Large businesses and regulatory agencies often portray regulations on a moral ground. Truth is, more regulations often protect their advantages and give them more power.
A number of months ago, Florida Gulf Coast University's Regional Economics Research Institute published the findings of its local survey concerning barriers to business growth in Southwest Florida. Among small businesses, the major barriers to growth were identified as: finding qualified employees, financing, government regulation, increasing health and insurance costs and taxes.
Large businesses cited all of the same reasons, with the odd exception of taxes.
As I pondered the two lists, the voice of Professor Bruce Yandle called out to me (metaphorically, of course!). It is unlikely that many of you know Professor Yandle, so let me briefly introduce you. On top of being as gracious and as kind of a person as you could meet, Professor Yandle is also an insightful political economist. He retired as dean of the College of Business and Behavioral Science at Clemson University, but he started his career in business, so he brings a unique perspective that many pure academics are missing.
Yandle coined the term “Baptists and bootleggers” to explain why we often observe strange bedfellows in the field of politics. In the case of government regulatory and tax policy, he argued that a moral cloak might be used to mask true intent.
For instance, bootleggers oddly embraced the anti-alcohol “blue laws” of the Southern Baptists, which forbid the selling of alcohol on Sundays. How might we explain such an odd arrangement?
Bootlegger support for the Southern Baptist “blue laws” was clearly not because the bootleggers were against drinking alcohol. It occurred because bootleggers understood that restricting the supply of alcohol would solidify their ongoing business and simultaneously raise the price of distilled spirits.
By aligning with the Baptists and supporting the moral cause against “demon rum,” bootleggers gained political cover for their true intentions. There is, after all, nothing quite as unsavory — or politically unacceptable — as appealing to raw, direct, political self-interest.
The “Baptists and bootleggers” model predicts that larger companies might actually view the regulatory state opportunistically. Larger companies may be more adept at using the state to influence tax and regulatory policies, to construct or maintain barriers to entry, or even to gain direct subsidies.
For small businesses, the costs of handling government mandates can be costly and cumbersome. They simply don't have the resources to deal with all of the bureaucratic permissions, dictates, rules, orders and forms. Perhaps, larger firms can treat the regulatory and taxation burdens of the state as simply one more “cost of doing business.”
The political entrepreneurship behind the “Baptists and bootleggers” story is important to keep in mind because tax and regulatory policies almost always embody some moral reason. The policies of government are often framed as ones that level the playing field, protect the environment or make the world safer (or fairer.) In short, they address popular, and often laudable, goals. What Professor Yandle pointed out was that perhaps, just perhaps, there may be more than meets the eye.
And it's not just about using the regulatory system being used by those being regulated. It can be about the regulatory system itself. The ongoing uproar about “net neutrality” is a good example of the thicket with which interests can surround us.
The Federal Communications Commission sits perfectly in the “Baptist” seat as a regulatory agency. Simultaneously, however, regulatory agencies have an interest in expanding their power and influence. The FCC may act opportunistically by using its impeccable “Baptist” credentials to expand its “bootlegger” interests. For instance, when Congress forbade the FCC from regulating the Internet, the FCC simply had its legal staff reclassify the Internet to bring it under its purview.
There is little evidence that an Internet marked by tidal waves of innovation without FCC regulation can continue to innovate at such levels under the “uninterested” guidance of the FCC. If we have a system that encourages political entrepreneurship over private-enterprise, free market entrepreneurship, we will get a larger, more burdensome, more redistributive and, perhaps, even more corruptible, state.
So the next time that wave of righteous indignation washes over me, I'll at least stop to think that perhaps, just perhaps, all may not be what it seems.
Professor Brad Hobbs serves as the BB&T Distinguished Professor of Free Enterprise at Florida Gulf Coast University in Fort Myers. He regularly teaches an odd course for academe entitled “The Moral Foundation for Capitalism.”