“…every businessman is in favor of freedom for everybody else, but when it comes to himself that’s a different question. He’s always the special case. He ought to get special privileges from the government, a tariff, this, that, and the other thing…”
— Milton Friedman
With all the talk about global warming, environmentalists have been pushing for stronger regulations on fuel economy. Following the Supreme Court’s decision recently that the Environmental Protection Agency has the right to regulate emissions, the New York Times reported that the carmakers in Detroit were eager to help. This newfound cooperation from the automakers came as a surprise to many observers. However, those familiar with the theory of the “Bootleggers and Baptists”, this is something that has come to be expected.
Clemson University economics professor Bruce Yandle developed the “Bootleggers and Baptists” theory based on a common thread found in regulatory restrictions. According to Yandle, “durable social regulation evolves when it is demand by both of two distinctly different groups.” The first group, the paternalistic Baptists, is one that supports regulation on moral grounds and its name is derived from those who actively promoted prohibition. The second group, the rent-seeking Bootleggers, is one that stands to profit from the regulation. Often times, the Bootleggers stand in the background while benefiting from the new restrictions.
In this case, the Baptists are the environmentalists arguing that we must reduce greenhouse gas emissions to save the planet from the perceived threat of global warming. The Bootleggers are the automakers that, for years, have profited from environmental regulation. The only surprise is that this time, they have come to the foreground.
Automakers have long been the benefactors of environmental regulation. On the surface, the companies speak out on the behalf of the consumer, rightly pointing out the price increases that regulatory restrictions create. However, the automakers have worked with environmentalists toward compromise to secure higher profitability.
In the 1970s, at the behest of environmentalists, the Environmental Protection Agency began regulating motor vehicle exhaust systems. The EPA mandated that every car must be equipped with a catalytic converter to reduce the toxicity of automobile emissions. This, quite obviously, was seen as a victory for the environmentalist. In the background, however, was a Bootlegger by the name of General Motors. The U.S. automaker also stood to benefit from this regulation because they owned the patent for this new mandated device. Meanwhile Honda, which was developing a cleaner engine, abandoned its plans after the mandate.
The fact that American automakers are coming to the table to openly discuss regulation rather than doing so in the background is likely due to the fact that high gas prices and global warming concerns have begun to wear on the minds of potential car buyers. Demonstrating a common concern with consumers may prove to be a good move with respect to the carmakers’ bottom line.
Automakers routinely seek the cheapest way to comply with the regulation – and rightfully so — attaching catalytic converters and reducing the weight of vehicles rather than developing cleaner engines. This is just one example that demonstrates the inefficiencies of regulation. Restrictions reward those who can offer a patch to the problem in the short run while ignoring the potential benefits of innovation in the long run. Unfortunately, regulation is not flexible and there tends to be large political barriers toward de-regulation.
Rather than regulatory restrictions, the promotion of technological advancement should be the goal of those who seek to reduce emissions. Nevertheless, regulatory restrictions persist as the modus operandi to the detriment of consumers. If you ever wonder why, think no further than the Bootleggers and the Baptists.