Saturday, May 31, 2014

An Economic Analysis of Some Recent UCLA Sociology Research

My UCLA Sociology colleague Edward Walker has published a new book titled "Grassroots for Hire" whose core argument is sketched in this media press release.     I have never met Dr. Walker.  As I understand it, he poses a cynical argument that for profit companies such as Walmart engage in sneaky techniques to improve their public image.  In the case of Walmart,  labor activists have argued that Walmart doesn't treat its workers well.  A few years ago, a "grassroots" organization called Working Families for Wal-Mart popped up and defended Walmart.  It turns out that Walmart was funding this "authentic" group.   Dr. Walker argues that this conflict of interest is common.  

He tells a negative externality story that such paid interest groups' propaganda campaigns make people more cynical and leaves them in the dark about the truth about capitalist firms, their business practices and their products.  Here is a quote;

"These consultants employ state-of-the-art marketing tools and tactics to identify constituents whose interests appear to dovetail with those of their clients, explains Walker, an associate professor of sociology in UCLA's College of Letters and Science. The consultants often partner with existing advocacy groups, but at times they also create false fronts, enabling corporations to masquerade as citizens' movements. In addition to providing overall strategy, consultants orchestrate letter-writing campaigns and protests, and even ghostwrite op-eds and blog items. They link activists they have recruited with the media to be portrayed as citizens with independent interests that just happen to align with those of their clients. They also have set up Facebook pages and social media campaigns to grow their ranks and spread their message.
Over the past four decades, the practice has grown into a billion-dollar industry; nearly 40 percent of Fortune 500 firms have worked with at least one grassroots lobbying consultant, according to "Grassroots for Hire.""
Related to the 1% versus the 99%, it appears that he wants to tell a David vs. Goliath story that the big bad capitalist companies are brainwashing the Homer Simpsons through providing information that appears to be independent but instead has been paid for.

This is pretty cynical stuff.  He clearly is right that firms invest in improving their own image.   Are these investments harming society?  How can he measure the private benefits to the firms of such investments and the social cost to society of firms pursuing their narrow profit goal?  What is his counter-factual so that he can know for sure that this investment by firms such as Walmart is "bad" for the United States? What is the empirical agenda for rigorously testing this claim?  What is the right control group?

He appears to reject the view that there is a competitive market for information.  Anyone can blog. Anyone can tweet. How do people choose how much time and effort to search for such information?  Does any one grassroots organization really have a monopoly on supplying such "news" to citizens?   He would be more likely to be correct regarding his pessimistic thesis if the fake grassroots organizations did have a monopoly on "educating" people.

Let's focus on a specific case.  Suppose that company X is polluting the local water near its factory but at the same time that it is using its grassroots interests groups (that X has paid for) to claim that the water is not polluted.  It would be a tragedy if the actions of the grassroots interest groups falsely convinced the public that there is no water problem and if the interest group's efforts convince the government not to measure the local water's pollution level.  Does that really happen?

Suppose the EPA investigates cases if anyone complains. If there are 2000 people living near the dirty water near company X, what is the probability that Walker's effect (the spin deployed by the interest group) convinces all 2000 people that there is no problem?  While the lobbying interest group may affect average public opinion, there will still be some adamant environmentalists who are not "brainwashed" and they will sue and complain and the company will be brought to justice for its pollution externality. This simple example highlights that Walker must be very careful about providing a causal chain linking "paid for grassroots" to negative impacts on our quality of life.

He might counter that labor protection laws will be less likely to be introduced if average voters believe that Walmart is a "labor friendly" company.  But, this raises an issue of how different people process information.  If "true" labor grassroots interests anticipate that the companies will engage in these practices, what is their best response? This becomes a strategic game theory issue such that Walker should be working with economists on this topic.

There is a classic Mancur Olson asymmetry issue here that the Company has more resources to engage in the media campaign than the spread out individuals.     A recent book by Gunnar Trumbull challenges this pessimism.  Here is a book blurb that appears to pose a challenge for Walker.

Many consumers feel powerless in the face of big industry’s interests. And the dominant view of economic regulators (influenced by Mancur Olson’s book The Logic of Collective Action, published in 1965) agrees with them. According to this view, diffuse interests like those of consumers are too difficult to organize and too weak to influence public policy, which is determined by the concentrated interests of industrial-strength players. Gunnar Trumbull makes the case that this view represents a misreading of both the historical record and the core logic of interest representation. Weak interests, he reveals, quite often emerge the victors in policy battles.

Based on a cross-national set of empirical case studies focused on the consumer, retail, credit, pharmaceutical, and agricultural sectors, Strength in Numbers develops an alternative model of interest representation. The central challenge in influencing public policy, Trumbull argues, is not organization but legitimation. How do diffuse consumer groups convince legislators that their aims are more legitimate than industry’s? By forging unlikely alliances among the main actors in the process: activists, industry, and regulators. Trumbull explains how these “legitimacy coalitions” form around narratives that tie their agenda to a broader public interest, such as expanded access to goods or protection against harm. Successful legitimizing tactics explain why industry has been less powerful than is commonly thought in shaping agricultural policy in Europe and pharmaceutical policy in the United States. In both instances, weak interests carried the day.

Don't forget the Stone Temple Pilot's song that had the lyrics  "What's real and what's for sale".