Bruce Yandle’s excellent paper Bootleggers and Baptists: The Education of a Regulatory Economist is required reading for anyone interested in politics. It’s also a fun read.
Indeed, the pages of history are full of episodes best explained by a theory of regulation I call “bootleggers and Baptists.” Bootleggers, you will remember, support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer. Of course, this theory is not new. In a democratic society, economic forces will always play through the political mechanism in ways determined by the voting mechanism employed. Politicians need resources in order to get elected. Selected members of the public can gain resources through the political process, and highly organized groups can do that quite handily. The most successful ventures of this sort occur where there is an overarching public concern to be addressed (like the problem of alcohol) whose “solution” allows resources to be distributed from the public purse to particular groups or from one group to another (as from bartenders to bootleggers).
Regulations which blatantly enrich a small interest group at the expense of everybody else would be extremely unpopular with voters, so we tend not to see these sorts of regulation too often. When a policy is in accord with both the narrow economic interest of some group and also has some high-minded moral justification the public sees as somewhat reasonable, the political feasibility of the policy is much greater.
Matt Nolan at The Visible Hand in Economics points to an interesting variation of the bootleggers and baptists logic. The two major supermarket chains here in New Zealand have agreed to stop selling alcohol as a ‘loss leader’, citing public concerns that cheap alcohol leads to abuse. As Matt points out, this is nothing but collusion allowing the supermarkets to increase their profit at the expense of consumers:
How? Well, it is true that alcohol is being treated as a loss leader. But its effectiveness as a loss leader depends on the price charged by the other firm. Under the guise of “the social good” the supermarkets have been able to agree to both increase prices slightly – keeping the relative “loss leader” advantage while making more money off alcohol sales.
It just goes to show – when people start getting the government to pressure firms based on the arbitrary morals they want to force on society, we will end up being taken advantage of by someone. I want my cheap beer back …
As do I, Matt. As do I.
In this case there hasn’t been any actual regulation enriching the bootleggers and placating the baptists. Rather, the public protestations of the baptists and the threat of further government intervention have allowed the bootleggers to engage in behaviour which would rightly result in a strong consumer backlash were it not hidden behind a thin veil of public interest.