Sabotage versus Public Choice: Sports as a Case Study for Interest Group Theory
Hudson, Ian, Journal of Economic Issues
Most interest groups must look with no small degree of envy at the quite remarkable success of professional sports teams in the United States when it comes to attracting public transfers. Out of twenty-one professional sports facilities under construction in 1998, only three had no government financing. Indeed, in fourteen of the twenty-one projects government was financing more than 50 percent of the total cost. In all, various levels of government spent about $3.3 billion on facilities for professional sports teams between 1998 and 2001 (Grange 1998, A25). This success rate is all the more remarkable given the overwhelming evidence that there is little economic reason for subsidies.
This unusually successful record provides an interesting opportunity to examine two contrasting theories that seek to explain the allocation of government transfers among competing societal demands. The more popular among mainstream economists is public choice interest group theory, which emphasizes individual rational maximization of gains in the political process and the accompanying "waste" of resources. Institutionalists provide an alternative explanation. Drawing on Thorstein Veblen's idea of sabotage, they argue that corporations have an inherent political advantage in a capitalist economic system because of their ability to affect the economy through investment decisions. An important implication of this theory is that corporate political power will fluctuate with the credibility of their threats to alter the amount they will invest.
This paper will use sports subsidization as a case study to test the explanatory power of these two theories. The first and second sections will provide a brief outline of public choice and institutional explanations of state transfers. The third section will apply these two theories to the case of professional sports subsidization.
Public Choice Interest Group Theory
Public choice theory is the current favorite approach for many economists attempting to venture into the political realm. Much of the reason for this is that public choice theory draws heavily on the analytical strengths of economists. The starting premise of what is broadly defined as public choice theory is that the tools of microeconomic analysis can be usefully applied to the political system. A rather telling quotation from Gary Becker will illustrate the general assumptions of public choice writers. "Political equilibrium has the property that all groups maximize their incomes by spending their optimal amount on political pressure, given the productivity of their expenditures, and the behavior of other groups" (1983, 372). Clearly, there is much in common between the political world and the functioning of the market in the eyes of public choice authors. Generally, actors are believed to behave rationally in the political system. They will undertake an action only when the marginal benefits of doing so a re anticipated to outweigh the marginal costs. The basic assumptions of the theory can be traced to the groundbreaking work of three authors: George Stigler (1971, 1974), Sam Peltzman (1976), and Becker (1983). While there is some diversity in public choice writings, the basic tenets set out by these three trail blazers can be reasonably used to describe the beliefs of their followers.
In the public choice literature pioneered by Stigler, Peltzman, and Becker, the political world is populated by three rational actors: politicians, voters, and actors that form into interest groups. Politicians are motivated through self-interest. While the specific utility function of the politician has been the subject of some debate, it must surely be most strongly influenced by the desire to obtain and maintain political power. Therefore, a common assumption has been that politicians act as though they maximize votes. The politician can either attract votes by enacting policies favored by the voters or using interest group money to "purchase" votes through advertising and other information influencing methods. …