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In a new paper, a group that opposes the concentration of the tech industry says that companies are using their economic power to get better deals from the government. The author of the paper says that this can start “a dangerous feedback loop.”
As skepticism about corporate power grows on both sides of the aisle, some advocates and politicians have blamed market concentration for everything from slow innovation, high drug prices, and expensive internet service to low wages, less privacy online, and even threats to the U.S. national defense.
Now, a paper from a group that doesn’t like monopolies says that economic consolidation, including in tech, may also lead to more lobbying.
The American Economic Liberties Project released the paper on Wednesday. It focuses on three industries: internet technology, making drugs, and making oil and gas. Overall, the research shows that there is a “moderately positive” relationship between how concentrated these markets are in a given year and how much each sector spends on lobbying a few years later, even when inflation is taken into account.
The report, written by Reed Showalter, a fellow with the group, says, “In short, the results of this report suggest that not only is big business good at lobbying but that more lobbying happens when big business grows.”
In the paper, Showalter looks at what he calls “a very complex political dynamic.” His analysis shows that a common measure of industry concentration in a given year explains “about 43% of the difference in lobbying spending by internet companies” four years later.
Showalter told Protocol that the difference in time is a “meaningful” discovery. Since the beginning, free-market economics has focused on how lobbying and government action can lead to monopolies. Many on the left have also generally agreed that monopolies are a goal of corporate influence. The paper also says that companies are likely to do more lobbying before mergers, even though legal fees are usually not included in lobbying reports. Showalter even points to older research that says spending money to influence the government can lead to a bigger share of the market.
But the paper says that the increase in lobbying actually comes later. In a follow-up email, Showalter said about companies, “It’s not that lobbying makes them big.” “The fact that a business is big makes it able and willing to lobby.”
In the past few years, both the number of lobbyists for tech companies and the fees they charge have grown by a lot, with tech companies often spending more than traditional Washington powerhouses like energy, defense contractors, and tobacco.
The Center for Responsive Politics says that Facebook spent more on lobbying the federal government in 2020 than any other company. This was nearly $20 million. (Some trade groups, like Blue Cross Blue Shield, which is a group of local companies, spent more than any one company did.) Amazon spent almost $19 million and came in at number two. CRP says that in the first half of 2021, the e-commerce giant will be number one, while Facebook will drop to number two.
Washington is putting a lot of pressure on both companies, and the U.S. Federal Trade Commission is suing Facebook for antitrust violations. The FTC is also looking into how Amazon competes, and big tech as a whole is facing a lot of regulatory threats.
According to the Center for Responsive Politics, the amount of money that nearly 100 internet companies spend on lobbying has been going up for years.
It’s common for people to try to change policy in response to such threats, and the U.S. Constitution gives them a lot of freedom to do so. However, like lawmakers, lobbyists are generally seen as unethical. In the paper, there is evidence that lobbying helps businesses more than other groups, like consumers or workers. Showalter says that lobbying can be “harmful to democracy.”
His analysis of tech companies focuses on Amazon, Google, Facebook, Microsoft, Oracle, and other companies he chose to represent “what a layperson would think of as a mostly internet-based company.”
The paper says that companies in industries with a lot of competition might not have as much extra money to put into operations. On the other hand, companies that “fear competition less” may decide that lobbying the government for rent and power is a better idea than trying to make their products and services better.
Showalter told Protocol that Amazon’s failed attempt to get a big cloud contract from the Pentagon could be an example of rent-seeking. He also mentioned companies that want tax breaks and told Protocol that the increased lobbying power that comes with consolidation could lead to “a dangerous feedback loop in which big business can buy more government favors to hurt competitors.”
The paper says that it’s hard to make comparisons because the industry is still less than 20 years old, and in many cases, it’s even younger. Also, the analysis doesn’t take into account campaign contributions, which are another common way to have an effect. Lobbying at the state level, which may not be reported in federal lobbying disclosures, is also a common response to the fact that tech regulations are becoming more and more local. Industry groups have pushed back on the idea that there is a crisis of economic consolidation as a whole, and they have denied claims that specific harms are happening.
The AELP, on the other hand, thinks that one of the most important things to come out of the research is that antitrust enforcement should focus on more than just prices. It should have a broader goal, which could include fighting back against monopolies and industries with too much power, with an eye on how they affect the government.
The consumer welfare standard, which goes beyond this focus, has been a top goal of both AELP and reformers like Lina Khan, the new chair of the FTC.
The report says, “Corporate concentration and political influence that hurt democracy go hand in hand.”
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