Plate ix in print

The Spoils

capture and corruption; the rules written for the rule-makers, and the cost borne by the rest.

A privilege can keep collecting after the contest that won it has been forgotten.

— the argument of this plate, after the earlier Captive and Inheritance plan

The prize can be the rule itself. A firm may compete to sell a better product, and it may also compete to obtain a rule that makes the sale easier by keeping a rival outside. The earlier Captive followed this second contest into the institutions meant to govern the first. Its subject was a recurring danger: an authority established for a public purpose can become a source of advantages for the organized interests that know how to reach it. The Spoils asks what those advantages cost and how the process can be distinguished from legitimate participation. Every rule has effects that some welcome and others resist. Capture begins when the authority's exercise is repeatedly diverted toward a particular interest at the expense of the public purpose it is meant to serve.

Concentrated gains and dispersed costs can give the beneficiaries a stronger incentive to organize than the people who pay. Imagine a restriction worth one hundred thousand units to each of ten firms, while imposing a one-unit loss on each of two million customers. The beneficiaries receive one million altogether; the customers lose two million. A firm can spend ten thousand to defend the arrangement and still have much at stake. An individual customer would spend more than the loss merely learning which committee to attend. A consumer association, journalist, rival supplier, or public official may overcome that imbalance, so the arithmetic predicts a pressure rather than an inevitable outcome. It explains why the intensity of participation need not measure the size of the public interest involved.1

1. The invented distribution gives 10 × 100,000 = 1,000,000 to the firms and costs 2,000,000 × 1 = 2,000,000 to customers. It illustrates unequal incentives to organize, without measuring any actual regulation.

The restriction's economic cost must be separated from the transfer it creates. Consider an invented market with demand price equal to one hundred minus quantity and a constant cost of twenty. Unrestricted exchange reaches eighty units at a price of twenty. A rule limiting supply to fifty raises the price to fifty. On those fifty sales, buyers transfer fifteen hundred extra units to the protected suppliers; the thirty forgone sales create a further loss of four hundred fifty in unrealized gains from trade. The transfer changes who receives the surplus, while the missing trades reduce the surplus available. That distinction matters even if one regards the transfer as unjust. Adding the same money to several categories of harm can make a morally forceful argument economically incoherent.2

2. With P = 100 − Q and marginal cost 20, unrestricted Q = 80. At Q = 50, P = 50. The transfer is (50 − 20) × 50 = 1,500; the forgone surplus is ½ × (80 − 50) × (50 − 20) = 450. The comparison assumes no compensating safety or other benefit from the restriction.
⁂

Competing for the privilege can consume resources in addition to those lost through restricted trade. If the firms together use three hundred units of otherwise productive labor to obtain the restriction, the simplified account has four hundred fifty of lost gains from trade and three hundred of influence costs. The resulting resource loss is seven hundred fifty, alongside the fifteen-hundred transfer. The influence cost could be larger or smaller; no identity requires the entire prize to be spent pursuing it. Nor is every representation to government waste. A submission can reveal an overlooked hazard, correct bad evidence, or expose an incumbent's advantage. The relevant question is what the activity accomplishes and what its resources would otherwise have produced, not whether a lawyer or an advocate was paid.3

3. The example adds a real opportunity cost of 300 to the 450 loss from forgone trades. The 1,500 transfer is not added again as destroyed resources. This develops The Captive while treating full rent dissipation as a possible limiting case rather than a necessary equality.

Capture can operate through information and relationships without a purchase that looks like a bribe. Officials need knowledge of the activity they regulate, and the regulated may possess much of it. A recurring dependence on one source of expertise can narrow the questions asked, the alternatives considered, and the risks treated as important. Career expectations and shared professional assumptions can reinforce the pattern. The OECD's account therefore includes legal channels of influence as well as illegal instruments, and treats access to information as necessary but insufficient for public participation. The distinction protects the analysis from two errors: assuming that a lawful process necessarily serves the public, and assuming that a benefit to an industry proves corruption. A conclusion about a particular decision requires its record, reasons, alternatives, and effects.4

4. OECD, Preventing Policy Capture (2017), executive summary, pp. 9–11. The report distinguishes diverse mechanisms and recommends participation, transparency, accountability and organizational integrity together.

Institutions resist capture by making competing knowledge effective at the point where a decision is made. A public docket is useful when people can discover the proposal, understand its consequences, and obtain a reasoned answer before the result is fixed. Conflict rules require credible enforcement; independent review requires information and enough independence to act on it. The diffuse interest may need representation capable of mastering the same details as the beneficiaries. Regular evaluation can reveal that an entry restriction persists after its justification has disappeared. None of these devices abolishes politics or supplies a mechanically neutral definition of the public good. They make it harder for one account of the problem to become the only account the decision-maker hears.5

5. The separate Inheritance plan supplies the feedback between established advantages and resistance to reform. This plate makes no allegation about an identified official, firm or proceeding.

The spoils are largest when a rule can keep reproducing an advantage after the contest that created it has been forgotten. A privilege becomes an investment; the investment creates a constituency; the constituency acquires the means to defend the privilege. Breaking that circle requires more than finding a corrupt individual, because a tilted process can outlive every person who first used it. It requires a route by which those bearing the consequences can discover the arrangement, challenge its reasons, and secure a revision. The next plate asks what entitles a common rule to bind them in the first place. The economic accounting of capture leads to the political accounting of authority: what the rule accomplishes, for whom, and under what terms its authors can be called to answer.