The Political Economy of Protectionism : The Bureaucratic Case

By
Patrick A. Messerlin

C o n t e n t s : I. Introduction. -- II. Bureaus and the Conservative Social Welfare Function. -- III. Bureaus versus Politicians. -- IV. Information Costs. -- V. Conclusion.
I. Introduction

ince the beginning of t h e I97OS a growing l i t e r a t u r e I has been d e v o t e d to t h e s t u d y of the political e c o n o m y of protectionism. T h e s t a r t i n g p o i n t of this h t e r a t u r e is t h a t 'a p o h t i c a l m a r k e t for p r o t e c t i o n " does exist. C o n s e q u e n t l y after h a v i n g specified d e m a n d for p r o t e c t i o n aspects, this l i t e r a t u r e has more r e c e n t l y focused on the s u p p l y side of such a m a r k e t for p r o t e c t i o n b y considering benefits a n d costs for public a u t h o r i t i e s t a k i n g p r o t e c t i v e measures. F o r instance Brock a n d Magee [I98O ] i n v e s t i g a t e d t h e case of a t w o - p a r t y d e m o c r a c y with political p a r t i e s a c t i n g as S t a c k e l b e r g leaders vis-a-vis the lobbies on tariff issue, all o t h e r policy issues being left aside. So far, however, t h e p u b h c agents considered b y this h t e r a t u r e were exclusively politicians a n d voters. C o n s e q u e n t l y the role p l a y e d b y t h e b u r e a u c r a t s was disregarded. Such an a p p r o a c h a p p e a r s to be a d e q u a t e to t h e U.S. case. As it has been shown [Finger el al., I98O ], U.S. politicians d e t e r m i n e t h e degree of p r o t e c t i o n i s m (they have the " h i g h p o h c y t r a c k " ) while U.S. b u r e a u c r a t s just a p p l y n a r r o w l y defined legal rules (the "low policy t r a c k " ) . W i t h i n such an i n s t i t u t i o n a l f r a m e w o r k t h e p r o t e c t i v e measures a p p e a r to be the result of a r e l a t i v e l y centralized decision process. Nevertheless, such an a p p r o a c h does n o t seem to fit well t h e E u r o p e a n cases because of t h e c o n s t i t u t i o n a l a n d i n s t i t u t i o n a l rules b o t h a t t h e n a t i o n a l a n d a t t h e E E C levels. A c c o r d i n g to these rules, it m a y a r g u e d t h a t , in m a n y respects, top-level b u r e a u c r a t s d e t e r m i n e t h e level of pro-

Remark: I would like to thank J. Waelbroeck, J. P. Martin, A. O. Krueger and S. P. Magee for their encouragement and many helpful comments on previous drafts. I am also

indebted to H. Hughes and the World Bank Working Group on "Industrial Countries Protection and Developing Countries," S. Easton, B. Lenz, J. J. Rosa, and a~ anonymous referee of Weltwirtschaftliehes Archiv for valuable comments and suggestions. Obviously, I am solely responsible for any errors which may remain. i For a survey, see Anderson [I98o] or Baldwin [I98o].

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tection at least as much as politicians do, although obviously some substantial differences may be observed between the European states. Moreover specific considerations of bureaucrats seem to be justified on the basis of recent history of national or international commercial policies which shows how decisive and increasing the role of bureaus is in major industrialized countries. Therefore this paper attempts to analyze bureaucracy as the supply side of the market for protection 1. If we assume that bureaus are pursuing public interest goals and collective welfare we could expect that they generally exhibit behaviour in favour of free trade and restrict as far as possible adjustment policies. However, what is the observed behaviour of bureaus supervising industries hurt b y trade liberalization ? Contrary to these expectations, evidence collected in many countries suggests that bureaus will not favour free trade but will rather advocate protection. Moreover, if an industry is hurt b y a new foreign competitor, bureaus will rarely advocate clear protective measures (whichever they are) but will rather support complex subsidy policies (hard to measure fully) or hidden NTBs. In other words, within the bureaucratic framework the protective measures appear to be the result of much more decentralized processes than within the institutional framework involving mainly politicians. It may be argued that some bureaus are friendly to export firms. But this does not necessarily mean that such bureaus are free-trade oriented. To be friendly to exporters is quite consistent either with a general pro free-trade attitude or with a quite protectionist attitude on other sectors (indeed this is the definition of a mercantilist attitude). Empirical observation seems to suggest that the second case is much more frequent than the first one. In order to suggest some explanations for the observed behaviour, three arguments will be invoked here. In Section II we argue that a bureau in charge of trade policy may be analyzed as a "partial dictator" who defines rights to be protected from foreign competition in favour of the factors of production it supervises. We show that the bureau will be induced to consider usual protective measures (tariffs, NTBs) as "goods"
For simplicity we shall use the public choice terminology "bureau and bureaucrats." Bureaus will be broadly defined as all kinds of institutions involving in a non-negligible proportion civil servants. We shall not establish clear-cut distinctions between an individual bureaucrat and a bureau. Such distinction is not necessary since a bureau ma y be generally considered a team A la Marschak-Radner, i.e. a collectivity with a unique utility function. Finally, in what follows we shall assume that bureaus are not corrupted by the industries they supervise. To suspect bureaucrats from "corruption" or something equivalent is not illuminating since no satisfying explanation calx be found for the motive pushing all bureaucrats towards corruption. Additionally, the problem of the monitoring of corrupted bureaucrats b y the industries would not be solved.

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and to overproduce them relative to the optimal level. In Section III, we compare politicians and bureaus as producers of protection: the main result is that bureaus may be considered likely to produce systematically more protection than politicians. In Section IV, we introduce information costs showing that they will increase the bias of bureaus towards protection. All these three arguments give strong support to the idea that bureaucrats favour greater protection than politicians. At a first glance, this seems paradox since it is often believed that bureaucrats will be more "neutral" than politicians in determining trade policies because they cannot get some profits from such policies. However, our result precisely rests upon this fact, namely that bureaucrats cannot get the same political profits that politicians get from protectionist lobbies. Consequently, this result seems to be unavoidable within a bureaucratic organization handling trade policies. Finally, it will also raise some doubts about the general validity of suggested rankings of protective devices (as, for instance, between subsidies and tariffs) which can be suggested without fully taking into account the supply side of the political market for protection and imperfections in this market. Some policy implications aiming at limiting the protectionist bias of bureaus will be discussed in Section V.
II. Bureaus and the Conservative Social Welfare Function

Not surprisingly, the concept of social welfare function (SWF) will be helpful for analyzing bureau behaviour since it is linked to the fact that bureaus are crucial decision-makers. Now to go a little further it is necessary to examine carefully under which conditions a bureau is able to develop its SWF since, as underlined by Buchanan [I973], a bureau will move inside an assignment, and therefore will have to take into account the limits imposed by such a specific structure of rights. What are then the main limits to be considered here ? First, a bureau has the power to decide only on a definite range of issues. Note that on the contrary a politician may decide on the whole range of economic issues. Such a difference is crucial since it gives pohticians opportunities for survival which are unavailable to bureaus. Consequently it is easier for a politician to compensate for difficulties in one issue by promoting another one: if the tariff problem is politically messy he will be able to focus on other issues easier to handle politically and with the same expected (alleged) redistributive consequences for voters. The second limit to a bureau's activities is that each bureau has only a specific range of means at its disposal for handling issues of which it is in charge. The means

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available are not necessarily logically defined relative to the issues - - at least from an economic point of view - - , but are inherited or are the consequence of task specialization between bureaus. Note that, on the contrary, politicians normally have access to all the legally existing measures. As a result, a pohtician who is not able to get a tariff to protect industry in his district, will try to obtain public contracts, or military camps, or whatever and will be able to argue convincingly that these measures increase the level of activity of the depressed industry I. More important still, it is easy to understand that politicians have more latitude than bureaucrats in capturing profits provided by the use of the means, as we shall see later (Section III). As a result of the limits evoked above (small range of issues, discrepancy between issues and means) we shall define a bureau as a "partial dictator" in its sphere of issues and means. This concept of partial dictatorship will allow us to give a more concrete content to the concept of conservative social welfare function (hereafter CSWF) suggested by Corden [1974] and to develop some new arguments on the optimal tariff issue, I. P a r t i a l D i c t a t o r s h i p and CSWF

In this sub-section we wish to emphasize differences between the dictator generally considered in tile orthodox theory of protection - - the so-called "benevolent despot" - - and the partial dictator which is a bureau. The dictator is able to maintain a Pareto-optimal solution whatever the shape of his SWF is because he has the whole range of redistribution measures to enforce his choices. This means that even if the dictator has a "conservative" SWF he might still choose the free trade solution with an adequate system of lump-sum transfers. In other words, a CSWF is not a sufficient condition for protection in the usual framework assuming a dictator. The problem may be easily illustrated if we take the extreme case of a small economy ~t la Cairnes where all the factors are specific to one of two activities. A policy change from autarky to free trade will shift outwards the utility possibility frontier from TA to T F , as shown in Figure I. Let us call A the initial situation under autarky, and F the final one under free trade. As the policy change towards free trade will unambiguously hurt all the factors employed in the import-competing sector, the aggregated utihty of all these factors, measured along the
This p o i n t is v e r y i m p o r t a n t and m a k e s s o m e w h a t uncomfortable the familiar assumption in the political e c o n o m y of p r o t e c t i o n i s m based on politicians according to which "tariffs are the only one i s s u e " {however, obviously, relating this a s s u m p t i o n will introduce a lot of a n a l y t i c a l dffficnlties). R a t h e r politicians h a v e to be j u d g e d on an average r a t e of success. This point m a k e s still more plausible our view on politicians, according to which they can be considered as a monopolist on the t a r i ~ issue (see Section III).

