Free To Choose: A Personal Statement – Charter 9 : The Cure for Inflation (11)

WHY SPECIAL INTERESTS PREVAIL

If the cresting of the tide toward Fabian socialism and New Deal liberalism is to be followed by a move toward a freer society and a more limited government rather than toward a totalitarian so- ciety, the public must not only recognize the defects of the present situation but also how it has come about and what we can do about it. Why are the results of policies so often the opposite of their ostensible objectives? Why do special interests prevail over the general interest? What devices can we use to stop and reverse the process?

The Power in Washington

Whenever we visit Washington, D.C., we are impressed all over again with how much power is concentrated in that city. Walk the halls of Congress, and the 435 members of the House plus The Tide ls Turning 291 the 100 senators are hard to find among their 18,000 employees —about 65 for each senator and 27 for each member of the House. In addition, the more than 15,000 registered lobbyists— often accompanied by secretaries, typists, researchers, or repre- sentatives of the special interest they represent—walk the same halls seeking to exercise influence.

And this is but the tip of the iceberg. The federal government employs close to 3 million civilians (excluding the uniformed military forces). Over 350,000 are in Washington and the sur- rounding metropolitan area. Countless others are indirectly em- ployed through government contracts with nominally private or- ganizations, or are employed by labor or business organizations or other special interest groups that maintain their headquarters, or at least an office, in Washington because it is the seat of gov- ernment.

Washington is a magnet for lawyers. Many of the country’s largest and most affluent firms are located there. There are said to be more than 7,000 lawyers in Washington engaged in federal or regulatory practice alone. Over 160 out-of-town law firms have Washington offices.’ The power in Washington is not monolithic power in a few hands, as it is in totalitarian countries like the Soviet Union or Red China or, closer to home, Cuba. It is fragmented into many bits and pieces. Every special group around the country tries to get its hands on whatever bits and pieces it can. The result is that there is hardly an issue on which government is not on both sides.

For example, in one massive building in Washington some government employees are working full-time trying to devise and i mplement plans to spend our money to discourage us from smok- ing cigarettes. In another massive building, perhaps miles away from the first, other employees, equally dedicated, equally hard- working, are working full-time spending our money to subsidize farmers to grow tobacco.

In one building the Council on Wage and Price Stability is working overtime trying to persuade, pressure, hornswoggle busi- nessmen to hold down prices and workers to restrain their wage demands. In another building some subordinate agencies in the Department of Agriculture are administering programs to keep 292 up, or raise, the prices of sugar, cotton, and numerous other agricultural products. In still another building officials of the Department of Labor are making determinations of “prevailing wages” under the Davis-Bacon Act that are pushing up the wage rates of construction workers.

Congress set up a Department of Energy employing 20,000 persons to promote the conservation of energy. It also set up an Environmental Protection Agency employing over 12,000 per- sons to issue regulations and orders, most of which require the use of more energy. No doubt, within each agency there are sub- groups working at cross-purposes.

The situation would be ludicrous if it were not so serious. While many of these effects cancel out, their costs do not. Each program takes money from our pockets that we could use to buy goods and services to meet our separate needs. Each of them uses able, skilled people who could be engaged in productive activities. Each one grinds out rules, regulations, red tape, forms to fill in that bedevil us all.

Concentrated versus Diffuse lnterests

Both the fragmentation of power and the conflicting government policies are rooted in the political realities of a democratic sys- tem that operates by enacting detailed and specific legislation.

Such a system tends to give undue political power to small groups that have highly concentrated interests, to give greater weight to obvious, direct, and immediate effects of government action than to possibly more important but concealed, indirect, and delayed effects, to set in motion a process that sacrifices the general inter- est to serve special interests, rather than the other way around.

There is, as it were, an invisible hand in politics that operates in precisely the opposite direction to Adam Smith’s invisible hand.

Individuals who intend only to promote the general interest are led by the invisible political hand to promote a special interest that they had no intention to promote.

A few examples will clarify the nature of the problem. Con- sider the government program of favoring the merchant marine by subsidies for shipbuilding and operations and by restricting The Tide ls Turning 293 much coastal traffic to American-flag ships. The estimated cost to the taxpayer is about $600 million a year—or $15,000 per year for each of the 40,000 people actively engaged in the industry.

Ship owners, operators, and their employees have a strong incen- tive to get and keep those measures. They spend money lavishly for lobbying and political contributions. On the other hand, $600 million divided by a population of over 200 million persons comes to $3 a person per year; $12 for a family of four. Which of us will vote against a candidate for Congress because he imposed that cost on us? How many of us will deem it worth spending money to defeat such measures, or even spending time to become informed about such matters? As another example, the owners of stock in steel companies, the executives of these companies, the steelworkers all know very well that an increase in the importation of foreign steel into the United States will mean less money and fewer jobs for them.

