Tuesday, 12 April 2016

Does a CEO have a duty to lobby?

This question is asked by Luigi Zingales at the Pro-Market (irony anyone) blog. Zingales writes,
If we limit ourselves to describing what businesses do (what we call positive economics), then the answer is obvious. Most CEOs lobby heavily. Not only do they do it, their main investors tell them to do so, as confirmed here by Larry Fink, CEO of Blackrock and one of the largest institutional investors in the world. They lobby not just to redress grievances, but to shape the rules of the game to their own advantage. Alphabet (Google) is not a regulated company (at least in the classical sense of the word), but it is one of the companies spending the most on lobbying. Why? Not only to defend the right to use the massive data it collects, but also to proactively shape the business environment in its favor. Whether one supports “net neutrality” or opposes it, he has to agree that net neutrality greatly favors Google, which fears being charged directly for the massive internet use it generates, while it penalizes telecom companies, which cannot price-discriminate to recover the fixed costs of the network they build. Not surprisingly, Google lobbies very heavily in favor of net neutrality, while telecom companies lobby against it.
Now notice how a socialist like Zingales frames this issue. The problem here is the actions of the evil CEOs out to rape, murder and pillage his way around the world in the name of corporate profits [insert Vincent Price evil laugh]. The evil CEO forces the poor hapless but nice, caring and social welfare maximising politician  [insert mental images of bambi frolicking through the forest]  to do his evil bidding.

But wait. The CEO only lobbies to increase corporate profits [insert more Vincent Price evil laughs], so if the politician [more mental images of bambi frolicking through the forest] took the US government's advice and "just said no" the whole problem would go away. With no payoff to lobbying but still having to pay the costs of lobbying, the CEO [more Vincent Price evil laughs] would find lobbying loss making and thus stop. To take the Google example above, if the government just ignored Google on net neutrality what is the point of lobbying?

The problem with the loony left approach here is that it is framed as a problem with the actions of the firm (of course) and not as a problem with the actions of government. The question that Zingales should have asked is, Does a politician have a duty to ignore lobbying? For a trade to take place there has to be both a supply and a demand. Firms supply lobbying only because politicians demand it.

In addition note that Zingales is against firm's lobbying but makes no comment on lobbying by any other group. Why? If lobbying by firms is wrong why isn't lobbying by trade unions or professional bodies or churches or ....... Why just firms?

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