Nadia Fiorino and Roberto Ricciuti have a paper on interest groups and power in pre-World War I Italy, entitled Interest Groups and Government Spending in Italy, 1876-1913.
Abstract:
In the last two decades of the XIX century Italy became an industrial country. Historians maintain that this process was affected by the action of some interest groups that pursued both state protection from competition and specific public expenditure programs. Starting from the economic literature of interest groups, this paper attempts to empirically investigate the role of the interest groups in public expenditure decisions in Italy from 1876 to 1913. We argue that a proper indicator of the role of interest groups is their output. The analysis suggests that government spending was sensitive to the preferences of heavy industry rather then those of textile and cereal cultivators. We therefore highlight the role of the political process in setting economic policy at the early stages of Italian development.
The paper starts out with the important idea that businessmen are not really proponents of free trade, especially for their own industries (2). This brings to mind one of Adam Smith’s famous passages: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” As the paper points out, this is also true of people of different trades: in Italy, there was a political alliance between heavy industry and southern landowners (7), who worked together via logrolling to get their own legislation passed.
The paper takes a public choice approach to looking at interest groups (4-5), assuming that politicians are rational actors and will work in their own self-interest. What they find is that there was no linear relationship between the size of an industry and its influence (as measured in handouts). In fact, there was not even necessarily a monotonic relationship: the agricultural industry, although being a large sector of the Italian economy, was disprate and “under-served” politically (11). Agriculture and textiles did not gain much in the way of handouts from the Italian government, as they did not have powerful enough interest groups (15-17). Steel and iron did, however, vacuum up taxpayer dollars. First of all, they were able to get procurements for the military and nationalized railroads. In addition, they were a powerful interest group in the parliament and were able to get plenty of straight-out handouts (15-16).
I think the working paper could have gone into more detail regarding the mechanisms and results, but as a start, it does show the concept of pay-for-play once again, and is yet another historical example of an expanding government getting in bed with big businesses.
