Question

Questions : The extent of lobbying and the analysis of many examples suggest that economic interest-group lobbying is very effective. Why?

Answer :

Lobbying is effective because a small, well-organized group with a lot at stake has much more incentive to get involved in the political process than does a broad, diffuse group. For example, the CEO of a major corporation has a strong incentive to lobby the government for grants or special protection. If successful, he or she may earn hundreds of thousands, possibly millions, of dollars in higher income. The losers in the deal are taxpayers. Most taxpayers will not even be aware that the deal is proceeding, and the liability for any one taxpayer is small—perhaps a few dollars and rarely more than a few hundred dollars. No one is likely to pay the airfare to Ottawa and other travel costs to argue over a few dollars or even over a few hundred dollars. Interest groups are effective because the benefits of lobbying are concentrated and the costs are diffuse. Therefore, the beneficiaries have an incentive to get involved; individual losers do not.

My question : It says that " Lobbying is effective because a small, well-organized group with a lot at stake has much more incentive to get involved in the political process than does a broad, diffuse group: , but while using example of this, it suddenly mentioned a CEO of major corporation which does not match previous argument that says small, well-organized group with a lot at stake.

Can anyone explain this

Answer 1

Let us take an example. There is a steel making company in USA. Name of the company is XYZ ltd. This company is facing problem of decreasing demand of its steel because China is selling it USA at lesser cost and hence USA manufacturers that use Steel buy Chinese steel. There is new that China subsidizes its steel producers.

This CEO of XYZ limited will now lobby with politicians which are policymakers to impose high tariff on imported steel. Policymakers agree. Chinese steel becomes expensive and demand for XYZ company steel goes up. Share value of this company also goes up and CEO makes a lot of money. Now, expensive steel will increase housing costs and all infrastructure costs which will be recovered from taxpayers.

Hence, a small lobbying group was effective rather than using diffused group like employees of steel company which are not close to policymakers.

In this case,CEO and close members of policymakers are a well-organized group with their incentives at stake.

Now,