# Regulatory capture

#### NobleSavage

##### Veteran Member
Regulatory capture is a form of political corruption that 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. Regulatory capture is a form of government failure; it creates an opening for firms to behave in ways injurious to the public (e.g., producing negative externalities). The agencies are called "captured agencies".

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

How do you think we could fix --or at least lesson -- this?

#### Under the Rose

##### Veteran Member
With regard to the Food and Drug Administration, we need more comprehensive and transparent labeling laws so that consumers can make informed decisions. I was quite fascinated by California's Proposition 37 and the amount of money that key industry giants threw into the effort of defeating the bill. Had they opted for going with the labeling and explaining to people the benefits and risks associated with all processes, they would have had greater credibility over the long haul.

Mind you, even reading the current labels will point out that most of the products made by the opposition are not healthy choices in any event. Informed consumers will continue to seek out and develop better nutritional products and delivery systems. I see the increase in sales for fresh foods and organic and GMO-free offerings growing rapidly at the store where I work.

Campaign donations

The organization in support is "California Right to Know" and the organization against is "NO Prop. 37, Stop the Deceptive Food Labeling Scheme". As of November 6, 2012, the total donations to each side were $9.2 million in support, and$46 million in opposition. The top 10 donors to each side are as follows:[15]
 Supporters Mercola Health Resources $1,199,000 Kent Whealy$1,000,000 Nature's Path Foods $610,709 Dr. Bronner's Magic Soaps$620,883 Organic Consumers Fund $605,667 Ali Partovi$288,975 Mark Squire $258,000 Wehah Farm$251,000 Amy's Kitchen $200,000 The Stillonger Trust (Mark Squire, Trustee)$190,000 Opponents Monsanto Company $8,112,867 E.I. Dupont De Nemours & Co.$5,400,000 PepsiCo, Inc. $2,585,400 Grocery Manufacturers Association$2,002,000 Kraft Foods $2,000,500 Bayer Cropscience$2,000,000 Dow AgroSciences $2,000,000 BASF Plant Science$2,000,000 Syngenta Corporation $2,000,000 Coca-Cola North America$1,700,500

http://en.wikipedia.org/wiki/California_Proposition_37_(2012)

An increasing number of people do not want to ingest pesticides and 'Generally Regarded As Safe' additives like MSG, Tartrazine, and Natural Flavor that does not name what it is sourced from, in this part of the world.

#### Loren Pechtel

##### Super Moderator
Staff member
With regard to the Food and Drug Administration, we need more comprehensive and transparent labeling laws so that consumers can make informed decisions. I was quite fascinated by California's Proposition 37 and the amount of money that key industry giants threw into the effort of defeating the bill. Had they opted for going with the labeling and explaining to people the benefits and risks associated with all processes, they would have had greater credibility over the long haul.

Of course they hate it--that's a lot of logistics cost.

I have no problem with GMO-labeling laws so long as they permit a company to say "we don't track whether this is GMO or not".

#### NobleSavage

##### Veteran Member
OK, I m kinda getting off topic here: anyhow, Under the Rose do you know anything about the apples sold in the US? I just read this article about apples banned in Europe but consumed in the US http://rt.com/usa/154676-us-apples-chemical-ban/

I think labeling should also include the pesticides that are used to grow a crop.

#### Alcoholic Actuary

##### Senior Member
It's an interesting topic. Our actuarial examination process has an entire exam devoted to insurance regulation. The syllabus cites 3 common regulatory problems:

1. Regulatory Fallibility - Mistakes made by regulators that lead to a failure to identify troubled firms
2. Regulatory Forebearance - Reluctance to take action against firms correctly identified as troubled
3. Regulatory Capture - Tendency of regulators to side with the the firms they are supposed to be regulating

The approved solution to these regulatory issues (in no particular order) is:

