James M. Hohman, Mackinac Center for Public Policy
Sometimes a law seems to be almost wholly owned by the interest groups it affects. Cosmetologists want to control laws about licensing cosmetologists. Energy companies want to control laws regulating energy companies.
Citizens should be upset when public policy gets used to benefit private interest groups. But there are larger problems with laws shaped by special interests.
Laws aimed at protecting or enriching special interests have some features not present in laws developed by and for the broader public, and these features cause additional problems. They deal with subjects the general populace doesn’t know about or understand, so they remain obscure. They are more difficult to reform or repeal once they’re in place. They injure the general public by raising prices and curtailing options. Worst of all, they do these things under the guise of benefiting the public. But the thin foundation of many of these laws is a weakness that can sometimes be exploited by reformers.
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Proliferation of nonsense
Special interests do not need to convince normal people to pass their laws, they only need to convince elected representatives. With so many special interests passing laws, state law books fill up with rules that are strange or confusing to someone not in a special interest group. And because laws last until they are repealed, we have laws on the books that may not have any support from people today, yet remain binding statutes.
Villages, to cite one example, make sure you sprinkle your thoroughfares. Horticultural societies, make sure to file your annual report with the county and city of your residence. Don’t you dare try to sell raw linseed oil with a specific gravity outside the range of 0.925 to 0.935 at 77 degrees Fahrenheit, whatever that means.
I’m not a historian, but I bet you’ll find that private interests played a role in making each of those laws, which are still binding regardless of whether any serving lawmaker or person at large still supports them.
The work required to enact particular, obscure and detailed rules through law is one reason why term limits get so much opposition from special interests. The regular, consistent entry of new legislators weakens support for narrow special interest laws, and lobbyists must constantly rebuild their support, as term limits churn new faces into lawmaking bodies. They have to keep fighting the same battles with any residual opposition over and over again. They’d prefer to do it once and not revisit the issue.
Existing laws get scrutinized on occasion, but these private laws are found throughout state statutes. We are governed by laws that few can explain and that seem devoid of any semblance of public purpose.
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Negotiation without opposition
The problem with self-enrichment politics is that it affects more than the people who can gain from it. Regulated utilities and liquor stores charge consumers based, in part, on the laws they helped enact. By contrast, their customers don’t have the same incentives to engage with lawmakers. The typical household’s electricity bill might be a small part of its household budget, but those household bills, when combined, make up a large part of a power company’s revenue.
It’s easy for legislators to hear from the interest groups representing industry interests. They have a tougher time hearing from the people who pay the costs created by special interest legislation, especially when the costs are hidden.
Interest groups are affected by more than the laws that cover their corner of life and the economy. Hair stylists and liquor distributors, for example, may be affected by income tax laws that apply across the board. But they are more intensely focused on the laws that dictate their particular activity. They care the most about the laws that specifically target their domain.
As lawmakers consider bills to change liquor laws, for instance, they hear a lot from distributors and retailers. They hear little from consumers. Lawmakers want to weigh the interests of people who are engaged with the legislation, but if the people who bear the costs are not there, lawmakers can ignore them.
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Fig leaf lawmaking
Part of the game that special interests play is to get lawmakers and the broader public to ignore the fact that many laws give them an advantage at a public cost. More than that, they create the illusion of a public benefit.
Alcohol control policies enrich entrenched interests, but advocates argue that they are needed to protect public health. Occupational licenses, others say, protect customers from ill-trained professionals, and they make that argument even when rules are arbitrary and nonsensical. Utility regulation is said to keep costs down, but it raises costs for consumers and profits for the monopolists. Each of these laws carries the veneer of a public purpose.
The strictness of alcohol control policy doesn’t seem to make much of a difference in preventing alcohol’s harms. Many occupational licenses have little to do with protecting consumers. And electricity bills go down when competition is allowed, not when regulations increase.
