Introduction
In our term paper we would like to analyze some well-known theories and also combine them with real life examples to have a comprehensive overview of whether the theories are applicable to real life and how accurate they are. For the theme of our paper we decided for the topic interest groups. Based on this topic, we further decided to use Mancur Olson’s theory of special interest groups, which he precisely described in his famous book “The Rise and Decline of Nations”.
In the first part of our paper we will mainly focus on providing general information and insights into the Olson’s theory and we will also take a general look at the framework of the car lobby itself.
In the following part of our paper we will discuss the ex-ante predictions regarding the success or failure when it comes to specifically selected lobby groups, based on Olson’s theory as well.
The final part offers a brief introduction to the particular car lobby group ACEA and also analyses the actions and influence of the lobby group. The question whether the theory is consistent with our real life example is broadly discussed and advocated as well.
1. Introduction to the Theory
In this chapter we will present the theory we will use in order to conduct our case study on the influence and impact of special interest groups on government decisions. We define special interest groups as a coalition of individuals or representatives trying to gain influence on the political environment. In order to have a collective impact on a particular matter they develop access strategies to reach the decisive officials and legislators.
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Precisely, we will set a framework of a social coalition theory based on Mancur Olson’s theory of special interest groups and their collective action in pursuing a common goal, published in his book “The Rise and Decline of Nations”. We will then apply this framework on the car lobby. The car lobby is considered to have strong internal connections to political officials as they are equipped with a vast number of resources and backed by the politically crucial automotive industry. We will focus on the European Automobile Manufacturer’s association (ACEA), which is one of the most important car lobbies in the European Union. ACEA is a representative association of the automotive industry with great impact on decisions made in Brussels. It reflects the interest of the car industry in most European Countries. We will analyze its access and impact strategies on EU institutions and their influence on democratic decision procedures. Furthermore we examine how their actions affect the total society.
In order to introduce Olson’s theory of special interest groups, it is essential to know the underlying assumptions and problems Olson describes. Given Olson’s assumption of rationality of individual behaviour, a social group may fail to achieve collective action. That is, that the group may fail to achieve its common goal. In our case it would mean the group is not able to have an influence on political decisions. To some extent it is individually rational to not take part and contribute in the groups’ action as it involves personal costs. It is rather rational and self-interest maximizing to withdraw from the action but to benefit from the groups outcome. Clearly, if every individual in that group is assumed to be rational the groups’ goal would not be achieved. Especially groups with increasing size are likely to face problems of collective action (“free-riding”) as group members can hardly be monitored in their individual contribution and not be excluded from group benefits.
Small groups in contrast, consisting of individuals with homogenous preferences are likely to achieve a common interest. According to Olson, the presence of selective incentives, i.e. frequent interactions within the group, the ability to monitor, punish and reward individual behaviour increases the likelihood of collaboration and overcoming the collective action problem. Therefore, groups with relatively smaller size are privileged to groups larger in size.
Although not a particular problem under examination in this case study it is important to mention the collective action problem. It is the underlying obstacle of a groups’ formation and has to be overcome in order to have an influence on decisions.
However, besides overcoming the collective action problem, it is of special interest for us to examine and analyze how interest groups, here applied to the ACEA, gain access and increase impact on political decision procedures and the societies’ welfare as a whole.
2. Types of Coalitions
2.1. Distributional and Encompassing Coalitions
According to Olson, the degree of influence of interest groups and as a result the impact on the societies’ welfare depends on the type of coalition in existence. He introduces the concept of coalitions called “distributional coalitions” and “encompassing coalitions”. Both types of coalition try to gain access to the political environment. In the valuation part of a real life example of an ACEA action we will evaluate to which coalition the ACEA may belong to in order to conduct a proper analysis of their influence and especially about their impact on the society.
