Regulatory capture
Encyclopedia
In economics
, regulatory capture occurs when a state
regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure
, as it can act as an encouragement for large firms to produce negative externalities. The agencies are called "captured agencies".
, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. Regulatory capture refers to when this imbalance of focused resources devoted to a particular policy outcome is successful at "capturing" influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest are implemented. For an example of this, see a statement by US Attorney General Richard Olney
in the ICC section below.
Regulatory capture theory is a core focus of the branch of public choice referred to as the economics of regulation
; economists in this specialty are critical of conceptualizations of governmental regulatory intervention as being motivated to protect public good
. Often cited articles include Bernstein (1955), Huntington (1952), Laffont & Tirole (1991), and Levine & Forrence (1990). The theory of regulatory capture is associated with Nobel
laureate economist George Stigler
, one of its main developers.
Likelihood of regulatory capture is a risk to which an agency is exposed by its very nature. This suggests that a regulatory agency should be protected from outside influence as much as possible. Alternatively, it may be better to not create a given agency at all lest the agency become victim, in which case it may serve its regulated subjects rather than those whom the agency was designed to protect. A captured regulatory agency is often worse than no regulation, because it wields the authority of government.
Some economists, such as Jon Hanson and his co-authors, argue that the phenomenon extends beyond just political agencies and organizations. Businesses have an incentive to control anything that has power over them, including institutions from the media to academia to popular culture, and thus will try to capture them as well. They call this phenomenon "deep capture."
, the Minerals Management Service (MMS), which had had regulatory responsibility for offshore oil drilling, was widely cited as an example of regulatory capture. The MMS is now known as the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). The name was changed as part of a re-organization by Ken Salazar
, who was sworn into office as the new Secretary of the Interior
on the same day the name change was announced. Salazar's appointment was controversial because of his ties to the energy industry. As a senator, Salazar voted against an amendment to repeal tax breaks for ExxonMobil
and other major petroleum
companies and in 2006, he voted to end protections that limit offshore oil drilling in Florida
's Gulf
Coast. One of Salazar's immediate tasks was to "[end] the department’s
coziness with the industries it regulates" but Daniel R. Patterson, a member of the Arizona House of Representatives
, said “Salazar has a disturbingly weak conservation record, particularly on energy development, global warming, endangered wildlife and protecting scientific integrity. It’s no surprise oil and gas, mining, agribusiness and other polluting industries that have dominated Interior are supporting rancher Salazar — he’s their friend.” Indeed, a spokesman for the National Mining Association
, which lobbies for the mining industry, praised Salazar, saying that he was not doctrinaire about the use of public lands.
MMS had allowed BP
and dozens of other companies to drill in the Gulf of Mexico
without first attaining permits to assess threats to endangered species, as required by law. BP and other companies were also given a blanket exemption from having to provide environmental impact statements. The National Oceanic and Atmospheric Administration
(NOAA) issued strong warnings about the risks posed by such drilling and in a 2009 letter, accused MMS of understating the likelihood and potential consequences of a major spill in the Gulf of Mexico. The letter further accused MMS of highlighting the safety of offshore drilling
while understating the risks and impact of spills and playing down the fact that spills had been increasing. Both current and former MMS staff scientists said their reports were overruled and altered if they found high risk of accident or environmental impact. Kieran Suckling, director of the Center for Biological Diversity
, said, "MMS has given up any pretense of regulating the offshore oil industry. The agency seems to think its mission is to help the oil industry evade environmental laws.”
After the Deepwater accident occurred, Salazar said he would delay granting any further drilling permits, but barely three weeks later, he had issued at least five more permits. In March 2011, BOEMRE began issuing more offshore drilling permits in the Gulf of Mexico. Michael Bromwich, head of BOEMRE, said he was disturbed by the speed at which some oil and gas companies were shrugging off Deepwater Horizon as "a complete aberration, a perfect storm, one in a million," but would nonetheless soon be granting more permits to drill for oil and gas in the gulf.
administrative law judge
s, retired and in the process, requested that his cases not be assigned to the other judge, Bruce C. Levine. Painter wrote, "On Judge Levine's first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant's favor," Painter wrote. "A review of his rulings will confirm that he fulfilled his vow." In further explaining his request, he wrote, "Judge Levine, in the cynical guise of enforcing the rules, forces pro se complainants to run a hostile procedural gauntlet until they lose hope, and either withdraw their complaint or settle for a pittance, regardless of the merits of the case." Gramm, wife of former Senator Phil Gramm
, was accused of helping Goldman Sachs
, Enron
and other large firms gain influence over the commodity markets. After leaving the CFTC, Gramm joined the board of Enron.
In January and February 2010, independent metals trader Andrew Maguire
became a whistleblower
Maguire and Adrian Douglas of the Gold Anti-Trust Action Committee
, had several interviews scheduled, but all were cancelled, except an audio interview at King World News. The day after Maguire was identified as the informant at the CFTC hearing, he and his wife were victims of a hit-and-run accident and the King World News website was subjected to a distributed denial of service attack. Maguire and his wife were injured, but not seriously. (See the article at Deep Capture.) was when he contacted the CFTC about manipulation
of the silver market. On February 3, 2010, Maguire sent e-mails to the CFTC about an example of market manipulation that would take place two days later, describing the two possible scenarios in detail. Two days later, he sent a follow-up e-mail noting that the event had transpired exactly as he had predicted. The CFTC initially showed some interest in Maguire's information, but then stopped replying to his e-mail. After repeated requests for a response, he was sent a one-line e-mail, thanking him for his observations. Maguire was not invited to the subsequent CFTC hearing to consider regulating the precious metal
s market and was even barred from participating. Jeffrey Christian, a former Goldman Sachs employee, testified that gold was traded in "multiples of a hundred times the underlying physical", meaning that each ounce of gold is sold 100 times. GATA's Douglas terms the situation "a giant Ponzi scheme
". The fraud involved in precious metals markets is in the trillions of dollars, dwarfing all other cases.
The CFTC is currently headed by former Goldman Sachs
executive, Gary Gensler
. CFTC commissioner Bart Chilton
supports regulating the precious metals markets. Regulations have been proposed for the energy and metals markets but waivers have been issued and no penalties have been levied against any of the big traders.
drilling increased in the United States after the Environmental Protection Agency said in 2004 that hydraulic fracturing
, "posed little or no threat" to drinking water
. Also known as "fracking", the process was invented by Halliburton
in the 1940s. Whistleblower Weston Wilson says that the EPA's conclusions were "unsupportable" and that five of the seven-member review panel that made the decision had conflicts of interest
. A New York Times editorial said the 2004 study "whitewashed the industry and was dismissed by experts as superficial and politically motivated." In 2010, EPA Superfund
investigators warned the town of Pavillion, Wyoming
not to drink their water after finding benzene
, naphthalene
, phenols
, metals and and noxious chemicals in their water supply. The EPA investigation in Pavillion came after residents complained of discolored water, foul smells and illness in 2008. The EPA recommended that residents use fans while bathing or washing clothes to avoid the risk of explosion. The EPA is currently prohibited by law from regulating fracking, the result of the "Halliburton Loophole," a clause added to the 2005 energy bill at the request of then-vice president
Dick Cheney
, who was CEO
of Halliburton before becoming vice president. Legislation to close the loophole and restore the EPA's authority to regulate hydraulic fracturing has been referred to committee in both the House and the Senate.
has a dual-mandate both to promote aviation and to regulate its safety. A report by the Department of Transportation
that found FAA managers had allowed Southwest Airlines
to fly 46 airplanes in 2006 and 2007 that were overdue for safety inspections, ignoring concerns raised by inspectors. Audits of other airlines resulted in two airlines grounding hundreds of planes, causing thousands of flight cancellations. The House Transportation and Infrastructure Committee investigated the matter after two FAA whistleblower
s, inspectors Charalambe "Bobby" Boutris and Douglas E. Peters, contacted them. Boutris said he attempted to ground Southwest after finding cracks in the fuselage
, but was prevented by supervisors he said were friendly with the airline. The committee subsequently held hearings in April 2008. James Oberstar, former chairman of the committee said its investigation uncovered a pattern of regulatory abuse and widespread regulatory lapses, allowing 117 aircraft to be operated commercially although not in compliance with FAA safety rules. Oberstar said there was a "culture of coziness" between senior FAA officials and the airlines and "a systematic breakdown" in the FAA's culture that resulted in "malfeasance, bordering on corruption."
On July 22, 2008, a bill was unanimously approved in the House to tighten regulations concerning airplane maintenance procedures, including the establishment of a whistleblower office and a two-year "cooling off" period that FAA inspectors or supervisors of inspectors must wait before they can work for those they regulated. The bill also required rotation of principal maintenance inspectors and stipulated that the word "customer" properly applies to the flying public, not those entities regulated by the FAA. The FAA was directed to stop calling airlines its "customers".The bill was introduced in the Senate as S. 3440 by Senator Olympia Snowe
on August 1, 2008. It was read twice and sent to committee. Southwest was eventually fined $10.2 million for failing to inspect older planes for cracks, according to a 2004 FAA directive.
In September 2009, the FAA administrator issued a directive mandating that the agency use the term "customers" only to refer to the flying public. Prior to the deregulation of the US air industry, the Civil Aeronautics Board served to maintain an oligopoly
of US airlines.