In short, special interests spin a story that the laws which give them benefits at the public’s expense actually benefit the public instead. Lawmakers have a tough time seeing through the ruse. As mentioned before, they don’t hear from the people who bear the costs.
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Bigger problems
In “The Captured Economy,” Steven Teles and Brink Lindsey argue that private interests often capture public policy and that this causes income inequality and economic stagnation.
Captured policy leads to income inequality as people get rich based on their political power and everyone else pays for it. This is different from how thing are supposed to work in America, where entrepreneurs earn their wealth by developing better ways of getting people what they want.
It also limits economic growth, the generator of broad-based prosperity. If the way to succeed in business is to bend politics to protect business interests, then businesses gain at everyone’s expense. This strategy limits our ability to grow, because businesses cease to engage in mutually beneficial trade and instead work to win at the public’s loss.
Captured policy chokes out innovation. A business does not need to adapt when a government policy guarantees gains. Everyone else, though, loses out as the power of political skills replaces the benefits of businesses needing to respond to market demands.
While Teles and Lindsey delve into land use regulation, occupational licensing, financial regulation and intellectual property, they warn that the problems are prevalent elsewhere.
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Concentrated benefits make beneficiaries concentrate
Interest groups stay engaged in its state laws because they can guarantee the group’s success or ensure its ruin. You can’t cut hair in Michigan without a license, so cosmetology interest groups care about the laws affecting the cosmetology license. Statutes dictate how much energy companies can earn and whether brewers can even sell the beer they brew.
If a state policy seems to be monopolized by a special interest group, it’s because the group has a strong interest in its outcome. The potential gains give the group an important incentive to write the laws that govern its members.
Only legislators can write laws, however, so an interest group must find sympathetic lawmakers. Interest groups meet with elected officials to write bills and encourage others to adopt them. If they convince enough elected officials that their proposed law is urgent and important, they can write the rules they play by.
None of this is illegal or even immoral. It’s a free country: People have a right to engage with lawmakers about the policies that affect them. Indeed, citizens should expect that when government has a wide reach, the people who are managed by its rules will have a say in making them.
There is something missing, though, when the people’s elected officials only discuss a policy with the interests most affected by that policy. In short, self-enrichment politics leaves out a lot of what is important for democratic institutions.
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How to break private policy
When crafting specialty laws, lawmakers feel they’re balancing the interests of everyone involved. Most people are not involved, however, and compromises that might benefit them never get through the door. Any changes that might arise after that point occur only if there’s a public event that draws widespread attention.
After Prohibition ended, the public wasn’t directly involved in crafting liquor control laws, and the laws were bent to serve private interests rather than public interests. So if there’s a big newsworthy event involving alcohol — say, when members of Pennsylvania’s liquor board were charged with corruption — politicians are compelled to put the public interest back into special interest law. The firm entrenchment comes undone when the public gains an interest in the subject.
Laws passed without broad public support are brittle: They crack under pressure. People ought to have the impression that the rules that govern them reflect the public will. This is a bug for the special interest law, but it’s a feature for the public at large, since it’s a way to end protections and favors. Find a way to get the public animated by the unfairness of it all, and the jig is up.
Ultimately, the people are in charge of their government and politicians want to be popular. If people want government to stop rewarding special interests, lawmakers will respond. This sentiment has to be shared by a broad part of the population, or lawmakers will never see through the deception made by special interests to understand the costs and figure out how those favors are granted.
What has been mentioned here is nothing new. It is an elaboration on the problems of faction that James Madison wrote about in Federalist 10. Madison also thought that people would elect wise leaders who would rise above the demands made by special interests and be prevented from giving in by a Constitution that limits government’s power. And yet, here we are.
Today, public policy is too often about delivering benefits to private interests. This makes policies and laws that are indecipherable to normal citizens, that deceive both residents and policymakers, and that bilk the average household. It doesn’t have to be this way. And it can end — with a renewed citizenry’s expectation that public policy ought to provide public benefits.
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James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.