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UM-axis, decreases when the economy moves from A to F. This last point may be unacceptable to the dictator if he exhibits a CSWF. Consequently he has to move along T F for reaclfing acceptable points. The point F , corresponds to the first acceptable situation with a CSWF ~. la Corden [1974, p. lO7] according to which " a n y absolute reduction in real income of any section of the economy should be avoided." The indifference line F~. AA' represents the limit for such a CSWF. However, this definition does not exclude some convexity for the indifference curves situated at the right of F2AA' (such as the D-curve). The optimal point for the dictator will be located somewhere between F 2 and F, such as F' (F a corresponding to an optimal situation with a CSWF ~ la Rawls [1971] implying that inequality due to the free-trade policy is justified only to the extent that it benefits the least advantaged). Figure I - - A B u r e a u with a Conservative Social W e l f a r e F u n c t i o n
ux ~
I BO

',

Let us introduce now a bureau, BM, in charge of the import-competing industry M and another, B x , in charge of the export-industry X. Nothing new will occur if we consider an idealistic bureaucratic organization which means full cooperation at zero cost between BM and B x . In other words, in such a case, all the points between F, and F, remain attainable, including F, (F4 means that the bureau BM was able to "exchange" free-trade policy against a transfer policy allowing to give all the gains of the free trade to the factors of production hired b y the M-industry). Indeed the X-industry is assumed to be indifferent between A (autarky)
Wehwirt~haItliches Archiv Bd. CXV[[. 32

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and F 4. However, the realistic bureaucratic organization has nothing to do with such an idealistic picture. First, cooperation between BM and Bx may be costly. To avoid such transaction costs, the bureau B~ may prefer to use the limited range of means it dominates for implementing the "rights to be protected" it decides to impose. As the bureau in charge of commercial policy scarcely has the capacity of organizing lump-sum transfers under its jurisdiction, it will not effectively consider tile T v frontier as an attainable one since T F is outside its possibility set of redistribution schemes. Alternatively a bureau will consider only the utility possibility frontiers available with tile redistribution schemes it can effectively enforce (possibly with a minimal cooperation with Bx). Let us take the simplest case with only two frontiers illustrated in Figure I: a first frontier FT' 1 will correspond to free trade coupled with a "pure" redistribution scheme (taxation) which is not very efficient, and a second one to redistribution through a tariff as T2T~. Second, although the relationships between a bureau and the industry it supervises are complex, the fact that a bureau is in charge of a definite range of issues concerning a specified industry induces us to adopt the following assumption: the survival and the prestige of a bureau are relatively correlated to the existence and size of the industry supervisedL Consequently, the bureau may be permanently induced to associate its own utility to the collective utility of the factors of production hired b y tile industry it supervises. Let us recall that such a collective utility for factors most likely exists precisely because of the existence of suitable pressure groups which are recognized by the public finance theory ,as typical preference-aggregating organizations [Steiner, 1974, p. 263]. This tendency to associate the bureau and its industry's utilities is made easier by the fact that a bureau will tend to make decisions in a partial equilibrium framework restricted to the industry it supervises, and will tend to define its utility function on the same space (with the same variables) as that of the industry supervised. We have a lot of evidence on this point for bureaus in charge of commercial policiesL Under these conditions, it seems likely that a bureau in charge of an industry and arguing in terms
It may be added that the bureau will link its survival and prestige to the existence of "national" firms. Foreign firms, even if they produce in the domestic economy, are presumably associated with a decrease of the role of the bureau concerned. s One of the most illustrative examples is the amazing role of sectoral trade balartces as a guide for policy. See for example the campaign for the "Reeonqu~te du march6 intrrieur" in France since mid-x979 which is mainly based on evidence concerning trade balances. This bureaus' "myopia" relative to their activities is reinforced by the vertical structure of bureaucracy, and by the great difficulties the bureaus have in working together (sharing information, defining common goals, etc.).

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of partial equilibrium (i.e. capturing all the costs but not all the benefits of trade liberalization) will adopt a CSWF when considering a request for protection from factors of production of this industry. However, we may go a little further b y giving some economic content to the "prestige" component of BM's utility. For enjoying such a "prestige," BM may try to vigorously protect the import-competing industry. Then prestige may be interpreted as the fact that B M will try to increase the utility UM more than it will the utility Ux (starting from any point at the left of F, AA', the "limit" indifference line when BM has a CSWF). In other words, the complete CSWF of B M may be illustrated b y a set of indifference curves like B which exhibit a relatively flat gradient in any point. As a result, the bureau BM will "optimally" favour the tariff solution which allows a shift from A to some point L on the constraint T2T' . This 2 point L will be the closer to M as the prestige component will play an important role in the BM'S behaviour. Note finally that the solution L is deriving from a complex set of elements, namely the jointness of supply of the two goods effectively produced b y the bureau (the right to be protected on the one hand, tile concrete means to enforce these rights on the other hand), and the not far-reaching cooperation between bureaus. A final remark concerns the effect of administrative organization on trade policy. If no change in the administrative organization involving a new division of means between bureaus occurs, the trade liberalization observed between A and some point of the frontier T~T' (say L) will s likely make a definitive stop at this point (all other things being constant). On the contrary, any change offering to a given bureau new opportunities to make transfers more efficiently - - from the theoretical point of view - will make likely a shift of the utility frontier considered b y the bureau towards T F through a policy encouraging free trade. In others words, a broad definition of means available to a bureau may appear to have a strong impact on the liberalization process. This point may constitute part of the answer to the question raised by Verreydt and Waelbrock [I98O ], namely why "decisions taken at higher decision levels tend to be more liberal than the blow b y blow decisions of the bureaus." According to our views, higher decision levels are characterized by a broader definition of means than the basic bureaus, and therefore may consider utility possibility frontiers more favourably than the bureaus. 2. P u b l i c I n t e r e s t a n d O p t i m a l T a r i f f s The bureau's behaviour presented in the preceding paragraph seems to neglect a concept underlying the bureau's decisions which is important from an ethical and political point of view, namely "public interest." We
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shall argue that this is not the case and that explicit consideration of public interest is quite easy in our framework, allowing us to give some suggestions useful for analysis of the optimal tariff issue. At first we need a rough definition of public interest. This concept basically refers to two components: first, an allocative target, which is interpreted here as the objective of a larger national income for instance, and second, a distributive target - - some egalitarian philosophy. With this definition we can return to our initial problem and reformulate the bureau's utility function in a more adequate way for our present purpose. We can define a "good" corresponding to each of the two components we used for the definition of public interest. First, if world prices are fixed (small country assumption), all the physical goods produced and consumed b y the economy can be aggregated in one composite good (real income) which corresponds to the first component of public interest. Now let us introduce a second good defined as follows. Let us assume that the bureau supervising an industry, takes into account relative employment maintenance of the factors of production hired b y the industry so that it considers this stability of employment as a good. In addition to that let us assume that the only means available to the bureau to produce this good is a tariff. With this assumed one-to-one correspondence between the employment maintenance and the tariff, the tariff itself is seen as a "good," b y the bureau in charge of producing it. This good corresponds to tile second component we mentioned for public interest. This point m a y be shocking. However, the extreme aspect of our assumption is due to the fact that we want to consider bureaus motivated b y pure public interest. More selfish motives m a y be introduced, and they substantially reinforce the fact that the bureau considers tariffs a good. For instance, we m a y say that bureaus are interested only in producing what they can produce according to the institutional design: consequently, a bureau in charge of producing tariffs will not be at all reluctant to consider tariffs a good. Alternatively more altruistic motives (after all bureaucrats are human beingsl) m a y be introduced, and an argument A la Baldwin [1979] m a y be provided giving the kind of trade-off illustrated b y the U-curves. With this very simple definition of these two goods in tile economy the publicinterest motivation of the bureau considered can be easily expressed by an utility function showing the potential trade-offs between real national income and tariff rates. This utility function is illustrated by the indifference curves U ~ and U 1 in Figure 2. Let us now introduce the international constraint on this small econ o m y in the shape of the familiar relationship between national real income and protection level which is illustrated b y the curve J in Figure 2. Real national income is maximum for zero tariffs, then decreases to

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Figure 2 - - optimal Tariffs for a Bureau in a Small Country

R3~JI rlGit(>nal income ~ Jl!