In a June 2010 article on regulatory capture, the FAA was cited as an example of "old-style" regulatory capture, "in which the airline industry openly dictates to its regulators its governing rules, arranging for not only beneficial regulation but placing key people to head these regulators."
had been captured by media conglomerates. Peter Schuck of Yale University School of Law has argued that the FCC is subject to capture by the media industries’ leaders and therefore reinforce the operation of corporate cartels in a form of “corporate socialism” that serves to “regressively tax consumers, impoverish small firms, inhibit new entry, stifle innovation, and diminish consumer choice”. The FCC selectively granted communications licenses to some radio and television stations in a process that excludes other citizens and little stations from having access to the public.
Michael K. Powell, who served on the FCC for eight years and was chairman for four, was appointed president and chief executive officer
of the National Cable & Telecommunications Association
, a lobby group. As of April 25, 2011, he will be the chief lobbyist and the industry's liaison with Congress, the White House, the FCC and other federal agencies.
Meredith Attwell Baker
was one of the FCC commissioners who approved a controversial merger between NBC Universal
and Comcast
. Four months later, she announced her resignation from the FCC to join Comcast's Washington, D.C. lobbying office. Legally, she is prevented from lobbying anyone at the FCC for two years and an agreement made by Comcast with the FCC as a condition of approving the merger will ban her from lobbying any executive branch agency for life. Nonetheless, Craig Allen, of Free Press
, who opposed the merger, complained that "the complete capture of government by industry barely raises any eyebrows" and said public policy would continue to suffer from the "continuously revolving door at the FCC".
is the most influential of the Federal Reserve Banking System. Part of the New York Fed's responsibilities is the regulation of Wall Street
, but its president is selected by and reports to a board dominated by the chief executives of some of the banks it oversees. While the New York Fed has always had a closer relationship with Wall Street, during the years that Timothy Geithner was president, he became unusually close with the scions of Wall Street banks, a time when banks and hedge fund
s were pursuing investment strategies that caused the 2008 financial crisis, which the Fed failed to stop.
In the wake of the financial meltdown, Geithner became the "bailout king" of a recovery plan that benefited Wall Street banks at the expense of U.S. taxpayers. Geithner engineered the New York Fed's purchase of $30 billion of credit default swap
s from American International Group
(AIG), which it had sold to Goldman Sachs
, Merrill Lynch
, Deutsche Bank
and Société Générale
. By purchasing these contracts, the banks received a "back-door bailout" of 100 cents on the dollar for the contracts. Had the New York Fed allowed AIG to fail, the contracts would have been worth much less, resulting in much lower costs for any taxpayer-funded bailout. Geithner defended his use of unprecedented amounts of taxpayer funds to save the banks from their own mistakes, saying the financial system would have been threatened. At the January 2010 congressional hearing into the AIG bailout, the New York Fed initially refused to identify the counterparties
that benefited from AIG's bailout, claiming the information would harm AIG. When it became apparent this information would become public, a legal staffer at the New York Fed e-mailed colleagues to warn them, lamenting the difficulty of continuing to keep Congress in the dark. Jim Rickards calls the bailout a crime and says "the regulatory system has become captive to the banks and the non-banks".
has also been accused of acting in the interests of the agricultural, food and pharmaceutical industries (and supporting monopolies) at the expense of consumer health interests. Monsanto
's growth hormone
, rBGH
, which has been linked to cancer in cows and humans, has been banned in numerous countries, but is unlabeled and legal in the United States. Margaret Miller, a former chemical laboratory supervisor at Monsanto, wrote a scientific report that was to be submitted to the FDA to obtain approval of the drug. Shortly before the report was submitted, Miller quit Monsanto to take a job at the FDA, where her first job was to approve the report she had just written while employed at Monsanto. Michael R. Taylor
, the FDA's deputy commissioner for policy, and a former staff lawyer at Monsanto, where he worked on rGBH legal issues, wrote the FDA's labeling guidelines for rGBH.
, a now-defunct federal regulatory body in the United States, as a classic example of regulatory capture. The creation of the ICC was the result of widespread and longstanding anti-railroad agitation. Richard Olney
joined the Grover Cleveland
administration as attorney general
not long after the ICC was established. Olney, formerly a prominent railroad lawyer, was asked if he could do something to get rid of the ICC. He replied, "The Commission… is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things.… The part of wisdom is not to destroy the Commission, but to utilize it." The Commission was later accused of acting in the interests of railroads and trucking companies. The ICC, critics claimed, set rates at artificially high levels and excluded new competitors through a restrictive permitting process.
, despite the 1979 Three Mile Island accident
in Pennsylvania, the Nuclear Regulatory Commission
has often been too timid in ensuring that America’s 104 commercial reactors are operated safely:
Then-candidate Barack Obama
said in 2007 that the five-member NRC had become "captive of the industries that it regulates" and Joe Biden indicated he had absolutely no confidence in the agency.
The NRC has given a license to every single reactor requesting one, prompting Greenpeace USA nuclear policy analyst Jim Riccio to refer to the agency approval process as a "rubber stamp". In Vermont, ten days after the 2011 Tōhoku earthquake and tsunami
that damaged Japan's Daiichi plant in Fukushima
, the NRC approved a 20-year extension for the license of Vermont Yankee Nuclear Power Plant
, although the Vermont state legislature had voted overwhelmingly to deny such an extension. The Vermont plant uses the same GE Mark 1 reactor design as the Fukushima Daiichi plant. The plant had been found to be leaking radioactive materials through a network of underground pipes, which Entergy
, the company running the plant, had denied under oath
even existed. Representative Tony Klein, who chaired the Vermont House
Natural Resources and Energy Committee, said that when he asked the NRC about the pipes at a hearing in 2009, the NRC didn't know about their existence, much less that they were leaking. On March 17, 2011, the Union of Concerned Scientists
(UCS) released a study critical of the NRC's 2010 performance as a regulator. The UCS said that through the years, it had found the NRC's enforcement of safety rules has not been “timely, consistent, or effective" and it cited 14 "near-misses" at U.S. plants in 2010 alone. Tyson Slocum, an energy expert at Public Citizen
said the nuclear industry has "embedded itself in the political establishment" through "reliable friends from George Bush to Barack Obama", that the government "has really just become cheerleaders for the industry."
There have also been instances of a revolving door
. Jeffrey Merrifield, who was on the NRC from 1997 to 2008 and was appointed by presidents Clinton
and Bush
, left the NRC to take an executive position at The Shaw Group
, which has a nuclear division regulated by the NRC.Pete Domenici
, a former U.S. senator now promotes nuclear energy. Over the course of his 20 years in government, he received $1.25 million in political contributions connected with the energy sector. From 2000 to 2010, the nuclear industry and people who work in it, contributed $4.6 million to members of Congress, in addition to the $54 million spent by electric utilities, trade groups and other supporters to hire lobbyists, including some former members of Congress. (See Eric Lichtblau, "Lobbyists’ Long Effort to Revive Nuclear Industry Faces New Test" The New York Times (March 24, 2011)
A year-long Associated Press
(AP) investigation showed that the NRC, working with the industry, has relaxed regulations so that aging reactors can remain in operation. The AP found that wear and tear of plants, such as clogged lines, cracked parts, leaky seals, rust and other deterioration resulted in 26 alerts about emerging safety problems and may have been a factor in 113 of the 226 alerts issued by the NRC between 2005 and June 2011. The NRC repeatedly granted the industry permission to delay repairs and problems often grew worse before they were fixed.According to the AP, of the United States' 104 operating nuclear power plants, 82 are over 25 years old, the NRC has re-licensed 66 for an 20 additional years and another 16 renewal applications are under review.
has strongly opposed the efforts of the 50 state attorneys general
, who have banded together to penalize banks and reform the mortgage modification process, following the subprime mortgage crisis
and the financial crisis of 2008. This example was cited in The New York Times
as evidence that the OCC is "a captive of the banks it is supposed to regulate".
has also been accused of acting in the interests of Wall Street
banks and hedge funds and of dragging its feet or refusing to investigate cases or bring charges for fraud
and insider trading
. Financial analyst Harry Markopolos
, who spent ten years trying to get the SEC to investigate Bernie Madoff, called the agency "nonfunctional, captive to the industry." The SEC has been found by the U.S. Senate Committee on Finance, the Senate Judiciary Committee and a federal district court to have illegally dismissed an employee in September 2005 who was critical of superiors' refusal to pursue Wall Street
titan John Mack
. Mack was suspected of giving insider information to Arthur J. Samberg
, head of Pequot Capital Management
, once one of the world's largest hedge funds. After more than four years, of legal battles, former SEC investigator Gary J. Aguirre
filed papers in an Freedom of Information Act (FOIA) case he had against the SEC, seeking an order to force the SEC to turn over Pequot investigation records to him on the grounds that they had not charged anyone. Aguirre had already provided incriminating evidence of Pequot's insider trading involving Microsoft
trades to the SEC in a letter on January 2, 2009. The morning after Aguirre's FOIA papers were filed, the SEC announced they had filed charges against Pequot and Pequot had agreed to disgorge $18 million in illegal gains and pay $10 million in penalties. A month later, the SEC settled Aguirre's wrongful termination lawsuit for $755,000.
The list of officials who have left the SEC for highly lucrative jobs in the private sector and who sometimes have returned to the SEC includes Arthur Levitt
, Robert Khuzami
, Linda Chatman Thomsen
, Richard H. Walker
, Gary Lynch
and Paul R. Berger. The Project on Government Oversight
(POGO) released a report on May 13, 2011 which found that between 2006 and 2010, 219 former SEC employees sought to represent clients before the SEC. Former employees filed 789 statements notifying the SEC of their intent to represent outside clients before the commission, some filing within days of leaving the SEC.
