Discussion Web Site: http://www.commerce.otago.ac.nz/tourism/current-issues/homepage.htm
Public Choice and Tourism Analysis
Ewen Michael
School of Tourism and Hospitality, La Trobe University, Bundoora, Victoria 3083,
Australia
This paper considers the potential of Public-Choice theory to serve as a means to
analyse tourism policy. It introduces the central issues for understanding the study of
policy and economic decision-making, bringing them together as a single coherent
explanation of the role of government within the contemporary market system. In the
context of tourism analysis, the focus is on the forces that explain why governments
make particular types of decisions for the industry and the effect these have on the
community’s collective well-being. Policy can impact on a society’s culture, its social
order, its administration or its use of law, or any combination of these; but, largely it is
about the economic welfare of the community. Much of the public decision-making
system concerns who gets what, who should benefit and who should pay. The paper
reviews the notion of government intervention to establish an ‘interpretation’ of
economic policy-making in Western democracies, such as Australia, Britain or New
Zealand. It argues that most policy issues, including tourism issues, derive from some
form of failure in the market-place, where the tourism industry is but one component
interconnected with many others. The paper expands the public-choice approach
further by applying it to segmented markets, and the tourism industry itself, and
provides an issue-based model that allows the tourism policy-making process to be
explored, exposed and predicted.
Introduction
There are many approaches that can be adopted for the analysis of Tourism
Policy (see Hall et al., 1997 for examples), but few attempt to work with holistic
models that explain government intervention as a process that integrates
community demands with their economic consequences. Tourism is a human
activity, with all that that implies, but necessarily one with both social and
economic impacts, many of which cannot be ignored by government. It is also a
political activity, where different interests stand to win or lose from the dynamics
of change. Here, there are key issues that need to be addressed by analysts: do
public policy decisions really meet the economic needs or social preferences of
the people who pay for these services? If they do not, either by design or default,
who benefits from this process? Who seeks government intervention, and why?
Can we explain what brings about policy change?
Public-Choice theory brings together the economic and political dimensions
of policy-making as a single coherent explanation of the role of government
within the contemporary market system. It emphasises the interplay between
economic and social criteria in political decision-making, and within the decision-making mechanisms themselves, but views them as a process of exchange
between competing groups where each is in pursuit of its own rewards. Its
advantage is that it is amenable to modelling to simplify the analysis of the
pattern of interwoven influences between actors, processes and outcomes.
Discussions of this sort, of course, are not recent phenomena, for the early classics
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Vol. 4, Nos 2–4, 2001
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of Plato and Aristotle concerned the role of the state in providing benefits to its
members (or for groups within it). What Public-Choice theory does, however, is
to break down the artificial differences that have emerged between economic
and social theory, providing a common basis for the analysis of political behaviour and decision-making.
Given that tourism is a complex arena of production processes covering a host
of economic and social activities, there is an apparent need for such broader
models of analysis. While Public Choice models lend themselves to macro policy
assessments, as with O’Fallon’s (1993) evaluation of government’s role in the
provision of New Zealand’s tourism infrastructure, they are equally adaptable
for issue-based analyses at the regional or local level. The inclusive nature of
Public-Choice analyses seem suited to the current priorities of all OECD governments in their search for effective ways of delivering sustainable regional development to an increasingly disaffected electorate (Hugonnier, 1999).
While public decisions are often matters of political debate, their economic
consequences, when all is said and done, affect the wealth and well-being of
every member of a society, and, certainly, they impact and shape the development and growth of emerging industries like tourism. This paper seeks to
explain that relationship and understand interventionism as the policy tool of
modern governments operating in contemporary market systems. This concern
is twofold. First, the continued availability of benefits for the community,1 and
for specific groups within it, is ultimately determined by an economy’s overall
(allocative) efficiency. Secondly, there is a need for an analytic mechanism that
focuses on the changing role of the market system, where the changing outcomes
impact on the stakeholders in each segment; but, with a capacity to relate to
particular sets of social issues and their potential for change.
Tourism, as an industry sector, can impact on a broad array of social and
economic relationships. In these circumstances, particularly, the Public-Choice
framework may help with five fundamental tasks in policy evaluation:
· determining the role of government in identifying and providing the bene·
·
·
·
fits demanded by the community that are not deliverable through the
market mechanism;
determining the rationale(s) for intervention practices in the tourism industry;
explaining why and how groups within the community seek specific benefits from the political-economic system;
determining which elements of the community gain or lose from the application of policy; and
identifying (or making transparent) the participants in the decision
process.
The source of demand for government intervention often stems from the
requirements of the political community, in the form of needs expressed by
interest groups. The conclusion, for tourism, is that policies are the outcome of
unique decision-making processes determined by the structure of each state, and
legitimately implemented through recognised intervention practices, to ensure
the supply of benefits to the broader community. This draws out differences in
decision-making between the public and private sectors, and puts some rigour
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into the discussion by focusing on the incidence of interest group alignments and
market segments – a proposition that seems sustainable for most issues, and one
with direct application to the analysis of tourism policy.
Intervention and Market Failure
Tourism, in its broad perspective, cannot be divorced from its market context.
Much of the activity that constitutes public decision-making concerns the
welfare of the people that make up a society or community; and, hence, has an
economic dimension that stems, at least in part, from the way the market system
functions. There is a common basis for both an economic analysis of government
intervention and for a political analysis of the decisions of government, as each
affects the welfare of people and their social behaviour. There is merit, then, in
reviewing the notion of market failure and the consequent social and economic
implications that justify government participation.
The first requirement, presumably, is to establish a shared intellectual understanding (if not agreement) about the basic mechanics and operation of the
economic system, and about the existence of markets and the social role they
perform. In pure theory, the market may well deliver a near-perfect allocation of
resources, but in the real world the possibilities for market failures are considerable and persistent. The contemporary market calls for distinct roles from both
the private sector and from government to meet its needs, but precisely why and
when government should act is not always clear.
The origins of the analyses of market failure stem from Adam Smith (1776), and
his understanding of competitive markets, price signals and the driving force of
profits. But Smith, who had been brought up in the intellectual traditions of John
Locke (1632–1704) and Edmund Burke (1729–1779), was very concerned with the
role of government. Smith approached these issues from the Utilitarian’s
perspective, demonstrating that individuals acting in their own self-interest
unconsciously promoted the good of the whole society. For Smith, the functions
of the state needed to be kept to a minimum since the best outcome would be
delivered by competition (Curtis, 1962: 104). Smith argued that unless the market
was free to fulfil its role ‘ . . . the system would be corrupted’ (Smith, 1776: 540).
