Here is a great little story by Danny Vinik from Politico’s The Agenda on how so-called marketing boards are surreptitiously turned into lobbying boards.
Industries with a large number of producers find it difficult to organize collectively because of the free rider problem. Mostly, that’s a good thing because it prevents cartels. Collective action, however, could also be used to perform research or marketing that’s good for the industry as a whole but too expensive for any small subset of producers. In theory, therefore, some type of collective action could be beneficial and in agriculture governments have created checkoff programs which force producers to pay a tax to fund collective goods.
Checkoffs exist for dairy farmers, mushroom producers, and even popcorn processors. Critics say they violate economic freedom and distort the market; big corporate farmers, they allege, easily find ways to influence the boards and siphon the money off to push their own causes.
“In one sense, it’s a classic case of the larger producers are the more powerful political forces within these organizations,” said Dan Glickman, the Agriculture Secretary at the end of the Clinton administration who largely supports checkoff programs.
For the unhappy hog farmers, the current problem started with the 1985 Pork Law, when Congress set up the National Pork Board and required all farmers to contribute. Today, hog farmers must hand over 40 cents out of every $100 in revenue from pork sales. The board uses the money, totaling nearly $100 million a year, to conduct research and promote the pork industry, but is not allowed to lobby.
But as Adam Smith said “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Quite so. And in this case by creating a National Pork Board the government is providing the meeting hall and paying for the conversation. According to the law, the money from the checkoff program isn’t supposed to go for lobbying but here is where the story gets interesting.
You may recall the slogan, “Pork: The Other White Meat.” The slogan hasn’t been used for years but the National Pork Board still pays $3 million a year every year for the rights. Why would the Pork Board pay millions for an unused slogan? The key is who they are paying. The slogan is owned by National Pork Producers Council. The NPPC is a lobby group and you won’t be surprised to know that it is closely connected with the NPB (having once even shared offices).
…critics say the two groups have never been as separate as the law calls for, and now are essentially colluding through a deal that lets the Pork Board funnel money to the NPCC by assigning an absurdly inflated value to the “other white meat” slogan; the money then goes to promote the NPPC’s lobbying agenda.
A neat trick. The story is also a good object lesson in Mancur Olson’s thesis about how special interest groups grow in power over time, slowly choking off innovation as they cartelize the economy.