MEASURING THE INFLUENCE OF VOTING    RULES IN THE COUNCIL OF THE EU                              ON THE     COMMON AGRICUL...
Statement of OriginalityI hereby certify that the work embodied in this thesis is the result of original research.Some sec...
To FrancescoAcknowledgementsThe greatest gratitude I owe to my son Francesco for surviving with a great sense ofhumour all...
AbstractThe Common Agricultural Policy of the EU is widely considered to be an inefficientand highly distortive policy. On...
TABLE OF CONTENTSABSTRACT ...................................................................................................
2.9.2.1         Transaction Cost Economics (TCE).............................................................................
4.4        Working Groups, COREPER AND SCA.............................................................................864...
5.8.3           Side effects of a failed CAP reform..........................................................................
7.2        The effects of introducing the Nice Treaty changes to the QMV rules............................1937.3        Th...
TablesTABLE 2. 1   THE SHAPLEY-SHUBIK POWER INDEX FOR QUALIFIED MAJORITY VOTES    IN THE COUNCIL OF MINISTERS             ...
TABLE 6. 10 LEVEL OF NON-SUPPORT FOR THE DAIRY PROPOSAL                  175TABLE 6. 11 CALCULATION OF PN - THE PROBABILIT...
FiguresFIGURE 3. 1 AVERAGE FARM NET VALUE ADDED COMPARED TO PER FARMER    RECEIPTS FROM EAGGF, YEAR 1996                  ...
FIGURE 7. 4 THE PRESENT SYSTEM COMPARED TO THE NICE TREATY AGREEMENT    FOR THE AN EU OF 22 MEMBER STATES                 ...
AbbreviationsA         AustriaAMS       Aggregate Measure of SupportB         BelgiumCAP       Common Agricultural PolicyC...
I      ItalyIGC    Intergovernmental ConferenceISPA   Instrument For Structural Policies for Pre-AccessionIrl    IrelandLu...
Chapter 1.             The Agricultural Council: A broker or breaker of                      decisions              I star...
b) Changes in the distribution of the benefits should be minimised, i.e. target             groups should as much as possi...
2. It was thought that trade liberalisation in Europe would reduce the low incomes in    agriculture even further without ...
unanimity was the rule and even today, QMV is still not applied strictly. The reasonsfor the use of unanimity in the Counc...
(Scharpf, 1988, 1994; Kirman and Widgren, 1995; Swinbank, 1989; and manyothers).There are clear symptoms, which point to t...
proportion of the population in an underdeveloped, problem-ridden agricultural sector.Under these circumstances, it is imp...
mathematical model of the Council’s voting system (Chapter 6), an analysis of thesituation after an enlargement (Chapter 7...
Chapter 2. Approaches to policy decision-making analysis              “Not the least of the reasons that public policy has...
2.1    Approaches to Policy decision analysisThere are numerous analytical frameworks that attempt to give insights into p...
circumstances do not allow an efficient competitive market to exist, for example inthe case of natural monopolies. The wel...
to correct for market failures and target the maximisation of economic welfare of thewhole economy. In fact, the actual im...
economy in order to stay in power and to maximise its utility”. This theory follows theeconomic assumption that voters are...
public policy derive their methodology from the politico-economic models. In fact,most models presented in this chapter fa...
than consumer preferences. The model uses convex political indifference (PI) curveswhich describe the welfare or “income” ...
political agenda in the 1970s and 1980s. The approach originates in the works byDowns (1957 and 1967) Buchanan and Tullock...
Downs (1967) offered a more complex set of bureaucratic behaviour laws.Bureaucratic decision-making follows a set of 16 la...
theories for the reasons of the existence of international organisations were based onthree pillars that neglected these d...
International agreements increase the information costs for the voters and thus reducethe unpopular effects of policies as...
explicitly as an example of his theories. His main interest lies in analysing why thepoliticians of the member states tran...
actually a counterweight to the inter-governmentalist structure of the Council andavoids the creation of the ‘junk’ polici...
The outcome of the interest group theories is that lobbies are the cause of inefficientand distortive policies. The lobbie...
a strong tendency to group into more homogeneous and efficient lobbies to protecttheir interests. Farm groups can also for...
models are based on a model of a two sector economy, agriculture and manufacturing.The individuals in the economy have ide...
The public choice school in all its different analytical forms can give importantinsights on the influence of different gr...
based on Niskanen (1971). Senior bureaucrats are more interested in shaping theirdepartments and budgets to get advancemen...
decision is the outcome of the bargaining. Different actors are likely to have differentperceptions of the problem, what i...
2.7     Political MarketAccording to Magee et al. (1989) there is a political market that operates in a similarmanner to a...
problems with the selection of variables. This means that there is no perfectinformation available.Partisan mutual adjustm...
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Full phd2
Upcoming SlideShare
Loading in …5
×

Full phd2

1,073 views
977 views

Published on

This is my PhD analysing the influence of voting power by member states in the decision-making on agricultural policy and the impacts of enlargement. It uses both political economy and power indexes from game theory. Just in case anybody is interested. Completed in 2000, awarded 2001.

Published in: News & Politics
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,073
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Full phd2

  1. 1. MEASURING THE INFLUENCE OF VOTING RULES IN THE COUNCIL OF THE EU ON THE COMMON AGRICULTURAL POLICY PAST, PRESENT AND FUTURE by Jorge Núñez Ferrer T.H. Huxley School Imperial College of Science, Technology and Medicine Wye, University of London July 2001Thesis submitted for the award of the Degree of Doctor of Philosophy at the University of London 1
  2. 2. Statement of OriginalityI hereby certify that the work embodied in this thesis is the result of original research.Some sections of the thesis have been already published jointly with work from otherauthors, references have been included in the text. The work presented in this thesisdraws only on my own contribution. This thesis has not been submitted for a higherdegree to any other University or Institution.Date Jorge Núñez Ferrer 2
  3. 3. To FrancescoAcknowledgementsThe greatest gratitude I owe to my son Francesco for surviving with a great sense ofhumour all the ups and downs of a life with a research student. I would like to thankmy father for the financial help that allowed me to continue this research in difficulttimes. I am very grateful for my wife Ana, for her patience and encouragementespecially in the final stages. I would like to give special thanks to Professor AllanBuckwell, whose lectures on Agricultural Policy hooked me completely to thissubject. His enthusiasm was contagious, and his patience and support has been crucialto keep me going on in this research. As with so many other students wishing to buildmathematical models and programmes, I have to thank Dr Kelvin Balcombe, whohelped me to make a mathematical idea into a usable reality. I also wish to show mygratitude to Mario Alessi, whose help and encouragement in the past was instrumentalto help me to reach this level. I want to acknowledge the role of the Centre forEuropean Policy Studies (CEPS) for letting me continue working on this subject andfor the in depth knowledge I gained from my colleagues on the workings of theEuropean Union. I also thank the Centre for Agricultural Policy Studies (CEAS) foroffering me the grant that financed three years of my PhD research. Finally, a lovingwelcome to little Clara. 3
  4. 4. AbstractThe Common Agricultural Policy of the EU is widely considered to be an inefficientand highly distortive policy. On the one hand, the result can be considered aconsequence of the democratic wishes of the population. On the other, there is awidely held suspicion that the institutional setting of the EU has had a strong negativeimpact on the policy. Various analysts have claimed that the voting rules at theAgricultural Council of the EU foster the status quo in the Common AgriculturalPolicy, preventing necessary reforms which might otherwise be accepted under aproper democratic system. Proposals by the Commission to improve the policy arehighly diluted to the level of the ‘lowest common denominator’ between the memberstates.There has never before been an attempt to systematically quantify the impact of thevoting rules – implicit or explicit – on the quality of the policies negotiated at theCouncil, nor has there been a convincing quantification of the influence of nationalpreferences on the outcome of negotiations in the Council.This thesis presents two analyses of the behaviour of the Council. The first is anempirical analysis based on the development of the negotiations over the Agenda2000 CAP reforms. The second develops a mathematical tool which quantifies thereduction in the probability of reform proposals by the Commission being adoptedand represents an indirect measure of the pressure on the Commission to dilute andreduce the number of proposed changes. This model is then applied to the Agenda2000 negotiations. The results of both studies show sufficient theoretical andempirical evidence that the voting rules exert very strong pressure to keep the CAPunchanged. Building on these results, possible reforms to the decision-making rules ofthe Council and to the CAP are proposed in the concluding chapter. 4
  5. 5. TABLE OF CONTENTSABSTRACT .....................................................................................................4TABLES.........................................................................................................10FIGURES .......................................................................................................12ABBREVIATIONS..........................................................................................14CHAPTER 1. THE AGRICULTURAL COUNCIL: A BROKER OR BREAKEROF DECISIONS .............................................................................................161.1 Reasons for concentrating on the CAP and the Agricultural Council of the EU..............171.2 The importance of the research.............................................................................................20CHAPTER 2.... APPROACHES TO POLICY DECISION-MAKING ANALYSIS .....................................................................................................232.1 Approaches to Policy decision analysis.................................................................................242.2 Welfare economics..................................................................................................................24 2.2.1 Welfare Economics, the rational actor and the CAP.......................................................252.3 Political Economy models ......................................................................................................262.4 Political Preference Functions...............................................................................................282.5 Public Choice ..........................................................................................................................29 2.5.1 The power maximising-politicians, the voters and interest groups.................................312.6 Bureaucracy............................................................................................................................39 2.6.1 Organisational process and bureaucratic politics............................................................402.7 Political Market ......................................................................................................................422.8 Partisan Mutual Adjustment.................................................................................................422.9 Institutional Approach...........................................................................................................44 2.9.1 Functionalism .................................................................................................................44 2.9.2 Economic Institutionalism ..............................................................................................45 5