Smith focused particularly on what governments could contribute to the
common good, and on what competitive markets, operated by individual
self-interest, could do better. Nevertheless, he claimed the state still had three
functions ‘of great importance’. First, for a society’s basic well-being, it must be
protected from external threats; and, second, it must provide law and order at
home. But, it is the third function which is of particular interest in this paper.
Smith recognised the state’s legitimate role in providing those services which
benefit the community but which the market mechanism, driven by self-interest
and profit, could not. The tasks of the state in Smith’s analysis are essential to the
functioning of the economy, setting the context that it exists to benefit the common
good where individual endeavour cannot.
For contemporary analysts, the separation of the market and the state remains
more or less as Smith prescribed. The state establishes the basis for social order,
thus setting the pre-conditions for planning, investment and the accumulation of
wealth, and determines the socially desirable (or politically enforceable) distri-
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bution of resources through the determination and protection of property rights
and the (equitable) sharing of social costs. It is then up to the mechanisms of the
competitive market to allocate resources efficiently, maximising output and
distributing goods and services to the satisfaction of consumers. In a perfect
world, this (neo-classical) approach suggests a competitive market produces a
Pareto-efficient allocation of resources, where it is not possible to improve the
welfare of any one individual in the society without reducing that of another.
This is made operational in the market-place by the mechanism of price, for it
signals relative values between buyers and sellers in the exchange process, and
guides scarce resources to those areas most in need. Market discipline guarantees
an efficient outcome because successful production decisions are rewarded with
profits while unsuccessful ones are penalised with losses. As a consequence, the
competitive market ensures that each product is sold at a price equal to the
marginal cost of producing an additional unit; and consumers pay a price that
reflects the value of resources used in that production process. In a perfect world,
production costs equal real social costs because all externalities are known,
appropriately valued and included. None of this, of course, implies that the
outcome is necessarily equitable in a social sense.
This reflection of the market is a theoretical ideal, but not one that the
neo-classicists claim occurs in reality. In practice, the market is imperfect:
Market failure can occur for a variety of reasons; information is costly to
acquire; information is not distributed evenly … [individuals] adopt strategies to maximise their self interest … externalities exist; many production
functions display increasing returns to scale; decision making environments are complex and highly uncertain. For this variety of reasons
competitive markets will, in reality, fail; they will fail to produce the Pareto
efficient allocation of resources – they will instead be imperfect – and in
cases of high transactions costs they will fail to exist. (Jackson, 1987: 5).
The concept of market failure, of course, is not without its own paradigms. For
Marxists and the Austrian School, any form of market imperfection is proof that
the market is moribund. At the other extreme, Classicists acknowledge market
imperfections only where allocative efficiency is affected, but even then distinguish between market failure and market rigidity. It is often simpler, however, to
speak of a market failure in relative terms as ‘ . . . only that the best attainable
outcome has not been achieved’ (Lipsey et al., 1985: 500), for this makes it clear
that the competitive market model deals only with the process of exchange. The
dynamics of the invisible hand may explain the incentives for individual gain, but
they cannot by the same logic deliver a rationale for those economic benefits that
are shared or consumed collectively. In short, ‘social efficiency is not the only
economic goal of society’ (Sloman & Norris, 1999: 279).
Market failure, then, has two dimensions. It can be an imperfection or breakdown in the competitive process, where some inappropriate allocation of
resources reduces the welfare of the community below an expected optimum, or,
it might be that the economic outcome is socially undesirable in some way. Either
or both such occasions might arise where information flows are inadequate,
where individual decisions do not reflect social costs, where the technology of
production favours indivisibilities (returns to scale), or where public goods are
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required to meet collective needs (Albon & Cheok, 1981: 139). However, market
outcomes can also be unacceptable in the sense, for example, that a saleable product generates some kind of social harm (a demerit good); or, the reverse, that some
desirable merit good is not produced, or is not produced in sufficient quantities.
Arguing in the same vein, but with the acknowledgement that the community’s
political beliefs or ideology do in fact set legitimate goals, market failure can also
encompass those economic outcomes that do not distribute wealth and income in
the desired way: hence, the expectation that government will maintain a minimum income as a socially desirable safety net against poverty.
The effective working of the market is very much part of both the social and
political fabric of a society, as the market forms part of the basic institutional
structure and environment in which people live. The danger with extensive
instances of market failure is that they can threaten the social order, as Kuhn so
ominously warned:
Political revolutions are inaugurated by a growing sense … that existing
institutions have ceased adequately to meet the problems posed by an environment that they have in part created. (Kuhn, 1970: 92–3)
The difficulty for public decision-making lies not in the process of change but
in the management of that process. A system of interactions, like a market,
cannot be permitted to fail too regularly without disturbing the distribution of
wealth and of political interests. The ultimate danger is that change takes on its
own dynamics.
Intervention and the Tourism Market
The mainstream argument to justify intervention in any market usually recognises that the supply of public goods and the allocation of social costs are functions that can only be effectively carried out by government. While there is
general agreement that markets are segmented, an extensive failure in one
segment may distort the allocation of resources within the whole economy, driving-up production costs and prices, and reducing employment and the creation
of wealth. In short, severe market failures impose intolerable economic costs that
affect all members of the community, with consequent political costs that ricochet through the social system. Tourism, as an economic activity, is more susceptible than some industries to such distortions, as it draws on many industries’
outputs to deliver its own product: emphasising the need for some form of collective action to restore the parameters of competition.
Modern Keynesians present another more positive view of interventionism.
They are concerned with change in the market brought about by the effects of
aggregate demand on real output and inflation. Aggregate demand, itself, is
influenced by a host of ‘economic decisions both private and public’ and, hence,
can be manipulated by government through fiscal and monetary policy (Blinder,
1988:279). They argue that goods and labour markets are slow to respond to price
and wage shocks, emphasising the need for stabilisation policy (active interventionism) to maintain some order in employment and output growth. A large
market sector like tourism, which is globally based and dependent on the
production functions of other industries, is particularly at risk if stabilisation
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policy fails. The debate, then, is not about whether government should intervene
in economic management, but rather about the extent of responsibilities and the
capacity to reduce the amplitude of business cycles (Blinder, 1988: 280).
