Rules of the Global Game: A New Look at U. S. International Economic Policymaking / Edition 1

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Economic news once confined to the business pages of the newspapers now receives headline coverage, whether it involves protests in Seattle or sweatshops in Asia. As attention is increasingly focused on economic policy, it becomes even more important for noneconomists to be able to make sense of these stories. Is the Asian economy sinking or rising? What effects will a single European currency have on the US economy? Kenneth W. Dam's The Rules of the Global Game provides, in clear and practical language, a framework to help readers understand and answer such questions. Dam takes us beyond the headlines and inside the decision-making process as it is populated by lobbyists, special interest groups, trade associations, and public relations firms. While some economists and thinkers have idealized plans for US international economic policy, Dam, currently the deputy secretary of the treasury, manages to merge this idealism with a consideration of what it means to govern at the intersection of competing groups with competing claims.

In The Rules of the Global Game, Dam first lays out what US international economic policies are and compares them to what they should be based on how they affect US per capita income. With this foundation in place, Dam then develops and applies principles for elucidating the major components of economic policy, such as foreign trade and investment, international monetary and financial systems, and current controversial issues, including intellectual property and immigration. Underlying his explanations is a belief in the importance of worldwide free trade and open markets as well as a crucial understanding of the political forces that shape decision making. Because economic policy is not created in a political vacuum, Dam argues, sound policymaking requires an understanding of "statecraft"-the creation and use of institutions that channel the efforts of interest groups and political forces in directions that encourage good economic outcomes.

Dam's vast experience with the politics and practicalities of economic policy translates into a view of policy that is neither academic nor abstract. Rather, Dam shows us how policy is actually made, who makes it, and why, using examples such as GATT, NAFTA, the US-Japan semiconductor agreement, and the Asian financial crisis. A rare book that can be read with pleasure and profit by layperson and economist alike, The Rules of the Global Game allows readers to understand the policies that shape our economy and our lives.

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Product Details

  • ISBN-13: 9780226134932
  • Publisher: University of Chicago Press
  • Publication date: 10/28/2001
  • Edition description: 1
  • Edition number: 1
  • Pages: 358
  • Sales rank: 1,521,914
  • Product dimensions: 6.00 (w) x 9.00 (h) x 1.30 (d)

Meet the Author

Kenneth W. Dam is the deputy secretary of the treasury and the Max Pam Professor of American and Foreign Law at the University of Chicago Law School. He served as executive director of the US Council on Economic Policy in the Nixon administration and as deputy secretary of state in the Reagan administration. He is author or coauthor of six books, including Economic Policy beyond the Headlines, 2nd ed. (1998, with George P. Shultz) and The Rules of the Game (1982), both published by the University of Chicago Press.

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The Rules of the Global Game: a New Look at Us International Economic Policymaking

By Kenneth W. Dam

University of Chicago Press

Copyright © 2001 Kenneth W. Dam
All right reserved.

