The Buzz: How Lobbying Saves Your Company’s Money
October 2023
Here’s an argument you can lay on CEOs and CFOs who might still be skeptical of the value of lobbying. A July study out of Yale shows that companies that lobby reduce misallocation of their resources by 22%. One is tempted to say “a whopping” 22%, which is still a big number no matter what you call it.
Impressive, too, is this fact: Lobbying explains 3.2% of companies’ improvement in productivity during the period studied, which is 1999-2020.
How does this happen? Businesses that lobby “have more buyers and suppliers, and such effects are more pronounced for larger firms,” which are “subject to more regulations” and deal with more distant buyers and suppliers. Lobbying also cuts down on costs in “production networks” and “is especially effective” when companies have to contend with “distortive” regulations.
By influencing policy, firms benefit from lower production costs. And, as profit margins increase, firms that lobby can search more efficiently for buyers and suppliers — and therefore have more of them and can pick and choose in a way those that don’t lobby cannot. This accounts for the reduction in misallocated resources. Because larger firms are more likely to engage in lobbying, they gain more “downstream” buyers and “upstream” suppliers, “thus moving the market equilibrium closer to optimality.” The whole process, in other words, gets streamlined.
More Red Tape
The incentives for larger companies to lobby are greater than for smaller ones, the study argues, because they face more red tape and larger, more disruptive market distortions. Attempts to influence policy by these larger organizations come at a higher cost, “thus, creating a larger return for lobbying.”
Maybe it follows that the more you spend on government affairs, the more you save. The study doesn’t actually go there, so further research is needed.
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By influencing policy, firms benefit from lower production costs. And, as profit margins increase, firms that lobby can search more efficiently for buyers and suppliers — and therefore have more of them and can pick and choose in a way those that don’t lobby cannot.
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