Rent Seeking, Sugar Reform, and Sen. Menendez

      Last year, while running for re-election, Senator Bob Menendez was embroiled in what soon became a twisted political scandal.  With rumors swirling of under-aged prostitution, illegal campaign contributions, and improper intervention on behalf of donors, no one knew what to believe or what would come out next.  Then, seemingly out of nowhere, sugar became part of the picture. Our class discussions and readings have shown us the lengths firms will go to seek rent but I don't think many people would expect a situation like this.

     Over the last decade or so a coalition of policy makers has begun to emerge advocating sugar reform and the end of the subsidies we talked about in class today.  Sen. Menendez introduced a bill that would attack these subsidies and apparently big sugar wanted to send a message to congress that these subsidies should not be touched.  As the story goes, the Fanjul brothers, owner's of Domino Sugar -likely the sugar you put in your coffee this morning - in an attempt to bring down Sen. Menendez, paid a couple of Dominican prostitutes to say that Sen. Menendez was a client of theirs.  Additionally it emerged that he had flown to the Dominican on a private jet, owned by a wealthy donor after he had intervened on port negotiations on this donor's behalf. 

     This story touches on a number of topics we have talked about in this class.  First, the general principles of rent-seeking and its incentives are an important part of this story.  The Fanjul brothers must   have placed an incredible amount of weight on these subsidies because they staked their credibility and power on bringing down Sen. Menendez.   Their tactic did not pay off and it is likely they lost massive support through their bold, bare-knuckled, open, intimidation tactics. Second, it touches on the collective action problems we worked with earlier in the year and that we reintroduced in Mueller 15.4.2.  When you think of sugar, you likely think of Domino Sugar.  They control an incredible percentage of the market making sugar a highly concentrated industry. Therefore, they have huge incentives to ensure that these subsidies continue.  Two brothers will have very little trouble organizing their efforts to pressure congress and likely do not have to overcome the free-rider problem.  Because the lobbying effort has been largely carried out the Fanjul brothers, it will be interesting to see how long these subsidies continue in light of their recent exposure.  

     This topic also touches on an interesting point in 15.4.3.  That is, "The Duesenberry effect" that shows people become accustomed to subsidies and lobby "much more vigorously against its removal than they do for its introduction."  Regardless of the subsidy's history and whether the Fanjul brothers had anything to do with its introduction, they have incorporated it into their business model and have tremendous incentives to see its continuation.