Regulatory capture

Neutralization of regulatory agencies

Nature

Regulatory capture is a phenomenon where regulatory agencies, established to act in the public interest, become dominated by the industries they are meant to regulate. This often occurs when regulators develop close relationships with industry stakeholders, leading to biased decision-making that favors corporate interests over public welfare. As a result, regulations may be weakened, enforcement may be lax, and public safety or environmental standards may be compromised. Regulatory capture undermines the effectiveness of governance, erodes public trust, and can lead to significant economic and social consequences, highlighting the need for transparency and accountability in regulatory processes.

Incidence

A 2021 report by the Organisation for Economic Co-operation and Development (OECD) found that regulatory capture is a persistent risk in both developed and developing economies, particularly in sectors such as finance, energy, and telecommunications. Studies indicate that up to 40% of regulatory agencies in surveyed countries have experienced undue influence from industry stakeholders, undermining public interest and regulatory effectiveness.
A notable example occurred in the United States in 2008, when the Securities and Exchange Commission (SEC) was criticized for its close relationships with major financial firms, which contributed to regulatory failures preceding the global financial crisis.

Claim

As soon as you allow regulators to determine that which is bought and sold, the first thing bought and sold will always be regulators (and they're cheaper than politicians).

Counter-claim

Regulatory capture is often overstated as a problem, serving more as a convenient scapegoat for broader systemic issues. In reality, regulations are essential for maintaining order and protecting public interests. The notion that industries can easily manipulate regulators undermines the competence and integrity of public institutions. Instead of focusing on regulatory capture, we should celebrate the collaborative efforts between regulators and industries that drive innovation and economic growth. Let's prioritize progress over unfounded fears.