1. Peer Review - 3rd party independent review of regulatory examination results
2. Duplication - Multiple regulatory agencies conducting examinations of the same firm (Insurance is regulated at the state level, so there are potentially 50 regulators looking at a single insurer)
3. Diversity of Perspective - Examination teams that consist of a broad range of backgrounds and perspectives will generate an end result that tends toward the center (as opposed to producer vs consumer tended outcomes)

So insurance companies are regulated by 50 different states and are also subject to review by the National Association of Insurance Commissioner and the Federal Insurance Office (both National Insurance regulators), which covers the peer review and duplication. The diversity of perspectives comes from having several insurance commissioners appointed vs elected. It is commonly felt that elected insurance commissioners have greater susceptibility to regulatory capture.

I'm not saying that the regulatory environment for insurance is ideal, but there is a reason that no insurance companies needed bailouts during the last recession (AIG was bailed out due to un-regulated insurance-type products that were supposed to be regulated by finance.

Also in fairness, Insurance regulation in the US is one of the more expensive ways to regulate - but it is effective.

aa

#### NobleSavage

##### Veteran Member
It's an interesting topic. Our actuarial examination process has an entire exam devoted to insurance regulation. The syllabus cites 3 common regulatory problems:

1. Regulatory Fallibility - Mistakes made by regulators that lead to a failure to identify troubled firms
2. Regulatory Forebearance - Reluctance to take action against firms correctly identified as troubled
3. Regulatory Capture - Tendency of regulators to side with the the firms they are supposed to be regulating

The approved solution to these regulatory issues (in no particular order) is:

1. Peer Review - 3rd party independent review of regulatory examination results
2. Duplication - Multiple regulatory agencies conducting examinations of the same firm (Insurance is regulated at the state level, so there are potentially 50 regulators looking at a single insurer)
3. Diversity of Perspective - Examination teams that consist of a broad range of backgrounds and perspectives will generate an end result that tends toward the center (as opposed to producer vs consumer tended outcomes)

So insurance companies are regulated by 50 different states and are also subject to review by the National Association of Insurance Commissioner and the Federal Insurance Office (both National Insurance regulators), which covers the peer review and duplication. The diversity of perspectives comes from having several insurance commissioners appointed vs elected. It is commonly felt that elected insurance commissioners have greater susceptibility to regulatory capture.

I'm not saying that the regulatory environment for insurance is ideal, but there is a reason that no insurance companies needed bailouts during the last recession (AIG was bailed out due to un-regulated insurance-type products that were supposed to be regulated by finance.

Also in fairness, Insurance regulation in the US is one of the more expensive ways to regulate - but it is effective.

aa

Thanks for the reply. That was kind of the discussion I was looking for when I started this thread. I personally think the SEC and FCC have major problems with regulatory capture.

#### Under the Rose

##### Veteran Member
OK, I m kinda getting off topic here: anyhow, Under the Rose do you know anything about the apples sold in the US? I just read this article about apples banned in Europe but consumed in the US http://rt.com/usa/154676-us-apples-chemical-ban/

I think labeling should also include the pesticides that are used to grow a crop.

Apples top the list of produce that carries the most pesticide residue and are therefore on of the foods that are entirely worth paying the extra cost and labor to purchase organic varieties.

http://www.ewg.org/foodnews/summary.php

#### Blahface

##### Member
One thing I think we should do is change the voting system to make elections more competitive so we don't have to elect a corrupt President just because we don't want to risk electing someone who is even worse.

The next thing we should do is restrict where regulators can work after they leave. We shouldn't allow them to work at any firm they are regulating and they shouldn't have a history of working for the firms they are regulating before they are hired. At the very least that should apply to the top positions.

#### fromderinside

##### Mazzie Daius
One comment. So when a 'good' regulatory regime's area fails all one has to do is point the finger at another, less loved, regulatory regime? Why isn't there any pointed finger regulatory regimes?

