Yesterday, I shared by introduction to Dr. Bruce Yandle’s “Bootleggers and Baptists” theory, which is aimed at trying to explain the often strange alignments of groups that support the imposition of prescriptive regulations.
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.
It is funny how some theories can capture one’s imagination; once you hear and begin to understand the theory, you begin to look for examples and often find more than you can imagine.
Aside: If you want to learn more about the “Bootleggers and Baptists” theory of regulation, I highly recommend listening to Russ Roberts’s interview titled Bruce Yandle on Bootleggers and Baptists on Econtalk.org. I listened to it during a long bike ride yesterday – it was surprisingly entertaining considering the fact that the two participants in the conversation were both PhD economists.End Aside
This morning, I opened up a link to a USA Today profile of Exelon CEO, John Rowe. Regular readers of Atomic Insights know that I do not like the man. I think he is self-centered and makes statements about nuclear energy that are damaging to the deployment of the technology. Since I am certain that our future prosperity will be vastly improved by working hard now to build new nuclear power plants, to refine the technology to build better plants in the future, and to develop a whole new cadre of smart, well-trained, dedicated workers, I believe that Rowe’s attitude is damaging to the entire country. My strong statements to that effect may end up damaging my future prospects in the nuclear industry, but I cannot let that stop me from pointing out that Rowe is not speaking for the industry when he says that new nuclear plants are too expensive, he is speaking as the CEO of a company that wants to keep out the competition.
In some ways, Rowe’s statements can be seen as a reversal of the psychology that Tom Sawyer used to get Ben Rogers to paint his fence. Sawyer did not like the work of painting the fence, so he pretended to enjoy it so that Ben Rogers would get attracted to the work and join in. Getting others involved in the hard work allowed Sawyer to sit back and watch. Rowe likes the rewards that he gets from operating a large fleet of reliable, emission-free, low-cost nuclear power plants; he has no desire to encourage competition, so he makes statements about how hard the work is and how expensive it would be to replicate his fleet.
Going back to the USA Today profile and the “Bootleggers and Baptists” theory. Rowe is often held up as a poster child of “responsible” big business by the forces that are working for a particular form of legislation that is supposedly aimed at reducing carbon dioxide emissions. That legislation currently includes a provision for “cap and trade” that sets a gradually declining cap on emissions and allows the trading of emissions permits among polluters in order to meet the cap.
The devil in the details associated with this system is that it is extremely prescriptive, with a complex set of rules defining the measures that qualify for credits that can be traded for emissions permits. It also provides a means of giving away valuable permits to the best political maneuver specialists who got their bids in early.
This situation is ripe for “bootleggers” to shape the law so that it gives them competitive advantages and even outright gifts of valuable assets from the government. The moralistic “Baptists” in this instance are those groups like the Natural Resources Defense Council and the Sierra Club which do not seem terribly concerned about the effectiveness of the rules, they seem to feel that doing “something” about preventing carbon dioxide emissions is better than not taking official, prescriptive action.
The USA Today article clearly demonstrates how this particular alliance is working and the role that John Rowe is playing it it. Rowe is even clear about stating his selfish motives – he is most definitely in this for the money. This excerpt comes right after a description of why John Rowe should be happy as a very wealthy man who has the ear of the current administration.
But ask Rowe whether Congress will pass legislation to cut carbon emissions of big polluters, such as utilities, and he says, “I’m very depressed.”
The legislation, in limbo while Congress tackles health care and financial overhauls, has been “sandbagged by partisan rancor,” Rowe says. He gives it a much slimmer chance of passing this year than he had thought.
Yet Rowe says Exelon, the company created out of a merger a decade ago, will ultimately prevail because its nuclear energy is far cleaner than coal, which provides 56% of the USA’s electricity.
The carbon legislation will come back, Rowe says, because climate change concerns won’t end. Meanwhile, the Environmental Protection Agency is preparing to regulate carbon emissions of power plants and others.
