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Оглавление1. Bootleggers and Baptists: A Winning Coalition
“Baptists question Amazon porn sales, oppose tax break.”
That headline appeared in the Columbia, South Carolina, State newspaper (O’Connor 2011) in April 2011, above a story describing a controversy over an Amazon.com distribution center under construction in South Carolina. The facility would employ 1,200 people. Amid high unemployment, the state’s previous governor attracted the company with the promise of a five-year exemption from sales tax on purchases by South Carolina residents. The exemption, which gave Amazon an advantage over conventional retailers, was seen as critical for bringing the center to South Carolina.
Construction of the Amazon fulfillment center was pretty far along when Baptist leaders rallied in opposition to the tax break—and to Amazon’s presence—spurred by moral concerns about unrated videos sold by the website, which they considered to be pornographic. “We obviously have great concern about pornography, wherever it is sold in South Carolina,” said Joe Mack, the director of public policy at the Christian Worldview Center at North Greenville University, a school affiliated with the South Carolina Baptist Convention. “We’d be opposed to anybody who is selling it” (O’Connor 2011). Of course, the location of the distribution center would have no effect on whether residents could buy videos from Amazon, but this fact appeared to make little difference.
While these Baptists bristled at the prospect of pornography consumption, an unlikely alliance had formed among competing big retailers—including Walmart, Best Buy, and Target—and small Main Street retailers. The common denominator linking these otherwise adversarial firms is a fixed brick-and-mortar storefront, which obligates them to pay sales tax on each purchase. Their common goal: to reduce loss of market share to Amazon, which they claimed was subsidized by favorable tax policy. As William R. Harker, senior vice president at Sears Holdings, said of Amazon’s sales tax edge: “I think it puts all retailers at a disadvantage. What we and other retailers are looking for is for the playing field to be level” (Kopytoff 2011).
These seemingly disparate forces—Baptist leaders; major retailers Walmart, Best Buy, and Target; and small Main Street retailers—worked in tandem to vehemently oppose the tax exemption. As far as we know, the Baptists never met with the retailers to strategize. Nevertheless, the retailers undoubtedly welcomed the implied support of South Carolina’s largest religious denomination in the lobbying battle against Amazon’s special tax treatment. After all, with support from religious authority figures, their battle against Amazon took on a meaning beyond a mere commercial dispute. Alongside arguments about fair competition, the retailers had been empowered to question the very morality of an otherwise routine, profit-motivated attempt to manipulate tax assessment.
The coalition of churchmen, major retailers, and Main Street merchants was initially successful. The South Carolina General Assembly reneged on the previous governor’s promise and voted to deny the Amazon exemption (Adcox 2011). But the story did not end there. After all, the Amazon distribution center was already under construction. Shutdown costs would be sizable. Amazon responded to the makeshift coalition by promising to build a second South Carolina facility that would employ hundreds of additional workers. That offer proved enough to tilt the political scales, and a second Amazon vote was favorable to the online retailer.
We see the Amazon story as a perfect illustration of the Bootlegger/Baptist theory of regulation (Yandle 1983). As noted in the preface, the theory gets its name from two seemingly unrelated groups that both stand to gain from restrictions on the sale of alcoholic beverages. Baptist leaders lobby openly and enthusiastically for regulation of spirits; they prefer a world where less alcohol is consumed. Bootleggers, the illegal sellers of alcoholic beverages, happily support the laws as well; Sunday closings shut down legitimate sellers, thus expanding opportunities for bootleggers to sell their wares.
The resulting laws never restrict the Sunday consumption of alcoholic beverages—no bootlegger worth his salt would support that. Instead, the typical restrictions generate differential effects across sellers. The rules set an output restriction that is monitored by Baptists, enforced by government, and enjoyed by bootleggers.1 Along the way, some of the resulting bootlegger profits are undoubtedly shared with cooperative politicians.
The Bootlegger/Baptist label is now applied to a wide variety of regulatory episodes where the term “Bootlegger” no longer implies illegal action but rather applies to political action in pursuit of narrow economic gains.2 Moreover, the term “Baptist” does not necessarily indicate a religious motivation but rather group action driven by an avowed higher moral purpose or desire to serve the public interest. Since emerging in 1983, the theory has been used to illuminate countless examples of “strange bedfellows” who rally behind a shared political aim.
Bootlegger and Baptist interaction is as old as recorded history, but we limit ourselves to tales from the past few centuries in political contexts similar enough to our own that lengthy background exposition can be avoided. Every story we relate is told for a purpose, and each contains specialized content that contributes evidence to a richer theory of political action. Although historic legacy is interesting and may be instructive, it is the growing imprint of Bootlegger/Baptist–abetted regulation that we think deserves attention. Illuminating the dimensions of that imprint is the underlying purpose of this introductory chapter.
The chapter is organized into four parts. First, we introduce the Bootlegger/Baptist dynamic. In this part, we examine the growth of social regulation that has emerged because of Bootlegger/Baptist interaction and the impact of these relationships on economic performance. We explain how Bootlegger forces largely define how the regulation advocated by Baptist interest groups actually comes about in practice. The new set of opportunities afforded by social regulation biases the behavior of corporate leaders away from producing more and better goods and services in favor of regulation-seeking activities that reduce output. Then, we break down examples of social regulation into four modes of Bootlegger and Baptist interaction: (a) covert, (b) noncooperative, (c) cooperative, and (d) coordinated. We use these labels throughout the book to organize our various examples and episodes of Bootlegger/Baptist activity. Finally, we close out the chapter—as we do each chapter—with concluding thoughts.
The Bootlegger/Baptist Dynamic
The Bootlegger/Baptist theory provides a useful device for explaining crucial features of enduring social regulations that affect consumers and producers worldwide. The theory describes how special interest groups acquire gains through the political process, and why these two types of interest groups become more prevalent and vocal. Politicians are agents who serve the competing goals and objectives of special interest groups as well as the broader unorganized public. Bootlegger/Baptist theory tells a story of how public interest justification greases the rails for purely private pursuits.
