tangible outcomes in mind. Industry lobbyists regularly remove or weaken regulatory provisions that would harm corporate profits.

Their three main activities are:

1. Direct communication with legislators, their staff, and other government employees to advocate for or against specific legislation, providing detailed data, analysis, and arguments to try to change policymakers’ position on an issue.

2. Funnelling campaign funds from their clients to politicians that can buy access and create relationships – intended to gain influence.

3. Mobilising public support and building broad coalitions with other organisations, which creates political pressure that’s hard for policymakers to ignore.

They can also:

• Testify at legislative hearings to present their clients’ position.

• Second staff to politicians’ offices at their own cost.

• Organise client roundtables, putting clients in rooms with lawmakers to shape policy.

• Offer politicians jobs when they leave office (see ‘The revolving door’).

• Write policy documents that politicians can adopt verbatim. Here’s just one (egregious) example: just 3 years after the 2008 financial crash, in which derivatives trading played a major part, Citigroup’s lobbyists wrote a draft bill to weaken new regulations around derivatives trading. Of the 85 lines in the bill adopted by the House Financial Services Committee, 70 of them were lifted verbatim from the lobbyists’ draft. This bill was eventually passed by attaching it to a must-pass government funding bill in 2014, bypassing the usual legislative process.

How big / influential is the lobby industry? Companies spend over $4 billion annually on lobbying in the US, around £2 billion in the UK. There are many times more lobbyists than there are politicians. In the US, the financial services industry alone employs 3000 lobbyists – 5 for every congressperson. Research on one campaign showed that for every dollar spent, corporations received $220 back in tax savings. That’s some investment – a 21,900% return, in fact. And it’s not just national politicians who are lobbied. The EU is lobbied relentlessly too.

UK corporations are not required to declare their engagement on policies, how much they spend on lobbying, or which legislation they are targeting. And, if this wasn’t enough, there’s undercover, secret lobbying too, known by insiders as ‘stealth lobbying’ (not that it’s easy to collect data on lobbying generally).

I find it amusing (although painful) that a lot of good people on the left and right propose that the way to stop all of this is for lobbied, captured governments to reform the system by passing legislation. Isn’t the absurd irony of that obvious? Lobbying regulation isn’t fit for purpose, but it’s not the opaque nature of corporate lobbying or lack of regulation that’s the problem. It would still be wrong if it were completely transparent and well-regulated.

Putting a case to your elected representatives is not a problem in itself. It’s the money and power of corporations behind the lobbying that’s problematic and that corrupts democracy. In a different system, say a commons ‘partner state’ (more in later articles), based ultimately on local assemblies, lobbyists wouldn’t have direct access to policymakers (but could still try to influence the choice of experts to present to the assembly). But without professional politicians, and with the composition of assemblies constantly changing, they wouldn’t really have anyone to approach with job offers or wads of cash, and there would be no political campaigning for votes. The answer isn’t to attempt to make corporate influence cleaner, more transparent or more tightly regulated. It’s to make concentrated corporate power politically ineffective.

In a section on lobbying I really can’t leave out ALEC, in the US, although it’s much more than a lobby organisation. It has corporate members that sit on its task forces to draft model pro-corporate bills that it distributes to states and asks them to modify and adopt. It calls itself nonpartisan, but in reality it’s a corporate tool, as explained by the Center for Media and Democracy. It’s also involved in moves to re-write the US constitution to make it more pro-corporate.

Manipulation: regulatory capture

Regulatory capture is a scenario in which a government agency that’s supposed to regulate an industry ends up acting in the interests of that industry rather than in the public interest. Most rules around business and daily life are developed by regulators and public authorities rather than directly by elected representatives. For corporations, influencing these officials is often more practical and effective than focusing solely on politicians.

The term was first popularised by economist George Stigler. He developed the theory partly from his analysis of the Interstate Commerce Commission, the US agency established to regulate US railroads. He argued that, over time, it came to serve the interests of the railroad companies rather than the public. Stigler’s work in the 1970s helped establish regulatory capture as an important concept in the economics of regulation.

Its mechanisms are the same as at the state level, just aimed at government agencies rather than politicians. For example:

1. Lobbying: corporations advocate for the rules that benefit them. Unlike legislative lobbyists (see above) who must register (under the Lobbying Disclosure Act in the US, and the Lobbying Act in the UK), those who target regulatory agencies are often not required to register. This allows their campaigns to operate under the radar. In the US, twice as much is spent on lobbying regulators than lobbying politicians.

2. The revolving door: regulators leave to work for the industries they regulated, or industry executives become regulators. More on the revolving door in the next article.

3. Shared cultures and social connections of regulators and regulated: similar backgrounds and frequent interactions between regulators and industry can make regulators more sympathetic to industry concerns.

4. Structural dependence: for a regulatory agency to do its job, it needs immense amounts of data and expertise about the industry it oversees. The only practical source for this is the industry itself. Regulators often have no choice but to rely on unverifiable data and self-reporting from the corporations themselves. In many cases, independent sources of data just don’t exist.

Corporate capture of regulators doesn’t necessarily mean weaker or fewer regulations. Often capture leads to more or stronger regulation, but designed in ways that benefit corporations that can afford compliance costs, lawyers, reporting requirements, certification systems etc. Small competitors often can’t, so regulation can become a barrier to entry into the market for small businesses.

Wikipedia has a large list of historical examples of regulatory capture, so I don’t need to list more here. But I would like to recommend the movie Inside Job, about the 2008 financial crash, because it’s so entertaining (watch it for free here). Icelandic regulators were interviewed about their contacts with privatised banks holding assets around ten times the size of the Icelandic economy, lending money for schemes, many of which went bad, and lots of people lost all their savings. They said that when they visited banks, 20 lawyers were waiting to greet 2 regulators, primed to answer their questions. The regulators who pushed hard were offered jobs. One third of Icelandic regulators accepted.

Because of their shared culture, regulators aren’t conditioned to question ‘normal’ corporate behaviour, only obvious corruption. What I’m arguing is that perfectly legal corporate attempts to gain influence are extremely detrimental to democracy, nature and society.

Regulators accept the fundamental structure of large corporations and a market dominated by such entities as the baseline reality that they’re there to manage, not to challenge. These assumptions are rarely questioned. Their reforms are therefore geared towards enabling corporations to function on as even a keel as possible. Their goal becomes mainly stability, which often involves suppressing smaller, more efficient, decentralised alternatives that might disrupt the status quo.

As and when the commons grows to challenge corporations, regulators may well see this as problematic and regulate against it, as it’s in direct opposition to everything they’ve learnt about how an economy should operate – i.e. growth, oligopoly and wealth concentration.

Conclusion

I looked at how states and corporations have been united since the birth of corporations, and how corporations set the agenda and lay the groundwork for getting politicians to implement the policies that benefit them. Now I’m looking at how corporations add more pressure to get what they want. Above, I looked at pestering (lobbying) and manipulation (regulatory capture). Next I’ll look at bribery, money and jobs ‘the revolving door’, and then at threats and punishment. After that I’ll move on to what corporations get in return from their partner states.