Regulatory “Capture” is Clearly Corruption

The impetus for this analysis is a seemingly sloppy piece of reporting by NPR’s Chana Joffe-Walt that appeared on the June 17 2010 episode of All Things Considered. The story, titled “Avoiding Government Oversight” (which reads like a how-to, and which it could, in fact, be), was apparently trying to explain how government regulators get “captured” by the businesses they’re supposed to regulate.

In the piece, Joffe-Walt interviews Vincent Reinhart, identifying him only as “an economist with the American Enterprise Institute” without mentioning that the AEI is not some scholarly research organization but an industry-funded free market advocacy group. He is her only “expert,” though she previously interviews a regulator with direct experience of “capture.” This is like not identifying People for the American Way as left-leaning and accepting everything they say without also presenting a right-wing pundit or politician, which NPR would not normally do with straightforward analysis like this. If the AEI were upfront about its position, like the Sierra Club with its environmental advocacy, and not trying to hide behind the facade of intellectual think-tankery, perhaps identifying its leanings may not have been necessary, but sadly, this is not the case. I would hate to believe that Joffe-Walt is so unsophisticated that she is not aware of what the AEI is up to.

Reinhart’s argument in the piece—one roughly outlined by Adam Smith 230 years ago—is that industry will always try to “capture” regulators through, as Joffe-Walt puts it, “money, time, gifts”; “help” writing legislation; and “help” filling out difficult forms. Over time, Reinhart contends, this will influence regulators to favor industry. He goes on to note that this forces those creating regulations to make rules more complicated in order to prevent this sort of thing from happening. His suggestion is that this is inevitable, as regulators are people and “regulations have to be enforced by people and that the more judgment you give these people, the more possibilities of things going wrong.”

The implication to which Reinhart wants to lead us—and to which he successfully leads Joffe-Walt—is that regulation is doomed to fail because it is enforced by people and people make mistakes. But, of course, “regulations” are really laws, and industry regulators therefore enforce the laws that pertain to their given industries. They do this in the same way that the highway patrol enforces the rules of the road; if you are caught violating them, you are subject to a fine or, in egregious cases, criminal charges. When we frame things properly, we can see that “capture” is really corruption and that Reinhart is purposefully glossing over the moral bankruptcy of his argument. If we substitute the term “identity thieves” for “industry” we can see this in action. If identity thieves gave “money, time, gifts” and “help” to the police officers that enforce anti-identity theft “regulations,” we would throw them in jail for bribery along with the cops who took the bribes. And even though it is also true that identity theft gets increasingly sophisticated and the laws that govern it increasingly complex, we show no signs of just giving up and letting these people go. The initial moral failure is with those who try to get around the law, and industries attempting to “capture” regulators are just as unethical as more petty criminals trying to bribe law enforcement officers.

We tolerate this sort of crap from the business community for the same reason that we put up with the abuse of tyrants when we were serfs: they own the castle and with it our means of living. That doesn’t make their corruption right, of course. Dismissing it or justifying it is simply allowing certain people and the companies they control to live by different standards than the rest of us do. More people follow the law out of good faith than fear of arrest; that is why our society is actually fairly well-ordered. If regulated industries acted in good faith, if they lived up to the citizen portion of the complete personhood they recently acquired, regulatory “capture” would be relatively rare, not the inevitability that Vincent Reinhart and other corporate apologists want us to think it is.

I do not know if the one-sided reporting of Joffe-Walt really was bad reporting or if it was an attempt by NPR to curry-favor with their corporate sponsors (in the case of the “Planet Money” series of which Joffe-Walt is a contributor, Ally Bank) and industry-friendly Congresspeople who help determine CPB funding. But if the latter, it’s a pretty good example of media “capture” by industry, which is not so much an irony as a sad comment on the decline of independent voices even at supposedly “public” organizations like NPR.

–EW Wilder

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