Value for Money: The Significant Role that Lobbying Plays in US Indutries

Transcription

1 January November 2016 Follow on head on Master page A : The Significant Role that Lobbying Plays in US Indutries By Maksim Soshkin, Edward Rivera, Kelsey O Hollaren Surpringly, some of the largest industry contributors to lobbying were found not to be the most reliant on it. Special interest groups have contributed more than $33.0 billion toward lobbying the US Federal government Over the past decade, special interest groups have contributed more than $33.0 billion toward lobbying the US federal government. With major issues such as financial and healthcare reform and the battle over the budget consuming Washington, it is no surprise that representatives of some of the largest sectors in the economy, such as finance, energy and healthcare, have poured billions of dollars into protecting Industries by Lobbying Intensity Ratio 8 their interests. But how do industries lobbying efforts compare with their overall contribution to the economy? Moreover, how important is lobbying to these industries? Using a ratio comparing individual industries share of total business lobbying in the United States with their share of total value added to the economy, IBISWorld has crafted a measure for calculating an industry s 6 Ratio Defense Pharmaceutical/ Health Products Tobacco Renewable & Misc. Energy Electric Utilities Railroads Telecommunications Sea Transport Mining Air Transport Oil & Gas TV, Movies & Music Credit Unions Insurance Automotive Commercial Banks Hospitals/Nursing Homes Finance/Credit Companies Food & Beverage Securities & Investment Retail Recreation/Live Entertainment SOURCE: IBISWORLD AND THE CENTER FOR RESPONSIVE POLITICS info@ibisworld.com

2 November lobbying intensity. This metric goes beyond just measuring raw spending on lobbying; lobbying intensity ranks industries by how significant a role lobbying plays in their business. Findings After reviewing 53 industries that account for the majority of the US economy over a 10-year period and calculating each industry s lobbying intensity, IBISWorld found that the industries that contribute the most dollars to lobbying are not necessarily those that rely most on it for political leverage and vice versa. This is because lobbying intensity captures two primary factors: how important is influence on government for an industry and how much of that influence can be generated by the industry s sheer size. For instance, the Securities and Investment is one of the largest spenders on lobbying in the country; however, the industry s lobbying intensity is very low. This is because, while influence on policy is important to the industry, it has relatively less to gain from lobbying when compared with high-intensity industries like Defense or Pharmaceutical and Health Products industries. Moreover, the Investment Banking and Securities Dealing industry s economic heft via employment, wages, investment and profit provides it with a natural level of influence, reducing the need to match that heft in lobbying terms. In general, industries that are grouped together by their level of lobbying intensity often share several notable characteristics, such as their level of concentration, dependence on public funds and level of

3 November Definitions: Lobbying intensity: A ratio between an industry s percentage share of total federal lobbying in the United States and an industry s share of total value added in the economy. (% of total lobbying / % of industry value added) High lobbying intensity: Industries with a ratio of 4.0 or greater. Moderate lobbying intensity: Industries with a ratio of greater than 1.0 but less than 4.0. Low lobbying intensity: Industries with a ratio of 1.0 or below. Industry value added (IVA): The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry s contribution to GDP, or profit plus wages and depreciation. federal regulation. Further, there are a finite number of issues that lobbying dollars can chase, suggesting that there are diminishing returns for each dollar applied toward lobbying. High Intensity: The Big Three High-intensity industries are classified as those with a lobbying share that is at least four times greater than their share of total value added to the economy. IBISWorld has identified only three industries that meet this criteria: Defense, Pharmaceuticals and Health Products, and Tobacco. All three industries are dominated by a relatively small number of major companies, which makes it easier for them to align, coordinate and express their interests through lobbying. Morever, each industry has a high level of regulatory exposure, with Defense and Pharmaceuticals and Health Products depending on government spending. Compared with the rest of the economy, these three industries are disproportionately subject to government oversight and rules, which dictate and impact the scope, performance, product range and day-to-day operation of industry players. However, while these industries are heavily impacted by government policy, their share of the economy is relatively small, making them more dependent on lobbying as a form of influence. The Renewable and Miscellaneous industry is another great example of an industry that is heavily dependent on government assistance to shelter them from the brunt of market forces and competition against more entrenched energy sources. Consequently, over the past 10 years, the Renewable and Miscellaneous industry has posted the fourth-highest lobbying intensity figure, just missing the mark to qualify as a high-intensity lobbying industry. Defense The Defense industry is the most lobbying-intensive industry. Over the past 10 years, its share of lobbying was 6.9 times greater than its share of the economy, indicating that defense contractors are very likely to benefit from lobbying compared with other industries. The primary reason is that most US defense companies derive the majority of their revenue from US military and homeland security contracts. For instance, in 2015, the top lobbying defense and aerospace businesses generated more than half of their revenue from US government contracts, with some receiving nearly 90.0%. This direct dependence on government spending makes it vital for these contractors to constantly influence policymakers budget decisions. Aside from dependence of direct government contracts, defense companies are also highly regulated, with stringent restrictions regarding whom they can sell to and how they conduct business. To a large degree, arms exports are a reflection of US foreign policy and can be linked to Washington s policy and relationships with foreign states. For instance, many foreign arms deals are made at a government-to-government level. Simultaneously, rules, such as International Traffic in Arms Regulations article, dictate which defense equipment can be exported, with the Department of State having to provide approval. Moreover, major international arms sales have to be reviewed by Congress, which may then block or modify the sales. As a result, industry operators often have to lobby the government to push through export sales, which are becoming increasingly important amid waning domestic demand. Since so much of the industry s performance, means of operation and even existence is directly impacted by the government, contractors in the Defense industry value lobbying to a greater extent than any other industry. Defense contractors are also more reliant on lobbying because their relatively small