Reporter Matt Taibbi
calls the SEC a classic case of regulatory capture and the SEC has been described as an agency that was set up to protect the public from Wall Street, but now protects Wall Street from the public. On August 17, 2011, Taibbi reported that in July 2001, a preliminary fraud investigation against Deutsche Bank
was stymied by Richard H. Walker
, then SEC enforcement director, who began working as general counsel for Deutsche Bank in October 2001. Darcy Flynn, an SEC lawyer, the whistleblower who exposed this case also revealed that for 20 years, the SEC had been routinely destroying all documents related to thousands of preliminary inquiries that were closed rather than proceeding to formal investigation. The SEC is legally required to keep files for 25 years and destruction is supposed to be done by the National Archives and Records Administration
. The lack of files deprives investigators of possible background when investigating cases involving those firms. Documents were destroyed for inquiries into Bernard Madoff
, Goldman Sachs
, Lehman Brothers
, Citigroup
, Bank of America
and other major Wall Street firms that played key roles in the 2008 financial crisis. The SEC has since changed its policy on destroying those documents and the SEC investigator general is investigating the matter.
to impose usage-based billing on Internet wholesale
rs, igniting protest from both the wholesalers and consumers, who claimed that the CRTC was "kow-towing to Bell".
On February 2, 2011, CRTC chair Konrad von Finckenstein
testified before parliament's Standing Committee on Industry, Science and Technology and justified the agency's decision. Critic Steve Anderson said, “The CRTC’s stubbornness in the face of a mass public outcry demonstrates the strength of the Big Telecom lobby’s influence. While government officials have recognized the need to protect citizens’ communications interests, the CRTC has made it clear that their priorities lie elsewhere." Other companies said to have influence over CRTC are Rogers Communications
, Telus
, Shaw Communications
and Videotron
.
has argued the World Trade Organisation non-violation nullification of benefits
claims, particularly when inserted in bilateral trade agreements, can facilitate intense lobbying by industry which can result in effective regulatory capture of large areas of governmental policy.
approved a 10-year extension for the oldest of the six reactors at Fukushima Daiichi just one month before a 9.0 magnitude earthquake and subsequent tsunami
damaged reactors and caused a meltdown. Nuclear opponent Eisaku Sato
, governor of Fukushima Prefecture
from 1988–2006, said a conflict of interest is responsible for NISA's lack of effectiveness as a watchdog. The agency is under the Ministry of Economy, Trade and Industry, which encourages the development of Japan's nuclear industry. Inadequate inspections are reviewed by expert panels drawn primarily from academia and rarely challenge the agency. Critics say the main weakness in Japan's nuclear industry is weak oversight. Seismologist
Takashi Nakata said, "The regulators just rubber-stamp the utilities' reports."
Both the ministry and the agency have ties with nuclear plant operators, such as Tokyo Electric. Some former ministry officials have been offered lucrative jobs in a practice called amakudari
, "descent from heaven". A panel responsible for re-writing Japan's nuclear safety rules was dominated by experts and advisers from utility companies, said seismology professor Katsuhiko Ishibashi
who quit the panel in protest, saying it was rigged and "unscientific". The new guidelines, established in 2006, did not set stringent industry-wide earthquake
standards, rather nuclear plant operators were left to do their own inspections to ensure their plants were compliant. In 2008, the NISA found all of Japan's reactors to be in compliance with the new earthquake guidelines.
Yoshihiro Kinugasa helped write Japan's nuclear safety rules, later conducted inspections and still in another position at another date, served on a licensing panel, signing off on inspections.
(now combined with the Ministry of Labour) came under fire over the scandal of HIV-tainted blood
being used to treat hemophiliacs. Although warned about HIV contamination of blood products imported from the U.S., the ministry abruptly changed its position on heated and unheated blood products from the U.S., protecting Green Cross
and the Japanese pharmaceutical industry by keeping the Japanese market from being inundated with heat-treated blood from the United States. Because the unheated blood was not taken off the market, 400 people died and over 3,000 people were infected with HIV. No senior officials were indicted and only one lower-level manager was indicted and convicted. Critics say the major task of the ministry is the protection of industry, rather than of the population. In addition, bureaucrats get amakudari jobs at related industries in their field upon retirement, a system which serves to inhibit regulators. Moriyo Kimura, a critic who works at MHLW, says the ministry does not look after the interests of the public.
wrote, "If the government is to tell big business men how to run their business, then don't you see that big business men have to get closer to the government even than they are now? Don't you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it."
At a January 2010 hearing of the House Committee on Oversight and Government Reform, U.S. Representative Marcy Kaptur
told former president of the New York Fed and current Secretary of the Treasury
, Timothy Geithner, “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”
In a May 2011 article entitled, "Why CEOs Avoided Getting Busted in Meltdown", former Savings and Loan regulator William K. Black
wrote, "The defining characteristic of crony capitalism
is the ability of favored elites to loot with impunity and the failure of regulators to do their jobs."
In a June 2011 article by the Associated Press, nuclear engineer Paul Blanch said, "It's a philosophical position that [NRC regulators] take that's driven by the industry and by the economics: What do we need to do to let those plants continue to operate? They somehow sharpen their pencil to either modify their interpretation of the regulations, or they modify their assumptions in the risk assessment."
Literature
Other American groups promoting transparency
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, regulatory capture occurs when a state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure
Government failure
Government failure is the public sector analogy to market failure and occurs when a government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention...
, as it can act as an encouragement for large firms to produce negative externalities. The agencies are called "captured agencies".
The theory
For public choice theoristsPublic choice theory
In economics, public choice theory is the use of modern economic tools to study problems that traditionally are in the province of political science...
, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. Regulatory capture refers to when this imbalance of focused resources devoted to a particular policy outcome is successful at "capturing" influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest are implemented. For an example of this, see a statement by US Attorney General Richard Olney
Richard Olney
Richard Olney was an American statesman. He served as both United States Attorney General and Secretary of State under President Grover Cleveland. As attorney general, Olney used injunctions against striking workers in the Pullman strike, setting a precedent, and advised the use of federal troops,...
in the ICC section below.
Regulatory capture theory is a core focus of the branch of public choice referred to as the economics of regulation
Regulatory economics
Regulatory economics is the economics of regulation, in the sense of the application of law by government that is used for various purposes, such as centrally-planning an economy, remedying market failure, enriching well-connected firms, or benefiting politicians...
; economists in this specialty are critical of conceptualizations of governmental regulatory intervention as being motivated to protect public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
. Often cited articles include Bernstein (1955), Huntington (1952), Laffont & Tirole (1991), and Levine & Forrence (1990). The theory of regulatory capture is associated with Nobel
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
laureate economist George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....
, one of its main developers.
Likelihood of regulatory capture is a risk to which an agency is exposed by its very nature. This suggests that a regulatory agency should be protected from outside influence as much as possible. Alternatively, it may be better to not create a given agency at all lest the agency become victim, in which case it may serve its regulated subjects rather than those whom the agency was designed to protect. A captured regulatory agency is often worse than no regulation, because it wields the authority of government.
Economic rationale
The idea of regulatory capture has an obvious economic basis in that vested interests in an industry have the greatest financial stake in regulatory activity and are more likely to be motivated to influence the regulatory body than dispersed individual consumers, each of whom has little particular incentive to try to influence regulators. When regulators form expert bodies to examine policy, this invariably featured current or former industry members, or at the very least, individuals with contacts in the industry.Some economists, such as Jon Hanson and his co-authors, argue that the phenomenon extends beyond just political agencies and organizations. Businesses have an incentive to control anything that has power over them, including institutions from the media to academia to popular culture, and thus will try to capture them as well. They call this phenomenon "deep capture."
Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE)
In the aftermath of the 2010 Deepwater Horizon oil spillDeepwater Horizon oil spill
The Deepwater Horizon oil spill is an oil spill in the Gulf of Mexico which flowed unabated for three months in 2010, and continues to leak fresh oil. It is the largest accidental marine oil spill in the history of the petroleum industry...
, the Minerals Management Service (MMS), which had had regulatory responsibility for offshore oil drilling, was widely cited as an example of regulatory capture. The MMS is now known as the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). The name was changed as part of a re-organization by Ken Salazar
Ken Salazar
Kenneth Lee "Ken" Salazar is the current United States Secretary of the Interior, in the administration of President Barack Obama. A member of the Democratic Party, he previously served as a United States Senator from Colorado from 2005 to 2009. He and Mel Martinez were the first Hispanic U.S...
, who was sworn into office as the new Secretary of the Interior
United States Secretary of the Interior
The United States Secretary of the Interior is the head of the United States Department of the Interior.The US Department of the Interior should not be confused with the concept of Ministries of the Interior as used in other countries...
on the same day the name change was announced. Salazar's appointment was controversial because of his ties to the energy industry. As a senator, Salazar voted against an amendment to repeal tax breaks for ExxonMobil
ExxonMobil
Exxon Mobil Corporation or ExxonMobil, is an American multinational oil and gas corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company, and was formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters are in Irving, Texas...
and other major petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
companies and in 2006, he voted to end protections that limit offshore oil drilling in Florida
Florida
Florida is a state in the southeastern United States, located on the nation's Atlantic and Gulf coasts. It is bordered to the west by the Gulf of Mexico, to the north by Alabama and Georgia and to the east by the Atlantic Ocean. With a population of 18,801,310 as measured by the 2010 census, it...
