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Special interest groups capture government

As Wichita and the surrounding region start to develop a government plan to manage our future, we have to be vigilant to ensure that the process is not co-opted or appropriated by special interest groups that see the planning process as a way to profit at the expense of everyone else. Unfortunately, the average person has very little motive to stay informed. The costs are dispersed and small on an individual basis, but the benefits are concentrated and large to special interest groups that organize themselves to benefit from government spending. This creates a dynamic where the special interest groups almost win at the expense of everyone else. The following excerpts from chapter 3 of Government failure: a primer in public choice by Gordon Tullock, Arthur Seldon, and Gordon L. Brady help explain.

Organized Lobbying

Public choice is more difficult because of the existence of organized lobbying and pressure groups. This practice is more visible in the United States than in the United Kingdom. … In discussing the organization of political pressure groups, the primary point is that, on the whole, investing a considerable amount of time or money pursuing activities that will have little effect on me personally is unwise. At the University of Arizona, many of my colleagues talk about political issues. Yet the issues that lead them to organize in order to bring pressure on the state government of Arizona or the federal government in Washington have direct effects on the university or on their working conditions.

This problem was formally analyzed by Mancur Olson, who pointed out that, on the one hand, when a relatively small number of people are heavily affected by a collective activity, organizing is in their interest. This rule applies for several reasons. First, individuals in the group will either benefit a good deal if the political action is in their favor or be injured a good deal if it is against them. Second, because there are only a few of them, organizing is relatively easy (low transactions costs) for them.

On the other hand, if the collective decision affects a large number of people but represents only a small amount to each of the group, the converse applies. Each member of this large group would find only minor effects (either costs or benefits) from whatever is done. A large number of people experiencing a small loss are difficult to organize because each could reasonably think that his or her contribution to the joint lobby would make little difference in the likely success of the action. Hence, in such circumstances the individual avoids making a contribution.

Consider the following example. Suppose the proceeds of a tax of five pence levied on every citizen of Britain are to be given to the authors who have recently written learned pamphlets for the Institute of Economic Affairs. One would expect the authors would be very interested in this proposal, which, after all, for each author would be a lot of money. Hence, they would seek to bring pressure on the House of Commons to pass it.

Because the cost to the individual citizen is only five pence, the citizen would be foolish to allocate personal resources to prevent passage. Simply complaining to his or her member of Parliament might entail a greater burden than the loss of the five pence. In practice, of course, this tax to benefit Institute of Economic Affairs authors, although easy to understand, is not likely to be successful. Although it is a simple transfer from a large number of voters to a few authors, the newspapers would, no doubt, create a public outcry that would prevent its adoption.

Laws or regulations that have this characteristic of diffuse costs and concentrated beneficiaries do sometimes become law, perhaps because the effect is disguised by superficially plausible propaganda or rationalizations developed by the pressure group. Consider the following example. At one time the United States had a tariff to protect the manufacturers of the chin rests for violins. Only one company employing four or five people made the chin rests. For violin purchasers who had to pay two or three cents more for the violin because of this tariff, the cost was much too small to lobby. Nevertheless, the investment was worthwhile for the manufacturer of the small violin part to testify before the U.S. Senate; no one testified on the side of the violin purchasers against the tariff.

The argument in defense of the tariff was the potential unemployment of the four or five engaged in manufacturing the chin rest. A tax, even a small tax, on violins to provide a pension for the employees of the company would have failed because, although economically more efficient, it would have been entirely too obvious. …

If you talk with ordinary citizens who benefit from one of the special-interest lobbies (such as the American Association of Retired People, environmental advocates, sugar producers, or welfare recipients), they present a series of public-interest arguments with every appearance (which I am sure is genuine) of belief. Nevertheless, the private-interest argument leads to the organization of these groups, to the transfer of funds, to the protection of jobs, and to special privileges for special-interest groups. The public-interest arguments normally require that the project itself be designed in such a way that the direct transfer is hidden from the public eye.

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