The Politics of Public Aid to Private Industry

Abstract

Firms lobby for subsidies along geographic, sector, or factor lines and, as a result, receive subsidies with a local, sectoral, or factorwide scope. This article investigates what determines the line of cleavage and thereby the scope of the subsidy. The factor mobility hypothesis, according to which an economic prior—the degree of factor mobility—determines the geometry of lobbying coalitions, misses the fact that factor mobility is as much the product of policy and policymaking as it is its determinant. This article argues instead that politicians maximize their chances of staying in power through the deliberate use of subsidies to structure the political debate and embed factor owners into stable policy networks. Individual factor owners, in turn, join these policy networks to lobby for monopoly rents capable of insuring them against adverse economic competition. The model yields two testable hypotheses. First, right governments favor subsidies to capital, whereas left governments favor subsidies to labor. Second, the degree of intensity of electoral competition determines the scope of the subsidy policy. Quantitative and qualitative evidence is offered for 21 Organization for Economic Cooperation and Development countries during the 1980s.