's Gulf
Gulf of Mexico
The Gulf of Mexico is a partially landlocked ocean basin largely surrounded by the North American continent and the island of Cuba. It is bounded on the northeast, north and northwest by the Gulf Coast of the United States, on the southwest and south by Mexico, and on the southeast by Cuba. In...
Coast. One of Salazar's immediate tasks was to "[end] the department’s
United States Department of the Interior
The United States Department of the Interior is the United States federal executive department of the U.S. government responsible for the management and conservation of most federal land and natural resources, and the administration of programs relating to Native Americans, Alaska Natives, Native...
coziness with the industries it regulates" but Daniel R. Patterson, a member of the Arizona House of Representatives
Arizona House of Representatives
The Arizona House of Representatives is the lower house of the Arizona Legislature, the state legislature of the U.S. state of Arizona. Its members are elected to two-year terms with a term limit of four consecutive terms...
, said “Salazar has a disturbingly weak conservation record, particularly on energy development, global warming, endangered wildlife and protecting scientific integrity. It’s no surprise oil and gas, mining, agribusiness and other polluting industries that have dominated Interior are supporting rancher Salazar — he’s their friend.” Indeed, a spokesman for the National Mining Association
National Mining Association
The National Mining Association , is a trade organization that lists itself as the voice of the mining industry in Washington, D.C. NMA was formed in 1995, and has more than 325 corporate members.-History:...
, which lobbies for the mining industry, praised Salazar, saying that he was not doctrinaire about the use of public lands.
MMS had allowed BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
and dozens of other companies to drill in the Gulf of Mexico
Gulf of Mexico
The Gulf of Mexico is a partially landlocked ocean basin largely surrounded by the North American continent and the island of Cuba. It is bounded on the northeast, north and northwest by the Gulf Coast of the United States, on the southwest and south by Mexico, and on the southeast by Cuba. In...
without first attaining permits to assess threats to endangered species, as required by law. BP and other companies were also given a blanket exemption from having to provide environmental impact statements. The National Oceanic and Atmospheric Administration
National Oceanic and Atmospheric Administration
The National Oceanic and Atmospheric Administration , pronounced , like "noah", is a scientific agency within the United States Department of Commerce focused on the conditions of the oceans and the atmosphere...
(NOAA) issued strong warnings about the risks posed by such drilling and in a 2009 letter, accused MMS of understating the likelihood and potential consequences of a major spill in the Gulf of Mexico. The letter further accused MMS of highlighting the safety of offshore drilling
Offshore drilling
Offshore drilling refers to a mechanical process where a wellbore is drilled through the seabed. It is typically carried out in order to explore for and subsequently produce hydrocarbons which lie in rock formations beneath the seabed...
while understating the risks and impact of spills and playing down the fact that spills had been increasing. Both current and former MMS staff scientists said their reports were overruled and altered if they found high risk of accident or environmental impact. Kieran Suckling, director of the Center for Biological Diversity
Center for Biological Diversity
The Center for Biological Diversity based in Tucson, Arizona, is a nonprofit membership organization with approximately 220,000 members and online activists, known for its work protecting endangered species through legal action and scientific petitions...
, said, "MMS has given up any pretense of regulating the offshore oil industry. The agency seems to think its mission is to help the oil industry evade environmental laws.”
After the Deepwater accident occurred, Salazar said he would delay granting any further drilling permits, but barely three weeks later, he had issued at least five more permits. In March 2011, BOEMRE began issuing more offshore drilling permits in the Gulf of Mexico. Michael Bromwich, head of BOEMRE, said he was disturbed by the speed at which some oil and gas companies were shrugging off Deepwater Horizon as "a complete aberration, a perfect storm, one in a million," but would nonetheless soon be granting more permits to drill for oil and gas in the gulf.
Commodity Futures Trading Commission (CFTC)
In October 2010, George H. Painter, one of the two Commodity Futures Trading CommissionCommodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
administrative law judge
Administrative law judge
An administrative law judge in the United States is an official who presides at an administrative trial-type hearing to resolve a dispute between a government agency and someone affected by a decision of that agency. The ALJ is usually the initial trier of fact and decision maker...
s, retired and in the process, requested that his cases not be assigned to the other judge, Bruce C. Levine. Painter wrote, "On Judge Levine's first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant's favor," Painter wrote. "A review of his rulings will confirm that he fulfilled his vow." In further explaining his request, he wrote, "Judge Levine, in the cynical guise of enforcing the rules, forces pro se complainants to run a hostile procedural gauntlet until they lose hope, and either withdraw their complaint or settle for a pittance, regardless of the merits of the case." Gramm, wife of former Senator Phil Gramm
Phil Gramm
William Philip "Phil" Gramm is an American economist and politician, who has served as a Democratic Congressman , a Republican Congressman and a Republican Senator from Texas...
, was accused of helping Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
and other large firms gain influence over the commodity markets. After leaving the CFTC, Gramm joined the board of Enron.
In January and February 2010, independent metals trader Andrew Maguire
Andrew Maguire (whistleblower)
Andrew Maguire is an independent bullion trader and a whistleblower. He notified United States regulators that fraud had been committed, manipulating prices in the international gold and silver markets...
became a whistleblower
Whistleblower
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department, a public or private organization, or a company...
Maguire and Adrian Douglas of the Gold Anti-Trust Action Committee
Gold Anti-Trust Action Committee
The Gold Anti-Trust Action Committee is an organization dedicated to investigating and proving its allegation that the quantity of gold held and traded by the world's central banks, international bullion banks and futures exchanges is significantly overstated and that a scheme analogous to the...
, had several interviews scheduled, but all were cancelled, except an audio interview at King World News. The day after Maguire was identified as the informant at the CFTC hearing, he and his wife were victims of a hit-and-run accident and the King World News website was subjected to a distributed denial of service attack. Maguire and his wife were injured, but not seriously. (See the article at Deep Capture.) was when he contacted the CFTC about manipulation
Market manipulation
Market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency...
of the silver market. On February 3, 2010, Maguire sent e-mails to the CFTC about an example of market manipulation that would take place two days later, describing the two possible scenarios in detail. Two days later, he sent a follow-up e-mail noting that the event had transpired exactly as he had predicted. The CFTC initially showed some interest in Maguire's information, but then stopped replying to his e-mail. After repeated requests for a response, he was sent a one-line e-mail, thanking him for his observations. Maguire was not invited to the subsequent CFTC hearing to consider regulating the precious metal
Precious metal
A precious metal is a rare, naturally occurring metallic chemical element of high economic value.Chemically, the precious metals are less reactive than most elements, have high lustre, are softer or more ductile, and have higher melting points than other metals...
s market and was even barred from participating. Jeffrey Christian, a former Goldman Sachs employee, testified that gold was traded in "multiples of a hundred times the underlying physical", meaning that each ounce of gold is sold 100 times. GATA's Douglas terms the situation "a giant Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
". The fraud involved in precious metals markets is in the trillions of dollars, dwarfing all other cases.
The CFTC is currently headed by former Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
executive, Gary Gensler
Gary Gensler
Gary Gensler is the chairman of the U.S. Commodity Futures Trading Commission under President Barack Obama.Gensler was Undersecretary of the Treasury and Assistant Secretary of the Treasury in the United States. Barack Obama selected him to lead the Commodity Futures Trading Commission, which has...
. CFTC commissioner Bart Chilton
Bart Chilton
Bart Chilton is a commissioner on the United States Commodity Futures Trading Commission . Chilton has been a vocal supporter of position limits in commodities markets...
supports regulating the precious metals markets. Regulations have been proposed for the energy and metals markets but waivers have been issued and no penalties have been levied against any of the big traders.
Environmental Protection Agency (EPA)
Natural gasNatural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
drilling increased in the United States after the Environmental Protection Agency said in 2004 that hydraulic fracturing
Hydraulic fracturing
Considerable controversy surrounds the current implementation of hydraulic fracturing technology in the United States. Hydraulic fracturing, or fracking, is the process of utilizing pressurized water, or some other liquid, to fracture rock layers and release petroleum, natural gas, or other...
, "posed little or no threat" to drinking water
Drinking water
Drinking water or potable water is water pure enough to be consumed or used with low risk of immediate or long term harm. In most developed countries, the water supplied to households, commerce and industry is all of drinking water standard, even though only a very small proportion is actually...
. Also known as "fracking", the process was invented by Halliburton
Halliburton
Halliburton is the world's second largest oilfield services corporation with operations in more than 70 countries. It has hundreds of subsidiaries, affiliates, branches, brands and divisions worldwide and employs over 50,000 people....
in the 1940s. Whistleblower Weston Wilson says that the EPA's conclusions were "unsupportable" and that five of the seven-member review panel that made the decision had conflicts of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
. A New York Times editorial said the 2004 study "whitewashed the industry and was dismissed by experts as superficial and politically motivated." In 2010, EPA Superfund
Superfund
Superfund is the common name for the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 , a United States federal law designed to clean up sites contaminated with hazardous substances...
investigators warned the town of Pavillion, Wyoming
Pavillion, Wyoming
Pavillion is a town in Fremont County, Wyoming, United States. The population was 165 at the 2000 census.-Geography:Pavillion is located at ....
not to drink their water after finding benzene
Benzene
Benzene is an organic chemical compound. It is composed of 6 carbon atoms in a ring, with 1 hydrogen atom attached to each carbon atom, with the molecular formula C6H6....
