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OBSTACLES TO POLICY REFORM
US Senator Mark O. Hatfield is one of the world's most powerful men. In 1995, he ascended to the chairmanship of the US Senate's Appropriations Commitee, which, along with its counterpart in the House of Representatives, holds the purse strings of the US government. As a senior member of the committee and as a representative of the timber-rich state of Oregon, he has long, and successfully, pushed the Forest Service to sell more timber than independent scientists and the agency itself have recommended. Two of Hatfield's most important constituencies are the loggers and mill workers who depend on public timber for their living, and the timber companies, which gave more money to him than any other member of Congress between 1989 and 1994. The high logging rates may have served his constituents in the short term, but they have also forced more below-cost timber sales nationwide, endangering species such as the spotted owl and exhausting the very resource on which the industry depends.
As Chief Minister of the Malaysian state of Sarawak and its Minister of Forests, Tin Sri Datuk Patinggi Abdul Taib bin Mahmud is another of the world's most powerful men. He and his uncle, the former Chief Minister, hold half the state's timber concessions, and his political allies hold others. In his dual role as regulator and timber magnate, Taib has permitted and benefited from logging at a pace that will exhaust the state's commercial wood supplies within a decade.
Hatfield and Taib are living proof that when it comes to subsidies, policy and politics are tightly intertwined. Whatever its purpose, a subsidy calls into being a well-defined, self-aware group of beneficiaries. The subsidised and the subsidisers come naturally to support one another, in a resilient feedback loop. Policymakers use the force of law to hold up their end of the political bargain; recipients use the power of votes, campaign contributions, family connections, or even bribes to deliver on theirs. Sometimes, as in Sarawak, the two groups are the same.
Some of the best studied instances of the symbiosis between subsidies and one form of influence-peddling - corruption - are occurring in the Asia-Pacific region, the world's major supplier of tropical timber, a resource most inviting of political manipulation. Two characteristic features stand out in such examples. First, the recipients of the cheap extraction rights are few. In Indonesia, for example, there are 584 logging concessions, owned by roughly 50 conglomerates, which appear in turn to be controlled by as few as 15 business figures, including several billionaires.
Second, relations between politicians, military officers, and logging tycoons seem complex and close. According to local environmentalists, three key figures are engineering much of the logging of the Philippine island of Palawan in the 1990s: the Speaker of the House of Representatives, who represents part of the province; the principal shareholder in the province's two biggest logging firms; and the director of the Palawan Philippines National Police. Local environmentalists have reported seeing military escorts for trucks carrying illegally cut logs; the Speaker, meanwhile, is widely understood to be "involved in everything" that happens in Palawan. Though the exact relationships between these figures are not public, they are known to be friends, and it seems likely that all share in the profits from cheap and poorly enforced timber concessions. Logging-related irregularities are on the rise in other parts of the world as well. In a textbook case of cowboy economics, as Asian companies exhaust timber supplies at home, they are spreading to new countries throughout the tropics, bringing along their old ways of doing business. Allegations of bribery have dogged Indonesian and especially Malaysian companies as they pressed for entry into timber-rich Brazil, Papua New Guinea, the Solomon Islands and Suriname on terms that are favourable to themselves but potentially catastrophic for the forest's traditional owners.
Though corruption is a stranger to no country, it tends to influence policy less in industrial democracies than do more above-board means of pressure. The problem of legal influence-peddling is perhaps greatest in the United States in terms of the amount of money changing hands. There, candidates for Congress and the Presidency spent $1.6 billion campaigning in 1996, according to preliminary estimates - most of it raised from monied interests with their own agendas. Though this is a huge sum to spend on electing fewer than 500 people, it is trivial compared with the roughly $1.6 trillion at stake each year in federal spending and tax decisions. Ten-thousand-dollar or even million-dollar donations may make politician's mouths water, but they are peanuts for large corporations, and excellent investments even if they only sway legislators occasionally. Carl Mayer, a politician in Princeton, New Jersey, may not have stretched the truth much when he told a reporter that "giving money to politicians is the best return on an investment... in the entire free world". This is what makes campaign contributions such a stubborn impediment to subsidy reform.
