Bootleggers, Baptists, and Employer Mandates

Politicians wishing to remain in office face two conflicting pressures. On the one hand, they need to secure contributions to fund their campaigns. This gives them the incentive to grant favors to interest groups, while ignoring the effect on the rest of us. One the other hand, they need to maintain the support of voters. This gives them the incentive not to do anything the median voter doesn’t like. This latter constraint doesn’t mean that policy will be good, only that it will be popular.

Sometimes, though, these two pressures pull politicians in the same direction. Some policies are popular with voters and enrich interest groups at the same time. When a potential policy has both a direct financial payoff to someone willing to reward helpful legislators and subsidize legislative effort, as well as some moral justification voters find compelling, it is much more likely to be enacted.

This is the central insight of Bruce Yandle’s wonderful 1983 paper Bootleggers and Baptists: The Education of a Regulatory Economist (See also: Wikipedia page, EconTalk podcast). Yandle argues that the dual demands of financial profitability and moral palatability often lead to unholy alliances of moralizers and self-interested lobbyists:

Indeed, the pages of history are full of episodes best explained by a theory of regulation I call “bootleggers and Baptists.” Bootleggers, you will remember, support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer. Of course, this theory is not new. In a democratic society, economic forces will always play through the political mechanism in ways determined by the voting mechanism employed. Politicians need resources in order to get elected. Selected members of the public can gain resources through the political process, and highly organized groups can do that quite handily. The most successful ventures of this sort occur where there is an overarching public concern to be addressed (like the problem of alcohol) whose ”solution” allows resources to be distributed from the public purse to particular groups or from one group to another (as from bartenders to bootleggers).

This theory helps us make sense of much of the bad policy we see today – trade protectionism, tobacco regulation, biofuel subsidies, and professional licensure, to name but a few. A recent letter jointly signed by Wal-Mart, the Center for American Progress, and the Service Employers International Union, though, is quite simply the most blatant Bootlegger and Baptist coalition I’ve ever seen. This motley crew have come together to lobby for employer health insurance mandates:

As the nation’s largest priate employer, the nation’s largest union of health care workers with over one million members, and a think tank that has been a leader on health care policy, we have worked closely in support of health care reform since 2006, when we came together to help break the stalemate that had defined the health care debate for too long. Now, to move the debate forward once again, we are coming together to advance what we believe are important proposals that should be included in the current efforts to reform our nation’s health care system. (…)

We believe payment reform and efficiency initiatives need to be at the center of healthcare reform. The President and the Congress have put forward good ideas to improve the productivity of our health care sector. These policies need to be strengthened and adopted because health care reform without controlling costs is no reform at all.

We are for shared responsibility. Not every business can make the same contribution, but everyone must make some contribution. We are for an employer mandate which is fair and broad in its coverage, but any alternative to an employer mandate should not create barriers to hiring entry level employees. We look forward to working with the Administration and Congress to develop a requirement that is both sensible and equitable.

It’s fairly obvious why a progressive think tank and a union would support legislation requiring businesses to provide health insurance coverage to all employees. The statist left see the uninsured as a problem and, as with any problem, they see government as the solution. Mandates would also materially benefit union-members by artificially inflating the benefits received by current employees. In the short run, this increases the wellbeing of employed workers while increasing the cost of hiring new workers – harming jobseekers.

The benefit Wal-Mart gets from employer mandates is less obvious. After all, this sort of regulation increases its costs of doing business. Wal-Mart is aware that employer mandates will not affect all businesses equally, though, and that small employers will be hit especially hard. Many small Mom-and-Pop businesses simply don’t have the resources to implement employee insurance plans, and will be forced out of business.

Firms larger than a corner store but smaller than Wal-Mart might be able to stay in business, but their compliance costs will be relatively greater than those faced by Wal-Mart. A requirement of employer-provided insurance will hurt Wal-Mart, but not as much as it hurts Wal-Mart’s competitors. By driving some small firms out of business and imposing severe costs on others, Wal-Mart will enjoy reduced competition. In all likelihood, the benefits Wal-Mart gets from increasing its market power will far outweigh compliance costs.

Do-gooder lefties, unions, and big business have come together to support legislation which ostensibly addresses a salient problem, and secures rents for well-organized interest groups. Wal-Mart as the bootlegger brings financial resources. CAP as the Baptist brings street-cred. The union brings a bit of both. Unfortunately, employer mandates will do great harm to small business, the unemployed, those in unstable jobs, and consumers.

We should be very afraid.