Panelists Examine Agency ‘Capture' by Industry

Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...

By Cheryl Bolen

March 3 — The concept of regulatory capture, which many believe starts when federal agencies hire employees from the industries they regulate, is a long-standing and widely known problem, often called the “revolving door.”

“What is regulatory capture?” said an announcement from the Administrative Conference of the U.S., which hosted a forum March 3 to examine the issue. “Everyone believes it exists, but no one agrees on what it looks like.”

Regulatory capture is a theory associated with George Stigler, a Nobel laureate economist. It is the process by which regulatory agencies eventually come to be dominated by the industries they are charged with regulating.

Then, instead of acting in the public interest, the agency's rules tend to benefit the industry it is supposed to be regulating.

Opposite Sides Agree

Sens. Mike Lee (R-Utah) and Elizabeth Warren (D-Mass.), who are on opposite ends of the political spectrum, agreed that regulatory capture exists. But there was less agreement about what, if anything, can be done about it.

“I think the idea of regulatory reform has become politically very popular,” Warren said. “But too many of the proposals that go under the title of regulatory reform are actually supported by industry, precisely because those proposals would create even more opportunities for them to block regulations they don't like,” she said.

Lee said that lawmakers, scholars and activists all along the political spectrum agree that regulatory capture is one of the most pressing political, economic and moral issues of this era.

“But too often, especially on Capitol Hill, this consensus tends to break down along partisan lines, with members of both parties often guilty of railing against regulatory capture when it's politically convenient for them, looking the other way when it's not,” Lee said.

All But Inevitable

The only way to end it, however, is to eliminate the “conspiracy of acquiescence” that has existed under multiple administrations, Lee said.

The point is not to assign blame or impugn the motives of those involved in regulatory capture—agency or industry—who are for the most part hardworking, well-intentioned, well-educated and highly specialized, Lee said.

“But that's precisely the problem,” Lee said. “The status quo arrangement that sets the power within the modern administrative state has made regulatory capture all but inevitable. It just is.”

Too Much Agency Discretion

Neomi Rao, associate professor of law at the George Mason University School of Law, said the Constitution creates a process for defining what the public interest is, and that is the legislative process, not the administrative state.

Congress has oversight authority over agencies to ensure they are complying with the law—which is supposed to reflect the public interest—but it often statutes are so open-ended that it is difficult to tell whether agencies are meeting the requirements of the law, Rao said.

“I think really the problem is that there is so much discretion in agencies,” Rao said. This allows private interests and individual members of Congress to try to influence that discretion, she said.

End Golden Parachutes

Regulators should be beholden to the American people, not to corporate benefactors, Warren said.

Warren called for an end to the “golden parachutes” for executives who enter government. Major corporations routinely offer their executives substantial bonuses for accepting government positions, she said.

A good start would be passage of the Financial Services Conflict of Interest Act (H.R. 3065), a bill introduced in July 2015 by Rep. Elijah Cummings (D-Md.), Warren said .

The bill would make these payments illegal under federal bribery statutes and would target conflicts of interest by removing government employees from decisions that financially benefit their former employers, Warren said.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com