Why bans don’t work

bansThis month, the Brihanmumbai Municipal Corporation (BMC) has decided to suspend the sale of chicken and meat in its markets on two days (down from four days initially), during the Jain fasting period of Paryushan. Several other governments around the country have also decided to do the same.

There are has been a lot of outrage against these decisions on the social media. In Mumbai, the Maharashtra Navnirman Sena (MNS) set up a meat stall on September 10, one of the two days on which the sale was banned.

Of course MNS is a political party and was just trying to score a few brownie points with its political constituency. Nevertheless, the question that crops up here is do bans work? Take the state of Gujarat, where prohibition is in force. Does that mean that alcohol is not available in Gujarat? Anyone who has ever been to the state knows that at best it takes a couple of phone calls and a bootlegger lands up at your door with whatever you want to drink.

The consumption of alcohol is alive and kicking in the state, with the government losing out on all the money that it could have made through taxes. This money is now being made by bootleggers and the police which tends to overlook these indiscretions.

Or take the fact that in India one cannot legally bet on cricket. What has this done? It has led to the creation of a reasonably sophisticated system of betting run by illegal bookies, spread throughout the country. Every few years a betting scandal erupts, there is a lot of noise made around it, until we forget about it and move on to other things.

The way of stopping these betting scandals is to legally allow betting, as is the case through large parts of the world. The government can also make some money through taxes in the process and things don’t need to work at the underground level.

All these transactions are what economists call repugnant transactions. In economics a transaction is referred to as repugnant if “if some people want to engage in it and other people don’t want them to.”

As economist Alvin E. Roth writes in Who Gets What and Why: “Let’s consider one…domain in which repugnant transactions are common: sex. People want to have sex with each other in circumstances that society disapproves of. But when we educate people our children, pass laws, and try to control the transmission of disease, we would be foolish not to recognise that sex is a powerful force…For this reason we sometimes try to promote “safe sex” rather than abstinence.”

Along similar lines the need to eat meat, drink alcohol and gamble, may be repugnant to some, but they are also powerful forces. Certain leaders of the Jain community may not like the idea of other communities eating meat during what is a period of fasting for them. But that doesn’t mean people will stop eating meat.

Alcohol cannot be sold in the state of Gujarat because it is the state where the father of the nation Mahatma Gandhi was born, but that doesn’t mean people will stop drinking alcohol.

We may find gambling to be morally wrong, but that doesn’t mean people will stop gambling. Like sex, these are powerful forces. And banning them doesn’t help because then the activity simply moves underground.

As Roth writes: “Banning markets is just one way of trying to control them, and preventing markets is easier legislated than done.” The point being that meat will be sold illegally on days it’s banned or people will simply stock up.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared in the Bangalore Mirror on Sep 16, 2015


About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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