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Public goods and political institutions: trade and monetary policy processes in the United States

Published online by Cambridge University Press:  22 May 2009

Joanne Gowa
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Extract

Basic analytic premises are an issue in contemporary debates about the U.S. foreign economic policy process. In dispute are the power structures alleged to govern the formation of American trade and international monetary policy. Thus, the literature supports both of these assumptions: the distribution of power is skewed towards private actors in the issue-area generally; the distribution of power varies according to issue-area. Within the camp of issue-specific power structures, as I shall discuss in more detail, support can be found for almost any assumption about the distribution of power prevailing, in the language of current debate, between “state and society.”

Type
Research Article
Information
International Organization , Volume 42 , Issue 1 , Winter 1988 , pp. 15 - 32
Copyright
Copyright © The IO Foundation 1988

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References

Earlier versions of this article were presented at the 1985 annual meeting of the American Political Science Association, New Orleans, 29 August–1 September 1985, and at a UCLA conference on The American State in the International Political Economy, November 1985. For comments on the article, I am grateful to Frederick W. Frey, Avery Goldstein, Stephan Haggard, Robert O. Keohane, Jack Nagel, Paul Quirk, Peter Swenson, the participants in the UCLA conference, and four 10 referees.

1. Despite its rapid growth, the state and society literature still lacks rigorous and consistent definitions of both of its critical variables. In general, of course, they are meant to distinguish public and private actors. This distinction is adequate for the purposes of this article, which largely challenge the microanalytic foundations of this literature. Successful research in comparative politics oriented along state and society lines, however, depends on the development of much more precise analytic and empirical referents for both variables than currently exist.

2. Lowi, Theodore J., “American Business, Public Policy, Case-Studies, and Political Theory,” World Politics 16 (July 1964), pp. 677–715CrossRefGoogle Scholar; Wilson, James Q., Political Organizations (New York: Basic, 1973), chap. 16Google Scholar; Zimmerman, William, “Issue Area and Foreign-Policy Process: A Research Note in Search of a General Theory,” The American Political Science Review 67 (December 1973), pp. 1204–12.CrossRefGoogle Scholar For a recent typology that explicitly includes public goods, see Leonard Champney, “Public Goods and Policy Types,” paper prepared for the annual meeting of the American Political Science Association, New Orleans, 29 August-1 September, 1985.

3. Katzenstein, Peter J., ed., Between Power and Plenty: Foreign Economic Policies of Advanced Industrialized States (Madison: University of Wisconsin Press, 1978), pp. 3, 21.Google Scholar In a more recent work, Katzenstein applies a similar analytic framework to Switzerland and Austria, arguing that “liberal capitalism” in the former and “democratic socialism” in the latter condition the different responses of each to changing international markets. See his Corporatism and Change: Switzerland, Austria, and the Politics of Industry (Ithaca and London: Cornell University Press, 1984).Google Scholar

4. Katzenstein, , Between Power and Plenty, p. 20.Google Scholar

5. Stephen D. Krasner, “United States Commercial and Monetary Policy: Unravelling the Paradox of External Strength and Internal Weakness,” in ibid., pp. 64, 66.

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7. Krasner himself has argued that the U.S. state is strong in the area of foreign raw materials investment. See his Defending the National Interest: Raw Materials Investment and U.S. Foreign Policy (Princeton, N.J.: Princeton University Press, 1978).Google Scholar

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11. Krasner, , “United States Commercial and Monetary Policy,” p. 65.Google Scholar

12. Ibid.

13. Krasner also notes, however, the role of the norm of fixed exchange rates in establishing the pattern of interest group activity, an important observation to which I will return.

14. Odell, John S., U.S. International Monetary Policy: Markets, Power, and Ideas as Sources of Change (Princeton, N.J.: Princeton University Press, 1982), p. 347.Google Scholar As is true of Krasner, however, Odell's explanation is not monocausal: he also attributes the relative scarcity of pressure group activity to norms that established a “taboo” against pressures for devaluation, to the availability of alternatives to devaluation, and to the nature of the U.S. economy. See ibid., p. 347.

