Tuesday, January 24, 2017

The danger of Big Business schmoozing with President Trump

I'm watching the meetings between President Trump and leaders of big business with interest.  They appear to be supporting his plan to return manufacturing to the USA from offshore, and are talking big investments in infrastructure . . . but let us not forget, they're primarily there to make decisions in their own best interests.  Harvard Business Review pointed out last year that a large slice of corporate profits depend on lobbying government.

Lobbying and political campaign spending can result in favorable regulatory changes, and several studies find the returns to these investments can be quite large. For example, one study finds that for each dollar spent lobbying for a tax break, firms received returns in excess of $220.

It is less obvious, however, that regulation in general should be associated with higher profits. Indeed, critics of the regulatory state regularly decry the costs imposed by regulations. Yet even regulations that impose costs might raise profits indirectly, since costs to incumbents are also entry barriers for prospective entrants. For example, one study found that pollution regulations served to reduce entry of new firms into some manufacturing industries.

. . .

Firms influence the legislative and regulatory process and they engage in a wide range of activity to profit from regulatory changes, with significant success ... the link between regulation and profits is highly concentrated in a small number of politically influential industries. Among non-financial corporations, most of the effect is accounted for by just five industries: pharmaceuticals/chemicals, petroleum refining, transportation equipment/defense, utilities, and communications. These industries comprise, in effect, a “rent seeking sector.” Concentration of political influence among a narrow group of firms means that those firms may skew policy for the entire economy. For example, the pharmaceutical industry has actively stymied efforts to address problems of patent trolls that affect many other industries.

There's more at the link.

Business leaders meeting with President Trump certainly fits into the 'regulation and lobbying' category.  I know that 'the art of the deal' will be a cornerstone of this administration, but it has to be the right kind of deal - good for the country as a whole, not just Big Business.  It's not like the movies used to portray it:

We've learned better than that.  This is a situation that will bear watching.



Anonymous said...

I agree that bribery or other 'perks' given to the Chief Executive should be strictly monitored. What I don't understand is the logic that CANIDATES can receive contributions from these same individuals as 'donations', yet the ELECTED is not allowed to rent a room to those same individuals with it being a crime. To me, influence is influence.

I also think that the canidates should be required to donate contributions which are not spent, or at least taxed as 'income'. Maybe this is already the case ?

Anonymous said...

Y'all do realize, don't you, that if the government wasn't spending so much effort (& $$$) to "regulate" business, that there would be no point in lobbying?

Ed McLeod

genericviews said...

It's always a good investment to get government to force people to buy your product.

In Virginia, someone lobbied the legislature to pass a bill mandating everyone get their septic system pumped out every 5 years. They claim it is to prevent environmental harm from overflowing septic systems. But if you already own one of those honey trucks, it's instant profits.

David Lang said...

Trump is promising to reduce regulations, that will help reduce the barrier to new competition.

@anonymous, it's not at all clear that the claim that having foreign people/governments rent a hotel room is at all illegal. I'm sure that if you were to go back to the Founding Fathers, you would find that those engaged in trade would sell to anyone, including governments around the world. And similarly, they would purchase from anyone around the world.

This idea that the POTUS and his Cabinet are not allowed to have any ownership in any business is silly. Even a blind trust owns stock (i.e. partial ownership) in businesses.

If Trump hotel were to jack up prices significantly and other governments were to rent space and not use it, you would have an argument that something funny is going on. But if it is competitive with other nearby venues, and the space rented is used, then it's just a business transaction that should have no bearing on anything.

Then when you add that Trump has promised to donate the profits from any such transactions to the Federal Treasury, the ethics lawsuit against him claiming that he's violating the Constitution is just noise.