~ U 1

J
._. t" I [_t t"

l"a f level rlf

tile autarkic tariff and after that remains constant [Caves and Jones, I977, p. x94 ]. Finally, let us assume that the bureau in charge of industry i is the only decision-maker on protection for industry i (an assumption we shall relax later) and that it is rational, i.e. wants to maxixmze its publicinterest utility function U under the J-constraint (any point inside the J-curve represents some lack of domestic efficiencv and any point outside the J-curve is impossible). The bureau will choose the optimal (from its point of view) tariff t which is higher than the optimal one according to the theory (zero-tariff). Indeed the zero-tariff (i.e. the comer solution) will occur in our framework only if the protection level (and therefore employment maintenance as the motive behind it) is a neutral good so that the utility function of the bureau will be illustrated by horizontal indifference lines. Our model allows to consider retaliation from the rest of the world for some political reasons (since the small country assumption gives no economic support to such a retaliation). The J-curve will shift inwards because of the retaliation effect : less exports and imports will be produced and consumed in the domestic economy at each given protection level. Let us assume that the new international constraint is illustrated by the I-curve. The bureau may choose a lower protection level, t', corresponding to the optimal (from the bureau's point of view) situation E'. However, this will not be necessarily the case. It is quite possible that a higher protection level might be chosen depending both on the new situation of the I-curve and the shape of the indifference map, as illustrated by the point E " (as t"), although it does not seem plausible that protection level is an inferior good.

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3. Tile S p r e a d of P r o t e c t i o n So far our model is very simple since we considered only one bureau as the tariff-maker for the industry i. Does the introduction of other bureaus in the decision process substantially change our conclusion ? At a first glance it seems that nothing definite can be said when other bureaus are implied in the tariff-choice. Indeed, if some bureaus may consider a tariff on good i a good (like the bureau supervising the industry i), it is also quite possible that scme other bureaus will eventually consider this tariff a neutral good or even a bad factor (and then illustrated by positively sloped indifference curves in Figure 2). For instance, let us think about bureaus in charge of industries using good i as an input in their own production. All other things being constant, these bureaus will observe that an increase in tariff on good i will decrease the effective tariff on the goods using i as an input. Therefore they can be expected as considering a tariff on good i a bad factor with a relative weight depending on the value of the share (with respect to the price of the final good) spent on input i. As a result of all what we said, it is obvious that the decision concerning the tariff on good i will be the result of a complex bargaining process. Does this mean that we cannot say anything more ? Not at all. We may have two presumptions for the fact that this bargaining situation will lead to an important phenomenon which we shall call "spread of protection." Indeed a puzzling feature in the history of protection is the observed spread of protective decisions over all industries during some periods, in a given country. A first explanation of such a spread might be found in some international process of retaliation, as, for instance, beggar-myneighbour policies. Although not always negligible, this reason does not seem to be either the unique or even the main explanation. Therefore, rather than relying on external reasons, we must find internal reasons based on the bargaining situation. The two presumptions we mentioned precisely involved internal reasons. These presumptions are alternative since the first one is based on perfect information concerning protectionist decisions whilst the second one is based on no information concerning the protective decision taken. The first presumption rests upon perfect information about the results from lobbying efforts of an industry in favour of protection. Then any concession from the concerned bureau to a given pressure group resulting in protective measures asked by the industry creates a well-known (and somewhat dreaded by bureaucrats) reaction which can be expressed by the following question: If industry X gets protection, why not my own industry ? In other words, this concession may be analyzed as creating an

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externality which decreases the cost of lobbying for the not yet satisfied demands for protective decisions. And the decrease in the cost m a y be expected to be all the stronger as industries asking for protection are distributed among all tile bureaus involved in the trade policy. This is due to the fact that logrolling processes between bureaus themselves generally decrease the bureaus' capacities to resist to the industries' pressures 1. A good illustration of this first presumption m a y be seen in the current situation in France and other European countries *. Our second presumption concerning the existence of internal reasons for tile spread of protection rests upon some kind of non-cooperative games between free-traders and protectionists of a country. Bureaus presumably play a crucial role in these games. Two cases m a y be considered. The first one which has been observed in tile history of some European countries is the following: the importables and exportables industries both lobby to obtain higher protective levels on imports. Such a behaviour seems puzzling since protection is based on relative prices of importables and exportables so t h a t such a spread of protection m a y possibly result in a shift of the domestic price ratio towards the international price ratio (if tariffs on exportables are more increased than tariffs on importables, assuming that in the initial situation tariffs on exportables are lower than tariffs on importables). Tile second case of such a non-cooperative game occurs when the import-competing industry lobbies for tariffs while the exportables industry tries to get export subsidies. Such a case is interesting if non-tradeable goods are introduced. These two cases are illuminating examples of the difference between economic rationality at the level of individuals and economic rationality at the social level, and therefore m a y be illustrated within the Prisoners' dilemma framework, as we did elsewhere [Messerlin, 198o ]. Such a framework helps to understand why coalitions don't emerge, contrary to a priori expectations. But, more interestingly, this framework allows a stress on the plausibly crucial role of bureaus. T h a t follows from a basic assumption of Prisoners' dilemma games, i.e. no communication between the players. This assumption
i A symmetrical argument was used by the French negotiators of the Treaty of Rome (who were also top-level civil servants). They tried to minimize exceptions to the general rule of European trade liberalization precisely for making easier the job of the French top-level bureaucrats confronted with the lobbying industries at the end of the 195os. The no-exception rule was a crucial ingredient in the success of the Treaty of Rome. I The fact that the motorcars sector got relatively fast and strong support (the Japanese ears are limited to a 3 per cent market share; additionally, I9 Japanese car models are not yet officially confirmed by the appropriate bureau of the Ministry of Industry) triggers off a new start for pressures in favour of protection tot other industries with apparently some success (see the textile case).

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seems quite plausible if bureaus are decision-makers in trade policies since each bureau is supervising a definite industry. As this industry can presumably be classified either as an import-competing sector or as an export industry, such a bureau may be easily induced to not communicate with the other players (industries or bureaus). This assumption seems much less plausible if politicians are decision-makers in trade policies because politicians are not (generally) exclusively depending on one industry (except in the case of regional concentration of the industry). After M1, politicians depend on voters for which the Prisoners' dilemma game is clearly disastrous 1.
HI. Bureaus versus Pofificians

In the preceding section, we showed that bureaus likely impose a higher level of protection than the theoretically optimal one. Now we wish to compare how the two main institutions in charge of commercial policies in democracies, politicians and bureaus, work; more specifically we want to investigate if one decision system is likely to be systematically more biased towards protection than the other S. However, to set up such a question at this high level of generality will lead to problematic answers. Of course preceding sections give some insights. First, politicians can be expected to have utility functions correlated to those of voters and may appear to be a priori less dependent on industry than bureaus. Second, politicians have normally access to a broader basis of means than bureaus, and consequently may be seen more easily as a "collective dictator." Such arguments tend to present politicians as more liberal than bureaus. But clearly these arguments are not unique and they may be overruled by a lot of other considerations. For
x As a complete example let us mention the French F.D.E.S. case. The F.D.E.S. (Fends de D~veloppement Economique et Social) is the main bureau giving subsidies to capital. Politicians have tried to get detailed figures of these subsidies since x977. They never got them, and the "Conseil d ' E t a t " claimed that the available figures (which are difficult to interpret) are a "sufficient piece of information" for the Parliament. It may seem an exaggeration to compare politicians and bureaus. Rather it might be more accurate to speak of "bundles" of politicians and bureaus, with different relative endowments among countries so that a more subtle reasoning in terms of relative intensity of politicians-bureaus would be perhaps more accurate. Moreover such an approach should take into aecotmt private bureaucracies: after all when complaining about European dumping in steel products the U.S. Steel do (very well) the job which might be played in Europe by bureaus. For simplicity we neglect all these nuances which could be integrated by considering a transformation surface which would allow to take into account all these different kinds of factors of production of protection. Finally, let us remark that we exclude competition between politicians and bureaus.

