When it comes to setting policy, the views of businesses and the rich seem to count for more

GOVERNMENT of the people, by the people and for the people was Abraham Lincoln’s famous mantra. But which people? Do governments respond to the concerns of the average voter or do they merely cater to a privileged elite?

On the face of things, governments have catered largely to the common man over the past few years, at least in the realm of finance. Europe is limiting bankers’ bonuses and discussing a financial-transactions tax that will apply in 11 EU members. In America, Congress passed the blizzard of regulations collectively known as the Dodd-Frank act, which has prompted a lot of grumbling on Wall Street (even though financial-industry lobbyists were heavily involved in the process). Most importantly, regulators throughout the rich world have agreed to higher capital ratios for banks, which will not only make them safer but should (in the long run) limit some of the pay packages that have caused such disquiet.

Yet a new paper* from Martin Gilens of Princeton University and Benjamin Page of Northwestern University suggests such moments are rare, in America at least. They use statistical analysis to work out who most influences policy, and the results are depressing for those who believe in democracy. The authors conclude that “Not only do ordinary citizens not have uniquely substantial power over policy decisions: they have little or no independent influence on policy at all.” Those with the biggest influence are the economic elites (defined as those in the top 10% by earning power) and interest groups representing business. By contrast, “mass-based” interest groups such as trade unions have little or no impact.

The authors arrived at this stark conclusion by examining 1,779 surveys of American opinion on policy issues taken between 1981 and 2002. In each case, the surveys had established the income level of respondents. For the views of special-interest groups, the authors used lobbies ranked as powerful in Fortune magazine’s “Power 25” lists plus a further ten industries that spent heavily on lobbying.

In cases where a proposed policy change had low support among the wealthy (one in five in favour), the policy was adopted about 18% of the time. When four in five wealthy people supported a plan, the prospects for adoption rose to 45%. In contrast, it did not matter whether a policy change was backed by the vast majority, or only a tiny minority, of those on average incomes; its chances of adoption were around 30% either way. Business-interest groups, however, were much more successful in getting their way (a similar success rate to the wealthy).

The research does not necessarily show that the average voter is losing out; as it happens, the views of the wealthy and those on average earnings are closely linked (although there is a negative correlation between the views of citizens and business-interest groups).

But the analysis backs up earlier work by Larry Bartels of Princeton, author of a book called “Unequal Democracy”, and the general thesis of the late political scientist, Mancur Olson, that government can be in hock to special interests. This may be truer in America than elsewhere since its campaign-finance laws are so liberal: $6 billion was spent on the 2012 elections. This system forces candidates to spend much of their time raising money from the wealthy and from business. Even if no direct quid pro quos are involved, candidates may simply absorb the views of the better-off by osmosis.

The danger is of a vicious cycle in which politicians adopt policies that favour the better-off; this gives the wealthy more money with which to lobby politicians, which leads to more favourable legislation and so on. The surge in inequality over the last 30 years could perhaps be attributed, in part, to this process.

The flurry of new regulations notwithstanding, many people believe that Wall Street has done rather better than Main Street out of the crisis, even though it was the source of the problem. The Tea Party movement was at first fuelled by resentment of the bank bail-outs of 2008. In Europe, the rise of populist parties may owe something to the same factor.

The risk in the long run is that the excessive influence of the better-off may prompt an overreaction. If resentment grows strong enough to propel populists to power, they may push through policies that are bad not just for the financial sector, but for the economy as a whole.

* “Testing Theories of American Politics: Elites, Interest Groups and Average Citizens”, to be published in the autumn issue of Perspectives on Politics