断绝大业不会减少游说活动

Oops!ItTurnsOutAggressiveAntitrustWouldIncreaseBusinessLobbying

HADIHOUALLA|JANUARY2023

Thecommonrefrainthatbigbusinesswieldsdisproportionatepoliticalpowerisoverblown.Lobbyingdataindicatesthatlargefirmsspendrelativelylessonlobbyingthandosmallerfirms.

KEYTAKEAWAYS

1FlawedresearchincorrectlyassertsthatbigbusinessesfunneladisproportionateamountofmoneyintoWashingtonandthatantitrustisnecessarytosafeguarddemocracy.

1AnalysisbytheInformationTechnologyandInnovationFoundation(ITIF)showsthatfirmswithmorerevenue,higherprofits,andgreatermarketvaluespendlessonlobbyingperdollarofrevenuethansmallerfirmsdo.

1ITIF’sanalysisalsoshowsthatmergersreducelobbyingexpenditures,whilecorporatespin-offsincreaselobbying,onaverage.

1Inshort,employingantitrustinanefforttosafeguarddemocracywouldincreasecorporatelobbying,notdecreaseit,whilealsoharmingconsumersandeconomicgrowth.

1Criticsalsooverlookthefactthatsmallbusinesseswieldsignificantpoliticalpowerthroughtradeassociationsandgeographicadvantages.

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CONTENTS

KeyTakeaways 1

Introduction 2

PreviousResearchExaminingthePoliticalInfluenceofCorporations 3

IndustrySelectionBias 4

MarketDefinitionProblems 4

OmittedVariableBias:IndustryGrowth 4

OmittedVariableBias:OverallTrendsinLobbying 5

FaultyRegressionAnalysis 6

ThePoliticalInfluenceofSmallBusinesses 7

ReassessingtheConnectionBetweenFirmSizeandLobbying 8

Methods 8

TheRelationshipBetweenFirmSizeandLobbying 9

TheRelationshipBetweenProfits,MarketValue,andLobbying 10

DoMergersIncreaseLobbying? 11

DoCorporateSpin-OffsDecreaseLobbying? 12

Conclusion 13

Endnotes 14

INTRODUCTION

Antitrustisbackwithavengeance,drivenbyasurgeofadvocacyhearkeningtothelegacyofSupremeCourtJusticeLouisBrandeis,theantimonopolistherooftheProgressiveErawhooftenbemoanedthe“curseofbigness,”whichheviewedasinherentlybad.

1

Neo-Brandeisiansarguenotjustthatlargecompanieshurttheeconomy,smallbusiness,andconsumers,butalsothat theyareapersethreattodemocracybecauseconcentratedeconomicpowerbegetsconcentratedpoliticalpower.Ergo,theyviewantitrustasbothapolicytoolandaphilosophicalunderpinningofdemocracyitself.

2

Manypoliticalleadersnowchannelthatviewintheircallsformoreaggressiveantitrustaction.PresidentBiden’s2021executiveorderoncompetitionwarnedthat“excessivemarketconcentrationthreatens…democraticaccountability.”

3

PresidentialadvisorTimWu,whohelpeddrafttheorder,previouslywarnedinaNewYorkTimescolumnthatweshould“BeAfraidofEconomic‘Bigness.’BeVeryAfraid,”becauseextremeconcentrationcreatesconditions“ripefordictatorship.”

4

(Nevermindthat,asITIFhasshown,U.S.marketsarenotreallybecomingmoreconcentrated.

5

)Meanwhile,theleadershipoftheU.S.DepartmentofJustice(DOJ)andtheFederalTradeCommission(FTC)haveeachreleasedstatementscommittingtouseantitrusttopreservedemocracy.

6

AndSenatorAmyKlobuchar’s(D-MN)recentbookdeclares,“IfAmericansaretorebalanceourdemocracy,wemustrecapturethespiritoftheantitrustmovement.”

7

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GivenAmericans’deepcommitmenttoademocraticrepublic,thislineofattackislikelytobemoreeffectiveforneo-Brandeisianthananeconomicone.Raisingthealarmthatbigbusinessesofallkinds,notjustselectonlineinformationplatforms,subvertthedemocraticwillofthepeopletouchesacorenerve.Soitcomesaslittlesurprisethatneo-Brandeisiansassertthatlargebusinessesspendalargerproportionoftheirrevenueonlobbyingthandosmallerbusinesses,andanAmericawithfarfewerlargebusinesseswouldbetterreflectthewillofthepeople.

