Monday, February 22, 2010

Envy, Altruism, and Trade Policy

. Monday, February 22, 2010

KPC points to a NBER working paper by Lu, Scheve, and Slaughter on the politics of trade policy (ungated pdf here). The abstract:

One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We propose and model one possible explanation: that individual aversion to inequality—both envy and altruism—lead to systematic differences in support for trade protection across industries, with sectors employing lower-earning workers more intensively being relatively preferred recipients for trade protection. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates of the influence of envy and altruism on sector-specific trade policy preferences. Our estimates indicate that both envy and altruism influence support for trade protection in the United States and that altruism influences policy opinions in China.

This is an original thesis and utilizes some nifty methodology, and I have no doubt that it will be published in a top journal. It continues what appears to be a growing trend of analyzing social attitudes as determinants of public policy. See also this article from last year on sociotropic attitudes by Mansfield and Mutz. But I have some concerns. (I've only skimmed the paper, not dissected it thoroughly, so these thoughts should be taken as provisional.)

Here is the causal mechanism the authors propose:

1. Policy preferences of citizens are motivated by egalitarian feelings of envy and altruism.

2. These feelings manifest themselves as support for trade protectionism.

But #2 does not necessarily follow from #1. It could just as easily be something like:

1. Policy preferences of citizens are motivated by egalitarian feelings of envy and altruism.

2. These feelings manifest themselves as support for trade openness -- thus capturing the social gains from trade -- coupled with a robust social safety net financed by progressive taxation -- thus compensating the losers and narrowing relative inequalities.

Or, to stick with the logic of collective action that is commonly applied in trade analysis, we might expect trade protection for labor because:

1. If it is the abundant factor of production (and would therefore benefit from an open trading system) then it will have difficulty mobilizing a coalition to effectively lobby for openness. The smaller anti-trade coalition may feel envious or not, but it's basically irrelevant.

2. If it is the scare factor (and would therefore be hurt by an open trading system) then it will be able effectively lobby for closure. The larger anti-trade coalition may fell altruistic or not, but it's basically irrelevant.

In other words, attitudes may correlate with behaviors, but that doesn't necessarily imply that one motivates the other. At least, it doesn't erase basic interest-based motivations in previous trade models. They try to get at this with interview data, but there are always reasons to be skeptical of self-reported motivations.

I'll try to give it a more thorough examination when I have more time, but for now I don't see anything in the Lu/Scheve/Slaughter analysis that eliminates alternative explanations. This is a problem, since we have lots of previous literature that supports more traditional views.

[Edited slightly for clarity at 6:30pm]


Envy, Altruism, and Trade Policy




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