Wednesday, 10 October 2012

Is Justin King a Bootlegger or a Baptist?

 The FT and Times report that Justin King, CEO of Sainsbury's, one of the largest UK retailers, has attacked George Osborne’s plans whereby new staff in small business can surrender their employment rights in exchange for shares.  He’s quoted as saying that this plan will reduce trust in business and that regulation should be maintained (he supports payroll tax cuts instead).

Is he a Bootlegger or a Baptist?

My students here at Imperial will know the story, set out by Bruce Yandle and discussed a lot on EconTalk.   The Baptist, acting through high-minded morals, wants to ban sales of alcohol on Sunday.  Politicians support him.  The Bootleggers realize that if liquor stores are closed on Sunday they can sell under the table.  So they support the policy as well.  Thus a coalition of unlikely bedfellows. 

Yandle has a nice example: The Northern Spotted Owl case.  Here, logging was banned in the Pacific Northwest of the US if there was evidence of the presence of Owls, in an attempt to protect their habitat.  This policy was promoted and supported by Nature campaigners.  Interestingly, it was also support by lumber companies.  But crucially, by lumber companies outside the conservation area.   Indeed, these companies even sent in ornithologists to try to spot Owls, but only in the Pacific Northwest areas owned by their rivals.   As a consequence, rival lumber supply fell and the price of lumber rose substantially.

Justin King talks in high minded terms.  But the Osborne proposal is for small firms.  An uncomfortable truth is that large firms typically rather like regulation: they can deal with it, whereas the burden falls on smaller firms.  That burden in turn stops entry and so blunts the threat to large firms.  So there’s a good bootlegger reason for his support. 

Fortunately for him, any organization who supports the Paralympics, before they were trendy, gets a big tick in my book.  So I’m going to call him a Baptist.  But it’s a powerful and insightful metaphor.