Lobbying and innovation in the European Union
| Published date | 01 September 2023 |
| Author | Konstantinos Dellis |
| Date | 01 September 2023 |
| DOI | http://doi.org/10.1111/sjpe.12344 |
Scott J Polit Econ . 2023;70:319–354.
|
319
wileyonlinelibrary.com/journal/sjpe
Received: 22 Mar ch 2022
|
Accepted: 11 May 2023
DOI: 10 .1111/sjpe.1 2344
ORIGINAL ARTICLE
Lobbying and innovation in the European Union
Konstantinos Dellis1,2
This is an open ac cess article und er the terms of the Creative Commons Attribution-NonCommercial License, wh ich permits
use, distri bution and reprod uction in any medium , provided the orig inal work is properl y cited and is not used fo r commercial
purposes.
© 2023 The Autho r. Scottish Journal of Political Economy published by John Wiley & So ns Ltd on behalf of Scot tish Economic
Society.
1Economics, U niversity of Pira eus, Pireas,
Greece
2Sustainab le Development Uni t, ATHENA
Research Cen ter, Athens, Greece
Correspondence
Konstantin os Dellis, Economic s, University
of Piraeus, K araoli & Dimitrio u 5, Pireas 185
34, Greece.
Email: kdellis@unipi.gr
Funding information
National Sch olarship Foundat ion IKY,
Grant/Award Num ber: 2019- 050-
0503- 18341; Greece and the Eur opean
Union
Abstract
Aside from anecdotal evidence, lobbying activities and the
role of vested interests in the EU have not been scrutinized.
This ar ticle attempts to cast focus on the relation ship be-
tween lobbying and aspects of innovation in the EU. The
modest performa nce of the EU compared to the innovation
frontier h as been attri buted to an array of factor s, one of
which is the adverse effect of vested interests. The lack of
new, innovative enterprises has been identified as a deci-
sive factor behind the productivity stag nation and lobbying
by incumbents p oses as a credi ble culprit. In this art icle,
I create a novel firm- level database through th e cross-
fertilization of data from the growing Transparency Register
(EC and EP), AMADEUS (BvD), the OECD, Eurostat, and the
European Commiss ion in order to address t he complex re-
lationship bet ween vested interest s, innovation, and com-
petition. The preliminary findings indicate t hat more R&D
intensive firms tend to spend signific antly larger amount of
funds on lobbying, prim arily competing for EU grants and
government procurement. Using data for country- sector
concentration, I f ind that the relationship is stronger in t he
presence of l ow competition . Despite the improvements
required in the docume ntation of lobbying activities, th ese
results provide prel iminary tangible evidence on the ef fect
of vested interests o n innovation performance.
320
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DELLIS
1 | INTRODUCTION
Lobbying remai ns an activity hard t o measure given that it is mo st often not transpar ently exercised and not we ll
documented. Although the repercussions of the activities of vested interest are considered important for the ef-
fectivenes s of economic policy, our underst anding of the mechanics of lobby ing remains narrow. Resistance f rom
vested interes t groups has been identif ied by the European Commis sion (2015, 2016) as a main obst acle to prod-
uct ma rket refo rms in pro gram coun tries.1 I nsofar as vested int erest s hinder co mpetit ion acros s EU indus tries an d
innovation is correlated with competi tion, the relationship bet ween lobbying activity at the EU level and firms'
performan ce in terms of R&D intensity and pate nts needs to be addressed . Innovation lies at the epicente r of the
theoretica l and empirical literature on eco nomic growth and product ivity. Overall, the perfor mance of the EU has
been ver y modest compared to international p eers, mostl y attributed to the su bpar innovative performance of
firms and the lack of well- functioning regional and national innovation system s (Crescenzi & Rodríguez- Po se, 2011;
Veugelers, 2018). The lack of bu siness dynami sm that deters you ng innovative fi rms from contri buting to produ c-
tivity grow th has been add ressed by Veugelers an d Cincera (2010) and EU regulations a re, in many cases, an im-
pediment to innovation through creative destruction in favor of entrenched incumbents (BusinessEU, 2019). It is
therefore impe rative to scrutinize the rol e of lobbying in Brussels in t he innovation process in th e EU by trying to
disentangle t he incentives and firm cha racteristic that spu r higher lobbying expens es.
Give n the sc arcit y of data on lobby ing, t he scop e of the ar ticle can onl y be limi ted. Da ta do not allow es tabl ish-
ing whether lob bying prevented reforms fr om being implemented. Yet, th e article attempts t o shed more light on
which firm charac teristics seem to be correlated with more lobby ing among EU countries and sectors. I contribut e
to the literature by creating a novel data set that cove rs lobbying activity in Europe u sing the EU Transparency
Register as our lobbying dat abase and match these data with firm- level characteristics from Amad eus (BvD), sec-
toral data from Euros tat's Structural Busin ess Statistics databas e, the OECD patent data at the industry level , and
the database on th e top 2500 R&D firms complied by th e European Commission. Wit h the data at hand, the main
aim of this article is to gauge whether R&D intensi ve firms tend to lobby significantly more than othe r firms and to
what extent this i s linked to concentration and co mpetition barriers i n their home industrie s.