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instance, when a regional concentration of certain industries or finns exists, it may be expected that the politicians of these regions are going to react very sensitively to their wishes. Therefore it seems reasonable to narrow the question set up above and to focus on comparisons between bureaus and politicians on the basis of two crucial characteristics as producers of protection 1. First, has the respective ability of these two institutions to claim a share of the profit generated by an increase in their efficiency any impact on the protection level produced for the industry i ? To simplify tile analysis of this case, we shall assume that only one means of protection is available and we shall call it the "homogeneous" case. Second, has the rivalry between politicians and tile rivalry between bureaus for producing protection for industry i any influence on the level of protection ? As this last case implies the need to consider different means of protection, we shall call it the "differentiated" case. Now, under the assumptions made in each case, a general result appears to be verified: bureaus are likely to produce more rights to be protected than politicians, i.e. are more biased towards protection than the latter. I. B u r e a u v e r s u s P o l i t i c i a n s : T h e " H o m o g e n e o u s " Case

In order to keep tile case as simple as possible, we assume only one protective device (for instance tariffs) in what follows. Now let us consider an industry observing (or expecting) increases in the domestic-marketpenetration ratio by foreign competitors. Let us assume that this industry is willing to decrease the observed (expected) market share of foreign firms by lobbying and getting a tariff which provides the desired decrease in the market share held by foreign competitors (through the increase in the price of the imported goods). Therefore we can write the money and efforts invested in lobbying by the domestic firms as a function of percentage points of the market share to be recovered. Let us assume now a oneto-one relationship between the size of the market share to be recovered by the domestic firms owing to protection and the level of the tariff imposed. In other words, the relationship between the expense in lobbying per unit of recovered market share and the level of tariff can be interpreted as the demand curve for protection. To simplify, let us assume that the same demand for protection is expressed b y the industry irrespective of whether politicians or bureaus are in charge of deciding the protection
x In this section, we put aside any normative statement for focusing on a purely positive analysis of the behaviour of t h e ~ two i~tstitutions which, in the spirit of the public choice theory, may be considered firms produciltg a particular (public) good.

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level. This assumption looks reasonable if we understand demand for protection as a derived demand from the import-competing firms for services (protection) of factors of production (bureaus or politicians) necessary to be used if these firms want to recover a market share. Another assumption is that bureaus and politicians have the same costs of production of tariffs, a realistic assumption since an essential part of these costs is due to implementing the decisions taken while only few people - - whether politicians or bureaucrats - - are in charge of decision-making. Finally, we shall assume for the while that the involved politicians or bureaucrats experience no rivalry from other politicians or bureaucrats, respectively. Now, to go further, we have to define the supply behaviour for bureaus and politicians. Let us first consider a bureau. The amount of protection it will produce will obviously depend on the alleged objective function. A first objective function m a y be provided b y Niskanen's [1971 ] approach: a bureau will be budget-maximizing because of its inability to capture any of the difference between costs endured and services produced (i.e. "profits") since property rights arrangements in the Civil Service converge to attenuate as far as possible bureaucrat's access to the wealth of the bureaus. This point is crucial since it makes tile maximization of profits (wealth) by bureaucrats unattractive so that other obiective functions (as budget maximizing) are required. I t has to be noticed that in the case of European top-level bureaucrats this inability to capture profits seems to be verified since European bureaucrats don't generally leave the Civil Service for going to work for tile industry 1. Consequently, if DM is tile demand curve as illustrated by Figure 3, a Niskanen-bureau wiLl produce an amount of protection equal to Q~ when marginal cost is equated to the so-called "all-or-nothing" demand curve, D v (which is the demand curve such as the marginal revenue curve derived from D F is DM). The use of Drfollows from the fact that the bureau is supposed to be in such a bargaining position that it can impose perfect discrimination s .
x Less t h a n 15 per cent of the top level Civil S e r v a n t s in France leave Civil Service for p r i v a t e firms, according to generally accepted estimations. t t I e r e some care has to be t a k e n concerning the subject who expresses the d e m a n d in our case. In the fanfiliar N i s k a n e n model, the d e m a n d is expressed b y politicians who sponsor bureaus. We can keep this view if we assert that, in our case, the d e m a n d for p r o t e c t i o n expressed by the politician, is n o t h i n g else t h a n the d e m a n d expressed b y the factors of production of the i m p o r t - c o m p e t i n g i n d u s t r y themselves, and t r a n s m i t t e d b y the p o l i t i c i a n w i t h o u t a n y change. I s such a role for politicians plausible ? C e r t a i n l y yes d u r i n g some periods at least. I n a n i n s t i t u t i o n a l s y s t e m where b u r e a u s are effectively in charge of policym a k i n g , politicians m a y have only an i n f o r m a t i v e role and m a y have no real m o t i v e to do costly (for them) a r b i t r a g e between b u y e r s of protection - - the factors of p r o d u c t i o n in the i m p o r t a b l e goods i n d u s t r y - - and consumers. However, in such a case, it is likely t h a t the

T h e Political E c o n o m y of P r o t e c t i o n i s m

483

Figure 3 - - Bureaucrats versus Politicians

\ ', \ \ ". /C " /AC

//"/

However, an alternative model is as follows: instead of trying to maximize its budget and to accept the implied strong constraints on the amount and use of managerial discretion [Migu6 and B~langer, 1974], the bureau may alternatively seek some kind of "quiet life" and accept some X-inefficiency. There are many ways to do that. However, one of the most plausible ways is that the bureau obtains from its regulating authority (politicians and top-level bureaucrats) recognition of "fair costs," i.e. costs including some attributes of prestige, power, direct and indirect monetary revenues etc., which can be desired by the concerned bureaucrats and may be appropriated b y them 1. In such a case, the bureau will work as any regulated public utility enjoying a "fair rate of return." Consequently such a bureau will produce tariffs until the average cost curve intersects (Marshallian) demand for protection curve, DM, i. e. will produce QI*. We observe that Q~r > QM. This result depends on the U-shaped cost curves: it has to be noticed that this assumption is quite plausible since costs of enforcement of the chosen level of protection are
i n f o r m a t i v e role of p o l i t i c i a n s will be r a r e l y k n o w n b y v o t e r s e x c e p t w h e n t h e y a r e the f a c t o r s t h e m s e l v e s so t h a t s u c h a role h a s no n e g a t i v e c o n s e q u e n c e a t all in t e r m s of v o t e s for politicians. i A n a l t e r n a t i v e w a y w o u l d be to e x a m i n e t h e m a n a g e r i a l effort of the b u r e a u . T h i s c o u l d be m a d e w i t h i n t h e f r a m e w o r k s u g g e s t e d in S e c t i o n II of M a r t i n ' s article [1978 ]. t P r e s u m a b l y s u c h a b u r e a u will be m o r e f r e q u e n t t h a n o u r i n t e r p r e t a t i o n of t h e Nisk a n e n - c a s e for t h r e e r e a s o n s . F i r s t , the N i s k a n e n - b u r e a u will t r i g g e r off c o u n t e r v a i l i n g a c t i o n s f r o m o t h e r b u r e a u s , as f o r i n s t a n c e those in c h a r g e of i n d u s t r i e s c o n s u m i n g the i m p o r t a b l e g o o d s w h i c h one tries to p r o t e c t : s u c h a s i t u a t i o n is difficult to hold in the long r u n . S e c o n d , the p o l i t i c i a n ' s role is p a r t i c u l a r l y p a s s i v e in o u r i n t e r p r e t a t i o n of the N i s k a n e n - c a s e : i n s t e a d , one c o u l d a r g u e t h a t p o l i t i c i a n s m a y a p p e a r as p o t e n t i a l c o m p e t i t o r s . T h i r d , the N i s k a n e n b u r e a u h a s a v e r y s t r o n g p o s i t i o n w i t h r e s p e c t to the f a c t o r s of p r o d u c t i o n of the s u p e r v i s e d i n d u s t r y - - v i a t h e p o l i t i c i a n s - - a n d S e c t i o n IV o n i n f o r m a t i o n c o s t s s u g g e s t s t h a t s u c h s i t u a t i o n s a r e u n l i k e l y to exist.