15. Keohane, Robert O. and Nye, Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1977)Google Scholar; Gowa, , Closing the Gold Window, p. 134.Google Scholar

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As Duncan Snidal argues, non-excludability implies non-rivalry. See Snidal, , “Public Goods, Property Rights, and Political Organizations,” International Studies Quarterly, 23 (December 1979), pp. 534–44.CrossRefGoogle Scholar

18. For Olson's discussion of large groups, see his Logic of Collective Action.

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20. Olson, , The Logic of Collective Action, p. 68.Google Scholar

21. Barry, Brian, Sociologists, Economists, and Democracy (London: Macmillan, 1970), p. 25.Google Scholar

22. See Hardin, Russell, Collective Action (Baltimore: Johns Hopkins University Press for Resources for the Future, 1982), p. 72Google Scholar; and Hansen, John Mark, “The Political Economy of Group Membership,” American Political Science Review 79 (March 1985), p. 82.CrossRefGoogle Scholar

23. Stigler, George J., “Free Riders and Collective Action: An Appendix to Theories of Economic Regulation,” Bell Journal of Economics and Management Science 5 (Autumn 1974), p. 360.CrossRefGoogle Scholar

24. Hardin, , Collective Action, pp. 34, 36.Google Scholar Hardin comments:

…the incentive of personal career may seem more suited to explaining ongoing than newly emerging organizations. Jimmy Hoffa owed his great power in the Teamsters Union in large part to his efforts to strengthen and expand the union, thereby enhancing the prosperity of its members. One may be less inclined to suppose that, say Joe Hill, the ‘poet laureate’ of the Wobblies who was executed in Utah in 1915 on a murder charge that was believed by many to be a frame-up for his strike activities, was motivated by his own career prospects as an eventual union leader (p. 36).

25. Margolis, Howard, Selfishness, Altruism, and Rationality: A Theory of Social Choice (Cambridge: Cambridge University Press, 1982), p. 6.Google Scholar

26. Barry, , Sociologists, Economists, and Democracy, chap. 2.Google Scholar For an attempt to explain contributions to urban riots within a collective action framework, see Mason, T. David, “Individual Participation in Collective Racial Violence: A Rational Choice Synthesis,” American Political Science Review 78 (December 1984), pp. 1040–56.CrossRefGoogle Scholar

27. See Hardin, , Collective Action, p. 41.Google Scholar

28. Stigler, , “Free Riders and Collective Action: An Appendix to Theories of Economic Regulation,” p. 362.Google Scholar

The Herfindahl index is “the sum of squares of the sizes of firms in an industry where size is the percentage of total industry assets.” See Clarkson, Kenneth W. and Miller, Roger Leroy, Industrial Organization: Theory, Evidence, and Public Policy (New York: McGraw-Hill, 1982), p. 72.Google Scholar

29. Laver, Michael, “Political Solutions to the Collective Action Problem,” Political Studies 28 (June 1980), p. 198.CrossRefGoogle Scholar Laver adds about the lighthouse, however: “…in practice, this would probably be unfeasible, and almost certainly not economically worthwhile.”

In fact, lighthouses once produced private goods in England: shipowners were “assessed…at the docks. Ordinarily only one ship was in sight of the lighthouse at a particular point in time. The light would not be shown if the ship (which was identified by its flag) had not paid.” Mansfield, Edwin, Microeconomics: Theory/Applications, 5th ed. (New York: Norton, 1985), p. 494.Google Scholar

For an extensive discussion of the early British lighthouse system that allegedly demonstrates that economists are wrong when they point to a lighthouse as an example of a public good requiring government supply, see Coase, R. H., “The Lighthouse in Economics,” Journal of Law and Economics 17 (1974), pp. 357–76. quotation at 376.CrossRefGoogle Scholar

30. Stigler, , “Free Riders and Collective Action,” p. 362.Google Scholar Emphasis in original.

31. The escape clause (introduced in 1951) permits tariff concessions to be withdrawn if they increase imports, causing, or threatening to cause, serious injury to an industry; the peril point (introduced in 1948, eliminated in 1949, reintroduced in 1951, and eliminated again in 1962) required the establishment of a level below which tariffs for a particular industry could not be reduced; the national security clause (introduced in 1955) allows almost any measure necessary to protect national security. Lavergne, Réal P., The Political Economy of U.S. Tariffs: An Empirical Analysis (Toronto: Academic, 1983), p. 34.Google Scholar

32. Ibid., p. 28.

33. Yoffle, David B., Power and Protectionism: Strategies of the Newly Industrializing Countries (New York: Columbia University Press, 1983), pp. 85, 189.Google Scholar

34. A privileged group is one in which one member has enough interest in the collective good that he will supply it even if he bears its entire cost.

Other producers opposed escape clause action because they were concerned that it might end the 1982 U.S.-EEC steel trade agreement. See Walters, Robert S., “Industrial Crises and U.S. Public Policies: Patterns in the Steel, Automobile, and Semiconductor Experiences,” in Hollist, W. Ladd and Tullis, F. LaMond, eds., International Political Economy Yearbook, vol. 1. (Boulder: Westview, 1985), p. 164.Google Scholar

35. Technically, because any manufacturer of large motorcycles gained the same protection, trade policy in this instance was not a private good. In practice, however, the only consumer of the protection granted was Harley-Davidson.

