Introduction and Background

The bigger companies get, the more powerful they become. A large majority of Americans distrust concentrated economic power, and criticism of the world’s largest companies is a regular part of discourse within America’s political parties and around the world. Research has borne out the power of money in politics. Baumgartener et al. demonstrated that policy outcomes favor the interest group with the most lobbying resources.[1] Gilens and Page, for example, show that lobbying groups disproportionately represent business interests compared to more democratic interests and that these business lobbying groups are, dollar for dollar, twice as influential as other groups.[2] It is no surprise then that business interests employ more lobbyists, dispatch more lobbyists per issue, lobby on more issues, and spend more money compared to other interest groups.[3]

Corporate lobbying works. A number of studies show that the amount spent on lobbying positively impacts a firm’s equity returns [4] and market share.[5] Firms that engage in lobbying also appear to have lower effective tax rates than those that do not.[6] Moreover, a growing body of scholarship suggests that lobbying can directly benefit individual firms or subindustries through tax breaks^[7] or government contracts.[8] In many instances, companies receive exorbitant returns on this type of lobbying, like Boeing, which reportedly received a return of $7,250 for every $1 spent.[9] Other studies show companies directly avoiding applicable regulations in their industry. Firms that spend more money lobbying under antidumping laws can, for example, obtain favorable protection from foreign competition even when that competition is fair.[10] More troubling for antitrust enforcement, one study shows that lobbying allows firms to “receive favorable antitrust review outcomes.”[11]

This report proposes to link the power of corporations over democratic government with the monopoly power of those businesses. Specifically, it examines the correlation between how concentrated an industry is and how much power over government that industry has year to year. It uses increases in special interest lobbying spending as an analytical mechanism to measure power over democratic government. Across selected industry case studies of internet companies,[12] pharmaceutical manufacturing, and oil and gas production, the report finds a noteworthy relationship. In all three industries, concentration appears to predict elevated lobbying spending. In the oil and gas industry as well as among internet companies, the more market power a corporation acquires, the more it lobbies. In the pharmaceutical industry, the data is even more compelling. When pharmaceutical companies gained market power, they lobbied more, and when they lost market power, they lobbied less. One tentative conclusion from this analysis is that monopolies seek to acquire political power, whereas competitive businesses focus on competing with each other instead of dominating public rule-making bodies. The relationship is not perfectly correlated and the measure attempts to examine a very complex political dynamic. That said, it appears there is a significant empirical link between increased corporate consolidation and increased corporate political power. Assuming the relationship exists, it supports a structuralist policy vision focused on policing bigness itself. In short, the results of this report suggest that not only is big business good at lobbying, but that bigger business leads to more lobbying. That means monopoly is a threat to representative democracy—and that protecting our democracy requires effective antirust.

[1] See Frank Baumgartner et al., Lobbying and Policy Change: Who Wins, Who Loses, and Why, 233, 235 (2009).

[2] See Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, 12 Perspectives on Politics 564–581 (2014).

[3] McKay, Amy, Buying Policy? The Effects of Lobbyists’ Resources on Their Policy Success, 65-4 Political Research Quarterly 908, 909 (2012).

^[4] See J.H. Kim, Corporate Lobbying Revisited, 10 Business and Politics, 1 (2008) (analyzing lobbying’s effect on equity returns).

^[5] See Brian Shaffer et al., Firm Level Performance Implications of Nonmarket Actions, 39 Business and Soc. 126 (2000) (analyzing lobbying’s effect on market share).

^[6] Brian Richter et al., Lobbying and Taxes, 53 Am. J. Pol. Sci 893, 893 (2009) (“Increasing registered lobbying expenditures by 1% appears to lower effective tax rates by somewhere in the range of .5% to 1.6% for the average firm that lobbies.”).

^[7] Raquel Meyer Alexander et al., Measuring Rates of Return for Lobbying Expenditures: An Empirical Case Study of Tax Breaks for Multinational Corporations, 25 J.L. and Pol., 401, 404 (2009) (“corporations that lobbied for the tax benefit spent $282.7 million on lobbying expenditures and received $62.5 billion in tax savings, resulting in an average return in excess of $220 for every $1 spent on lobbying, or 22,000 percent.”).

^[8] Matt Miller, Make 150,000% Today!, Fortune (Jan. 27, 2006) https://money.cnn.com/2006/01/27/news/economy/lobbyist_fortune/index.htm (reporting how Lockheed Martin’s $55 million lobbying expenditures generated roughly $90 billion in government contracts: a 163,536% return).

^[9] Jason W. Ridge et al., Beyond Lobbying Expenditures: How Lobbying Breadth and Political Connectedness Affect Firm Outcomes, 60 Academy of Mgmt. J. 1138, 1138 (2017) (citing Ben Hallman, Boeing got $7,250 in tax breaks for every $1 it spent lobbying, Huffington Post (2014)).

^[10] Jeffrey Drope, Wendy Hansen, Purchasing Protection? The Effect of Political Spending on U.S. Trade Policy, 57 Pol. Research Quarterly 27, 27, 35 (2004) (“Evidence suggests, however, that firms use this law as a means of seeking protection from foreign competition, even when that competition is fair…Systematic analysis of policy outcomes suggests that, even when controlling for economic hardship, the more money that firms and associations that favor protection spend…the more likely is it that they will enjoy an affirmative decision”).

^[11] Mihir N. Mehta et al., Political Influence and Merger Antitrust Reviews, SSRN Electronic Journal, 34 (2017) available at https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=CICF2017&paper_id=1040 .

[12] This primarily includes digital platform companies like Google, Facebook, Amazon, and Netflix. It does not extend, for example, to internet providers and other internet infrastructure companies.