8

Forthem,stricterantitrust—bothstrictermergerenforcementandbreakupsofexistingcompanies—isapowerfultooltorestorethehealthofAmericandemocracy.Butwhileseductive,thisviewisfactuallyincorrectforanumberofreasons.

ITIF’sanalysisrebutsthenotionthataneo-Brandeisianapproachtoantitrustbasedona“bigisbad”ethoswouldbeaneffectivetooltorestrictbusinesslobbying.Suchanapproachwouldlikelyinsteadincreaseoveralllobbyingexpenditures.

First,manyofthemostpowerfulplayersinWashingtonareassociationsofsmallcompanies,suchasrealtors,cardealers,insuranceagents,communitybanks,andsmallruralInternetserviceproviders.Andmoretothepoint,asthisreportdemonstrates,largefirmsspendlessonlobbyingperdollarofrevenuethandosmallerfirms.Inaddition,mergersareassociatedwithdecreasedlobbyingasaproportionofrevenue,andcorporatespin-offsareassociatedwithincreasedlobbying.Takentogether,ITIF’sanalysisrebutsthenotionthataneo-Brandeisianapproachtoantitrustbasedona“bigisbad”ethoswouldbeaneffectivetooltorestrictbusinesslobbying.Suchanapproachwouldlikelyinsteadincreaseoveralllobbyingexpenditures.

PREVIOUSRESEARCHEXAMININGTHEPOLITICALINFLUENCEOFCORPORATIONS

AmericanEconomicLibertiesProject(AEL)isaneo-Brandeisianactivistorganizationworking“tochallengemonopolies’dominanceovermarketsandsociety.”

9

Inits2021report“DemocracyforSale,”theorganizationclaimstoshowthatmoremarketpowerleadstomorelobbying.Thereportconcludesthat“notonlyisbigbusinessgoodatlobbying,butthatbiggerbusinessleadstomorelobbying.Thatmeansmonopolyisathreattorepresentativedemocracy—andthatprotectingourdemocracyrequireseffectiveantitrust.”

10

Tobeclear,itarguesthatonebigbusinesswithrevenueequaltotwomid-sizebusinessesspendsmoreonlobbyingthandothetwobusinesses.

TheauthorsreachedthisconclusionbycomparingchangesintheHerfindahl–Hirschmanindex(HHI)ofthreeindustries(Internetcompanies,pharmaceuticals,andoilandgasproduction)tochangesintheirtotallobbyingexpenditures.TheyfoundthatasHHIgrew,sotoodidtheindustries’totallobbyingexpenditure.ThestudyobservesthispositiverelationshipwhencomparingthelobbyingexpenditureofoneyearwiththeHHIoffouryearsearlier.Accordingtotheauthors,thislagresultsfromthe“processofturningconcentrationintoprofitsandthenspinningthoseprofitsintolobbyinginWashington.”

11

However,asdiscussedahead,thisstudyhasanumberofsignificantflawsthatdonotsupportthereport’sconclusions.

Notsurprisingly,thereportcallsforstricterantitrustbecause“[t]heconsumerwelfarestandardsimplydoesnotcapturethefullsuiteofharmsofconcentrationandcannotprovideafullsolution.”

12

Inotherwords,thereportarguesthat,eventhougheconomiesofscalecanlowerpricesandmakeconsumersbetteroff,thethreatoflargecorporationstodemocracyissufficient

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JANUARY2023PAGE4

towarrantstrongerantitrust.Thisisthekey.Neo-Brandeisianshaveaslenderreedwhentheyargueagainstbigonthebasisofconsumerwelfare.Mostvotersinstinctivelyrealizethatlargecorporationsgotlargebyprovidingconsumerswithvalue.Sotheneo-Brandeisiansrelyonthepolitical-threatargument.