36. As observed by Robert E. Baldwin in remarks at a National Bureau of Economic Research (NBER) Conference on the Political Economy of Trade Policy, Dedham, Mass., 10-11 January, 1986.

37. For an analysis of the underexplored issue of the life cycle of import protection that emphasizes the influence on that cycle of the height of entry barriers, see Vinod Aggarwal, Robert O. Keohane, and David B. Yoffie, “The Evolution of Cooperative Protectionism,” paper presented at a NBER Conference on the Political Economy of Trade Policy, Dedham, Mass., 10–11 January 1986.

38. Laver, , “Political Solutions,” pp. 203–4.Google Scholar

39. In a recent attempt to explain the inter-industry pattern of U.S. import protection, Robert E. Baldwin tests five different models against various indicators of U.S. protection. He concludes that the pattern cannot be adequately explained by models that are based on short-run self-interest, including pressure group models. He emphasizes, however, that “an eclectic approach to understanding [U.S. trade policy]…is the most appropriate one currently.” The relative explanatory power of different models, he argues, cannot be accurately assessed “until the various models are differentiated more sharply analytically and better empirical measures for distinguishing them are obtained….” See his The Political Economy of U.S. Import Policy (Cambridge, Mass: MIT Press, 1985), p. 180.Google Scholar

Baldwin also provides an excellent review of recent empirical efforts to explain U.S. tariffs in his “The Political Economy of Protection,” in Bhagwati, Jagdish N., ed., Import Competition and Response (Chicago: University of Chicago Press, 1982), pp. 263–86.CrossRefGoogle Scholar

40. This example should not be weighted heavily. The exemptions seem to have been more closely related to national security than to industry interests.

41. In the United States, “the 25 largest banks account for over three-quarters of U.S. overseas bank lending. For these banks, foreign business averages nearly half of total business.” Jeff Frieden, “International Finance and Domestic Politics: Financial Internationalization and the United States,” mimeo, May 1985, p. 13, cited by permission.

42. Some evidence suggests, for example, that both capital controls and international debt issues have precipitated more interest group activity than have other issues within the sphere of international monetary policy. See Odell, U.S. International Monetary Policy; Keohane and Nye, Power and Interdependence; and Gowa, Closing the Gold Window. Although much more evidence is available on the relationship between interest groups and trade policy (see note 39), few definitive conclusions have emerged, and attempts to compare rigorously trade and monetary policy processes seem nonexistent.

43. North, Douglass C. observes that institutions “establish the cooperative and competitive relationships which constitute a society and more specifically an economic order. When economists talk about their discipline as a theory of choice and about the menu of choices being determined by opportunities and preferences, they simply have left out that it is the institutional framework which constrains people's choice sets.” Structure and Change in Economic History (New York: Norton, 1971), p. 201.Google Scholar

44. Field, Alexander James, “The Problem with Neoclassical Institutional Economics: A Critique with Special Reference to the North-Thomas Model of Pre-1500 Europe,” Explorations in Economic History 18 (April 1981), p. 183, note 13.CrossRefGoogle Scholar

45. Snidal, , “Political Organizations,” p. 545.Google Scholar

46. Ibid., emphasis in original.

47. Ibid., pp. 558–59.

48. Similarly, in the 1820s, congressional responses to claims for protection were “conditioned by belief [sic] in the efficacy of protection and its proper place in the development and defense of the nation.” Pincus, Jonathan J., Pressure Groups and Politics in Antebellum Tariffs (New York: Columbia University Press, 1977), p. 169.Google Scholar

49. Lavergne, , Political Economy, p. 20.Google Scholar

50. Krasner, , “Commercial and Monetary Policy,” pp. 65–66.Google Scholar

51. For an analysis that emphasizes the fundamental changes in appropriate conceptions of and policy responses to issues that occur when they are seen over rather than at a single point in time, see Ruggie, John Gerard, “Social Time and International Policy: Conceptualizing Global Population and Resource Issues,” in Karns, Margaret P., ed., Persistent Patterns and Emergent Structures in a Waning Century (New York: Praeger, 1986), pp. 211–36.Google Scholar

52. Katzenstein, Peter J., Small States in World Markets: Industrial Policy in Europe (Ithaca and London: Cornell University Press, 1985).Google Scholar