  6. 6. 2.9.2.1 Transaction Cost Economics (TCE)...........................................................................45 2.9.2.2 Principal-Agent theory...............................................................................................46 2.9.3 Political Institutionalism .................................................................................................462.10 Functionalism and Neo-functionalism .............................................................................47 2.10.1 Liberal inter-governamentalism......................................................................................492.11 Dynamic policy-making approach ...................................................................................502.12 Game Theory .....................................................................................................................51 2.12.1 The Power Index Analysis for the EU ............................................................................522.13 Searching for the appropriate tools for the analysis.......................................................56CHAPTER 3. THE PERFORMANCE OF THE CAP FROM 1958 TO 1998..583.1 CAP developments .................................................................................................................58 3.1.1 Productivity vs. overproduction......................................................................................60 3.1.2 Distribution of CAP benefits and farm incomes .............................................................63 3.1.2.1 The price support system as means to support farm incomes ....................................63 3.1.2.2 Farm income support distribution from the EAGGF among EU countries................643.2 The CAP and the EU Budget.................................................................................................68 3.2.1 The European Budget in the 1990s – the increase of a paradox .....................................723.3 Environmental effects of the CAP.........................................................................................753.4 Welfare costs of the CAP .......................................................................................................763.5 The increase in complexity ....................................................................................................773.6 Decision-making speed in the EU’s Agricultural Council of Ministers .............................783.7 Assessment and conclusions on the past development of the policy...................................79CHAPTER 4. THE FORMAL AND INFORMAL EU DECISION-MAKINGPROCEDURES WITH SPECIFIC REFERENCE TO AGRICULTURE ..........814.1 The legislative bodies..............................................................................................................814.2 The Commission .....................................................................................................................814.3 The Council.............................................................................................................................83 4.3.1 Organisation of the Council Meetings ............................................................................85 6
  7. 7. 4.4 Working Groups, COREPER AND SCA.............................................................................864.5 The European Parliament ..................................................................................................... 874.6 Economic and Social Committee (EcoSoc)...........................................................................874.7 Other statutory committees ...................................................................................................884.8 The creation of CAP legislation ............................................................................................884.9 The evolution of the Council of Ministers ............................................................................914.10 Voting Rules - their development, the formal procedures, actual behaviour...............93 4.10.1 Qualified Majority Voting for the CAP ..........................................................................944.11 The Sectoral Bias in the Council ......................................................................................984.12 The dominance of net budgetary balance considerations ..............................................994.13 Conclusions on QMV ......................................................................................................100CHAPTER 5..........................................THE AGENDA 2000 NEGOTIATIONS ...................................................................................................1015.1 Introduction ..........................................................................................................................1015.2 Methodology of the budgetary analysis..............................................................................1025.3 The Birth of Agenda 2000....................................................................................................1035.4 The German Presidency – Setting the parameters for negotiation..................................1085.5. CAP negotiations ..................................................................................................................1105.6 The European Council Summit in Berlin...........................................................................1135.7 The Final Agricultural Reform - An Analysis ...................................................................117 5.7.1 Price cuts and WTO commitments ...............................................................................118 5.7.1.1 Aggregate Measure of Support commitments..........................................................119 5.7.1.2 Export subsidy value and volume commitments......................................................120 5.7.2 The Budget for Agriculture...........................................................................................1255.8 Consequences of the Berlin agreement on Enlargement...................................................127 5.8.1 Effects of CAP enlargement on production levels........................................................128 5.8.2 Towards a budgetary crisis ...........................................................................................131 5.8.2.1 The direct payments .................................................................................................133 7
  8. 8. 5.8.3 Side effects of a failed CAP reform..............................................................................134 5.8.3.1 Future pressures on the enlarged EU budget............................................................1365.9 Conclusions ...........................................................................................................................141CHAPTER 6. FILTERING PROPOSALS THROUGH THE DECISION-MAKING INSTITUTIONS - THE POWER OF QMV.....................................1436.1 Development of a Model for the Council of Ministers ......................................................1436.2 Statistical Consequences of the Bargaining Process - a Model.........................................1456.3 Primary general results on the effects of the QMV system for the decision-makingefficiency of the EU’s CAP.................................................................................................................146 6.3.1 Base scenario ................................................................................................................146 6.3.2 Alternative Scenario I - Coalitions ...............................................................................149 6.3.3 Alternative scenario II - Implicit vetoes .......................................................................1516.4 Incorporating specific preferences for the member states................................................1546.5 The position of the member states vis-à-vis the original proposals..................................1576.6 Calculating the preferences of member states ...................................................................162 6.6.1 The Calculation of pn - the probability of voting against or level of non-support for the proposal for each member state .......................................................................................................167 6.6.1.1 Share of importance of the cereals, oilseeds, beef and diary sectors........................167 6.6.1.2 The Net Balances .....................................................................................................168 6.6.1.3 Shares of importance of individual changes proposed and the effect of farm income changes 169 6.6.1.4 Shares of importance of individual changes proposed and the level of non-support1726.7 The blockage or rejection probability of Agenda 2000 .....................................................1766.8 The preferences of the final Berlin Agreement..................................................................1786.9 Conclusions ...........................................................................................................................184CHAPTER 7... THE EFFECTS OF ENLARGEMENT ON DECISION-MAKING ...................................................................................................1867.1 Continuation of the present Decision-Making System in an Enlarged Union.................189 7.1.1 The Power of a CEEC coalition....................................................................................190 7.1.2 Implicit veto power for Poland .....................................................................................191 8
