Federal Lobbying Leads To Huge Corporate Profits: Study
You need to spend money to make money, as the saying goes. It's an idea lobbyists might find particularly resonant: Companies that spend money on appealing to the federal government tend to make it back and then some.
Studies from the investment-research firm Strategas show that generously spending on lobbying may help U.S. companies net major benefits. It's an upsetting finding for anyone who believes that corporate cash exerts too much influence in the world of politics.
One stock index compiled by Strategas, which tracks 50 high-spending companies in particular, shows that they do quite well -- outperforming the S&P 500 by 11 percent a year, every year since 2002, according to The Economist.
The 50 companies in that index are not the firms that spend the most on lobbying overall, instead the list includes the firms that spend the greatest amount on lobbying as a percentage of assets. This means there are more companies, including many banks, that don't make the list simply because they make too much money -- whatever they spend on lobbying is only a drop in the bucket, as The Economist notes.
The link between lobbying efforts and profitability seems fairly clear, since most of the 50 businesses on the Strategas index -- including tobacco companies, defense contractors, medical firms and for-profit colleges -- are directly affected by federal legislation in some way, according to The Washington Post.
Corporations have received huge windfalls as a result of lobbying. In 2004, Congress eventually capitulated to multiple requests and passed a repatriation holiday to allow companies to bring foreign profits into the U.S. at a reduced tax rate. Based on the amount of cash that came in on that occasion, studies estimate that companies made $220 for every $1 they spent on lobbying.
This kind of spending also seems to act as a form of disaster insurance for some financial institutions. There appears to be a correlation between how much banks spent on lobbying in the years preceding the financial crisis and how much money they received in bailout funds afterward, according to a study from the National Bureau of Economic Research.
The 2002-2011 timeframe is significant, since it indicates that lobbying has remained a profitable strategy even during times of economic uncertainty and distress.
In 2009, for example -- shortly after the financial crisis, and during a period of soaring unemployment and worldwide economic contraction -- American lobbyists had their most profitable year ever.
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The Huffington Post Alexander Eichler First Posted: 10/17/11 02:13 PM ET Updated: 12/17/11 05:12 AM ET