Monday, July 18, 2005

regulators in sympathy with those they regulate?

A brief comment on “regulatory capture ”

Gabriel Kolko is a Marxist historian, who reworked his doctoral thesis into the The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 in 1963 and followed it up with a more detailed study of a single industry in Railroads and Regulation in 1965. The first thing to note here is those dates. This is not a recent development. "Regulatory capture" is the name Kolko and others applied to a particular phenomenon: when regulators serve the interests of those they're allegedly regulating in the general public interest. It was known before Kolko's work, but regarded as a dysfunctional aberration that sound policy reliably enforced could take care of. Kolko put the heyday of Progressive regulation under close scrutiny and argued that in fact regulatory capture wasn't just common, it was the norm. He found no important exception to it emerging, and usually emerging very early on in the history of a regulatory agency.

Over time, however, regulators and regulatees end up getting to know each other and working together, with or without any real sense of cooperation. Regulatees who provide information and make a show of cooperation earn the appreciation of regulators who find that endless crusade takes its toll in energy, enthusiasm, and efficiency. Regulators find that if they cooperate with their subjects in some areas, they'll get cooperation back on others.

In addition, regulatees who gain the sympathy of regulators as "team players", "responsible, cooperative enterprises", and the like get favors. There's nothing innately sinister about this - we pretty much all give extra consideration to the people we deal with who don't screw us over, help us out, and the like. The problem is that incremental small shifts can add up to big consequences. Over years and decades, the net effect of such tweaks of the course of regulation is to draw the regulatory agency in directions that the public is likely neither to understand nor to feel represents the original intent of the legislation that created the agency. More at Political: Regulatory Capture July 3/02 http://fortunewriter.blogspot.com/2002_06_30_fortunewriter_archive.html Bruce Baugh

this posting is part of the forum titled, "OSC makes is easier for issuers to get exemptions", at the forum discussion site www.investoradvocates.ca for further discussion