  9. 9. 7.2 The effects of introducing the Nice Treaty changes to the QMV rules............................1937.3 The effects of enlargement on future reform prospects ....................................................196CHAPTER 8.SUMMARY AND CONCLUSIONS .........................................1988.1 The selection of the analytical tools ....................................................................................1998.2 The Council’s performance along the history of the CAP ................................................2008.3 The decision-making system for agriculture......................................................................2018.4 The Agenda 2000 negotiations.............................................................................................2028.5 Modelling the decision-making process..............................................................................2058.6 Results of the analysis on the decision-making procedures of the Council .....................2078.7 Recommendations ................................................................................................................209 8.7.1 Reform of the decision-making procedures ..................................................................211 8.7.2 Reforming the CAP ......................................................................................................2128.8 A view of the future..............................................................................................................215REFERENCES.............................................................................................216ANNEX A. THE AGRICULTURAL POLICY IMPACT MODEL....................235ANNEX B. THE EU BUDGET MODEL ........................................................252Annex B.I Budgets, year 1997 and Agenda 2000 proposals..................................................260Annex B.II Negotiation of Agenda 2000 and decision ............................................................264Annex B.III Longer term effects of the Agenda 2000 agreement............................................267ANNEX C. ....................................................THE SHAPLEY - SHUBIK INDEX .......................................................................................................271ANNEX D. THE WEIGHTING OF VOTES IN THE COUNCIL AGREED ATNICE ...................................................................................................272 9
  10. 10. TablesTABLE 2. 1 THE SHAPLEY-SHUBIK POWER INDEX FOR QUALIFIED MAJORITY VOTES IN THE COUNCIL OF MINISTERS 54TABLE 2. 2 THE SHAPLEY-SHUBIK INDEX FOR A PRIORI VOTING ALLIANCES WITHIN THE COUNCIL OF THE EU 55TABLE 3. 1 AVERAGE FARM NET VALUE ADDED PER COUNTRY 66TABLE 3. 2 WELFARE EFFECT OF THE CAP ON THE EC MEMBERS AS % EC GDP 76TABLE 3. 3 CSE AND PSE ESTIMATES FOR THE EU IN THE 1990S 77TABLE 4. 1 VOTES IN THE COUNCIL OF MINISTERS UNDER QMV 91TABLE 4. 2 THE DISTRIBUTION OF VOTES IN THE COUNCIL OF MINISTERS, 1997 95TABLE 5. 1 AGENDA 2000 PROPOSALS 104TABLE 5. 2 AGENDA 2000 PROPOSALS - BERLIN OUTCOME 118TABLE 5. 3 AMS LEVELS IN 2000 UNDER DIFFERENT EXCHANGE RATE ASSUMPTIONS 120TABLE 5. 4 EXPORT VOLUME COMMITMENTS AND EXPORTS OR EXPORTABLE SURPLUSES 121TABLE 5. 5 SUMMARY MEASURES OF PRICE VARIABILITY AND PRODUCTION OF WHEAT IN THE 1990S 123 1TABLE 5. 6 NET CONTRIBUTIONS AND GDP PER CAPITA, EU 15 , AT 1999 PRICES 127TABLE 5. 7 DIFFERENCES IN SUPPORT PRICES EU-CEECS 129TABLE 5. 8 THE EFFECT ON NET BUDGETARY BALANCES OF THE REBATES FOR NET CONTRIBUTORS, EU 15 AND EU 20, MILLION € (1999 PRICES) 135TABLE 6. 1 COALITIONS IN THE COUNCIL OF MINISTERS AND THEIR VOTES. 150TABLE 6. 2 PREFERENCES, VETOES, QMV AND THE PROBABILITY OF A PROPOSAL BEING BLOCKED BY THE COUNCIL 154TABLE 6. 3 AGENDA 2000 PROPOSALS 157TABLE 6. 4 VALUE OF FINAL AGRICULTURAL PRODUCTION (VAP), 1997 168TABLE 6. 5 CHANGE IN NET BALANCES CAUSED BY THE PROPOSALS FOR AGRICULTURE 169TABLE 6. 6 CHANGE IN POTENTIAL GROSS FARM INCOMES FROM ORIGINAL AGENDA 2000 PROPOSALS, MIO € 171TABLE 6. 7 CLASSIFICATION TABLES OF LEVELS OF NON-SUPPORT FOR THE COMMISSION’S PROPOSALS 173TABLE 6. 8 LEVEL OF NON-SUPPORT FOR THE CEREALS AND OILSEEDS PROPOSAL 174TABLE 6. 9 LEVEL OF NON-SUPPORT FOR THE BEEF PROPOSAL 174 10
  11. 11. TABLE 6. 10 LEVEL OF NON-SUPPORT FOR THE DAIRY PROPOSAL 175TABLE 6. 11 CALCULATION OF PN - THE PROBABILITY OF VOTING AGAINST OR LEVEL OF SUPPORT FOR THE PROPOSAL 176TABLE 6. 12 THE PROBABILITY OF REJECTION OF THE ORIGINAL AGENDA 2000 PROPOSALS TO REFORM THE CAP 177TABLE 6. 13 EFFECTS OF QMV AND IMPLICIT VETO, THE CO-FINANCE CASE 178TABLE 6. 14 BERLIN AGREEMENT 179TABLE 6. 15 CHANGES IN NET BALANCES CAUSED BY THE BERLIN AGREEMENT FOR AGRICULTURE 180TABLE 6. 16 CHANGE IN POTENTIAL GROSS FARM INCOMES FROM THE BERLIN DECISION, 2006, MIO € 181TABLE 6. 17 LEVEL OF NON-SUPPORT FOR THE CEREALS AND OILSEEDS PROPOSAL 182TABLE 6. 18 LEVEL OF NON-SUPPORT FOR THE BEEF PROPOSAL 182TABLE 6. 19 LEVEL OF NON-SUPPORT FOR THE DAIRY PROPOSAL 183TABLE 6. 20 CALCULATION OF PN - THE PROBABILITY OF VOTING AGAINST OR LEVEL OF SUPPORT FOR THE PROPOSAL 183TABLE 6. 21 THE PROBABILITY OF REJECTION OF THE BERLIN AGREEMENT 184TABLE 7. 1 COMPARATIVE DATA ON AGRICULTURE IN THE CEECS AND THE EU, 1996 187TABLE 7. 2 VOTES AND BLOCKING MINORITY IN THE COUNCIL EU-22 189TABLE 7. 3 VOTES AND BLOCKING MINORITY IN THE COUNCIL EU-22 AFTER NICE 194TABLE 7. 4 THE EU-15 QMV BEFORE AND AFTER NICE 195 11
  12. 12. FiguresFIGURE 3. 1 AVERAGE FARM NET VALUE ADDED COMPARED TO PER FARMER RECEIPTS FROM EAGGF, YEAR 1996 67FIGURE 4. 1 LAYOUT OF COUNCIL MEETINGS 86FIGURE 4. 2 THE AGRICULTURAL DECISION MAKING PROCESS 90FIGURE 5. 1 NET BALANCES IN 1997 COMPARED WITH THE AGENDA 2000 PROPOSALS IN THE YEAR 2006 (AT 1999 PRICES) WITH AND WITHOUT ENLARGEMENT AS CALCULATED IN THE FINANCIAL PERSPECTIVES 107FIGURE 5. 2 POSSIBLE EFFECTS OF GERMAN PROPOSALS ON NET BALANCES FOR SELECTED COUNTRIES, AFTER FULL IMPLEMENTATION OF AGENDA 2000 109FIGURE 5. 3 NEGOTIATING POSITIONS 110FIGURE 5. 4 NEGOTIATING POSITIONS: BERLIN SUMMIT 115FIGURE 5. 5 PRICE RESPONSIVENESS OF WHEAT 123FIGURE 5. 6 RECEIPTS PER FARMER, 1997 126FIGURE 5. 7 RECEIPTS PER FARMER, 2006 126FIGURE 5. 8 THE BUDGETARY IMPACT OF AGENDA 2000 PROPOSALS COMPARED WITH THE BERLIN OUTCOME IN THE YEAR 2006, EU 15 AND EU 20 (AT 1999 PRICES) 132FIGURE 5. 9 EFFECT OF THE DELAY TO 2004 OF THE ENLARGEMENT ON THE BUDGETARY ALLOCATION AVAILABLE FOR ENLARGEMENT 137FIGURE 5. 10 EU BUDGET NET BALANCES UNDER SCENARIOS 1 AND 2, YEAR 2010 – COMPARED WITH THE BERLIN FINANCIAL FRAMEWORK YEAR 2006 (1999 PRICES) 139FIGURE 6. 1 PROBABILITY OF A PROPOSAL BEING REJECTED UNDER UNANIMITY, QUALIFIED AND SIMPLE MAJORITY RULES 147FIGURE 6. 2 STATUS QUO GAP 149FIGURE 6. 3 PROBABILITY OF A PROPOSAL BEING REJECTED UNDER UNANIMITY AND QMV WITH AND WITHOUT COALITIONS 151FIGURE 6. 4 DIFFERENT IMPLICIT VETO EFFECTS 152FIGURE 6. 5 EFFECTS OF DIFFERENT IMPLICIT VETO COMBINATIONS BY FRANCE AND GERMANY 153FIGURE 7. 1 EFFECT OF QMV IN AN ENLARGED UNION 190FIGURE 7. 2 EFFECTS OF IMPLICIT VETOES IN AN ENLARGED EU 193FIGURE 7. 3 THE NICE TREATY EFFECT FOR THE EU-15 195 12
  13. 13. FIGURE 7. 4 THE PRESENT SYSTEM COMPARED TO THE NICE TREATY AGREEMENT FOR THE AN EU OF 22 MEMBER STATES 196FIGURE 8. 1 ADAPTING THE EU DIRECT PAYMENTS TO ENLARGEMENT – A TRANSITION SYSTEM 214 13
  14. 14. AbbreviationsA AustriaAMS Aggregate Measure of SupportB BelgiumCAP Common Agricultural PolicyCEECs Central and Eastern European CountriesCKR Czech CrownCoA Court of AuditorsCOREPER Committee of Permanent RepresentativesCSE Consumer Support EstimateD GermanyDK DenmarkDG AGRI Directorate General for Agriculture and Rural DevelopmentDP Direct PaymentsDUP Directly Unproductive Profit-Seeking€ EuroE SpainEAGGF European Agricultural Guidance and Guarantee FundsEC European CommunityECU European Currency UnitEcoSoc Economic and Social CommitteeEU European UnionEEC European Economic CommunityEFTA European Free Trade AgreementEL GreeceEP European ParliamentF FranceFEOGA French version of EAGGFFin FinlandGATT General Agreement on Trade and TariffsGDP Gross Domestic ProductGNP Gross National ProductHF Hungarian Forint 14
  15. 15. I ItalyIGC Intergovernmental ConferenceISPA Instrument For Structural Policies for Pre-AccessionIrl IrelandLux LuxembourgMEP Member of the European ParliamentNL NetherlandsNVA Net Value AddedOECD Organisation for Economic Co-operation and DevelopmentP PortugalPSE Producer Subsidy EstimateS SwedenSCA Special Committee on AgricultureSEA Single European ActSLK Slovak CrownsSMV Simple Majority VotingTCE Transaction Cost EconomicsTEU Treaty of the European UnionTOR Traditional Own ResourcesUK United KingdomURAA Uruguay Round Agreement on AgricultureUSA United States of AmericaUSD US dollarQMV Qualified Majority VotingUK United KingdomUN United NationsVAP Value of Agricultural ProductionVAT Value Added TaxWTO World Trade Organisation 15
  16. 16. Chapter 1. The Agricultural Council: A broker or breaker of decisions I stared at him gloomily. ‘What is it all for, Bernard?’ I asked. ‘What are we all doing? What is the point of it all?’ He looked momentarily nonplussed. ‘I didn’t read theology, Minister.’ I tried to explain my concerns to him. ‘What I mean, Bernard, the waste of it all. Paying a lot of people to produce masses of food. Paying another lot to destroy it. And paying thousands of bureaucrats to push paper about to make it all happen. Doesn’t the futility of it all depress you?’ ‘Not really,’ he replied slightly puzzled. ’I’m a Civil Servant.’ Conversation between the Minister, Hacker, and Bernard, his personal secretary, in ‘The Complete “Yes, Prime Minister”’ by J. Lynn and A. Jay, BBC Books, 1986.The objective of this research is to explore the idea that the decision-makingprocedures at Agricultural Council of the EU not only have a negative effect on therationale and effectiveness of the Common Agricultural Policy (CAP), but also areunfit for the future. The underlying hypothesis is that the CAP is strongly affected bysectoral and national interests of the member states, and that this influence isdetrimental to European interests. The stress of the research lies in the analysis of themechanisms in the Council which allow sectoral, national interests to influence theCAP excessively ensuring a sub-optimal policy outcome.This research has the following aims:1. To test the hypothesis that the decision-making procedures in the Council of Ministers encourage the status quo for the CAP when reforming the policy and that there is a drift towards the lowest common denominator.2. To test the hypothesis that national interests and the sectoral character of the Agricultural Council of the EU affect the efficiency of the CAP. Each member state negotiates its position under the following conditions for itself: a) Negative changes in net contributions should be minimised. 16
  17. 17. b) Changes in the distribution of the benefits should be minimised, i.e. target groups should as much as possible remain unaltered. c) Considerations, which transcend the agricultural sector, are often neglected, due to the exclusive presence of Agricultural Ministers in the Council.3. To analyse the process of decision-making using the Agenda 2000 proposals by the Commission as an empirical proof of the hypothesis.4. To examine if the outcome of the Agenda 2000 negotiations left the EU unprepared for its forthcoming enlargement and for the WTO negotiations.5. To test the hypothesis that the enlargement of the EU will further delay the possibility of reforming the policy after enlargement.6. To discuss possible solutions to the institutional problem of decision making in the EU.1.1 Reasons for concentrating on the CAP and the Agricultural Council of the EUThe CAP is a unique case of international co-operation. It is the first and only trulycommon policy of the European Union, introduced in the Treaty of Rome of 1957.The powers for drafting proposals and the implementation of legislation were given tothe European Commission and the decision-making capacity was delegated to theAgricultural Council of the EU. It is remarkable that the founding Member States ofthe EEC were ready to put their agricultural policies in the hands of anintergovernmental or supranational body. This Council will be often referred to as theAgricultural Council of Ministers.The member states gave up the ability to introduce separate national policies. Thereasons for such a pooling of sovereignty for the agricultural sector were multi-dimensional, but three points seem to be the most important:1. The depressed and inefficient state of the agricultural sector in Western Europe in the 1950s. Farms were in general small and farmers incomes low. Moyer and Josling (1990) and Tracy (1989) describe clearly the poor state of agriculture in Western Europe. 17