Gifted politicians who seek to serve their constituencies can do more for economic interest groups if their actions can be clothed in public interest garb (Simmons, Yonk, and Thomas 2011). Politicians will rarely explain an effort to improve the profits of an economic interest group by saying, “I was just trying to help a good firm make more money.” The Bootlegger/Baptist theory explains how the cost of organizing demand for political action can be reduced while at the same time easing the politician’s burden when it comes time to justify those actions. When Bootleggers and Baptists unite, activity in the market for regulation flourishes.
We should hardly be surprised by private pursuit of regulatory benefits. None other than the patron saint of economics, Adam Smith, warned about efforts by early industrialists to seek political favors through laws and regulations. As Smith wrote in his magnum opus, The Wealth of Nations ([1776] 1827, 107):
The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Writing in 1776, Adam Smith had apparently not encountered situations where businesspersons were joined by clergy and others who wrapped the political enterprise in an attractive moral cloak, thereby improving the chances that politicians would respond favorably to their high-sounding petitions.
The government “pork” Bootleggers seek—with the witting or unwitting assistance of Baptists—can take myriad forms. The most straightforward example of Bootlegger/Baptist activity occurs when some private interest seeks a direct benefit from government—such as a subsidy, contract, or special tax break—on the premise that some higher moral aim or public interest will thereby be served. In these cases, nominal rivals within a sector of the economy may find themselves united in covert support of measures that benefit all, even if they subsequently find themselves at odds over the division of the loot.
Often, however, firms can profit as handsomely by hindering their market rivals as they could by seeking direct payouts from public coffers—and without the public scrutiny that typically attends such transfers. The simplest form of this situation is seen when regulatory measures are used to sock it to competitors (Salop and Sheffman 1983).
The noncooperative strategy of raising rivals’ costs is hardly a novelty of the Internet era: a prime example appeared some eight centuries before the South Carolina Amazon episode, when London weavers exploited a stricture contained in the Magna Carta to gain an advantage over foreign competition (Yandle 1984). As the historian W. F. Swindler (1965, 311) explains, chapter 25 of the “Great Charter” established uniform measures of ale, grain, cloth, and other goods to facilitate trade—a classic case of consumer protection at a time when buyers, ill-equipped for comparative shopping, dealt with traveling merchants who moved from market to market, and “traders and merchants found it practically impossible to conform to the standards that were different in each locality.”
Such imposed uniformity may have made sense on its own terms given the potential uncertainty of dealing with traveling peddlers, but enforcement of the standard was not uniform. As William McKechnie (1914) documents, the London weavers paid a bribe to local enforcement agents to avoid having the standard enforced on themselves but demanded that it be scrupulously applied to traveling merchants who came to London markets. Differential enforcement thus entered the picture, allowing the best organized merchants to raise rivals’ costs, and— unsurprisingly given the state of communications at the time—traveling merchants from assorted far-flung locales had little chance of being as well organized as the London weavers (Thompson 1948, 100–121). In short, the “uniform” standard meant to protect consumers became a barrier to entry for disfavored sellers.
Such regulatory gamesmanship may also take subtler forms, as when looming government action prompts an industry to rally in support of stricter regulation—perhaps to avoid an even more costly outcome—ultimately forming a government-assisted regulatory cartel. Almost invariably, regulation generates differential effects across member firms in the cartel. In other words, when noncooperative strategies are at play, there are winners and losers.
The interaction between Bootleggers and Baptists in pursuit of these aims can itself take a variety of forms. Starting again with the simplest case, Bootlegger firms may covertly advance Baptist arguments, as when film studios advocate for more stringent copyright protection by invoking either the moral claims of artists to remuneration or the promise of increased creativity and innovation spurred by greater rewards to creators. Strictly speaking, these are not Bootlegger/Baptist scenarios at all, but rather cases of Bootleggers covertly posing as Baptists. Such cases, however, often signal the first phase of an evolving political process that yields more complex forms of cooperation. Moreover, considering some of the drawbacks of this one-man-band approach helps illuminate why we so often find a division of labor between Bootleggers and Baptists, with members of each group doing what they do best: the Baptists making the moral argument and the Bootleggers providing financial support for cooperating politicians.
When separate independent Baptist groups enter the picture, at least initially they may find themselves backing the same cause as Bootleggers through a happy confluence of interests, as in the early stages of the Amazon example. Each group, in effect, pursues its own noncooperative lobbying and advocacy strategy, happily reaping any spillover benefit from the other’s efforts. Independence has its benefits—Baptist groups may seem more credible if they avoid any taint of association with self-seeking Bootleggers—but comes at the cost of whatever efficiencies might be achieved by pooling resources and acting under a unified strategy. In later examples, we will see how togetherness can work.
In other cases—whether by design from the outset or over time as sympathetic interests are recognized in the course of a protracted political struggle—cooperative partnerships emerge as Bootleggers fund Baptists to bolster support for the political outcome both desire. In economic terms, the Baptist groups have comparative advantage in providing public relations efforts supported by less attractive Bootleggers. An extreme form of this mode of interaction is the notorious practice of “astroturfing,” in which corporate interests essentially create from whole cloth an advocacy group designed to seem like a grassroots effort by concerned citizens. Given the tendency of such charades to backfire when exposed, however, the savvy Bootlegger will typically prefer to bankroll an authentic, preexisting Baptist group with a reservoir of public credibility to draw on, even when this strategy requires sacrificing some control.
Finally, as regulation expands and becomes all encompassing across national markets, a still more complex dynamic may emerge. In this fourth type of interaction, presidents or other political actors take the initiative to coordinate a desired mix of national interest groups and regulators to achieve their ultimate political goal by way of a grand regulatory cartel. One could refer to this as the “grand slam” of Bootlegger/Baptist initiatives. When this happens, high-level politicians and Bootleggers profit while Baptists achieve their goals and provide moral cover, making it easier for coordinating regulators to control the industry group. Taken together, these diverse modes of Bootlegger/Baptist interaction yield expanding regulatory activity and rising costs that constrain GDP growth.
The Rising Tide of Social Regulation
A veritable tidal wave of regulation has emerged in the last four decades from the confluence of Bootlegger and Baptist elements. Any investigation of U.S. regulation quickly reveals the explosive growth in federal regulatory activity that began in the early 1970s. An examination of the count of new pages in the Federal Register provides the most vivid indication of the rising tide of regulation, although some may argue that levels of regulation need to be considered in terms of the size of the economy being regulated. To account for this argument, we show the count of pages weighted by real GDP in Figure 1.1.