IndustrySelectionBias

ThefirstflawintheAELstudyisitoverlooksthatchangesintheindustries’regulatoryenvironmentsmightbeoccurringsimultaneouslytoincreasingconcentration.Internetcompanies,pharmaceuticalcompanies,andoil/gasproductionareallincreasinglyattheforefrontofAmericanregulatorydebates.Theseregulatorydebatesnaturallygeneratemorelobbyingexpenditures.Ampleevidenceshowsthatbecausepoorlydesignedregulationsharmfirms,threatsofregulationtendtoincreaselobbyingexpenditures.

13

Byfailingtocontrolforthisfactor,theauthorscouldbemisattributingsomeoftheeffectsofincreasingregulatoryscrutinytoincreasingconcentration.Thiswouldleadtheauthorstooverstatetheeffectofconcentrationonlobbying.Inaddition,theauthorscannotholdthesethreeindustriestoberepresentativeoftheentireeconomy.Amuchwidersampleoffirmsisnecessarytosupporttheauthors’conclusions.

MarketDefinitionProblems

Thestudyalsosuffersfrommarketdefinitionproblems.Forexample,itgroupsvastlydifferentcompanies,suchas“Internetjoblistingservices,auctionsandInternetretail,Internetpublishing,websearchportals,dataprocessingandhosting,electronicshopping,andmail-orderhouses”underasingle“Internetcompanies”category.

14

Thestudydoesnotsharethecompletelistofcompaniesitincludesineachindustrialclassification,butitcitesafewofthecompaniesthattheyclassifiedas“Internetcompanies.”TheseincludeAmazon,Google,Facebook,Microsoft,andOracle.

15

Forthemostpart,thesecompaniesarenotinthesamemarkets,sousingHHIismisleading.Oracle,forexample,doesnotcompetewithFacebookandAmazon,andOracleandAmazoncompeteoncloudofferingsbutnotontherestoftheirbusinessmodels.Thestudyalsooverlooksforeignsubstitutesandnonpubliclytradedcompaniesforallthreeindustriesitconsiders,thereforeoverstatingconcentration.

16

OmittedVariableBias:IndustryGrowth

Industriesthatseeincreasingtotalrevenuesandtheentryofnewfirmscouldseemorelobbyingovertimethatisunrelatedtoconcentration.Butiftheseindustriesaregrowingandbecomingmoreconcentratedatthesametime,thereportcouldbemisattributinglobbyingincreasesfromindustrygrowthtoconcentration.

Forexample,thereportpointsoutthatHHIgrowsintheInternetindustrybutdoesnotcontrolforthefactthattheindustryisgrowingatthesametime.

17

Figure1

chartsthegrowthinrevenueandlobbyingoffiveInternetcompaniesthereportincludesinitsanalysis.Aswewouldexpect,lobbyingexpendituresgrowassalesrevenuegrows.Butbecausethereportdoesnotcontrolforindustrygrowth,theauthorsmisattributedcausalitytoconcentrationwhen,inalllikelihood,atleastsomeofthelobbyingincreaseresultsfromthesheergrowthinthesizeoftheindustry.

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$4B

$3B

$2B

$1B

Figure1:InternetindustrylobbyingexpendituresandaggregaterevenueofAmazon,Google,Facebook,Microsoft,andOracle(indexed;2001=100%)

18

3,100%

2,600%

2,100%

1,600%

1,100%

600%

100%

20012003200520072009201120132015201720192021

GrowthofLobbyingGrowthofRevenue

OmittedVariableBias:OverallTrendsinLobbying

Wealsocomparedtotallobbyingtrendswiththesethreesectors’lobbyingtrends.As

figure2

illustrates,totallobbyingintheUnitedStatesincreasedfrom1998to2008andhasroughlystabilizedsince.

Figure2:TotallobbyingexpendituresintheUnitedStates

19

20012003200520072009201120132015201720192021

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Figure3

comparesthegrowthoflobbyingacrosstheseindustries.Wenoticethatpharmaceuticalsandoilandgascompanieshavelobbyingpatternsthatmostlymirrortheoveralltrendforbusinesses.Thissuggeststhatoveralltrendsinlobbyingmightexplainsomeoftheobservedchangesinlobbyingexpenditureovertime.Incontrast,Internetcompaniessawimmenselobbyinggrowthfrom2001to2021.ThedisproportionatelylargegrowthoftheInternetsectorduringthisperiodlikelyexplainswhythesectorsosharplydeviatesfromtheoveralltrendline.Butevenso,controllingforoveralltrendsinlobbyingduringthesampleperiodcouldimprovethereport’sestimates.