ISBN: 0226134938

1 - The Tension between the "Is" and the "Should Be"
Well-designed international economic policies must be based on a sound domestic foundation--one that entails not only efficient fiscal and monetary measures, but effective programs in realms such as primary and secondary education. In this book I assume that successful responses to these fundamental domestic challenges are essential preconditions for the ultimate success of international economic policies. Nonetheless, I believe that more will be gained on the side of clarity if the analysis that drives this book is focused on those substantive economic issues that are explicitly international in form and force. I quickly add that this focus in no way implies that domestic considerations will be excluded from the analysis. On the contrary! It will be seen, as these pages turn, that domestic political processes and structures play a huge role in determining the vectors of international economic policies.
To set the stage for later discussion of specific policy issues, I want to comment on the causes and consequences of the distinction between what particular US international economic policies should be and what they actually are. To that end, something shouldfirst be said about the familiar distinction between judgments made from a normative perspective, on the one hand, and from a positive perspective, on the other.
"Normative" means "What is good? What should we do?" These are perhaps the ultimate and arguably unanswerable questions in philosophy. But in international economic policy we have a fairly clear, if often challenged, guide--namely, standard economics. Economics not only squarely addresses the "should" question, but even attempts to distinguish the conditions when a nation's economic interest might differ from what is good for the global economy as a whole.
It so happens that unlike some other areas of economics where professional views among economists may differ widely, nearly all economists agree on the basic principles I shall be discussing. There are substantially no liberal versus conservative disputes--no Keynesian fiscalist versus Friedman monetarist divisions--in international econom ics. The only partial exception to that assertion, insofar as this book is concerned, lies in the area of exchange rate policy, which will be held in reserve for discussion in chapters 10 and 11.
There are, of course, certain factors to be taken into account in international economic policymaking for which economics offers no answer. National security concerns are a leading example. The environment is another, although economics offers more insight than many environmental advocates realize. This book will argue, for example, that when certain environmental harms arising external to the United States threaten to spill over into the United States, the facts of that spillover must be taken into account in determining international economic policy. Why? Because the effect of the environmental damage may be to lower long-term US income and wealth, and therefore fits within a comprehensive normative economic approach. The practical problem is, of course, when and how to take the damage into account and how to respond.
Most public disputes over an economic approach to international economic issues do not, however, revolve around noneconomic values, such as national security or environmental concerns. The disputes rather are a by-product of the political system through which international economic policy decisions are actually made. My reference here is not to how a particular president organizes top-level decision making in his administration. It is rather to the structure of the US government and especially to that of Congress. To a lesser extent, it is also to how the United States interacts with other governments in economic policy decisions.
Aside from these political structure reasons, controversies over an economic approach to international economic policy often are due to the metric (or yardstick) that economics itself uses. Some Americans disagree on strong moral and social grounds with the emphasis on material considerations involved in using an economic approach to international economic policy issues. Individuals may, for example, be willing to give up domestic US income and wealth in order to advance other values--the worldwide environment or the well-being of Third World residents. Even in the material sphere, there is a tension between growth of average US incomes and the distribution of income within the United States. I will argue that in international economic policy formation, income distribution concerns can be better addressed by better income transfer programs (unemployment insurance, welfare, and social security) or by better education to build the human capital of those at the bottom end of the income scale than by pursing policies that reduce US national income and wealth. Nevertheless, the income distribution issues will be discussed where they have particular salience. A representative case in point entails imports of manufactured products from developing countries.
In contrast to the normative approach, the positive approach asks how US international economic policy is actually made. I shall call this positive approach the "political analysis" of international economic policy. In my use of the word "political," I refer not to party politics or elections, but rather to the politics of Washington that turn on the purposes and procedures of Congress and the Executive Branch. My primary concern will be with internal US aspects of economic policymaking and legislation (and less with international negotiations and the positions of other governments). And I shall focus on Washington because state and local governments have relatively little constitutional authority to legislate on the subject of international economic policy.
To approach the political aspects of international economic policy and policymaking, it is necessary to emphasize three basic concepts: (1) rent seeking; (2) interest group politics; and (3) statecraft.