Figure 1.1 FEDERAL REGISTER PAGES PER REAL GDP DOLLAR 1940–2012
SOURCES: Crews 2012, Economic Report of the President (various issues), and authors’ calculations.
The massive change in regulatory activity that occurred in the 1970s should prompt us to question whether an economy can absorb so much regulation in such a short time without significant production losses—and, indeed, whether that economy is still one driven primarily by private risk takers operating in a capitalist system.
When analyzing regulatory activity—like that reflected in the Federal Register pages—regulatory scholars divide regulation into two categories: economic and social. Economic regulation, the older of the two types, addresses such things as freight rates, permits to operate, interest rates, and geographic service areas. The economic regulatory agencies included the Interstate Commerce Commission, which regulated surface transportation; the Civil Aeronautics Board, which regulated air travel; the Federal Communications Commission, which regulates radio and television broadcast rights; and the Comptroller of Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank Board, which collectively regulated financial institutions. Joining these older economic agencies, the social regulators of the 1970s focused on safety, health, and the environment. These agencies included the U.S. Environmental Protection Agency, the Occupational Safety and Health Administration, the Consumer Product Safety Commission, and the National Highway Traffic Safety Administration.
The new wave of social regulation was fundamentally different from the older economic regulation for transportation, communications, and energy markets. Old-style regulation focused on single industries, yielding a natural constituency of regulated firms that sought to influence outcomes. Social regulation affected all industries. It created no natural constituency of targeted firms that might organize to influence outcomes—at least not easily.
Social regulation also brought something to the table that was lacking in economic regulation. Social regulation was about things that mattered deeply to ordinary people. Interest groups that formed to lobby for safer food, cleaner water, and more humane workplaces possessed a moral fervor that railway freight rules seldom inspire. Voters and interest groups alike became passionate about the new regulation that emerged full bore by the 1970s. New economic models and modes of thinking were needed to explain what was going on. Social regulation became a growth industry, partly because of accommodating Bootlegger/Baptist forces.
When the budgets (in constant dollars) of federal regulatory agencies are considered for the two categories—economic and social—the fast-paced growth of social regulation is astonishing (Dudley and Warren 2011, 5). Total spending on social regulation increased more than 19-fold from 1960 to 2010. By comparison, spending on economic regulation increased less than seven-fold, and total government spending for all federal activities increased just under four-fold across the same 50 years (OMB 2010, 26). Given that government revenues grew less than outlays for most of those years, we can say that regulatory growth was so important that it was funded with deficit dollars. With so much regulation occurring, what was the effect on economic performance?
Throttling GDP Growth
It is now more than 40 years (and 3.5 million Federal Register pages) since the surge of regulation that began in 1970. We believe the structure and performance of the U.S. economy has been significantly altered by the rise of what some call “regulatory capitalism,” what others might call crony capitalism, or what we would term Bootlegger/Baptist capitalism. In Figure 1.2, we show the annualized rate of per capita real GDP growth over a series of decades, beginning with 1951 and ending with 2010.
Figure 1.2 GDP GROWTH ACROSS THE DECADES
SOURCE: Officer and Williamson 2011.
The data show the large reduction in growth that occurred from 1971 to 1980. Some recovery takes place in the 1990s, but severe deterioration in growth occurs in the most recent decade. Clearly, this is not merely a function of the recent recession: the growth rate for 2000 to 2007 is still anemic. Obviously, regulatory expansion is hardly the only factor that affects GDP growth, but the scholarship on the matter leaves no doubt that regulation has taken a toll on the economy.3
Regulating the Regulators
As the newly formed and expanded regulatory agencies followed their congressional mandates and started pumping out new rules, few observers of the political process could believe what they were seeing. According to Eads and Fix (1984, 46–47), President Richard Nixon became so concerned by the unexpected flow of rules from the EPA, an organization his administration had spawned, that he called on OMB director George Shultz to find a way to rein in the regulators. Shultz and the Nixon White House team responded with the Quality of Life Review, located in the OMB, which required agencies to subject regulations to benefit/cost and economic impact analysis—and then to have the newly proposed rules reviewed by OMB officials.
The Quality of Life Review process was the first in a series of presidential initiatives developed to monitor and manage the growth of regulation. Following President Nixon’s move, each subsequent president added new features to the review process that is today managed by the OMB Office of Information and Regulatory Affairs. A recent executive order issued by President Obama added a few important features to the review process, which we will touch on later. But in every case, presidents—who are in charge of all executive branch agencies and hire and fire their leaders—placed the review process within the White House.
Generally speaking, the regulatory review process has one official purpose: to reduce the cost of achieving stated regulatory goals. Put another way, the focus is on economic efficiency, reflecting a desire to serve the public interest. Very few scholars in the early 1970s and 1980s saw federal regulation as a way to serve private interests. Adam Smith’s warning was not heeded. And there was little recognition that rules promulgated in the public interest might also win support by serving far narrower private ends. The theory of Bootleggers and Baptists had not yet seen the light of day.
Four Modes of Bootlegger/Baptist Interaction
Now that we have documented the rise of Bootlegger/Baptist activity in the form of social regulation, let’s revisit the four modes of Bootlegger/Baptist interaction we introduced previously. These modes are listed here in order of complexity: covert, noncooperative, cooperative, and coordinated. We start with covert strategies, where Bootleggers have not quite found their Baptist and thus try to assume the role themselves, albeit “covertly.”
Covert Strategy
Bootleggers aren’t shy about advocating directly for their own interests, as the billions spent each year on professional lobbyists amply demonstrate. Even when Bootleggers push their interests without the help of a Baptist group, adopting Baptist rhetoric is often still to their advantage. Restrictions on trade, for instance, tend to protect domestic producers from foreign competition at the expense of consumers—but saying so overtly is a poor way to win political support for such measures. Unsurprisingly, domestic producers who lobby for higher trade barriers use a covert strategy by claiming to have just the opposite aim: protecting consumers from their foreign competitors!
