The Logic of Collective Action in Music Recording

unorganizedThe New York Times reports on efforts in the music industry to coordinate lobbying:

When it comes to the music industry’s lobbying efforts in Washington, it is time for some harmony.

That message has gained momentum among music executives, who worry that squabbling among the various players — record labels, music publishers, artists, songwriters — will undermine broader initiatives to push for new legislation and regulatory reform.

On Wednesday, the head of the organization behind the Grammy Awards will host a dinner in Washington attended by some of Capitol Hill’s most powerful lawmakers and call for the industry to set aside its differences and lobby under a single message of fair compensation for all.

So, the “various players” are record labels, music publishers, artists, songwriters … is there anyone else who has a stake in this policy debate?

“Generally speaking, most people are on the same side,” said Chris Castle, a music lawyer who frequently comments on technology issues. “The main concern is that we don’t allow the people who want to divide us from coming in and manipulating both sides against each other.”

Well, who could be against working together? Yet, someone seems to be missing here … 

How about music consumers? They are a “player” in all this, with a genuine interest in how systems of copyright and royalties are determined. But of course they are not a part of this lobbying effort, which is totally about forming a coalition on the supply side of the sector.

Decades ago, Mancur Olson Jr. wrote the short book The Logic of Collective Action, and it contains a brilliant insight. Start with the question: how do we end up with economic policies that impose a net loss of income and welfare on the aggregate population? A first answer might be that almost any change in public policy has some who win and some who lose from the change, and if there are a greater number of winners their votes will carry the day, even if in aggregate the losers lose more than the winners win.

But in fact that is not what we observe – there are costly public policies where the number of winners is actually very small, and the number of losers very large. How do these policies come about?

Olson’s answer lies in the fact that when a policy affects each of a small number of people in a significant way (call them Group A), and affects each of a large group of people in a small way (call them Group B), it will be easier for Group A to organize themselves into a lobbying effort. They each have a lot at stake, they each might know one another, and they can pool their lobbying resources for a trip to Washington. Group B will likely be unorganized, as they might actually number in the millions, but where each person in the group suffers only $10 or $20 in losses from the policy. Yes, that adds up to tens of millions of dollars in losses, and that might be much larger than the gains to Group A, but Group A will carry the day – they will organize.

And so, we end up with policies like the Copyright Term Extension Act of 1998, which economists almost universally agreed failed any reasonable cost-benefit test, but because the beneficiaries were small in number, each with large amounts of revenue streams at stake, their lobbying efforts were successful. The US has agricultural trade policies that impose significant aggregate costs in the form of higher food prices, but agriculture is dominated by large firms with an enormous lobbying presence on Capitol Hill. And, as in today’s story, the supply side of the music recording industry can organize a meeting to coordinate lobbying efforts (and note this is not some undercover, shady deal – it is quite in the open and above board) to alter the regulatory framework, but music consumers are not invited to the gathering, and will have little influence on the path of legislation.

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