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included in these cost curves. Indeed, empirical evidence unambiguously suggests increasing average costs of enforcement. Let us now turn to the politician's case. We can construct two cases, each corresponding to the bureau case above. The main difference between politicians and bureaucrats is that the former are able to capture differences between costs incurred and services produced. Indeed, it may be argued that even if politicians have likely attenuated property rights on political institutions, rules of the political life are less strict and converging on these matters than the rules of the Civil Service so that it seems correct to assume that politicians have more latitude than bureaucrats in capturing profits. This point is reinforced by the fact that it can be expected that a lobbying industry will not generally invest in any politician but will rather choose political stars or, at least, experienced politicians, if possible. This difference in ability to capture quasi-rents is the only difference between politicians and bureaucrats we consider here. Let us for the while consider politicians monopolists (as we did before for bureaucrats). Such an assumption requires some explanations. Indeed, competition between politicians may be seen at two levels. First, with respect to voters, incumbent politicians are in a competitive market, although evidence from political life suggests that the level of competition for experienced politicians is not necessarily as high as it is sometimes said x. Second, once elected, politicians may be considered in a more monopolistic market although it is not quite sure. The degree of monopoly depends on tile capacity of voters' memories to link vote-catching specific promises (such as campaigns on tariffs) and effective parliamentary decisions on the one hand, and on the rivalry between individual politicians with a great extent of logrolling and other charms of political life on the other hand. To summarize, politicians tend to have an influence on political life (decisions) independently of elections and may succeed in being relatively independent on voters and political militants. Let us first consider a politician enjoying a discriminating monopolistic bargaining power (as we did in the first bureau's case analyzed above), so that the Marshallian demand curve, DM, is his marginal revenue curve.
Long political careers m i g h t be seen either as a consequence of efficiency or as an indicator of lack of competition. This second e x p l a n a t i o n c a n u o t be seeu as negligible i a E u r o p e because of the existence of political p a r t i e s (very different from the U.S. I ~ l i t i c a l parties). Since political p a r t i e s are highly organized, a E u r o p e a n politiciall m a y p l a y a n i m p o r t a n t role in the rtational political life if he p l a y s an i m p o r t a n t role inside his p a r t y , even if he is n o t elected as a r e p r e s e n t a t i v e . Second, political p a r t i e s m a y be the best means to suppress c o m p e t i t i o n between politicians b e l o n g i n g to the same p a r t y (i.e. between close substitutes). Such an a t t i t u d e leads to electoral fiefs which h a v e to be i n t e r p r e t e d as a monopolistic situatiott before elections.

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Then, this politician produces a level of protection Pn 1. Let us compare discriminating politicians and bureaus: clearly Pn < Qn which constitutes the first half of our result, according to which bureaus are likely to be more biased towards protection than politicians. Now let us assume a politician without strong bargaining power: he will act as a familiar monopolist producing at PM. If we compare non-discriminating politicians and bureaus, we find again a bureau's bias in favour of protection since PM < Q.~. Our final result is therefore the following. If identical conditions of discrimination are assumed, then a bureau will choose a higher level of protection than a politician. This is due to a basic (and unavoidable) characteristic concerning the production of protection b y bureaus, namely not to be able to capture quasi-rents. 2. B u r e a u s v e r s u s P o l i t i c i a n s : T h e " D i f f e r e n t i a t e d " Case

So far we ]lave assumed that politicians and bureaus in charge of commercial policy act as pure monopolists. However, it is clear that rivalry (competition) sometimes exists between politicians as well as between bureaucrats. Brock and Magee [I98o ] interpreted rivalry between politicians as competitive pressure and suggested interesting results in case of a duopolistic market for politicians, showing particularly that "the more competitive the political system, the more likely distribution questions will dominate efficiency considerations." How does this rivalry appear between bureaus ? Put in a different way, this question implies a definition of the meaning of competition between bureaus. In Section II, we said that a bureau is a partial dictator, with a limited range of means. However, it is always possible for a bureau to extend somewhat this range of means or to use them extensively in order to have some influence in problems which were a priori outside of its jurisdiction. For instance, a bureau in charge of social affairs may lobby for an early retirement scheme in an import-competing industry which may have strong impact on commercial policy. For example, consider the first Davignon Plan (I978). Bureaus of social affairs pushed the idea of the fifth team in steel plants for solving the problem of excess labour force: obviously this fifth team would have had a crucial impact on the international EEC steel policy, likely making it more protectionist. Rivalry between bureaus may be therefore interpreted as entry b y new bureaus into a problem involving one or several traditional bureaus through the definition and use of new means (or old means used in a new way). Clearly this entry is motivated b y interests new bureaus may find to be involved in such a problem. The range of motives is very large, indeed:
For a closely connected problem, see Holcombe and Price [x978].

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to maximize prestige, to secure survival or growth of the bureau, etc. Nevertheless the main point for us in such an institutional framework is the crucial role of means available for a bureau in the competitive game between bureaus. Symmetrically, bureaus may try to escape competitive pressure through a policy of differentiating the product they produce: in other words, a bureau will choose a specific means of protection in order to increase its monopolistic power on the commercial policy defined for the industry it supervises 1. Obviously such a differentiation policy by each bureau means that bureaus will be strongly motivated to prefer NTBs to tariffs since the former imply more difficult monitoring of the involved bureau by politicians or by other bureaus ~. Let us briefly illustrate this point b y mentioning NTBs as control of quality for agricultural imports, or definition of industrial norms, or still a policy of public purchases. Clearly all such NTBs introduce enormous problems of measurement and evaluation: such evaluation requires technical skills not available to bureaus trying to enter into tile problem to be solved and makes room for discretionary judgements. Notice that this evolution is not specially novel. For instance, bureaus rapidly understood that ad valorem tariffs are more difficult to monitor than specific tariffs, since they are based on price evaluations for imported goods, sometimes a very controversial operation requiring technical skills and information. As the main consequence of this differentiation policy, we may argue that the result we pointed out earlier - - i.e. the bias of bureaus towards protection - - is still more likely to occur with possibilities of differentiated means of protection than without them. That is due to the fact that differentiation is much easier for bureaus than for politicians since NTBs require time and technical skills, things that politicians are not able to provide easily at a sufficient level. Additionally to their well-known qualities from the external point of view - - namely NTBs imply more difficult international controls and are less covered by international agreements than tariffs - - NTBs therefore present internal advantages, at least for bureaus. If we return to our initial problem, namely the differential impact of bureaucrats and politicians on the level of protection, some doubts may be raised about the general validity of the usual theoretical result [Bhagwaft, I97I ] showing that subsidies have to be preferred to tariffs. This result depends on the assumption of equal protective effects for the pro1 We use the word "specific" with the same meaning as in the expression specific factors. t For instarme, subsidies given by bureaus from the Ministry of Industry may be easily monitored by bureaus from the Mimstry of Finance (Treasury). Indeed, NTBs might be understood as the best means for the "technical" Ministries (Industry, Transportation, Agriculture, etc.) to escape influence from the powerful Ministry of Finance.

The Political Eco~tomy of Protectionism

487

tective devices considered. How is this result modified when differentiation of protective devices (increasing monopolistic situations) is introduced and when it is easier for bureaus than for politicians ? As it seems that tile relative bias of bureaus towards protection is reinforced by tile introduction of differentiation, then it might be better to choose tariffs rather than subsidies, simply because the protective effect of tariffs is likely to be lower. This result follows from the features of the supply side of the political market for protection. Now may we infer from such an evolution that the NTBs system is unambiguously favourable to tile industry the bureau supervises ? This question remains open. To be sure, the industry may expect a better monitoring of the bureau with an NTB system than with a tariff system. This is due to the fact that generally an NTB system rests upon technical observations and questions which can be really provided only b y firms or professional associations so that the bureau's efficiency may be better oriented and controlled by industry. However, it may be stressed that this split of trade policies in two parts (one based on tariffs and apparently free-trade oriented and the other based on NTBs and relatively protectionist) makes it more and more difficult for firms to measure the effective rates of protection they face. This is an important point since effective tariffs are the only interesting tariffs for firms. Clearly this may induce firms to underestimate the effective level of protection they enjoy and therefore to overinvest in lobbying. In addition to this basic problem, it may be asked if the industry gain provided by a better monitoring of the bureau with an NTB system is not of a transitional kind. Indeed, it seems difficult for the industry not to give progressively more crucial information to the bureau concerning essential characteristics of tile industry. Consequently, the bureau may accumulate some knowledge about tLe industry, and eventually may become more difficult to be convinced by the industry. Alternatively the bureau may be tempted to impose some of its collective views on the industry 1.
IV. Information Costs

Information costs were early evoked as a basic explanation for protection [Downs, 1957]. However, the costs analyzed concerned the consumers/voters more specifically. Consumers may be unable to relate observed increases in prices to previous protectionist measures. Even if they
1 A likely fruitful approach would consist in analyzing the relationships between bureau and industry under an NTBs system as likely dominated by the existence of specific investments and therefore of quasi-rents A la Klein et al. [1978 ]. It may be argued that the EC Commission is experimenting this kind of evolution with the steel plans.

