Max Borders‘ latest Ideas Matter update features an entry that highlights the problem of regulators who end up “captured” by the interests they regulate.
It’s troubling, but most people don’t realize regulation is a big corporation’s best friend. Those who rail against corporations so often support said regulation because they think it will reign in corporate excesses. But regulatory capture is an almost unstoppable force, because it allows economic interests to align with moralistic interests. The inimitable Bruce Yandle calls these coalitions “Bootleggers and Baptists”.
He writes:
“Here is the essence of the theory: Durable social regulation evolves when it is demanded by both of two distinctly different groups. “Baptists” point to the moral high ground and give vital and vocal endorsement of laudable public benefits promised by a desired regulation. Baptists flourish when their moral message forms a visible foundation for political action. “Bootleggers” are much less visible but no less vital. Bootleggers, who expect to profit from the very regulatory restrictions desired by Baptists, grease the political machinery with some of their expected proceeds. They are simply in it for the money.”
So why do the big boys love regulation so much? They can afford compliance costs. New competitors cannot. Regulation keeps a boot in the neck of would-be competitors. The result is a defacto cartel created by the regulations. This cartel gets all the rents (undue profits), because upstarts are kept out.
Borders also highlights the video below.