Reality, however, does not rest on the theoretical role for government, for
what matters is the actual practice of government participation in particular
markets and the way it helps to maximise resource allocation within the
community’s social framework. In this context, intervention in any market can
be seen as:
. . . government actions to redirect the flow of resources towards particular
groups or activities in the economy in the pursuit of social, economic and
other objectives. (Albon & Cheok, 1981: 138)
While the ways that governments can find to participate in the market are
almost endless, there are perhaps four distinct approaches to policy that seem
relevant to the tourism industry. First, and most obviously, government (or its
agents) can participate directly by buying/selling goods and services at competitive prices. Such policies might serve to maintain a presence in strategically
important markets, perhaps where international or environmental issues are
considered sensitive, or to encourage tourism development in particular regions.
Second, governments can control the parameters of competitive markets by
regulation and prohibition, provided they have the means of enforcement.
Third, the scale of government gives it a commanding role in the allocation of
financial resources for tourism development, helping or hindering the private
sector’s access to capital. Finally, government can intervene to alter tourism
supply costs through subsidies, bounties, taxes or so-called cost recovery
charges, to manipulate the output of specific services. In short, the function of
intervention in the tourism market is to adjust market forces where undesired
social implications are threatened, or to ensure the production of desired social
outcomes – with the intention, presumably, of improving the welfare outcome
for the community.
Collective Failure
Of course, there is no guarantee that any collective action will necessarily
rectify a market failure; indeed, sometimes intervention only serves to exacerbate
market weaknesses. This is defined here as collective failure. In essence, this means
that a government’s policy response to a market failure (a community or collective
action) is based on ‘the presumption that government can cure [it]’ (Groenewegen, 1990: 95), but in fact delivers neither an economic nor political solution.
The observation that a market failure exists is not a licence for government intervention, but rather one that establishes a prima-facie case if the appropriate
economic or social tools are available to return a misallocation of resources
towards a better outcome (Pincus & Withers, 1983: 16). Any alternative to this
position, as a statement in logic, serves simply to exaggerate the impact of the
market imperfection, and hence the likelihood for government or collective failure to occur.
When governments intervene in markets for economic reasons (as opposed to
political or ideological reasons), the issue becomes whether or not bureaucrats
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and public administrators are better able to make decisions that affect output
distribution and resource allocation than the decentralised market. The invisible
hand of profits and losses, as Adam Smith noted, is the discipline that forces individuals to pursue and satisfy their private wants. Public sector decision-makers,
apparently, must confront the dilemma between public interest gains and
private benefits, for they face no direct financial strictures. While this arguably
enables them to make more dispassionate decisions, the same lack of discipline
reduces the incentives for cost control and output maximisation, and may even
create opportunities for the exploitation of public resources for their own benefit.
For individuals, on the other hand, a market failure may impose costs that
they have not instigated, perhaps as externalities. The high costs of organising a
response to correct the failure, or return the costs to their source, is often beyond
the individual; thus, they call on government as ‘the cheap alternative’ to solve
the problem (Buchanan & Vanberg, 1988: 103). The existence of a market failure is
but one condition to justify government intervention, but not a sufficient condition. In many cases the costs, whether public or private, imposed by a given
market failure may be no more or less than the costs of its correction; hence, the
dictum that ‘Governments should step in to correct a ‘market failure’ … only
where the net social benefits to be derived are clear and substantial’ (Albon &
Cheok, 1981: 141). Intervention might positively affect economic welfare when
the source of the market distortion is clearly known and the policy response is
clearly targeted, but the implication is that indirect measures are less likely to
achieve the desired outcome and risk creating further distortions elsewhere in
the economy.
Economic analysts often assume that a given market imperfection must
produce flow-on distortions throughout the system, but this may not be true at
all. The effects of a market failure may be confined to an industry or to one sector
(or even one locality), or may impose such minimal costs that the effects are negligible in a macro sense. The alternative view, or second best approach, argues that
the information system itself is imperfect, so only where specific information
exists about a market failure, and how to correct it, can intervention be
warranted. In this context, collective action is clearly a response designed to
enhance the public good; while, collective failure is the situation where such
action does not. From this perspective, an inappropriate government response is
clearly a collective failure, but so too is inaction where intervention is needed.
Government policy may fail for institutional or structural reasons, where the
formal economic, political or social institutions prevent a market imperfection
from being rectified. For example, predatory pricing may be regarded as a harmful practice within the tourism industry by government, but, irrespective of any
policy decision, the means to detect and prosecute the perpetrators must be
available, for without such mechanisms the practice will continue. From a different perspective, government action to sponsor tourism growth may also fail
because the jurisdiction or responsibilities of its institutions remains unclear. As
an example, Seaton (1996: 27) found that ‘a place for which many are partly
responsible is, in reality, one for which nobody is responsible’, suggesting institutional failure as a cause for the lack of policy to cover the development of the
Book Town at Hay on Wye in Wales.
Government policy can also fail for regulatory or legislative reasons, as such
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solutions seek to prescribe modes of behaviour for participants in a market, but
these are unlikely to succeed if they threaten producers’ profits or consumers’
utility. More obviously, regulatory failures occur because an unintended or
unanticipated consequence of legislative action flows through to other elements
of the system. The constitutions of states might also mitigate against the pursuit
of optimal solutions and thus create another form of failure (Docwra, 1988), especially in federations, like Australia and the USA, where the central and regional
governments share responsibilities (overlapping powers) for the same activities.
As it happens, responsibility for much of Australia’s tourism development rests
with the six states (and two territories), but access to the international market and
the control over resources are clearly Commonwealth prerogatives, implying an
inevitable division in the pursuit of policy.
Public-Choice Models
The distinguishing feature of democratic societies is that their governments are
subject to periodic review where enfranchised voters have the opportunity to
determine whether or not their government meets with approval. Frey (1983),
Schneider (1987) and others have shown that some economic variables, particularly inflation, unemployment, real income growth and deficits on the balance of
payments, ultimately impact on the opinions voters form about their governments. In effect, they are arguing that the popularityof government, and its chance
of re-election, is partly a function of voters’ reactions to these economic inputs.
