Regulatory Capture is to Blame – Reducing RC starts with Education

What’s to blame for slower growth and rising inequality? Regulatory capture. And who practices Regulatory Capture? EVERYONE “Regulatory capture is a form of government failure which occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating. When regulatory capture occurs, the interests of firms or political groups are prioritized over the interests of the public, leading to a net loss for society. Government agencies suffering regulatory capture are called “captured agencies””. This is an issue that is a “bipartisan blind spot” and affects politicians from any political view.

“…[I]t’s ultimately the duty of the governors to make sure that the rules are in the public interest, rather than in the narrow interests of the various clamoring claimants who come before them.” The first step to eliminating regulatory capture is to recognize that it happens.

One of the reasons the public tolerates regulatory capture is that special interest groups use a positive policy image which creates a natural blind spot in the public’s eyes. An example used by Planet Money is teeth whitening and North Carolina’s Dental Board. The public feels that dentists help people so when the NC Dental Board lobbied to get a regulation to stop non-dentists from offering simple tooth whitening services the dentists initially won. Teeth whitening is more like a pedicure for your teeth rather than a dental procedure and anyone can do one. In fact, these days, people can buy teeth whitening kits at the grocery store. It had to go to the supreme court for the regulation to be removed. While waiting for all the legal trials to settle the issue stifled competition (natural market forces): teeth whitening service costs were artificially inflated (bad for consumers) and non-dentists were put out of business. Planet Money explains a few more examples and including one where homeowners practice regulatory capture.

 

Sources:

Planet Money’s story called “Rigging The Economy” https://www.npr.org/templates/transcript/transcript.php?storyId=592376568

https://en.wikipedia.org/wiki/Regulatory_capture

https://www.washingtonpost.com/outlook/whats-to-blame-for-slower-growth-and-rising-inequality/2017/11/22/97bb9e6c-b805-11e7-a908-a3470754bbb9_story.html?noredirect=on&utm_term=.dddf9ae2c60b

https://marketbusinessnews.com/financial-glossary/regulatory-capture-definition-meaning/

Leave a Reply