EKIP– Expert Club for Economics and Politics A Different Opinion
Waiting for Godot is a popular play by Samuel Beckett in which nothing happens. Two tramps wait for a certain Godot who never comes. Waiting for someone and/or something that never comes is an apt metaphor for the relationship between rulers and society. Politicians and bureaucrats are relied upon to devise and enforce rules that will improve the lives of others. In the spirit of the play, such a scenario is out of the question.
Is Beckett right? The answer is sought in the Bulgarian economic past after 1878, which has been deciphered with the theoretical tools of economic science. Theory is the microscope with which history is subjected to meticulous dissection.
Pessimistic economic theory
Since the second half of the 20th century, the achievements of economic science have been applied to the analysis of phenomena, processes and events formally outside the economy: politics, constitutional order, the functioning of the administration, religion, family, crime, etc. The penetration of the economy into unfamiliar areas is called economic imperialism. Its fruit is the hypothesis of the so-called "regulatory captivity", which will have the functions of a microscope.
Among its most influential authors is George Stigler (1911-1991). In 1971, he published the article “Theory of Economic Regulation”. In it, he starts from the premise that the state can be a source of resources, but also a threat to any industry. The main thesis of the publication is that, as a rule, regulations are acquired after the request of certain industries. The content of the regulations and their application is in favor of the sectors that insisted on their introduction. Stigler does not deny that there are regulations that are detrimental to specific economic sectors. Examples of this nature are rather an exception to the general rule.
Four ways in which the government supports a firm or group of firms are identified: direct cash subsidies, restrictions on the entry of new firms into a given sector, restrictions or bans on the production of similar products (butter producers seek to restrict margarine producers), and state price fixing. Special privileges of this kind benefit a relatively small group at the expense of the entire community. In a democratic regime, individuals and/or companies that receive resources repay the “donors” with their votes during elections or some similar form (for example, hiring party activists). The article abounds with important nuances and features of the intertwining of interests between business and the political elite. It is the basis of the analytical model.
It is based on the view that people in power structures, like everyone else, are driven by personal motives: to be re-elected, to increase their wealth, etc. This leads to regulatory captivity, in which a government structure created to control a business for the public good becomes dependent on those it is called upon to control. The process is two-way: there are situations when the controlled impose their will on the controllers, and sometimes the controllers “capture” the controlled and derive benefits.
Why and how do Bulgarian power structures fall into regulatory captivity?
Bulgarian governance structures after the Liberation in 1878 are susceptible to regulatory captivity because the people in them are driven by their interests. The diagnostics of the Bulgarian case also shows some national peculiarities.
First of all, there are the characteristics of economic development. The late emergence of capitalism, the lack of free capital, competition from more productive foreign companies, limited knowledge of international markets, underdeveloped infrastructure, etc. impose the state as the engine of economic progress. Many Bulgarians of that time saw that this engine was bad, but they could not find another. Declining crafts, emerging industrial production, agricultural producers, and merchants turned to parliament, government, and local authorities with requests for protection and encouragement. In 1892, an Agricultural and Industrial Assembly was convened in Plovdiv. There, representatives of Bulgarian business formulated a program for tax breaks, granting export bonuses and cash rewards, adopting a law to encourage industry, legally obliging soldiers and officials to wear locally produced clothing, etc. The intensive search for regulations led to the corresponding supply. Managers develop regulatory documents to please larger or smaller professional communities.
There are specific features related to specific practices. Careful observers record indicative examples. Simeon Radev writes that the Minister of Trade and Agriculture Nikola Genadiev (1904-1908) became the initiator of social legislation in Bulgaria. With it, state control bodies were created. Trifon Kunev, who was “considered the laziest man in the world,” was appointed labor inspector. Laziness and lack of competence are characteristics of civil servants, also noted by other authors. The writer Todor Vlaykov noted in 1920 that the people’s leaders in Bulgaria are often unprepared and “lacking elementary integrity.” The combination of laziness, poor preparation, and dishonesty makes them easily susceptible to pressure from interested companies and individuals.
Thus arises the primordial broth, which is a nutrient medium for regulatory captivity.
Microcosms of regulatory captivity
In Bulgarian practice, regulatory captivity is two-way: those who control "capture" those who are controlled and vice versa.
The first option involves classic corruption practices. Two examples illustrate the theory. In 1925, the Minister of War, Gen. Ivan Valkov, announced a tender for the supply of 100 light machine guns. Through intermediaries, he tried to attract more companies to participate in the tender. He promised that the first small delivery would be followed by more significant orders. More candidates meant that the competition would be more contested. It follows that the person responsible for the selection was in a position to profit more easily. The tender involved the English company Vickers, the Danish Madsen and a German company. After many twists and turns, the Danes were awarded the contract. They offered machine guns of poor quality and at a price higher than that of their competitors. The German machine guns had a unit price of 60,000 leva, while the Danish ones cost 87,000 leva. The minister personally participated in the shootings with the "Madsen" and "convinced" his fellow officers of the advantages of the Danish products. The unusual role of an advertising agent played by General Valkov and the high price paid by taxpayers contributed to the enrichment of the senior civil servant. Lower positions in the administration also provided an opportunity to extract profits from consumers. In 1933, the "Medical Gazette" noted that the heads of departments in state hospitals forced patients to go through their private offices for an examination in advance. The regulation is not part of a normative document. It exists in the form of unwritten self-regulation in the twilight zone between the state (hospitals) and the private (patients).
In the second variant of regulatory captivity, the public harm and the benefits for rulers, companies and individuals are less visible. Again, we will resort to two illustrative examples. Since the beginning of the 20th century, numerous credit cooperatives have appeared in Bulgaria. Their goal is to provide cheap credit to the poor agricultural population. Since they do not have their own savings, they systematically insist on access to state finances. And they receive them from various politicians. This is done with the help of the state-owned Bulgarian Agricultural Bank (since 1934, Bulgarian Agricultural and Cooperative Bank - BZKB). The politicians, in turn, receive support from the otherwise poor Bulgarian farmer. A report to the administrator of BZKB from July 1943 reveals the presence of many cooperatives that are unable to service loans received from the bank. The reason, according to the author of the document, is the fact that they "do not have sufficient own funds". A large number of cooperatives accumulate losses, but continue to receive loans from the bank. Through credit cooperatives, their members found easy access to public resources. The Bulgarian Agricultural Bank (later BZKB) was established as a regulatory body to promote agriculture. It fell into the hands of the cooperatives, which used its funds for their own benefit. The Metropolitan Commissariat for Food also fell into regulatory captivity. In 1936, its chairman met with producers of artificial ice in Sofia. The latter stated that they were ready to sell ice at prices fixed by the commissariat if the sale of natural ice was banned. The desire to hit competitors was justified by the claim that their product was unhygienic. The Commissioner accordingly filed a lawsuit with the mayor of Sofia to ban the sale of natural ice.
Back to the question: is Beckett right?
Regulatory captivity is a marriage of convenience between politics and business. It is a natural result of the interests of both parties. Economic theory and history seem to confirm Beckett's pessimism: expecting social benefits from politicians and bureaucrats is like waiting for Godot, who never comes.
Economists who have studied regulatory captivity since Stigler have shown, however, that it is sometimes possible for government to act in the public interest. Aspects of the past are also invoked as arguments to support such a claim. No one knows what lies ahead, and this allows hope to creep in timidly at the end of the exposition. History influences but does not predict the future, and the waiting for Godot continues.
