Regulatory capture: what is it?

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Regulatory capture occurs when government agencies responsible for regulating a sector advocate for companies rather than the public. Governments can limit it through policies such as limiting gifts and rotating staff. Media scrutiny can also help prevent it.

Regulatory capture is a situation where a government agency responsible for regulating a specific sector finds itself advocating for the main companies in the sector, rather than the interests of members of the public. People may refer to these agencies as “captured agencies”. There are several steps that governments and organizations can take to limit the possibility of regulatory capture.

This situation is very common; companies often bring substantial money and pressure when regulatory agencies make decisions, while members of the public may not express much interest or may lack influence from industry insiders. When the majority of inputs received by an agency come from the sectors it should regulate, there is a tendency to start responding to this by shaping policy orientations in favor of those sectors. It can be difficult to maintain independence and integrity.

Sometimes the regulatory catch is obvious. Companies can use tools like paid vacations, free luxury flights and other perks to woo employees as they weigh political issues. The legality of such activities can be ambiguous. In some nations, governments have very strict policies to prevent regulatory capture. They try to limit outside influence by not allowing agencies or employees to accept gifts from third parties, and require people to disclose attempted gifts and bribes. In other nations, regulation may be looser, or members of an agency collectively agree to circumvent the law.

The problem may be compounded by political issues. Businesses not only lobby government agencies, but also play a role in the electoral process with political campaign donations and other political support. Companies can lobby for the election of pro-interest people to secure beneficial political appointments and political maneuvers, creating a web of influence that can be difficult for agencies to escape. Especially when agencies have limited resources and staff, it can be all too easy to end up in the industry’s pockets, even with a conscious desire to avoid this situation.

Measures to deal with regulatory capture beyond limiting gifts can include frequently rotating staff to prevent the development of relationships between agencies and companies, establishing clear policies for soliciting feedback and comments on proposed regulatory activities, and regular use of external auditing. Scrutiny by members of the media can also be helpful, as it reminds agencies that the public is watching. Media outcry over particularly egregious examples of regulatory capture tend to result in increased attempts to prevent future incidents.

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