Thus, we discover Francis Cabot Lowell, founder of the U.S. textile industry in Lowell, Massachusetts, successfully petitioning the U.S. Congress in 1816 to impose an 83.5 percent tariff on Indian cotton and English imports. The items, he said, “[were] made of very inferior materials and are manufactured in a manner calculated to deceive rather than serve the consumer” (Yafa 2005, 107). Again we find a public interest justification for constraining market supply. Lowell successfully agitated for legislation that raised his rivals’ cost in the international market, and then he artfully obtained a tariff exemption for his own firm. This story’s signal element is the two-fold process that raised rivals’ costs: the U.S. industry gained a competitive advantage over India’s producers, and Lowell gained a specialized payoff within the constrained market.
The limits of the covert strategy may be illustrated in a more recent case: the January 2012 debate over a controversial piece of legislation known as SOPA—the Stop Online Piracy Act—whose passage had been deemed a top priority by the music and movie industries, as represented by the Recording Industry Association of America and the Motion Picture Association of America (Schatz 2012). Among other things, the law would have created a streamlined process for designating foreign-based Internet sites as havens for copyright piracy, requiring Internet providers to block them and obligating search engines and certain other domestic websites to refrain from linking them. Eliminating piracy has a nice Baptist ring to it: at least that is what the Bootleggers thought when they built their argument.
Though it was not framed in this way, SOPA can be thought of as a concealed subsidy to copyright owners. Typically, copyright claims are enforced through civil litigation by the holder of the copyright at its own expense. Many online “file lockers” have indeed been sued by content companies; yet often it was the alleged “pirate sites” that proved victorious in court, because website operators are generally not liable for infringing files uploaded by their users unless the operators actively encourage illegal conduct. The blocking process that SOPA would have established was, in essence, a mechanism for offloading the costs of enforcing content-industry copyrights onto technology companies and taxpayers.
As might be expected, many major U.S. tech companies are not enthusiastic about being drafted into the role of copyright police, and given the government’s spotty record of accurately identifying “pirate” sites, tech investors feared that startups enabling users to upload content could too easily be cut off from U.S. users—a potential death sentence for a fledgling firm (Morath and Fowler 2012). These groups lobbied against the proposed legislation as vigorously as the content industries had lobbied for it.
Baptist arguments were to be found on both sides. Supporters of the law condemned overseas file lockers for enriching themselves at the expense of American artists, and content-industry workers and warned that unchecked piracy would impoverish public culture by making the production of new creative works less economically viable. In addition to raising a variety of technical objections, opponents blasted the law’s domain-blocking provisions as a form of censorship without due process and argued that it would symbolically undermine the global push for Internet freedom, emboldening repressive regimes to claim that even the liberty-loving United States did not adhere to its own rhetoric of openness.
While the pro-SOPA arguments were primarily advanced by the studios and labels themselves, covertly attempting to disguise their economic interests as a social benefit, opposition to the law was publicly spearheaded by an array of well-established civil liberties and human rights groups—real Baptists. These included the American Civil Liberties Union, the Electronic Frontier Foundation, Reporters without Borders, Human Rights Watch, the Center for Democracy and Technology, and the American Library Association (Kang 2011).
Internet users preferred the real Baptists to the fake ones. On January 18, 2012, constituents flooded congressional switchboards in such overwhelming numbers that by the end of the day, many of the law’s own cosponsors declared they had seen the light and joined the ranks of the opposition (Kane 2012). Although many factors shaped the public’s response—not least the objective merits of the arguments on each side—it seems plausible that many were predisposed to give greater credence to moral arguments delivered by Baptist groups whose perceived raison d’être was principle rather than profit.
Noncooperative Strategy
Moralized calls for political action may be initiated by Bootleggers deploying Baptist rhetoric, as seen in the case of SOPA and other proposals to crack down on copyright piracy. But often the shifting sands of economic interests bring Bootleggers in as latecomers to long-standing moral crusades, thereby providing Baptists with the decisive boost they need to achieve their aims. Economist Howard Marvel (1977) tells one such story in his account of the implementation of England’s Factory Act of 1833, then known as Althorp’s Factory Act. Marvel’s analysis notes that the law was hailed as a humanitarian move that placed burgeoning textile mill operators under the authority of England’s Home Office, banned the use of child workers under 9 years of age, and restricted hours and work conditions for those under 18.
Prominent members of England’s landed aristocracy had long sought to bring cotton mills under the protective wing of government, without success. But the political balance was changing, along with the textile industry itself. Textile districts had gained seats in Parliament, and developments in cotton-processing technology—which dramatically altered production costs—were generating differential effects across the industry.
The effect of technology on Bootlegger/Baptist interaction is the unique feature of this story. A host of new manufacturing plants was being driven by steam engines rather than by water wheels. The newer steam-driven plants required less labor and were not affected by periods of low water flow, during which the older water-driven plants operated longer hours to catch up on production. The older plants were thus seen as abusive by some, because they employed more children to work the longer days.
Marvel’s review tells us that the factory districts supported the new Factory Act, but the support was not monolithic. His study of the vote led him to conclude that:
[The law] was, instead, drafted at the behest of the leading textile manufacturers who intended it to have a discernible impact on textile industry operations. Its purpose was to increase the cost of production of many of the smaller textile mills, thereby causing them to curtail their output. The legislation was designed to have differential impact on textile production, harming some manufacturers while benefiting others. The group standing to gain was the large urban manufacturers who relied on steam engines to drive their machinery. Such steam-powered mills not only employed relatively fewer very young children, but were less susceptible to production interruptions than were the water-powered mills. The latter were dependent on nature to keep their reservoirs full and often had to cut hours in dry spells while working extended hours when sufficient water was available. (Marvel 1977, 387–88)
Marvel found that industry output fell significantly more for water-driven mills than for steam-driven mills. Changing technology was thus the key to a story featuring Bootleggers (the operators of the steam-driven mills), Baptists (public interest groups that lobbied for improved working conditions), and a regulation that predictably imposed higher costs on a specific subgroup of manufacturers. As in the story of Francis Cabot Lowell, some of the law’s supporters were covert Bootleggers in Baptist clothing—enlightened industrialists who, it would seem, found a profitable way to achieve improved working conditions in England’s burgeoning cotton mill industry. Some might say they did well while doing good.
