Regulatory Capture Should Be Illegal

Regulatory capture is where businesspeople in an industry manage to bring their regulators under their direct control. A classic example of this is bankers in the early 2000’s who were able to get their regulators to both basically guarantee they couldn’t go bankrupt (too big to fail) and to allow the bankers to take high risk / high reward bets with other people’s money. This meant the bankers made tens of millions of dollars each in bonuses when those bets paid off, then when the housing bubble popped, they walked away without any penalty.

This same issue happens in almost every regulated industry. You see it in the building of the F-35 fighter jet where politicians got big donations / lobbying benefits, big businesses got enormous contracts… but the American taxpayer got a crappy airplane that is far overpriced.¬†You can see it in healthcare (doctors limit the number of people allowed to practice medicine, thus driving the annual pay of doctors to millions of dollars a year). You also see it to a lesser extent in many licensed industries like accounting and the law.

What should be done here? How can you prevent businesspeople from influencing their regulators to give them special benefits?

My suggestion is to make those people personally financially liable for damages, and block their ability to contract this liability away in insurance. People who have been damaged (the American taxpayer for example) could bring a class action lawsuit against Lockheed Martin and the politicians and political appointees who approved and managed the F-35. Patients could sue the AMA for limiting competition at the expense of patients. Bankers (including owners, executives, managers) could be sued personally by those who lost (investors, American taxpayers who had to bail out banks from their bad loans).

 

Published by

Joel Gross

Joel Gross is the CEO of Coalition Technologies.