Figure3:Growthoflobbyingbyindustry(indexed;2001=100%)

20

1,900%1,700%1,500%1,300%1,100% 900% 700% 500%300%

100%

20012003200520072009201120132015201720192021

InternetPharma

Total

Oil&Gas

FaultyRegressionAnalysis

HHIvaluesarealsoremarkablylowforbothpharmaceuticalsandoil/gascompanies.Bothindustries’HHIspeaksignificantlybelow1,500,whichmeansbothindustrieshavelowmarketconcentrationaccordingtotheDOJ’sstandards.

21

TheInternetcompanies’HHIbarelyexceeds1,500,butevenso,theseconcentrationvaluesareoverstatedbecausetheauthorsimproperlydefinedthemarket.

22

Inotherwords,noneofthesethreeindustriesarehighlyconcentrated.

Theselectionofmodelsinthereportisalsoproblematic.TheauthorsbuiltseveralmodelswithdifferentHHIlagsandseemedtoarbitrarilypickthemodelwiththehighestR-squared.Forinstance,thecoefficientoftheircombinedmodelwithnolaghasanR-squaredofonly0.01,whichsuggestsnorelationship.

23

TheauthorswentontolagtheHHIsbyfouryearsforallindustriesbutultimatelysettledonamodelwithafour-yearHHIlagforInternetandoil/gasandathree-yearHHIlagforpharmaceuticalsbecausethiscombinationoflagsyieldsthehighestR-squaredamongallthemodelstheyassessedintheirreport.Theauthorsjustifiedwhatseemslikethearbitraryselectionofamodelbyclaimingthat“theremaybeaspecificsweetspotforhowlongittakesforconcentrationtomanifestanychangesinlobbying,”yettheyprovidednoevidencethattheprocessofturningmarketpowerintoprofitsandprofitsintopolitical

capitaltakes“threeorfouryears.”

24

Infact,someoftheevidenceinthereportdirectlysuggests

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thatthisrelationshipisunlikely.Forexample,thep-valueofthethree-yearlagmodelgoesfrom0.6,farfromsignificant,toahighlystatisticallysignificantvalueforafour-yearlag.

25

Ifthetruerelationshipistheonetheyweresuggesting,wewouldnotexpectsuchasudden,pronounceddropinstatisticalsignificancewhenthelagshiftsbyjustoneyear.Itseemsliketheauthorswerecherry-pickingthebest-fitmodelwithoutproperjustificationandusingittoadvancetheiranticorporateagenda.

Forallthesereasons,thisreportdoesnotprovideaconvincingargumentthatcorporateconcentrationincreaseslobbying.Infact,thereportitselfstates,“Whilethecorrelationisofasingleindustryandnotenoughtomakeasweepingclaimabouttherelationshipgenerally,itremainsnoteworthy.”

26

Iftheauthorsthemselvesadmittedthattheirfindingsareinsufficienttodrawsweepingclaims,itwouldbeunreasonableforthemtoframetheirresultsasanalarmingjustificationforsweepingantitrustenforcement.

THEPOLITICALINFLUENCEOFSMALLBUSINESSES

Literaturehighlightingtheinfluenceofbigbusinessoftenfailstorecognizethemechanismsthroughwhichsmallbusinessesinfluencepolicymakers.Becausetheyhavemoreresources,largebusinessesoftenhirein-houselobbyiststoadvocatefortheirinterestsinWashington.Smallbusinessescanindividuallyexertasimilarinfluenceonpolicymakersbutoftendosobypoolingresourcesintotradeassociations.Intable1,welistjustafewofthetradeassociationsrepresentingsmallbusinessesandtheirlobbyingexpenditurein2021:

Table1:Lobbyingexpendituresoftradeassociationsrepresentingsmallcompaniesin2021

TradeAssociation

LobbyingExpenditure

NationalAssociationofRealtors

$44.0million

America’sHealthInsurancePlans

$10.8million

NationalAutoDealersAssociation

$4.5million

IndependentCommunityBankersofAmerica

$4.2million

Cardealershipsprovideanexampleofthemassiveinfluencesmallbusinessescanachievebycomingtogetherthroughatradeassociation.TheNationalAutoDealersAssociationrepresentsmorethan16,000autodealersandspentover$4millioninlobbyingin2021.