Distributional coalitions are special interest groups that only represent interests of a small number of firms. The representatives of these groups try to maintain and strengthen the companies’ market position by supporting protectionist and even monopolistic legislation procedures. Such protectionist measures could be tariffs, taxes or non tariff barriers imposed on market competitors which negatively affect an efficient allocation of recourses and may support inefficient economic segments. This type of interest group will heavily oppose technological progress as it might be harmful to its own position. Thus, the outcome of such penetration of political decisions is disadvantageous from a societies’ point of view.
Successfully influenced legislation will be heavy in favour of a small number of individuals that only make a fraction of the society. But the society as a whole will face a decrease in economic output due to a lack of technological progress and even stagnate over a longer period of time.
Distributional coalitions occur especially in the presence of politically stable democracies. They will form in huge numbers all across the society and will grow in size over time. Therefore, they will accumulate power and increase their degree of influence and access on political decision making. With an increasing number of distributional coalitions the political environment will be distorted and a social welfare maximizing outcome of political decisions is highly unlikely. Clearly, these coalitions try to redistribute wealth and income within the interest group leaving the society worse off, as the total welfare decreases.
On the other hand, the counterpart of distributional coalitions is encompassing coalitions. The nature of encompassing coalitions is that they do not restrict their actions to the interests of a small number of individuals or firms but rather reflect the interests of the broader society.
According to Olson, encompassing coalitions influence political decisions in a way that is beneficial to the society. Since their interests correspond with the broader interests of the society, comprehensive bargaining about legislation will lead to efficient political outcomes (Rosser, 2007). In contrast to distributional coalitions, encompassing coalitions foster technological progress and economic growth. Thus, their actions and impact on political decisions increase the welfare of the whole society.
In conclusion of the theory part, based on Olson’s special interest group theory, we defined two types of coalitions. Both coalitions, distributional and encompassing, try to gain access and impact on legislation procedures. Distributional coalitions represent the interest of a small number of individuals and rather oppose technological progress, hence, slow down economic growth. Encompassing coalitions reflect the interest of the broader society, hence; rather increase the welfare of the society.
3. Ex-ante predictions
3.1. Olson’s framework on EU car lobby
Considering the previous definitions and analysis on Olson’s developed theory about the influence of interest groups on different realities and its impact in governmental decisions, as well as, the defined framework of the EU car lobbying which is mainly led by ACEA. It is now the purpose of this section to predict the outcome of ACEA actions in the EU political environment based on the theory.
In order to achieve our purpose we might first set up some considerations on our previous analysis. First of all, we have to bear in mind that it was never Olson’s goal to study the impact of particular organizations or a group. It was, instead, an attempt to highlight the role played by several interest groups in the economic development of a country as a whole. Therefore he did not trail a specific framework which would be possible to apply to a particular organization or group, although his work is accurate enough to study the outcome of any lobbying activity in its broader sense.
Focusing now on the car lobbying role, we might also underline some important features of this organization regarding its history, experience, resources and internal decision-making process, some of them already described before. These features might influence the outcome of its actions under the analysis of Olson’s model. When referring to automobile industry we immediately link it with a high level of complexity and regulation. Here we might wonder if that is the result of political and social evolution itself or if it may be connected with some kind of external force (interest group coalition) which influences the market outcome. It is our aim now to understand whether or not there are conditions in the car industry to the establishment of a coalition which is strong enough to influence political decisions on related matters.
3.2. Car industry and interest groups coalitions
Olson identified a main requirement, to the appearance of successful interest groups: the maturity level of a certain industry. When considering this point we easily realize that automobile manufactures and all its stakeholders have been interacting for long enough to derive some successful coalition actions. Olson supported this direct relation between industry maturity and the success of interest groups action with some empirical evidence on US market. For that reason we are lead to undertake the US market as a benchmark (due to several similarities with EU system) and then conclude that it might also be the case that car industry is in a well-developed position to set off some thriving coalitions. Apart from industry maturity, so far we don’t have enough information which leads us to conclude if ACEA is a distributional coalition or an encompassing one. In order to do so, we have to analyse some of the car industry background. As any other market operating industry, companies within the car industry can be considered rational. Therefore they will be profit-maximizers. If so, an association like ACEA, which is willing to increase companies’ benefits, might above all care about the impact of certain decisions for companies and not really be concerned about the outcome for society as a whole. Unless we argue that an increase in society surplus due to certain decisions will increase companies’ benefits. We have found the first reason why we should look at ACEA as a distributional coalition as defined in the previous section.