Rent seeking, a concept in the field of public choice, involves the application of economic thinking to problems normally thought of as being political in nature. Due however to an unfortunate combination of words, "rent seeking" is condemned to stay outside the realm of popular usage, and even outside the vocabulary of policymakers. Compared, say, with "monopoly," "rent seeking" is obscure in the extreme. Nonetheless, no other set of words has emerged to capture the powerful concept of rent seeking.
Instead of trying to define "rent seeking" in the direct style of a dictionary, the use of an analogy may be more rewarding as an approach to its meaning. Most readers are familiar with the word "pork" as used in Washington. Pork, a form of rent seeking, entails lobbying for a congressional appropriation for the personal profit of those whose goods or services are paid for out of the appropriation, where the goods and services could not be sold in the private market, at least not for the same level of profit that would be gained with the help of an appropriation. Familiar examples involve construction of dams and highways, where politics plays a dominant role in determining what projects are actually funded. The assumption behind the idea of pork is that there is an excess profit to be had if one receives the appropriation, a profit out of proportion to the cost of actually providing the goods and services. Although much of the politics of Washington has to do with distributing benefits to constituents so that they will reward officeholders at election time (one of the natural aspects of democratic politics), I reserve the word "pork" to refer to the way the governmental system allows contractors to secure a higher price than a private market would deliver simply because the contract is funded or the contractors are chosen on political grounds.
If the central notion of pork is kept in mind and applied to a multitude of advantages to be derived through government (in contrast merely to competing in the marketplace), then the notion of rent seeking will be easy to grasp when we turn to the practice of lobbying for benefits concerning international economic activity. Such benefits-- construed broadly to include special government assistance in the form of tariffs, quotas, and subsidies--are out of proportion to the cost of actually providing the goods and services in world markets or to what could be earned competing head to head in the United States with foreigner suppliers.
Still, a question remains to be asked: What exactly is meant by "rent" and by "seeking"? "Seeking" is more than wanting, because it involves expending resources to obtain the favor of government. "Rent" is a little tougher concept to grasp because many readers will have something else in mind--payments made, say, monthly for an apartment or office. To an economist, however, "rents" simply refer to excess returns to private parties due to special privileges or protections accorded them by government (whether they be the first Queen Elizabeth's monopolies or present-day tariffs and import quotas). The "excess" is the additional profit above and beyond the profit that would be enjoyed in the absence of favorable government action. In the context of international economic policy, rents are therefore simply the additional profit above and beyond what could be made by companies with intervention on their side. Some of these rents flow through to stockholders, workers, and in some countries to the politicians who provide the favorable treatment.
In actual practice, rent seeking operates partly through the electoral process and partly through interest group influence on legislative and administrative processes. By far the most important instrument for obtaining rents is direct government action--in the form of subsidies or legislation and regulatory action affording protection from competition.
Fortunately, a number of constraints operate to limit rent seeking. Among the principal constraints are
Democracy: Governments create rents in both democratic and totalitarian systems--as we now understand in the wake of the collapse of the Soviet Union--but democracy seems to be better in practice at limiting rents. The reason why is because blatant rent seeking is likely to be more open and controversial in a democracy.
Laws against bribery and corruption: A moment's reflection will warrant the conclusion that bribery and corruption amount to advanced forms of rent seeking; one of the things learned with increased globalization is that rent seeking is rife in many developing countries because they do not have or do not enforce laws against bribery and corruption.
Competition: In a large country such as the United States, the typical industry has more competitors than in smaller countries, where there may be just one "national champion"; with more firms in an industry, it is less likely that one competitor can, through political influence, gain over its competitors.
Antitrust laws: To the uninitiated, these laws might seem to outlaw collusive action to obtain favorable governmental action. However, the Supreme Court decision in the Noerr case held that competitors are entitled to combine to influence the government. The reasoning of that case may be constitutionally sound, but in actual practice it means that the representative institutions of our political system can operate as a mechanism for rent seeking.
In the international economic sphere, rent seeking usually equates with protection seeking, since it is protection that is usually being sought: protection against competition from abroad. The competition often entails imports, but it can also be competition in the form of, say, foreign investment in the United States. Either way, the essential characteristic that we saw in rent seeking applies to the case because the protection is gained through governmental favor (not through becoming more efficient or more innovative).
Subsidization can also play a role in rent seeking. A subsidy to domestic producers can potentially be as effective as a tariff or quota in dealing with competition from more efficient foreign producers. Subsidization, however, operates not only in protecting against imports but in giving artificial assistance on the export side itself. If a firm can gain a subsidy to its exports, it can outcompete unsubsidized foreign competition in the world market. The United States has some export subsidies, in the form of low-interest loans and guarantees from the Export-Import Bank, but perhaps the most important examples are in agriculture, a sector in which export subsidies have played a major role since the Great Depression.