27

CardealerassociationshavespearheadedlegislationatthestateandlocallevelsfordecadesintheUnitedStates.

28

A2014CatoInstitutereportoutlineshowdealershiplobbiessuccessfullypreventedTeslafromusingadirect-to-consumerdistributionmodelinseveralstatesbecausethismodelbypassestraditionalfranchiseddealernetworks.

29

Asthiscasedemonstrates,smallbusinessescanwieldlargepoliticalinfluencebyunitingundertradeassociations.

Moreover,lookingonlyatlobbyingdatalikelyexaggeratestheinfluenceoflargecompaniesanddownplaystheinfluenceofsmallbusinesses.InBigIsBeautiful,AtkinsonandLindshowedthatmuchoftheinfluenceofsmallbusinessarisesfromgeography:

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Ineverycongressionaldistrictandeverystatetherearefamilyfarmers,franchiseowners,automobiledealers,realtors,andotherswhosesupportpoliticianscannotignore.Incontrast,theheadquartersandproductionfacilitiesofmajornationalandglobalcorporationsarefoundinarelativelysmallnumberofplaces.EveryAmericanstatehasfamilyfarmersandrealtors;farfewerhaveautomobileoraerospacemanufacturers.

30

REASSESSINGTHECONNECTIONBETWEENFIRMSIZEANDLOBBYING

Methods

ITIFconducteditsownanalysistoassesstheinfluenceoffirmsizeonlobbying.

LobbyingExpenditureData

LiketheAELstudy,thisreportusesOpenSecretslobbyingexpendituredata.OpenSecretscompilesexpendituredatafromrequireddisclosuresfiledwiththeSecretaryoftheSenate’sOfficeofPublicRecordsundertheLobbyingDisclosureactof1995.

31

Thisdataissubjecttoseverallimitations:Thedisclosuresareroundedtothenearest$10,000foreachquarter,andlobbyingfirmsonlyneedtoreportcontributionsfromdonorswhospendmorethan$3,000inonequarter.A2018GovernmentAccountabilityOfficereportalsofindsthatasignificantnumberoflobbyistsincorrectlydisclosedtheirlobbyingincome.

32

FirmRevenueData

Fortheanalysisoffirmsizeandlobbying,dataonfirmrevenuecomesfromthe2021Fortune500list,whichrankspubliclytradedAmericancompaniesbytheirrevenue.

Fortheanalysisofmergersandcorporatespin-offs,wematchedcompanynamestorevenuedataintheCRSP/Compustatmergeddataset.CRSP/Compustatcompileshistoricalfirmperformancedata,includingrevenuedata,onfirmsthatareorwerepubliclytradedintheUnitedStates.

33

WhenrevenuefigureswereunavailablethroughCRSP/Compustat,weusedcompanies’annualdisclosurestocompleteourdataset.

Onelimitationofthisstudy’sdesignisitonlyconsiderspubliccompanies.BecauseprivatefirmsaccountforaslightmajorityofrevenueintheUnitedStates,thisreport’sfindingsmightnotgeneralizetotheentireU.S.economy.

34

Butitisunclearhowacompany’sstatusasapublicorprivatecompanywouldaffectitslobbyingactivity.Accordingly,itisunknownhowthislimitationbiasesourfindingsifitdoessoatall.

MergerandCorporateSpin-OffData

Themergerandcorporate–spin-offanalysescompiledataonthehighest-valuedealsforwhichwecouldfinddatafrom2000to2019.Thisportionofthestudylooksatcompanylobbyingasashareofaggregaterevenueoneyearbeforethemergerorspin-offandtwoyearsfollowingthemergerorspin-off.Weanalyzeddataon25mergersand15corporatespin-offs.

MeasurementIssues

Oneimportantcaveattoourfindingsistheyarenotcausal.Thereareafewexogenousreasonsthatcouldaffectbothrevenuesandshareofrevenuetolobbyingatthesametime.Forexample,companiesinnascent,innovativeindustriescouldseehighrevenuesbutalsoincreasingregulatoryscrutiny,whichwouldincentivizelobbying.Inthiscase,wemightoverestimatehow

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LobbyingExpenditures

muchrevenuesincreaselobbyingbecauseathirdfactor,industrygrowth,wouldbeaffectingbothfirmrevenueandlobbyingsimultaneously.