, naphthalene
Naphthalene
Naphthalene is an organic compound with formula . It is a white crystalline solid with a characteristic odor that is detectable at concentrations as low as 0.08 ppm by mass. As an aromatic hydrocarbon, naphthalene's structure consists of a fused pair of benzene rings...
, phenols
Phenols
In organic chemistry, phenols, sometimes called phenolics, are a class of chemical compounds consisting of a hydroxyl group bonded directly to an aromatic hydrocarbon group...
, metals and and noxious chemicals in their water supply. The EPA investigation in Pavillion came after residents complained of discolored water, foul smells and illness in 2008. The EPA recommended that residents use fans while bathing or washing clothes to avoid the risk of explosion. The EPA is currently prohibited by law from regulating fracking, the result of the "Halliburton Loophole," a clause added to the 2005 energy bill at the request of then-vice president
Vice President of the United States
The Vice President of the United States is the holder of a public office created by the United States Constitution. The Vice President, together with the President of the United States, is indirectly elected by the people, through the Electoral College, to a four-year term...
Dick Cheney
Dick Cheney
Richard Bruce "Dick" Cheney served as the 46th Vice President of the United States , under George W. Bush....
, who was CEO
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
of Halliburton before becoming vice president. Legislation to close the loophole and restore the EPA's authority to regulate hydraulic fracturing has been referred to committee in both the House and the Senate.
Federal Aviation Administration (FAA)
The Federal Aviation AdministrationFederal Aviation Administration
The Federal Aviation Administration is the national aviation authority of the United States. An agency of the United States Department of Transportation, it has authority to regulate and oversee all aspects of civil aviation in the U.S...
has a dual-mandate both to promote aviation and to regulate its safety. A report by the Department of Transportation
Department of Transportation
The Department of Transportation is the most common name for a government agency in North America devoted to transportation. The largest is the United States Department of Transportation, which oversees interstate travel. All U.S. states, Canadian provinces, and many local agencies also have...
that found FAA managers had allowed Southwest Airlines
Southwest Airlines
Southwest Airlines Co. is an American low-cost airline based in Dallas, Texas. Southwest is the largest airline in the United States, based upon domestic passengers carried,...
to fly 46 airplanes in 2006 and 2007 that were overdue for safety inspections, ignoring concerns raised by inspectors. Audits of other airlines resulted in two airlines grounding hundreds of planes, causing thousands of flight cancellations. The House Transportation and Infrastructure Committee investigated the matter after two FAA whistleblower
Whistleblower
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department, a public or private organization, or a company...
s, inspectors Charalambe "Bobby" Boutris and Douglas E. Peters, contacted them. Boutris said he attempted to ground Southwest after finding cracks in the fuselage
Fuselage
The fuselage is an aircraft's main body section that holds crew and passengers or cargo. In single-engine aircraft it will usually contain an engine, although in some amphibious aircraft the single engine is mounted on a pylon attached to the fuselage which in turn is used as a floating hull...
, but was prevented by supervisors he said were friendly with the airline. The committee subsequently held hearings in April 2008. James Oberstar, former chairman of the committee said its investigation uncovered a pattern of regulatory abuse and widespread regulatory lapses, allowing 117 aircraft to be operated commercially although not in compliance with FAA safety rules. Oberstar said there was a "culture of coziness" between senior FAA officials and the airlines and "a systematic breakdown" in the FAA's culture that resulted in "malfeasance, bordering on corruption."
On July 22, 2008, a bill was unanimously approved in the House to tighten regulations concerning airplane maintenance procedures, including the establishment of a whistleblower office and a two-year "cooling off" period that FAA inspectors or supervisors of inspectors must wait before they can work for those they regulated. The bill also required rotation of principal maintenance inspectors and stipulated that the word "customer" properly applies to the flying public, not those entities regulated by the FAA. The FAA was directed to stop calling airlines its "customers".The bill was introduced in the Senate as S. 3440 by Senator Olympia Snowe
Olympia Snowe
Olympia Jean Snowe , née Bouchles, is the senior United States Senator from Maine and a member of the Republican Party. Snowe has become widely known for her ability to influence the outcome of close votes, including whether to end filibusters. She and her fellow Senator from Maine, Susan Collins,...
on August 1, 2008. It was read twice and sent to committee. Southwest was eventually fined $10.2 million for failing to inspect older planes for cracks, according to a 2004 FAA directive.
In September 2009, the FAA administrator issued a directive mandating that the agency use the term "customers" only to refer to the flying public. Prior to the deregulation of the US air industry, the Civil Aeronautics Board served to maintain an oligopoly
Oligopoly
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
of US airlines.
In a June 2010 article on regulatory capture, the FAA was cited as an example of "old-style" regulatory capture, "in which the airline industry openly dictates to its regulators its governing rules, arranging for not only beneficial regulation but placing key people to head these regulators."
Federal Communications Commission (FCC)
Legal scholars have pointed to the possibility that federal agencies such as the Federal Communications CommissionFederal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
had been captured by media conglomerates. Peter Schuck of Yale University School of Law has argued that the FCC is subject to capture by the media industries’ leaders and therefore reinforce the operation of corporate cartels in a form of “corporate socialism” that serves to “regressively tax consumers, impoverish small firms, inhibit new entry, stifle innovation, and diminish consumer choice”. The FCC selectively granted communications licenses to some radio and television stations in a process that excludes other citizens and little stations from having access to the public.
Michael K. Powell, who served on the FCC for eight years and was chairman for four, was appointed president and chief executive officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
of the National Cable & Telecommunications Association
National Cable & Telecommunications Association
The National Cable & Telecommunications Association is the principal trade association for the U.S. cable TV industry, representing cable operators serving more than 90 percent of the nation’s cable households and more than 200 cable program networks, as well as equipment suppliers and providers...
, a lobby group. As of April 25, 2011, he will be the chief lobbyist and the industry's liaison with Congress, the White House, the FCC and other federal agencies.
Meredith Attwell Baker
Meredith Attwell Baker
Meredith Attwell Baker was a member of the United States Federal Communications Commission . In mid-May 2011, she announced that she was taking a job with Comcast, effective June 3, 2011, instead of completing her term on June 30...
was one of the FCC commissioners who approved a controversial merger between NBC Universal
NBC Universal
NBCUniversal Media, LLC is a media and entertainment company engaged in the production and marketing of entertainment, news, and information products and services to a global customer base...
and Comcast
Comcast
Comcast Corporation is the largest cable operator, home Internet service provider, and fourth largest home telephone service provider in the United States, providing cable television, broadband Internet, and telephone service to both residential and commercial customers in 39 states and the...
. Four months later, she announced her resignation from the FCC to join Comcast's Washington, D.C. lobbying office. Legally, she is prevented from lobbying anyone at the FCC for two years and an agreement made by Comcast with the FCC as a condition of approving the merger will ban her from lobbying any executive branch agency for life. Nonetheless, Craig Allen, of Free Press
Free Press (organization)
Free Press is a nonpartisan, nonprofit, national organization working to reform the media in the United States.It was founded in 2002 by media scholar Robert W. McChesney, The Nation contributor John Nichols, and Josh Silver, current CEO of the Democracy Fund, a foundation challenging the influence...
, who opposed the merger, complained that "the complete capture of government by industry barely raises any eyebrows" and said public policy would continue to suffer from the "continuously revolving door at the FCC".
Federal Reserve Bank of New York (New York Fed)
The Federal Reserve Bank of New YorkFederal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...
is the most influential of the Federal Reserve Banking System. Part of the New York Fed's responsibilities is the regulation of Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
, but its president is selected by and reports to a board dominated by the chief executives of some of the banks it oversees. While the New York Fed has always had a closer relationship with Wall Street, during the years that Timothy Geithner was president, he became unusually close with the scions of Wall Street banks, a time when banks and hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
s were pursuing investment strategies that caused the 2008 financial crisis, which the Fed failed to stop.
In the wake of the financial meltdown, Geithner became the "bailout king" of a recovery plan that benefited Wall Street banks at the expense of U.S. taxpayers. Geithner engineered the New York Fed's purchase of $30 billion of credit default swap
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
s from American International Group
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...
(AIG), which it had sold to Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
and Société Générale
Société Générale
Société Générale S.A. is a large European Bank and a major Financial Services company that has a substantial global presence. Its registered office is on Boulevard Haussmann in the 9th arrondissement of Paris, while its head office is in the Tours Société Générale in the business district of La...
. By purchasing these contracts, the banks received a "back-door bailout" of 100 cents on the dollar for the contracts. Had the New York Fed allowed AIG to fail, the contracts would have been worth much less, resulting in much lower costs for any taxpayer-funded bailout. Geithner defended his use of unprecedented amounts of taxpayer funds to save the banks from their own mistakes, saying the financial system would have been threatened. At the January 2010 congressional hearing into the AIG bailout, the New York Fed initially refused to identify the counterparties
Counterparty
A counterparty is a legal and financial term. It means a party to a contract. A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context....
that benefited from AIG's bailout, claiming the information would harm AIG. When it became apparent this information would become public, a legal staffer at the New York Fed e-mailed colleagues to warn them, lamenting the difficulty of continuing to keep Congress in the dark. Jim Rickards calls the bailout a crime and says "the regulatory system has become captive to the banks and the non-banks".
Food and Drug Administration (FDA)
The United States Food and Drug AdministrationFood and Drug Administration
The Food and Drug Administration is an agency of the United States Department of Health and Human Services, one of the United States federal executive departments...
has also been accused of acting in the interests of the agricultural, food and pharmaceutical industries (and supporting monopolies) at the expense of consumer health interests. Monsanto
Monsanto
The Monsanto Company is a US-based multinational agricultural biotechnology corporation. It is the world's leading producer of the herbicide glyphosate, marketed in the "Roundup" brand of herbicides, and in other brands...