  18. 18. 2. It was thought that trade liberalisation in Europe would reduce the low incomes in agriculture even further without improving productivity. With this belief in mind, agricultural policy had to create a common system that avoided competition between the members of the European Community in agricultural products (Fennell, 1987), as well as protecting the farmers from adverse market developments in the international markets.3. The need for a trade-off between the Federal Republic of Germany and France. Germany was interested in free access to the French industrial market. In exchange, France would be able to enter the German agricultural market. The CAP would allow the entrance of French agricultural products in Germany while protecting the German farmers from the cheaper French produce. This was achieved by lifting trade barriers and simultaneously introducing relatively high intervention prices (see Swann, 1988; Tracy, 1989; and Moravcsik, 1993).The Treaty of Rome establishing the EEC set out the objectives of the CAP inArt.39.1:(1) to increase agricultural productivity by promoting technical progress and byensuring the rational development of agricultural production and the optimumutilisation of the factors of production, in particular labour;(2) thus to ensure a fair standard of living for the agricultural community, in particularby increasing the individual earnings of persons engaged in agriculture;(3) to stabilise markets;(4) to assure the availability of supplies;(5) to ensure that supplies reach consumers at reasonable prices.These are the most quoted objectives. However, there are other objectives in theTreaty and in subsequent reforms of the CAP. In Art. 41, provision was made formeasures to be taken in the fields of vocational training, research and dissemination ofagricultural knowledge, as well as for promotional activities for the consumption ofcertain products. Particular attention should be given to Art.43, which lays down thatdecisions should be made under qualified majority voting (QMV) in the AgriculturalCouncil. Nevertheless, it took thirty years to enforce this rule. Until 1986, the use of 18
  19. 19. unanimity was the rule and even today, QMV is still not applied strictly. The reasonsfor the use of unanimity in the Council are explained in Chapter 4.Another important point in the Treaty is the claim in Article 39 that the CommonAgricultural Policy “... recognises the need to take account of the social structure ofagriculture and of the structural and natural disparities between the variousagricultural regions.”In general, the CAP was supposed to be build upon three principles which were toguide every Community policy:A single market: the free movement of agricultural products within the Community.Community preference: protection from world market competition.Financial solidarity: Sharing the cost of the CAP and centralisation of the funding.Subsequent Council decisions have added other objectives such as latelyenvironmental sustainability or the protection of rural areas. These objective are,however, not included in the Treaty and are just part of Council Regulations. Itrequires a revision of the Treaty to change or add Articles, the Council cannevertheless approve objectives which become an integral part of the set ofregulations of the CAP.Despite the fact that the budgetary outlays of the CAP have steadily increased and thatthe number of norms and regulations have grown to ‘Byzantine’ proportions (Rieger,1996), the general view is that the CAP is inadequate to face the realities of themarket and achieve efficiently a number of the objectives stated. The dissatisfaction isat all levels from politicians and researchers to consumers, even beneficiariescomplain of its inadequacy. There is a very large literature which documents theinefficiency of the CAP. Whilst the CAP has its defenders, principally amongstgroups representing the beneficiaries, there is a general presumption that the policy isnot a cost-effective way of delivering its objectives.The decision-making procedures of the European Union (EU) have been recurrentlycriticised as being the source of inefficiencies and inappropriate agricultural policies 19
  20. 20. (Scharpf, 1988, 1994; Kirman and Widgren, 1995; Swinbank, 1989; and manyothers).There are clear symptoms, which point to the conclusion that the Council is unable tohandle the problems of European agriculture. The agricultural sector is dynamic andinfluenced by an array of shifting variables caused by changing weather conditions,falling employment levels, technical change, farm restructuring, strong productivityincreases and fluctuating world prices. Nevertheless, most of the main features of theCAP survived unaltered from the foundation of the policy in 1968 until 1992, and anychanges which were made occurred only after painful crises and difficult bargainingin the Agricultural Council of Ministers. It therefore seems reasonable to question theeffectiveness of the decision-making process.1.2 The importance of the researchThe future of the agricultural sector faces difficult challenges in the future. TheUruguay Round Agreement on Agriculture (URAA), agreed under the GeneralAgreement of Trade and Tariffs (GATT) and now incorporated into the World Tradeorganisation (WTO), restricted agricultural support and introduced a real ceiling onthe level of subsidies to agriculture in the Union. Export subsidies for surpluses areconstrained in both value and volume. The costs of the CAP are not any more a‘simple’ problem of finding willing contributors to pay for the surpluses through abargaining process among the members, it has also become an important part of tradenegotiations at WTO.The AMS (Aggregate Measure of Support) limit agreed at the URAA is high enoughnot pose an immediate threat, but for how long? If intervention stocks pile up, there isa strong probability that the costs of the CAP will soon drift up. This is even morelikely with the prospect of a future enlargement with the applicant Central and EasternEuropean Countries (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania,Poland, Romania, Slovenia), Cyprus, Malta and Turkey.It is questionable if the EUs CAP is the appropriate tool for the applicant states, allhaving incomes per capita below (often considerably) the Union’s average GDP.These countries also have (with the exception of the Czech Republic) a higher 20
  21. 21. proportion of the population in an underdeveloped, problem-ridden agricultural sector.Under these circumstances, it is important to have a well-designed policy, as well as adecision-making body, which is ready and able to react swiftly and efficiently toproblems emerging from the enlargement process. The present situation in theagricultural sector seems to validate the belief that the decision-making procedures areunable to react to unexpected developments. Given the ample evidence of the failuresof the CAP, it seems reasonable to suggest that at least some of the deficienciesoriginate at the level of decision-making.It is not enough to find inefficiencies in the policy to prove that the Council is unableto handle agricultural policy; these do not represent sufficient proof that they originatefrom the Council. Apparently policy failures may exist because the policy transfersinvolved represent the democratic will of the population.This research argues, however, that the decision mechanisms of the Council distortsthe democratic process and increases a drift towards a kind of ‘agrosclerosis’. Theterm is borrowed from ‘Eurosclerosis’ that has been widely used to describe thestagnation of EC until the 1980s. This ‘agrosclerosis’ cannot be justified solely by theinteraction of voters, interest groups and politicians, but has allegedly been fosteredby the decision-making institutions of the EU and in particular the Council ofMinisters. Sectoral and national interests and the rules of unanimity voting until the1980s, and QMV since, are suggested to be an underlying cause for the stagnation ofthe integration of the EU in general and the CAP in particular.This research shows strong evidence that the CAP decision-making procedures areinefficient. The voting model developed in chapter 5 and the empirical evidence fromthe Agenda 2000 negotiations, leave little doubt that an reform of the decision-makingprocess is necessary if the EU wants to enlarge and face the growing demands of adynamic open world market in agriculture.The thesis has eight chapters. After this introduction, Chapter 2 reviews the literatureon public choice. This is followed by a review of the historical development of theCAP (Chapter 3), a theoretical description of the decision-making procedures(Chapter 4), a description of the Agenda 2000 negotiations (Chapter 5), a 21
  22. 22. mathematical model of the Council’s voting system (Chapter 6), an analysis of thesituation after an enlargement (Chapter 7), and the conclusions (Chapter 8). Thecombined explanatory power of the formal voting model and the less formal analysisof the Agenda 2000 negotiations provides the basis for the judgement that the futurefeasibility of the decision-making process is in severe doubt. 22
  23. 23. Chapter 2. Approaches to policy decision-making analysis “Not the least of the reasons that public policy has proven so unwieldy is that it is the property of everyone and no one. The disciplines required to understand public policy cut right across the old academic lines of demarcation. (...) But the flipside of such splendid single market of ideas and techniques wherein all the borders between disciplines and sub-disciplines are breached is that the subject is verging on complete fragmentation. This becomes very evident when public policy is taught.” Parsons (1995, p. XV)This chapter searches for an analytical framework capable of explaining the role ofdecision-making on the CAP. There is a large literature concerned with the waypolicy decisions are taken by governments or international organisations. This chapterpresents a general review of various approaches to policy analysis. The reason forreviewing all these frameworks follows the opinion of Parsons (1995) that the analystshould accept the pluralistic nature of research in policy analysis.The importance of this exercise can be appreciated following Allison (1971), whodemonstrated how different methodologies can give conflicting accounts of the samephenomena. His analysis of US decision-making in the Cuban missile crisis fromthree different perspectives gave three different explanations for the same events, eachapparently as convincing as the others. Policy analysis is a multi-disciplinary subject,a fact that often seems to be forgotten by researchers. Given the volume of the printedwork on policy choice it is certainly a great temptation to stick closely to the knownframework and to avoid entering the confusing world of interdisciplinary research, amove that would force the analyst to digest decades of results by numerous authors. Itis logical to fear such a move, as it would certainly put into question many of theanalytical techniques and assumptions in the familiar framework. However, byembarking upon a review of the different approaches to policy analysis, researcherscan improve their own framework by complementing it with the strengths of otherschools of thought. 23
