The Captured Regulators Problem

A frequent claim of pro-State trolls is "The State is needed to regulate industry." State regulation of industry does not work, because of the captured regulators problem.

The captured regulators problem refers to the fact that, in most industries, the people who control government regulatory bodies are *THE EXACT SAME PEOPLE* who control the industry being regulated. Most regulations are written to benefit large corporations and their management. "Captured regulators" mean that regulators are answerable to executives in the industry regulated, rather than the general public.

There are many examples of industries where the captured regulator problem exists. Typically, there's a "revolving door". Executives work at a government agency for a few years, and then work at a corporation in the industry regulated. Regulators who do a "good job" (corrupt job) are rewarded with a high-paying job in the industry regulated.

Here is a list of some industries where the captured regulator problem exists.

• The financial industry controls the Federal Reserve, directly via ownership and indirectly by choosing the members of the Federal Reserve Board of Governors. There is a "revolving door" between the financial industry and the Federal Reserve and Treasury department. The people who control large corporations write regulations that favor large banks.
• The pharmaceutical industry controls the FDA. There is the usual "revolving door". The drug approval process is cumbersome, complicated, and drawn-out. This guarantees that only someone who works at a large pharmaceutical company can get a drug approved. Patents further restrict competition. Treatments that threaten the pharmaceutical industry's business model, such as stem cell research, are banned. Further, there's a perception "The FDA approved this drug. Therefore, this drug is safe." This attitude, combined with tort reform, means that pharmaceutical corporations and their management face practically zero liability when they release a drug later proven to be harmful; the damages paid are typically less than one year's profit from the harmful drug. Most FDA-approved research has incredibly shoddy quality. The FDA is merely a rubberstamp for large pharmaceutical corporations, rather than an independent auditor verifying the quality of drugs.
• Many electricity "deregulation" regulations were written by executives at large corporations, who then exploited these regulations for their own benefit. The most notable example of this was Enron exploiting California's incomplete deregulation. The conclusion is not that deregulation is bad. Partial, incomplete deregulation can be harmful, especially if it's written in a way that favors certain people.
• Many generals approve military spending, on contracts purchased from certain large corporations. After retirement, these generals work as executives at those corporations, for a much higher salary than they were paid as a general.
• At the US Patent Office, the rules and procedures are chosen by patent lawyers. They can then profit from lots of frivolous patent lawsuits.
• The AMA chooses the regulations that affect the supply of doctors. This guarantees that there always is a shortage of doctors and that doctors will be well paid.
• Lawyers have successfully lobbied for court procedures to be expensive and cumbersome, guaranteeing that people need to hire a lawyer when sued or accused of a crime. The supply of lawyers is restricted in the same manner as the supply of doctors, guaranteeing that hiring a lawyer is always expensive.
  
• In NYC, the people who own taxi medallion/licenses can always lobby against any increase in the number of taxi medallions. A taxi medallion is *VERY* valuable, and the taxi medallion owners can profitably lobby to protect their investment. It would be cheaper for a would-be taxi driver to buy a medallion, than lobby for fair regulation of taxis.
  

This is only a partial list.

The problem is with the State itself. The insiders in an industry can *ALWAYS* profitably lobby for regulations that favor them and exclude competition. Due to Distributed Costs and Concentrated Benefits, lobbing the State for favors is almost always profitable.

The captured regulators problem is an important way that politically connected insiders exploit the State for their personal benefit.