's growth hormone
Growth hormone
Growth hormone is a peptide hormone that stimulates growth, cell reproduction and regeneration in humans and other animals. Growth hormone is a 191-amino acid, single-chain polypeptide that is synthesized, stored, and secreted by the somatotroph cells within the lateral wings of the anterior...
, rBGH
Bovine somatotropin
Bovine somatotropin , or BGH, is a chain of amino acids produced by the cow's pituitary gland. Like other hormones, it is produced in small quantities and is used in regulating metabolic processes...
, which has been linked to cancer in cows and humans, has been banned in numerous countries, but is unlabeled and legal in the United States. Margaret Miller, a former chemical laboratory supervisor at Monsanto, wrote a scientific report that was to be submitted to the FDA to obtain approval of the drug. Shortly before the report was submitted, Miller quit Monsanto to take a job at the FDA, where her first job was to approve the report she had just written while employed at Monsanto. Michael R. Taylor
Michael R. Taylor
Michael R. Taylor is the Deputy Commissioner for Foods, at the United States Food and Drug Administration .He received a B.A. degree in political science from Davidson College and a law degree from the University of Virginia...
, the FDA's deputy commissioner for policy, and a former staff lawyer at Monsanto, where he worked on rGBH legal issues, wrote the FDA's labeling guidelines for rGBH.
Interstate Commerce Commission (ICC)
Historians, political scientists, and economists have used the Interstate Commerce CommissionInterstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
, a now-defunct federal regulatory body in the United States, as a classic example of regulatory capture. The creation of the ICC was the result of widespread and longstanding anti-railroad agitation. Richard Olney
Richard Olney
Richard Olney was an American statesman. He served as both United States Attorney General and Secretary of State under President Grover Cleveland. As attorney general, Olney used injunctions against striking workers in the Pullman strike, setting a precedent, and advised the use of federal troops,...
joined the Grover Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
administration as attorney general
Attorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...
not long after the ICC was established. Olney, formerly a prominent railroad lawyer, was asked if he could do something to get rid of the ICC. He replied, "The Commission… is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things.… The part of wisdom is not to destroy the Commission, but to utilize it." The Commission was later accused of acting in the interests of railroads and trucking companies. The ICC, critics claimed, set rates at artificially high levels and excluded new competitors through a restrictive permitting process.
Nuclear Regulatory Commission (NRC)
According to Frank N. von HippelFrank N. von Hippel
Frank N. von Hippel, Professor and Co-Director, Program on Science and Global Security, Princeton University, Woodrow Wilson School of Public and International Affairs.-Positions held:...
, despite the 1979 Three Mile Island accident
Three Mile Island accident
The Three Mile Island accident was a core meltdown in Unit 2 of the Three Mile Island Nuclear Generating Station in Dauphin County, Pennsylvania near Harrisburg, United States in 1979....
in Pennsylvania, the Nuclear Regulatory Commission
Nuclear Regulatory Commission
The Nuclear Regulatory Commission is an independent agency of the United States government that was established by the Energy Reorganization Act of 1974 from the United States Atomic Energy Commission, and was first opened January 19, 1975...
has often been too timid in ensuring that America’s 104 commercial reactors are operated safely:
Nuclear power is a textbook example of the problem of “regulatory capture” — in which an industry gains control of an agency meant to regulate it. Regulatory capture can be countered only by vigorous public scrutiny and Congressional oversight, but in the 32 years since Three Mile Island, interest in nuclear regulation has declined precipitously.
Then-candidate Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
said in 2007 that the five-member NRC had become "captive of the industries that it regulates" and Joe Biden indicated he had absolutely no confidence in the agency.
The NRC has given a license to every single reactor requesting one, prompting Greenpeace USA nuclear policy analyst Jim Riccio to refer to the agency approval process as a "rubber stamp". In Vermont, ten days after the 2011 Tōhoku earthquake and tsunami
2011 Tōhoku earthquake and tsunami
The 2011 earthquake off the Pacific coast of Tohoku, also known as the 2011 Tohoku earthquake, or the Great East Japan Earthquake, was a magnitude 9.0 undersea megathrust earthquake off the coast of Japan that occurred at 14:46 JST on Friday, 11 March 2011, with the epicenter approximately east...
that damaged Japan's Daiichi plant in Fukushima
Fukushima
may refer to:*Fukushima City – the capital city of Fukushima Prefecture, Japan*Fukushima Prefecture – a Japanese prefecture*Two nuclear power plants located in Fukushima Prefecture:**Fukushima Daiichi Nuclear Power Plant...
, the NRC approved a 20-year extension for the license of Vermont Yankee Nuclear Power Plant
Vermont Yankee Nuclear Power Plant
Vermont Yankee is a General Electric boiling water reactor type nuclear power plant currently owned by Entergy. It is located in the town of Vernon, Vermont, and generates 620 megawatts of electricity at full power. The plant began commercial operations in 1972...
, although the Vermont state legislature had voted overwhelmingly to deny such an extension. The Vermont plant uses the same GE Mark 1 reactor design as the Fukushima Daiichi plant. The plant had been found to be leaking radioactive materials through a network of underground pipes, which Entergy
Entergy
Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. It is headquartered in the Central Business District of New Orleans, Louisiana.-History:...
, the company running the plant, had denied under oath
Under oath
Under oath could refer to:* Offering testimony while under oath and subject to charges of perjury* Underoath, an American metalcore band...
even existed. Representative Tony Klein, who chaired the Vermont House
Vermont House of Representatives
The Vermont House of Representatives is the lower house of the Vermont General Assembly, the state legislature of the U.S. state of Vermont. The House comprises 150 members. Vermont legislative districting divides representing districts into 66 single-member districts and 42 two-member...
Natural Resources and Energy Committee, said that when he asked the NRC about the pipes at a hearing in 2009, the NRC didn't know about their existence, much less that they were leaking. On March 17, 2011, the Union of Concerned Scientists
Union of Concerned Scientists
The Union of Concerned Scientists is a nonprofit science advocacy group based in the United States. The UCS membership includes many private citizens in addition to professional scientists. James J...
(UCS) released a study critical of the NRC's 2010 performance as a regulator. The UCS said that through the years, it had found the NRC's enforcement of safety rules has not been “timely, consistent, or effective" and it cited 14 "near-misses" at U.S. plants in 2010 alone. Tyson Slocum, an energy expert at Public Citizen
Public Citizen
Public Citizen is a non-profit, consumer rights advocacy group based in Washington, D.C., United States, with a branch in Austin, Texas. Public Citizen was founded by Ralph Nader in 1971, headed for 26 years by Joan Claybrook, and is now headed by Robert Weissman.-Lobbying Efforts:Public Citizen...
said the nuclear industry has "embedded itself in the political establishment" through "reliable friends from George Bush to Barack Obama", that the government "has really just become cheerleaders for the industry."
There have also been instances of a revolving door
Revolving door (politics)
The revolving door is the movement of personnel between roles as legislators and regulators and the industries affected by the legislation and regulation and on within lobbying companies. In some cases the roles are performed in sequence but in certain circumstances may be performed at the same time...
. Jeffrey Merrifield, who was on the NRC from 1997 to 2008 and was appointed by presidents Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
and Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
, left the NRC to take an executive position at The Shaw Group
The Shaw Group
The Shaw Group is a Fortune 500 corporation headquartered in Baton Rouge, Louisiana. As of February 27, 2011, the company employed approximately 28,000 people all over the world with 7 billion dollar revenue in 2010...
, which has a nuclear division regulated by the NRC.Pete Domenici
Pete Domenici
Pietro Vichi "Pete" Domenici is an American Republican politician, who served six terms as a United States Senator from New Mexico, from 1973 to 2009, the longest tenure in the state's history....
, a former U.S. senator now promotes nuclear energy. Over the course of his 20 years in government, he received $1.25 million in political contributions connected with the energy sector. From 2000 to 2010, the nuclear industry and people who work in it, contributed $4.6 million to members of Congress, in addition to the $54 million spent by electric utilities, trade groups and other supporters to hire lobbyists, including some former members of Congress. (See Eric Lichtblau, "Lobbyists’ Long Effort to Revive Nuclear Industry Faces New Test" The New York Times (March 24, 2011)
A year-long Associated Press
Associated Press
The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...
(AP) investigation showed that the NRC, working with the industry, has relaxed regulations so that aging reactors can remain in operation. The AP found that wear and tear of plants, such as clogged lines, cracked parts, leaky seals, rust and other deterioration resulted in 26 alerts about emerging safety problems and may have been a factor in 113 of the 226 alerts issued by the NRC between 2005 and June 2011. The NRC repeatedly granted the industry permission to delay repairs and problems often grew worse before they were fixed.According to the AP, of the United States' 104 operating nuclear power plants, 82 are over 25 years old, the NRC has re-licensed 66 for an 20 additional years and another 16 renewal applications are under review.
Office of the Comptroller of the Currency (OCC)
The Office of the Comptroller of the CurrencyOffice of the Comptroller of the Currency
The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...
has strongly opposed the efforts of the 50 state attorneys general
State Attorney General
The state attorney general in each of the 50 U.S. states and territories is the chief legal advisor to the state government and the state's chief law enforcement officer. In some states, the attorney general serves as the head of a state department of justice, with responsibilities similar to those...
