InstitutionalMANIPULATIVE

Regulatory Capture

What it is

When regulatory agencies created to act in the public interest instead advance the interests of the industries they are supposed to regulate.

How it works

Industries subject to regulation invest heavily in influencing their regulators through lobbying, providing "expert" personnel, funding research, and offering post-government employment. Over time, regulators develop sympathetic relationships with the regulated, adopt industry perspectives, and write rules that protect incumbents rather than the public.

Real-world examples

  • •The SEC staffing senior positions with former Wall Street executives who return to industry after their tenure.
  • •FAA delegating aircraft safety certification to Boeing employees who ultimately certified the 737 MAX.
  • •EPA relaxing pollution standards after extended lobbying campaigns by affected industries.

Historical case studies

The Minerals Management Service and Deepwater Horizon

2010–2011US Offshore Drilling

The national commission appointed by President Obama after the Deepwater Horizon blowout found that the offshore regulator, the Minerals Management Service, had been given conflicting jobs: collecting billions of dollars in royalties from drilling, and policing the safety of the same drilling. Revenue won. Across administrations of both parties the agency lacked the budget, the technical expertise and the political backing to challenge the companies it oversaw, adopted industry-written standards, and had been the subject of an inspector-general report describing gifts and improper relationships between staff and oil companies. The agency was abolished and its functions separated.

Source →

The FAA, Boeing and the 737 MAX

2018–2020US Aviation

After two 737 MAX crashes killed 346 people, the House Transportation Committee's majority staff spent eighteen months on an investigation of how the aircraft had been certified. Its 2020 report described a system in which the Federal Aviation Administration had delegated much of the certification work to Boeing employees, who were under commercial pressure to avoid pilot simulator training; in which the flight-control software at the centre of both crashes was presented to the regulator as a minor change; and in which FAA managers had overruled their own technical specialists at the company's request. Congress tightened the delegation rules later that year with bipartisan support.

Source →

Ethical guidelines

  • ●Regulatory independence is essential for public safety and market fairness.
  • ●Revolving-door employment between regulators and regulated industries creates inherent conflicts of interest.
  • ●Public interest should be the explicit, measurable mandate of regulatory activity.

How to defend against it

  • ►Research the career backgrounds of key regulatory officials — where did they work before and where do they go after?
  • ►Support mandatory cooling-off periods between industry employment and regulatory positions.
  • ►Follow regulatory proceedings and submit public comments when rules are being written.

From the Defense Playbook

Follow the Incentivesminutes

Before weighing a recommendation, find out what the person making it gains if you say yes (commission, funding, votes, attention, status), and adjust how much independent confirmation you require accordingly.

Sunlight Against Astroturftakes practice

When a "grassroots" campaign, citizens' coalition, or flood of public comments appears, establish who organized and paid for it and make that public, because manufactured support loses most of its force once the audience knows it is manufactured.

Every playbook entry states how strong its evidence is and when not to use it. Browse the full playbook.

References

  1. Stigler, G. J. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science, 2(1), 3–21
    Founding statement: regulation is acquired by the industry and designed and operated primarily for its benefit.
  2. Carpenter, D., & Moss, D. A. (Eds.) (2014). Preventing Regulatory Capture: Special Interest Influence and How to Limit It. Cambridge University Press
    Modern reassessment distinguishing strong from weak capture, and cultural capture through shared personnel and worldview — the sympathetic-relationship mechanism in the entry.
  3. U.S. House Committee on Transportation and Infrastructure (2020). Final Committee Report: The Design, Development & Certification of the Boeing 737 MAX. U.S. House of Representatives, September 2020
    Documents FAA delegation of certification work to Boeing employees under the Organization Designation Authorization programme — the entry's 737 MAX example.
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