Wednesday, October 13, 2010

Michael J. Hiscox. 2001. Inter-Industry Factor Mobility and the Politics of Trade

Michael J. Hiscox, “Inter-Industry Factor Mobility and the Politics of Trade,” International Organization, 55, 1 (Winter 2001), pp. 1-46.

Hiscox uses the standard economic theory of trade to highlight the importance of inter-industry factor mobility. For owners of factors of production (land, labor, and capital) that can move between industries in the domestic economy, the income effects of trade and divide individuals along class lines, setting owners of different factors at odds with each other regardless of the industry in which they are employed. When the factors are immobile between industries, the effects of trade divide individuals along industry lines, setting owners of the same factor in different industries (labor in the steel and aircraft industries, for example) at odds with each other over policy. 

He relies on the measurements of the difference between rates of return for factors employed in different industries. If a factor is highly mobile, rate-of-return differentials should be arbitraged away by factor movement; smaller differentials indicate higher mobility. 

Technological innovations and regulations profoundly affect inter-industry factor mobility and that is reflected in the changes in wage differentials within countries over time. Initially,the rise of machine-manufacturing created demand for unskilled workers who could shift between manufacturing industries and the lifing of legal restrictions on factor movement and deregulation lowered the costs of factor movement. Recent trends with a growing emphasis on specialized human capital has been increasing the importance place on specialized physical capital and knowledge and, thus, increased wage differentials.

In terms of mapping class preferences over trade, classes that own scarce resources should promote a protectionist platform while classes that own abundant factors should promote a free-trade platform. At low levels of mobility, Ricardo-Viner effects tie factor returns more closely to the fortunes of each industry, giving labor unions and management associations an incentive to lobby for trade policies that will confer rents by either limiting import competition or boosting exports. At high levels of mobility, industry rents are eliminated, and Stolper-Samuelson effects mean that any benefit tobe had from lobbying will be dispersed among all other owners of the same factor.

Alternate summary by Adi

Class Versus Industry Cleavages: Inter-Industry Factor Mobility and the Politics of Trade (Hiscox)

Background: The literature on the domestic political responses to international trade has two main strands. One, following Schattschneider (1935), examines the role of narrow industry groups (special interests) in the trade policy-making process. The other, following Rogowski (1989), examines the influence of broad class-based conflict among coalitions of capitalists, workers, and landowners. 

Puzzle: Given that both strands of the theoretical literature can claim rich empirical support, how might we specify the conditions under which industry-based lobbying over trade related issues is more likely than class-based lobbying (and vice-versa)? 

Main Argument: The extent of inter-industry factor mobility, which refers to the “ease with which owners of the factors of production (land, labor, capital) can move between industries in the domestic economy” shapes patterns of domestic political mobilization over trade policy (2). When inter-industry factor mobility is high, and factors of production can move between industries easily, coalitions coalesce along class lines. Owners of any one factor of production have identical trade policy preferences (regardless of industrial affiliation), and are set against (or with, as the case may be) owners of different factors of production. On the other hand, when inter-industry factor mobility is low, and factors of production are tied to particular industries, trade-based coalitions form along industry-based lines. In this case, owners of the same factors of production have diverse trade policy preferences, which are a function of the nature of the industries in which they are employed (i.e. export vs. import-competing).

Empirical Analysis: Hiscox offers case studies from several countries (over the past two centuries) to support the claim that changing levels of inter-industry factor mobility predict whether political responses to international trade will be industry or class-based. Inter-industry factor mobility is measured as the difference between rates of return for factors of production employed in different industries; smaller differences in factor returns across industries indicate high factor mobility (since differences are expected to be arbitraged away by factor movement). Below is a table summarizing Hiscox’s analysis of the United States (p.17); the broad historical patterns here seem to support his theory, as they do for the other countries he examines.  

Factor Endowments
Factor Mobility
Outcomes: Class-Based parties and associations
Industry Groups
Abundant land; scarce capital and labor
Industry Coalitions
Parties split along regional lines
Very active
Abundant land; scarce capital and labor
Class Coalitions
Republicans favor high tariffs; Democrats strongly opposed to tariffs; voting blocs are unified
Sharp decline in interest group activity
Abundant land and capital; scarce labor
Intermediate; falling
Parties adhere to old platforms; some division among Democrats with realignment of labor
Increased lobbying activity; Smoot-Hawley in 1930
Abundant land and capital; scarce labor
Industry Coalitions
Internally Divided
Active lobbying increases

1 comment:

  1. Analysis does not explain wage differentials across nations.