Tech lobbies more the bigger it gets. A new paper explains why.

A group that challenges concentration in the tech industry argues in a new paper that companies are using their economic power to get better deals from government — and the author says it can start "a dangerous feedback loop."

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Lobbying by tech companies has been growing for years.

Photo: Charles Deluvio/Unsplash

As skepticism about corporate power grows on both sides of the aisle, some advocates and politicians have blamed market concentration for ills ranging from slowed innovation, high drug prices and expensive internet service to low wages, reduced online privacy and even risks to U.S. national defense.

Now, a paper from an anti-monopoly group argues that economic consolidation, including in tech, may contribute to increased lobbying as well.

The paper, released Wednesday by the American Economic Liberties Project, focuses on three industries: internet tech, pharmaceutical manufacturing, and oil and gas production. Overall, the research finds a "moderate positive" correlation between measures of concentration in those markets in a given year and how much the sectors spend on lobbying a few years later, even when adjusted for inflation.

"In short, the results of this report suggest that not only is big business good at lobbying, but that bigger business leads to more lobbying," says the report, which was authored by Reed Showalter, a fellow with the group.

While examining what Showalter calls in the paper "a very complex political dynamic," his analysis finds that a common measure of industry concentration in a given year explained "roughly 43% of the variation in lobbying expenditures by internet companies" four years later.

Showalter told Protocol the time lag is a "meaningful" find. Free-market economics has long emphasized the role of lobbying and government action in creating monopolies, and many on the left have also broadly embraced the idea that monopoly is a goal of corporate influence. The paper also notes the expectation that companies would increase lobbying ahead of mergers — although legal fees aren't generally included in lobbying disclosures. Showalter even cites older research that spending to sway government can produce increased market share.

Yet the paper argues that the lobbying increase actually happens later.

"It's not that lobbying gets them big," Showalter said of companies in a follow-up email. "It's that bigness makes a business able/willing to lobby."

Both the number of tech company lobbyists and the fees they command have ballooned significantly in recent years, in many cases displacing traditional Washington powerhouses such as energy, defense contractors and tobacco in expenditures.

Facebook spent nearly $20 million on federal lobbying in 2020 — more than any other company, according to the Center for Responsive Politics. (Some trade groups outspent individual companies, as did Blue Cross Blue Shield, which is a federation of local companies.) Amazon came in at No. 2, spending nearly $19 million. In the first half of 2021, the ecommerce giant is first, with Facebook falling to second, according to CRP.

Both companies are under tremendous pressure in Washington, with Facebook the subject of an antitrust lawsuit by the U.S. Federal Trade Commission. Amazon is also the subject of a competition probe by the FTC, and Big Tech is facing broad threats of regulation overall.

Seeking to influence policy in response to such threats is both common and broadly protected by the U.S. Constitution, but like lawmakers themselves, lobbyists are widely reviled as unethical. The paper cites evidence that the practice benefits businesses more than other types of interests such as consumers or labor, and Showalter suggests lobbying can be "a harm to democracy."

His analysis of tech companies zeroes in on Amazon, Google, Facebook, Microsoft, Oracle and other companies he selected in order to approximate "what a layperson would think of as a primarily internet-based company."

The paper proposes that companies in competitive industries may not have spare resources to put as much toward influence operations. On the other hand, companies that have "less to fear from competition... may reasonably decide it is more prudent to seek rents and power from the government through lobbying rather than trying to make their goods and services better."

Showalter told Protocol that examples of rent-seeking could include Amazon's unsuccessful pursuit of a massive cloud contract from the Pentagon. He also pointed to companies seeking tax breaks and told Protocol that the lobbying power that arises after consolidation may in turn create "a dangerous feedback loop where big business can buy more government favors to harm competitors."

The paper notes that the comparative youth of the industry — still fewer than 20 years old, and in many cases not even that — makes some comparisons difficult, and the analysis doesn't account for campaign contributions, which are another common form of influence. Lobbying at the state level, which may not appear in federal lobbying disclosures, is also a regular response to increasingly local tech regulation. And industry groups have pushed back on the entire notion of a crisis of economic consolidation and rejected claims of specific harms.

To the AELP, however, one key upshot of the research is that antitrust enforcement should go beyond its current focus on prices to encompass a broader mission that could include pushing back on monopolies and concentrated industries with an eye to how they affect government.

Expansion beyond this emphasis, known as the consumer welfare standard, has been a top priority of AELP, as well as would-be reformers like Lina Khan, the new FTC chair.

"Corporate concentration and antidemocratic political influence go hand in hand," the report says.

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