The establishment of empirical causal relationships between economic forces
and political decisions enabled the Public-Choice theorists to create quantifiable
models of public decision-making. However, the use of models to explain
complex processes of human behaviour is fraught with difficulties. Inevitably,
models are particularly subject to the criticism that they oversimplify relationships and ignore lesser inputs which, in the aggregate, may be critical to the very
processes they seek to explain. Model-building can produce stark mechanistic
frameworks which identify only the essential functions, but the oil which enables
these machines to work is often forgotten: meaning that the more subtle interplays
of human influence are often not addressed. While more than descriptive tools,
they are less than complete analyses, but nonetheless offer the singular advantage of making complex inter-dependencies manageable for focal analysis. The
requirement, here, is for a model that demonstrates the decision-making process
to a degree that isolates the points where some form of change is occurring, and so
must have some prescriptive element to lead the enquiry process. The value of
any model, however, remains both its capacity to explain the processes found in a
real environment, whilst simultaneously providing a capacity to predict future
outcomes.
The first Public-Choice models saw decision-making processes as part of
closed systems in which economic variables critically affected the demands and
functions of a few key actors. The more contemporary approaches now account
for a broader range of factors involved in the implementation of policy, identifying their roles, their functions, and the ways in which they interact. With
increased sophistication, of course, comes the capacity to observe variability and
change between the demands of the different components of the system.
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Most disciplinary approaches to tourism policy analysis stem from either
political science or from economics. Political scientists are apt to see policy as a
process or framework within which decisions are set, while economists are more
concerned with outcomes (i.e. with the decision and its effects), but tourism analysis in the real world is undoubtedly concerned with both dimensions. In this
context, holistic policy development models can be said to derive from Systems
Theory (or Structural Functionalism), which was widely applied in the 1960s for
comparative government studies (Almond & Powell, 1966). Its contribution
remains its emphasis on three key features of the decision-making process:
· that each set of decisions involves a unique combination of inputs and
structures, with a functional relationship between them that creates the
capacity for influence;
· that decisions are forms of conflict resolution enabling change to take place
without disrupting social cohesion. Therefore, the concern is not with decision-making per se, but with the mechanisms that manage the process of
change; and
· that decisions are made about issues, thus the impact of a decision (the
output) varies according to its propensity to affect the inputs of other decision-making systems (hence, the scale of an issue is a factor in its impact).
Public-Choice models, whilst assuming the existence of these relationships,
derive from the methodology of economic analysis applied to the political process:
(T)he starting point for this type of analysis is the economic model of
human behaviour . . . according to which individuals and institutions
(firms, interest groups and the like) will react to utility and costs in a
predictable, systematic way.’ (Frey, 1983: 10)
This challenges the division between political science and economics by
observing that voters and consumers are, in fact, the same people. There is no
basis to justify a Jekyll and Hyde behaviour pattern on the part of individuals:
where it is assumed that a voter is only concerned with the public interest, yet,
the same individual as a consumer is assumed to be engaging only in their
private interest. Rather, in both fields, ‘ . . . he will choose the product or candidate he thinks is the best bargain for him’ (Tulloch, 1976: 5). The proposition is
that human nature and motivation are the same in both politics and economics
(not exactly a new perception, as any reasonable interpretation of Machiavelli
would disclose).
This approach shifts the emphasis to the notion that government is a process
where the participants seek to maximise their own benefits or those accruing to
their supporters by accessing the institutions they wish to manipulate. The basic
form of politico-economic models demonstrates an interaction between the
economy and the critical components of the polity’s formal structure, e.g. the
demands of voters, the authority of government and the implementation of
(public) action through the bureaucracy. The implementation of policy can be
observed, perhaps, as a function of both the ideology of the organised supporters
of government (sometimes as political parties) and of the government’s
perceived chances for re-election (the need for broader electoral support to maintain power). An outline of this approach is illustrated as Figure 1.
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BUREAUCRACY
Public
expenditure
Budget
Constraints
Ideology
ECONOMY
Election
Outlook
GOVERNMENT
Un em pl oym ent
Inf l at i on
Gr ow th of Real In com e
VOTERS
Economic Influence
Gov er n m en ts’
Gover
nm
p opul ar
i tyent’s
Popular ity
Political Influence
Figure 1 A simple politico-economic model
Adapted and modified from Frey (1983:11)
The model describes the process of making policy, in that collective decisions
are taken to control both the distribution and the manner of distribution of
resources affecting society. It describes an open system of actions taking place
within the whole conglomerate of society’s processes; in effect, depicting one
element (collective decision-making) of the various forces that make up the overall balance of social cohesion. It is both iterative and dynamic, for once policy is
implemented it brings further changes that may trigger new rounds of decision-making. Decisions that impact directly on the economy may even be undertaken deliberately to produce those conditions that voters favour, but, as the
economy is dynamic, it continuously brings new forces to bear on the system.
The public decision-making process is a relation of both the consensus that
exists between the various competing groups within society about the way they
resolve their differences (conflicts) concerning the distribution of resources, and
of the cumulative effects on social cohesion generated by the successful repetition of this process (another tenet reminiscent of the Machiavellian line). It
subsumes the Systems Theorists’ argument that there is a basic agreement about
the rules-of-the-game, and the institutions and processes that can legitimately be
pursued to bring about public decisions. Its persuasive benefit, however,
remains its ability to depict the influence of economic change on the function of
government on an issue-by-issue basis – hence, its inherent potential value for
the analysis of policy in complex industries like tourism.
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The implementation of decisions necessarily requires the existence of some
public administrative institution or bureaucracy with sufficient authority to
effectively carry out the government’s will. While the bureaucracy’s social
responsibilities are oversighted by government, they also have a clear economic
role in mixed democratic economies in managing public expenditures, which
make up such significant proportions of total expenditure that their allocations
critically impact on the state of the economy. However, the bureaucracy’s ability
to actually implement policy is also constrained by the reality of available funds,
or the constraint of budgets. Nevertheless, the implementation of policy remains the
responsibility of the executive, serviced by its administrative institutions; but,
unlike the traditional Weberian thesis, this recognises that the administrators
have demands of their own to input into the policy process.
