Friday, December 14, 2012

Why Lobbyists Get Paid

One theory of why lobbyists get paid, the one often proffered by the lobbyists, is that the legislative arena is a complex place, and having someone who knows the ins and outs is useful. An alternative theory, often proffered by critics, is that lobbyists are paid because they deliver access to top politicians--in other words, it's not what they do, but who they know.  Both theories doubtless hold some truth, but in the December 2012 issue of the American Economic Review, Jordi Blanes i Vidal, Mirko Draca, and Christian Fons-Rosen offer some fuel for the critics in their paper "Revolving Door Lobbyists" (102:7, pp. 3731-48). The AER isn't freely available on-line, but many academics will have access through a library subscription.

Blanes i Vidal, Draca, and Fons-Rosen point out that many lobbyists went through the "revolving door," meaning that they used to work for the federal government before becoming lobbyists. "
"One important characteristic of the US lobbying industry is the extent to which it is dominated by the “revolving door” phenomenon—i.e., the movement of federal public employees into the lobbying industry. For example, 56 percent of the revenue generated by private lobbying firms between 1998 and 2008 can be attributed to individuals with some type of federal government experience. ... Reflecting this, a recent ranking of the 50 top Washington lobbyists identified 34 as having federal
government experience ..."

The authors di\ide  nto those who formerly worked directly with a member of Congress, and those who didn't. In addition, for lobbyists who worked with a member of Congress, they can look at how the revenue generated by that lobbyis changes when the member of Congress with whom they are personally connected leaves office.  They write:

"Our main finding is that lobbyists connected to US senators suffer an average 24 percent drop in generated revenue when their previous employer leaves the Senate. The decrease in revenue is out of line with preexisting trends, it is discontinuous around the period in which the connected senator exits Congress, and it persists in the long term. Measured in terms of median revenue per staffer-turned-lobbyist, this estimate indicates that the exit of a senator leads to approximately a $182,000 per year fall in revenues for each affiliated lobbyist. We also find evidence that ex-staffers are less likely to work in the lobbying industry after their connected senators exit Congress. We regard the above findings as evidence that connections to powerful, serving politicians are key determinants of the revenue that lobbyists generate."

Along the way, they point out: "The average weighted revenue per lobbyist/year ranges around $349,000 for the subgroup of congressional staffers we consider. This figure is closely in line with
the reported salaries of lobbyists in this group. For example, the Washington Post reported in 2005 that “[s]tarting salaries have risen to about $300,000 a year for the best-connected aides eager to ‘move downtown from Capitol Hill’ ” .... Obviously, our estimates are not easily extrapolated to lobbyists with no government experience, although they help to explain the fact that these lobbyists generate substantially less revenue and are known to command lower salaries."

A policy implication here is that "cooling off" periods, in which people who leave government employment are banned for a time from becoming lobbyists, might diminish this business of trading on personal access. They write: "One common instrument to regulate the revolving door phenomenon is to impose “cooling off ” periods to officials leaving public office (Ethics Reform Act of 1989; Honest Leadership and Open Government Act of 2007; for a review, see Maskell 2010). The perishable nature of ex-staffers’ assets suggests that such restrictions could in fact be quite useful to
a legislator interested in significantly decreasing the attractiveness of a lobbying career for ex–government officials."

 Back in September, I posted on "Campaign Contributions vs. Lobbying Expenses." Basically, my theme was that we would be wise to worry more about lobbyists than about campaign contributions. Year in, year out, more money is spent on lobbying than on campaign contributions, and just what happens with lobbyists behind the scenes is far more focused and secretive than what happens with contributions to a candidate or a party.