Gary Becker and Richard Posner develop stimulating analyses
here.
Becker notes
that:
“Political interest groups tend to be
less able in smaller countries in distorting political decision in their favor.
This is partly because smaller countries are more homogeneous, so it is harder
for one group to exploit another group since the groups are similar. In
addition, since smaller nations have less monopoly power in world markets, it
is less efficient for them to subsidize domestic companies in order to give
these companies an advantage over imports. The greater profits to domestic
companies from these subsidies come at the expense of much larger declines in
consumer well being.”
But there is another, more important,
economic reason for that. In small countries the ratio of lobbying expenses to
the market access that regulations control is much higher than in very large
countries. In Europe, for instance, as centralized regulations replace national
ones, the cost of lobbying the regulatory authorities is divided by 27 (the
number of countries in the European Union). With such a fall in the lobbying
costs, the volume of lobbying at Brussels can explode. Interest groups that previously could
not be created and run efficiently and lobby (because of the cost implied; see Olson) now can enter the lobbying market profitably.
Rent seeking increases accordingly as I explain in my recent book "Euro Exit".
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