You must read this excellent piece by Megan McArdle, It’s Normal for Regulators to Get Captured. “regulatory capture is not some horrid aberration; it is closer to the natural state of a regulatory body.”
This is true. That is why the entire modern administrative state has to be re-thought, re-configured and replaced. It does not work, it never worked, it cannot work.
The regulatory state is the defining feature of the Industrial Era, America 2.0 state. It needs to be shut down, wrapped up and replaced.
This does not mean return to the law of the jungle. It means making laws that actually align incentives with desired ends, as imperfect as that always is.
Fortunately the entire Industrial Era legacy government in the USA is at this very moment visibly failing to accomplish its goals, while costing more and more, and becoming increasingly heavy handed and punitive. Incumbents and government employees are OK with this. Everyone else hates it.
The motivation to do a once-in-a-century overhaul is growing. The point is to be there with better ideas when it happens.
America 3.0 will, we hope, have a very different regulatory framework.
The superb book by Luigi Zingales entitled A Capitalism for the People: Recapturing the Lost Genius of American Prosperity addresses the issue of regulatory capture, and how it is getting worse, rapidly, in recent years. One criticism of the book is that Prof. Zingales has good reform proposals scattered through the book, but they are never pulled together or fully thought out. As Walter Russell Mead observed in his short review of the book: “At times, the policy discussion seems a bit disjointed.” Yes.
Another reviewer noted: “Zingales is desperate to save competitive, meritocratic capitalism from the clutches of crony capitalism. And in this desperation, he suggests dozens of policy proposals.” Someone needs to go through and pull out all the policy proposals, and write it all up and post it somewhere. (That someone might be you: Used copies of the book are only $.25 on Amazon, so grab one.)
Perhaps Prof. Zingales next book will be a developed list of policy proposals to help us overcome the problem of regulatory capture.
In the meantime, we are developing ideas on alternatives to the current regulatory model with its inevitable capture by incumbents, including some ideas derived from Zingales.
Incidentally, Prof. Zingales is on the faculty at the University of Chicago Booth School of Business. The University of Chicago, and the Graduate School of Business — the “GSB” as it used to be called — have a long history of engagement with this problem. One of the first people to investigate what regulatory agencies actually did was George Stigler, who was on the faculty of the Economics Department and the GSB.
Stigler began examining this question in the early 1960s. A seminal essay was “What Can Regulators Regulate? The Case of Electricity,” George J. Stigler and Claire Friedland, Journal of Law and Economics, Vol. 5, (Oct., 1962), pp. 1-16. Stigler’s essays on this subject were compiled into The Citizen and the State: Essays on Regulation, published in 1975.
I got my hands on a copy of this when I worked at the GSB Development Office in 1986. Stigler won the Nobel prize a few years before in 1982 and they gave away copies of his books to alumni, and there were a few leftover copies in the basement. (Yes, I asked if I could have it before I took it.) Some of the math was beyond me. But the basic idea reinforced my insight, from reading The Logic of Collective Action: Public Goods and the Theory of Groups by Mancur Olson a few years earlier, that the regulatory state was going to grow like a cancer and destroy our freedom and prosperity — and I saw no way to stop that from happening.
I now think it is in the process of self-destruction, on one hand, and being superseded and transcended by emerging technology. But we can’t yet know how it will play out.
Incidentally II, Megan McArdle’s columns are reliably good and should be on your regular “to read” list if she is not already.