The model does more than map politico-economic decision-making, for it
serves to identify the processes taking place and clarify the points at which some
element of failure or slippage might be anticipated. For each component actor
described by the model, there are sets of interactions and processes (shown as
flow lines) to convert their inputs of information, or their perceptions, into
demands for change. On occasion, such information may be either inadequate, in
that it is incomplete or disconnected from other issues, or maybe misunderstood,
in that it is selectively appreciated, either by design or default, or simply seen out
of context. It is even possible for the demands for policy change to be at variance
with the logic prescribed by the information itself!
The novelty of the Public-Choice models hinge on the use of voters as a surrogate for the demands of the polity, and their capacity to affect decisions. Votes
become a kind of currency for exchange to the Public-Choice theorists. The ability of voters to influence their government comes from the kind of voting mechanisms employed to represent the general will of the people and the election
schedule that periodically holds government accountable. The simplicity of the
model, however, is also its weakness, as it sees only a direct connection between
the impacts of the economy and the voters’ perceptions of government performance. Clearly, this needs clarification to more accurately define how voters’
views transform into government action.
Influence and Interest Groups
It would be ludicrous to view voters as a single entity with uniform demands
on government: the voters are individuals, after all, and each has a unique expectation of government. However, the capacity of an individual to influence the
decision-making system is somewhat limited, although, on occasion, one person
may have such an impact. In general, however, individuals remain but voices in
the multitude, unless, of course, their interests coincide with the interests of
others. Pluralists argue that society can be seen as coalitions of interests, where
groups of like-minded individuals are more able to voice their concerns in the
decision-making process. Groups may form around single issues or compromise
on parcels of issues, and may even conflict with each other as they compete for
broader social support. Such groups can also shape or support other like-minded
voters’ concerns about similar issues, but they render such support on a prefer-
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319
ential basis concentrating only on those matters relevant to them, leaving other
issues to other groups.
Downs (1957) argued that it is quite rational for all kinds of interest groups to
require information about the effects of government decisions on their wellbeing, and to ensure that the reciprocal information about their group is transmitted to government. While political scientists emphasise the manipulative use
of such information by group leaderships, it does not change the basic contention
that organised interests have a greater capacity to influence the decision-system
than individuals. Interests, therefore, can be seen as identifiable groupings of
individuals who share similar sets of goals and values, who come together on a
more or less organised basis to influence the outcome of particular economic or
social processes in their favour. Some interests may seek an ongoing role (lobbying) in the decision-making process, if they perceive that their well-being can be
enhanced over time. Arguably, the growth of Australia’s tourism industry since
1980 is mirrored against its growing capacity to present itself as a coherent interest to State and Commonwealth governments. The observation being that interests represent real world concerns in the policy-choice process, but with a focus
on their own environment and welfare. Their pursuit is their own utility!
The continuing participation of interest groups in democratic states over long
periods of time has meant that most empirical public policy studies find it necessary to separate vested interests from the general input of voters’ demands, and
to monitor their effects. Indeed, the distortion from a democratic ideal of public
decision-making comes with the potential for interest groups to capture components of the government process by interlocking interest with policy, thus ensuring that the group’s needs are met ahead of those of other voters. Interest groups
emerge as a simple fact of human behaviour wherever some common welfare is
apparent to the participants (either real or perceived). The influence that they can
exert, however, is controlled to some extent by competition between groups, the
imperfections of information exchange, by the limits of access to the political
agenda and by (the ultimate sanction upon elected politicians) the ballot box. For
these sorts of reasons, the functions of interest groups also need to be incorporated in any model of public decision-making.
Political parties warrant separation from catch-all notions of interest because
their raison d’être is to control policy-making or participate in the process of
government through its institutions. Of necessity, they are umbrella organisations maintaining a sufficient compromise among like interests to pursue electoral support among a broader base of voters. Most parties provide mechanisms
for their memberships to agree on aims and objectives, stated as platforms or
ideologies, to set the party’s political direction and to rationalise the benefits the
members hope to gain. In this way, parties aggregate the views of many interests,
but also serve as competing messengers between voters and governments. In
Westminster-style constitutions, unlike the American or French models, the role
of parties is further enhanced by the structure of the representation system itself.
The Westminster states appoint their governments directly from amongst those
who control the majority vote in the legislature (Parliament). Hence, when a
party(s) wins an election, the same set of representatives control both the legislative and executive powers of government, implying that such governments both
develop policy and manage social and economic change.
Current Issues in Tourism
320
Decision Agendas and Political Location
Taken at face value, this line of argument suggests a rather simplistic view of
interest group dominance: amenable, perhaps, to a neo-Marxist or conflict analysis of vested interests capturing and manipulating the superstructure of
policy-making for their own ends. Such a view, however, does not give credence
to the diversity of structures between social and market segments, nor the consequent differences in policy. Tourism interests, for example, can be expected to
behave differently to other social and economic groups, or to align with like
interests in unique combinations. There is also a need to explain the existence of
competition between interests and to account for the intermittent role of the electorate and the government to adjust policy on some issues in apparent contradiction to the demands of otherwise dominant interests. Hence, the requirement to
incorporate interest group behaviour into the Public-Choice model as it affects
the behaviour of the other actors in the system.
In truth, the majority of changes that interest groups seek to implement are of
little concern to most of the social system, so where groups want a change to
policy they must actively promote and pursue it. For example, tourism problems
are rarely the focus of community debate, so an affected interest group must be
able to find a point of access amongst the decision-makers to present their case
and raise support (influence) to alter the decision-process. In organisational
theory, an ideal world would allow affected interests automatic access to the
most appropriate function within the system to deliver an efficient and effective
outcome for the community without conflict. In realpolitik this is not possible,
with competition between interests and limited resources, accessing the decision-makers remains a political process.
If a group is to focus the attention of the decision-makers on their needs, they
must be able to do one or more of the following:
· affect the support base of those responsible for making decisions, perhaps
by mustering electoral support or by coalition with other interests;
· create favourable or unfavourable (coercion) circumstances for the decision-makers;
· control resources (particularly information) required by the decisionsystem; or
· contribute to, or participate in, the decision-system itself, perhaps through
membership of advisory bodies or through a party’s ideological base.
These, then, are the processes of influence, though often painted as black and
sinister by the proponents of democratic morality, that are probably more important to public choice analysis than actual decisions. Undoubtedly, they fail to
match the democratic ideal, where public decisions somehow ought to reflect
Rousseau’s general will, or provide for the Utilitarian’s greatest benefit for the greatest number; but, in another sense, the scramble and competition by a myriad of
competing interests is a form of democracy at work, if not as pure as the Pluralists
suggest.
