Therefore the mindless expansion of regulatory power is not always a good thing. Increasing the power of government without a corresponding increase in transparency, does not, as many liberals believe, lead to the control of “rent-seeking capitalists” by the state, but on the contrary, leads to the control of the state and the industry by individuals whose key competitive advantage is the skill at corrupting public officials. We wind up working for the players. When business is globalized, then regulatory capture may be effected by foreign businessmen. Those businessmen are often indistinguishable from foreign leaders, especially in the case of the oil-rich Middle East. And the foreign leaders/businessmen end up capturing the regulatory mechanism. Then we wind up working, as some dons and British politicians wound up working, for the Brother Leader who is, as everybody now realizes, a complete homicidal maniac.
But it seemed like a good idea at the time. A combination of unaccountable, but powerful regulatory agencies in a globalized economy sets the stage for the capture of agencies by foreign despots. One of the dangers of the President’s “healthcare reform” and “Green energy” policies is that it creates precisely those conditions for the huge medical and oil industries. By centralizing control of the the healthcare industry, which is nearly 1/6 of the US economy, Obama has set up a target for regulatory capture more tempting than anything that had ever come before.
Almost no one disputes that doctrinaire socialism, where despots run farms, steel mills and national airlines, is a colossal failure. But modern crony-capitalism or fascism, which tacitly outsources the means of production to well managed, nominally private enterprises while accreting ultimate control in the hands of politicians and their minions, remains viable as long as taxpayers continue (voluntarily or otherwise) to fund it. Many people think this system is unsustainable, but because it’s impossible to know accurately when the system will fail and a lot of people benefit from it (see this post, for example), it seems likely that the system will appear strong until almost the moment at which it goes down. And in the meantime it provides opportunity for the Kaddafys of the world to use stolen funds to buy entire governments.
If you are bothered by flies on a manure pile you remove the manure, you don’t try to train the flies. If government corruption is a problem the best way to improve the situation in the long run is by radically cutting the size and scope of government, i.e., radically cutting government spending as a fraction of GDP.