About 50 years after the passage of the Factory Acts, another Bootlegger/Baptist episode occurred in London, where William Booth’s newly organized Salvation Army was working to improve the lives and save the souls of the city’s downtrodden (Hattersley 1999). This time, instead of Bootleggers and Baptists, Methodists and brewers formed the coalition opposing Booth’s efforts. But in this case, as we explain below, a critical element for success was missing—and the effect of the missing element is what makes this case interesting.
A visit to the Salvation Army website provides a brief history of this Protestant church, founded by Booth in 1852. A Methodist minister, he decided to take his ministry to the streets. According to the website: “Booth abandoned the conventional concept of the church and a pulpit, instead taking his message to the people. His fervor led to disagreement with church leaders in London, who preferred traditional methods” (Salvation Army 2013). The more traditional churches felt threatened by this new competition from Booth and his unconventional methods, whereas the minister’s uncompromising attack on alcohol was too much for the brewers. Yet this seemingly potent coalition of brewers and Methodists ultimately failed.
Booth had been a minister in good standing with the Methodists before stepping out on his own to build his unconventional movement, dedicated to helping the urban poor wherever they might be found. Delivering the movement’s message through uniformed marching bands and preaching in the streets, Booth and his noisy band of disciples began to attract huge followings wherever they traveled. Preaching against any consumption of alcoholic beverages, the Salvation Army called on sinners to repent and change their ways.
As Booth’s effort gained momentum, the Methodists and brewers decided to take him on; yet they proved unable to gain meaningful political support for their efforts, largely by not cooperating in pursuing their common goals. Brewers in communities where the Salvation Army held services paid local beer lovers to disrupt the army’s music and preaching. Meanwhile, Methodist bishops and other religious leaders struggled to shut down the army’s successful efforts to attract members and funds for its growing enterprise. Instead of disrupting the preaching, playing, and singing in the streets, the bishops worked for the enforcement of city ordinances that would require permits for religious parades and noisy street gatherings. Though both groups were working toward the same end, they used distinct methods and strategies in doing so.
Roy Hattersley (1999, 253–54) describes the development this way:
And it was in 1880 that there came into existence the strange alliance which menaced The Salvation Army for the rest of the century. “Professors of religion and haters of religion,” Booth told his followers, “combined to drive you away.” A collation of intellectually fastidious bishops and frightened brewers were coming together. The whole establishment, seeing the uniforms and the banners, feared that the church militant might take on a political or military form and that William Booth, having taught the working classes to pray, would encourage them to fight. They were joined in antagonism by the people who simply thought William Booth ridiculous. (pp. 253–54)
Opposition from brewers grew as the army experienced increasing success in converting London’s street people. The Salvation Army (2011) explains how an opposing army rose against them:
Despite its rapid increase in numbers and growing success, The Salvation Army provoked brutal and determined opposition, attracting many enemies. Pub and brothel owners were particularly angered when many of their former customers were converted in Booth’s Army. Their profits fell rapidly and business suffered. Many persuaded their friends to join ‘The Skeleton Army’ whose main ambition was to get rid of The Salvation Army at any cost. (The Salvation Army 2011)
Disruptions of Salvation Army activities reached such a tempo that Booth appealed to Prime Minister William Gladstone for protection. Although Booth received no official government response, his appeal captured the attention of the Times of London, which did not endorse the army’s activities but editorialized in favor of freedom of speech. Booth, prefiguring the more famous 20th-century campaigns of Gandhi and Martin Luther King Jr., instructed his people in the art of passive resistance. As a result, Booth and his Salvation Army gained national attention.
Salvation Army preachers were jailed for disturbing the peace with their sermons and music, and mayors, especially those who were also brewers, refused to offer police protection when the army came to town (Hattersley 1999, 239). As the disruptions continued, Booth described this situation this way:
In nearly every town where there has been any opposition we have been able to trace it more or less to the direct instigation and often the open leadership of either Brewers or Publicans or their employees. The plan adopted is by treating or otherwise inciting gangs of roughs. (Hattersley 1999, 273)
In spite of the opposition, Booth’s strategy gained momentum—and eventually the support of wealthy philanthropists. With its coffers and membership both swelling, the army captured the attention of the Church of England, which debated how it might affiliate with William Booth’s successful program but made no official accommodation with the upstart group. The Salvation Army moved on to become a global ministry.
Efforts to regulate the Salvation Army, supported by brewers and Methodists, were unsuccessful. One factor in that failure may have been the lack of a political broker. Most Protestant denominations, including the Methodists, were fractured over doctrinal and other issues, and the Church of England no longer enjoyed its monopoly influence over Parliament. Put another way, no real cartel existed to oppose the Salvationists. Those opposed to the army were unable to gain parliamentary action that might have effectively blocked its efforts at the national level. Instead, the opposition had to rely on desultory efforts to step up enforcement of city ordinances. A successful Bootlegger/Baptist strategy must involve effective political brokers who can deliver effective restrictions across the relevant jurisdictions. Thus, the Salvation Army prevailed despite Bootlegger/Baptist opposition.
Cooperative Strategy
Our third type of Bootlegger/Baptist interaction—in which private firms fund public advocacy groups—is well illustrated by a recent regulatory episode involving Walmart’s support for President Obama’s 2009 Affordable Care Act. This case also provides a convenient demonstration of how politicians can spur firms to cartelize, either formally or informally, to gain political benefits (Adamy and Zimmerman 2009).
To understand this story, we must bear in mind that although the world’s largest retailer is routinely attacked for not providing more generous insurance to all its workers, it has actually greatly expanded opportunities for its employees to obtain company-provided health care benefits, especially when compared with its smaller competitors. In 2009, some 52 percent of Walmart’s 1.4 million U.S. employees were covered by company-provided insurance, up from 46.2 percent three years earlier (Adamy and Zimmerman 2009).
Walmart was a crucial supporter of President Obama’s Affordable Care Act, which requires the mega-retailer’s competitors to pony up health benefits as well. A story in the Wall Street Journal summarized the company’s position with the telling headline “Wal-Mart Backs Drive to Make Companies Pay for Health Coverage” (Adamy and Zimmerman 2009). In this case, a host of groups supporting government-enforced expansion of health care played a highly visible Baptist role—and among the most prominent was the nicely named Center for American Progress (CAP), which received at least a half-million dollars in Walmart funding.