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are able to do so, they may be foolish to resist protective measures if the goods in question represent a small fraction of their total expenditure. Within the context of a specific factors model, Baldwin [198o ] introduced information costs for factors of production leaving import-competing industries and searching for new jobs elsewhere. In the same vein we want to investigate information costs for agents deciding on protection, i.e. bureaus and factors of production (or firms hiring them) in the importable goods industries. I. I n f o r m a t i o n Costs a n d B u r e a u s

Do information costs increase or decrease the bias of bureaus towards protection ? We shall argue that they likely increase this bias, and presumably strongly. Let us begin by considering tile familiar theoretical analysis of a change - - say a decrease - - of the tariff level in a partial equilibrium framework. Such a decrease will generate two opposed forces: gains for consumers to be estimated b y the present value of the familiar deadweight gains, and social costs of decreased protection for factors of production hired b y the import-competing industry. How can we define these social costs, if we are ignoring the loss of tariff revenue ? A first definition was suggested by Magee [1972, p. 660]: the social costs are to be estimated as the present value of "the costs of moving resources out of import-competing production and into other areas." A second definition was suggested by Baldwin, Mutti and Richardson [r98o ]. These authors showed that the existence of adjustment costs (as defined by Magee) "does not necessarily result in a net welfare cost of tariff reduction to the economy." Such adjustment costs are strictly distributional if factor prices are flexible. However, if factor prices are rigid, then the authors show tile existence of a welfare loss (due to the tariff change) which has to be compared with tile gain in the import market. In other words, it is clear that, even if bureaus would use the Baldwin-Mutti-Richardson criteria, the likely rigidity of factor prices would allow bureaus to consider a tariff change (decrease) as entailing gains and losses. However, casual observation suggests that bureaus generally use the Magee definition (or some close definition) which is easy to develop in a partial equilibrium framework. As a result of our discussion, any decrease of a tariff in a partial equilibrium framework has to be estimated on the basis of the net welfare gains it provides which conceivably may be negative as illustrated in Figure 4. This point has to be carefully interpreted since here begins the divorce between bureaus and economic theory. Such a conclusion of eventually negative net welfare gains in a partial equilibrium framework may

The Political Economy of Protectionism

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be well absorbed b y theory. It means only that trade liberalization hurts some people, a point long accepted in theory. Moreover, this conclusion is not the final one for theory since it is possible to prove positive net welfare gains (for a small economy) in a general equilibrium framework 1. On the contrary, this conclusion is crucial for bureaus because the implied bureau considers only the industry it supervises and because it has no motive to use a general equilibrium approach. Indeed, the implied bureau has generally no motive to take into account the gains to resources in other industries which it does not supervise. However, this conclusion may be weakened if two points are considered. First, as shown in Section I I, the bureau may have a utility function involving some public-interest motive (real income). Second, the bureau may try to handle effective rates of protection (although it is not a frequent attitude for bureaus): to consider effective protection implies some perception of general equilibrium. Figure 4 - - Equilibrium Values of a Tariff Change in a Partial Equilibrium Framervork a
Margin(It n e t welfare wins (.) o~ tosses ( - )

(.) 0 {-)

//

o/tO = initiQ[ ~ o l t ~ of the t a r i f f .

To summarize, a bureau will be in favour of free trade only as long as net marginal welfare gains (estimated in terms of partial equilibrium) remain positive. As soon as they become negative, the bureau will be in favour of protection. In Figure 4, at te, net marginal welfare gains under perfect information are zero. Therefore the tariff change Ate may be considered as giving the new equilibrium tariff to be imposed b y the bureau, Te, which is obtained b y reducing the initial tariff T b y a proportion Ate. Then the tariff change Ate is optimal for the bureau since it

We assume no distortions in product and factor markets because, in such a case, negative net welfare gains could certainly occur even in a general equilibrium framework. Welt~tlich~ Ardalv Bd. CXVII. 33

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maximizes net welfare gains from trade liberalization 1. Now we can show that information costs will induce bureaus to choose tariff levels higher than the equilibrium value, T, (or alternatively, to choose tariff changes lower than At,). 2. B u r e a u s as I n f o r m a t i o n Producers

As regards the information costs needed for estimating net welfare gains from changes in protection level, two possibilities have to be investigated. The first one is t h a t the bureau will directly produce its own estimates of social gains and losses created by the tariff change. At a first glance, this appears to be a manageable estimation. However, additional problems emerge and heavily increase the costs of information : First, each firm does not use exactly the same technology so that "effective rates of protection are different. Second, enforcement of protective devices induces smuggling, errors, briberies and frauds of all kinds 2. If these additional problems are taken into account, it is not difficult to understand that the bureau is not at all the best organization to provide such estimates instead of consumers and factors of production. Information costs will be therefore increased because of the inefficiency of the bureau. As these costs have to be deducted from the net welfare gains, the final result is t h a t the tariff imposed b y the bureau, T', will be higher than the equilibrium tariff, T e. An alternative consequence m a y be presented: presumably as the bureau m a y more easily collect data for estimating the costs for factors of production than the gains for consumers - - because of their relative information costs - - , it seems reasonable to conclude that most often the gains will be underestimated, just as the net welfare gains, so that again T' will be imposed instead of T, (i. e. the tariff change At' will be chosen instead of At,)s.
Obviously, A0 (i.e. the tariff changes so that the new tariff becomes zero) is the optimal tariff change in a general equilibrium framework (for a small country). The tariff change Ate is due to the bounded rationality of the bureau and its willingness to organize compensation between gainers and Ioosers from free trade within a partial equilibrium framework. t Because of the reasons, we assume (Figure 4) th a t the marginal costs of information increase when the protection level decreases. Then the optimal tariff change is A t ' (instead of Ate). In our text, we assume that no fraud from the bureau exists. However, it is clear that some optimal amount of fraud can be expected since the bureau both appraises the damage and offers the solution for the import-competing industry it supervises. 9 A simple example may be given. During the late x9th and early 2oth century the debates between protectionists and free-traders in France were dominated by the controversy about trade balances. As Arnaume [x9II] reports, it was likely t ha t imports were slightly undervalued (3 per cent), but exports highly undervalued (5--x5 per cent). Consequently, over the 34 years between x88o and x9x3, France had between xx and 14 years of trade surpluses (instead of one) according to the official statistics [White, I933, P. 4o]. The French