#### Jason Harvestdancer

##### Contributor
I hate to say it, but "Regulatory capture" isn't a bug, it's a feature.

The consensus is that the wealthy control the political structure, and there is indications that the consensus isn't all that wrong. So when the political structure enacts a regulatory system, who do you think will be contributing to helping to write the laws that create the regulatory system? This goes beyond the slow capture of hiring people from within the industry on the basis of their expertise. From the very beginning of the entire regulatory process the very people who are supposed to be regulated are involved in creating the system.

Now there are some in the political sphere who excel at populist rhetoric, so while taking donations from the very people they are supposed to be writing laws to control they will tell the masses that they are writing these laws for the masses. Then they will do what the large donors tell them, while sending press releases back home saying they are doing what the voters tell them.

Of course this is make feasible because people forget that "bad regulation" is still regulation. It honestly is. It helps the "wrong" people, but that doesn't mean the rules don't exist or that the system is not in place. The rules do exist, the system is in place, but it is the "wrong" rules and the "wrong" system. (Right and wrong herein defined by who benefits compared to who is supposed to benefit.)

#### TV and credit cards

##### Veteran Member
There was no shortage of examples in the wikipedia entry.

State law allows drillers to pool contiguous parcels – forcibly if necessary – to create a site large enough for a well.
And look at how densely populated this area is: Athena Drive.

I mentioned in the previous forum, and I urge you again to read part 4 of the China Study: Why Haven't You Heard This Before? It is a good example of the Deep Capture mentioned in the Wikipedia entry in that the food industry reaches not only into government but in to academia shaping degree requirements for medical doctors so that nutrition is an afterthought.

How to fix this.
Responsible reporting in the news. I remember when I was a kid, I used to watch the local news. There was a short segment called "In My Opinion". There is no doubt as to what that means. And today? Today the lines are blurred for Average Joe. Does he even know when he is listening to the news or opinion anymore? I don't think so. Perhaps something as simple as a yellow dot on Joe's TV screen to indicate what he is listening to is opinion. This would be a federal requirement of all news and talk shows. Actually, the dot should appear when actual news is being reported as it would appear less frequently and therefore be more noticeable.
News media has divided the country and consequently our politicians. The nation is polarized. Polarized by opinion, not fact. There are commonsense items the majority may agree on, but media shapes Joe's opinion and divides the population. Ever find yourself agreeing on an issue with someone from the other side? That straight line that has the far right at one end and the left at the other can be bent, brought around and connected. *Thank you Jon Stewart for making mention of this. We cannot fix anything if we do not stand together. Talk to people you generally disagree with and find the common ground.

Fight capitalism with capitalism. I made mention of Walmart hopping on the organics bandwagon in the antibiotics thread. In some instances, these problems can take care of themselves. Walmart can make a big dent in changing the industry practice of using antibiotics and growth hormones in our food. Government regulation be damned. Moreover, if organics takes hold at Walmart, it will drive down the cost.
This same model of fighting capitalism with capitalism can work a big way in the energy sector. As long as advances in solar energy are allowed to continue, we are reaching the point where it will be economically practical for homeowners to purchase solar across the US, not just where the sun shines most. Politicians best beware with their stifling laws that favor consolidated utilities. You are coming dangerously close to the point of favoring an industry over your voters pocketbook. Nothing is more bipartisan than that.

#### fromderinside

##### Mazzie Daius
Saw Daily Show last night. Bored I guess.

Katie Couric was guest. She informed us of something we should all know. US changes UN science by refusing to fund if stuff Congress (business) doesn't like is left in reports. Whether UN should cave is another discussion for some other time and place.

In this case UN group reports originally recommended keeping sugar intake to under 10% of caloric daily intake to maintain good health. Sugar interests lobbied Congress and congress refused funding if that number was left in. Currently US Sugar interests recommend sugar be 25% of daily calorie budget.

Here's a regulatory regime to which I would have pointed a finger. First off regulators should be independent of politics, kinda like judges. Second they should be required to adhere to a scientific methodology regime. From there you can add other protections you think would be necessary.

