Pass me the super serum

The FEC Act had restrained lobbying until that point on the basis that “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.”
Craig Bonthron

ESG fund manager

Artemis IM

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In January 2010, the US Supreme Court issued a ruling that set back climate change policy for at least a decade. I wasn’t aware of this ruling at the time. I wasn’t aware of it for a long time afterwards. But the Citizens United v. Federal Election Campaign Act (1) ruling changed the world. Citizens United (2) – a conservative political organisation (PAC) in the US – challenged and overturned the very important Federal Election Committee Act (FEC). Thus lobbyists were given a vial of super serum. They drank deep.

The FEC Act had restrained lobbying until that point on the basis that “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.” This was challenged by Citizens United who argued that “anti-distortion” rationale “interferes with the ‘open marketplace of ideas’ protected by the First Amendment” This ensured that “political speech cannot be limited based on a speaker’s wealth is a necessary consequence of the premise that the First Amendment generally prohibits the suppression of political speech based on the speaker’s identity.” In short, freedom of speech trumps the curtailment and regulation of corporate lobbying.

The aggregation of influence

So why was this so important?  Because money and influence matter (a lot.) The aggregation of organised and motivated wealth (i.e. companies with vested interests) creates a significant long-term asymmetry of influence that individuals or groups cannot achieve.  It allows regulated industries to influence aggressively (and distort) the media narrative on one hand, whilst effectively buying votes (via campaign funding) on the other. And this can be legally done in the shadows via front groups (i.e. think-tanks) and industry trade bodies.

Asymmetry of influence

But surely this influence cuts both ways? Unfortunately not. In the areas that matter most – such as climate policy – change is required. And change requires significant political energy. Status quo bias, behavioural inertia, fear of change and the cashflows and sunk capital of existing industries are huge barriers to progressive policy.  The vested interest in maintaining the status quo is enormous; and so the justification of change has a very high burden of proof. Evidence must be acknowledged and accepted as fact before people and politicians are going to risk change.  Put another way, regressive policy rules because they don’t need to win the argument, they just need to sow the seeds of doubt.

Arguing with uncertain nerds

Science – by definition – is cautious and fastidious. Dogma on the other hand is sensationalist and exaggerated. Why? Emotions are very powerful factors in decision-making. There is a reason why the phrase ‘fear, uncertainty and doubt’ has its own acronym (FUD). Conversely, scientific research is peer reviewed because the empirical process seeks to be objective by design. Conviction is based the narrowing of uncertainty over time, which can take decades. The truth is in the nuance, but nuance is rarely the defining characteristic of a tabloid headline. How often have we seen the views of a science-denying extremist being compared to a peer-reviewed expert under the guise of “journalistic balance”? False equivalence is not balance.

“When men are most sure and arrogant they are commonly most mistaken, and have there given reins to passion, without that proper deliberation and suspense, which can alone secure them from the grossest absurdities.” 

David Hume

What could be more absurd that slowing down action on climate? Yet high conviction lies are just part of what the climatologist Michael Mann has called “the inactivist’s playbook of organised denial, deflection, distortion and doubt campaigns”. This arrogance is not random. This is a powerful and proven strategy which has been used repeatedly to stymie legislation against vested interests, something which is covered in detail in Merchants of Doubt by Naomi Oreskes and Erik Conway.

It’s your fault!

A key trick in the inactivist’s playbook is to deflect the burden of responsibility away from corporations and towards individuals. Individuals may feel guilty and often want to comply, but lack the power to change the system and usually fall back into old habits, especially when the activities are fundamental to their daily lives (e.g. smoking, transport or food consumption). When combined with parallel campaigns which distort the science and sow seeds of doubt, it is easy to see why personal motivation and positive action campaigns rarely gain traction.

The difference between thriving vs. surviving

Technologies or companies that seek to disrupt the status quo are – by definition – likely to be smaller and less established. This means less capital and political influence.  Furthermore, emerging companies almost exclusively focus their capital on growth and don’t waste too much time trying to influence politicians. This might seem obvious, but it is not a trivial nuance.  Growth companies typically spend their time trying to make their products better.  On the flip side, incumbents with strategic dilemmas (i.e. unsustainable products) are typically just trying to slow the decline. Whilst growth companies typically seek positive-sum outcomes, the incumbents are playing a negative-sum game. They are fighting to survive and they are usually willing to fight dirty. In this context, anything that slows the decline of their business is highly valued relative to other capital allocation decisions. Given the influence that it affords, the returns on an invested dollar of lobbying activity has a multiplier effect that is rarely appreciated.  Whilst $41m seems small in the context of ExxonMobil’s $178.6 billion (4) of revenue in 2020, how much value can be derived from convincing two pivotal senators to vote against a carbon tax, for example?

Source: Statista

Misalignment of incentives

So we know that fossil fuel companies spend lobby dollars (because they are forced to disclose some of them.)  And we know what they are saying publically regarding climate policy (they support it). But when considering the short-term incentives in place for fossil fuel executives, what would you expect them to do over the next five years with regard to lobbying activities in relation to climate policy? Support a carbon tax? Support electric vehicle infrastructure? Support plastic and chemicals regulations?

“Never, ever, think about something else when you should be thinking about the power of incentives….. I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther.” 

Charlie Munger

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Pass me the super serum