Also joining the fray on the Bootlegger side was the Service Employees International Union (SEIU), whose logo appeared alongside those of Walmart and CAP atop a letter announcing the retailer’s support for the Affordable Care Act (Podesta, Stern, and Duke 2009). The union, too, backed its words with cash. Tax documents show that in 2010 alone, CAP’s activist arm, the Center for American Progress Action Fund, received $625,345 from the SEIU.
Like Walmart, the union was interested in raising the costs of its competitor—nonunion labor. Although conventional wisdom often paints labor groups such as SEIU and capitalist employers such as Walmart as eternal and inherent antagonists, both had a shared interest in using government regulation to raise their rivals’ costs. Yet the Bootleggers could have never done it without the Baptists leading the charge.
CAP is a genuine leftist advocacy group that promotes its values across a wide array of policy areas—and there’s little doubt it would have backed the Affordable Care Act (though perhaps less effectively) even without corporate or union funding. Sometimes, however, Bootleggers find it more expeditious to organize and fund their own ad hoc Baptist associations—typically with high-sounding names designed to help them pass as public interest groups. For example, firms in the housing industry formed a group called the National Homeownership Strategy (NHS) that lobbied for more federal housing assistance for lower-income families.
Bootlegger-spawned Baptist groups may also serve a secondary function: when an industry’s existing trade associations encompass members whose interests are normally aligned, but diverge on a particular issue, a subset of the industry may find it necessary to combine and focus its efforts through a new and separate entity that has more of a Baptist flavor. We find an example of this situation in a controversy that emerged in the trucking community. It exposed a division between larger commercial enterprises, such as Schneider National, and small driver-owned firms that compete for freight forwarding and delivery (Greenfieldboyce 2011).
The controversy started with a proposal from the U.S. Department of Transportation that mandated Global Positioning System (GPS) devices for all trucks. The devices cost roughly $2,000. They monitor and record a truck’s location and activity, making possible more effective enforcement of adherence to Department of Transportation regulations limiting excessive driving time, which can lead to drowsy drivers and accidents. Most larger trucking companies already had their trucks equipped with the devices; they use them to encourage efficient hauling (Peter Klein 2011). Smaller operators keep written logbooks; these would be replaced by the more costly GPS monitors. Requiring small operators to go high tech would impose no cost on the already equipped larger firms.
The initial Baptist role in this story is played by Jackie Gillan, president of Advocates for Highway and Auto Safety, which is described on its website as “an alliance of consumer, health and safety groups and insurance companies and agents working together to make America’s roads safer.”4 Tired truckers, Gillan argued, “are a major, major safety problem. Paper log books are easily manipulated. They are easily falsified” (Greenfieldboyce 2011). Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, an organization with about 150,000 members—many of whom own just one truck—thought otherwise. Spencer didn’t buy the argument that GPS devices would detect tired drivers or catch cheaters: “The only thing that it will automatically record,” he argued, “is when a truck is moving.”
What about the Bootlegger element? The American Trucking Association, which represents thousands of trucking companies, supported the Department of Transportation proposal, but not all of the group’s members were strongly committed to the effort. As usual, there were differential effects across industry members. Thus, five of the largest trucking companies formed a new lobbying group with a conspicuously Baptist name: the Alliance for Driver Safety and Security. The alliance supported the rule, perhaps expecting to raise rivals’ costs.
An official with alliance member Schneider National praised the GPS plan as an effort to “elevate the expectations and the performance of all motor carriers” (Peter Klein 2011). The spokesperson for the independent owner-operator drivers’ group took a more jaundiced view: “When they talk about leveling the playing field, what they are really saying is we need to get behind efforts that will increase costs of our competitors. We don’t find that to be an especially noble effort.”
One final intermediary type of scenario is worth considering. Instead of forming their own Baptist groups or merely funding Baptist efforts already under way, Bootleggers may seek to influence the positions or priorities of existing Baptist groups to ensure they align with the Bootleggers’ interests. An example of this approach is seen in the debate over a controversial new technology called fracturing—more popularly known as “fracking”—that uses hydraulic pressure to access natural gas deeply embedded in shale. Old gas fields in Ohio, Pennsylvania, and elsewhere have become highly productive thanks to fracking. But the technique has also spurred environmentalist concerns about the potential for earthquakes, damage to water supplies, and harm from the disposal of chemicals used in the fracking process.
However, environmentalists also have reasons to welcome fracking: expanded natural gas production could help enable coal-fired electric utilities to switch to the cleaner fuel. The Sierra Club is the leading environmental group dedicated to ridding the United States, if not the world, of high-carbon-emitting fuels—and coal, in its view, is the chief culprit. Natural gas producers are rather keen on this idea, because it favors their product over coal.
Now, enter the Bootlegger. Chesapeake Corporation is one of the nation’s most innovative and successful natural gas producers. It, too, would like to see coal displaced by gas. Chesapeake made a $26 million donation to the Sierra Club to help fund an attack on coal directed to the EPA, with Sierra leading the charge (Martosko 2012). As it turned out, Sierra Club and other like-minded groups were successful. Citing the harmful effects of carbon emissions, the EPA issued final rules that, when implemented, will shut down or force fuel switching for 20 percent of America’s coal-fired power generation. To the chagrin of environmentalists, President Obama postponed implementation of the rules.
But the story doesn’t end there. Perhaps sensing growing concern among environmentalists about natural gas fracking, the Sierra Club shifted its stance—but only after receiving the Chesapeake payment. The organization disavowed support for natural gas but chose not to return the $26 million. One need not be an incorrigible cynic to wonder whether the group might have altered its view on the perils of fracking earlier had it not been for the promise of those Chesapeake funds.
Meanwhile, natural gas producers may have gotten what they wanted: a regulation that raises rivals’ costs. Sierra Club got what it wanted as well: $26 million in funds. At first blush, the whole thing sounds like a case of gains from trade, but it is far from clear that society gains. Instead, vast resources have been devoted to restricting output and padding the pockets of a handful of businesses and advocacy groups.
Coordinated Strategy
The fourth and final category of Bootlegger/Baptist interactions involves political actors—often presidents—taking the initiative to yoke together interest groups and regulators in pursuit of national political goals. As a first example of this sort of activity, we turn to the recent financial crisis.
