International Trade Theory and Policy
by Steven M. Suranovic

Trade 105-7

The Lobbying Problem in a Democracy

There is a real problem with the lobbying process in democratic societies. Even though lobbying is a legitimate process of information transfer between constituents and government decision-makers, it also produces some obvious disparities. Whenever policy actions generate concentrated benefits and dispersed costs, the incentives and abilities to lobby are significantly different across groups. Potential beneficiaries can often use the advantage of small group size and large potential windfalls to wield disproportionate influence on decision-makers. Potential losers, whose numbers are large and expected costs per person quite small, have almost no ability to lobby the government effectively. Thus, in a democratic society in which lobbying can influence decisions, decisions are likely to be biased in the favor of those policies which generate concentrated benefits and dispersed losses.

Unfortunately, and perhaps coincidentally, most policy actions taken produce concentrated benefits and dispersed losses. In the case of trade policies, most protectionist actions will cause concentrated benefits to accrue to firms, whereas losses will be dispersed among millions of consumers. This means that protectionist policies are more likely to win political support especially when lobbying can directly affect legislated actions. In many countries this tendency is reflected in the type of trade policy procedures that are available by law. Escape clause, antisubsidy, and antidumping policies are examples of laws which are designed to protect firms and industries in particular situations. In evaluating these types of petitions in the US, there is NO requirement that effects on consumers be considered in reaching a decision. Clearly these laws are designed to protect the concentrated interests of producing firms. It would not be surprising, and indeed it seems likely, that the concentrated interests of businesses affected the ways in which the laws were originally written. The absence of a consumer lobby would also explain why consumer effects are never considered in these actions.

International Trade Theory and Policy - Chapter 105-7: Last Updated on 3/3/01