Missing Keystone Stakeholder

Chidem Kurdas

In the controversy over the Obama Administration’s rejection of the Keystone XL pipeline, one group was rarely mentioned.

This group is not small; on the contrary, it contains hundreds of millions of people—namely, American consumers of oil-related products, which means just about everything and everybody. The pipeline would bring plenty of oil from Canada, thereby keeping consumer prices low. The decision to forbid its construction is almost certainly biased against consumer interests.

The economist Mancur Olson was prominent among the 20th century scholars who explained why choices by political and public sector players inherently favor concentrated interests and are prejudiced against large groups. Here is a simple version of the fundamental point underlying Olson’s work. From my 2014 book:

“Small groups of like-minded people organize relatively easily. Each of the members gets an observable, significant benefit, which gives them a strong incentive to devote resources to this purpose. Public labor unions and trade associations fit this description. Once organized, such groups engage in activities to gain power—donate money to politicians, hire lobbyists who know how to deal with government and flacks to shape publicity, offer high-paying jobs to ex-officials. Over time, concentrated groups build extensive networks of influence, which bring them government-mediated gains that the rest of the populace pays for.

By contrast, the largest groups – such as consumers or taxpayers – are at a disadvantage in taking political action. It is difficult to organize numerous disparate individuals who are weakly connected; the common element of paying taxes or buying products is insufficient to make them act together. Therefore it is almost impossible for big groups to resist programs or regulations that impose costs on them.

While the population as a whole may bear a huge cost from a policy, the cost is dispersed across a large number so that each individual bears a small portion. It follows that an individual member would get only a tiny share of the benefit from time or money devoted to organizing the group and advancing its interest. In short, most members of big, diverse groups do not have sufficient incentive to contribute to political action to protect the interests of the group.

The upshot is that relatively tight, homogenous small groups use political influence to exploit the masses. Large numbers who can’t organize and acquire political influence are easy prey.”

So the Keystone decision was a contest between a few highly organized interests, as is almost any decision by government agents. By comparison, consumers and taxpayers have little or no political leverage.

What’s the solution? It’s two-fold. One, minimize government interference in the economy, thereby reducing the special interest influence. But two, when such political choices have to made, a referendum of the entire population is how a truly participatory system should make them. Not by the political class; by the public at large.

Some polls taken before the Obama announcement showed majorities in favor of building the pipeline. A general referendum could very well have given Keystone the green light. But that’s not what matters to the political elite.

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