They clearly recognize that government action to keep out im- ports will benefit them. Workers in export industries who will lose their jobs because fewer imports from Japan mean fewer ex- ports to Japan do not know that their jobs are threatened. When they lose their jobs, they do not know why. The purchasers of automobiles or of kitchen stoves or of other items made of steel may complain about the higher prices they have to pay. How many purchasers will trace the higher price back to the restriction on steel imports that forces manufacturers to use higher-priced domestic steel instead of lower-priced foreign steel? They are far more likely to blame “greedy” manufacturers or “grasping” trade unionists.

Agriculture is another example. Farmers descend on Wash- ington in their tractors to demonstrate for higher price supports.

Before the change in the role of government that made it natural to appeal to Washington, they would have blamed the bad weather and repaired to churches, not the White House, for assistance.

Even for so indispensable and visible a product as food, no con- sumers parade in Washington to protest the price supports. And the farmers themselves, even though agriculture is the major export industry of the United States, do not recognize the extent to which their own problems arise from government’s interfer- 294 ence with foreign trade. It never occurs to them, for example, that they may be harmed by restrictions on steel imports.

Or to take a very different example, the U.S. Post Office. Every movement to remove the government monopoly of first-class mail is vigorously opposed by the trade unions of postal workers.

They recognize very clearly that opening postal service to private enterprise may mean the loss of their jobs. It pays them to try to prevent that outcome. As the case of the Brennans in Rochester suggests, if the postal monopoly were abolished, a vigorous private industry would arise, containing thousands of firms and employing tens of thousands of workers. Few of the people who might find a rewarding opportunity in such an industry even know that the possibility exists. They are certainly not in Wash- ington testifying to the relevant congressional committee.

The benefit an individual gets from any one program that he has a special interest in may be more than canceled by the costs to him of many programs that affect him lightly. Yet it pays him to favor the one program, and not oppose the others. He can readily recognize that he and the small group with the same spe- cial interest can afford to spend enough money and time to make a difference in respect of the one program. Not promoting that program will not prevent the others, which do him harm, from being adopted. To achieve that, he would have to be willing and able to devote as much effort to opposing each of them as he does to favoring his own. That is clearly a losing proposition.

Citizens are aware of taxes—but even that awareness is diffused by the hidden nature of most taxes. Corporate and excise taxes are paid for in the prices of the goods people buy, without separate accounting. Most income taxes are withheld at source. Inflation, the worst of the hidden taxes, defies easy understanding. Only sales taxes, property taxes, and income taxes in excess of with- holding are directly and painfully visible—and they are the taxes on which resentment centers.

Bureaucracy

The smaller the unit of government and the more restricted the functions assigned government, the less likely it is that its actions The Tide ls Turning 295 will reflect special interests rather than the general interest. The New England town meeting is the image that comes to mind. The people governed know and can control the people governing; each person can express his views; the agenda is sufficiently small that everyone can be reasonably well informed about minor items as well as major ones.

As the scope and role of government expands—whether by covering a larger area and population or by performing a wider variety of functions—the connection between the people gov- erned and the people governing becomes attenuated. It becomes impossible for any large fraction of the citizens to be reasonably well informed about all items on the vastly enlarged government agenda, and, beyond a point, even about all major items. The bureaucracy that is needed to administer government grows and increasingly interposes itself between the citizenry and the repre- sentatives they choose. It becomes both a vehicle whereby special interests can achieve their objectives and an important special in- terest in its own right—a major part of the new class referred to in Chapter 5.

Currently in the United States, anything like effective detailed control of government by the public is limited to villages, towns, smaller cities, and suburban areas—and even there only to those matters not mandated by the state or federal government. In large cities, states, Washington, we have government of the peo- ple not by the people but by a largely faceless group of bureau- crats.

No federal legislator could conceivably even read, let alone analyze and study, all the laws on which he must vote. He must depend on his numerous aides and assistants, or outside lobbyists, or fellow legislators, or some other source for most of his deci- sions on how to vote. The unelected congressional bureaucracy almost surely has far more influence today in shaping the detailed laws that are passed than do our elected representatives.

The situation is even more extreme in the administration of government programs. The vast federal bureaucracy spread through the many government departments and independent agencies is literally out of control of the elected representatives of the public. Elected Presidents and senators and representa- 296 tives come and go but the civil service remains. Higher-level bureaucrats are past masters at the art of using red tape to delay and defeat proposals they do not favor; of issuing rules and regula- tions as “interpretations” of laws that in fact subtly, or sometimes crudely, alter their thrust; of dragging their feet in administering those parts of laws of which they disapprove, while pressing on with those they favor.

