Baptists and Bootleggers

Ages ago, I pointed out to my manager how the prevailing marketing system was full of glaring gaps. I thought this was because the stakeholders didn’t quite understand how things work.

My manager calmly responded: “When a system is in use for long, it’s fair to assume the system works for all the parties involved. The stakeholders settled upon the status-quo because, among the alternatives available, it served their individual interests best”.

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Back in the 1970s, economist Bruce Yandle thought regulators of the day seemed to have found a Murphy equivalent for their field: that if there was a wrong way of doing something, the regulators would adopt it.

Among many examples, he explains how subsidization of freight rates of one class of shippers led to factories being set up at faraway locations. As the real costs were hidden, transportation charges were not factored in for selecting factory locations.

[In India too, Freight equalization policy subsidized transportation of minerals across the nation. This discouraged setting up of factories in the mineral-rich eastern part of India. It contributed to the north-south economic divide we see today.]

Yandle was convinced that “a massive program in economic education was needed to save the world from regulation. If we economists could just teach the regulators a little supply and demand, countless billions of dollars would be saved.”

However, later on, he learned regulators understood the economics alright, and industry reps were afraid of the costly rules (that apparently hurt them) being canceled. Puzzled, Yandle sought to reconcile the contradiction between what he thought and what he observed.

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In 1983, Yandle resolved the contradiction in his now-popular paper titled, “Bootleggers and Baptists – The Education of a Regulatory Economist.”

The paper argues that although baptists and bootleggers appear to be at loggerheads, they enjoy a symbiotic relationship. Yandle explains the coinage in another paper:

“The terms stem from the southern United States, where in the past and even today Sunday closing laws prevent the legal sale of alcoholic beverages. This is advantageous to bootleggers, who sell alcoholic beverages illegally; they get the market to themselves on Sundays.”

“Baptists and other religious groups support the same laws but for entirely different reasons. They are opposed to selling alcohol at all, but especially on Sunday. They take the moral high ground, while the bootleggers persuade politicians quietly or behind closed doors.”

He sums up the character of such a collusion: “Such a coalition makes it easier for politicians to favor both groups. In other words, the Baptists lower the costs of favor seeking for the bootleggers.”

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Yandle nominates the below example (among many others) for the best B&B (Bootleggers and Baptists) award.

In the early 1990s, timber logging was banned in federal forest land to protect owl habitat in the Pacific Northwest. Weyerhaeuser Corporation engaged wildlife biologists to search for owl habitat, which put more than five million acres of federal timberland in the Pacific Northwest off-limits to woodsman’s ax.

All this drove the timber prices up, and Weyerhaeuser registered a 81% increase in revenue from a year earlier. He grimly notes, “Environmentalists celebrated the expanded protection of owl habitat while the owners of Weyerhaeuser and other timber products companies celebrated unusually high returns.”

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Though a little far-fetched, I would like to propose a new nomination for Indian B&B.

In most celebrity hit-and-run cases, the celebrity is promptly arrested with “Nobody above law” platitudes thrown in. To demonstrate strong intent, they are charged with murder instead of drunk driving.

On the surface, we think justice is being served. Except that charging them with murder is the easiest way to eventually let them off.

Because proving ‘murder’ requires evidence of ‘premeditated malice’ and a ‘motivation’. Both of which are absent in a hit-and-run case; the parties are literally strangers to one another.

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Yandle’s overall point is that groups we think are at odds with each other are actually bedfellows in the regulatory ecosystem.

Politicians use both groups to the hilt: they publicly side with ‘Baptists’ to build up their image among the masses, while receiving financial assistance from ‘bootleggers’ in the background for their political campaigns.