Free Bootleggers & Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics by Adam Smith

be driven to competitive levels—whether by technological innovation, changing consumer preferences, or a shift in the political winds—the organization will find itself desperate to meet its inflated costs, as we’ve seen in the case of the Postal Service. Having been reared in a regulatory hot house, the “lucky” Bootlegger discovers it cannot sustain itself with mere competitive returns.
    We find a similar dynamic at work in the surface and air transportation sectors. In both cases, regulation purposefully set up monopoly arrangements, to the benefit of owners and workers. As the regulated industries prospered, their competitiveness languished. Substitute services emerged, often based on new technologies. Some who had favored more regulation called for reform, until eventually, the regulatory structures came crashing down. The ICC, which had regulated trucking and rail transportation for decades, was eliminated in 1995. Trucking was deregulated; rail passenger transportation was nationalized. The Civil Aeronautics Board, which regulated airline pricing and service, was dissolved in 1984. Even the U.S. Postal Commission loosened its grip on the sale of stamps beyond the confines of post offices, cut hours of service, and allowed competitors such as FedEx to place receiving boxes on Post Office property. Deregulation is not complete, but the days of golden eggs for these industries are over.
    To sum up, Bootlegger/Baptist theory rests on several key public choice insights. First, each of us tends to be naive about a vast number of subjects but intensely informed about matters that have an immediate and direct bearing on our own well-being. As a result, large benefits can be provided to well-informed special interest groups (Bootleggers) through government transfers without the majority of the population being aware that anything is going on—or having much incentive to find out.
    Second, smaller Bootlegger groups have lower organizing costs than larger groups, and average gains per member are higher for smaller coalitions, given a fixed payoff. Startup costs are associated with organizing a lobbying effort. Once that initial investment is made, however, a lobbying group will be ready to go for the pork when another political opportunity surfaces.
    As politicians redistribute pork to Bootleggers, the number of organized groups expands. At the upper limit, a rational Bootlegger will be prepared to spend the expected value of a political prize in pursuit of that prize. Once obtained, political restraints on competition or other benefits can improve profits for a time. But higher profits tend to feed higher costs in Bootlegger organizations.
    The costly political machinery that provides all this must be maintained. Meanwhile producers of substitute goods and services are attracted by Bootlegger profits. With costs rising and profits falling, Bootleggers find themselves caught in a regulatory trap. The process has limits. Redistribution cannot continue indefinitely without killing the goose that laid the golden eggs or chasing off the pigs that provide the pork.
    Four Explanations for “Why So Much Regulation?”
    Having laid a public choice foundation, we now consider several accounts of why regulation flourishes and how the Bootlegger/Baptist theory explains the workings of the regulatory world. We review four theories of regulation and trace their appearance in successive editions of the Economic Report of the President spanning 1965 through 2010. We examine which theories White House officials used to explain their regulatory policies and when the various theories seemed to be important. Though the goal of theory is to describe political action, how politicians and the public understand regulation can also have an enormous impact on how political outcomes unfold. That underlies our interest in discovering when the essence of Bootlegger/Baptist theory shows up in the reports.
    Serving Everyman (and Everywoman)
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