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491

3- B u r e a u s as I n f o r m a t i o n

Users

The second and more likely possibihty is that the bureau chooses not to produce its own information and relies upon estimations provided directly b y the persons involved, i.e. consumers and factors of production. Concerning the consumers' side, it is likely that, for a majority of goods, the level of information obtained b y the bureau will be low and/or the quahty of information bad. This follows from the fact that the consumers will not presumably constitute a group for estimating their gains in case of a tariff decrease, or even the costs from a tariff increase because of two reasons. First of all, there is a familiar free rider problem applied here to large groups: Olson [r965] showed t h a t the probabihty that such organized consumer groups exist is rather low. Secondly, the bureau wiU ask for information for very specific products, and, in such a case, it will likely be an example of Downs' argument that consumers would be foolish to react to price changes for goods representing a small part of their total expenditure. However, we should note in passing that, in the case of intermediate goods, the level of quantity/quahty of information is hkely to be superior if the group of consumers is small and if the intermediate good involved is an important part of the firms budget. Finally, better information would be expected from consumers - - even for final goods - - if, instead of information on specific products, the bureau asked for information on a lot of goods, or, for instance, on a typical representative basket of goods covering the main expenses of consumers. With respect to informations provided b y the factors' side, the story is quite different. Presumably an important amount of information will be produced by factors for bureaus since essentially factors m a y easily constitute organized groups - - firms themselves or trade unions - - quite able to estimate the costs of decreased protection for them and to appropriate the benefits of maintained or increased protection. However, the interesting problem is that the supphers of information - - the factors or their representatives - - know the quality of information while the buyer - - the
" D i r e c t i o n des D o u a n e s " ( D G D ) n e v e r i n v e s t e d t i m e , m o n e y a n d effort in o b t a i n i n g inform a t i o n o n t h e a c c u r a t e m o v e m e n t s of i m p o r t s / e x p o r t s a l t h o u g h c o s t l y fines for s u c h u n d e r v a l u a t i o n were p r o m u l g a t e d in x863. O n e possible e x p l a n a t i o n is t h a t , since n o d u t i e s w e r e g e n e r a l l y levied o n e x p o r t s , t y p i c a l effort m i n i m i z a t i o n w o u l d h a v e b e e n e x p e c t e d f r o m the civil s e r v a n t s . B u t in a d d i t i o n , all t h e y e a r s w i t h official t r a d e deficits - - w h i c h in r e a l i t y were t r a d e s u r p l u s e s - - w e r e b e t w e e n x896 a n d x9o9. T h i s s u g g e s t s t h a t a n n o u n c i n g t r a d e deficits w a s beneficial f o r t h e D G D , b e c a u s e f o r i n s t a n c e - - in a d d i t i o n to the f a c t t h a t t h e D G D c a n n o t b e t a k e n as r e s p o n s i b l e f o r s u c h deficits - - t r a d e deficits m a y e m p h a s i z e the n e c e s s i t y of i n c r e a s i n g v i g i l a n c e o v e r i m p o r t s . As t h i s v i g i l a n c e is the m a i n o u t p u t of t h e D G D , it also a p p e a r s as a g o o d a r g u m e n t f o r a s k i n g for m o r e civil s e r v a n t s a n d l a r g e r m e a n s for the D G D . I n d e e d , the D G D p u b l i s h e d s e v e r a l r e p o r t s a r o u n d x9oo s t r o n g l y r e c o m m e n d i n g m o r e e l a b o r a t e t r a d e classifications [ A r n a u m e , x9xx, p. 39]-

$3*

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bureau - - does not. Obviously the monitoring of information received by the bureau is terribly difficult 1. We face here a typical case of asymmetrical information. Let us illustrate this point. The definition given above of costs to be considered explicitly mentioned the social aspects of these costs. Monitoring the social costs and benefits b y a bureau seems to be difficult for technical as well as political reasons. From the technical point of view, first, it is likely that such social costs are easier to estimate for mobile factors - - as for instance unskilled labor - - than for factors specific to the import-competing industry for which it is far more difficult to separate rents from returns, to estimate real returns and/or tile average length of unemployment, etc. ~. As a result of these difficulties, a bureau may be induced to accept some overestimations of costs for labour as an approximative counterweight of potential undervaluations of costs for other (specific) factors employed b y the import-competing industry. The way of doing this is to take into account some private costs for workers such as to consider civil rights to keep one's present job 3. Obviously any compromise of this kind will distort T' away from T e . Apart from these technical difficulties in monitoring the valuation of the social costs by factors, we m a y recall that the bureau has an employment-maintenance motive: as a result of its conservative SWF, a bureau may be willing to introduce some private costs in addition to social costs. For instance, a nominal wage decrease experienced in new occupations by workers coming from the import-competing sector may be considered by tile bureau as a social cost. Again T' would be higher than T e . As a result of the difficulty in monitoring the information produced by factors of production, a bureau will be induced to introduce either some competition between information sources or some ex ante quality reguF u r t h e r m o r e , bureaus h a v i n g a strong " s u r v i v a l " objective will not necessarily try to monitor seriously the information received so t h a t they will impose a tariff level m u c h higher t h a n the e q u i l i b r i u m level under perfect information, T e. As an e x t r a o r d i n a r y counterexample let us take the case of the "Conseil Sup6rieur du C o m m e r c e " of 186o which was in charge of d e t e r m i n i n g the new [decreased) tariff rates and which had a v e r y peculiar feature insofar as it was an ad hoc t r a n s i t o r y C o m m i t t e e w i t h o u t a n y survival objective. This council undertook hearings of French e n t r e p r e n e u r s b u t monitored the French assertions b y undert a k i n g hearings of English e n t r e p r e n e u r s ~Dunham, x93o ]. t Let us notice t h a t e s t i m a t i o n s m a d e b y academics generally c o m p u t e only the labour value cost which has to be i n t e r p r e t e d as costs for mobile factors. See Magee [i972] and Szenberg el al. [i977 ] for example. Such a b e h a v i o u r of b u r e a u s is indeed favourable to lobbies since it m a k e s easier to present interest groups as a r m e d b y "social" r a t h e r than egoist motives : capitalists and skilled workers seem to t a k e care of non-skilled workers' future. B u t our hypothesis concerning such b e h a v i o u r will allow to i n t e r p r e t the often alleged labour-bias of b u r e a u s : this bias would be only a means to introduce social costs for other (non labour) factors and does not necessarily reflect a s y m p a t h y for non-skilled labour.

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lation so as to secure minima quality standards concerning information provided by factors of production (firms). Variants of the first means would be competition between bureaus themselves (if they dont't agree on the diagnosis of the trade problem) or entry on the market for information by other organizations. However, competition on goods like information is not necessarily possible. Consequently the second means appears to be the most used. A frequent device used by a bureau to obtain the fulfilment of these standards is to allow a chosen professional association in the industry a monopoly for producing information for the bureau. Such a licence has two familiar aspects: monopoly, but also long-term contract so that any false information given by the association would produce negative retunls for it sooner or later.
V. Conclusion

To summarize, results were provided concerning protection by bureaucratic procedures. First, if a bureau is a partial dictator supervising a given industry, it will necessarily choose a protective level higher than the theoretically optimal one. Second, if, as expected, bureaucrats have less opportunities to capture profits (wealth) from the protective activities than politicians, they will then favour higher protection than pohticians. Third, information costs will hkely increa.~e the bureaus' bias for protection. An additional point has to be noticed: any ranking among protective devices which does not fully take into account the supply side of tile market for protection may be quite misleading 1. Now, as regards the implications for institutions in charge of trade policy, the starting point is as follows. Institutional administrative design may have a crucial impact on the bureau's choice (between free-trade and protection) by possibly changing the consequence of partial dictatorship (Section II), by possibly modifying the conditions of competition between bureaus in the area of protective devices (Section III) and, finally, by determining information costs and the relative property rights of bureaus and industries concerning trade pohcies (Section IV). In other words, we clearly face an assignment problem when we consider bureaus determining trade policies. Finally, the following suggestions emerge from these converging remarks. First, the larger the scope of the bureau in charge of protection is, the more likely it favours free-trade. Examples are provided by the contrast between the EC Commission and some national bureaucracies or the
1 Some empirical evidence seems, at a first glance, to corroborate this result. D e v i a t i o n s from the F r e n c h trend of trade liberalization occurred d u r i n g periods when bureaus were considered powerful.

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contrast between the bureaus of the Federal Government and those of the states in West Germany (although this second case appears to be more ambiguous in the two last years). Second, information about the consumers' losses due to protection can be correctly produced only b y institutions which can examine the whole range of final goods and which are not limited to some categories of goods. Such an institution is the only one to overcome the free-rider problem noticed by Downs [1957] and to create a bureaucratic organization which can be free-trade oriented. The recent evolution of the Australian Industries Assistance Commission [Anderson, 198o ] and, perhaps, of the U.S. International Trade Commission would be interesting examples concerning this suggestion. More efforts should be devoted to this problem of optimal (relatively to free trade) administrative design.
References
Anderson, Kym, "The Political Market for Government Assistance to Australian Manufacturing Industries". The Economic Record, Vol. 56, Burwood, 198o, pp. I32--I44. Arnaume, A., Le commerce extrrieur et les tarifs de douane. Paris, 191~. Baldwin, Robert E., The Political Market /or Governmental Initiative. 1979, mimeo. - - , The Political Economy o] Protectionism. x98o, mimeo. - - , J o h n H. Mufti and J. David Richardson, "Welfare Effects on the United States of a Significant Multilateral Tariff Reduction". Journal o] International Economics, Vol. xo, Amsterdam, 198o, pp. 4o5--44 o. Bh~gwati, Jagdish N., "The Generalized Theory of Distortions and Welfare". In: Jagdish N. Bhagwati, Ronald W. Jones, Robert A. Mundell, Jaroslav Vanek (Eds.), Trade, Balance o / P a y m e n t s and Growth. London, x97 I, pp. 69---90. Brock, William A., and Stephen P. Magee, "Tariff Formation in a Democracy". In: J o h n Black and Brian Hindley (Eds.), Current Issues in Commercial Policy and Diplomacy. Papers of the 3rd Annual Conference of the International Economics Study Group, London, I98O, pp. I - - 9 . Buchanan, James M., "The Coase Theorem and the Theory of the State." Natural Resources Journal, Vol. 13, Albuquerque, 1973, pP. 579---594. Caves, Richard, a n d Ronald W. Jones, World Trade and Payments. A n Introduction. 2nd Ed., Toronto, 1977. Corden, W. M., Trade Policy and Economic We#are. Oxford, I974. Downs, Anthony, A n Economic Theory o/Democracy. New York, 1957. Dunham, Arthur L., The Anglo-French Treaty o/ Commerce o/186o and the Progress o/ the Revolution in France. University of Michigan Publications, History and Political Science, Vol. 9, Ann Arbor, 193 o. Finger, J. M., H. K. Hall, D. R. Nelson, The Political Economy o/Administered Protection. I98O, mimeo. Holcombe, Randall G., and Edward O. Price, "Optimality and the Institutional Structure of Bureaucracy". Public Choice, Vol. 33, Blacksburg, I978, pp. 55--59.

