consumers, free trade, free trade agreements, lobbying, Mancur Olson, manufacturing, multinational corporations, productivity, retailers, Robert Samuelson, special interests, trade policy, Wall Street
Nationally syndicated economics columnist Robert Samuelson deserves a nice hand for identifying a possible cause for America’s pronounced productivity slowdown that’s been generally overlooked: the relentlessly growing power in national politics and policy of special interest groups. In a column earlier this week, he drew on the ground-breaking analysis of the late Mancur Olson to argue that the numerous successes achieved by smallish but narrowly focused and highly motivated lobbies in securing specialized favors for themselves from government have encouraged countless other interests to pursue the same strategies. The net effect is to diminish the total resources expended by the economy on production, and to increase the resources used for winning and keeping economically unproductive privileges.
I have several big problems with Samuelson’s discussion, though – and in fact with some of the leading examples used by Olson – and they all involve trade policy.
As Samuelson explains it, companies and workers pressing for protection from imports show exactly how the system now functions – and malfunctions. A winning campaign “saves jobs and raises prices and profits. But consumers — who pay the higher prices — don’t create a counter-lobby, because it’s too much trouble and the higher prices are diluted among many individual consumers. Gains are concentrated, losses dispersed.”
The problem is that, however compelling this sounds in theory, at least when it comes to trade policy, it produces a picture that is simply unrecognizable to anyone with any real familiarity with the subject. Perhaps the most important flaw is the implicit assumption that the freest possible trade always results in the best possible outcomes for the greatest number of Americans – and indeed for the economy as a whole – while calls for interfering with such trade flows always result from special interest pleading.
That’s a tough argument to make when you consider that the relentlessly rising trade deficits generated by the standard free trade approach have slowed the growth of this already sluggish recovery considerably. It’s even tough to make given that the income losses that can be blamed on this trade strategy – which were extremely broad-based – spurred Washington to fill the gap with easy money and the mammoth debt it brought, helping to trigger the financial crisis.
The big-small actor aspect of Olson’s theory doesn’t hold up, either in the trade policy sphere. For decades, the biggest winners by far in the nation’s leading trade policy fights have been big, offshoring-oriented multinational corporations and the often bigger Big Box retailers and Wall Street banks with which they’ve worked fist in glove. The ranks of smaller manufacturers were split, but those opposed to free trade agreements and related decisions were most often defeated. And the smaller companies that did indeed seek to throw sand in the fears of trade liberalization in fact were actually the ones trying to promote broader economic and national interests.
And the smaller retailers and other small service companies not directly affected by trade liberalization generally sided with the corporate giants – in order to win a few easy brownie and lobbying log-rolling points with them (as in “You scratch my back and I’ll scratch yours.”) So they were acting first and foremost on their own narrow interests as well.
As for consumers, who supposedly benefited from those lower prices, they have indeed been pretty disengaged from trade policy disputes. But their apathy powerfully enabled decisions that wound up backfiring on tens of millions of them disastrously, as the crisis increasingly cost them their jobs and their homes. So the Olson theory holds up in the sense that the gains from winning trade positions were highly concentrated – they overwhelmingly benefited the limited constituencies that worked so energetically and effectively to prevail. And the losses were indeed dispersed – among workers and especially among apathetic consumers. The results, however, so damaged the entire economy that its ability to recover fully remains in doubt.
There’s an especially crucial productivity angle that needs to be recognized as well: Surely one of the most effective ways to undermine an economy’s productivity growth is to send much of its most historically productive sector – manufacturing – overseas. So in that sense, the political and lobbying dynamics highlighted by Olson have backfired against the broad national interest as well.
In addition, these trends fed on themselves in a widely unrecognized way: The smaller domestic manufacturing’s physical footprint became, in terms of its share of the workforce and of economic activity, the fewer Americans directly experienced the damage caused by its shrinkage – and the clearer the path to victory for the offshoring/trade liberalization lobby. The latter also benefited from the increased concentration of manufacturing in smaller cities and towns and semi-rural areas. So factories and their workers literally became harder for the rest of the population literally to see and interact with.
Since I’m much less familiar with the lobbying and politics of numerous other economic issues, I don’t feel comfortable commenting on how well the Olson theory describes their workings. But if its tenets are as off-base in these areas as they are in trade policy, it’s easy to see how these ideas would be prized by business, political, and media elites with such a strong stake in blaming the victims for their own grievous policy blunders.