Why Government Fails So Often: And How It Can Do Better (35 page)

The political influence wielded by interest groups takes many forms. Industries and other advocacy groups lobby Congress in order to shape agencies’ budgets, priorities, personnel, legal authority, and other aspects of their work in ways that will advance the advocates’ interests. Much lobbying, moreover, is intended to shore up support among members who are already inclined to favor the group’s position rather than to convince those inclined to oppose it.
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Interest groups and their lobbyists organize grassroots support, launch educational and publicity campaigns, seek to install sympathetic individuals in office, recruit officials when they are ready to leave office, perform favors for officials without exacting the quid quo pro that might constitute criminal bribery, and use top former officials to advocate before the courts and their old agencies. (The tobacco industry team that challenged the FDA’s power to regulate it included every living former FDA chief counsel!
⁶⁴
) To observers such as Joseph Stiglitz, a Nobel Prize laureate in economics, the concentrated power of corporate interests is both extensive in scope and pernicious in its effects, encouraging the rent-seeking that undermines social equality, democratic values, and a competitive economy.
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Other prominent commentators share that assessment.
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All of these critics strongly condemn the corrupting influence of money in politics;
⁶⁷
they assume, plausibly enough, that money drives public policy. But in focusing on the hydraulics of money in politics, they often overlook the fact that the causal arrow
also
points the other way: more powerful government draws more private money into the political system. Expanded public authority makes groups more vulnerable to policies that can seriously harm them, which raises the stakes in averting those harms through whatever sources of influence they can muster.

In fact, the actual policy significance of contributions to those running for Congress is far from clear despite much study by political scientists. Most contributions are well below the legal ceilings and go to legislators who
already agree with them
—particularly incumbents, and especially committee chairs, with already well-established views.
⁶⁸
The contributions serve more to fortify than to persuade, to improve access rather than to strong-arm.
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Often self-protective in nature, they seek to minimize the risk of incumbents’ anger or retaliation. Although pundits often claim that campaign contributions spawn bitter partisan politics (ignoring that eminent political scientists have long urged a more polarized “responsible party government”
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), the connection is opaque. As political scientist John J. Pitney wrote in early 2012,

Big money is not necessarily ideological or even partisan. Some interest groups side with conservatives on tax issues, but others have a material stake in the expansion of government programs and thus may side with progressives. In passing his healthcare bill, President Obama built a broad coalition that included industry lobbying groups such as the Pharmaceutical Research and Manufacturers of America and the American Medical Association. Groups may switch sides depending on how they gauge their interests. The financial services industry favored Obama in 2008, and now seems to be leaning to Romney.
⁷¹

In the wake of Obama’s reelection, the industry quickly moved toward a new, more conciliatory stance.
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The Supreme Court’s controversial
Citizens United
decision—which held that the First Amendment protection of political speech permits corporations and unions to spend their treasury funds for independent advocacy favoring particular candidates
⁷³
—has aroused legions of critics, yet the decision’s holding (as distinguished from its objectionably overreaching, loose analysis) is clearly correct on its facts. After all, First Amendment protection of freedom of the press surely extends to the nonprofit group that made the film attacking Hillary Clinton’s candidacy just as it would protect a
New York Times
editorial attacking Mitt Romney.
⁷⁴

More important for present purposes, the decision’s actual effects on policy—the main focus of its multitude of critics (former president Jimmy Carter has said the decision is “stupid” and allows “legal bribery”
⁷⁵
)—remain unclear. An analysis by
Times
political reporter Matt Bai, written shortly before the 2012 election, noted that as of June 2012, not a single Fortune 100 company had contributed to a candidate’s Super PAC during the primary season, and less than 1 percent of the money raised by Republican Super PACs came from publicly traded companies; only 13 percent came from privately held companies. The flood of money into campaigns, Bai writes, has been unleashed not by
Citizens United
but by the Bipartisan Campaign Reform Act of 2002, popularly known as McCain-Feingold. That law, notes Bai, moved campaign expenditures “from inside the party structure to outside it…. What we are seeing—what we almost certainly would have seen even without the Court’s ruling in
Citizens United
—is the full force of conservative wealth in America, mobilized by a common enemy for the first time since [McCain-Feingold]…. Liberals dominated outside spending in 2004 and 2006. And should Romney become president, they’ll most likely do so again.”
⁷⁶
In any event, presidential campaigns are unique; the influence of moneyed interests is probably greater in congressional and state races. There, campaign contributions primarily work to further entrench
incumbents
of both parties, who already enjoy greater name recognition, influence over the districting process, the franking privilege, publicity, seniority, and other advantages.

Indeed, political scientists have wondered why so
little
is spent on campaigns, not only as compared to consumer expenditures on cosmetics and other gewgaws but also as a share of gross domestic product. In a 2003 article, Stephen Ansolabehere and colleagues show that this share had not risen appreciably in more than a century, and might have fallen—probably because campaign spending seems to have little marginal effect. They also show that individuals, not special interests, are the main source of campaign contributions, and that there is little relationship between money and votes once one controls for other vote-relevant factors.
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(Ballot initiatives may be different.
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)
Political commentator Ezra Klein argues that money’s influence is greatest on small issues that matter to narrow interests, whereas “the more likely Americans are to have actually heard of the bill, the less likely money is to be the decisive factor in its fate”:

[The “headline clashes”] all go the same way: the Democrats vote with the Democrats, and the Republicans vote with the Republicans. That’s true even when the big money lines up in favor of another outcome. In 2011, the Chamber of Commerce and the AFL-CIO joined together to call for a major reinvestment in American infrastructure. None passed. In 2010, most of the health care industry was either supportive or neutral on the Affordable Care Act, and if any one of them could have swung the votes of even a few Republican senators or congressmen, the desperate Democrats would have let them write almost anything they wanted into the bill. But not one Republican budged. In 2009, the Chamber of Commerce endorsed the stimulus bill as a necessary boost to the economy. Not one House Republican voted for it. Almost every major business group has been calling for tax reform and a big, Simpson-Bowles-like deficit reduction package for years now. But Congress remains deadlocked…. while moneyed interests are decisive in passing laws and influencing provisions that few Americans care about, they’re much weaker on the issues where Americans are actually watching. But those issues are the ones that have convinced America that Washington is broken.
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In truth, the political power of market actors lies less in their campaign contributions than in the real economic and political interests that elected politicians think these interests represent to their constituents. Investment by these interests adds to communities’ tax bases. Their employees are productive citizens, taxpayers, and consumers who also vote. Their businesses promise to increase growth, jobs, and productivity. Investments in them include the life savings of ordinary people, not just local notables. Their presence attracts to their communities still other businesses and perhaps their upstream and downstream entities. Politicians tend to thrive from these developments, have a strong self-interest in promoting and preferring them over competing communities, and would almost certainly do so even in the absence of campaign contributions. In a representative system with local constituencies and frequent elections, this is a large part of
what politicians are supposed to do. These ramifying economic impacts on Main Streets throughout the country explain—probably better than lobbying by Citigroup, Goldman Sachs, and other financial titans—why the federal government’s solicitude for Wall Street interests leads to huge bailouts, despite the moral hazard.

The key question about campaign contributions, then, is what is their
marginal
effect—that is, above and beyond the effect that these primary political considerations would have on legislators’ behavior? This question has no clear answer, but the evidence suggests that this marginal effect is far less than the fierce critics of
Citizens United
claim. An econometric study of congressional races from 1972 to 1990 found that campaign finance had only a tiny effect: an extra $175,000 in spending would increase the final vote by only a third of a percentage point.
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The 2012 presidential election seems to have confirmed this pattern.
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Obstacles to policy enforcement
. The headlines about government prosecutions of this or that market actor for some violation should not be taken as an accurate representation of what happens to those who transgress government policies. Although federal sentences for economic crimes are at a historic high in terms of both number and length,
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prosecutions of such crimes remain rare and often unsuccessful.
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The vast majority of violations go undetected or, if detected, inadequately remedied. In the classic economic theory of crime and punishment, the potential violator compares his possible gains to the severity of the punishment discounted by the probability that it will actually be imposed, which is the joint probability that he will be detected, apprehended, prosecuted, convicted, and fined or sentenced. This joint probability should also be discounted by the length of time that will elapse before these bad outcomes occur.
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This theory, together with the fact that the penalties imposed on miscreant market actors are low relative to firm size (indeed, sometimes less than what they gained from their misconduct), suggests that they are significantly underdeterred. Prosecutorial confusion also confounds enforcement, making optimal levels of deterrence or sanctions unlikely. Jurisdictional overlaps produce multiple prosecutions for the same
course of conduct by different agencies—for example, the SEC, federal banking regulators, state banking regulators, federal and state criminal prosecutors, private litigation, and sometimes even a nonbank agency.
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At least
eight
federal agencies are investigating a single major bank.
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Not surprisingly, less than a quarter of the respondents in a Kiplinger survey believe that the SEC effectively polices the stock market.
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There are many reasons for limited, weak enforcement, not all of them bad. First, the optimal level of enforcement for most crimes and regulatory violations is likely to be well below 100 percent (unlike with, say, murder). Prosecutorial discretion is both broad and largely immune from judicial review—far too broad and immune, according to leading scholars of the criminal law system.
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At a certain point in the process, this discretion also becomes immune from
political
review; by custom, the president must not interfere with prosecutorial decisions even by his own appointed attorney general and Department of Justice staff. (There have been exceptions, most famously the “Saturday Night Massacre” of attorneys general by President Richard Nixon during the Watergate crisis.)

Prosecutors and agency officials often consult on whether particular cases are worth pursuing and, if so, how they will be handled and what punishments will be sought.
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The enforcement sequence—from investigation and detection to actual imposition of a penalty—is costly to the government, which must pay for investigators, lawyers, data systems, experts in the policy field, detention facilities, and many other services. Enforcement budgets are severely limited, often because the relevant congressional committees, which attend to commercial interests that might be targeted, want it that way. The standard of proof—guilt beyond a reasonable doubt in criminal cases, a lower standard for civil sanctions—is difficult to satisfy. (This may explain why OSHA investigated more than twelve hundred cases in which investigators concluded that workers had died because of “willful” safety violations on the part of their employers but prosecuted a mere 7 percent of these cases.
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) Although the public understandably resents the fact that financial companies may not only be
“too big to fail” despite Dodd-Frank (see above, and
chapter 5
) but also “too big to jail”—a phenomenon that even attorney general Eric Holder concedes
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—the latter is more complex morally, economically, and legally. Criminally prosecuting corporations, as the government did with Arthur Andersen after the Enron debacle, is certain to punish many altogether innocent employees and others by forcing the company out of business, which reduces competition in the industry. Except with criminal enterprises, the pursuit of fines, regulatory sanctions, private claims, and other noncriminal remedies is likely to be a better strategy.