by David Carpenter and David A. Moss (eds). New York: Cambridge University Press, 2013. 525pp. Hardcover $70.00 ISBN 978-1107036086. Paper $24.99. ISBN 978-1107646704.
Reviewed by Steven Puro, Department of Political Science St. Louis University. puro [at] slu.edu
Political Scientists, Economists and other scholars ask perennial questions about the undue influence of economic interests over their agency regulators. Governments and their regulatory agencies face challenges of effective regulation. There is widespread belief among policymakers and the public that special interests, i.e., the regulated industries, capture regulation or regulators. “Regulatory Capture” refers to the subversion of regulatory agencies by the firms they regulate. The reputed capture of government agencies by regulated industries has been applied to a range of activities from the global financial crisis of 2007-2009 to the Deepwater Horizon explosion and Gulf of Mexico oil spill of 2010. Two central questions in this volume are: First, how does regulatory capture of state and federal regulatory agencies affect democratic processes?; and, second, can democratic political systems meet the regulatory challenges it faces, especially with increased industrial technological sophistication and specialization among industries? Most chapters in this volume have empirical and theoretical studies that search for the concept of “regulatory capture” and its measurement. There is widespread variation among authors use of the “regulatory capture” concept.
Carpenter and Moss' edited volume takes a first step to seek “a deeper understanding of capture-of how to prevent it before it occurs and how to detect and eliminate (or at least mitigate) it where it was found” (p.2). Seventeen scholars represent a wide variety of disciplines including business organization, public policy, microeconomics, political science, and regulatory and constitutional law. Their analyses use a various methodologies which range from historical perspectives, case studies, microeconomics theory, and game theory. The volume offers significant recognition that regulation and relationships between regulated industries and regulators fulfill multiple and conflicting goals. Many scholars use sophisticated economic and game-theoretic models to enhance understanding of dynamic relationships in the regulatory process. A central argument of the volume is that existing theories “lack nuance in describing how and to what degree capture works in particular settings” (p.9). Further, the volume explores evidence of what constitutes regulatory capture, and the variation in the cultures among different agencies as they address industry and special interest intervention with government agencies.
The editors of this volume are Daniel Carpenter, the Allie S. Freed Professor of Government and Director of the Center for American Political Studies at Harvard University, and David A. Moss, [*382] the John G. McLean Professor at Harvard Business School and the President of the Tobin Project. The Tobin Project, based in Cambridge, Massachusetts, is a nonprofit research organization that sponsored this volume. This volume is the second book as part of broader studies to reimagine regulatory scholarship (Balleisen and Moss (2010). The volume has a clear organization and is well written. The editors clearly state their assumptions and perspective in the introductory chapter. Other contributors state their political and economic assumptions early in their chapters. Carpenter and Moss structure the volume into four sections: Failure of Capture Scholarship, New Conceptions of Capture -Mechanisms and Outcomes, Regulatory Case Studies, and the Possibility of Preventing Capture. These sections provide many avenues to study and criticize analyses of regulatory policies and processes. Multiple audiences, including students, political scientists, and economists, will be well served by examining all or parts of this volume.
The volume's strongest component is attempts to form new conceptions of regulatory capture and create measurement for those conceptions. These new approaches make steps toward understanding myriad dynamics of interactions between private interests, public governance, and democratic processes. Many authors show that existing ideas of “capture” lead to a misdiagnosis of relationships between private interests and public governance. These studies show that measurement of regulatory capture often proves elusive and difficult. They attempt to open new avenues of academic inquiry to measure varieties of “regulatory capture”.
The volume contains substantial criticism and marked movement away from traditional analyses and measurement of regulatory capture. The traditional studies are represented by Huntington (1952), Stigler (1971) and Bernstein (1955,1972) among others. Huntington found that railroad industry interests had a pervasive influence upon the Interstate Commerce Commission policymakers. This study and other political science studies raise questions concerning whether independent regulatory commissions can defend the public interest. Stigler and other economic studies argue that regulations are purchased by those most interested and able to buy it. In these traditional analyses, regulation is seen as a static process. The new academic analyses in this volume envision regulatory policies as a dynamic series of multiple interactions regarding policymakers and regulated industries. These new academic analyses face a barrier of heightened public concern about the inability of existing democratic politics to be captured by private economic interests.