It is politics, and not sound policy, that best explains the remarkable resilience of outmoded resource regimes in the United States. Between 1993 and mid-1996:
Almost all of them succeeded in keeping their subsidies in place, despite historic proposals for grazing and mineral reform by the newly appointed Interior Secretary, Bruce Babbitt. (During the same period, environmental groups gave only $1.6 million.) Illustrating the economics of campaign donations, the Cyprus Amax Minerals company gave $308,848 to members of Congress. A hefty sum, but only one ten-thousandth of the $3 billion in gross income it stood to gain from a pending claim in Colorado - as long as the 1872 Mining Law remained intact.
It is hard to prove these cheques buy legislators' votes. But people would not give the money, and in such strategic ways, if they did not think it worthwhile. Candidates' dependence on such donations - and thus their vulnerability to industry pressure - is growing steadily. In the case of American resource-based industries, lobbies have usually focused their efforts on the Senate, where it is easier for legislative minorities to obstruct progress, and where lightly populated, resource-rich states have disproportionate clout.
The agricultural company Archer Daniels Midland (ADM) is one of the largest subsidy recipients in the United States, and, probably not coincidentally, one of the largest contributors to both major political parties over the last 30 years. In 1979, Senator Dole sponsored a bill creating a tax break for the production of ethanol. It is a fuel that, at least when distilled from corn, carries questionable environmental credentials since about as much energy goes into making it as is released by burning it, according to several studies. Still, the tax break became law, and was generous enough to create a new industry overnight. The subsidy, now worth 14¢ per litre (54¢ per gallon) has cost the government $6.3 billion since 1983, much of that going to ADM, which holds half the market. Dole has since received more than $255,000 from ADM; more recently Presidents George Bush and Bill Clinton each received donations of $100,000 or more just days before advancing a regulation effectively requring some ethanol in a tenth of the gasoline sold in the United States - a rule since overturned in court.
Completely removing money from politics (which is perhaps impossible in a free society) would weaken the political advantage of subsidy beneficiaries, but not eliminate it. Subsidy policies and politics are usually asymmetric; there are a few big winners and a lot of small losers. With more at stake, individual subsidy recipients are more apt to organise to defend their interests than the taxpayers and consumers who foot the bill. Thus democracy at its best is still intrinsically vulnerable to distortions by special interests.
In Germany, hard coal union locals now represent 1 in 300 workers, yet are influential enough within the Social Democratic Party to protect $73,000-per-person subsidies that, if granted to all of the labour force, would quickly bankrupt the country. In the Philippines, Venezuela, and other developing countries, riots and street protests have greeted past attempts to cut the gasoline subsidies that are popular among the middle and upper classes. Another factor, fear of unrest among the urban poor, no doubt maintains the suppression of food prices in many developing countries, even when it hurts poor rural farmers.
Not surprisingly, corruption, campaign donation dependence, and special interest politics tend to hurt economies as well as the environment. As these forces strengthen their hold on policymaking, tax and expenditure decisions tend increasingly to serve minority interests at the expense of society as a whole. Of the various methods of influence, corruption costs societies the most. Demand for bribes at every turn can make doing business a slow and unpredictable travail for investors. Recent statistical surveys across dozens of countries have confirmed that both power concentration and corruption correlate with lower investment and economic growth. Nigeria provides one extreme example of this relationship. On the 1996 Corruption Index, compiled by the Berlin-based Trans-parency International, it scored 0.7 out of a possible 10.0, ranking it most corrupt among 54 countries. Not surprisingly, Nigeria's society and economy are also in a shambles. The wealth flowing in from oil production is concentrated in the hands of a powerful elite while many Nigerians, including the late Ken Saro-Wira's Ogoni people, who live near oil reserves, are losing out.
Though the importance of making government more equitably accountable to all the governed is widely understood, probably few people appreciate the full spectrum of benefits that such a change would bring. Political reforms would, one hopes, help governments earn public confidence. But they could also energise economic development in many countries, such as Nigeria. And without them, it will be nearly impossible to reform many environmentally destructive subsidies.