The concept of interest group politics fits hand in glove with the concept of rent seeking. We often think of elections as the fundamental feature of democracy, but that is only part of the picture. Over the past two hundred years, we have constructed a political system with many points of access for interest groups.
A number of elements of the US political system facilitate interest group influence. Some among these are important, indeed indispensable, to our form of government. But we should recognize that they still facilitate interest group influence. One such element involves the way the separation of powers works to prevent a president from taking action on international economic policy without the support and often the explicit approval of Congress. Even if the President may have some independent power in the field of foreign affairs (say, when acting as commander in chief ), that power rarely extends to international economic policy. In the economic sphere, presidential action is usually taken under statutory authority granted by Congress. It is true that the scope of potential presidential action in the international economic sphere has been greatly enlarged by congressional legislation. In particular, the International Emergency Economic Powers Act (IEEPA) permits the President to exercise virtually any power granted to Congress within that sphere. Some years ago, for example, the President used IEEPA to operate the export control system when Congress failed to pass reauthorizing legislation. But what Congress has given through the IEEPA, Congress can take away, and hence successive administrations have resorted to using IEEPA quite sparingly.
The separation of powers goes hand in hand with the congressional committee system. Because each committee has the exclusive right to prepare legislation on a subject falling within its jurisdiction, a committee may well indirectly accord favored interest groups a de facto veto over legislation that would significantly disadvantage them. Even where the breadth of omnibus or comprehensive legislation requires referrals to more than one committee, each committee under the system of multiple referrals tends to have a veto power over those parts of the legislation of which it disapproves. The system of multiple referrals thus enables interest groups, facing potential harm from an omnibus piece of legislation, to enlist a friendly committee on their behalf. This principle, extending equally to subcommittees having even narrower jurisdiction, has been especially important since the 1970s reforms that created many more subcommittees. Subcommittee chairs, being necessarily more specialized in their work than committee chairs, often see their role to be that of an advocate for particular economic interests. It is no longer possible for a powerful interest group to "rely on a few supermembers"--such as the great pre-1970s committee "barons," mostly southerners of long seniority, who were often able to determine legislative outcomes over a drink at the end of the day. Today there are many more members and staff to lobby.
Many congressional committees have a potential role in international economic matters, but some committees have a special role. Trade legislation, for example, normally has to be introduced first in the House Ways and Means Committee, a committee that gained this dominant role because of its jurisdiction over tax legislation. Because tariffs are taxes, trade legislation involving tariffs has to go to Ways and Means, and the effect is to make the committee a particular focus for interest group activity. In the Senate, the Finance Committee has jurisdiction over trade legislation, and for the same reason--because it is the Senate's tax-writing committee. That these two committees should play such a central role is perhaps a by-product of history. Before the income tax, tariffs provided the great bulk of revenue for the federal government. The tax-writing committees (which are necessarily among the most powerful committees in Congress) have provided some discipline to prevent major international trade legislation from being carved up among specialized interest group-oriented committees. Moreover, the recent growing role of political parties in Congress, especially since the Republican victory in the House of Representatives in 1994, has arguably tended to provide some resistance to committee balkanization of major international economic legislation.
Another point of access for interest groups is provided by the Executive Branch departmental structure, where many departments and bureaus within them see their role in large measure as that of advocates for economic groups. We will see a number of illustrations in this book.
In the complicated US political system, interest groups can thus access policymakers in a variety of places and ways. What is more, enactment of legislation is not necessarily--in fact, not usually--the way in which interest groups achieve their goals. They can frequently obtain favorable action, block unfavorable action, or redirect action by maneuvers in the congressional committee system or in the labyrinth of Executive Branch departments and bureaus. The points at which legislative or other action can be sidetracked have aptly been called "veto-gates."
Interest groups in either Legislative or Executive arenas are not always on the rent-seeking side. On the contrary, many interest groups strive to defend themselves against rent seeking by others. If some, in the struggle to affect government policy, seek protection, others whose economic interests would be adversely affected will necessarily try to prevent the first group from achieving its goals. In the international economic policy sphere, those whose interests lie in exporting may be opposed to those who seek protection from imports. Similarly, businesses that import--either for resale or as inputs to their own products--may oppose those who seek protection from imports. This competition among interest groups is an important potential safeguard against rent-seeking legislation. And this is so because interest groups defending against rent seeking by others are often able to sidetrack rent-seeking legislation or Executive action.
