Guest contribution from Dr Mirko Draca, University of Warwick, Centre for Competitive Advantage in the Global Economy
There have been repeated media ‘scandals’ about political lobbying in the US and the UK. But responding to scandals isn’t a great way to make policy.
The solutions that become salient after a scandal are on the whole made up quickly and not durable. This is why we need to think about reforming lobbying using empirical evidence and design new policies before the next scandal comes along.
Our work, launched at an event last week, starts in the US. This is a major electoral democracy with a large lobbying industry at the federal level – over $6bn was spent on lobbying during the 2012 election cycle. The problem of political insiders exploiting their connections when they go through the ‘revolving door’ is manifest. On the basis of simple headcounts, approximately 42 per cent of lobbyists have prior experience in government. Yet contracts featuring these ‘revolving door’ lobbyists account for approximately 56 per cent of total LDA-reported revenues. That higher share of revenues for former insiders is reflected in our calculation that the average revenue per lobbyist is approximately $350,000 per year for ex-Congressional staffer lobbyists versus a baseline of $170,000 per year for lobbyists without prior government experience.
That finding taken alone leaves open the possible explanation that Congressional staffers are the ‘best of the best’. The higher remuneration received by lobbyists who have gone through the revolving door may be due to ability and these individuals would be well-paid no matter which industry they worked in. Our research deals with this problem by studying what happens to the revenues of staffers-turned-lobbyists when the Senator or Representative they previously worked for exits the Congress due to retirement, defeat in elections or other reasons. When a Senator or Representative leaves, the affiliated staffer-turned-lobbyist has lost a connection to active legislative power. In turn, the market can respond – clients can shift their business elsewhere thereby revealing the value of the political connection. Our work studies whether this drop in revenues following the loss of a connection is significant and systematic across the lobbying industry. This is important because it provides evidence on both the existence and possible size of a market for political access in Washington.
Our findings indicate that the loss of a connection to a Senator leads to a 23 per cent fall in revenues and a loss related to a Representative is associated with a 9-10 per cent fall. Taken on their own these results provide strong evidence that a market for access exists. It is hard to reconcile a large fraction of revenues disappearing with connections as a result of some correlated, ability-based explanation.
So what does this finding mean for what we ought to do about lobbying? I do not want to deny that lobbying is a legitimate part of the democratic process – it’s a form of representation after all and contact between the private sector and public policy has the potential to improve the working of both. Banning or greatly proscribing lobbying would create other problems. The challenge for policy is to redesign the incentives around lobbying so as to avoid feeding a process of institutional corruption.
The two main tools for achieving that are transparency and regulation. And this is where the current position in the UK begins to look really problematic. We cannot replicate the findings we have made for the US in the UK because there is nothing like the same level of transparency about who lobbies whom and how much they earn for doing it. A first step for the UK would be to radically overhaul the Transparency of Lobbying and Non-Party Political Campaigning Bill and introduce a much higher level of disclosure.
Even then, what would we do if we discovered that the same problem exists as in the US? Transparency in the US hasn’t succeeded in limiting the growth in lobbying. This is why further regulation will probably be necessary. One potential measure is longer and better enforced ‘cooling off’ periods, which may make it less likely that an insider can take advantage of their political connections. They may still go on and work in lobbying, and be highly effective in it, but then that effect would be more likely to be due to talent and ability rather than insider status.