It's that time of the year again: the snow glistening on the slopes, the smell of money in the air, the braying of millionaires echoing across the mountains. For this is Davos week, when the world's best-connected people come to the Swiss Alps to network, do deals and try, according to the forum's entirely unpretentious slogan, to "improve the state of the world".

One of the big misconceptions is that Davos is all about star-spotting and self-congratulation: rock stars and supermodels mingling with chief executives and hedge-fund gurus. But the real story is what goes on behind closed doors, in the private meeting rooms and hotel suites.

For the bankers who have splashed out a few hundred thousand dollars per trip, Davos is about lobbying – about collaring politicians and trying to force them to see the world your way. And never has that been truer than now. With the banking fraternity threatened with the biggest regulatory onslaught since the Thirties, this week has become a do-or-die opportunity to lobby like there's no tomorrow.

You probably find the idea horrifying. We are deeply distrustful of the hidden nexus between business and politics, by the spectre of policy being determined by exchanges of brown envelopes between dodgy politicians and sinister lobbyists. And while it would be nice to claim that these worries are misplaced, the truth is that lobbying works. How else to explain the amount companies are spending on it, even as they slash costs elsewhere?

Last year in the US, a staggering $2.5 billion was spent by firms on influencing legislation; despite the downturn, the top eight US banks actually increased their outlay. Barclays, which has a significant foothold in the US, has spent more than $6 million trying to influence members of Congress since the early days of the crisis.

Of course, this strict definition of lobbying is only the tip of the iceberg. Businesses spend even more on other forms of political leverage, such as contributions to political parties, invitations to events, or bilateral meetings with the movers and shakers. It's about public relations: ensuring your sector gets covered generously in the media, and convincing as many people as possible of your side of the argument.

That money and effort tends to pay off. Working out the extent to which lobbying succeeds is difficult, since drawing up legislation is a complex, long-winded affair. However, a recent paper by Atif Mian, Amir Sufi and Francesco Trebbi of the University of Chicago has shown that, on a series of measures designed to clean up after the financial crisis, those US politicians who received greater contributions from the financial services industry were statistically more likely to vote for legislation that transferred wealth from taxpayers to bankers.

But despite what you may think, there's nothing inherently wrong with lobbying. The vast majority of it is not only above board, but an important part of the democratic process. It is not merely a matter of representation – as taxpayers, companies are entitled to that – but an important means of making an economy work. If an impending law is unequivocally disastrous for the banks, it is in all our interests, both as employees and taxpayers, that politicians are told so. No one wants the economy to collapse again.

The question, however, is whether politicians are receiving the right balance of information. If we impose too few regulations on the banking system, we run the risk of another crisis. Excessively harsh new restrictions, on the other hand, could stifle banks so much that the wider economy is crippled – the last thing we need after such a deep recession.

There are no right answers here, but what has been alarming throughout the crisis is that the banking lobby, in all its guises, has tended to win the argument, brushing aside more independent voices. In particular, it has managed to convince many people (and, more important, many policy-makers) that if politicians attempt to split up the big banks or impose higher capital requirements on them, it will cause economic chaos – an argument repeated by the Barclays president, Bob Diamond, in Davos yesterday. In Britain, financiers have also argued – seemingly successfully – that a big financial sector is a prerequisite for a thriving economy.

All told, it has been one of the most successful lobbying campaigns of all time, ensuring that banks were given immense support during the crisis, but have avoided – thus far – the quid pro quo of significant reform thereafter. Despite their reliance on unprecedented government support, banks have been able to carry on more or less as if nothing had happened,

Last week's declaration from President Obama that he was ready for a fight with the financiers represents the most severe challenge yet to this shibboleth. It is clear that the Governor of the Bank of England, among others, also believes that the argument has been skewed too far in favour of the banks. So we must issue a rallying cry to independent economists, who have been shamefully quiet on this issue during the crisis. Would splitting up the banks, or restricting their profits, really cause economic disaster? It is time we heard the other side of the debate.

By Edmund Conway

Source >  Telegraph | jan 28