In international trade legislation, it is not only the self-defense lobbying of exporting and import-dependent interest groups that prevents runaway protectionist legislation such as the Smoot-Hawley Tariff Act of 1930. Rather a series of legislative innovations have provided a set of procedures enabling those groups not just to thwart protectionist legislation but, in addition, to promote trade liberalization. I shall discuss these legislative innovations in detail in later portions of this book under the rubric of statecraft.
When we turn to some of the newer areas of international economic policy--services, investment, intellectual property--interest groups have often been at the forefront of the drive for liberalization. New alliances have frequently been formed to achieve the goal of putting the subject matter on the international agenda and then to push the US government to carry that agenda forward to concrete achievements.
These particular interest groups induce the US government to force worldwide liberalization and thus undermine rent seeking in foreign economies.
What has been said so far about the dynamics of a political analysis of international economic policy shows how that analysis can serve normative goals. Much of what passes for "political economy" in academic circles assumes that if it were not for interest groups, governments would do the right normative thing. Perhaps so, but that is at best only a half-truth. The larger truth is that, at least in some of the newer policy areas, it has taken interest group action to get the US government "off the dime" and to push actual policy closer to what is rather clearly a better normative result.
In any event, I should not be understood to argue that interest group politics determines all policy outcomes. Quite the contrary. Other considerations play a role, as one can see by taking a close look at Congress. The basic facts of the US governmental system are that although it opens opportunities in the Legislative and Executive Branches for interest groups to operate, it also puts political limits on their ultimate influence. Although legislators in office may be heavily influenced by interest groups, legislators also have to be reelected, indeed every two years in the House of Representatives. Even though interest groups-- by, for example, campaign contributions--may help legislators be reelected, votes are the ultimate currency. Few interest groups are capable of turning out the vote by their direct appeals (though trade unions and some social policy groups--say, in the environmental area--can sometimes do so).
Interest group politics has created a bewildering set of actors. In addition to companies, we find in Washington a variety of organizations (along the "K Street Corridor") that carry out the day-to-day tactical battles of interest group politics. Most, but by no means all, of these organizations lobby, and many of them combine lobbying with other kinds of activities. For example, most big Washington law firms include within their services a lobbying practice. Indeed, lobbying is a growth industry. In 1998 expenditures on federal lobbying increased 13 percent to more than $1.4 billion; the number of registered lobbyists reached 20,512 in 1999. That amounts to thirty-eight registered lobbyists and $2.7 million in lobbying expenditures for every member of Congress!
But many of the most powerful private sector participants in the legislative process are not included in the category of registered lobbyists. Robert Dole, former Republican majority leader of the Senate and 1996 Republican presidential candidate, does not personally contact his former Senate colleagues or other officials covered by the lobbying law and so he does not register as a lobbyist. What Dole does is deal with the clients of his law firm and help plan legislative strategy on their behalf. (On the other hand, former Democratic majority leader George Mitchell does register as a lobbyist, though both former majority leaders are "Special Counsel" in the Verner, Liipfert law firm.)
Washington Offices of Corporations
The number of these offices grew tenfold in the two decades after 1961. According to the Center for Responsive Politics website, AT&T had forty-four registered in-house lobbyists in 1998. Unions also have in-house lobbyists; the AFL-CIO had thirty-six and spends over $4 million per year on total federal lobbying.
Trade Associations
The number of trade associations listed in The Encyclopedia of Associations rose fivefold between 1955 and 1993. And some have large in-house lobbying staffs--the American Petroleum Institute has thirty-five, again according to the Center for Responsive Politics website.
Public Relations Firms
For years large national public relations firms such as Burson-Marsteller and Hill & Knowlton have maintained Washington offices, though not all of them lobby. Rather they use their combination of public relations skills and political savvy to support a variety of public campaigns through survey research, advertising, and public events.
Law Firms
The number of lawyers in Washington has multiplied many times over in the past decades. A great many Washington lawyers spend part or most of their time lobbying Congress and the Executive Branch. Among the better known in Washington are Alan Wolff and Robert Lighthizer, who specialize in international trade matters. Both come steeped with years of government experience, Wolff at the Treasury and the United States Trade Representative (USTR) and Lighthizer working for Senator Robert Dole at the Senate Finance Committee. It is understandable that Washington law firms necessarily spend much of their time on legislation and thus must lobby Congress for their clients. Some Washington law firms clearly specialize in lobbying, as evidenced by the fact that nine of the top ten lobbying firms in 1998 were law firms; the second (number one in 1997) was Verner, Liipfert, no doubt with help from the reputation of their previously mentioned "Special Counsel," former Senators Dole and Mitchell.
Smaller Boutique Firms