  24. 24. 2.1 Approaches to Policy decision analysisThere are numerous analytical frameworks that attempt to give insights into publicpolicy decision-making. This section revises a large number of those as well as someof their sub-disciplines:• Welfare economics• Politico-economic models• Political Preference Functions• Public Choice• The theory of Bureaucracy• Political Market• Partisan Mutual Adjustment• Institutional Approaches• Functionalism and Neo-functionalism• Game Theory2.2 Welfare economicsWelfare economics has always constituted a core component of policy analysis.Gravelle and Rees (1992) give it a short description: “The subject matter of welfareeconomics is the ethical appraisal of economic systems.” It is the branch of economicsdealing with normative issues, not describing how but how well it works. Two mainthemes are researched in welfare economics, allocative efficiency and equity. Anequity test for the CAP would be the analysis of the ability of the policy to makeincomes in agriculture comparable to incomes in other sectors in the economy. Theallocative test would study the capacity of the policy in place to improve overallwelfare in the economy. For the CAP welfare economics would study the existence ofa market failure in the agricultural sector and advocate for a correction which wouldmaximise total welfare.Generally speaking, welfare economics categorises markets and policies by theirability to maximise welfare. The origins of this term can be traced back to AdamSmith and his advocacy of a free market in which the “invisible hand” of competitionwould allocate efficiently resources maximising the welfare of the economy(Nicholson, 1992). The role of the authorities is to help create a competitive marketand only intervene were a market failure or imperfection occurs, i.e. where particular 24
  25. 25. circumstances do not allow an efficient competitive market to exist, for example inthe case of natural monopolies. The welfare economic framework of policy research isintrinsically connected to the rational choice theories. The rational political actor, acentral national actor, possesses complete information and the power to create andimplement policies. Policies are devised with the objective of correcting imperfect ormissing markets. These models are easy because they do not require any informationon the workings of the policy process.The dominant school of welfare economics is the Paretian one. The search for “Paretoefficiency” is the core of the welfare economics. Pareto optimal solutions maximisethe overall welfare of the economy. A perfectly competitive market will equatedemand and supply for goods at certain prices. The market will be Pareto optimal,hence the central importance of Pareto efficiency in welfare economics. At this pointno change can make anybody better off without making someone else worse off. Theproblem of Pareto optimality is that it does not concern itself with equity issues. Theallocation of resources may be efficient but not ‘fair’.Welfare economics therefore usually analyses the capacity of a relocation of resourcesof achieving its intended equity goals with the best allocative efficiency. Welfareeconomics has had a very big impact in economic policy. For example, theprivatisation of public utilities has been done following the welfare economictheories. Welfare economics is often used to calculate the effectiveness of the CAP,estimating the costs and efficiency of the policy to attain the desired results.2.2.1 Welfare Economics, the rational actor and the CAPIt is not necessary to be an expert in the CAP to understand that welfare economicscan only measure the welfare costs of the policy but not explain the reason for theparticular selection of policies. It is true that to a certain extent, the aim of agriculturalpolicies is to eliminate a supposed number of market failures in the agricultural sector.There has always been a widespread belief that agricultural markets suffer from amarket failure and that prices for agricultural products do not reflect the real costs ofthe product. However, the CAP was not only introduced to correct for this failure, butalso to stabilise markets, increase productivity and ensure a ‘fair’ standard of livingfor farmers (see section 1.1). Agricultural policies are therefore not solely conceived 25
  26. 26. to correct for market failures and target the maximisation of economic welfare of thewhole economy. In fact, the actual impact of the policies is largely far from theallocative efficiency required by welfare economic considerations. The rational actorwould eliminate the commodity price and income support, as these create distortionsin the economy, causing considerable efficiency and welfare losses. However,defenders of the CAP claim that it is important to consider the “non-economic”objectives and that the overall policy effect is welfare maximising, but given theirnature (e.g. landscape effects, avoidance of rural depopulation) these cannot be valuedin pure economic terms.Winters (1990) criticises heavily the notion used by decision-makers in the EU andother OECD countries that agricultural policy has “non-economic” objectives. Hisarticle shows that the policies have an economic impact and furthermore it is negative.Thus according to him the “non-economic” objectives are economic. Winters defendshis position further asking how efficiently the policies reach their objectives.Economic or not, agricultural policies should be efficient and cost effective inachieving specified goals. According to Winters the CAP as well as other OECDagricultural policies are sub-optimal. Most policies fail to target the problems of thesector efficiently and to fulfil the stated objectives. His analysis does not answer oreven address, however, why the decision-makers have opted for these apparentlyirrational policies.In any case, the way in which CAP support regimes are devised actually violates theassumptions based on the notion of the ‘benevolent dictator’ in welfare economicsand rational choice models.2.3 Political Economy modelsThe main category of models dealing with the interaction between voters andgovernment that consider politicians as real decision-makers are the political-economy models. According to Frey and Schneider (1979, p.203): “The basic idea ofa politico-economic model is that the voter’s evaluation of government performance,and therefore government chance of staying in power, depends substantially oneconomic conditions; and that the government in turn seeks to manipulate the 26
  27. 27. economy in order to stay in power and to maximise its utility”. This theory follows theeconomic assumption that voters are rational utility maximisers.The voters evaluate the government’s performance and vote for the incumbentgovernment if they are satisfied or for the opposition if they are not. The need for thegovernment to please the voters causes it to choose policies that boost the economybefore an election, even though these may be distortionary and inflationary. For thebeginning of its mandate, the next government will then have to adopt disinflationaryrestrictive policies to reduce inflation and bring the economy nearer to equilibrium.When the elections approach again the government will be tempted to reintroduce aneconomic boost to the economy. This behaviour is partly responsible for the so-called‘business cycle’.The classical authors for the business cycle phenomenon are Nordhaus (1975),Lindbeck (1975) and Mc Rae (1975). They suggested a trade-off betweenunemployment and inflation as an important factor in generating the business cycle.Frey and Schneider (1978; 1979) included growth in the equation. All authors withthe exception of Mc Rae assume that the voters are myopic, while for Linbeck (1975)the voters are furthermore irrational in their expectations, a contradiction of theassumption of rationality of the voters. The myopia argument allows the governmentto manipulate the economy during election years, aiming to boost employment orgrowth. This provides an incentive to create cyclical economic conditions and Fair’s(1988) empirically based model of voters’ myopic behaviour for US elections seemsto support this.Fair developed an econometric model for the USA that estimates the outcome ofelections based on past inflation and per capita income growth in the election year. Hepredicted that the voters look back six to nine months regarding the real (per capita)growth rate and two years regarding inflation rates to decide on the party to elect. Thepredictions for the model were only wrong in three of 19 past elections, and predictedthe re-election of the Republican Party in 1992.Politico-economic models have mostly been used to study macroeconomicrelationships. The importance of this analytical tool is that many other schools on 27
  28. 28. public policy derive their methodology from the politico-economic models. In fact,most models presented in this chapter fall under the category of ‘new politicaleconomy’, denoting their origins. However, in this thesis the term ‘new politicaleconomy’ has been avoided, as there does not seem to be a precise definition of whatshould be included under this title or not. More precise terms have been used to avoidthis vague and unnecessary classification.2.4 Political Preference FunctionsPolitical Preference Functions (PPF) are popular with agricultural economists. Thismethodology assumes that current policies are a result of past political bargainingprocesses. Policy actions are observable and therefore it is possible to estimate agovernance criterion function through ‘revealed preferences’. Rausser and Freebairn(1974) list the steps necessary to specify and estimate a PPF. First, it is necessary todetermine the relevant variables, such as consumer and producer welfare, budgetexpenditures and foreign influence (e.g. trade). The second step is to find theappropriate mathematical model describing the relationship between the variables.This allows the analyst to perform the next step of estimating the parameters. PPFsenable analysis of economic policies to avoid the use of (unobservable) utilityfunctions. Incomes of individuals are used as a measure of utility and policies areassumed to affect the PPF only by influencing people’s incomes.A problem arises from the use of individuals’ incomes as a proxy of their utility, i.e.in measuring the impact of non-income related policy targets. Gardner (1989) solvesthe problem by aggregating the individuals in interest groups, thus e.g. environmentalbenefits can be valued as an increase in the “income” of environmental groups. Whilethe losers, e.g. farmers, suffer a fall in income because of the costs of complying withthe new regulations. The level of political success by interest groups is measured bythe change in their aggregate “income” brought by a policy change. Gardner does not,however, explain how to measure the environmental benefits for example. He juststresses the need to quantify the value of non-economic objectives.Preferences of individuals and interest groups are assumed to be stable, like the utilityfunctions derived in consumer theory. Gardner (1989) argues that this is a reasonableassumption, policy preferences are generally very stable, in any case not less stable 28
