Preferential lobbying: the rich get richer, the poor get poorer (Part 1 of 4)

Feb 15, 2021

In this four-part series, we investigate preferential lobbying – what it is, why it matters, how and why it happens and how to stop it.  Preferential lobbying is primarily wealth appropriation and rarely wealth creation. Every time a decision goes in favour of the wealthy it is to the cost of the less well off, which means preferential lobbying is a driver of inequality.

Credit – Unsplash

Preferential lobbying is where a large organisation secures its interests preferentially; that is, without concern for other interests and usually at their expense. This form has become ubiquitous – from Canberra to Washington, Brussels to Lagos – so much so that it appears as simply the way things are done, integral to the governing process.

But it was never thus. What we do here is to lay out the effects of preferential lobbying, why it matters, its means, and how to stop it. All large organisations with sufficient funding and political weight can do it – trade unions, national charities, public sector bodies such as the police, professional organisations. But it is business and industry that have by far the biggest impact on our lives and futures.

Preferential lobbying either starts or stops something. It could be a law, regulation, tax change, policy or other ministerial decision. Imagine you are running a utility where the regulator sets the prices that consumers have to pay for electricity. Your interest is in securing the highest price – the consumer’s interest is paying the lowest. You hire lobbyists who advise that an economic assessment would be persuasive.

Those consultants make the best case from the data – for example, a high price is necessary to fund vital investment in the grid. Without this investment, in X years’ time supply will be regularly disrupted. This is called the ‘credible threat’. It’s sufficiently daunting and has sufficient credibility to grab the attention of decision-makers. The regulator would look pretty dumb if and when the lights went out.

The lobbyists will then take this case to influencers – politicians and others who are always seeking a cause to champion. They fan the flames of the credible threat and then lobby the government internally. Minsters will either then lean on the regulator internally or via the media.

Some see all of this in terms of good and bad people. So business leaders may be deemed as ‘bad’ because they lobby. This is a mistake. They do what they do because that’s their job and because the systems of governing allow and, often, enable lobbying. Because business has become more and more powerful under the prevailing neoliberal economic system, so more and more have lobbied. They would be criticized by those to whom they are accountable if they did not.

Why it matters

How much does preferential lobbying matter? Rather a lot. Not every lobbied decision is wrong or not in citizens’ interests, but mostly they are.

One study found that for every dollar spent lobbying for targeted tax breaks, the return on investment was between $6 and $20. Leaving aside whether the term ‘investment’ is appropriate for what is near corruption, who pays? The public does.

It may be in higher prices, extra charges from the financial services industry, extra taxes for many and lower taxes for the very wealthy, genuinely unsafe products and services on the market with us all bearing the costs such as a fire for example, lower house building standards – you’ll pay more for heating, taxpayers money spent on industry subsidies serving no or negative social purpose, degradation in employment protections and pensions, and so on.

Preferential lobbying is a zero sum game, in that someone pays for someone else’s benefit. It is wealth appropriation and rarely wealth creation. Even in conventional economic terms, it is manifestly inefficient.

Next comes environmental degradation. As many are now understanding, treating the environment as a dumping ground and as an infinite resource comes at a very high price: indeed so high that we may not sustain the planet as our life-support system. The roll-call of polluting industries that refuse to pay the full cost of their short-term self-interest is lengthy – coal, oil, gas, mining, agriculture, fishing, air transport, shipping.

All of this adds up to preferential lobbying being a driver of inequality. Every time a decision goes in favour of the wealthy it is to the cost of the less wealthy. Ideology-driven policies, such as mass outsourcing, reduce the wages and conditions of workers. Their income is transferred to management and shareholders. When the pharmaceutical industry gets traditional medicines banned, income is transferred from small firms to big pharma.

Asymmetric information – when one party has more information than the other – in retail investment, for example, penalises the small investor and ensures the banking sector reaps higher profits. The company that is likely to build a project, regardless of whether there are more worthy public projects, often lobbies for specific infrastructure.

Where ‘quantitative easing’ (QE) after the 2008 crash went to the banks to distribute, the outcome was to increase share and house prices by about 25% in the UK according to the Bank Of England. Great, if your assets include shares and houses, bad luck if not. Commenting on the latest QE by the Reserve Bank of Australia, the chief economist at the accounting firm KPMG said one risk was the soaring price of houses and other assets, which ‘will further exacerbate the difference between the haves and have-nots in society’.

Preferential lobbying can be thought of as capital’s carriage. Money is creamed off, on average the rich get richer, the poor get poorer, wealth is retained in the same hands, acquiring it becomes next to impossible.

The same is true of power. The disappearance of democracy between elections is no coincidence as preferential lobbying has steadily built its hold over several decades.

For most decisions, you and I are not at the table. We are literally powerless. Token gestures to the public interest may be made, but the excluding decision pertains, unless a huge outcry or riot occurs. In these situations, it can be no surprise that ‘populism’ and populist parties have flourished. Where else can a disadvantaged citizen go for a slice of the cake? Not to an establishment well enmeshed in preferential lobbying or to established parties of government.

Day-to-day democracy has withered. Preferential lobbying is a scourge and the perfect bedfellow for neoliberalism. Indeed without it neoliberal economics would not have the hold it does.

Part 2 tomorrow: Money talks … loudly. How and why preferential lobbying happens. 

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