It is also true that there are better conditions for an interest group coalition to arise and to be successful in a stable economy. Despite that, it works even better in a democracy where the de facto political power is closer to a centrist orientation rather than the extremes of laissez-faire or a socialist command. It is actually the case of the European Union. Another argument which may be crucial in our approach is that it is more likely that some groups’ goals prevail when the opposition, even if it exists, is not sufficiently strong to offset others’ damage, which will make them “suffer in silence”.
Altogether it would lead us to conclude that ACEA, as the major car lobbying player, is closer to be a distributional coalition rather than an encompassing one.
Even though it is not our main focus here, we might also refer the adoption of this framework is not consensual in the field. Some experts would be against what we are arguing here, mostly because it is not guaranteed that car lobbying activities have only negative effects in society’s view. At this point it is fair to mention that some might consider lobbying activities as a way to undertake more openness and competitiveness in the political system which would lead to more transparency in EU (Schendelen, 2002). We could also support this idea in the sense that lobbyists bring out facts about political matters mainly through the media. The reason to mention this argument here, is to ensure that we do not exclude the possibility of some positive effects in further analysis of the actual ACEA activity.
Bringing together our reasoning we might be in a position to set up some predicted impact ACEA may have towards political decisions in EU. This is our goal for the next subsection.
3.3. Expected ACEA impact
In pursuing our attempt to apply Olson’s framework to car lobbying in the EU, it seems logical to argue that car lobbying actions might be strong enough to influence political decisions on this field. Every coalition which may arise within this market segment (e.g.: ACEA) will then be the reason for time-consuming political decisions throughout crowded agendas and bargaining tables. It is expected that ACEA will achieve that by finding some means of communicating directly with EU representatives. That kind of action is also likely to involve high amounts of money due to the necessity of qualified people who work with complex regulation and try to persuade politics. For that reason ACEA will only be successful if it is able to aggregate high amounts of contributions from the biggest companies in the industry.
If it happens to be so, this pressure would somehow be able to slow down society’s ability to move towards more efficient technologies and to reallocate resources (e.g.: alternatives to oil market or more efficient energy-using technologies, however we will have some deeper analysis into these results in the next section). Once big enough, this distributional coalition could have its well-noticeable impact in the rate of economic growth. Thus, we could also mention that the build up of this distributional coalition would increase the complexity of regulation in areas related with car industry. In its extreme upshot it would by some means influence the course of social evolution.
4. Analysis and empirical evidence
We will focus our analysis in the field where the ACEA plays its higher stakes: the negotiations for the reduction of CO2 emissions by automobile vehicles.
Particularly, we intend to highlight ACEA evolution and its impact on the quality of policy making by the European Commission in the last two decades. Then, we intend to figure out if there is a link between this group’s actions regarding the topic and the European Union performance in technological development, more specifically the move towards a greener and more fuel-efficient society.
But first, it’s important to provide a brief characteristics description of this particular interest group.
4.1. ACEA – a heavyweight special interest group
The European Automotive Manufacturers Association – ACEA, is well-known and highly respected Economic interest Grouping within the Europe. ACEA was established in 1991 with Brussels headquarters, Secretariat and Secretary General. Later ACEA also opened two other offices in Beijing and Tokyo even though the main purpose was to advocate the car manufacturers’ rights and interests on the highest European level possible.
Today ACEA has significant importance and voice because it is gather 18 big and powerful car, truck and bus manufacturers such as BMW Group, GM Europe, Volkswagen, IVECO, Renault, Jaguar…
The automotive industry itself is a vital part of European Union economy, the ACEA members alone contribute every year roughly 20 billion euros into research and development, claim 42.8 billion on net exports and deliver taxes on approximately 3.5% of the European Union GDP.
