By Jim Granato, Scott Mason an Kwok Wai Won, Hobby Center for Public Policy, University of Houston
Did you hear the one about the bootleggers and Baptists? What would these two groups have to do with energy policies, such as carbon emission regulation?
In what is now considered a classic piece of political economy, Bruce Yandle’s “Bootleggers and Baptists: The Education of a Regulatory Economist,” published in a 1983 edition of Regulation, sketched out a view of regulation showing how groups considered to be natural adversaries come together. Specifically, Yandle states:
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 (page 12).
Yandle expanded upon this theory of political economy in the 2014 book he co-authored with economist Adam Smith. And the “bootleggers and Baptists” theory sheds light on contemporary arguments over carbon emission policy. First, let us identify who fits the profiles of the two groups. The “Baptists” are members of the environmental movement and the factions therein. “Bootleggers,” on the other hand, are certain members of the energy industry, and those that depend on the success of the energy industry, including labor and governments.
What, then, would cause these “unnatural” allies to unite? The answer lies in the way carbon emissions will be regulated. It is a certainty that any new regulations affect the prices of energy commodities. The Baptists will want to encourage the use of energy commodities that have thelowest carbon footprint. Meanwhile, bootleggers – who are in the business of providing low-carbon commodities – will likewise support similar regulations, shifting market demand to their products.
As a consequence, carbon emission regulations give favored status to energy sources such as ethanol, bio-diesel, wind, solar and the like. Coal and oil production is discouraged with an emphasis on shifting to other fossil fuels, primarily natural gas.
What are the future consequences?
With the bootleggers and Baptist coalition tipping the regulatory scale in one direction – away from higher carbon emissions – the chance for meaningful energy innovations in response to emerging energy, environmental and developmental challenges is more difficult because of anti-competitive rules that both the bootleggers and Baptists support.
Worse, if Yandle and Smith are correct, the institutional rules developed will take on a life of their own – reinforced by the bootlegger and Baptist coalition – and feed new anti-competitive practices. One needs only to look at the evolution of the federal government’s Interstate Commerce Commission (ICC) as an example. It was created in 1887 and, after morphing to regulate bus lines, telephone carriers and other forms of commerce, was ultimately abolished in 1995. If anything, the 100-year experience with the ICC shows how regulatory policies can start off well meaning, but gradually and perhaps inevitably, evolve into protecting certain bootleggers and higher prices for consumers.
As a final thought, carbon emission reductions – or the reduction of any potentially harmful emission – would seem to be far more likely to happen with an open and vigorous competitive environment, with winners and losers determined by consumers and not bootleggers and Baptists. Yet, bootlegger and Baptist coalitions have built-in advantages, particularly since in many cases the benefits they receive for the regulations they support are concentrated and lucrative, while the costs to the public are so spread out.
One way to level the policy playing field is to raise the cost to bootlegger and Baptist activity. On that score, Yandle and Smith suggest structuring policy processes so there is greater transparency (reducing the cost of the public acquiring information) but also giving states greater say, so that bootleggers and Baptists have to compete with the public in many places rather than just in Washington D.C. With the added policy diversity, some states will outperform others and, in doing so, provide avenues to a more innovative set energy innovations.
Jim Granato is professor of political science at the University of Houston’s College of Liberal Arts and Social Sciences and director of the Hobby Center for Public Policy. His book, “The Role of Policymakers in Business Cycle Fluctuations,” focuses on how monetary policy can stabilize business cycles.
Scott Mason is program manager at the University of Houston’s Hobby Center for Public Policy.
Kwok Wai Wan is a post doctoral fellow at the University of Houston’s Hobby Center for Public Policy.