How producer bias affects consumers Premium

Producer bias in economic policymaking favors producers over consumers, impacting economic growth and living standards negatively.

Producer bias refers to the bias that economic policymakers have to frame policies that are in favour of the interests of producers rather than in the general interest of consumers. Producer bias adversely affects economic growth of a country as policies that are favourable towards producers adversely affect the living standards of the general population.

It should be noted that the ultimate aim of economic production is to satisfy the needs of consumers, who benefit from better products and cheaper prices, rather than the interests of producers who would ideally want to benefit by offering inferior products at high prices. In other words, a country that strictly sticks to policies that protect producers from competition would produce very little for people to consume, affecting the living standards of everyone in the long-run. Take the case of a government policy that restricts the entry of new producers into a certain industry in order to protect existing producers. The policy would stop the entry of new producers into the industry who could increase the overall supply of the product in the market, or maybe even offer better products, and lead to a drop in prices.

The most clear-cut example of producer bias in today’s world is that of tariffs imposed by policymakers against foreign imports in order to protect domestic producers and jobs. The U.S. and the EU, for example, have threatened China with tariffs on its cheap electric vehicles. Even though cheap and better electric cars from China flooding the Western market would be great for American and European consumers, it could turn out to be disastrous for vehicle manufacturers in the EU and U.S. and lead to the loss of a significant number of jobs. This has pushed Western governments with a bias to threaten tariffs against China.

Public choice economists have attributed the prevalence of producer bias in policymaking to the greater lobbying power that producers have as compared to consumers. The economic benefits of lobbying generally accrue to a small group of producers, with each individual producer having a lot to gain from government policies that favour them. As a result, each producer has a huge incentive to invest the resources required to influence government policy to his or her favour. Individual consumers, on the other hand, have relatively little to lose at least in the short-term as the cost of policies with a producer bias is diffused among millions of consumers. So big companies that produce vehicles, for instance, are likely to heavily lobby the government to impose tariffs on foreign vehicles. Most individual vehicle buyers, on other hand, are unlikely to even be aware of government policy towards foreign vehicle manufacturers because the price they pay for such ignorance in the short-run is usually small. Interestingly, policies that favour producers are often cloaked as necessary to save jobs or to protect the interests of consumers in order to increase their political appeal.