  29. 29. than consumer preferences. The model uses convex political indifference (PI) curveswhich describe the welfare or “income” combinations of two groups, which arepolitically equally acceptable. Convexity follows Peltzman’s (1976) argument that thepolitical weight rises, when people’s incomes fall. This has been generally accepted astrue for the agricultural sector, so that as farmers’ incomes fall relative to incomes inother sectors their political weight increases.There is a possible paradox that contradicts Peltzman’s assumptions. If the politicalweight of the interest groups depends on their expenditure in lobbying, then the richerthe group, the stronger its political influence. This could cause concave politicalindifference curves with no internal maximum. Peltzman considers that the resultwould be the unlikely but theoretically possible event of one interest group getting allthe income, i.e. dominate the economy. To avoid this paradox, Peltzman assumed thatthe marginal costs of a policy increase and that marginal income gains decrease whenincomes of the interest group increase. Marginal dead-weight losses rise as aconsequence. These assumptions guarantee the convexity of the PI. Most studies,however, have used linear indifference curves. Baffes and Chambers (1989) havecriticised this approach because it neglects the importance of having second-orderconditions. In any case, the biggest problem lies in determining the PPF. Rausser et al.(1982) complain that the estimation of the policy behaviour equation is largelydetermined by the beliefs of the analyst.2.5 Public Choice“Public Choice can be defined as the economic study of non-market decision-making,or simply the application of economics to political science. The subject matter ofpublic choice is the same as that of political science: the theory of the state, votingrules, voter behaviour, party politics, the bureaucracy and so on. The methodology isthat of economics, however” (Müller, 1979, p.1). The main characteristic of thismethodology is the assumption of rational self-interested individuals who try tomaximise their utility subject to certain constraints.The public choice framework is the most widely used tool used to try to understandthe policy choice in the agricultural sector. The focus on bureaucracy is a basicelement of the public-choice school. The theories had strong influences in setting the 29
  30. 30. political agenda in the 1970s and 1980s. The approach originates in the works byDowns (1957 and 1967) Buchanan and Tullock (1962), Tullock (1965) and Niskanen(1971). These state that the characteristic of the modern state is that the bureaucracyhas gained power by serving itself rather than the public. This is one of the mainfocuses of Galbraith (1974), who describes the bureaucracy as a technostructure thatincreases its power by planning the state system for its own purposes. He makescomparisons between the maximising behaviour of firms and the behaviour of thestate as a ‘seller’ of public goods and policies.Downs (1957) wrote the first positive theory of political economy for a democracy.He assumed that agents in the society are rational, that there exists uncertainty andthat information has a price. Politicians make political decisions with the objective ofremaining in power. They need to win votes and therefore need to maximise popularsupport. Voters vote for the politicians they perceive will defend their interests best.The existence of absenteeism and interest groups is explained through the transactioncost of acquiring information. The benefits of voting and being a member of apolitical group have to be higher than the costs, otherwise the voter will not vote.Pressure group formation is a cause of the asymmetries of information. They arebetter informed about voters’ preferences and government policies, thus becoming asort of mediator between the two. Interest groups seek to exploit their informedposition to influence political decisions.Buchanan and Tullock (1962) writings on party competition and its consequences,and the later work by Tullock (1965) on the self-serving nature of bureaucracy in theUS State Department are considered to be the foundations of the public choice school.For Tullock, the analysis of policy-making has to follow the same set of theories asthe behaviour of the firm and consumers. Self-interest, i.e. the maximisation of utility,is the key. The monopolistic position of the state is a market failure that has to besolved by introducing market forces into the bureaucratic process, by contracting out,privatisation and competition among government departments. This debate has beenof great importance since the 1980s. Many countries are adopting the principles ofprivatising state owned utilities and contracting out. 30
  31. 31. Downs (1967) offered a more complex set of bureaucratic behaviour laws.Bureaucratic decision-making follows a set of 16 laws in the pursuit of self-interest.The laws derive from the structure and life cycle of a bureau. The size and age of thebureau affects its behaviour. The objective of a bureau is to grow bigger. Niskanen(1971) who applies neo-classical economics to the bureau follows a similar line ofthought. Bureaucrats are interested in maximising their budgets in a similar manner asprofit-maximising firms. The maximisation of their budgets is the only way in whichbureaucrats can maximise their utility. According to Niskanen, the politicians arepressurised to make spending promises. The bureaucrats’ behaviour is rationalbecause of the absence of a way to calculate the returns for extra bureaucratic input. Itis impossible to calculate the difference between marginal costs and marginal revenueto maximise profit as firms do.From these origins, public choice theories developed in different directions searchingfor answers to the relationships between voters, pressure groups and politicians aswell as for the workings of international organisations. An independent bureaucraticschool developed, which is presented in Section 2.6.2.5.1 The power maximising-politicians, the voters and interest groupsIn a public choice framework, politicians are assumed to want to maximise theirpower and prestige. They all face the re-election constraint in their home countries.For the CAP this assumption is very important, as the final stage of the negotiationson a policy proposal is the approval at the Agricultural Council of the EU. ThisCouncil is composed of the ministers of the member states. As ministers, they areaccountable in their home countries to parliament for their actions, and thus implicitlyunder the scrutiny of the voters. The ministers’ interest is to secure the re-election oftheir party to office. Thus they will be interested in maximising the benefits in thenegotiations for their home country. Hence, they will protect and foster the interests ofthe most influential and powerful domestic pressure groups.Vaubel (1986) uses a public choice framework to analyse the origins of internationalorganisations and in particular of the EC. He presents a new model, in which hepinpoints the importance of the power-maximising behaviour by the politicians, thesignificance of voters and in particular, the lobbies. He argues that the conventional 31
  32. 32. theories for the reasons of the existence of international organisations were based onthree pillars that neglected these dimensions. The original pillars are the following:• The international organisation allows reducing the negative international externalities in the form of underproduction of international public goods and the over-exploitation of common resources.• International economies of scale in the production of national public goods would not be exploited in the absence of such an organisation.• International co-operation can improve the benefits for the participants compared with policy decisions in a national game framework. This theory is based on the results of game-theoretic approaches.Vaubel considers that politicians at international negotiations are not completelydependent of the wishes of their voters, as often assumed in the literature oninternational negotiations. National aspects are neglected. Politicians are able andbiased towards pursuing their own interests which are not shared by the voters.Vaubel presents his own model, in which politicians attempt to maximise their utilityby maximising their power through the introduction and implementation of policiesthey favour in the international organisation.Constrained by the need to stay in power in their home countries, politicians areeffectively restricted in their actions by the need of being re-elected. The freedom ofthe politicians in the international organisation is limited further by the rulesgoverning the organisation itself and the binding nature of agreements. Politicians willtherefore only participate in the international organisation if:• it allows them obtain agreements which satisfy him/her personally, or• it helps their party getting re-elected, or• it reduces the cost (in the form of lost votes) of implementing his/her preferred policies domestically. 32
  33. 33. International agreements increase the information costs for the voters and thus reducethe unpopular effects of policies as voters lose touch with the decision-makingprocess. Politicians can use the international agreements to draw attention to othermore popular policies, to hide unpopular policies or to disseminate false information.Vaubel builds on these points, in particular claiming that the member countries try toshift the unpleasant and unpopular tasks to the international organisation. The treatiesand the machinery of the organisation are used as ‘policy dustbins’. Vaubel givesexamples in the EC of such a shift of unpleasant policies from the national level to asupranational common policy. The CAP is his preferred example. The controversialand distortive policies such as higher prices, intervention buying, degrading,destroying or dumping the excess output, have been transferred to a supranationallevel. There seems also to be ample evidence in the EU of politicians shifting theblame on EU institutions for such unpopular measures. Blaming ‘Brussels’ for theevils in one’s country has become common throughout Europe.International organisations also introduce various costs that are either none existent orsmaller at the national level. Brooks (1996) claims that voters are generally ignorantof the consequences and causes of agricultural policy. This is in part caused by theinformation costs induced by an international organisation like the EU due to thereduced transparency and the distance of the decision-making institutions. Vaubel alsomentions the information costs for politicians, the multitude of languages and thedistance of the international institutions all affect the policies. Consequently, theseorganisations have more slack in their policies. Brooks (1996) goes as far as to claimthat the lack of transparency created by international agreements and therefore theincrease in information costs, give an incentive to politicians to participate in theorganisations.As for the role of civil servants, international bureaucrats have the same utilityfunctions as national bureaucrats and the international setting of the organisationallows them more freedom in pursuing their interests of maximising power (Vaubel,1986). Applying these theories, Vaubel (1994) makes a critical appraisal of thedifferent approaches in the public choice framework of the integrative process of theEU. Vaubel’s theories are not aimed directly at the CAP, but he used the CAP 33
