A study by the investment-research firm Strategas which was cited in The Economist and the Washington Post compared the 50 firms that spent the most on lobbying relative to their assets, and compared their financial performance against that of the S&P 500 in the stock market; the study concluded that spending on lobbying was a "spectacular investment" yielding "blistering" returns comparable to a high-flying hedge fund, even despite the financial downturn of the past few years. A 2009 study by University of Kansas professor Raquel Meyer Alexander suggested that lobbying brought a substantial return on investment.
From the second article abstract mentioned in that excerpt:
In this paper we use audited corporate tax disclosures relating to a tax holiday on repatriated earnings created by the American Jobs Creation Act of 2004 to examine the return on lobbying. We find firms lobbying for this provision have a return in excess of $220 for every $1 spent on lobbying, or 22,000%.
From articles writing about the first study mentioned in the excerpt:
As the chart on the right shows, the firms that leaned most heavily on lobbyists have outperformed the S&P 500 by a whopping 11 percent per year since 2002.
The outright return on lobbying costs, according to one of the various studies that served as inspiration for the Strategas index, was $220 for each $1 spent.
Looking at one specific lobbying effort totally ignores all the other money that gets spent that yields nothing. The analysis of S&P 500 companies since 2002 also conflates correlation with causation. In the last decade, a disproportionate share of corporate profits have gone to the financial and energy industries, which just happen to be heavily regulated and thus spend a lot of money on lobbying. But lobbying isn't responsible for the boom in those industries, but rather unrelated market factors (namely, the worldwide explosion in energy demand as well as the demand for good investment returns from a generation of westerners nearing retirement).
If lobbying yielded 2,200% returns in a predictable way, the entire industry would be a heck of a lot bigger than the $3.5 billion a year it is today (which sounds like a lot of money, but is a pittance compared to how much money is spent by corporations on things that yield a lot less than quadruple-digit returns!)
While I agree with your criticism it boils down to the fact that measuring the impact of lobbying is difficult. I haven't seen convincing evidence either way as to whether the ROI is high. I suspect it is, at least for sophisticated firms, but is capacity constrained: You can't spend money if there isn't an issue to lobby and any given issue is subject to diminishing returns.
That would be consistent with high-ROI but limited revenue in lobbying.
I wasn't arguing that lobbying is necessarily predictable or consistent, just that it can be very lucrative when successful. It's one thing for Soros or the Kochs to spend millions promoting policies that reflect their view of the world, and another for Monsanto or Lockheed Martin to invest millions in crafting policy which has a non-trivial chance to recoup the costs tenfold or more.
Comments
Your assertion is doubtful.
From wikipedia:
A study by the investment-research firm Strategas which was cited in The Economist and the Washington Post compared the 50 firms that spent the most on lobbying relative to their assets, and compared their financial performance against that of the S&P 500 in the stock market; the study concluded that spending on lobbying was a "spectacular investment" yielding "blistering" returns comparable to a high-flying hedge fund, even despite the financial downturn of the past few years. A 2009 study by University of Kansas professor Raquel Meyer Alexander suggested that lobbying brought a substantial return on investment.
From the second article abstract mentioned in that excerpt:
In this paper we use audited corporate tax disclosures relating to a tax holiday on repatriated earnings created by the American Jobs Creation Act of 2004 to examine the return on lobbying. We find firms lobbying for this provision have a return in excess of $220 for every $1 spent on lobbying, or 22,000%.
From articles writing about the first study mentioned in the excerpt: As the chart on the right shows, the firms that leaned most heavily on lobbyists have outperformed the S&P 500 by a whopping 11 percent per year since 2002.
The outright return on lobbying costs, according to one of the various studies that served as inspiration for the Strategas index, was $220 for each $1 spent.
Looking at one specific lobbying effort totally ignores all the other money that gets spent that yields nothing. The analysis of S&P 500 companies since 2002 also conflates correlation with causation. In the last decade, a disproportionate share of corporate profits have gone to the financial and energy industries, which just happen to be heavily regulated and thus spend a lot of money on lobbying. But lobbying isn't responsible for the boom in those industries, but rather unrelated market factors (namely, the worldwide explosion in energy demand as well as the demand for good investment returns from a generation of westerners nearing retirement).
If lobbying yielded 2,200% returns in a predictable way, the entire industry would be a heck of a lot bigger than the $3.5 billion a year it is today (which sounds like a lot of money, but is a pittance compared to how much money is spent by corporations on things that yield a lot less than quadruple-digit returns!)
While I agree with your criticism it boils down to the fact that measuring the impact of lobbying is difficult. I haven't seen convincing evidence either way as to whether the ROI is high. I suspect it is, at least for sophisticated firms, but is capacity constrained: You can't spend money if there isn't an issue to lobby and any given issue is subject to diminishing returns.
That would be consistent with high-ROI but limited revenue in lobbying.
I wasn't arguing that lobbying is necessarily predictable or consistent, just that it can be very lucrative when successful. It's one thing for Soros or the Kochs to spend millions promoting policies that reflect their view of the world, and another for Monsanto or Lockheed Martin to invest millions in crafting policy which has a non-trivial chance to recoup the costs tenfold or more.