Thisreport’sfindingsonmergersandcorporatespin-offscouldalsohaveendogeneityproblems.Forexample,mergersandspin-offscansometimesaccompanycorporatestrategychangesthatalsoaffectlobbying.Insuchcases,ouranalysismightmisattributetheeffectsofcorporateleadershiponlobbyingtocorporatescale.Nonetheless,iftherelationshipbetweencorporatescaleandlobbyingisasstrongandpositiveassomepreviousresearcherssuggest,wewouldatleastexpecttoobserveapositivecorrelationbetweenscaleandlobbyingwhenlookingatmergersandspin-offs.

Finally,thisanalysispaintsonlyapartialpictureoftherelationshipbetweenfirmsizeandpoliticalinfluence.Companiescaninfluencepolicythroughroutesotherthanlobbying,includingcampaignfinanceandthinktankdonations.

35

TheRelationshipBetweenFirmSizeandLobbying

Wecollecteddataonthe200Americanfirmswiththehighestrevenuesforthe2021fiscalyeartoidentifythelinkbetweenfirmrevenueandtotallobbyingexpenditure.Wethenmanuallymatchedeachfirm’srevenuedatatoitslobbyingexpenditurein2021.

Basedonouranalysis,thecorrelationbetweenfirmrevenueandlobbyingexpenditurehasavalueof0.40,whichismoderateandpositive.Inotherwords,largefirmstendtohaveahighertotallobbyingexpenditurethandotheirsmallercompetitors.

Figure4:Relationshipbetweenfirms’revenuesandlobbyingexpendituresin2021

$30M

$25M

$20M

$15M

$10M

$5M

$200B

$300BRevenues

$100B

$400B

$500B

$600B

Atfirstglance,thisfindingseemslikeitwouldbolstertheAEL’sclaimthatheightenedantitrustcouldsuppresscorporateinfluenceinWashington:“Strongerantitrustpremisedonreducing

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LobbyingExpenditures

corporateconcentrationshouldbeunderstoodnotjustasamechanismtoaddressmarketpowerproblems,butasananti-corruptionmeasureinitself.”

36

Butthisreliesontheunprovenassumptionthatthetwosmallercompaniesoriginatingfromabreakupwouldspendasmallercombinedamountonlobbyingthanwouldtheoriginal,largefirm.

Splittingonelargefirmintotwosmalleronesthatspendthesameshareofrevenueonlobbyingasthelargefirmwouldnotchangetotallobbyingexpenditure,assumingthedaughterfirms’aggregaterevenueremainedunchanged.Totallobbyingcouldevenincreaseifthesmallercompaniesdevotedahighershareofrevenuetolobbying.

Accordingly,thenextportionofthisreportanalyzeswhetherlargefirmsspendmoreonlobbyingperdollarofrevenue.Usingdataonthe200highest-revenuefirmsin2021,wedeterminedthatthecorrelationbetweentotalrevenueandthepercentageofrevenuetolobbyingwasinfactnegative(-0.17).Inotherwords,contrarytotheneo-Brandeisianclaim,largerfirmsdevoteasmallershareofrevenuetolobbyingthandotheirsmallercounterparts.

Assuch,wedonothaveevidencethatbreakinguplargefirmswoulddoanythingtodecreaselobbying.Thesefindingsinsteadimplythatbreakingupalargercorporationintosmallerentitiescouldincreasethetotallobbyingexpenditureofaneconomy.

Figure5:Relationshipbetweenfirms’revenuesandthepercentagespentonlobbyingin2021

0.06%

0.05%

0.04%

0.03%

0.02%

0.01%

0.00%

$100B

$200B

$300BRevenues

$400B

$600B

$500B

TheRelationshipBetweenProfits,MarketValue,andLobbying

UsingtabulatedFortune500data,wenextcalculatedthecorrelationsbetweenprofitsandlobbyingaswellasmarketvalueandlobbyingforthe200highest-revenueAmericanfirmsin

2021.

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Resultsareconsistentwithouranalysisoffirmrevenues.Firmswithhigherprofitsormarketvaluehaveahighertotallobbyingexpenditure,withrespectivecorrelationsof0.35and0.34.Butwhen