Regulatory Capture: What the Experts Have Found

"Regulatory capture" occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends.  Capture theory is closely related to the "rent-seeking" and "political failure" theories developed by the public choice school of economics.  Another term for regulatory capture is "client politics," which according to James Q. Wilson, "occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers)."  (James Q. Wilson, Bureaucracy, 1989, at 76).

While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity.  Because regulatory capture theory conflicts mightily with romanticized notions of "independent" regulatory agencies or "scientific" bureaucracy, it often evokes a visceral reaction and a fair bit of denialism.  (See, for example, of New Republic's Jonathan Chait to Will Wilkinson's recent Economist column about the prevalence of corporatism in our modern political system.)  Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.

I thought it might be useful to begin constructing a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem.  I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book.

The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…

Woodrow Wilson, The New Freedom: A Call For the Emancipation of the Generous Energies of a People (1913) at 201-202:

"If the government is to tell big business men how to run their business, then don't you see that big business men have to get closer to the government even than they are now? Don't you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it. Are you going to invite those inside to stay? They don't have to get there. They are there."

Anthony Downs, "An Economic Theory of Political Action in a Democracy," 65 Journal of Political
Economy 2 (1957), 135-150 at 136:

"…even if social welfare could be defined, and methods of maximizing it could be agreed upon, what reason is there to believe that the men who run the government would be motivated to maximize it? To state that they should do so does not mean that they will."

George Stigler, "The Theory of Economic Regulation," 2 Bell Journal of Economics and
Management Science 1, (1971) 3-21 at 3:

"…as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits."

George Stigler, "Can Regulatory Agencies Protect the Consumer?" in The Citizen and the State: Essays on Regulation (1975), at 183:

"Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency save two should be carved: 'Competition Not Admitted.' The Federal Trade Commission's doorway should announce , "Competition Admitted in Rear," and that of the Antitrust Division, 'Monopoly Only by Appointment.'"

Theodore J. Lowi, The End of Liberalism: The Second Republic of the United States (2nd Ed., 1969, 1979) at 280:

"a considerable proportion of federal regulation, regardless of its own claim to consumer protection, has the systematic effect of constituting and maintaining a sector of the economy or the society. These are the policies of receivership by regulation."

Alfred Kahn, The Economics of Regulation: Principles and Institutions (1971):

"When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition." (p. 12)

"Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods." (p. 46)

Milton and Rose Friedman, Free to Choose (1980) at 193:

"Every act of intervention establishes positions of power.  How that power will be used and for what purposes depends far more on the people who are in the best position to get control of that power and what their purposes are than on the aims and objectives of the initial sponsors of the intervention."

Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (1987) at 8:

"The government's regulatory agencies have created or sustained private monopoly power more often than they have precluded or reduced it.  This result was exactly what  many interested parties desired from government regulation, though they would have been impolitic to have said so in public."

Jeffrey M. Berry, The Interest Group Society (1989) at 151:

"The ties between interest groups and [regulatory] agencies can become too close. A persistent criticism by political scientists is that agencies that regulate businesses are overly sympathetic to the industries they are responsible for regulating.  Critics charge that regulators often come from the businesses they regulate and thus naturally see things from an industry point of view.  Even if regulators weren't previously involved in the industry, they have been seen as eager to please powerful clientele groups rather than have them complain to the White House or to the agency's overseeing committees in Congress."

Douglass North, "Economic Performance through Time," 84 American Economic Review 3, (1994), 359-363 at 360:

"Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create new rules."

Tim Wu, The Master Switch: The Rise and Fall of Information Empires (2010) at 308:

"Again and again in the histories I have recounted, the state has shown itself an inferior arbiter of what is good for the information industries. The federal government's role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace…. Government's tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive."

Additional readings:

Frédéric Boehm, "Regulatory Capture Revisited – Lessons from Economics of Corruption" (2007) http://www.icgg.org/downloads/Boehm%20-%20Regulatory%20Capture%20Revisited.pdf
Ernesto Dal Bo, "Regulatory Capture: A Review," Oxford Review of Economic Policy (2006), http://oxrep.oxfordjournals.org/content/22/2/203.short
William W. Bratton and Joseph A. McCahery, "Regulatory Capture, Public Interest, and the Public Agenda: Toward a Synthesis," 73 North Carolina Law Review 1861 (1995)
Michael E. Levine and Jennifer L. Forrence, "Regulatory Capture, Public Interest, and the Public Agenda: Toward a Synthesis" 6 Journal of Law, Economics, and Organization (1990), 167-198.
David Martimort, "The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs," 66 Review of Economic Studies 4 (October 1999), 929-947,  http://onlinelibrary.wiley.com/doi/10.1111/1467-937X.00114/abstract
J.J. Lafont & Jean Tirole, "The Politics of Government Decision-Making: A Theory of Regulatory Capture" 106 Quarterly Journal of Economics 4 (Nov. 1991) 1089-1127.
Fred S. McChesney, "Rent Extraction and Rent Creation in the Economic Theory of Regulation," Journal of Legal Studies 16, (1987) 101-118.