In recent years smaller firms have grown up that "specialize in lobbying specific committees, in creating coalitions to lobby in concert, or to mobilize group members in real or manufactured grassroots campaigns." "Now there are small firms established for the purpose of lobbying just one member, or one Congressional committee; they're usually staffed by people who had been close to the member, in one case by a powerful Congressman's reputed mistress." The role and profitability of these specialized lobbying firms became clear when Shandwick USA, a national public relations firm, entered the Washington lobbying business in 1999 by paying some $70 million to acquire the largest of these specialized lobbying firms, Cassidy & Associates, a firm that with $19.8 million in lobbying revenues ranked first among all lobbying firms in 1998.
Interest groups with enough at stake in the decisions of government are often prepared to use all of the foregoing organizations. Consider this charge by Charles Ferguson, a former Internet entrepreneur and now a senior fellow at the Brookings Institution, who fervently believes that local telephone companies and the telecommunications industry in general have stood in the way of more rapid high-speed home access to the Internet:
The local companies alone have about five hundred full-time employees lobbying in Washington, not counting the innumerable law firms, lobbying firms, and public relations firms they also employ. They also have large lobbying efforts at the state level. Local, long-distance, and cable companies are also among the largest contributors to political campaigns and political action committees at both state and federal levels. In total, the telecommunications industry probably spends half a billion dollars a year on lobbying in all forms; that's serious money.
Ferguson's spending number is hard to verify, but we do know that Bell Atlantic alone spent $21 million on lobbying and $2 million on campaign contributions in 1998, with unknown additional amounts for related public affairs activities.
Meanwhile, foreign corporations and governments enter fully into Washington lobbying activities, because as former Senator Paul Laxalt observed, "Everybody needs a Washington representative to protect their hindsides, even foreign governments." Foreign interests use the full panoply of lobbying services available to Americans. Perhaps the most famous lobbyist of all, Thomas H. Boggs Jr., is known in part for his representation of foreign interests. Lobbyists on the behalf of foreign interests have to register as "foreign agents," and over five hundred were so registered in 1999.
Even US government officials lobby because they too "must talk their way into Capitol Hill offices," and their budgets and programs depend on congressional action. One study found that with regard to the issues studied, "federal, state, and local advocates (which includes not just government officials but others advocating on their behalf ) constituted 37 percent of the entire pressure community."
Broader organizations, involved in a number of industries, and often concerned with both domestic and international economic issues, include the Chamber of Commerce and the National Association of Manufacturers on the business side and unions on the labor side. These broader organizations on the business side usually are not especially effective in international economic policy because their membership includes both companies on the freer trade side and companies on the protection-seeking side, and hence there is a built-in conflict within the membership. As a result, pro-trade groups of exporting companies, particularly multinationals, have formed their own more specialized groups such as the Emergency Committee for American Trade (ECAT) as well as ad hoc groups to lobby for pro-trade initiatives, such as USA*NAFTA for the NAFTA vote and Alliance for GATT Now for the Uruguay Round vote. Opponents from labor and import-competing industries joined together in the Labor/Industry Coalition for International Trade (LICIT). An informal alliance of labor and environmental groups was successful in defeating the attempt to launch a new trade round in Seattle in late 1999.
Political contributions play a large role in the efforts of interest groups. Despite the long-standing rule against corporate contributions, corporate and union executives may give limited amounts as individuals.
And both corporations and unions may form political action committees (PACs). PACs at first were largely trade union interest group instruments; in the 1970s, 89 corporate PACs were outnumbered by 201 union PACs. Industry interest groups, however, quickly grasped the possibilities. By 1996, 1,642 corporate PACs far outnumbered 332 labor PACs. To keep the picture in perspective, it should be added that the more rapid growth of corporate than union PACs was a reflection of the relatively smaller number of unions than corporations in the US economy and the continuing decline in the percentage of the unionized workforce.
In recent years various other groups have formed PACs. In the 1996 congressional elections, trade association PACs contributed over $100 million, nearly as much as either business or union PACs gave. As in the case of unions and corporations, PACs are especially useful for groups originally organized for other than political purposes, but that find their group interests can be furthered in the political process. Over a thousand "nonconnected PACs," usually representing social or other noneconomic causes, have been on the scene since 1984.