More recently, the federal courts, faced with increasingly complex and far-reaching legislation, have departed from their traditional role as impersonal interpreters of the law and have become active participants in both legislation and administration.

In doing so, they have become part of the bureaucracy rather than an independent part of the government mediating between the other branches.

Bureaucrats have not usurped power. They have not deliberately engaged in any kind of conspiracy to subvert the democratic process. Power has been thrust on them. It is simply impossible to conduct complex government activities in any other way than by delegating responsibility. When that leads to conflicts between bureaucrats delegated different functions—as, recently, between bureaucrats instructed to preserve and improve the environment and bureaucrats instructed to foster the conservation and produc- tion of energy—the only solution that is available is to give power to another set of bureaucrats to resolve the conflict—to cut red tape, it is said, when the real problem is not red tape but a con- flict between desirable objectives.

The high-level bureaucrats who have been assigned these func- tions cannot imagine that the reports they write or receive, the meetings they attend, the lengthy discussions they hold with other important people, the rules and regulations they issue—that all these are the problem rather than the solution. They inevitably become persuaded that they are indispensable, that they know more about what should be done than uninformed voters or self- interested businessmen.

The growth of the bureaucracy in size and power affects every detail of the relation between a citizen and his government. If you have a grievance or can see a way of gaining an advantage from a government measure, your first recourse these days is The Tide ls Turning 297 likely to be to try to influence a bureaucrat to rule in your favor.

You may appeal to your elected representative, but if so, you are perhaps more likely to ask him to intervene on your behalf with a bureaucrat than to ask him to support a specific piece of legislation.

Increasingly, success in business depends on knowing one’s way around Washington, having influence with legislators and bureaucrats. What has come to be called a “revolving door” has developed between government and business. Serving a term as a civil servant in Washington has become an apprenticeship for a successful business career. Government jobs are sought less as the first step in a lifetime government career than for the value of contacts and inside knowledge to a possible future employer.

Conflict-of-interest legislation proliferates, but at best only elim- inates the most obvious abuses.

When a special interest seeks benefits through highly visible legislation, it not only must clothe its appeal in the rhetoric of the general interest, it must persuade a significant segment of disinterested persons that its appeal has merit. Legislation recog- nized as naked self-interest will seldom be adopted—as illustrated by the recent defeat of further special privileges to the merchant marine despite endorsement by President Carter after receiving substantial campaign assistance from the unions involved. Protect- ing the steel industry from foreign competition is promoted as contributing to national security and full employment; subsidizing agriculture as assuring a reliable supply of food; the postal mo- nopoly as cementing the nation together; and so on without end.

Nearly a century ago, A. V. Dicey explained why the rhetoric in terms of the general interest is so persuasive: “The beneficial effect of state intervention, especially in the form of legislation, is direct, immediate, and so to speak, visible, while its evil effects are gradual and indirect, and lie out of sight. . . . Hence the majority of mankind must almost of necessity look with undue favor upon governmental intervention.” This “natural bias,” as he termed it, in favor of government intervention is enormously strengthened when a special interest seeks benefits through administrative procedures rather than legis- lation. A trucking company that appeals to the ICC for a favor- 298 able ruling also uses the rhetoric of the general interest, but no one is likely to press it on that point. The company need per- suade no one except the bureaucrats. Opposition seldom comes from disinterested persons concerned with the general interest.

It comes from other interested parties, shippers or other truckers, who have their own axes to grind. The camouflage wears very thin indeed.

The growth of the bureaucracy, reinforced by the changing role of the courts, has made a mockery of the ideal expressed by John Adams in his original (1779) draft of the Massachusetts constitution: “a government of laws instead of men.” Anyone who has been subjected to a thorough customs inspection on re- turning from a trip abroad, had his tax returns audited by the official Internal Revenue Service, been subject to inspection by an of OSHA or any of a large number of federal agencies, had oc- casion to appeal to the bureaucracy for a ruling or a permit, or had to defend a higher price or wage before the Council on Wage and Price Stability is aware of how far we have come from a rule of law. The government official is supposed to be our servant.

When you sit across the desk from a representative of the Internal Revenue Service who is auditing your tax return, which one of you is the master and which the servant? Or to use a different illustration. A recent Wall Street Journal story (June 25, 1979) is headlined: “SEC’s Charges Settled by a Former Director” of a corporation. The former director, Maurice G. McGill, is reported as saying, “The question wasn ‘t whether I had personally benefited from the transaction but rather what the responsibilities of an outside director are. It would be interesting to take it to trial but my decision to settle was purely economic. The cost of fighting the SEC to completion would be enormous.” Win or lose, Mr. McGill would have had to pay his legal costs. Win or lose, the SEC official prosecuting the case had little at stake except status among fellow bureaucrats.