For the analysis of tourism problems, however, the mental contortions necessary to reconcile the platitudes of democrats with the realities of interest group
behaviour are somewhat alleviated. The purpose of public decision-making is to
Public Choice and Tourism Analysis
321
ensure the effectiveness of collective action, hence, where such action (or inaction) impinges on the distribution of resources required by the tourism industry,
it would affect the interests of particular groups (as well as the collectivity). In a
sense, part of the democratic criterion provides for all interests affected by collective action to have the right to access the decision-system. For micro issues, of
course, only those groups concerned with a particular problem will actually seek
such access. This legitimises interest group participation within the system, but
says nothing about the reality of being heard in a dynamic world. Effective access
(political location) depends on the group’s ability to manipulate a position for its
opinions on the agenda as contributions to be accounted for in a given decision.
Market Segmentation and Interest Groups
It is not unreasonable to hypothesise that policy choices often concern specific
relationships between producers (suppliers) and consumers; or, to be more
precise, they concern the process of exchange that takes place. Policy choices
reflect both the structure of the market (or, at least, that segment of it in which the
exchange takes place) and the interests (the producers and consumers and sometimes others) affected by the exchange. This hypothesis is a logical extension of the
Public-Choice argument, but clarifies the view that much of policy-making has
an economic dimension. In a tourism application, the market’s form and the
composition of its interests must be demonstrated, to visualise the specific interactions that take place. Interests in this policy process represent real concerns, in
terms of their own perceptions of welfare and utility, but the likelihood is that
individuals will act as part of an interest group only when they seek to change
some aspect of an exchange relationship – they believe they will gain more or lose
less if a change takes place.
In any socio-economic relationship, the formation of interest groups and the
allegiances between them, in economic parlance, will reflect either side of the
exchange process. In short, there will be interests representing the producers and
interests representing the consumers wherever a market develops for the
exchange of some product, service or value. An exchange occurs because there is
some utility for each side, as a matter of definition, so it is apparent that the various interest groups must be in communication with each other, if not directly
then through the market’s signalling mechanisms (including price). The delivery
of benefits from the exchange process is the consequence of this communication
process; although, of course, the problem of free-riders remains, where individuals attempt to gain the benefits obtainable by the interest group, without incurring the overheads of membership. While this may be a valid problem in the
implementation of tourism policy (Fenna, 1998), it is less relevant to the process
of making policy.
The issue, here, is the means by which markets can be separately identified, for
if markets were not divisible then all interests would appear simply as an amorphous mass. One approach is to view the exchange relationships themselves as
the basis for categorising markets: each such relationship takes place because of
the specific needs of the participants; thus there are specific requirements, characteristics and attributes which separately identify that exchange from any other.
Where these attributes are repeated with any frequency, then, clearly, interests
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Current Issues in Tourism
will develop to pursue that relationship and its mutual benefits. It is the characteristics and the unique combinations of attributes of the relationship, which
define each segment of the market. This approach was developed by Lancaster
(1966a, b), who rejected traditional analyses focused on segmenting the production process, and adopted the view that consumers expressed their demand not
for goods per se, but for the characteristics possessed by them. ‘Goods, as such,
are not the immediate objects of preference or utility or welfare, but have associated with them characteristics which are directly relevant to the consumer’
(Lancaster, 1966b: 14).
Production theory anticipates the observation of joint or multiple inputs to
create a single output (a specific good or service), while consumer theory (as
expressed by Lancaster) takes that single good as the input to create joint or
multiple outputs (a bundle of characteristics and attributes). For example, the
service provided to consumers by a boat marina may fall into several distinct
market segments, one comprising the requirements for tourists and day-trippers
while another meets the needs for, say, long-term storage. Of course, the classification is neither complete nor ideal, for the service may be provided in different
ways (with different production cost structures), but it remains the set of attributes possessed by the product that determines segmentation. This contribution
to the analysis of economic behaviour is pertinent to Public-Choice theory, as it
simultaneously identifies those interests that will pursue a role in a market
segment’s decision-making processes. Put another way, markets are separable
by their characteristics, but it is these same characteristics which serve to identify
the participating interests and to explain their motivations and actions.
The environment in which the exchange relationship takes place (the market
segment) will be constrained by social, regulatory and legislative controls, and
by institutional and constitutional barriers. Given these constraints, then the
needs and characteristics of the market’s participants must remain constant and
unchanged long enough for the groups to position themselves to affect the
outcome, otherwise the exchange relationship would collapse. Some interests, of
course, participate simultaneously in several segments, for different reasons,
creating a form of economic pluralism as they combine and recombine in different
groupings according to their own preferences and welfare. Some may participate
as members of producer interests in one segment whilst, in another exchange
relationship, join a consumer group. Government may be an affected interest in
its own right, but its concern is with the consequences of the exchange relationship itself, as the outcome may influence other aspects of the socio-economic
system.
In any segment, a pattern of interests that are empirically observable will emerge
to govern this exchange relationship, determined by the specific attributes of the
individual market segments (economics) and by the communications between
interests (politics). This form of analysis suggests that change may stem from at
least three sources:
(1) decision-making within a segment may alter because attribute requirements
change amongst the exchange participants (i.e. consumer attributes change);
(2) the emergence of new technologies for a given segment will alter the
production possibilities (i.e. the producer requirements change); or
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323
(3) the rules-of-the-game are adjusted, generating some shift in the demandsupply equation (i.e. some market intervention).
The corollary, of course, is that any change to the characteristics of a market
segment must modify the nature of the relationship, and any change to the
exchange relationship, even if brought about by some exogenous factor, must
modify the characteristics of the market segment. The difficulties for analysis
occur where the segment’s attributes remain ill-defined, or similar to some other
segment – a problem likely to be found in tourism analysis – so that interest
group definition appears to be vague and overlapping (which it may well be in
reality). The practical solution for tourism analysts is to search for the similarities
between segments as the guide to behaviour patterns; thus, it may even be convenient to group together like segments, treating them as clusters of interactive
issues, in preference to any attempt to treat them as inextricable individual cases.
