Structural Power and Public Policy: A Signaling Model of Business Lobbying in Democratic Capitalism

This paper develops a signaling model of corporate lobbying in democratic capitalist societies to analyze the conditions that lead to a powerful political position of business. Proceeding from the traditional dichotomy of structural economic determinants versus business’ political action, our model predicts the conditions under which elected political decisionmakers modify their policy pledges to accommodate business’ political preferences, or override business’ lobbying messages and honor their pledges. Our results show that the structural power of business over public policy is contingent on two variables: the size of reputation costs of business in relation to its material costs of lobbying, and the ratio of the policymaker’s reputation constraints from policy commitments and campaign pledges to the electoral costs from adverse effects of policy. We evaluate our model using case studies of business lobbying on environmental and financial services regulation in Britain and Germany. If politics is about who gets what, when and how, there is little doubt today that business is a successful political actor. To the extent that business wields a disproportionate influence over public policy, an increasing global integration of factor and goods markets further enhances the political power of business (Cerny, 1999). The normative implications are immense: If public policy is systematically biased in favor of business interests, political equality, democratic accountability, and the legitimacy of political outcomes are greatly undermined (Dahl, 1989, pp. 324-28). However, there is little consensus in the literature over what the sources of the political power of business are. We can distinguish between accounts of the political involvement of business in democratic capitalism along the lines of intentional interference versus non-intentional domination. On the one side, studies of interest group politics and lobbying focus on the manifold pressures exerted on elected political decisionmakers (hereafter: policymakers). They propose that business, like any other interest group, has to fight incessantly to avert unfavorable political outcomes (e.g. Vogel, 1996, 265). The other extreme is marked by the empirically elusive claim that the owners and managers of private enterprises enjoy a structurally powerful position that enables them to secure favorable political outcomes even if they abstain from political action. The prevalence of this scholarly divide has obscured an important aspect of public policymaking, viz. the fact that policymakers face huge informational problems with regard to the economic consequences of policies as well as how these are valuated by citizens, while business has privileged access to the pertinent information (Potters and Van Winden, 1992).