  34. 34. explicitly as an example of his theories. His main interest lies in analysing why thepoliticians of the member states transfer powers to the EU and permit or even promotecentralisation. In his opinion, the problems of the CAP are a combination of the‘policy dustbin’ effect and the economically inefficient distribution of benefits whichhave been fostered by the unanimity principle followed during most of the existenceof the EU. As all governments have the same voting weight under the unanimityprinciple, each member is likely to claim an equal share of benefits regardless of itspopulation size. Thus the per-capita receipts from the budget tend to be largest for thesmaller countries.Vaubel also attempts to explain the situation the effects of QMV. He discusses thevoting power of the members and the importance of the decisive members. Further hediscusses the power of lobbies and their crucial importance. Vaubel claims that theEU suffers from a democratic deficit that increases the power of lobbies atCommunity level. Information costs for individual voters are too high, thus leavingthe policy-making arena to an exclusive club of politicians and lobbyists. Lobbyistsrepresent groups of individual voters, but this does not guarantee that these lobbiesrepresent the views of the majority.However, Garcia Raoul-Jourde (1997) criticises Vaubel’s approach, which assumesthat the EU institutions work like other international organisations, e.g. the UN. InVaubel’s view international organisations consist of bureaucracies, which have astheir only goal the increase in their influence and budget. The Commission would alsoonly be a ‘taker’ of policies, completely dependent on the Council’s preferences. TheCommission should therefore not have any interest in the work it is supposed to do,i.e. protect the interest of the European Union. Garcia Raoul-Jourde’s thesis showsevidence that the Commission is not a pure bureaucracy as Vaubel presents. TheCommission consists of the bureaucratic services and the political structure of theCollege of Commissioners. The link between the Commission and the Member Statesis also closer than in other international organisations. She shows that the goals of theCommission are more complex and do incorporate interests well beyondcentralisation of power and increase in budgets. The Commission has also the powerto influence the decision-making process due to the sole power of initiative in theconception of the proposals for the Council. According to her, the Commission is 34
  35. 35. actually a counterweight to the inter-governmentalist structure of the Council andavoids the creation of the ‘junk’ policies Vaubel refers to.This brings us to the issue of lobbies and their influence. The origins of the researchon the importance of lobbies can be traced to Olson (1965), who analyses the powerand formation of lobbies. According to him, smaller lobbies have greater power thanbigger lobbies as the bigger ones suffer from free riding and a lack of a strong set ofcore interests. However, he fails to explain what the optimum size is, and it seems thatthis varies according to the sector. The agricultural lobby has been very influentialdespite its large size. Recently, moreover, the importance of the farmers’ lobbiesseems to be decreasing even though their size has been steadily falling. Olson’s theoryalso does not explain the following paradox: If the government needs to gain amajority of votes to stay in power, it will not be interested in granting favours to asmall group if their views are not well accepted by the general public. On thecontrary, large groups have often a strong influence on the voting patterns. It will bein the interest of the politicians to please the larger lobbies.Olson’s work nevertheless influenced the work of many economists. For example, theeconomists Barro (1973), Peltzman (1976) and Stigler (1971, 1972 and 1974) of theChicago School determined that the politicians do not act for altruistic reasons withthe interest of eliminating negative externalities in the economy. The reasons for theirprotectionist and regulative policy decisions are to be found in the trade of votesbetween the government and the demands by industry. Their work, together with thefindings by the Public Choice School founded by Buchanan and Tullock (1962),paved the way for the rent-seeking theories.The most influential works on the rent-seeking society are Krueger (1974), whodescribes the government as a discriminating monopolist allocating import licences,and Bhagwati (1982) who created the famous DUP term, the Directly UnproductiveProfit-seeking activities. DUP activities by bureaucrats for personal gains createdistortions in the economy. This theory is of great importance for the analysis ofdecision making in countries where corruption is high. 35
  36. 36. The outcome of the interest group theories is that lobbies are the cause of inefficientand distortive policies. The lobbies encourage increasing governmental protection atthe cost of taxpayers and consumers, by obtaining from the state a number ofprotectionist policies and subsidies. The harms done by the policies are thensubsequently compensated by other policies instead of removing the cause. ForVaubel (1994) the lobbies are a prime cause for the selection of distortionary policiesin the EU. The democratic deficit incites the lobbies to ‘rent-seeking’. Senior Nello(1984), Andersen and Eliassen (1991), De Gorter and Tsur (1991), Swinnen (1994)and Adshead (1996) (as well as many others) have discussed in detail the importanceof the interest groups in agriculture. Senior Nello’s (1984) application of the publicchoice and pressure groups theories for the CAP concludes that there is a drift toincreased protection for agriculture in individual Member States and at the EU level.However, in the 90s this drift was been attenuated due to the URA. Nevertheless,from 1997 to 1999 the PSE (Producer Subsidy Equivalence) level has increased in theEU and other OECD countries (OECD, 2000).The fact that all Member States of the Union are to a lesser or grater extentbeneficiaries from the agricultural budget makes them also less inclined to seekreforms while more interested to attempt increasing their own benefits at the costs ofother members. The costs of information also play an important role. The benefits of areduction in protection are lower for the individual consumer than the cost ofgathering the necessary knowledge on the technicalities of the CAP to lobby forreforms. This is not so for farmers who would lose proportionately much more fromany reductionist change (Koester, 1978, 135-139; Moyer and Josling, 1990, pp. 8-9;Senior Nello, 1984, p.265).Senior Nello (1984) also uses Hirshman’s (1970) concepts of ‘exit’ and ‘voice’.Farmers have difficulties to ‘exit’ agriculture and many are unwilling to do so. Thisdoes not mean that there has not been a drastic reduction in agricultural employment,but this reduction is not as smooth as in sectors where assets are easily transferred, i.e.skills. The outcome is a ‘sub-optimal’ and difficult exit rate. As Moyer and Josling(1990) point out, the farmers cannot easily shift their fixed capital resources out offarming to more productive endeavours and so are often reluctant to leave the land.These farmers rely heavily on the use of political ‘voice’. This explains why they have 36
  37. 37. a strong tendency to group into more homogeneous and efficient lobbies to protecttheir interests. Farm groups can also form successful lobbies more easily than othersocial groups, because they are more homogeneous, and therefore suffer less fromOlson’s (1965) free rider problems.The large farmers generally run farm organisations. Smaller farmers joinorganisations because of the large information costs, which fall considerably throughmembership (Moyer and Josling, 1990). This dominance of the large and wealthierfarm owners can explain why the CAP has been devised in a way that benefitsprimarily large farmers. This follows Downs’ (1957) theories, in that the informationand signalling costs involved in forming and expressing policy preferences are largefor the single individual. Unless the benefits are larger than the costs, the individualfarmer will not participate directly in the political lobbying process. The owners oflarge farms, i.e. rich farmers, have an incentive to lobby and to rally the small farmowners to their cause by making the costs of participating lower and financiallyrewarding. The benefits that can be acquired through the lobbying group are higherthan the costs. The outcome, however, is that the policies lobbied for will be largelyinfluenced by the interests of the richer farmers who obtain higher benefits then thepoorer farmers.Lobbying in the EU also becomes even more important than at national level.Andersen and Eliassen (1991) and Adshead (1996) defend the theory that membershipof the EU reinforces rather than weakens interest groups of the member states.Another approach to explaining the size of the agricultural policies in the EU has beenpresented in De Gorter and Tsur (1991) and Swinnen (1994). Their research shedssome light on the situation of the highly protected agricultural sector in the EU andthe origin of the CAP. The strong increase in protection until the early 1990s is basedon the relationship between voters and politicians. Their models divide voters intointerest groups wishing to maximise values which are important to them asindividuals, while the politicians are interested in maximising the support by voters.Politicians are assumed to try to find the balance between the demands for higherprotection by the agricultural sector and the demands for lower taxes by the generalpopulation. Voters and politicians are assumed to be rational and fully informed. The 37
  38. 38. models are based on a model of a two sector economy, agriculture and manufacturing.The individuals in the economy have identical preferences and maximise their indirectutility functions. It is assumed that each sector has identical individuals with a ‘pre-policy endowment’ income. Income transfers are possible between the two sectorsusing redistributive policies which represent the total size of the income transfer fromindustry to agriculture. Swinnen deduces that “agricultural protection will increase ifagricultural income falls relative to income outside agriculture” (p.4), that “anincrease in industrial employment and/or a decrease in agricultural employment willincrease agricultural protection (...)” (p.5) and that the share of income spent on foodis negatively correlated with the production subsidy, i.e. the richer the consumers theeasier it is to ask them to pay for subsidies to agriculture. The model does not explainthe developments at the supranational level, but does present an explanation forMember States having a preference for high protection in the agricultural sector. Itcan also explain why the UK is less protectionist than France or Germany. Theaverage incomes from farmers compared with incomes in other sectors are lessfavourable in these two countries than in the UK. However, it can hardly explain theposition of countries like Denmark, which have farm incomes higher than or equal tothe average incomes in the economy (Hill, 1996).In a later article, Swinnen (1995) argues that the decision-making system for the CAPfosters the status quo. According to him, only “minimal damage” reforms have beendone until now, and everything indicates that this will continue to be so in the future.There is no incentive for politicians to press for substantial changes, as these wouldstill be against their political interests at home. He argues that there is no pressure onthe politicians to push for reform. The agricultural lobbies will push for thepreservation of the CAP, and there is no counterbalancing pressure by similarly sizedinterest groups by consumers or taxpayers in the member states to take a differentstance. Reforms will therefore follow the road of ‘minimal changes’ under budgetaryconsiderations and will only reflect partially environmental and social concerns thatinterest some other pressure groups. Swinnen therefore predicts only changes thatnarrowly allow the EU to keep its agreements in the Uruguay Round and to admit theCEECs to the EU. 38