In the 1990s the growth of "soft money," a journalistic term referring to money not subject to the 1970s limitations on PAC and individual giving, became a major factor in politics. The appearance of soft money on the Washington scene was the result of minor changes in the interpretation of the governing statute, the Federal Election Campaign Act, by the Federal Election Commission (FEC). The new interpretation allowed political parties to allocate funds and expenses to state parties, where state law did not impose limits as stringent as those of federal law. As Thomas Mann explains, "In effect, the FEC gave the parties permission to raise funds for nonfederal accounts directly from corporations and unions and in unlimited amounts from individuals, even though federal law explicitly prohibited such solicitations." The result, again according to Mann, was a "scandal": "Practices supposedly outlawed by the act--the solicitation of six- and seven-digit political contributions by elected officials and the use of corporate and union treasuries to finance electioneering communications--returned with a vengeance.. . ." "Corporations, such as Archer Daniels Midland (ADM), and labor unions, such as the United Steelworkers, are among the top soft money contributors"; "ADM and its chairman, Dwayne Andreas, contributed in excess of $1 million to Republican Party committees and Bush's prenomination campaign committee in 1992, $977,000 of which was contributed as soft money"; and "for safe measure ADM and Andreas also contributed $90,000 to the DNC [Democratic National Committee] and an additional $50,000 to the Democratic Congressional Campaign Committee." Although state parties are usually theoretically assigned soft money funds, they can spend them in federal congressional elections under the rubric, as we will see, that the funds are used to advocate issues rather than expressly to advocate the election or defeat of a federal candidate.
Because soft money is flexible and not subject to statutory limitations on amount, total soft money expenditures have exploded. They went from $86 million in the 1992 election cycle to $263 million in the 1996 cycle. In the 2000 cycle, the 1996 cycle soft money figure had already been surpassed by June 30. The notion behind soft money was originally that it would be spent on state elections and on generic party-building activities. But interest groups soon learned that soft money can also be used to promote particular views on a salient issue, thereby favoring one of two candidates in a contested congressional election, while at the same time enabling an interest group to put across its position on that issue. For example, in 1996 the AFL-CIO spent $35 million on public education ads that "savaged vulnerable Republicans on hot-button issues; this $35 million was in addition to another $35 million of avowedly political contributions to candidates and political parties." These ads reflect the current understanding that interest groups may spend money on ads that praise or vilify candidates so long as they do not "expressly advocate" a vote for or against a candidate by the use of forbidden phrases such as "vote for," "against," "elect," or "defeat." Since avoiding these forbidden words is no bar to effective electioneering ads, issue advocacy has become a major weapon in the hands of interest groups. The Annenberg Center found that 86.9 percent of 1996 issue ads referred to a candidate or public official by name and 59.2 percent of television advertisements pictured a candidate or public official. Moreover, only 2.8 percent failed to be generally supportive of either the Democratic or Republican position on the issues mentioned.
The dollar numbers on soft money contributions do not include issue ads funded directly by interest groups. The current understanding is that there is no limit and no reporting of such contributions as long as the expenditure is not coordinated with the candidate's campaign. Under that approach the AFL-CIO incurred "communication costs" of $2.7 million, and the Democratic Senatorial Campaign Committee had $1.3 million of "independent expenditures" in the 1998 elections. But there is no reason to be confident that figures such as these are complete. "Since there's no official reporting of the cost of issue ads--and no requirement that the groups running them reveal their donors--this loophole is the political equivalent of a black hole in space."
Soft money lends itself particularly to struggles over economic policy, especially in the trade area. During the NAFTA debate in Congress, labor and environmental groups sought "to expand the scope of the conflict to the general public." By appealing to ordinary citizens through dire predictions of job loss and increased pollution, these groups attempted to sow seeds of doubt regarding the virtues of free trade."35At the time of the fast-track renewal debate in 1997, the AFLCIO successfully used television ads in twenty key congressional districts in order to define the issue of fast track as one of job loss. Attempts by the Clinton administration to redefine the issue as one of economic growth failed; President Clinton admitted, "According to every public opinion survey, I have completely failed to convince a substantial majority of American people of the importance of trade to our economic development."
In addition to lobbying and political contributions, interest groups increasingly use newspapers, television, and other media, including advertisements, to shape public opinion. Since these so-called independent expenditures are not regulated, it is impossible to know how much is spent, but the amounts spent by interest groups are certainly growing. It is increasingly the view of successful interest group advocates that lobbying and public relations go hand in hand, and indeed public campaigns are important to shape how issues are perceived well in advance of legislative consideration. "Those interests that can generate and repeat a consistent set of messages, publicly and privately, are most likely to define problems, set agendas and construct alternatives that serve their own needs." The nature of the activities financed reflects a media era in which sound bites are increasingly shorter and the messages simpler if not more simplistic. Since television has become a prime instrument for shaping public opinion, images are favored, which creates a difficulty in the international economic arena, where few relevant ideas can be captured on film and images such as a closed plant or unemployed worker hardly illuminate the public policy issues; it is hard to photograph jobs being created. Two longtime students of interest group politics summarize the impact:
Politics more than ever has become an offshoot of marketing. In such a context, most information is "interested." That is, the information reflects, sometimes subtly, sometimes not, the underlying views of the interests who sponsor and disseminate it.


