(This is an archived extract from the book Patterns of Power: Edition 2)
In a democracy, individual politicians may try to obtain economic dispensations for their local areas or industries, in an attempt to win support for the next election. There are several techniques they can use:
· Employment can be protected in specific companies by offering them subsidies, though these have to be paid for by higher taxation for everybody.
· A specific industry can be protected by subsidising it or by imposing tariffs on imports, though that puts up the prices for everybody and may put other jobs at risk.[1] And, as will be seen towards the end of this chapter (3.5.4.2), tariffs also adversely affect the global economy – thereby reducing demand for the country’s own exports.
· National governments can pay for projects in a particular area of the country, as a bribe to that group of people: to ‘buy’ their votes, if the country is a democracy.[2] This doesn't necessarily benefit people in other areas and would result in higher taxation for everybody if the project lacked adequate financial justification.
· Governments may introduce regulations which purport to be for the benefit of the public but are drafted in such a way that a specific group of people benefits at the expense of the wider public.[3] If no money changes hands it is difficult to categorise this as corruption (7.2.5) but it worsens the economic benefits received by most people.
These measures offer the politicians an advantage that is localised – they damage everyone else within the economy of that country by increasing taxes or increasing prices for consumers. If one group in a society is protected from global economic fluctuations, the unprotected people in that society experience proportionally greater fluctuations.[4] Ideally an educated electorate in a democracy might see what was happening and punish the politicians concerned rather than reward them.
© PatternsofPower.org, 2014
[1] For example, America has 57 workers in industries which use steel for every one worker employed in steel-making. The steel-using industries would be rendered less competitive by tariffs on imported steel and might therefore be forced to shed more jobs than had been temporarily saved in the steel-making industry. This point was made in an article entitled Mercantilism Lives by Charles L. Hooper, which was published on 4 April 2011 and was available in April 2014 in the Library of Economics and Liberty at http://www.econlib.org/library/Columns/y2011/Hoopermercantilism.html. The same article makes further points about the disadvantages of protectionism or mercantilism.
[2] Alaska's "bridge to nowhere" is one of the most famous examples of channelling government funding for electoral benefit. USA Today published an article on 17 May 2005, entitled Alaska thanks you, which was available in April 2014 at http://www.usatoday.com/news/opinion/editorials/2005-05-17-alaska-edit_x.htm.
[3] Russell Roberts, in an article entitled Pigs Don't Fly, cited several examples of politicians implementing regulations that clearly benefited their constituents or associates. One of these related to regulations that were intended to clean up emissions from power stations, but did so in a way that benefited the politician concerned and his constituents:
“But the real bootleggers were the West Virginia coal companies. If a tax had been used to reduce sulfur dioxide emission, there would have been an incentive to clean up the air. One way to clean up the air is to use technology like a scrubber. A second way is to burn cleaner coal. Cleaner coal (low in sulfur) comes from out West. Dirty coal (high in sulfur) comes from West Virginia. Senator Byrd is from West Virginia. He made sure that scrubbers were mandated.”
He also made the more general point that the Environmental Protection Agency (EPA) often mandates technology rather than letting innovation emerge, and thereby runs the risk of serving special interests in this way. Russell Roberts, Pigs Don't Fly: The Economic Way of Thinking about Politics, published in The Library of Economics and Liberty at http://www.econlib.org/library/Columns/y2007/Robertspolitics.html. This was downloadable in April 2014. He also drew attention to a book on the subject: Clean Coal, Dirty Air or How the Clean Air Act Became a Multibillion-Dollar Bail-Out for High-Sulfur Coal Producers, by Bruce Ackerman and William Hassler.
[4] Hayek made this point in strong terms in The Road to Serfdom, pp. 153-154.