, who have banded together to penalize banks and reform the mortgage modification process, following the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
and the financial crisis of 2008. This example was cited in The New York Times
The New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...
as evidence that the OCC is "a captive of the banks it is supposed to regulate".
Securities and Exchange Commission (SEC)
The United States Securities and Exchange CommissionUnited States Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
has also been accused of acting in the interests of Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
banks and hedge funds and of dragging its feet or refusing to investigate cases or bring charges for fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
and insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
. Financial analyst Harry Markopolos
Harry Markopolos
Harry M. Markopolos is a former securities industry executive and independent financial fraud investigator for institutional investors and others seeking forensic accounting expertise. He has received public acclaim for uncovering evidence over a period of nine years that Bernard Madoff's wealth...
, who spent ten years trying to get the SEC to investigate Bernie Madoff, called the agency "nonfunctional, captive to the industry." The SEC has been found by the U.S. Senate Committee on Finance, the Senate Judiciary Committee and a federal district court to have illegally dismissed an employee in September 2005 who was critical of superiors' refusal to pursue Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
titan John Mack
John J. Mack
John J. Mack is the current Chairman of the Board at Morgan Stanley, the New York-based investment bank and brokerage firm. Mack announced his retirement as Chief Executive Officer on September 10, 2009, which was effective January 1, 2010. Former Co-President James P...
. Mack was suspected of giving insider information to Arthur J. Samberg
Arthur J. Samberg
Arthur J. Samberg was the chief investment officer, president and chairman of Pequot Capital Management, a $5 billion hedge fund with approximately $510 million dollars of uncalled capital.-Early life:...
, head of Pequot Capital Management
Pequot Capital Management
Pequot Capital Management was a multi-billion dollar hedge fund sponsor founded in 1998 by Arthur J. Samberg that was forcibly terminated by order of the Securities and Exchange Commission in 2010. The firm's investment funds invested in a range of markets through a variety of strategies...
, once one of the world's largest hedge funds. After more than four years, of legal battles, former SEC investigator Gary J. Aguirre
Gary J. Aguirre
Gary J. Aguirre is an American lawyer, former investigator with the United States Securities and Exchange Commission and whistleblower. After working in a law firm briefly, he became a public defender, then worked as a trial lawyer in California. Having reached his professional and financial...
filed papers in an Freedom of Information Act (FOIA) case he had against the SEC, seeking an order to force the SEC to turn over Pequot investigation records to him on the grounds that they had not charged anyone. Aguirre had already provided incriminating evidence of Pequot's insider trading involving Microsoft
Microsoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
trades to the SEC in a letter on January 2, 2009. The morning after Aguirre's FOIA papers were filed, the SEC announced they had filed charges against Pequot and Pequot had agreed to disgorge $18 million in illegal gains and pay $10 million in penalties. A month later, the SEC settled Aguirre's wrongful termination lawsuit for $755,000.
The list of officials who have left the SEC for highly lucrative jobs in the private sector and who sometimes have returned to the SEC includes Arthur Levitt
Arthur Levitt
Arthur Levitt, Jr. was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been...
, Robert Khuzami
Robert Khuzami
Robert S. Khuzami is currently the director of the Division of Enforcement of the U.S. Securities and Exchange Commission. He is a former United States federal prosecutor and general counsel of Deutsche Bank AG....
, Linda Chatman Thomsen
Linda Chatman Thomsen
Linda Chatman Thomsen was the Director of the Division of Enforcement for the U.S. Securities and Exchange Commission from 2005 until early 2009. Since arriving at the SEC in 1995, she has worked under four SEC Chairmen: Arthur Levitt, Harvey Pitt, William H. Donaldson, and Christopher Cox. ...
, Richard H. Walker
Richard H. Walker
Richard H. Walker is an American lawyer. He is general counsel of corporate and investment banking at Deutsche Bank and former director of the United States Securities and Exchange Commission , Division of Enforcement, where he worked for ten years...
, Gary Lynch
Gary Lynch
Gary G. Lynch is an American attorney and the former chief legal officer for the New York investment bank Morgan Stanley. He was formerly Vice Chairman of the Firm, resident in its London Office....
and Paul R. Berger. The Project on Government Oversight
Project on Government Oversight
The Project On Government Oversight , founded in 1981, is an independent non-profit organization in the United States which investigates and seeks to expose corruption and other misconduct. POGO assists whistleblowers and investigates federal agencies, Congress, and government contractors...
(POGO) released a report on May 13, 2011 which found that between 2006 and 2010, 219 former SEC employees sought to represent clients before the SEC. Former employees filed 789 statements notifying the SEC of their intent to represent outside clients before the commission, some filing within days of leaving the SEC.
Reporter Matt Taibbi
Matt Taibbi
Matthew C. "Matt" Taibbi is an American author and journalist reporting on politics, media, finance, and sports for Rolling Stone and Men's Journal, often in a polemical style. He has also edited and written for The eXile, the New York Press, and The Beast.- Early years :Taibbi grew up in the...
calls the SEC a classic case of regulatory capture and the SEC has been described as an agency that was set up to protect the public from Wall Street, but now protects Wall Street from the public. On August 17, 2011, Taibbi reported that in July 2001, a preliminary fraud investigation against Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
was stymied by Richard H. Walker
Richard H. Walker
Richard H. Walker is an American lawyer. He is general counsel of corporate and investment banking at Deutsche Bank and former director of the United States Securities and Exchange Commission , Division of Enforcement, where he worked for ten years...
, then SEC enforcement director, who began working as general counsel for Deutsche Bank in October 2001. Darcy Flynn, an SEC lawyer, the whistleblower who exposed this case also revealed that for 20 years, the SEC had been routinely destroying all documents related to thousands of preliminary inquiries that were closed rather than proceeding to formal investigation. The SEC is legally required to keep files for 25 years and destruction is supposed to be done by the National Archives and Records Administration
National Archives and Records Administration
The National Archives and Records Administration is an independent agency of the United States government charged with preserving and documenting government and historical records and with increasing public access to those documents, which comprise the National Archives...
. The lack of files deprives investigators of possible background when investigating cases involving those firms. Documents were destroyed for inquiries into Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
, Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
and other major Wall Street firms that played key roles in the 2008 financial crisis. The SEC has since changed its policy on destroying those documents and the SEC investigator general is investigating the matter.
Canadian Radio-television and Telecommunications Commission (CRTC)
In August 2009, the CRTC provisionally granted a request by Bell CanadaBell Canada
Bell Canada is a major Canadian telecommunications company. Including its subsidiaries such as Bell Aliant, Northwestel, Télébec, and NorthernTel, it is the incumbent local exchange carrier for telephone and DSL Internet services in most of Canada east of Manitoba and in the northern territories,...
to impose usage-based billing on Internet wholesale
Wholesale
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...
rs, igniting protest from both the wholesalers and consumers, who claimed that the CRTC was "kow-towing to Bell".
On February 2, 2011, CRTC chair Konrad von Finckenstein
Konrad von Finckenstein
Konrad W. von Finckenstein, QC is the current Chairman of the Canadian Radio-television Telecommunications Commission . He has held the post since January 25, 2007 and his term is scheduled to end on January 24, 2012. von Finckenstein previously served as Justice of the Federal Court from 2003...
testified before parliament's Standing Committee on Industry, Science and Technology and justified the agency's decision. Critic Steve Anderson said, “The CRTC’s stubbornness in the face of a mass public outcry demonstrates the strength of the Big Telecom lobby’s influence. While government officials have recognized the need to protect citizens’ communications interests, the CRTC has made it clear that their priorities lie elsewhere." Other companies said to have influence over CRTC are Rogers Communications
Rogers Communications
Rogers Communications Inc. is one of Canada's largest communications companies, particularly in the field of wireless communications, cable television, home phone and internet with additional telecommunications and mass media assets...
, Telus
TELUS
Telus is a national telecommunications company in Canada that provides a wide range of telecommunications products and services including internet access, voice, entertainment, video, and satellite television. The company is based in Burnaby, British Columbia, part of Greater Vancouver...
, Shaw Communications
Shaw Communications
Shaw Communications is Canada's largest telecommunications company that provides telephone, Canada's fastest Internet and television services as well as broadcasting and soon Wifi. Shaw is headquartered in Calgary, Alberta...
and Videotron
Vidéotron
Vidéotron GP is a Canadian integrated telecommunications company active in cable television, interactive multimedia development, video on demand, cable telephony, wireless communication and Internet access services. Currently, the company primarily serves Quebec, as well as the francophone...
.
World Trade Organization (WTO)
The academic Thomas Alured FaunceThomas Alured Faunce
Thomas Alured Faunce is an Associate Professor jointly in the College of Law and Medical School at the Australian National University at Canberra Australia...
has argued the World Trade Organisation non-violation nullification of benefits
Non-violation nullification of benefits
Non-violation nullification of benefits claims are a species of Dispute settlement in the World Trade Organization arising under World Trade Organisation multilateral and bilateral trade agreements. NVNB claims are controversial in that they are widely perceived to promote the social vices of...
claims, particularly when inserted in bilateral trade agreements, can facilitate intense lobbying by industry which can result in effective regulatory capture of large areas of governmental policy.
