The Taxi and the Tea Party

The Taxi

It’s fair to say the South African taxi industry isn’t besotted with the Bus Rapid Transport (BRT) system. It’s understandable too. No matter what assurances are provided around newly jobless taxi drivers being placed within BRT, the reality is that a more efficient service with larger vehicles will need fewer drivers.

It’s also blindingly obvious that a more efficient, safer and better controlled public transport system is overwhelmingly to the advantage of pretty much every other citizen in our wonderful country.

A small group (often termed a Special Interest Group) lobbies (politically or through protests or violence) for a change (or the maintenance of the status quo) to their advantage at the expense of the wider population. Taxi owners and drivers have their livelihood at stake. Of course they care disproportionately compared to the rest of us!

The Tea Party

The Boston Tea Party is commonly interpreted as an inspirational story of the colonists of the New World growing tired of economic exploitation and the famous “No taxation without representation”.

Of course this is not the true story.

It is true that the British East India Company was THE monopoly of the time and pushed hard for its profits. It’s also true that the British constitution of the day stated that citizens could be taxed only through consent of their representatives in Parliament. There was no directly elected official representing the colonists, so arguments about taxation without representation are probably fair. (As an aside, although there is no specific document called the “constitution” the rules and principles that make up a de facto constitution exist.)

The reality is that tea shipped to the americas, and imported through official channels, was taxed. This tax had been in place for several years and did not change around 1773 when these events took place. It’s also instrumental to note that historians have estimated the amount of team consumed by colonists and the amount taxed during the same period. Only 5% of tea consumed was imported through official channels so the tax  levied was almost irrelevant for colonists.

However, what did change, was that the East India Company (EIC) was allowed to sell tea directly to colonists rather than being forced to use local merchants as intermediaries. The EIC had a large surplus of tea that it needed to sell, and would have provided large quantities of tea at low price to the colonists.

More tea at a low price would have been a good thing for the colonists, given their voracious appetite for the dried leaves. However, the small special interest group of the local merchants who previously made a good profit out of reselling the tea were rather more put out.

It was these merchants who stoked support for the “no taxation without representation” catchy slogan of the day. They stood to lose and focused their energy on fixing the problem. The benefit that hundreds of thousands of colonists and settlers would have experienced through lower prices was somehow  forgotten.

But not forgotten by all. Reports at the time show that there were some who wrote that it seemed a small group would benefit and uncovered rather less honourable motivations. History doesn’t remember them as well.

I owe my understanding of these events to the fantastic book, “A Splendid Exchange – How Trade Shaped The World” by William Bernstein. If you enjoyed this, please buy his book at A Splendid Exchange: How Trade Shaped the World or your regular bookstore.

The Tax and the Tea Party and unbalanced interests

Those with a special, intense, personal or focused interest in legislation or policy will act disproportionately to enact their desired outcome. We need strong leaders to focus on the needs of the entire country to balance the manipulation of special interests and public apathy.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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