Tuesday, April 30, 2013

Regulatory Capture



Hearing about 'regulatory capture' during last week's Voiceless lecture, was a pure lightbulb moment.

I got home and immediately googled this new term whereupon I came across Wikipedia's brief explanation that regulatory capture occurs 'when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating.'

Bingo! - aka an explanation for the appalling conditions incurred during the production of animals for our consumption...and also an explanation for our very own bicycle helmet regulations.

Wikipedia continues that 'regulatory capture is a form of government failure, as it can act as an encouragement for firms to produce negative externalities. The agencies are called "captured agencies".'

This is us - and there's actually a term for this regulatory rubbish that we've had to put up with...and it's pretty easy to see how it fits within our Australian parameters coupled with ever-pervasive big corporate parameters.

And when you go on to explore this term with bicycle helmets in mind there is some interesting stuff delineating this issue.

The Technology Liberation Front provides a comprehensive collection of eminent people to further explain regulatory capture.

For example, Holman Jenkins ("Let’s Restart the Green Revolution," Wall Street Journal, February 2, 2011 - regarding how misguided agricultural & environmental policies are hurting consumers) explains:

"When some hear the word ‘regulation,’ they imagine government rushing to the defense of consumers. In the real world, government serves up regulation to those who ask for it, which usually means organized interests seeking to block a competitive threat. This insight, by the way, originated with the left, with historians who went back and reconstructed how railroads in the U.S. concocted federal regulation to protect themselves from price competition. We should also notice that an astonishingly large part of the world has experienced an astonishing degree of stagnation for an astonishingly long time for exactly such reasons."

...and George Stigler ("The Theory of Economic Regulation," 2(1) Bell Journal of Economics and Management Science, 1971, 3-21 at 3) had this to say:

"…as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits."

A revealing quote from George Gilder (Wealth & Poverty, New York: Bantam Books, 1981, pp. 283) puts forward that:

"One reason for government resistance to change is that the process of creative destruction can attack not only an existing industry, but also the regulatory apparatus that subsists on it; and it is much more difficult to retrench a bureaucracy than it is to bankrupt a company. A regulatory apparatus is a parasite that can grow larger than its host industry and become in turn a host itself, with the industry reduced to parasitism, dependent on the subsidies and protections of the very government body that initially sapped its strength."

...and Bruce Yandle (“Bootleggers and Baptists — The Education of a Regulatory Economist,” Regulation, Vol. 3, No. 3, May/June 1983,p. 13) explains what it is that industry wants from the regulators:

“They want protection from competition, from technological change, and from losses that threaten profits and jobs. A carefully constructed regulation can accomplish all kinds of anticompetitive goals of this sort, while giving the citizenry the impression that the only goal is to serve the public interest.”

No kidding, this really is bingo!!!!...it fits Australia's bicycle helmet regulation to a tee...

...and it sucks...as it does for the appalling conditions we permit animals to be produced in, deliberately never turning our mind to the cruelty involved which if it was exacted on our precious dogs and cats would cause a sustained community outrage.

Time to see 'Regulatory Capture for what it is - protectionism for Big Corpa...

...and time to fight it on all industry counts

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