Either way, Rowe says, costs to run coal plants go up. That drives energy prices higher, benefiting Exelon, since 92% of its power comes from low carbon-emitting nuclear plants that won’t suffer the same higher costs as coal plants.
“Exelon wins sooner or later,” Rowe says. “It may just be after I retire,” at the end of 2012.
Read that last sentence again carefully. “Exelon wins. . .” I recognize that Americans have been carefully taught that winning is the only thing and that the job of a CEO is to focus on his company’s performance. My problem is that I do not like the idea of operating a business like an electrical power supplier as if it is in a game where there is a winner and a loser. That is especially true since nearly all electric power suppliers are either local monopolies or near monopolies – the only loser available in a competition where the supplier is a monopoly is the customer.
It is short sighted for an electrical power supplier to “win” at the expense of his customers. Excessive transfer of wealth from electricity customers to the supplier cannot continue; eventually the customers will leave or be forced out of business and stop buying electricity. It will be a slow process that seems profitable at the time, so it is not hard to understand why a 64 year old CEO nearing retirement might think it is a great idea. That is especially true with the personal philosophy demonstrated in the below quote:
“Rowe isn’t a Johnny-come-lately to the climate debate,” says Howard Learner, executive director of the advocacy Environmental Law & Policy Center. But neither is Rowe an activist CEO, Learner says. “John is focused on the green, namely, profitability for shareholders, as well as on the green for the environment,” Learner says.
Careful with money
On carbon emissions, Rowe fixates on the need to fix the problem now or pay more later. “The longer we put it off, the more expensive it gets,” Rowe says. While some say the U.S. needs to expand its nuclear fleet to substantially cut carbon emissions, Rowe says new nuclear plants are currently too expensive to build to compete with cheap natural gas. Instead, Exelon is addin
g capacity to existing plants.
“My dad felt about cows the way I feel about nuclear plants,” Rowe says. “They’re a business, not a passion.”
Rowe got a strong parental message about money, too: Be careful. He picked mustard weeds from fields for pennies a weed.
I understand that money message – like Rowe, I grew up in a household with parents who were strongly influenced by the Great Depression. Like Rowe, I had a mother who was a teacher and filled our house and free time with books. However, we were also endowed with a strong sense of service and encouraged to balance academic achievement with physical activity. I would never describe how my childhood affected my career choice in the following manner:
Rowe’s father wanted one of his three sons to assume his Wisconsin farm. But Rowe was clumsy and asthmatic as a child; his parents knew he was college bound, in part, because he was so bad at farm work, Rowe says.
That indicates a lot of insecurity and a desire to really make it big to prove something to a demanding father. Sorry about the amateur psychology here, but insecure people out to prove something often make very challenging colleagues and bosses. (I have worked with a lot of them over the years.)
Here is a final quote from the article that shows how the “Bootleggers and Baptists” are working together to form a set of climate change regulations that benefit a narrow set of interest groups – at the expense of all of the rest of us:
On climate change, “John’s been the single most important figure in the utility industry,” says energy expert Ralph Cavanagh of the Natural Resources Defense Council advocacy group. “He’s figured out that business interests and environmental issues are inseparable.”
I am not opposed to taking action to reduce greenhouse gas emissions and I am no longer a skeptic who wonders whether or not action is necessary or urgent. I AM opposed to the “cap and trade” concept as fundamentally flawed and ripe for corruption. I believe that a far less onerous and more effective form of action would be a performance standard that applies to all polluters. If they cannot meet the standard they should pay a predictable fee to the government that the government should immediately pay out as a dividend to the harmed parties – everyone who has a set of lungs and an equal right to life, liberty and the pursuit of happiness.
This is not a new idea but it is one that does not get all of the lobbyists and politicians excited. Here is a two year old slideshow that provides some thoughts on Tax and Dividend from Dr. James Hansen.