  39. 39. The public choice school in all its different analytical forms can give importantinsights on the influence of different groups on the choice of policies. It can givecoherent explanations of the reasons for the CAP being particularly protectionist andwhy the agricultural lobbies are able to obtain political concessions. However, thearguments fail to address a whole dimension in the political process. In particular, theinstitutional setting of decision-making is neglected. The rules under which decisionsare taken seem to affect the outcome considerably as well as the strength of theinfluence of lobbies. To limit the explanation to a relationship between voters, lobbiesand politicians on the basis of income relationships (Swinnen, 1994), size of lobbies(Olson, 1962) or the information costs in an international setting (Vaubel, 1986) failsto explain the distortions caused by the decision-making procedures such as QMV inthe EU. This also does not allow the models to give any precise reasons for themagnitude of CAP protection.2.6 BureaucracyWhile public choice further developed into the relationship between politicians, votersand lobbies, another branch of research continued concentrating deeper into theworkings of bureaucratic structures and their efficiency. While public choice theoriesdiscuss the reasons for politicians to favour or not certain policies or other ones, thebureaucratic models concentrate on the intermediate stage, the relationship betweenthe politician and the bureaux in charge of implementing policies.Niskanen (1971) was the pioneer of the bureaucratic framework. Bureaucrats canaffect the level of expenditure given their power to manage funds. Bureaucratictheories are important for the implementation stages of policies, these probably havethe potential to clarify some aspects of the decisions taken by the EuropeanCommission. However, the literature on bureaucratic behaviour is scarce. Most of thetheories are based on the assumptions that the bureaucracy wants to increase thebudget in one way or another (Migué and Berlanger, 1974; Aubin et al., 1987).However, the movements of privatisation in Britain and the USA in the 1980scontradict this.Dunleavy (1986 and 1991) shows in his bureau-shaping model that the budget and thetypes of bureaucrat and differences in power are much more complex than the theories 39
  40. 40. based on Niskanen (1971). Senior bureaucrats are more interested in shaping theirdepartments and budgets to get advancement. Their bureaux therefore suffered from areshaping following the interests of politicians and the trends in the successful areasof the business sector. Contracting out and privatising was a power maximising moveby the top civil servants at the expense of the rank and file: “Rational officials want towork in small, élite, collegial bureaux close to political power centres. They do notwant to head up heavily staffed, large budget but routine, conflictual and low-statusagencies” (Dunleavy, 1991, p.202).2.6.1 Organisational process and bureaucratic politicsThe ‘organisational process’ and ‘bureaucratic politics’ models presented by Allison(1971) can also shed some light into policy decision-making. He relaxes theassumptions of neo-classical models on maximisation and perfect information andintroduces the concepts of processes at the organisational level as well as bureaucraticconsiderations. Organisations deal according to inflexible rules and proceduralchanges are difficult, thus in Allison’s models, the actors do not search to find asolution that maximises their utility, but which satisfies their minimum requirements.They will stop when they find a solution that is good enough. He argues that the morecomplicated and decentralised and the larger the number of actors in a bargainingprocess, the higher the bargaining costs of any change. These facts create, followinghis assumptions, a strong bias towards maintaining the status quo in large decision-making institutions.One of the most relevant factors that emerges from his analysis is the importance ofpower by the actors at the negotiating table, considering their ability to find like-minded members. The previous decisions of the decision-making body are importantto understand what it will do in the future. According to Allison, the past record setsthe future constraints.Organisations tend to act on the basis of standard procedures and rules. Allisonintroduces an interesting theory, the government politics paradigm (Allison, 1971, Ch.5). This paradigm focuses on the bargaining process among players in positions. Thebargaining stance of each player depends on his or her role and interests. The political 40
  41. 41. decision is the outcome of the bargaining. Different actors are likely to have differentperceptions of the problem, what is at stake, and the feasible options. However, theywill adapt their perceptions and demands to the bargaining process. Acceptability of apolicy becomes the most important criterion and the players will not maximise theirinterests. Given these circumstances, knowing the rules and procedures of thebargaining process is important. Another important factor is the need to build winningcoalitions. To build such a coalition, and because the preferences of different playersare seldom identical, the player that actively seeks to form a coalition will have toaccept the need to make compromises or side payments for other players who join.What is clearly crystallised from Allison’s work is the fact that the institutionalframework has an important impact on the type of policies that are decided in theprocess. For the EU, this would mean that the bargaining process itself affects theoutcome.Recent research on bureaucracy and organisational choice can be found in the thesisby Garcia Raoul-Jourde (1997) on the European Commission’s role in policy choicesfor agriculture. She describes the policy process for agriculture from the moment theEuropean Commission initiates the process of putting together a proposal to themoment it is voted in the Council. She shows how the organisational structure of theCommission and the different stages in the process to define it, influence thepreferences of the Member states in the Council. By carefully designing policypackages which attempt to balance the interests of member states and by linkingparticular issues to overall policy packages, the Commission is able to ensure enoughsupport for proposals which would otherwise fail to pass the Council.Interestingly, she finds evidence that the combined political and bureaucratic structureof the Commission preserves the EU from the more narrow-minded interests of theCouncil’s inter-governmentalist structure. Nevertheless, Garcia Raoul-Jourde is notcomplacent. The system has loopholes, and the College of Commissioners, whichrepresents the political arm of the Commission, faces problems in agreeing on policiesand is often influenced by the link the Commissioners often have with their country oforigin. The pressures to incorporate national priorities into the policy formulationstage are strong and the Commission is under constant pressure to conform to theinter-governmental model of decision-making. 41
  42. 42. 2.7 Political MarketAccording to Magee et al. (1989) there is a political market that operates in a similarmanner to an economic market. In this market, policies take the role of prices. Interestgroups spend resources to gain political influence until the marginal gains equal themarginal costs of lobbying. Politicians will similarly redistribute welfare in theeconomy in favour of interest groups, until the marginal loss of support by the taxedequals the marginal gains in support from the beneficiaries. The market is inequilibrium when these two points are reached.The political process chosen by Magee et al. to find the equilibrium is divided intothree levels, political parties, interest groups and voters. The political parties behaveas Stackelberg leaders towards interest groups and voters, the former in their turnbehave as Stackelberg leaders towards the voters1. For Magee et al. the politicalmarket is perfectly competitive, i.e. if a party in power fails to deliver the policieswanted by the pressure groups it will be replaced. This forces the government tointroduce distortionary policies in favour of the interest groups.There are problems in these theories. The perfect competition assumption isquestionable. Furthermore, supply and demand for policies have to be independent tofollow the micro-economic theory of markets. The Stackelberg leader theory violatesthis rule. Politicians (suppliers) are Stackelberg leaders for the interest groups andvoters (demand). Furthermore, this analytical tool does not take into account thedecision-making institutions and their influence.2.8 Partisan Mutual AdjustmentThis approach originates from Lindblom (1959, 1965) and Baybrooke and Lindblom(1963). Partisan mutual adjustment model analyses policy decisions reached underbargaining and consensus building. The model arrives to the conclusion that thebargaining process will be more successful and efficient than policy decisions under acomprehensive cost-benefit analysis (CBA). The reasons are that CBA tends to failfor complex situations where there is no agreement on the objectives. There are1 The Stackelberg model originates from the Cournot oligopoly model. Contrary to Cournot’sassumption that each firm reacts to the price decisions taken by the other firms, Stackelberg analysesthe case of a firm knowing the reaction curves of its competitors (for a summary of the models seeNicholson, 1992). 42
  43. 43. problems with the selection of variables. This means that there is no perfectinformation available.Partisan mutual adjustment allows for a dialogue permitting a consensus on the meansand the objectives of policies. As different people with different perceptions andknowledge participate, it allows them to find a better solution. It reduces the influenceof special interest, and the process will reflect better the wider interest of the public.This gives the outcome a higher degree of legitimacy, maybe with a sacrifice ineconomic efficiency.However, Moyer and Josling (1990) question the optimism of the partisan mutualadjustment theory. Bargaining has high costs and encourages the status quo, and it iseasy for players to avoid change by preventing the reaching of consensus. When theinstitution is a legislative body of politicians, the players are often more interested intaking a visible position (i.e. populism) and get themselves noticed than they have inseeking the development of effective policies. For the EU’s Council this would meanthat the ministers are more interested in publicity for their domestic constituency (seealso Vaubel, 1994). Reforms and changes only come at times of acute crisis and theforced response is often less than optimal and incremental, i.e. a new policy is addedinstead of abolishing damaging policies already in place.Scharpf (1988) also questions the partisan mutual adjustment. The bargaining processin the EU is just this: bargaining. There is no real interest in problem-solving: theplayers’ objective is to reap the highest benefits for their own constituency. Thepolicy target becomes secondary. Scharpf (1988) notes that “ (...) unanimity andPareto optimality (...) seem to be restricted to single-shot decisions. In ongoingdecision-making systems, by contrast, unanimity is likely to be associated with asystematic deterioration of the ‘goodness of fit’ between public policy and relevantpolicy environments - unless there should be very powerful mechanism of consensusformation” (p.257). The mechanisms of consensus formation among independentsovereign nations, with an interest in showing as much as possible their influence inthe Council, are certainly of varying strength. The long history of unsolved issues inthe EC is a proof of the lack of consensus building mechanisms. Fennell (1997), whoclaims that the objectives of the CAP are often forgotten by the decision-makers 43

×