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