In relatively open and stable market segments, consumers are able to choose
between a high level of supply possibilities that meet the same attribute requirements; consequently, interest groups often appear less cohesive (or non-existent)
because their requirements can be satisfied through choice. Conversely, in relatively closed segments, where supply options are restricted, there exists less
possibility for competition and more need for interests to act cohesively. Interest
group formation amongst producer interests also depends partly on the physical
production process, and its different requirements for labour, management,
capital and resources. Some producer groups, like labour unions, may well operate across several segments simultaneously, but their objectives and goals are
separately identifiable for each segment. This factor is observable in tourism
issues, as much of the industry is dominated by smaller suppliers with little
capacity to draw on greater support mechanisms (influence) other than within
their own segment, while some of the groups with which they interact have
substantial resources outside the segment’s obvious bounds.
The Relationship Between Government and Interests
In normal circumstances, economic exchanges occur without much formality:
they are relatively simple processes conforming to well-understood social and
policy guidelines. It is the exception to the rule that is of interest; particularly
when non-market interests, especially governments, intervene in the functioning of a market segment. Arguably, where government seeks to alter an exchange
relationship, it is motivated by either a determinable public or private interest. In
short, governments may intervene in such relationships in order to:
· meet the special needs of one (several or all) of the segment’s own participating interests (a matter of either public or private interest);
· adjust the consequential impact of the particular exchange relationship on
the rest of the socio-economic system (public interest);
· protect specific interests that are not part of the market segment from the
imposition of externalities on to their segment (private interest); or
· secure some benefit for governments’ own needs, or for its individual
members or supporters (private interest).
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Current Issues in Tourism
Intervention in a market segment will be determined endogenously by the structure of the market segment’s interest groups, or exogenously by the influence of
other interests affected by the externalities of that segment’s operations. Intervention will not be random, for if it were it would disrupt the flow of benefits to
the community and disturb the predictability of outcomes for the whole decision-making sequence. However, it would be simplistic to suggest that government intervention is automatic, for in reality it is a human process of
decision-making and choice. Rather, the proposition is that government intervention occurs where some disharmony in an economic relationship disturbs
either or both producer or consumer interests, or impacts on other segments in
the socio-economic system. Otherwise, there simply is no explanation of the
motivation required to justify an action (excluding corruption and gain on the
part of public officials). To instigate intervention, interest groups must have the
ability to access and influence government (political location) by impacting on
the government’s popularity function (as defined by the Public-Choice theorists)
or affecting some private interest. Some intervention remains visible even in
harmonious exchange relationships, as with the obvious examples of taxation for
general revenue or with regulations to maintain social values, but this is of little
concern to the analyst as the issue is to observe, where possible, the changes in the
provision of benefits to the segment’s interests (or to the consequences for other
interests).
There are also more sinister forms of influence and corruption that might
affect a group’s access, including the potential of individual interests to capture
an element of the public decision-making process, even in nominally democratic
systems. The risks of capture are often related to the capacity of industry interests
to control the information flow about their sector, but, it should be remembered
that usable industry information is often highly technical, and sometimes
commercially sensitive, and rests largely with the producers and their clients in
individual market segments; hence, the availability of data is often necessarily
issue-oriented. Consequently, industry sector interests are uniquely positioned
to supply, select or withhold information from the decision-making process. For
example, a labour union, concerned about employment opportunities, may
supply information about declining service standards to a consumer group so
that they, in turn, seek to influence the behaviour of political parties and governments.
Policy studies are littered with references to interest group dominance and
capture; but there are two circumstances that particularly test the empirical
validity of Public-Choice models. First, industry policies in Western nations are
often governed by myriads of regulating bodies within each sector; but sometimes these industry panels are dominated by representatives of the interests
they serve, effectively excluding participation by others. This issue was highlighted by Braithwaite et al. (1998), whose study of Australian tourism product
regions found that many of the smaller stakeholders that create the industry’s
diversity of products were not represented on local development boards. They
saw this as a significant factor constraining tourism development in regional
areas, contributing to mistrust or antagonism towards those supposedly responsible for policy development. The notion that the community’s interest is somehow represented in these sorts of processes is probably false.
Public Choice and Tourism Analysis
325
The same problem can arise occasionally where a symbiotic relationship
develops between producers or consumer groups and public administrators that
excludes the interests of others, in effect biasing the outcome (Matthews, 1988:
151). While governments are in as much need of interest group participation as
the groups are in need of access, the possibility arises that public decision-makers
can become dependent on the favours dispersed by private wealth or on the
support that can bring success in public life. But the opposite may also apply,
where interests become dependent on government support and largesse for their
continued existence. To some extent, there is a sense of inevitability in this, as
effective policy relies on the consensus of interests and requires their tacit
support. There are obvious dangers, however, for the community’s general interest, hence the emphasis in the Public-Choice approaches on transparency and the
exposure of any such patterns of mutual inter-dependency.
A final insight into the interrelationship between government and interests
comes from the contention that because democratic governments must pursue
the support of a majority of voters, they tend to oversupply the economic needs
of special interests and undersupply the needs of the general interest (Mueller,
1979: 150). This implies that governments and their agencies are more receptive
to the demands of special interests because they impute some capacity to influence voters. The effect, however, is to expand the size of government, as it seeks
to incorporate their demands, and to strengthen the symbiosis between the
government and the interest group. Together, they confuse the concepts of public
goods and externalities, as special interests seek private benefits, which government provides at public cost.
An Illustrative Application for Australia
The analytic model of the Public-Choice theorists may well help to explain the
decision-making processes in mixed democratic economies, but only where it
specifies the particular form of a state’s institutions and processes, and the nature
of the benefits that interest groups pursue in a given society. The general model
must be fitted to a particular context of institutions and participants in recognition that every area of policy involves a specific combination of actors, relationships and interactions. The obvious illustration for this paper is to recast the
model to fit Australia’s unique circumstances and its application to the tourism
industry.
The requirement is to identify the conversion points (actors, institutions or
whatever) where one form of influence or another is transformed or converted
into demands for change in Australian tourism policy, to enable the nature of
each policy transaction to be fully explored and its success or failure assessed.
Even where the factors shaping tourism policy are not unique in themselves,
they may well be so in combination with each other. In this spirit, a Public-Choice
approach will be coloured by interpretations of the physical structures and institutions of the state, the nature of the Australian market system and its unique
segmentation, and the political location of tourism interests. Moreover, Australia’s
tourism policy environment is made more complex by the separation of powers
under Section 51, Constitution of Australia Act, 1901. While this prescribes the
ambit powers of the Commonwealth, which have further evolved through a
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Current Issues in Tourism
century of political practice, it is the residual jurisdiction of the states, and their
tenant municipal authorities, which exercise the bulk of practical administration
in this field.
