Businesses facing economic pressures, particularly increased trade competition, are more likely to turn to politically connected lobbyists in an effort to safeguard their commercial interests, finds a new UCL led study.
Researchers from UCL and King’s College London found that companies who experience increased competition hire politically connected lobbyists in an attempt to obtain exemptions or government subsidies, behaviour described as ’rent-seeking’. The study found businesses favour this approach to shifting their production to improve productivity, namely ’profit-seeking’.
Using unique firm-level data, the researchers analysed how trade shocks affected private sector political engagement in the USA in the period 1999-2003, a period characterised by the rise of cheap imports from China into the US market. They found a statistically strong relationship between the potential costs a company may face as a results of import competition and the hire of politically connected lobbyists.
In their analysis, the increase in company exposure over this period led to an average increase of almost 8 congress connections held by the hired lobbyist. These trends persisted regardless of the specialisation or political partisanship of the lobbyist.
Professor David Coen (UCL Political Science) said: "Businesses engage with politics, whether that be through financial campaign contributions or by hiring lobbyists, to influence the regulatory environment to their advantage, often successfully.
" "We found that in response to the influx of cheap Chinese imports in the early 2000s, US businesses sought refuge in Washington, rather than adapting their production to remain competitive.
"While this short-term ’rent-seeking’ behaviour is cheaper than adjusting and shifting production, it often comes at the long-term expense of the business or industry, who struggle to maintain profits and compete in the international arena without support."
Dr Matia Vannoni (King’s College London) said: "Our analysis indicates that during periods of economic instability, firms pursue political influence as a survival mechanism, a form of countercyclical, short-term crisis management."
" "As the backlash to globalisation intensifies across the western world, our research shows that competition drives companies to seek political protection, often with negative consequences for the economy and democracy."
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