#### TV and credit cards

##### Veteran Member
First off regulators should be independent of politics, kinda like judges. Second they should be required to adhere to a scientific methodology regime. From there you can add other protections you think would be necessary.
Perhaps lifetime appointments for top regulatory positions. This would stop the revolving door of cycling from government to industry, knowing full well you better hook your brothers up while you're the cop on the beat if you want to work in the industry when you get out.
I'm sure this is nothing new and has a snowball's chance but,

If we don't scream, they won't change.

#### Blahface

##### Member
First off regulators should be independent of politics, kinda like judges. Second they should be required to adhere to a scientific methodology regime. From there you can add other protections you think would be necessary.
Perhaps lifetime appointments for top regulatory positions. This would stop the revolving door of cycling from government to industry, knowing full well you better hook your brothers up while you're the cop on the beat if you want to work in the industry when you get out.
I'm sure this is nothing new and has a snowball's chance but,

If we don't scream, they won't change.

That is a bad idea. Lifetimes appointments hasn't worked for SCOTUS; I doubt they'd work for the regulators. The President is still the one who makes the appointments and he is always going to be bought off.

#### TV and credit cards

##### Veteran Member
First off regulators should be independent of politics, kinda like judges. Second they should be required to adhere to a scientific methodology regime. From there you can add other protections you think would be necessary.
Perhaps lifetime appointments for top regulatory positions. This would stop the revolving door of cycling from government to industry, knowing full well you better hook your brothers up while you're the cop on the beat if you want to work in the industry when you get out.
I'm sure this is nothing new and has a snowball's chance but,

If we don't scream, they won't change.

That is a bad idea. Lifetimes appointments hasn't worked for SCOTUS; I doubt they'd work for the regulators. The President is still the one who makes the appointments and he is always going to be bought off.
You make broad assumptions and are throwing the baby out with the bath water.

In your previous post you state:
The next thing we should do is restrict where regulators can work after they leave. We shouldn't allow them to work at any firm they are regulating and they shouldn't have a history of working for the firms they are regulating before they are hired. At the very least that should apply to the top positions.
Having a history of working in the industry could be very beneficial to regulating it as one is more likely to have intimate knowledge of what needs to be fixed. And if you can't work in the industry once you leave govt service, where do you go? You're throwing your resume away by taking the govt job in the first place. What kind of talent would be drawn to such a job? Point is, it's easy to punch holes in an idea. Few are without fault.
But nothing changes with a nation polarized. Politicians will do the right thing when enough voters demand it. We still have this power. But as long as the nation is ill-informed with this newspinion garbage (see my comment on the media in my previous post), we will remain divided.

#### Blahface

##### Member
Having a history of working in the industry could be very beneficial to regulating it as one is more likely to have intimate knowledge of what needs to be fixed.
If you must have someone from the industry, give them an advisory only role. Don't give them executive power or voting power on a board. If they are a little less competent, that is better than being very competent and actively sabotaging the agency they are regulating.

And if you can't work in the industry once you leave govt service, where do you go? You're throwing your resume away by taking the govt job in the first place. What kind of talent would be drawn to such a job? Point is, it's easy to punch holes in an idea. Few are without fault.

There is too much of a conflict of interest. They should find employment in a different industry and it shouldn't be too hard to do. Or, offer the job to someone on the verge of retirement. If you allow them to work in the industry after their public service, they've got all the incentive in the world to act in favor the industry they are supposed to be reffing.

But nothing changes with a nation polarized. Politicians will do the right thing when enough voters demand it. We still have this power. But as long as the nation is ill-informed with this newspinion garbage (see my comment on the media in my previous post), we will remain divided.

Voters can't hold politicians accountable until we have a voting system that allows us to vote our conscience. It would be a huge step up if Oregon passed its unified primary initiative. It would stop vote splitting and massively reduce the level of partisanship.

#### laughing dog

##### Contributor
Eliminating regulatory capture requires better people. OF course that is a real problem.