Monday, April 16, 2012

How To Tame The Lobbying Beast

In our previous post we discussed the corrosive effect that the multi-billion dollar lobbying has on the democratic process. A myriad of proposals for campaign finance reform have emerged, from: disclosure rules to ensure greater transparency, to limits on soft money, to matching public financing and the Occupy Wall Street Movement has proposed an outright bans on contributions from for-profit corporations. What these well meaning reformers fail to see is that until we address the irresistible incentives that drives corporations, industries, unions and other organizations to influence policy making, we will never Tame The Lobbying Best.

The American Republic was originally based on the classical liberal model, in which the economic role of the state was limited to: maintaining the rule of law, the enforcement of contracts, a sound currency and providing a level of infrastructure (roads, harbors, education, etc.) necessary for the promotion of commerce. As the size and scope of the state has grown, so has its willingness and ability to make or break whole industries and even individual companies through massive spending and the highly selective application of  subsidies, taxes and regulation. The most obvious case are the top 100 government contractors of the federal government that in 2010 enjoyed $284.7 billion in (mostly military) contracts. 

Sometimes this take the form of direct aid, as in the case of agricultural subsidies, but the most costly subsidies are usually indirect, such as the $100 billion subsidy provided to the housing and banking industry via  the mortgage interest write off present in the tax code. Not surprisingly, the most lobbying dollars are spent by corporations and organizations working within sectors of the economy in which state intervention is the greatest. We can safely assume that in 2011 the Pharmaceutical / Health Products industry spent $240,492,544, the Insurance Industry spent $158,741,505 and the Oil Industry spent $148,377,552, not because they were "concerned citizens," but because of the huge role the federal government plays in the said sectors of the economy. And Boeing and Lockheed Martin spent $155,484,310 and $150,411,138 to maintain the lucrative contracts they have with the federal government. And within industries, such agriculture, the lion's share of subsidies are directed towards wealthier, politically firms

Progressives simultaneously would like to increase the command that the federal government has over economic life, while curbing or eliminating lobbying. I consider this a well meaning, but impossible endeavor, for in any political system the powerful and the wealthy will always exercise tremendous influence. Hence corporate welfare and tax loopholes for the wealthy should not be viewed as aberrations, but as the inevitable outcome of the interventionist state. A more plausible approach would be to minimize the huge incentives that the state provides for businesses and industries to influence policy. In other words, we must eliminate the unavoidable temptation for lobbying and rent seeking, by establishing a level playing field in which the state does not even have the power to  "choose winners" and "make losers." Once corporations and unions are unable to reap huge windfalls through favorable policies, they will have no incentives to spend millions of dollars buying politicians and parties. Eliminating the regimen of subsidies, by creating a simplified tax system, would be a hard pill to swallow for many Americans, because they disproportionately benefit the middle class, but this is a small price to pay to disentangle lobbyists and special interests from the democratic process. 

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