Elizabeth Warren on Regulatory Capture & Simple Rules

by on June 15, 2016 · 0 comments

Elizabeth_WarrenThe folks over at RegBlog are running a series of essays on “Rooting Out Regulatory Capture,” a problem that I’ve spent a fair amount of time discussing here and elsewhere in the past. (See, most notably, my compendium on, “Regulatory Capture: What the Experts Have Found.”) The first major contribution in the RegBlog series is from Sen. Elizabeth Warren (D-MA) and it is entitled, “Corporate Capture of the Rulemaking Process.”

Sen. Warren makes many interesting points about the dangers of regulatory capture, but the heart of her argument about how to deal with the problem can basically be summarized as ‘Let’s Build a Better Breed of Bureaucrat and Give Them More Money.’  In her own words, she says we should “limit opportunities for ‘cultural’ capture'” of government officials and also “give agencies the money that they need to do their jobs.”

It may sound good in theory, but I’m always a bit perplexed by that argument because the implicit claims here are that:

(a) the regulatory officials of the past were somehow less noble-minded and more open to corruption than some hypothetical better breed of bureaucrat that is out there waiting to be found and put into office; and

(b) that the regulatory agencies of the past were somehow starved for resources and lacked “the money that they need to do their jobs.”

Neither of these assumptions is true and yet those arguments seem to animate most of the reform proposals set forth by progressive politicians and scholars for how to deal with the problem of capture.

I think it’s wishful thinking at best and willful ignorance of history at worst. First, people–including regulators–were no different in the past than they are today. We are not magically going to find a more noble lot who will walk into office and be immune from these pressures. If anything, you could make the argument that the regulators of the early Progressive Era were less susceptible to this sort of influence because they were riding a wave of impassioned regulatory zeal that accompanied that period. I don’t buy it, but it’s more believable tale than the opposite story.

Secondly, if you think that the problem of regulatory capture is solved by simply giving agencies more money, you’ve got it exactly backwards. Regulated interests go to where the power and money is. They find it and influence it. You can deny it all you want, but that’s what history shows us. So long as we are delegating broad administrative powers to administrative agencies and then sending them big bags of enforcement money at the same time, special interests will seek and find ways to influence that process.

Is that too grim of a statement on the modern administrative state? No, it’s simply a perspective informed by history; a history that has best been told, incidentally, by progressive scholars and critics! And yet they all too often don’t seem willing to learn the lessons of that history.

The cycle of influence doesn’t end just because you try to erect more firewalls to keep the special interests out. Where power exists, they will always find a way to flex their muscle. It’s only really a question if you want this activity to be over or under the table. The whole “get-all-the-money-out-of-politics” fiction is, well, just that–a fiction. It’s a fine-sounding fairly tale that we continue to repeat again and again and yet nothing much ever changes. And, yet, a whole hell of lot of smart people continue to believe in that fairy tale if for no other reason than they can’t possible live with the idea that perhaps the only way to get this problem under control is to limit the underlying discretion and power of regulatory agencies to begin with.

On a better, more optimistic note, I want to highlight one argument Sen, Warren made in her essay with which I find myself in wholehearted agreement: We need more simple rules. As she correctly notes:

Complex rules take longer to finalize, are harder for the public to understand, and inevitably contain more special interest carve-outs that favor big business interests over small businesses and individuals. Complex rules are also more reliant on industry itself to provide additional detail and expertise—and that means more opportunities for capture. Simple works better.

Amen to all that! This is an issue I address in Chapter 6 of my recent book, Permissionless Innovation: The Continuing Case for Comprehensive Technological FreedomIn subjection F beginning on pg. 140, I explain why policymakers should “Rely on ‘Simple Rules for a Complex World’ When Regulation Is Needed.” I build that section around the insights of Philip K. Howard and Richard Epstein. Howard, who is chair of Common Good and the author of The Rule of Nobody, notes:

Too much law . . can have similar effects as too little law. People slow down, they become defensive, they don’t initiate projects because they are surrounded by legal risks and bureaucratic hurdles. They tiptoe through the day looking over their shoulders rather than driving forward on the power of their instincts. Instead of trial and error, they focus on avoiding error. Modern America is the land of too much law. Like sediment in a harbor, law has steadily accumulated, mainly since the 1960s, until most productive activity requires slogging through a legal swamp. It’s degenerative. Law is denser now than it was 10 years ago, and will be denser still in the next decade. This growing legal burden impedes economic growth.

That’s exactly why we need, to borrow the title of Richard Epstein’s 1995 book of the same name, “simple rules for a complex world.” As I argue in my book:

This is why flexible, bottom-up approaches to solving complex problems. . .  are almost always superior to top-down laws and regulations. For example, we have already identified how social norms and pressure from the public, media, or activist groups can “regulate” behavior and curb potential abuses. And we have seen how education, awareness-building, transparency, and empowerment-based efforts can often help alleviate the problems associated with new forms of technological change.

But there are other useful approaches that can be tapped to address or alleviate concerns or harms associated with new innovations. To the extent that other public policies are needed to guide technological developments, simple legal principles are greatly preferable to technology-specific, micromanaged regulatory regimes. Ex ante (preemptive and precautionary) regulation is often highly inefficient, even dangerous. Prospective regulation based on hypothesizing about future harms that may never materialize is likely to come at the expense of innovation and growth opportunities. To the extent that any corrective action is needed to address harms, ex post measures, especially via the common law, are typically superior.

I itemized those “simple rules” and solutions in another recent piece (“What 20 Years of Internet Law Teaches Us about Innovation Policy“). They include both formal mechanisms (property and contract law, torts, class action activity, and other common law tools) and informal strategies (ongoing voluntary negotiations, multistakeholder agreements, industry self-regulatory best practices and codes of conduct, education and transparency efforts, and so on). We should exhaust those sorts of solutions first before turning to administrative regulation. And then we should subject such regulatory proposals to a strict benefit-cost analysis (BCA). As I note in my Permissionless Innovation book,

All new proposed regulatory enactments should be subjected to strict BCA and, if they are formally enacted, they should also be retroactively reviewed to gauge their cost-effectiveness. Better yet, the sunsetting guidelines recommended above should be applied to make sure outdated regulations are periodically removed from the books so that innovation is not discouraged.

If Sen. Warren is serious about crafting more sensible “simple” rules and working to end the problem of regulatory chapter, this is a better approach than simply trying, yet again, to build a better breed of bureaucrat.

Previous post:

Next post: