EME 444
Global Energy Enterprise

Supply of Nonmarket Action

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Woman with justice sign around neck and another sign with illegible words in her hand
Woman holding "Justice" sign

The supply of nonmarket action depends on the cost of taking the action and the ability of the stakeholder to be effective in taking action. To make a difference on an issue, a stakeholder needs to have the resources necessary to execute and have enough influence to be effective.

The cost of organizing includes those costs "associated with identifying, contacting, organizing, motivating and organizing those with aligned interests. If the number of affected individuals or groups is small, the costs of organizing are likely to be low. When the number is large, those costs can be high. Taxpayers are costly to organize because they are numerous and widely dispersed, whereas pharmaceutical companies are relatively easy to organize. The costs of organization can be reduced by associations and standing organizations. Labor unions, the Sierra Club and business groups such as [Chambers of Commerce] reduce the cost of organizing for nonmarket action." (Baron, 2010, p. 156)

I would like to take a moment to stress the above points, since it has been a point of confusion in past sections of this course. First, generally speaking, the larger the group the higher the cost to organize, which in turn reduces the "supply" side of the nonmarket framework. As indicated above, U.S. taxpayers are incredibly difficult to organize into action. However, organizing a small stakeholder group such as a local libertarian organization with a few dozen members to act on tax law should be very easy, and thus would have a very low cost. The other extreme of this is if a stakeholder is an individual person. It hopefully goes without saying that it should be easy for a single person to "organize" themselves into taking action. Second, groups that are already very well-organized may have low organizing costs, regardless of size. As noted above, labor unions are a good example of this. This is because one of their primary functions is to try to influence issues on behalf of their members. It usually does not take a lot of effort to get their members to take action.

Effectiveness is the impact a stakeholder's nonmarket action will have on the outcome of an issue. Nonmarket action is more effective when a stakeholder group has more members, their resources are greater and when the group has extensive coverage of legislative districts.

Effectiveness can be understood in terms of three factors:

  • The greater the number of members in a stakeholder group, the greater its potential effectiveness. For example, the potential impact of an individual person on a federal tax law is almost immesurably small under most circumstances. This reduces the "supply" side of the framework and reduces the likelihood of action being taken. Compare this to an organization with millions of members, which is more likely to impact a federal tax law if they act in a unified manner. Their "supply" side of the framework would be much greater than the individual.
  • Coverage is a measure of the geographic location of interest group members relative to the scale of the issue. For example, if the issue is national in scale, then having most stakeholders in one or two states means that coverage is minimal. Particularly for issues addressed in legislative arenas, the effectiveness of nonmarket action depends on the geographic location of interest group members. "Nonmarket strategies based on the constituency connection between voters and their representatives are more effective the greater the number of political jurisdictions covered by the group. Although small businesses do not have the resources of large businesses, they are politically effective because they are numerous and located in every political jurisdiction" (Baron, 2010, p. 157).
  • And finally, effective nonmarket action requires resources to fund and execute research, lobbying, legal services, grassroots campaigns and the group's administrative staff. Resources can be financial, or power-/knowledge-/skill-based. A poorly funded organization that has powerful, highly skilled, and/or politically connected members still has a significant resource base despite not having finanical resources. The greater a group's stake in an issue (the more it stands to win or lose), the greater are the resources that potentially would be contributed to a nonmarket strategy. Let's go back to the hypothetical tax law example. If an individual is a billioniare with high-powered political connections (e.g. one of the Koch brothers or Michael Bloomburg), then even though they have a minimal number of members (one each), the amount of resources they have indicate that they are very likely to take action on a nonmarket issue of concern to them. Additionally, if the tax in question would have a large impact on their business (e.g. a carbon tax, which would significantly impact the Koch's petroleum interests), they are more likely to use their resources to influence the issue.

Importance of Coverage in Nonmarket Action

Automobile assembly plants are concentrated in a relatively small number of congressional districts, but the coverage of the auto companies' dealer and supplier networks is extensive. General Motors CEO Rick Wagoner attended the national auto dealers convention in 2008 to deliver a message and generate coverage of state political jurisdiction. The issue of concern to Wagoner was the possibility that states would enact their own regulations on greenhouse gases emissions to force large increases in automobile and truck fuel economy. Wagoner's message was, "We need to work together to educate policymakers at the state and local levels on the importance of tough but national standards." Wagoner explained why dealers were important in implementing General Motor's strategy at the state level, "Dealers are very effective in the political process because we don't have a plant in every state. We have dealers in every state." (San Jose Mercury News, February 10, 2008) The greater the coverage by members of an interest group, the more effective is its nonmarket action. (Baron, 2010, p. 157)

A stakeholder's effectiveness--ability to impact the outcome of an issue--depends on the number of members, their geographic location and resources available to support nonmarket activities.