But what if lawmakers are getting false signals? In Congress, this might lead to a stalemate further on in the legislative process: a bill may be advanced because the committee chairperson thought it would receive broad support, when, in fact, it is more divisive than the lobbying suggested.
At the federal agency level, where changes to laws and regulations are not put to a vote but decided by bureaucrats trying to find solutions that satisfy broad segments of the population, false signals can be even more effective for the companies working hard to create them. Academics and practitioners agree that regulators risk capture by the industries they oversee, whether through the prospect of revolving-door jobs or in more subtle ways, such as overlapping social networks with the industries they regulate. “The key question is why agency policies generally ended up favoring the financial sector, with the outcomes we know too well,” writes former University of Connecticut law professor James Kwak, in his 2014 book chapter “Cultural Capture and the Financial Crisis,” about regulatory changes that helped precipitate the financial crisis. “In other words, what mechanisms of influence enabled regulated industry to get its way.”
Bertrand and her colleagues suggest a plausible pathway: reviewing the comments of nonprofits on proposed rules, regulators may think they are getting a read on a broad and disparate swath of American public opinion—when, in fact, they could be operating in an echo chamber of corporate America’s making.
A business that dwarfs dollars-for-votes
If companies are lobbying by nonprofit proxy, it’s not only effective; it can also offer immediate financial benefits. Companies can rack up a range of tax breaks by giving money to charity—savings they would not realize if they instead put the money into explicitly political donations. For example, giving to their private foundations may allow companies to reduce their taxable income by as much as 10 percent.
It is unclear how much in tax dollars the US loses out on because of all of the deductions available. University of Texas’s Lisa De Simone notes that in 2019, active corporations gave $23 billion to charity, per IRS data. Assuming an average tax rate of 21 percent, that equates to almost $5 billion in allowable deductions. But this figure is a conservative estimate of revenues not collected, she says. There’s a cap on how much corporations can deduct by donating to charity, though various work-arounds exist that allow them to surpass this cap.
Given the tax incentives, it’s not surprising that corporations would spend on lobbying via philanthropy rather than only traditional channels. Bertrand and her colleagues find that co-commenting on federal rules by companies and their nonprofit beneficiaries is a relatively widespread practice: one in 10 of the average company’s comments recorded on regulation.gov shared a co-comment with a nonprofit that had received a grant from its foundation in the previous year. Giving via foundations, they note, is only one path by which companies can support nonprofits (and thus possibly encourage co-commenting). They can donate directly to charities, and their executives can make personal contributions, neither of which require public disclosure.
Nor is co-commenting the only way companies make their philanthropic spending work double time as an investment in political influence. In their 2020 study, Bertrand, Bombardini, Fisman, and Trebbi find that companies’ localized charitable giving fluctuated with the presence or absence of a politician in that district who could wield influence in Washington—following the same pattern as their contributions to politicians via PACs. (For more, read “How corporations use charitable giving to wield political influence.”)
A more generous take
A benign explanation for the co-commenting trend is that foundations’ donations free up resources at grantee institutions, such that the nonprofits have the time and expertise to share publicly, and officially, opinions that they already held—and may in fact have been what drew the companies’ or foundations’ interest in the first place.
That could be the case, yet the researchers find that the similarity between comments by grant-receiving nonprofits and those of the funding company grew after a donation not just relative to other nongrantee commenters, but in comparison with the nonprofit’s co-commentary when it had not recently received a grant.
The system depends on lobbyists offering competing perspectives to less-informed policy makers, who then use these opinions—choosing between them or finding a balance—to create rules and laws that they believe will best serve the public good. Analyzing these dynamics 30 years ago, Northwestern’s David Austen-Smith wrote, “the extent to which any information offered to alter [policy makers’] beliefs is effective depends on the credibility of the lobbyist to the legislator in question.” Quid pro quo arrangements will affect that credibility—but if policy makers are not aware that they exist, a theoretically efficient system can run off kilter.
This sort of damage could be ameliorated through disclosure, argue Bertrand, Bombardini, Fisman, Hackinen, and Trebbi: if regulators understood the links between companies and the nonprofits they support—and if doing so did not require navigating and cross-referencing multiple data sets and building custom machine-learning algorithms, as the researchers undertook—regulators could apply appropriate discounts to the opinions of potentially compromised parties, and take at face value the opinions of other groups.
Companies may well resist greater transparency. The researchers cite an internal email written by a Monsanto executive in 2010 about plans to fund a grantee that would advocate for genetically modified technologies and counter any scientific concerns or proposed additional regulation. “The key,” the executive wrote, “will be keeping Monsanto in the background so as not to harm the credibility of the information.”
Among the biotech products in Monsanto’s portfolio were those modified to be resistant to glyphosate, the key ingredient in its controversial herbicide Roundup. Chemical company Bayer bought Monsanto in 2018, and a spokesperson issued a statement saying that any interactions the company had with regulators regarding glyphosate “have been professional, appropriate, and grounded in the extensive body of science that supports both its safety and non-carcinogenicity.”
As for philanthropists themselves, they might also benefit from opacity, judging by the bipartisan resistance to other proposed reforms, such as no longer allowing foundations to count family members’ salaries and travel expenses toward their minimum annual charitable distributions.
And nonprofits will have their opinions on transparency around funding too. But given donors’ thoughts on the matter alongside the empirical evidence of influence peddling by philanthropic proxy, policy makers would be forgiven for taking at least some of these with a grain of salt.
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