Thursday, May 21, 2009

Should firms receiving governemnt aid be banned from using lobbyinsts?

“Top recipients of federal bailout money spent more than $10 million on political lobbying in the first three months of this year, including aggressive efforts aimed at blocking executive pay limits and tougher financial regulations,” according to the Washington Post. "In all, major bailout recipients have spent more than $22 million on lobbying in the six months since the government began doling out rescue funds, Senate disclosure records show".

Well, the Post's calculations are, no doubt, made on the basis of publicly available information, and I doubt that they could guarantee that that is all that was spent for the purpose: the actual total may well be marginally or greatly higher.

The heart of the problem is well put by Simon Johnson, a former IMF chief economist, in a May 2009 Atlantic Monthly article, “The Quiet Coup”, in which he shows the similarities between the financial crisis in the United States and those that the IMF routinely deals with in emerging economies and “banana republics": the problem is “almost invariably the politics of the countries in crisis. Typically, these countries are in a desperate economic situation for one simple reason — the powerful elites within them overreached in good times and took too many risks.”

Johnson says that the United States has “the world’s most advanced oligarchy” and argues that the Obama Administration's latest plan will be far less favorable to taxpayers and much more favourable to investors and banks.

Why has such a biased plan emerged? In Johnson view, because the US faces not merely “a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate” but more importantly “a political balance of power that gives the financial sector a veto over public policy.”

Johnson thinks the FDIC should be beefed up to take control of sick banks, clean them up, and sell them back to the private sector (he does not like to characterise this as “nationalization” on the basis nationalisation implies permanent control, whereas he would enshrine temporary control with a specific object in view).

The key thing, however, is to "break the oligarchy.” He is not very persuasive on exactly how to do so. He seems to believe that simple reduction in size of the biggest financial institutions in the USA will do the job. I am not so sanguine. I think that, as financial institutions benefit, among other things, from an implicit (and now explicit) state guarantee, they should also be forbidden from spending any money or offering any incentives or rewards to lobbying firms.

In fact, breaking up or even banning lobbying firms may be the single most important step (apart from reforming its election funding system) that the US can take in order to return itself to being a democracy.

Clearly, companies and industrial associations should be free to express their opinion to lawmakers. But they should be able to do so only on the basis of staff they employ rather than on the basis of fees paid or benefits offered to outside bodies.

This raises all kinds of issues about not merely lobbying firms, but also payments made to academics in order to get them to do specific bits of research, or to enable them to express certain opinions.

It also raises questions about the funding of Think Tanks in the USA.

But banning lobbying firms would not be a bad first step before these other, somewhat more complicated, matters are examined. Sphere: Related Content

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