4 November Sources Number of Special Interests Vying to Influence Health Reform Legislation Swelled As Debate Dragged On, Center for Responsive Politics The Medicare Prescription Drug Benefit Fact Sheet. The Medicare Prescription Drug Benefit Fact Sheet, The Henry J. Kaiser Family Foundation kff.org share of the economy limits their natural level of influence. Pharmaceutical and Health Products The Pharmaceutical and Health Products industry is historically the largest purchaser of lobbying services. Over the past 10 years, its share of lobbying was, on average, 6.7 times greater than its share of industry value added. While contributing about 1.1% of value added to the US economy, this industry is by far the most lobbying-intensive, accounting for 7.3% of total industry lobbying in the United States over the past 10 years. In comparison, the Hospitals and Nursing Homes industry spent less than half as much on lobbying, despite contributing more than seven times as much value to the economy. The Pharmaceuticals and Health Products industry lobbies so heavily because the federal regulation regarding healthcare, trade, drug-pricing practices and approval, medical device taxes and patent exclusivity significantly affects industry revenue and profitability. For instance, pharmaceutical companies in the United States benefit tremendously from their ability to set drug prices unlike in many other developed nations. By artificially limiting competition by means of a government-granted patent or trade restrictions, the industry continues to maintain hefty profit margins and high levels of market share concentration. The industry also benefits directly from its relationship with the government. For example, through its Medicaid and Medicare programs, the government is the single-largest spender on drugs. According to the Centers for Medicare and Medicaid Services, Medicare and Medicaid spending on prescription drugs is projected to reach $139.0 billion in 2016, representing 47.0% of US domestic demand. These examples demonstrate the massive return pharmaceutical companies earn from spending on the Hill, indicating just how crucial lobbying is to their industry. Tobacco Tobacco is the third-highest lobbyingintensive industry in the United States. Mired by a litany of regulations aimed at combating the negative health effects associated with smoking, tobacco interests spend millions each year in Washington, DC, to defend their livelihood. Still, as a share of total lobbying, tobacco companies spend much less than many comparable industries; tobacco interests account for only 0.8% of total lobbying over the 10-year period. This is in comparison with the Oil and Gas industry which makes up 4.1% of lobbying dollars over the same period. Nevertheless, the Tobacco industry exhibits the third-highest lobbying intensity ratio (4.3), making it twice more lobbying-intensive than the Oil and Gas industry. This is due largely to the paltry amount of economic activity the Tobacco industry generates; IBISWorld estimates that tobacco companies account for only 0.2% of value added to the US economy. Despite its small economic footprint, top tobacco lobbyers spend considerable amounts each year to fight new FDA regulations aimed at curtailing the ability of cigarette companies to develop and market their products. They also fight legislators frequent efforts to raise excise taxes on cigarettes, an increasingly popular means for generating tax revenue. Somewhat surprisingly, the industry s share of overall lobbying has decreased over the past five years, even as its lobbying intensity has remained high. This is due to the fact that the Tobacco industry faces an existential crisis, as mounting regulation and falling smoker rates threaten the viability of this declining industry. As a result, each lobbying dollar has more weight for the industry than for most industries in the country. Low Intensity: Size Matters Low-intensity industries are classified as those with a lobbying share that is either

