Policy Networks, Elections, and State Subsidies1

What are the effects of electoral competition on the disbursement of state subsidies in industrialized democracies? I argue that the scope of subsidies, which ranges from economy-wide to regional and industry-specific subsidies, is determined by the extent of political (electoral) monopoly conditioned by economic threats from foreign competition. The mechanism through which electoral competition is linked to subsidies is the policy network. I assess this argument by examining thirteen Organization for Economic Cooperation and Development (OECD) countries in the period 1990‐1993. The findings offer amendments to models of policy networks and speak to the importance of domestic institutions on factor mobility and trade policy. What are the effects of electoral competition on the disbursement of state subsidies in industrialized democracies? I argue that the scope of subsidies, which ranges from economy-wide to regional and industry-specific subsidies, is determined largely by the extent of political (electoral) monopoly conditioned by economic threats from foreign competition. The mechanism through which electoral competition is linked to subsidies is the policy network. Political parties use, and private actors seek, subsidies to build and maintain policy networks. Policy networks are defined as “systems of informal relations between rational individuals that create a stable infrastructure for the exchange of personal favors” (Verdier, 1995, p. 5). While the definition might be viewed as somewhat narrow, the objection being that networks are usually circumscribed by issue or sector and they need not involve just an exchange of favors, it is used here to underline the study’s generalizability across particular sectors and to underscore the point that much network activity, though not all, involves some type of favor (resource) exchange. Activity in such networks intensifies as trade balances worsen, but the ability of private actors to extract subsidies from politicians is conditioned by electoral competition. The analysis offers clarifications to trade and policy theories by illuminating how the demand for subsidies is conditioned by the politicians’ propensity to supply them in order to determine subsidy scope, that is, whether subsidies have general (economy-wide) objectives, or more specific (regional or sectoral) ones. While analysts have focused on either demand or supply, few studies have looked at their interaction and virtually none have focused on subsidy scope. Modeling each explanation separately is important but, as my study shows, the interactive effects between the intensity of electoral competition and trade are central determinants of protectionism. Consequently, analyses of protectionism that do not take these effects seriously are likely to be inadequate at best. This is an important subject with significant implications for today’s era of globalization. Industrial subsidies have long been the subject of heated debate and political controversy. Pressured by constituent groups adversely affected by international trade, politicians in all Organization for Economic Cooperation and Development (OECD) countries exhibit an affinity toward subsidizing industry, but not in the same way or to the same degree. The amount is not negligible. Total aid in