The 2008 credit-market meltdown brought with it the collapse and taxpayer bailout of Fannie Mae and Freddie Mac; the nation’s gigantic quasi-public mortgage refinance units suddenly became fully owned by American taxpayers (Wallison 2008). For years, the two agencies formed a backstop for private mortgage lenders who made loans and sold them to the two agencies. The agencies in turn securitized the mortgages with their own bonds, which were sold in global credit markets.
In 1995, a new interest group emerged, dedicated to expanding government efforts to help Americans purchase homes: the NHS, which we mentioned in our last section as an example of a Baptist group created by Bootleggers. The 56 NHS members included the American Bankers Association, the Appraisal Institute, Fannie Mae, the Federal Home Loan Bank System, Freddie Mac, the Mortgage Bankers Association of America, the Mortgage Insurance Companies of America, the National Association of Home Builders, the National Association of Real Estate Brokers, the National Foundation of Consumer Credit, the National Urban League, and the U.S. Department of Housing and Urban Development (HUD) (Affordable Mortgage Depression 2010).
As should be evident, the alliance contained an impressive list of dominant private-sector and public-sector Bootleggers. The NHS coalition was not a winning one, however, because it had no true Baptists. But this oversight was addressed as quickly as one could say “homeownership.” Led by sitting presidents, the housing coalition was soon supported by an array of public interest groups who followed a decades-old, if not centuries-old, tradition of promoting American homeownership.
With strong private-sector support, President William J. Clinton called on Freddie Mac and Fannie Mae to reduce their lending standards and greatly expand mortgage lending for families, even if the families lacked the funds for a down payment or the income to support homeownership on normal terms. In announcing the new strategy, President Clinton (1995) invoked a national commitment to the American Dream:
One of the great successes of the United States in this century has been the partnership forged by the National Government and the private sector to steadily expand the dream of home ownership to all Americans. In 1934, President Roosevelt created the Federal Housing Administration and made home ownership available to millions of Americans who couldn’t afford it before that.
Mr. Clinton then noted how prospects for achieving the dream had dimmed and pledged to brighten the light of government-assisted homeownership in America. The Baptist foundation for expanding home construction and ownership was easily laid and implemented.
After taking office in 2001, President George W. Bush blessed the idea that every American should have a home, whether or not the dream could be paid for, by signing the 2003 American Dream Downpayment Act. The new legislation provided up to $10,000 in direct government down-payment funding for low-income Americans (HUD 2003). Full of good cheer, the president, like his Democratic predecessor, offered a Baptist-flavored comment: “Today we are taking action to bring many thousands of Americans closer to the great goal of owning a home. . . . These funds will help American families achieve their goals, strengthen our communities, and our entire nation” (HUD 2003).
Alas, it was not to be. In 2008, as the subprime mortgage collapse loomed, CBS News reported:
For decades, Fannie and Freddie fulfilled the American dream. . . . Consumers took out loans from banks, which in turn sell those loans to Fannie or Freddie. Then the mortgage giants repackaged those loans and sold them to investors, guaranteeing the mortgages would be repaid.
As home ownership grew universal, Fannie and Freddie prospered. Their CEOs, Daniel Mudd and Roger Syron together earned around $30 million dollars in 2007. (CBS/AP 2009)
A few months before the Fannie/Freddie takeover, a Washington Post story described the situation this way:
Today, 3 million to 4 million families are expected to lose their homes to foreclosure because they cannot afford their high-interest subprime loans. Lower-income and minority home buyers—those who were supposed to benefit from HUD’s actions—are falling into default at a rate at least three times that of other borrowers. (Leonnig 2008)
The picture was not pretty. The article explained that even as regulators warned that “subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development (HUD) helped fuel more of that risky lending” (Leonnig 2008).
HUD, Fannie, and Freddie were key players in the 56-member strong NHS group that included mortgage lenders, real estate developers and agents, bond-rating agencies, and the politicians who could speak glowingly about helping low-income people achieve the American dream (Yandle 2010a). By 2011, the bailout total for Fannie and Freddie was $259 billion (D. Wagner 2011). The presence of Fannie and Freddie, two government-sponsored enterprises, in a national-scale, presidentially coordinated Bootlegger/Baptist coalition is this story’s distinguishing feature. The two housing finance agencies were the twin treads of a homeownership juggernaut driven by a supercharged engine. There was just no stopping the housing finance cartel from pumping out below-par debt until world markets finally said “enough.”
Another example of government-coordinated coalition building occurred in 2009, when the Obama administration unveiled new fuel-economy and carbon emission standards for the U.S. auto fleet (Yandle 2009). The regulation made clear that the federal government, rather than the states, would set fuel-economy standards. State governments, which were actively pursuing tighter regulations at the time, were to be shoved to the side. Going further, the announcement said the new rules would be based on vehicle characteristics such as weight and size, rather than following a one-size-fits-all approach, as had been proposed previously. This more nuanced approach delivered a valuable differential effect: producers of larger cars were given a significant break relative to their South Korean and Japanese competitors that specialize in producing smaller, more fuel-efficient vehicles.
The group assembled in the White House Rose Garden for the fuel-economy regulation announcement comprised the largest visible collection of Bootleggers and Baptists in recent regulatory history, and this gathering is the distinguishing feature of the story. In a way, the episode marked the beginning of a new age of integrated Bootlegger/Baptist interaction, as the White House recognized explicitly.
As President Obama’s press secretary put it in advance of the occasion, “You will see people that normally are at odds with each other in agreement with each other” (Yandle 2009, 6). In the garden that day were executives from Ford, General Motors, Chrysler, Toyota, BMW, Mercedes, Honda, Nissan, and Mazda. They were joined by United Auto Workers president Ron Gettelfinger and leaders of the League of Conservation Voters, the Natural Resources Defense Council, the Sierra Club, the Environmental Defense Fund, and the Union of Concerned Scientists (Hughes and Chipman 2009). As in other Bootlegger/Baptist episodes, the Baptist component sang the praises of Mr. Obama’s environmental foresight.