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Klein, Benjamin, Robert G. Crawford and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process". The Journal o/ Law and Economics, Vol. 21, Chicago, 1978 , pp. 297--326.

Magee, Stephen P., "The Welfare Effects of Restrictions on U.S. Trade". Brookings
Papers on Economic Activity, Washington, 1972, 3, PP. 645--7 olMartin, John P., "X-Inefficiency, Managerial Effort and Protection". Economica, Vol. 45, London, 1978, pp. 273--286. Messerlin, Patrick A., The Political Economy o/ Protection: The Bureaucratic Case. I98O, mimeo. Migu*, Jean L., and G~rard B~langer, "Toward a General Theory of Managerial Discretion". Public Choice, Vol. 17, Blacksburg, 1974. PP. 27--47. Niskanen, W., Bureaucracy and Representative Government. Chicago, I971. Olson, Jr., Mancur, The Logic o/ Collective Action. Public Goods and the Theory o/ Groups. Harvard Economic Studies, Vol. x24, Cambridge, Mass., I965. Rawls, J., A Theory o/Justice. Cambridge, i97 I Steiner, Peter O., "Public Expenditure Budgeting". In: The Economics o/ Public Finance. The Brookings Institution, Studies of Government Finance, Washington, 1974, PP. 241--357. Szenberg, Michael, John W. Lombardi, Erik Y. Lee, Wel/are E~ects o/ Trade Restrictions. A Case Study o/the U.S. Footwear Industry. Economic Theory and Mathematical Economics, New York, I977 . Verreydt, E., and J. Waelbroeek, E*tropean Community Protection against Manu/av-

tured Imports/rom Developing Countries: A Case Study in the Political Economy o/ Protection. World Bank Staff Working Paper, No. 432, Washington, 198o.
White, H. D., The French International Accounts, I88o---19I 3. Cambridge, Mass., x933.

Z u s a m m e n f a s s u n g : Die politische 0konomie des Protektionismus: Die Rolle der Bfirokratie. - - Dieser Aufsatz versucht zu analysiercn, welche Rolle dic Btlrokratie auf dem politischen Markt der Protektion spielt. Bisher.wurden in dcr Literatur ausschlieBlich Politiker und W~ihler als bestimmende Kr~fte bchandelt. Alle Argumente, die in diesem Auisatz vorgebracht werden, untcrsttltzcn die Ansicht, da[3 Biirokraten die Protektion st~krker befiirworten als Politikcr. Wenn man eine Beh6rde als einen paxtiellen Diktator ansieht, der einc bcstimmtc Industrie liberwacht, dann wird sic notwendigerwcise einen h6heren Protektionsgrad als den thcoretisch optimalen w~iahlen. Wenn die Bi~rokraten weniger als die Politiker Gelegenheit habcn, einen Gewinn (Reichtum) aus den protektionistischen Aktivit~ten zu ziehen - - und das kann erwartet werden - - , dann werden sic filr eine h6here Protektion sein als die Politiker. Diese Neigung zugunsten der Protektion wird noch verstRrkt, wenn man die Informationskosten in dic Bctrachtung einbezieht. I.in andcres Ergebnis dieses Aufsatzes ist, dab jede Rangordnung protektionistischer MaBnahmen, welche die Angebotsseite des Marktcs flir Protektion nicht in vollem Umfang bcrllcksichtigt, v611ig irrelllhrcnd sein kann.

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The Political Economy of Protectionism R 6 s u m 6 : L ' & o n o m i e p o l i t i q u e du p r o t e c t i o n n i s m e : Lc cas b u r e a u c r a t i q u e . --Cet article essaie d ' a n a l y s e r le r61e jou~ p a r les b u r e a u c r a t e s s u r le m a r c h 6 p o l i t i q u c de p r o t e c t i o n n i s m e . J u s q u ' h p r & e n t les a g e n t s p u b l i q u e s c o n s i d e r & d a n s la litt6rat u r e & a i e n t e x c l u s i v e m e n t d e s politiciens et d e s v o t a n t s . T o u s les a r g u m e n t s 61abor6s darts cet article s u p p o r t e n t l'id6e q u e les b u r e a u c r a t e s s o u t i e n n e n t le p r o t e c t i o n n i s l n e p l u s I o r t e m e n t q u e les politiciens. Si n o u s r e g a r d o n s u n b u r e a u c o m m e d i c t a t e u r partiel s u p e r v i ~ n t u n e i n d u s t r i e Sl~Cifique'un tel b u r e a u n & e s s a i r e l n e n t choisira u n n i v e a u de p r o t e c t i o n q u i c s t p l u s h a u t q u e l ' o p t i l n u l n de la th~orie. Si les b u r e a u crates o n t m o i n s s o u v e n t l ' o p p o r t u n i t 6 de tirer des g a i n s (richesse) des a c t i v i t 6 s protectrices q u e les politiciens - - eolnlne on p o u r r a i t l ' a t t e n d r e - - ils s o u t i e n d r o n t une p r o t e c t i o n p l u s h a u t e q u e les politiciens. Le biais en f a v e u r de la p r o t e c t i o n a u g l n e n t e si n o u s c o n s i d ~ r o n s a u s s i les cofits d ' i n f o r m a t i o n . U n a u t r e r ~ s u l t a t de cet article est q u e c h a q u e essai tie classifier les Inesures protectrices q u i ne consid~re p a s l'offre s u r le m a r c h ~ de p r o t e c t i o n t o u t e enti~rc p e u t t r o l n p e r t o t a l e m e n t .

R e s u m e n : L a politica econ61nica del protecciolaislno: ]-I caso burocr~tico. - E s t e artieulo t r a t a dc a n a l i z a r el rol j u g a d o por los b u r 6 c r a t a s en el m e r c a d o politico de la protecci6n. H a s t a aqui, los a g e n t e s ptlblicos c o n s i d e r a d o s cn lzt l i t c r a t u r a fueron e x c l u s i v a m e n t e politicos y v o t a n t e s . T o d o s los a r g u m e n t o s p r o p u e s t o s en este t r a b a ] o d a n fuerte a p o y o a la idea q u e los b u r 6 c r a t a s e s t h n mdts a f a v o r de la protecci6n q u e los politicos. Si se m i r a u n a oficina pfiblica colno un d i c t a d o r p a r t i a l q u e s u p e r v i s a u n a i n d u s t r i a d e t e r l n i n a d a , 6sta elegirA n e c e s a r i a m e n t e un nivel tie protecci6n Inas alto q u e el t e 6 r i c a m e n t e 6ptilno. Si los b u r 6 c r a t a s tienen Inenos otx~rtunidades parer c a p t u r a g a n a n c i a s (riqueza) de las a c t i v i d a d e s p r o t e g i d a s q u e los politicos, colno es de esperar, e n t o n c e s ellos v a n a favorecer u n a protecci6n m ~ s alta q u e los politicos. E s t e sesgo h a c i a la protecci6n se i n c r e m e n t a r ~ si, adeln~is, se c o n s i d e r a n los costos tlt, iuforlnaci6n. Otro r e s u l t a d o tie este articulo es q u e c u a l q u i e r clasificaci6n e n t r e di~positivos p r o t e c t i v o s q u e no t o l n a c o m p l e t a m e n t e en c u e n t a el lado de la oferta dt,l m e r c a d o por protecci6n p u e d e ser b a s t a n t e engafioso.