5 November equal to or less than their share of the economy; in other words, industries with an intensity value less than or equal to one. Unlike the few industries that are highly lobbying-intensive, low-intensity industries are many and diverse. Typically, lobbying does not play a significant role in these industries business operations. For instance, the Recreation and Live Entertainment (e.g. amusement parks) industry has a low intensity ratio due to the limited role that federal government policy plays in its operations. Regulations certainly affect the industry s operations, however, the extent to which is limited. Further, a low intensity does not imply that an industry spends less on lobbying than other industries or that political influence is not important to them. Rather, the low intensity may be due to the industry having enough economic clout to spend relatively less on lobbying than other industries. The Securities and Investment industry is one of the largest spenders on lobbying in the country, accounting for 3.0% of total industry lobbying over the past 10 years. However, it is still categorized as a low-intensity industry because it accounts for an even more impressive portion of contributions to the overall economy. To this point, some of the industries that fall into this intensity category are among the largest in the country. Finance Industries in the finance sector (e.g. banks, insurance and real estate companies) are among the top spenders on lobbying in the United States. Over the past 10 years, of the 20 largest industry spenders on lobbying, a fifth belong to this sector, accounting for over 12.0% of the total lobby spending in the country. Financial, insurance and real estate companies are highly regulated and in light of the financial crises, have received large-scale assistance and bailouts from the federal government. Moreover, in recent years, financial regulation has intensified, as exemplified by the Dodd Frank Wall Street Reform and Consumer Protection Act. However, industries in this sector are huge, employing large numbers of workers and reinvesting sizeable portions of their profit back into the economy. Within the sector, only two of the eight major industries contribute to a greater share toward total lobbying than toward the economy, putting the majority in the low lobbying intensity range. Despite all the regulation and government assistance, compared with companies in industries such as Defense, operators in this sector are not as reliant on political influence via lobbying. Health The health sector, excluding those in the Pharmaceutical and Health Products industry, is also a substantial contributor to lobbying. Together, the health sector, which includes Health Professionals, Hospitals and Nursing Homes, Health Services and HMOs and Miscellaneous Health industries, contributed 8.0% of total lobbying dollars over the time period. These industries have been continually affected by the rollout of the new healthcare overhaul dubbed the Patient Protection and Affordable Care Act (PPACA), which constituted a major restructuring of the nation s healthcare apparatus. During the run-up to its introduction, health industries spent lavishly to influence the outcome of the PPACA. According to the Center for Responsive Politics, by the time the House and Senate adopted versions of the bill, the number of clients lobbying the government had increased from 398 in the first quarter of 2009 to 1,541 by the end of that year, a nearly 300.0% increase. The gravity of the bill, and its sweeping effect on the nation s healthcare system, guaranteed the involvement of

6 November About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit or call the largest industry players from across the sector. However, IBISWorld s findings indicate that these industries share a relatively low lobbying-intensity ratio. In fact, lobbying intensity averages just 1.0 among these five industries. This is due to the fact that each of the industries within the sector contributes an enormous amount of value to the overall economy. However, the health sector illustrates a more fundamental point about industries and lobbying: there is a point at which lobbying efforts yield diminishing returns. In other words, there is a limit to the efficacy of lobbying. Large amounts of lobbying can generate substantial returns in terms of protection from competition, government contracts or favorable trade policy. Nevertheless, money can only go so far in swaying the opinions of those in power. Therefore, the health sector s sheer size, which represents an estimated 10.1% of total value added to the economy, will inevitably overshadow its political spending, leaving most health industries with surprisingly low levels of lobbying intensity. Footnotes All lobbying data is sourced from the Center for Responsive Politics and was reconciled to match IBISWorld data. All lobbying intensity levels are based on 2006 to 2016 (latest available) data Contact: Media Relations media@ibisworld.com IBISWorld Sales & Subscriptions Phone:

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