The cheerful automakers saw the national rules as an honorable escape from more nettlesome state regulations brewing in California and elsewhere. The Bootleggers—even the Asian producers who were somewhat disadvantaged by the rule—wanted one national rule, not multiple state rules. As GM CEO Fritz Henderson put it, “GM is fully committed to this new approach. GM and the auto industry benefit by having more consistency and certainty to guide our product plans.” Ann Mesnikoff, director of the Green Transportation Campaign at the Sierra Club, said, “The Obama administration is making automobiles go farther on a gallon of gas” (Hughes and Chipman 2010). In 2011, 13 major auto producers signed letters of commitment with the government to meet a fleet fuel-economy standard of 54.5 miles per gallon in 2025, up significantly from the 2012 standard of 24.1 miles per gallon (Zacks Equity Research 2012). The fuel-economy standards also embedded carbon emission limitations.
With the new federal rules in place, the auto industry had accomplished something it could not have achieved without the endorsement of environmentalists. The industry escaped a quiltlike pattern of state regulations, effectively pouring regulatory concrete around a long-term, foundational structure for future regulation. Because the rules set differential standards for cars vs. light trucks, dominant producers of light trucks—namely Chrysler, Ford, and GM—gained a potential advantage over Asian competitors. And domestic producers gained a slight fuel-economy edge over producers for the U.S. import market.
There were winners and losers, but on the whole, the Bootleggers did well. What about the Baptists? With significantly tighter fuel efficiency and carbon emission standards imposed on the entire industry, environmentalists accomplished more than they could have without the support of the auto industry. The new fuel-economy cartel is monitored and managed jointly by the EPA, the Department of Transportation, and the Department of Energy. With so many powerful agencies at the forefront of the process, it is little wonder that the auto industry saw the wisdom of joining the choir rather than trying to fight it.
Subsequent developments in energy markets paved the way for additional Bootlegger/Baptist activity. In 2012, natural gas (obtained in part through the new technologies described earlier) became so plentiful, and gas was flowing at such a pace, that storage locations were exhausted. Energy prices were falling. Electric utilities were switching from coal to gas, and major trucking companies were converting engines from diesel to natural gas. The rapid change in relative prices created disturbances across the oil and coal sectors, and the rapidly falling price of natural gas brought increased uncertainty to that industry’s future prospects.
The situation was ripe for coordinated Bootlegger/Baptist interaction. On April 13, 2012, President Obama issued an executive order that demonstrated his expertise in extending an altar call to suffering industry leaders (White House 2012a). Following the blueprint for his highly visible fuel-economy cartel, the president appointed a multiagency task force that would coordinate clean production and distribution of natural gas.
Members of the task force included every federal agency that had anything to do with regulating, subsidizing, pricing, and planning energy production and use in the U.S. economy. Key trade associations were sent the draft executive order prior to its becoming final, along with a request for letters of endorsement. When industry groups responded to the invitation, offering glowing support for the president’s foresight, their letters were publicized by the White House (White House 2012b). In effect, President Obama cartelized the government regulatory agencies by way of the task force, then he used this as leverage to cartelize the energy sector. The episode’s truly interesting feature is the formation of a cartel within a cartel.
What does this have to do with Bootlegger/Baptist interaction? The environmental community forms the Baptist component. Highly critical of the new fracking technology that had dramatically increased natural gas production—and even more critical of coal—environmental organizations stood at the forefront of those supporting the president’s effort. The American Petroleum Institute, the American Gas Association, the American Natural Gas Alliance, the American Chemistry Council, Dow Chemical Company, Marcellus Shale Association, and the National Association of Manufacturers each came forward with letters of support. And for understandable reasons. In a world full of federal regulation and price uncertainty, each organization had a lot at stake.
The president artfully circled the wagons. By bringing all the regulators to the table, he reduced infighting and the tendency of each agency to take its own bite from the apple. And by bringing all major energy producers to the table with supporting letters in hand, the president reduced the likelihood that the resulting regulatory cartel would fall apart. The results of this effort remain to be seen, but it seems a safe bet that pork will be divided up across sectors and interest groups, as the combined regulators create industry-wide rules that raise prices and reduce output.
Final Thoughts
This chapter laid out the basic theory of Bootleggers and Baptists, giving examples of four modes of interaction between them, and described the regulatory context from which our model emerged. Our examples have been drawn from as far back as the 13th century up to recent days. The operational content of the theory applies equally in the oldest and most recent episodes.
We have highlighted the extraordinary 1970–80 regulatory period, when the new social regulatory agencies were first emerging, along with thousands of new pages of rules focusing on the environment, safety, and health. The explosion of social regulations set the stage for Bootleggers and Baptists to converge in the regulatory process. The goals of social regulation were, more often than not, the goals of interest groups that included civic and religious organizations along with the newly emerging environmental and consumer groups. In many cases, the regulatory fine print sought by environmental and other public interest groups turned out to be precisely what major firms and industries wanted as well. The resulting rules often brought output restrictions, higher costs for smaller firms than for larger ones, and higher profits for firms well adapted to the new regulatory environment—even while often delivering the goods desired by the Baptists.
As we prepare to turn to the next chapter, which examines where Bootlegger/Baptist theory rests in the broader, evolving body of regulatory theory, we return to the previously mentioned executive order by the Obama administration, which we believe adds new vigor to Bootlegger/Baptist activity.
On January 18, 2011, President Obama issued an Executive Order for Improving Regulation and Regulatory Review, which affirmed the principles of the 1993 order specifying how executive branch agencies would manage development, review, and implementation of regulations (White House 2011). Broadly speaking, Mr. Obama’s order represents the next stage in the evolution of White House regulatory review processes that date back to Richard Nixon.
Mr. Obama’s order directed agencies to identify old regulations for retrospective review to ensure that they were still justifiable and called for more transparency in the regulatory process, so interested parties could more easily learn what is going on as regulations develop. But the order also, for the first time, allowed agencies doing the required benefit-cost analysis to consider effects far beyond the usual economic considerations.
The order states, “Where appropriate and permitted by law, each agency may consider (and discuss qualitatively) values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts” (White House 2011). With equity, dignity, fairness, and distributive impacts now part of the official regulatory lexicon, groups organized around a higher moral purpose should become even more valuable allies for Bootleggers who just want an easier ride to the bank. And with presidents showing new savvy in assembling interest groups for the purpose of forming regulatory cartels, we may expect still wider smiles and louder hallelujahs on the lips of Bootleggers and Baptists.
