Shining Light on Regulatory Capture: Four Proposals

The subject of regulatory capture was back on Capital Hill last week as the result of a briefing sponsored by Administrative Conference of the United States (ACUS). In 2010, I testified concerning regulatory capture in a Senate hearing chaired by Senator Sheldon Whitehouse (D-RI), but in the midst of the broad-scale conservative assault on regulation, the issue hasn’t gotten nearly the attention it deserves. That’s unfortunate for a simple reason. As Rena Steinzor and I establish in our book, many aspects of the regulatory system are downright dysfunctional, and we identified regulatory capture as a significant source of this dysfunction.

Regulatory capture is a complex issue and determining how best to reduce the amount of capture is challenging, as a helpful book on the subject edited by Dan Carpenter and David Moss establishes. Nevertheless, there are some steps that Congress or the President can take that would have a beneficial impact.

First, Congress should study the impact of budget cuts on the capacity of agencies to carry out their statutory mandates. Because agency budgets are a miniscule part of the total federal budget, such cuts are the very definition of “penny wise and pound foolish.” They therefore constitute a type of capture in which regulatory opponents have stopped, or greatly slowed, the regulatory process by persuading their champions in the Administration and on the Hill to starve agencies of the money they need to engage in effective rulemaking and enforcement. To make matters worse, once starved, agencies are more susceptible to the kind of undue industry influence that characterizes regulatory capture.

For example, in the years leading up to the BP oil spill, the Department of Interior’s Minerals Management Service (MMS)—the former agency charged with overseeing offshore oil drilling—was so starved of resources that it lacked adequately trained and expert personnel for tackling the complex issues that were at the heart of the agency’s mission. Consequently, the MMS became overly dependent on industry, essentially creating a system of self-regulation, which made a disaster on the scale of the BP oil spill all but inevitable.

Second, the President should require agencies to submit “true-up” budgets in which they estimate the amount of money that they would need to actually do their jobs, as opposed to some incremental increase or decrease in their current budgets based on which way the political winds are blowing. These submissions should be made available to the public and elected officials on the agency’s web site.

Third, the President should issue an Executive Order requiring regulatory agencies and the Office of Information and Regulatory Affairs (OIRA) to produce yearly reports revealing how many times they met with different categories of interests, such as regulated entities, trade associations and public interest groups, concerning rulemaking, enforcement, and other significant regulatory actions. This would help reveal “information capture,” which can occur when agencies are overwhelmed by arguments and information provided by regulated entities and their trade associations, particularly when there are many fewer attempts by public interest groups to challenge these presentations, because the public interest community lacks the resources to do more.

Fourth, the President should issue another Executive Order requiring agencies to create and use what Rena Steinzor and I have called “regulatory metrics.” These measurements would address the extent to which an agency has accomplished its regulatory mission. To give an oversimplified example, the Environmental Protection Agency (EPA) would measure the extent to which it has accomplished its mandate under the Clean Water Act to achieve “clean water.” If EPA is stuck at 68 percent, to make up a number, or worse the metric shows the water is becoming less clean over time, the public and elected officials would be alerted that something is wrong. It might be that the agency is captured or they might be some other cause. In any case, performance metrics such as this one would give an overall picture of the regulatory system and its progress to protecting people and the environment.

Regulatory capture is difficult to cure because regulated entities and their allies have every incentive to prevent agencies from doing their job and the resources to capture the agency and prevent this from happening. It’s also difficult, because as stakeholders, regulated entities have a legitimate role to play in contributing to the development of new regulations; the trick is to ensure that this role doesn’t cross a line into undue influence that produces regulatory outcomes that are inconsistent with an agency’s statutory mandate to protect the public interest. We can expose various forms of regulatory capture to scrutiny by practicing greater transparency, which will help to mitigate the power of these interests. The suggestions offered here are a start.