Japanese examples
In Japan, the line may be blurred between the goal of solving a problem and the somewhat different goal of making it look as if the problem is being addressed.Nuclear and Industrial Safety Agency (NISA)
Despite warnings about its safety, Japanese regulators from the Nuclear and Industrial Safety AgencyNuclear and Industrial Safety Agency
The is a Japanese nuclear regulatory and oversight branch of the Agency for Natural Resources and Energy under the Ministry of Economy, Trade and Industry. It was created in 2001 during the 2001 Central Government Reform. It has a main office in Kasumigaseki, Chiyoda, Tokyo that works with the...
approved a 10-year extension for the oldest of the six reactors at Fukushima Daiichi just one month before a 9.0 magnitude earthquake and subsequent tsunami
2011 Tōhoku earthquake and tsunami
The 2011 earthquake off the Pacific coast of Tohoku, also known as the 2011 Tohoku earthquake, or the Great East Japan Earthquake, was a magnitude 9.0 undersea megathrust earthquake off the coast of Japan that occurred at 14:46 JST on Friday, 11 March 2011, with the epicenter approximately east...
damaged reactors and caused a meltdown. Nuclear opponent Eisaku Sato
Eisaku Satō (governor)
was the governor of Fukushima Prefecture of Japan from 1988 and 2006.He was initially an enthusiastic supporter of nuclear power, swayed like his predecessors after the government and Tepco brought his prefecture jobs, subsidies and a chance to contribute to the national good. In 1998 he...
, governor of Fukushima Prefecture
Fukushima Prefecture
is a prefecture of Japan located in the Tōhoku region on the island of Honshu. The capital is the city of Fukushima.-History:Until the Meiji Restoration, the area of Fukushima prefecture was known as Mutsu Province....
from 1988–2006, said a conflict of interest is responsible for NISA's lack of effectiveness as a watchdog. The agency is under the Ministry of Economy, Trade and Industry, which encourages the development of Japan's nuclear industry. Inadequate inspections are reviewed by expert panels drawn primarily from academia and rarely challenge the agency. Critics say the main weakness in Japan's nuclear industry is weak oversight. Seismologist
Seismology
Seismology is the scientific study of earthquakes and the propagation of elastic waves through the Earth or through other planet-like bodies. The field also includes studies of earthquake effects, such as tsunamis as well as diverse seismic sources such as volcanic, tectonic, oceanic,...
Takashi Nakata said, "The regulators just rubber-stamp the utilities' reports."
Both the ministry and the agency have ties with nuclear plant operators, such as Tokyo Electric. Some former ministry officials have been offered lucrative jobs in a practice called amakudari
Amakudari
is the institutionalised practice where Japanese senior bureaucrats retire to high-profile positions in the private and public sectors. The practice is increasingly viewed as corrupt and a drag on unfastening the ties between private sector and state which prevent economic and political...
, "descent from heaven". A panel responsible for re-writing Japan's nuclear safety rules was dominated by experts and advisers from utility companies, said seismology professor Katsuhiko Ishibashi
Katsuhiko Ishibashi
is a professor in the Research Center for Urban Safety and Security in the Graduate School of Science at Kobe University, Japan and a seismologist who has written extensively in the areas of seismicity and seismotectonics in and around the Japanese Islands...
who quit the panel in protest, saying it was rigged and "unscientific". The new guidelines, established in 2006, did not set stringent industry-wide earthquake
Earthquake
An earthquake is the result of a sudden release of energy in the Earth's crust that creates seismic waves. The seismicity, seismism or seismic activity of an area refers to the frequency, type and size of earthquakes experienced over a period of time...
standards, rather nuclear plant operators were left to do their own inspections to ensure their plants were compliant. In 2008, the NISA found all of Japan's reactors to be in compliance with the new earthquake guidelines.
Yoshihiro Kinugasa helped write Japan's nuclear safety rules, later conducted inspections and still in another position at another date, served on a licensing panel, signing off on inspections.
Ministry of Health, Labour and Welfare (MHLW)
In 1996, the Ministry of Health and WelfareMinistry of Health, Labour and Welfare (Japan)
The ' is a cabinet level ministry of the Japanese government. It is commonly known as Kōrō-shō in Japan. This ministry provides regulations on maximum residue limits for agricultural chemicals in foods, basic food and drug regulations, standards for foods, food additives, etc.It was formed with...
(now combined with the Ministry of Labour) came under fire over the scandal of HIV-tainted blood
HIV-tainted blood scandal (Japan)
, refers to an event in the 1980s when between one and two thousand haemophilia patients in Japan contracted HIV via tainted blood products. Controversy centers on the continued use of non-heat-treated blood products after the development of heat-treatments that prevent the spread of infection...
being used to treat hemophiliacs. Although warned about HIV contamination of blood products imported from the U.S., the ministry abruptly changed its position on heated and unheated blood products from the U.S., protecting Green Cross
Green Cross (japan)
Green Cross Corporation was one of the premier pharmaceutical companies in Japan. The company merged into Yoshitomi Pharmaceutical Co., Ltd. on April 1, 1998, and renamed to Welfide Corporation on April 1, 2000. Finally Welfide Corp. and Mitsubishi-Tokyo Pharmaceutical Inc...
and the Japanese pharmaceutical industry by keeping the Japanese market from being inundated with heat-treated blood from the United States. Because the unheated blood was not taken off the market, 400 people died and over 3,000 people were infected with HIV. No senior officials were indicted and only one lower-level manager was indicted and convicted. Critics say the major task of the ministry is the protection of industry, rather than of the population. In addition, bureaucrats get amakudari jobs at related industries in their field upon retirement, a system which serves to inhibit regulators. Moriyo Kimura, a critic who works at MHLW, says the ministry does not look after the interests of the public.
Quotes
In 1913 Woodrow WilsonWoodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
wrote, "If the government is to tell big business men how to run their business, then don't you see that big business men have to get closer to the government even than they are now? Don't you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it."
At a January 2010 hearing of the House Committee on Oversight and Government Reform, U.S. Representative Marcy Kaptur
Marcy Kaptur
Marcia Carolyn "Marcy" Kaptur is the U.S. Representative for , serving since 1983. She is a member of the Democratic Party. The district, anchored by the city of Toledo, includes all of Ottawa and Erie counties, and part of Lucas and Lorain counties.Serving her fourteenth term in the House of...
told former president of the New York Fed and current Secretary of the Treasury
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
, Timothy Geithner, “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”
In a May 2011 article entitled, "Why CEOs Avoided Getting Busted in Meltdown", former Savings and Loan regulator William K. Black
William K. Black
William Kurt Black is an American lawyer, academic, author, and a former bank regulator. Black's expertise is in white-collar crime, public finance, regulation, and other topics in law and economics...
wrote, "The defining characteristic of crony capitalism
Crony capitalism
Crony capitalism is a term describing a capitalist economy in which success in business depends on close relationships between business people and government officials...
is the ability of favored elites to loot with impunity and the failure of regulators to do their jobs."
In a June 2011 article by the Associated Press, nuclear engineer Paul Blanch said, "It's a philosophical position that [NRC regulators] take that's driven by the industry and by the economics: What do we need to do to let those plants continue to operate? They somehow sharpen their pencil to either modify their interpretation of the regulations, or they modify their assumptions in the risk assessment."
See also
- Corporate welfareCorporate welfareCorporate welfare is a pejorative term describing a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations. The term compares corporate subsidies and welfare payments to the poor, and implies that corporations are much less...
- Revolving door (politics)Revolving door (politics)The revolving door is the movement of personnel between roles as legislators and regulators and the industries affected by the legislation and regulation and on within lobbying companies. In some cases the roles are performed in sequence but in certain circumstances may be performed at the same time...
- Iron triangle (US politics)
- Rent seekingRent seekingIn economics, rent-seeking is an attempt to derive economic rent by manipulating the social or political environment in which economic activities occur, rather than by adding value...
- Campaign financeCampaign financeCampaign finance refers to all funds that are raised and spent in order to promote candidates, parties or policies in some sort of electoral contest. In modern democracies such funds are not necessarily devoted to election campaigns. Issue campaigns in referendums, party activities and party...
- Political corruptionPolitical corruptionPolitical corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
- Goldman Sachs' revolving door with the U.S. government
Literature
- 100,000,000 Guinea Pigs100,000,000 Guinea Pigs100,000,000 Guinea Pigs: Dangers in Everyday Foods, Drugs, and Cosmetics is a book written by Arthur Kallet and F.J. Schlink first released in 1933 by the Vanguard Press and manufactured in the United States of America...
, by Arthur KalletArthur KalletArthur Kallet was a leading consumer advocate.An engineer, Kallet co-authored a 1933 book entitled 100,000,000 Guinea Pigs: Dangers in Everyday Foods, Drugs and Cosmetics with fellow engineer Frederick Schlink.In 1936 he left as director of Consumers Research after its head F.J...
and F.J. Schlink, first published in 1933
Other American groups promoting transparency
- MAPLight.orgMAPLight.orgMAPLight.org is a nonpartisan, nonprofit research organization tracking money and politics in U.S. Congress and several cities and states. The organization publishes a free public database linking together money and politics data sources, including campaign contributions to politicians, how...
, tracks money and politics in the U.S. - Sunlight FoundationSunlight FoundationThe Sunlight Foundation is a 501 educational organization founded in April 2006 with the goal of increasing transparency and accountability in the United States government....
, promotes government transparency and accountability
External links
- Greg McMahon, Regulatory Capture: Causes and Effects (PDF) International Institute for Public Ethics. Paper given October 4, 2002 conference, Brisbane, Australia.
- Nakamura, Karen. "Resistance and Co-optation: the Japanese Federation of the Deaf and its Relations with State Power," Social Science Japan Journal, Vol. 5, No. 1 (April 2002), pp 17–35.