Relationships of public and private interests and democracy are not simple and direct. Some existing regulatory capture models assume direct relationships between private economic interests and government regulatory agencies. In contrast, this volume shows that there is wide variation among special interests’ influence or attempts to influence regulatory policy. Some chapters offer views that regulatory practices and attempts by special interests to capture them are co-evolving. Some innovative chapters show various scenarios and degrees of regulatory capture. Authors draw [*383] differences between statutory capture and agency capture or strong capture and weak capture. Key questions remain whether there are different regulatory relationships between private industries and government agencies among older agencies and newer agencies which consider matters with greater policy complexity? In addition, have newer regulatory agencies been given sufficient policy capacity to avoid or prevent regulatory capture? McCarty's game theoretical model finds that “that as policy becomes more complex, regulatory outcomes are increasingly biased toward those preferred by the firm, i.e., a “weak capture” (p.103).
An important theme in this volume is that special interest influences and and participation in the regulatory process benefits both industry and regulators. In this analysis, regulation and regulators are central to the development of a market economy. Historically in the United States there have been substantial conflicts between regulatory control and democratic processes. Industries and special interest groups have often fought economic regulation as a restraint on their activities or sought to control government agencies to increase their political and economic power. The latter process mainly occurs through establishing barriers to entry to the industry or specialized area.
The volume should give additional attention to complex policy environments of bureaucratic and industry interactions. Key theoretical and conceptual questions should concern bureaucratic capacity and industries' attempts to influence bureaucratic decisions. The volume takes a first step to address these issues. However, the authors should provide additional understanding about the policymaking tradeoffs between bureaucratic capacity, industries attempting to capture the bureaucracy, and democratic processes. Perhaps scholarship starts at the wrong end of the relationships when examining interactions and tradeoffs. Scholarship could try to answer what problemswas regulation responding to rather than examining the regulatory solution and its implementation. The studies in this volume apply to the United States. Can some of the theoretical models and concepts also apply to Western European democratic systems?
This volume stresses the importance of preventing regulatory capture as an important issue for policymakers. Carpenter and Moss raise the complex question of “Was it possible to design agencies in ways that would protect or insulate them from capture?” (p.xxiv) New institutional design to prevent regulatory capture was prominent during passage of Dodd-Frank legislation. This legislation and regulatory rules were designed to manage systemic risk in the financial sector and limit possibilities of another financial crisis similar to the one in 2007-2009. Extensive lobbying by the financial industry is attempting to establish regulatory rules that could scuttle main elements of the legislation. If the financial industry can effectively capture regulators through the regulatory rules, then how can legislators design agencies that would prevent industries from capturing regulators and the regulatory process? Scholars and policymakers should ask whether such institutional preventative protections fit within democratic processes. When regulatory capture occurs the public sees a government failure to protect the [*384] common good.
Carpenter and Moss' edited volume examines the United States' struggles with industries attempting to control governmental processes for their economic and political benefit. The volume recognizes that interactions between regulators, regulations, and special interest influences are complex and dynamic. Many of the authors ask new questions about these relationships through a variety of scholarly and methodological perspectives. The theoretical and empirical analyses advance new methodologies to study bureaucracy-industry interactions. The volume offers many avenues for additional scholarship, especially to understand degrees of bureaucratic capture and institutional designs that could prevent regulatory capture. The multiple approaches in this volume will interest students and scholars studying regulatory processes. This volume also gives policy makers and scholars new insights into regulatory factors that enhance or limit influence of special interests.
Balleisen, E. and D. Moss. Eds. 2010. GOVERNMENT AND MARKETS: TOWARDS A NEW THEORY OF REGULATION. New York: Cambridge University Press.
Bernstein, Marver H. 1955. REGULATING BUSINESS BY INDEPENDENT COMMISSIONS. Westport, CT: Greenwood Press.
Bernstein, Marver H. 1972. “Independent Regulatory Agencies: A Perspective on Their Reform,” THE ANNALS OF THE AMERICAN ACADEMY OF POLITICAL AND SOCIAL SCIENCE, 400: 14-26.
Huntington, Samuel P. 1952. “The Marasmus of the ICC: The Commission, the Railroads, and the Public Interest,” YALE LAW JOURNAL 61: 467-509.
Stigler, George J. 1971. “The Theory of Economic Regulation,” BELL JOURNAL OF ECONOMICS AND MANAGEMENT SCIENCE, 2: 3-21.
Copyright 2014 by the Author, Steven Puro