Scott Rasmussen: GE and America’s corporate bootleggers

Scott Rasmussen

Scott Rasmussen

I recently highlighted an important book that describes how politics really works. “Bootleggers and Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics,” by Adam Smith and Bruce Yandle, showed that prohibition became reality because it appeared to satisfy both Baptists and Bootleggers.

The Baptists wanted people to stop drinking. The Bootleggers financed the campaign because the ban on legal alcohol put money in their pockets.

While prohibition was a unique episode, the unholy alignment of interests that made it happen has sadly become the norm for our federal government. A recent silly example makes the point.

During the Bush administration, laws were passed that effectively banned incandescent light bulbs. In their place, we were required to buy halogen light bulbs that are more costly but allegedly more energy efficient. Advocates of the plan believed it would save consumers money over the long run.

Common sense dictates that if the new bulbs really did save money over the long run, consumers would eventually figure that out and buy the halogen bulbs on their own. Some advocates dismissed this by implying that consumers were too stupid to understand. Others believed that energy efficiency was such an important goal that our nation couldn’t wait until consumers figured it out on their own.

Had the debate taken place on equal footing, the ruckus from unhappy consumers would have blocked any mandate and saved the traditional light bulb. But the true believers in the need for energy efficiency provided an opening for bootleggers to turn a profit. General Electric, Phillips and Osram Sylvania all lobbied to ban traditional light bulbs because they could make money with the newer light bulbs.

As Smith and Yandle note in their book, “the good intentions of the many often unexpectedly pave the way for the private interests of the few.”

One especially troubling aspect in all of this is the common belief big corporations hate regulations. That’s generally true for companies focused on serving their customers. But far too many corporations have found it easier to make money by lobbying for favors rather than serving customers. Bootlegger corporations actually invite self-serving regulations while claiming that they don’t want to be thrown into the briar patch.

In the case of the great light bulb caper, GE and other light bulb producers could easily have introduced the new light bulbs without government assistance. They could have made their case to consumers that the new bulbs really were better. But doing so without regulatory protection carried risks. On one level, maybe consumers would never buy the new bulbs. Or, just as likely, some plucky new firm might develop a better version of the Halogen bulb and offer it to consumers for less. The last thing big companies want is innovative new businesses cutting in on their turf.

Rather than following the all-American route of competing in the free market, the giant light bulb corporations took the low road instead. They used the zeal of those who wanted more energy efficiency to improve the corporate bottom line.

This, unfortunately, is all too common in America today. And it’s something we need to fix if our nation is to have the bright future our children deserve.

Next week, I’ll have some thoughts on why I’m optimistic that the influence of bootlegger corporations can be reduced.


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