Excerpted from The Rules of the Global Game: a New Look at Us International Economic Policymaking by Kenneth W. Dam Copyright © 2001 by Kenneth W. Dam. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents

List of Abbreviations
Part 1: Angles of Vision
1. The Tension between the "Is" and the "Should Be"
The Normative Approach
The Positive Approach: A Political Analysis
Interest Group Politics
Who Does What (and to Whom) in Washington
Political Contributions and Interest Groups
Rent Extraction
The Role of Political Parties
Limits to Political Analysis
2. The Role of Statecraft in Resolving the Tension
The Presidency, the Executive Branch, and the Congress
Implementing Statecraft Strategies
A Closer Look at the Private Sector
Statecraft in Search of Normative Goals
Interest Groups and Public Discourse
Openness, Productivity, and Per Capita Income
3. Political Dimensions of Trade Policy
Political Analysis
The Institutional Setting of Interest Group Politics
The Influence of Different Kinds of Interest Groups
4. Normative Dimensions of Trade Policy
The Case for Eliminating Trade Barriers: Comparative Advantage
Intraindustry Trade
The Benefits of Opening Economies to Trade
Qualifications to the Case for Free Trade?
The Current State of Play
Part 2: Trade Strategies and Issues
5. Opening Foreign Markets
The 301 Process
Sanctions as the Achilles' Hell of 301
The Semiconductor Agreement Example
Market Access in the Uruguay Round: Procurement and Agriculture
6. Trade in Services
The Nature of Trade in Services
The Search for Services Trade Liberalization
Financial and Telecommunications Services
The Path Ahead
7. The Regional Strategy for Opening Markets
Regional Trade Agreements Today
The Case for and against RTAs: Trade Creations and Diversion
Rent Seeking in the Trade Creation/Diversion Equation
The Third-Country Effect
Interest Groups and NAFTA
8. The Janus Faces of Fairness
From Protectionism to Fairness
Antidumping Proceedings in Actual Practice
Antidumping in a Statecraft Perspective
The Semiconductor Agreement, Part II
Larger Implications of the Antidumping Law
Part 3: Investment and Finance in a Globalizing World
9. Private Foreign Investment
Perspectives on FDI
Investment as a Driver of Trade
Restrictions on Investment as Restrictions on Trade: TRIMS
The Failed OECD MAI Effort
US Policy toward Inward Investment
US Options in Investment Negotiations
10. The Diversity of Monetary and Financial Issues
The Moving Theater of Monetary and Financial Issues
Exchange Rates and Patterns of Trade
Exchange Rates and Trade Compared
Managing Exchange Rates
11. The International Monetary System
Exchange Rate and Reserve Systems
A Political Analysis of US International Monetary Policy
The Key Currency Role of the Dollar
12. The International Financial System
Underdevelopment in Developing Countries
The Asian Financial Crisis
The Bailout Issue and Prospective Reforms
Policy Issues after the Asian Crisis
US Decision Making in International Finance
Part 4: Irrepressible New Issues
13. Labor Standards and the Environment
Trade and Labor Standards
Trade and the Environment
14. Trade in Information
The Nature of Information
Information Issues
The Uruguay Round TRIPs Agreement
Subsidies to High Technology
15. Cross-Border Flows of People
US Immigration Policy in Historical Perspective
Immigration Today
An Economic Approach to Immigration Policy
The Consequences of Present Policy
Short-Term Entrants

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