Congress's Business Model Makes Me Cry

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Have you ever examined the business model that drives Congressional action?

Business models are collections of functions linked across disparate organizations forming a supply chain. Value is exchanged across organizational boundaries by trading products or services for money. In some cases, organizations swap services without money changing hands because this advances their respective missions.

What do we see when we examine politicians, parties, pundits, the press, lobbyists, activists, businesses, and voters through this admittedly stilted lens?

Congress provides legislative services that define the rules under which the rest of us are obliged to live. The body of laws enacted by Congress has expanded over the past 200 years. It now reaches into almost every aspect of our personal and working lives.

Beginning with the New Deal and enlarged by the Great Society, Congress has come to own and operate several financial transfer businesses. The most notable are Social Security, Medicare, and Medicaid. Together these represent over 40% of federal spending. This number is forecast to grow. Congressional businesses are exempt from many of the accounting laws that normal businesses must obey. Congress is not obliged to balance its budget and is immune from going out of business. These factors make it possible to promise benefits that are popular with voters while leaving future generations to pay for them.

Congress also hands out money. Some of it is freshly printed, some of it is borrowed, and much of it is extracted from citizens and businesses in the form of taxes. Taxes are collected following complex and ever-changing rules made up by Congress. Money is given away to whomever Congress pleases. When opposing Congressmen disagree on which favored business, voting group, or activist cause should receive money, the disputes are often resolved by giving money to all of them. Hence, Congressional distribution of money has grown significantly. Free money attracts more activists, businesses, and voters who would like to get some.

Congressmen are paid a salary that represents a tiny fraction of the money they take in from campaign contributions. Contributions are spent purchasing reelection services. Although the approval rating of Congress is 14%, the US House reelection rate is 98% and the Senate's is 83%. Congressmen get good value for money when they buy reelection services. The largest providers of reelection services are the media.

Overt reelection services come in the form of advertising. In the last election cycle, the media collected over $3 billion dollars for campaign advertising. The media also provides unpaid reelection services. These can come in the form of the attention reporters lavish on incumbent Congressmen, editorial endorsements awarded to incumbent Congressmen and their policies, and attacks visited upon the challengers and enemies of incumbents. According to an MIT study, newspaper editorials endorse incumbents about 90% of the time.

Editorial, reporting, and attack services may or may not be ideologically motivated. By trading preferential access for coverage, Congressmen supply chosen media partners with a flow of leaks and sound bites sufficient to fill the many hours of air time modern media businesses need to fill. This attracts viewers that can be sold to advertisers.

Lobbyists offer intermediary services to businesses and activist organizations that wish to influence Congress. Lobbying firms hire former Congressmen and congressional staffers who know how to work the system. Lobbyists help campaign donors obtain the best value for their money.

Some lobbyists quote prices to prospective customers who may be unfamiliar with accepted practices in Washington. The going rate to rent a Representative for the purpose of obtaining an earmark has been quoted by a prominent K Street lobbying firm at $10,000. The going rate for a Senator has been quoted at $20,000. This does not include fees and kickbacks to the lobbyist, which can be paid out of the earmark. Optimal results require paying one local Representative and both Senators as well as the chairman of the appropriations committee that processes the earmark.

Sharing the political views of rented Congressmen is not relevant when purchasing an earmark. Smart lobbyists often rent Congressmen in bipartisan pairs. This helps minimize scrutiny by Congressional ethics committees. Lobbyists provide training on how to bundle donations to avoid violating campaign finance laws that are written by their friends in Congress.

Businesses rent Congressmen for a variety of reasons. Many businesses pay protection money hoping to be left alone. Some businesses pay to induce Congress to pass laws aimed at crippling competitors. Others pay simply to obtain free money. The threat of new taxes and regulations often induces previously uninvolved businesses to hire lobbyists and start making campaign contributions.

A powerful force unifying the interests of Congress, the media, lobbyists, and activists is controversy. Pundits play a major roll promoting controversies. In return pundits get TV appearances, speaking engagements, and book deals. Pundits work closely with the media, activists, and other pundits to elevate controversies into crises. Crises keep voters in a constant state of fear and agitation. This makes voters more receptive to the paid and unpaid political messages distributed by the media. The most politically useful crises are the ones that never go away. Congress's financial transfer businesses are in perpetual crisis.

Political parties help define, organize, and maintain this system. Parties rely on activists and pundits to promote their brand. Parties offer voters a team to identify with and champions to root for, as well as an opposing team to hate and villains to despise. The media reports on each team's setbacks and victories as champions and villains battle to write new laws and give away money. Parties provide talking points for media and pundits to distribute. These help spare voters the effort of thinking for themselves.

One thing our two major parties agree on is that it would be terrible to have more than two major parties. Congress arranges the voting and campaign finance laws to ensure that no new parties can grow to significant size. Parties promote the idea that the practical choice for voters is the lesser of two evils. Most voters accept this and go so far as to accuse fellow citizens who refuse to vote for politicians from either major party of shirking their civic duty.

The founding fathers were very smart. But they were not smart enough to prevent this business model from emerging.

I cry for my country.

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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