With Washington ramping up threats to regulate all aspects of the Tech community and the Internet, from net neutrality for Internet providers to privacy regulations over Facebook user information, forward-looking tech companies are doing their part to protect from overzealous regulatory agencies by hiring their own cadre of Washington insiders.
Lobbying has real costs associated with it that, unlike what some may think, are largely born by consumers and tax payers. Companies that are able to influence Washington regulators to put in place rules and regulations which will stifle their competitors do so when they think that they will have more success competing in politics than in the marketplace. Consumers are hurt because money that could have been invested to improve consumer satisfaction by producing a new good or service, or by lowering the price on an existing production process is instead lining the pockets of DC lawyers. Meanwhile, regulatory agencies are funded by taxpayers, putting another dent in Americans pocketbooks. However, companies hiring lobbyists aren’t the ones to blame in many cases. As Michael Kinsley, a past Microsoft employee, explains:
As the Microsoft example suggests, the Washington culture of influence peddling is not entirely or even primarily the fault of the corporations that hire the lobbyists and pay the bills. It’s a vast protection racket, practiced by politicians and political operatives of both parties. Nice little software company you’ve got here. Too bad if we have to regulate it, or if big government programs force us to raise its taxes. Your archrival just wrote a big check to the Washington Bureaucrats Benevolent Society. Are you sure you wouldn’t like to do the same?
Lobbying is just one cost of regulation and it attracts the bulk of attention because it’s the one we can put our finger on. The costs of regulation however are much greater and much more diverse than that. Estimating the cost of regulation poses several challenges, partially because properly defined the estimates ought to include the costs from efficient activities not undertaken because of regulation. Nevertheless, the Phoenix Center will release a new paper this Wednesday estimating the relationship between government spending on regulatory activity and economic growth and job recovery that uses fifty years of data to show that reducing the size of the federal regulatory budget by even modest amounts would have significant positive effects on GDP and private sector growth. Look for my summary on the accompanying release event this Wednesday.