Redistributing Income Upward through the Cost-Plus Reimbursement Terms of Subgovernment Contracts

By Hayden, F. Gregory; Bolduc, Steven R. | Journal of Economic Issues, June 1998 | Go to article overview

Redistributing Income Upward through the Cost-Plus Reimbursement Terms of Subgovernment Contracts


Hayden, F. Gregory, Bolduc, Steven R., Journal of Economic Issues


This is a case study designed to test the thesis (drawn from political science literature) that the power of "subgovernments" in the United States has decreased and, in particular, claims a demise in the power of the atomic energy subgovernment as one proof for the thesis. The subgovernment approach to explaining policymaking in the United States "is based on the observation that relatively small groups of actors dominate certain sectors of the political system" [Duffy 1997, 4]. One function of such subgovernments is to redistribute income upward through the cost-plus reimbursement terms of government contracts.

The subgovernmental institutions - also referred to as subsystems, iron triangles, or policy monopolies [McCool 1990] - are described as "small, stable groups of actors, both public and private, that dominate policy in specific issue areas" [Duffy 1997, 3]. Robert Duffy characterizes a subgovernmental group as typically consisting of mid-level executive bureaucrats, a committee or commission, and a client group (or special interest group, in McCool [1990]). Each actor or unit associated with a subgovernment can potentially benefit from a program's success either politically or economically. Consequently, because of complementary goals, a policy monopoly emerges that protects the shared interests of the units. Policymaking within this monopoly is characterized by quiet negotiations and compromise. Moreover, policy shifts are usually restricted to incremental changes to avoid attracting the attention of those outside the subgovernment.

To better understand the stability and degree of dominance over the policy process by subgovernments, a distinction has been made about the types of issues over which the subgovernment has jurisdiction. According to Duffy [1997], Temples [1980], and Lowi [1964], distributive issues tend to provide a more stable position of dominance for the subgovernment. Such issues are characterized by (1) government subsides or benefits accruing to a small group, (2) low visibility of actions to those outside the subgovernment, and (3) a high degree of cooperation within the subgovernment.

In his Veblen-Commons Award address, Seymour Melman [1997] emphasized subgovernment power in determining Pentagon expenditures and the consequent upward redistribution of income. The U.S. Department of Energy, with its history of the old Atomic Energy Commission and the current Nuclear Regulatory Commission (NRC), has also been a stronghold of subgovernments.

There is agreement that during the two decades following World War II, the political relationships of commercial nuclear power regulation and subsidization clearly reflected subgovernment dominance. "The Atomic Energy Commission (AEC), the Joint Committee on Atomic Energy (JCAE), and the highly concentrated nuclear power industry formed a classic policy subsystem and exercised a virtual monopoly over the nuclear program. Limited participation, consensus, and stability were the norm" [Duffy 1997, 1-2]. The next 20 years saw significant changes because, by the early 1970s, nuclear power had become one of the most controversial issues in U.S. politics.

Numerous studies have emphasized the decline of the nuclear subgovernment [Temples 1980; Del Sesto 1979; Campbell 1988; Baumgartner and Jones 1993]. However, as recent U.S. General Accounting Office reports have emphasized, the contractual norm is exorbitant cost-plus contract arrangements for nuclear contractors [GAO 1997]. The system remains largely supportive of the industry. The NRC, like its predecessor the Atomic Energy Commission, "operates in an environment ideally suited for regulatory capture; it regulates the actions of a single centralized industry dominated by a small group of large and powerful firms" [Duffy 1997, 3]. Therefore, as Duffy cautions, "old attitudes, and old policies, die hard" [1997, 3].

What kind of subgovernment process replaced the old subgovernment and allowed continued dominance by the nuclear industry and a continuing lucrative practice of contract arrangements?

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