The cost of the revolving door

Posted by John McDermott on Jun 27 17:02.

Lobbying works. It influences opinions and changes votes. If it didn’t, firms — financial or otherwise — wouldn’t pay top dollar for K-street services.

Yaaaawwwnnn.

That much we know. But research published by the IMF in its latest Finance and Development journal contains an interesting nuance. The work tries to isolate the different impacts of money, targeted lobbying and personal connections on the additional probability that a lawmaker will vote a certain way.

IMF economists Deniz Igan and Prachi Mishra constructed a data set covering 51 bills pertaining to financial regulation between 2000 and 2006. (And yes, the odd few did apparently tighten regulation.) It included data on how much firms spent on lobbying, professional and personal connections between lobbyists and lawmakers, and how the targeted lawmaker(s) voted.

Here are their main findings:

First, there was a clear association between the money affected financial firms spent on lobbying and the way legislators voted on the key bills considered before the crisis. The more intense the lobbying, the more likely legislators were to vote for deregulation. Moreover, lobbying was more likely to garner votes for deregulation from conservative legislators.

Second, network connections between politicians and lobbyists who worked on a specific bill also influenced voting patterns. If a lobbyist had worked for a legislator in the past, the legislator was very likely to vote in favor of lax regulation.

Third, the amount of money spent lobbying a legislator who already has strong connections to K Street surprisingly seems to have had little effect on the likelihood of a vote for deregulation. Spending an extra dollar on lobbying was less effective if the lobbyist was already connected to the lawmaker. This suggests that spending more on lobbying isn’t much help to firms with well-connected lobbyists.

Regressions can sure be depressing. These results are rough and should be heavily caveated, but they do suggest the benefits to a revolving door policy, above and beyond normal lobbying efforts. Money doesn’t matter too much if there’s a personal or professional connection in place.

One can take these results too far but it also suggests that if the Obama Administration remembered that it was supposed to be cleaning up Washington, it would have to look at informal as well as formal lobbying.

Related links:
Political appointees and the revolving door – Felix Salmon
Gene Sperling and Wall Street’s Giant Sucking Sound – HBR

This entry was posted by John McDermott on Monday, June 27th, 2011 at 17:02 and is filed under Capital markets. Tagged with , .

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