Special Interest Groups and Economic Policy.

• Author: Grossman, Gene M.

Elhanan Helpman [*]

In the idealized democratic society; economic policy is determined by "one man, one vote." But in all real societies, special interest groups play an important role in the process that determines economic policy. Pressure groups represent relatively narrow interests, for example of peanut farmers, auto workers, or shareholders of firms that produce semiconductors, They also represent broader interests, such as those of retired workers, capital owners, and those with special concerns for the environment.

Hardly a day passes without the media reporting on the activities and influence of special interests. Discussions of campaign finance reform in the United States have focused attention on one important way in which interest groups seek to influence policies: interest groups are contributing ever-larger sums to political campaigns and political parties, apparently to encourage politicians to take positions favorable to their causes and to aid those who do so in their bids for election. Contributions by Political Action Committees to congressional candidates, which in 1975-6 totaled less than $23 million, exceeded $430 million in the 1995-6 electoral cycle. [1] Interest groups also engage in public display, such as the highly visible protests that surrounded the World Trade Organization (WTO) meetings in Seattle and the recent International Monetary Fund and World Bank meetings in Washington, DC. These displays are meant to demonstrate to politicians the strength of the groups' convictions and to educate the p ublic about the policy issues. Less visible but still important are the everyday activities of the legion of lobbyists in Washington, Brussels, and other capitol cities. According to the Center for Responsive Politics, the number of registered lobbyists in Washington grew from 14,946 in 1997 to 20,512 in 1999. [2] These lobbyists spend a good portion of their days meeting with elected officials in order to share their alleged expertise and to persuade the policymakers about the worthiness of their causes.

In the early 1990s, we began to study the effects that special interests have on trade policy deliberations and outcomes. Trade is an area where interest groups have been especially visible. Groups representing workers and firms figured prominently in the protection afforded the U.S. steel, auto, textile, and footwear industries in the 1970s and 1980s. Agricultural interests were active and effective in pushing the Common Agriculture Policy of the European Community (now the European Union). Groups representing labor and environmentalists were vociferous in their opposition to the North American Free Trade Agreement, while many business groups lobbied in favor of that agreement. These same groups are joined by still others in the current debate about the future of the WTO.

Although an extensive literature on the political economy of trade policy existed by the time we became interested in the subject -- with important contributions from William Brock and Stephen Magee, Robert E. Baldwin, Jagdish Bhagwati, Anne 0. Krueger, and Wolfgang Mayer, among others -- the prevailing approaches took shortcuts that seemed to obscure important relationships and to limit the purview of the theory and empirics. For example, the framework used often was ill suited to making predictions about the variation in rates of protection, despite the fact that much of the empirical work focused on exactly this sort of evidence.

Our early work on special interest politics focused on campaign contributions (of time and money) as the tool by which interest groups might influence the policy process. In our first paper, we develop an analytical approach that emphasizes the strategic interaction between interest groups and policymakers on the one hand and the strategic interaction among the interest groups on the other. [3] We suggest that trade policies can be viewed as objects "for sale," with the policymaker as seller and special interest groups as buyers. This assumes that the policymaker cares about...