Section 2 provides with the theoretical underpinnings of lobbying and its relationship to innovation while
Section 3 briefly summarizes the relevant lite rature. Section 4 outlines th e data and the empiric al methodologies
used in the analy sis, the results and disc ussion are presented in Sec tion 5 and Section 6 concludes.
2 | THE POLITICAL ECONOMY OF LOBBYING
2.1 | Why do fir ms lobby?
In the sphere if political economy as described in the notion of collective action (Olson, 1965) or the private inter-
est theory of regulations (Peltzman, 1976; Stigler, 1971), firms have the financial incentive to lobby for their own
interests. As the state has the power to implement policies that affect financial performance, enforce taxes, and
1See also Prae t (2014) and Coe ure (2016) for the vi ew of the ECB.
KEYWORDS
competition, innovation, lobbying, political economy
JEL CLASSIFI CATION
D72, D78, O38
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321
DELLIS
provide subsidies and public procurement, there is room for rent- seeking through the operation of vested interests.
Government policies affect firms and the operation of specific industries, enhance, or impede competition and af-
fect the stance on foreign trade and investment. Hence, both from a collective action perspective and assuming the
rent- seeking private firms which tries to maximize rents, it can be expected that corporate lobbying would aim at
shaping, twisting, or preserving regulations. In the presence of many interest groups competing for scarce govern-
ment resources in the form of pecuniary benefits, the focus of companies and groups is likely to be tilted toward
nonmonetary gains such as protection and competition restrictions (Horgos & Zimmermann, 2009). Since concen-
trated and protected industries generate higher profit margins for incumbents, firms in such sectors are more prone
to lobbying. In the United States, vested interests also operate through political campaign contributions via Political
Action Committees (henceforth PACs). Nonetheless, Kerr et al. note that “Lobbying is a primary avenue through
which firms attempt to change economic policy in the United States, with total expenditures outnumbering cam-
paign contributions by a factor of nine.” In their seminal contribution, Grossman and Helpman (1994) build a model
whereby firms lobby to stir trade policies toward the protection of their industries and the incumbent government
chooses the policy vector that maximizes a weighed sum of social welfare and total contributions by lobbyists. Desai
and Olofsgard (2008) underscore the vast opportunities in the economic policy context where politicians can favor
firms by allowing or regulating monopolies, imposing barriers to entry, liberalizing labor markets, and guaranteeing
exceptions and subsidies in response to corporate lobbying.
Insofar as the objective of companies and interest groups that lobby at any level is to influence economic policy,
the demand for lobbying is affected by contextual factors underpinning these policies or legislation (Klüver, 2013).
The incentive to lobby is dependent on the specific policy type (regulatory, distributive), the complexity of the legis-
lative proposals, and salience of the proposed policy. Furthermore, the amount of traction a certain policy topic gains
within the public affects the behavior of interest groups, as is the case with climate change and ESG compliance from
corporations (Klüver et al., 2015). The public good problem that arises from certain legislations benefiting all firms
within a certain industry or sector (Bergstrom et al., 1986; Olson, 1965) favors lobbying in the form of interest groups
of coalitions and this is documented in the empirical data (de Figueiredo and Richter, 2014; Richter et al., 2009).
2.2 | Lobbying and ves ted interests in the EU
According to Richardson (2000), the potential for organized interest groups through lobbying is significant in the
EU due to the pronounced com plexity of the policy legisl ation and implementation pr ocess. The fragmentati on of
European instit utions and the multiple layers of gover nment provide vested interes ts with different access poin ts
through which they can exert influence . In a recent ar ticle, Pakull et al. (2020) stress that the many different access
points offer a v ariety of choices for lobbyists i n the EU, especially nonbusiness gr oups. The shift of regulatory
authority f rom national governments to Br ussels and the introduc tion of qualified majorit y voting was met with a
surge in lobbying act ivities at the EU level (Coen, 2007b) . Klüver (2013) hi ghlights the supply of lobbying fro m the
European Commission corresponding to the demand for influence from companies, trade associations and inept-
est groups in the EU. The EC deci des on policy pro posals to meet the objectives set by the European Parl iament
and the Council of the EU a nd requires information on the prefer ences of the other two institutions as well a s
technical a ssistance on the s pecific implement ation of these s trategies. This info rmation and techni cal expertise
are provided by wel l- establishe d interest groups (in all for ms) in exchange for narrow aspec ts of economic policy.
The author concludes that “t he European Commis sion trades influ ence for information , citizen support and eco-
nomic powe r and that lobbying succes s varies wit h the suppl y of these goods to th e Commission.” T he gradual
openness of EU institutions to lobbying interests has been also identified by Coen (2007b)2 as one of the driving
forces behind in creasing vested interes ts' operations over the pas t three decades.
2The author p rovides an elab orate summar y of the history of l obbying acti vities in the EU.
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