Tuesday, June 1, 2010

Regulatory Capture - What does it really mean?

Lots of hand wringing (again) about the "lax" regulation that MAY have allowed BP to set up a rig that would fail, catastrophically, under certain circumstances. Lawrence Baxter talks about this phenomenon in detail, and it's a post worth considering:

Not all industry influence is inappropriate: after all, industries exist to make money and, if lawful, their prosperity benefits us all. They should be able to influence the development and application of sensible and appropriate regulations. And industries are entitled to proper regulatory expertise and intelligent, well-versed regulators. But backdoor influence that leads to the kind of capture to which I am referring undermines the whole point of regulation. To use the old metaphor, it leads to the fox guarding the henhouse.

To be sure, there are many public-minded Americans–perhaps even proportionately more than in most other countries–but public service is seldom a chosen career path, at least for very long. And for good reason. We don’t teach its virtues and we don’t reward public service adequately. Where are the professors of regulation in the US? We don’t give knighthoods to regulators. They don’t get paid much in other countries, such as the United Kingdom, either but at least they are considered important. But what do we do? We pull them up in front of Congress and beat up on them, so they go get highly paid jobs in the private sector.



H/t James @ The Baseline Scenario

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