Australia’s political system is relatively open and transparent, and its interest
groups, in most permutations, have considerable freedom to access decision-makers; hence, they play a central role in the distribution of information and
power. Depending on the issue, there are external forces, including the recognition of international law, heritage listings, migration controls, etc., which also
make up part of the inputs and constraints on decision-makers. Another structural element that is relevant to an Australian model, as separate actors in the
policy process, comes with the peculiar use of Government-Business Enterprises
and statutory authorities (such as the Australian Tourism Commission) as the
public mechanism for intervention in the tourism market. These organisations
are not simply part of the administrative arms of government, for they also
pursue quasi-commercial roles (mixed with social criteria) within the economy,
yet remain integral elements of the public infrastructure for the Australian
industry.
For tourism analysis, the possible adjustments to the model include the need
to demonstrate the multi-layered impact of federalism, the role of Government-Business Enterprises in policy-making and the pivotal functioning of interest groups, within this unique structure of institutions. Figure 2 outlines an
indicative model for Australian circumstances, that might focus on the processes
in the tourism industry. For a given issue, it provides a guide for the analyst of
what relationships to look for and of the constraints that will limit choices and
outcomes.
Public-Choice Models in Practice
To analyse any specific issue, it is necessary to seek out and identify the particular actors that make-up the component parts of the decision-system. It is
perhaps easier to demonstrate through an applied example, as might be the case
with the development of downhill skiing resorts in central Victoria. In this situation, the Victorian State government holds responsibility for the use of public
lands and facilities, and, in the mid-1980s, sought to respond to community
demands for further skiing resources through private sector developments. In
terms of the Public-Choice model, the tier of government with jurisdiction over
this issue is clearly the State of Victoria, and the relevant state departments are
easily identified (being those responsible for planning, natural resources and
tourism, with oversight by the Treasury and the Premier’s office). Key actors in
the public administrative process were the Alpine Resorts Commission (now
disbanded) and Tourism Victoria, although neither were structured as traditional bureaucratic departments, but rather as hybrid organisations directed by
representative boards (which immediately alerts the analyst to the role of interests).
Development in any alpine area is likely to impact on a range of people and
their activities (a parcel of market segments), so it is no surprise to find a diverse
and conflicting array of consumer interests (users of alpine resources) and
producer interests (suppliers of different services within the alpine context).
Public Choice and Tourism Analysis
327
Executive
Administration
Election
Budget Constraints
Budget
Outlook
Ideology
Government
Business
Outlook
Enterprises
Municipal
Municipa
l
State
State
Federal
Interest
Interest
Groups
Groups
ECONOMY
GOVERNMENT
Political
Political
Parties
Parties
VOTERS
Economic
Political
Figure 2 A policy model for Australia
Plowman’s (2000) study of this policy debate at Mt Stirling, found a clear divergence between government and its agencies, supported by a development
company (producers) and downhill skiing interests (consumers), in conflict with
a myriad of small groups that used the locality. Initially, these smaller interests
lacked the political location to change the direction of policy. However, over the
ensuing decade, they were able to organise themselves into a coherent voice that
represented a substantial body of public opinion.
With the aid of the model, it could be demonstrated that a series of consistent
failures had occurred in the policy process, tantamount to a collective failure.
First, the smaller grassroots and local interests had been ignored in the original
development proposals as government and its administrators had not sought to
communicate with them; and secondly, the responsible bureaucrats were to
some extent captured by the larger development interests or, at the very least,
were acting in pursuit of their shared economic goals (or private interest). As
Public-Choice theory predicts, where a community interest is threatened by
adverse changes, interests will organise to protect their welfare and utility, and,
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Current Issues in Tourism
as happened on this occasion, where public (voter) support can be mustered,
government will respond accordingly.
Conclusions
While there are a variety of methods and theoretical approaches available for
the analysis of policy and of government intervention, there are few that can
explain the link between economic forces and political decision-making, particularly in the more complex industries. Tourism, as an industry sector, is the archetype example of these problems, with its diversity of outputs and consumer
motivations, its range of scales and locations, and its fluidity across macro and
micro issues. The Public-Choice approach provides a holistic understanding of
these interrelationships without losing track of the individual influences that
contribute to each policy issue.
There remain, however, two empirical tests if the model is to be effective in
analysing tourism policy. First, in Australia’s circumstances, it suggests that the
democratic process may well be flawed in terms of the decision-makers being
transparently accountable for the public interest, rather than just for sectional or
private interests. Consequently, there is a need to identify and observe the
private interest in policy issues. Secondly, the prediction of policy outcomes and
interest group behaviour in tourism derives from the degree of segmentation in
the sector; hence the need to demonstrate the integrity of a segment and its relationships with other segments.
The model illustrates the two key functions of government: the making of
policy and the management of change. Such a construction of the policy process
provides a fair and reasonable view of public-decision making in modern democratic states. Hypothetically, policy outcomes ought to be incremental, not necessarily in the anarchic, muddled sense that Lindblom (1959) once described, but in
the sense of pursuing a variety of changes in different ways in different
segments. The more successful approaches will be quickly adopted by groups of
interactive segments, while the less successful will be discarded. Public-Choice
analyses provide one means to help identify which is which! It is by no means a
perfect illustration of social policy development, and is deficient, for example, as
an explanation of those issues that have little economic consequence but are still
perceived to be socially important to society’s way-of-doing-things. Nevertheless,
it remains a practical analytic tool capable of both the description of policy issues
and the prediction of policy outcomes.
Note
1. The term community is used here in a pluralist sense, as a general descriptor for the
members of the state who have an interest in the given issue under discussion. Effectively, the word community replaces public, which has the connotation of all of the
people of the state. In some contexts, this may refer only to a small number of actors.
Correspondence
Any correspondence should be directed to Dr Ewen Michael, Senior Lecturer
and Co-ordinator of Post-Graduate Studies, School of Tourism and Hospitality,
La Trobe University, Bundoora, Victoria, 3083, Australia (e-michael@latrobe.
edu.au).
Public Choice and Tourism Analysis
329
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