He felt that producers clearly have an advantage over consumers in affecting the legislative processviii due to their lack of numbers. They are able to stand, are generally more disciplined and more effective, thereby offsetting the free-rider problem. Another important factor in their favour is political ambition. In Stigler’s view, politicians tend to co-operate with producers in order to secure political support, campaign funds, future employment, and even bribes! This affirms that it is political pressure from producer groups rather than consideration of market failure that explains governmental reliance on regulation.
Halt! To say that market failure on it’s own does not explain regulation, is one thing. But to say that producer groups single handedly influence regulation, is another. It is highly unlikely that other interests groups representing society have little or no bearing on government regulations. After all the rest of society also have the power to make or break politicians’ ambitions! This would explain the impact the Health and Safety organisation had on safety in the workplace, or the US Tax Reform Act of 1986, which shifted the tax burden from households to business. ix Other interest groups can influence government’s decision.
Hence Peltzman’s model – either producers or consumers can win. He determined that legislative regulation could favour any interest group depending on the repercussions. So for instance, government would have to consider if the gains to the producers are large and if the decision has a positive/neutral impact at the next elections. The legislator’s aim is to secure a net vote margin or majority (M) in his favour. xThe vote-maximising regulator is, in effect, constrained to make trade-offs among a variety of interests such that politically determined prices are always the result of trade-offs or compromises.
The conclusion to be drawn thus far is that regulators will not always favour producers. They succumb to pressure from a host of pressure groups attempting to gain or avoid regulation according to Becker’s model. Rather than handing the influence torch over to the producers or consumers, Becker (1983) proposed a theory of pressure group competition (who gets the subsidies, how much and who will carry the tax burden) in which such competition leads to the least-cost pattern and amount of transfers. The general idea here is that legislators have an incentive to opt for efficient transfer scheme, or suffer the wroth of the losers.
If access to political pressure is equal and the gainers (firms) exert more pressure than the losers (consumers), a potential Pareto-improvement in social well-being will occur if the legislator approves the gainers request. xi Bearing all this in mind, why do we find deregulation (inviting entrants into an otherwise capped industry) when firms lobbying for regulation have a lot to gain. The “capture theory” in Wolfe’s words, suggest that groups capture public authority in order to advance their private interests. xii In other words, the state is displaced as the sovereign agent by powerful pressure groups.
Wolfe disagrees. He argues that with industries now privatised, the state indirectly controls industry through regulation. So it’s not about producer groups, it’s about state control. The state is basically trying to encourage competition and provide producers with incentives to increase their efficiency the state is working our ‘our’ best interest. That is, society as a whole. It looks for inexpensive quality goods and services for consumers, production efficiency for producers, and environmentally friendly low-cost production to make the ‘green people’ happy and the producers reasonably satisfied!
This approach sheds more light on the question of “why regulation? Why de-regulation? ” as the world becomes more and more globalised, the state aims to aim competition on this scale – national industries now competing on the international scale. Nevertheless, many industries are getting away with murder (e. g. oil refineries in the US – Bush refuses to regulate C02 emissions)! So who is really in control? The reality brings us back to square 1. That is, the invisible hand. That fact is, it delivers and is better at delivering Pareto’s optimal.
Privatisation means the state is pro-competition (why control it, when it can control itself? ) and knows the “invisible hand” is reliable! Dunleavy agrees. What’s the point of wasting resources administering and controlling an industry when like ‘magic’ it takes care of it’s self! “Over-necessary” bureaucracy Dunleavy calls it. In conclusion, these arguments throw the initial assumption out the window. Saying that it is political pressure from producer groups, rather than consideration of market failure that explains governmental reliance on regulation is not an objective view.
In fact it is heavily biased and gives much too much power to the producers. Market failure is an important consideration for government – yes. It cannot be ruled out completely, although economists like Ronald Coase (1960), argue that the market does suffer “blips” but the wonderful thing about it is that it repairs itself. Negotiations will take place, after all the consumers have more power than they are attributed or they even realise. Therefore, market failure is only a fraction of the bigger picture. The reality is this. Regulations can be introduced with or without market failure.
Each group in the race wants to come out on top. Compromise is not primal on their agenda. Unfortunately, legislators are stuck in the middle and their decisions have consequences on all sides. For a legislator to give in to one side, e. g. the producer groups could mean risking re-election when the chips are turned and power lies in the hands of the consumers and other interest groups, which make up the electorate. On the other hand, legislating against them could mean losing the chance to compete in the next election due to lack of funds, or losing a post-government position in the private sector.
So, all groups have the opportunity to influence legislators (Becker, 1983). The problem arises when mass mobilisation comes into play. Government reacts to pressure – fact. Large groups (consumer and other interest groups) suffer from the free rider problem. The more one sees the objective as a common goal; it makes no sense to participate. So although they have the power, they fail to organise and use it. Small producer groups on the other hand have a lot at stake and do not suffer the free rider problem. They stand out, are more effective and are prepared to stick it out to the very end. For them, it’s definitely worth it!