The Business Ethics Blog

Across the ideological spectrum(s), there is universal agreement that business ought to “play by the rules of the game.” The most ardent fans of free markets say, essentially, that that is the only ethical obligation businesses have, beyond the pursuit of profit. It is up to government (and perhaps society more broadly) to make the rules. It is up to business to play by them. Fair enough. But what ethical standards apply to the practice on the part of business of trying to influence the very rules to which they are expected to adhere?

See this story from a few days ago, in the NY Times: Geithner Sets Limits on Lobbying for Bailout Money

The new Treasury secretary, Timothy F. Geithner, announced on Tuesday that he would crack down on lobbying to influence the $700 billion financial bailout program by companies that are receiving billions in taxpayer money.

Mr. Geithner, who was confirmed on Monday, also said he would set new limits intended to prevent political interference with decisions about which companies received bailout money.

Among other steps, the Treasury department said it would make public a log of all contacts by public officials and bank officials regarding specific financial institutions.

(Here’s another take on it, from the Washington Post: Treasury Moves to Restrict Lobbyists From Influencing Bailout Program.)

For Mr. Geithner and the Obama administration, this is matter of ethics in government, and of public accountability. And it’s not an easy one. Certainly no one thinks that decisions about how to spend the bailout money ought to be influenced significantly by the fact that some senator had his or her ear bent for half an hour by a suave lobbyist acting on behalf of a well-heeled client. On the other hand, the right to petition one’s government and thereby to have a say in public policy is a fundamental democratic freedom.

But what does it look like from the point of business ethics? What ethical limits — if any — ought there to be on lobbying by businesses? If it’s true that corporate managers ought to pursue profits within the limits of the law, ought they also attempt to influence the law in ways that stand to enhance profits? Surely if they do that, it leaves the whole “we played by the rules” defence robbed of much of its normative force: it’s pretty easy to agree to play by the rules when you get to influence what those rules are.

I’ll offer just 2 factors relevant to the current issue:

1) This looks to me like a classic example of the kind of ‘social’ dilemma that economists & philosophers refer to as ‘the Prisoner’s Dilemma.’ It’s a situation where all (businesses) would be better off if they could all just keep their noses out of the process, but each business would do better (better for its shareholders) if it interferes. P.D.’s are notoriously hard for participants to resolve; it might be unreasonable to expect businesses to forego profit-seeking in this instance.

2) Lobbying for bailout money is in some ways different for other kinds of lobbying (say, lobbying for a change in health & safety regulations). In most regulatory matters, government suffers from a pretty serious information deficit: industry often knows much more about what sorts of regulatory standards are feasible, and which will achieve desired public policy goals. So, there’s a public-interest argument for allowing (even encouraging) industry to share information & points of view with government. The spending of bailout money, it seems to me, isn’t like that. I’m not an expert on finance, but I suspect that the U.S. government (via its various regulatory and taxation agencies) has all the information it needs, in this case. So there’s not much weight to the public-interest argument here.