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Breaking Up Big Business Would Not Reduce Lobbying

Breaking Up Big Business Would Not Reduce Lobbying

March 14, 2023

Over the last half-decade, a determined cadre of activist scholars, journalists, lawyers, and organizers have argued America suffers from a monopoly problem, and the solution is aggressive antitrust enforcement. Indeed, a core tenet of their movement is that antitrust enforcement is a key tool and philosophical underpinning of democracy itself. That conviction has served as a pretext for a number of antitrust bills introduced in Congress.

Federal Trade Commissioner Lina Khan summarized the antimonopoly movement’s theory of the case in a 2018 journal article, published when she was an activist legal scholar at the Open Markets Institute. Harkening back to the movement’s hero, Progressive-era Supreme Court Justice Louis Brandeis, Khan posited that “concentration of economic power aids the concentration of political power.” More specifically, she asserted, “Dominant corporations wield outsized influence over political processes and outcomes” through lobbying and other means. Media organizations and prominent elected officials such as Sens. Elizabeth Warren (D-MA) and Amy Klobuchar (D-MN) have echoed the same line of argument. In 2021, Klobuchar declared: “If Americans are to rebalance our democracy, we must recapture the spirit of the antitrust movement.” Warren concurred: “Concentration threatens our markets, our economy, and our democracy.”

As concrete evidence to support their theory that antitrust enforcement strengthens democracy, Neo-Brandeisians point to research showing big businesses lobby more than smaller ones. But it turns out breaking up large corporations actually would not reduce lobbying. In fact, it would have quite the opposite effect.

Of course, bigger companies with higher revenue typically spend more on lobbying than smaller companies; they spend more on everything, because they are big. But that doesn’t prove antitrust would curb lobbying. For it to be true, two companies spinning off from a breakup would have to lobby less than the pre-breakup company did. ITIF tested that proposition by analyzing Fortune 500 data and publicly available lobbying records and found that firms’ total revenue was negatively correlated with the share they spent on lobbying. So, breaking a big firm into two smaller firms would increase the total amount spent on lobbying.

Data on the highest-valued mergers and spin-offs confirmed this finding. The pattern is that while merging makes companies bigger, their total expenditures on lobbying decline by an average of more than $1 million in the two years following a merger. Conversely, when a company spins off a division into a separate company, total lobbying expenditures increase. All of which stands to reason. When companies merge, they consolidate operations and eliminate redundancies—including lobbying.

Meanwhile, parallel to the narrative that dominant corporations wield outsized influence, there is a widespread assumption that small, independent businesses lobby very little. That, too, is incorrect. In fact, small-business trade associations are among the most powerful lobbying organizations in Washington. They pool resources from hundreds or thousands of small businesses and use their combined influence to sway policymakers. Indeed, the top five highest-spending lobbying organizations in 2021 were all trade associations representing thousands of businesses each. For example, auto dealer associations have successfully spearheaded legislation preventing Tesla from selling vehicles directly to consumers in Texas, South Carolina, and New Jersey. The American Optometric Association has lobbied to make it harder for consumers to buy contact lenses online. And the American Association of Realtors has lobbied to make it harder for cheaper online realtors to get into the business.

If Americans want to remove special interests in politics, then policymakers should consider other means than antitrust, such as directly limiting what kind of lobbying is allowed. Not only would aggressive antitrust be an ineffective way to decrease lobbying, but more broadly, it also would come at a significant cost to society. While foes of big business argue size hurts consumers and innovation, empirical evidence shows that, on average, large corporations pay higher wages and offer lower prices than small businesses. Big companies are also the primary engines behind new processes and products that increase living standards. Breaking them up would slow economic growth and detract from people’s quality of life.

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