Surprisingly for such a significant lobby group, the organization of the ACEA is quite simple. The main organ is the Board of directors. Each member of the directors’ board is also a CEO in a company, which is a member of ACEA. The board of directors is the decision-making organ and selects a President on an annual basis. Decisions are taken into force by the Joint Committee, which is represented by senior executives of the member companies. In the case of particular issues, there is also available a specialized Committee to discuss and help on the issues. Apart from these organs, there are also more than twenty specialized working groups working for the ACEA, who are responsible for technical expertise and advisory. Every member of the specialized working group is an expert in his field and works for the member company.
The general and main purpose of ACEA is to be included in these activities with European Union: 1.To have a constant dialogue with European Union and all the other organizations influencing the automotive industry; 2.Cooperation with all the responsible and decision-making organs in order to offer the industry knowledge and expertise, which ACEA has. To provide relevant opinions and suggestions to the policy makers; 3.To provide valuable partnership within the whole organization as well as to offer partnership to other interdependent industries, in order to achieve the mutual beneficial policies; 4.To provide strategic reflection on the current and future completion within the industry and on corporate responsibility; 5.To communicate the importance and activities of the industry, also to communicate the acquired data, information and expertise. 6.To monitor all the activities and threats which might influence the industry and afterwards properly respond to them or cooperate with the stakeholders.
4.2. Analysis of real-life outcomes
4.2.1. The growing size of the group
Taking a closer look at this group’s evolution along the last decades, we conclude that its rate of growth in terms of size and influence has been staggering. Having as a predecessor the old CMCC (Comité des Constructeurs du Marché Commun), founded in 1972 and consisting of seven members, the ACEA’s number of members in 2005 was two times bigger. In September 2012, the organization comprised 18 different automobile manufacturers.
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What can explain this phenomenon? Since the CMCC times we can perceive this interest group as an “umbrella association”. This kind of groups provides resources and often an identity to the smaller organizations that are part of it. In this kind of arrangement, the umbrella organization is to some degree responsible for the groups under its care. Economies of scale, a better pool of experts and experience, shared apprenticeship and exchange of know-how are some factors that theoretically attract more groups, enhancing the ability for smaller organizations and companies to influence the politic-process in a legislation negotiation context.
An important point is that it is harder for a single organization and also smaller lobby groups operating outside large established lobby groups to get their voice through in this matter. In practice, it is more often the ACEA that stands for the press-releases and statements in the media, but what the ACEA does do and say is a product of the discussions within the organization by smaller organizations within them; so, in that way the smaller companies grow in strength and enhance their ability to influence and compete in Brussels over this issue.
By gathering and discussing the issue under one organization like ACEA, the organizations and companies get greater power in Brussels than if they would split up into 10-15 smaller organizations, so this means that representation is a mean for these organizations and companies to permeate the EU. We can almost consider this to be a kind of “natural monopoly”, in terms of the rights of representing the industries interests.
This phenomenon confirms Olson’s hypothesis of increasing size, influence and access to policy making, in respect to this special interest group.
4.2.2. The official position of the ACEA regarding CO2 emissions reduction
Officially, according to its own institutional information, the ACEA agrees with the Commission that something has to be done about the CO2 emissions and they fully support the EU objective of reducing car emissions. But the ACEA believes that most of the burden within this situation has been placed on the car manufacturers.
The ACEA calls for an integrated approach, which means that everybody has to do their part in order to reach the goals. The association wants the other elements (fuel industry, policy makers and car users) to take a larger part in lowering CO2 emissions.
The integrated approach to lower CO2 emissions that the ACEA presents contains five components. The first one is vehicle technology which they themselves are responsible for. Then we have alternative fuels which need to be developed further with help from the fuel industry.
