WASHINGTON, March 14 (UPI) -- Japan bans U.S. beef. The United States bans Canadian beef. The EU subsidizes aircraft production. South Korea places multiple tariff barriers against automobile imports. The United States, the EU and Japan spend billions of dollars a year on farm subsidies, mostly paid to wealthy and corporate farmers. All these market distortions reduce output and trade, all are the result of lobbying.
Governments have always been lobbied, and the efforts of lobbyists have always distorted trade and investment patterns. In Britain, the agricultural lobby caused the government of Robert Lord Liverpool to pass highly restrictive "Corn Laws" in 1815, banning corn imports except at very high prices. Then in 1846 the Lancashire manufacturing lobby caused the government of Robert Peel to repeal the Corn Laws, launching Britain into a 90 year experiment in unilateral trade disarmament that was to devastate British agriculture and later industry.
The right solution was a modified version of the Corn Laws that would have imposed a sliding scale of duties on grain imports when there was a domestic glut; that version was proposed by Liverpool and trade minister William Huskisson in 1827, but never became law because of Liverpool's sudden illness and resignation. Good policy, then as now, had few friends.
In the United States, the antebellum period was exacerbated by the battle between the Northern manufacturing lobby, which wanted high tariffs, and the Southern slaveholding lobby, which wanted low ones, since it imported manufactured goods and exported cotton. Each time one faction gained control it jerked tariffs sharply in its favored direction, causing howls of resentment from the other side and rhetoric such as the "Tariff of Abominations" of 1828. Economically, the South's case was better -- Northern-imposed tariff rates were extraordinarily high. The struggle itself poisoned relations between North and South, left both sides convinced that the other cared nothing for its welfare and was prepared to ruin its economy by legislative means -- and resulted in the Civil War.
After the Civil War, Northern manufacturing interests were dominant, producing the McKinley Tariff of 1890, the Fordney-McCumber tariff of 1922 and the infamous Smoot-Hawley Tariff of 1930, all with very high tariff rates by modern standards. These produced a glut of bloated "robber baron" monopolies in the United States, protected from foreign competition by high tariffs, and eventually resulted in the devastation of world trade and the Great Depression. The Franklin Roosevelt administration began to reduce the inordinately high tariffs of Smoot-Hawley -- but began distorting the U.S. market in another way, by instituting enormous market-ignoring farm subsidies and import restrictions, the most damaging as always being on such commodities as cotton and sugar that had particularly strong lobbies.
After World War II, the power of lobbying diminished somewhat, at least in the trade area. Policymakers were alarmed at the devastation that had been wrought by the Great Depression, confident of the United States' ability to compete, given its trade surpluses and gold reserves, and eager to open up foreign markets to U.S. goods, which could only be done by multilateral tariff reduction. Only in agriculture did U.S. protectionism remain rampant. This benign period lasted through the middle 1960s; then a number of factors caused things to change.
First, the U.S. economy no longer looked all-powerful. Steel companies, which had invested heavily in the 1950s, just before the optimum steel making technology changed from open hearth to electric arc, started making large losses. Protectionist moves in steel then affected the automobile industry, which was also suddenly prey to import competition, initially in the small car area that Detroit had neglected. The United States began to run a balance of payments deficit, particularly after it incurred the costs of the Vietnam War, and the U.S. economy no longer looked invulnerable.
Important as were these purely economic factors, they were joined by structural factors that in the long run became even more critical. Environmentalism, not a factor before the 60s, created a whole new universe of lobbyists, who didn't care at all about optimizing world trade or output, and were quite happy to ally with protectionists to produce economically damaging regulations or legislation (some environmental legislation, like the Corporate Average Fuel Economy rules for automobiles, was indeed far more damaging to the United States than to its competitors.)
Politically, the campaign reforms of 1974 and 2002 and the continuing increase in the expense of political campaigning removed the ability of politicians to get money from ideologically motivated billionaires, and left them dependent on huge fund-raising organizations that found the money provided by lobbyists only too attractive.
The rise of "modern" lobbyists such as Tommy Boggs, melding high powered lobbying with superbly organized corporate fund raising and highly politicized legal work, dates from the 1970s and 1980s. So does the elevation of the trial lawyer community into a lobby of its own, far better organized and rather better funded than any mere industrial lobby. General Motors exists primarily to make cars, after all, whereas trial lawyers exist solely as rent-seekers from badly drafted legislation and complaisant rural juries -- lobbying is their life-blood in the way it never could be to GM or Microsoft.
The result has been an epidemic of lobbyist-driven legislation, often without significant reference to the public good as a whole or to economic reality. Even when a determined Congress carries through reforms, as with the 1996 Freedom to Farm Act which at last lowered agriculture subsidies, the reform is reversed a few years later. Presidents and Congresses promising to keep public spending under control are elected -- and public spending rises at the fastest rate since the Lyndon Johnson administration. The U.S. and Canada enter into a Free Trade Area -- and Canadian beef is banned for years from the U.S. market on deeply spurious health grounds (the Department of Agriculture statistics are highly suspect, and it appears to be the case that there have been more cases of Bovine Spongiform Encephalopathy in the U.S. than in Canada).
President Bush claims to be a "big government Conservative" but the reality is that there is no such thing. Big Government, no matter which party is in power, is ipso facto corrupt and self-aggrandizing and made more so by modern lobbying techniques and capabilities.
In Europe, the growth in power and budget of the European Commission has instituted an entirely new layer of government, especially opaque and especially insulated from the needs of its electorate. Consequently, in Europe as in the United States the power of the lobbyists has grown exponentially over the last 30 years. The result has been an incessant series of major and minor scandals and the resignation in disgrace of the entire Jacques Santer Commission in 1999.
It could be worse. Can anybody doubt that if we ever had a world government, lobbyists would be its principal beneficiary?
The solution is simple and at the same time impossible, or politically so. Government must become smaller, and power and spending ability must be devolved as far as possible to a state or even a local level. Local governments can be just as corrupt as national or supranational governments, but the ability of a local electorate to spot and punish corruption is generally greater, because they have personal knowledge of the people involved and any "unexpected windfalls" in their lifestyle.
More important, as the money gets divided into smaller and smaller chunks, and the decisions devolved into more and more hands, it becomes impossibly expensive for lobbyists to maintain the presence they need at each local level, and so their power to influence outcomes declines.
In a fully devolved system, Michigan and Detroit may pass laws that favor automobile companies, but the other 49 states won't. Conversely, if state courts are restricted from passing judgments covering out of state parties, the power of the trial lawyers lobby will become limited only to their local haunts -- Manhattan and the District of Columbia. Sensible people and businesses will then move out of both places!
Local devolution is the long term answer, but it will take decades to implement. In the meantime, there are short term improvements that can be made, notably repealing U.S. campaign finance legislation, and allowing wealthy ideologues to finance campaigns personally, without the intervention of the corrupt lobbyist and PAC nexus. Provided full disclosure is made, the public should be well able to sort out which candidates have harmless financing sources, and which owe their resources to Nazis, Stalinists or the Mafia.
In Europe as presently constituted, there is no obvious solution to lobbyist domination. Which is why Europe as presently constituted is condemned to long term economic decline.
(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
Martin Hutchinson is the author of "Great Conservatives" (Academica Press, 2005) -- details can be found on the Web site greatconservatives.com.