The third component is consumer behavior, that we as consumers/drivers need to be educated in so-called “Eco-driving”, which in the long run saves 5-7% save in fuel consumption and therefore also in emissions. The fourth component is infrastructural measures concerning for instance traffic lights and the planning of roads in larger cities which often causes traffic jams. If steps could be taken to solve these infrastructural problems a lot of emissions would never occur. The last component concerns CO2-related taxation, which would stimulate buyers to choose fuel-efficient cars, if they cost less in taxes; and in this area the ACEA believes that the Commission has failed on their part of the agreement.
To steer free from stricter car safety and emissions regulations, lobbyists have been stating and defending before the EU decision-makers that driving behavior, trees next to roads and other infrastructure are also very important factors. Important as they may be, these are matters which the European Parliament and other EU institutions have no power over as they are controlled at member state level. Therefore, bringing these topics to discussion at a EU level is fallacious and distorting the reality of the fact and, as we later expose, may contribute to the preservation of a certain status quo in the industry. It’s important to bear in mind that the cars that yield the biggest profit to carmakers are the biggest ones in size – SUV’s and 4×4. Precisely the ones raising more concerns, due to their higher rates of CO2 emissions.
4.2.3. The 1998 ACEA-EC agreement
In 1995 the European Council approved a community strategy to reduce CO2 emissions from passenger cars to an average of 120gkm for newly registered cars by 2005, and at the latest by 2010.
The ACEA agreement represented the first VA explicitly aimed at climate protection. Theoretically, this represented an ideal context for the use of this new policy instrument, as the basic conditions were in place: a strong euro car industry association a large share of the market, a level of trust between government and industry, and concern for the economic effects and competitiveness implications of regulations.
The strategy was based in 3 policies:
1. A voluntary fuel economic agreement
2. A fiscal framework for member states
3. A fuel economy labeling scheme
In 1998 a Voluntary agreement was reached between EC and ACEA under the terms of which the industry is committed to reduce average CO2 emissions figures from all cars to 140g/ by 2008. An intermediate target was set for 2003 at 170g/km.
The negotiation was marked by an important democratic deficit: the process bypassed the EP, the only directly elected EU institution, and failed to ensure public participation – NGO have only be consulted once during the years of negotiations. Because negotiations have been carried out behind closed doors, the danger of regulatory capture has been always present during the negotiations. This agreement also lacked monitoring, as until 2002 the only source of statistical data regarding ACEA progress concerning the goals was coming from car association sources, and an enforcement mechanism. Actually, the agreement didn’t contain any enforcement mechanism – it did not contain sanctions for non-compliance or measures to address the issue of internal free riders. The industry would effectively be its own watchdog. Given the highly competitive characteristics of the car industry, conditions for failure where perfectly reunited.
Another interesting fact is the length of negotiations: the time span for conclusion was four years, in comparison to an average of two years, regarding the European voluntary agreements’ normal standards.
The lack of a high level of technical capacity of the EC, in comparison with all the expertise from the ACEA side, adding to the lack of credible threats for the industry, left the EC negotiators at the mercy of the pure political bargaining. In this situation, the strength of such a strong interest group dictated the final outcome (figure 1).
The content of the agreement was clearly outdated. The target of 140g/km was meant to bring about cars that would drive at 5 liters for 100km. However , recent OECD studies prove that a 50-80% improvement in fuel economy would be possible using existing technology at little extra cost over 10-15 years. In contrast , its impact would not even likely stabilize CO2 emissions from passenger cars at 1999 levels by 2010. Furthermore, the objective was not sufficiently ambitious to support a technological shift from the internal combustion engine towards lower emissions technologies such as electric or hybrid engines, not to mention hydrogen based fuel cells. Although these technologies were more or less close to commercial production, barriers of higher costs and lack of supportive infrastructure delayed their large scale development.
The terms of the ACEA agreement were clearly not designed to support the introduction of much needed zero emission technologies, but to assist the continuation of the conventional car design.
4.2.4. The 21st century negotiations
The voluntary agreement signed in 1998 set the deadline for the main goals accomplishment for the year 2008. However, that deal proved not to be the final one. The ACEA worked successfully to delay the date first until 2010 then until 2012. The association argued that the dates were not reasonable and its consequences, in times of economic crisis, would seriously harm the industry, with direct consequences on the employment level. Yet time has shown that most of their alarmist claims were not borne out in reality. In fact, many companies will meet the legal requirements even earlier than they have to
According to European Commission official data, CO2 emissions from road transport increased by nearly 23% between 1990 and 2010, and without the economic downturn growth could have been even bigger. Transport was the only major sector in the EU where greenhouse gas emissions are still rising, being light-duty vehicles a major source of greenhouse gas emissions, producing around 15% of the EU’s emissions of CO2.
Since then, the EU has been putting in place a comprehensive legal framework to reduce CO2 emissions from new light duty vehicles as part of efforts to ensure it meets its greenhouse gas emission reduction targets under the Kyoto Protocol and beyond. The legislation sets binding emission targets for new car and van fleets.
For cars, manufacturers are obliged to ensure that their new car fleet does not emit more than an average of 130 grams of CO2 per kilometre (g CO2/Km) by 2015 and 95g by 2020.This compares with an average of almost 160g in 2007 and 135.7g in 2011. In fact, the new goal for 2015 was actually the original EC goal for 2012. Due to lobbying regarding the first voluntary agreement, the 120g of CO2 for 2012 turned into 130g by 2015. Recent studies prove that carmakers will reach these values well ahead of time.
In July 2012, the Commission proposed legislation setting out the modalities for implementing the 2020 targets.
The ACEA was a major player during this round of negotiations. Volkswagen, nowadays the most relevant member of the European automobile industry and the one that invests the most in lobbying (figure 2) has described the 95g legislative target as “not based on sound impact assessment nor on a realistic appreciation of the costs and technical progress necessary to meet the goal within the timescale”. A new loophole, inserted following lobbying by the ACEA, would undermine the overall fleet target. Instead of calculating average fleet emissions by adding up the emissions of every car and dividing by the number of cars, carmakers will be allowed to offset the most polluting cars against a smaller number of their cleanest cars. If this accounting trick makes it into the final law, carmakers will be able to sell more polluting cars, resulting in real average fleet emissions in excess of 95g CO2/km.
At the same time, Greenpeace and several other pro-environment groups and parties call on the European Parliament and EU governments to lower the 2020 cars target to 80g CO2/km and to back a 2025 target of 60g CO2/km.
It’s a clear fact that efficiency standards reduce Europe’s need for expensive crude oil imports and drive down fuel bills for drivers. European drivers currently pay between €1,235 and €2,143 to fill their tanks every year. A 95g CO2/km target without loopholes would cut costs to between €962 and €1,665 by 2020, according to independent calculations. If EU governments decide to set a target of 60g CO2/km by 2025, fuel costs will drop further to between €494 and €863 by 2030.
The new proposal must go through a long negotiation process between EU governments and the European Parliament before it can become law. Lobbying is likely to continue, with increasingly new arguments and strategies. For example, in 20th September 2012, VDA, a German automobile industry lobby controlled by the ACEA, proposed the possibility of getting bonus points for electric cars they have not actually sold, but to also allow car companies to ‘bank CO2 credits’. If the companies reduce their CO2 emissions more than required by 2015 they should “receive a credit for this performance which should be used for underperformance in following years.”
After all, the Commission failed to propose any efficiency targets for 2025. Without this milestone, the rate of technological innovation could slow down in Europe, threatening the competitiveness of European cars on the global market. Europe is currently the global leader on vehicle efficiency, but the United States and China are catching up. The US has recently proposed its own 2025 target for carmakers embraced by thirteen global carmakers including BMW, Toyota and Hyundai curiously, not VW.
5. Conclusion
According the Olson’s theory, there are several types of interest groups, which we can basically divide into small and big interest groups. Generally sma
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