[Note: This post is updated regularly as I discover relevant old or new material.]
“Regulatory capture” occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends. Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics. Another term for regulatory capture is “client politics,” which according to James Q. Wilson, “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).” (James Q. Wilson, Bureaucracy, 1989, at 76).
While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity. Because regulatory capture theory conflicts mightily with romanticized notions of “independent” regulatory agencies or “scientific” bureaucracy, it often evokes a visceral reaction and a fair bit of denialism. (See, for example, the reaction of New Republic’s Jonathan Chait to Will Wilkinson’s recent Economist column about the prevalence of corporatism in our modern political system.) Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.
I thought it might be useful to build a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem. I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book. [Note: I have updated this compendium over a dozen times since the original post, so please check back for updates.]
The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…
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When it comes to technology policy, I’m usually a fairly optimistic guy. But when it comes to technology politics, well, I have my grumpier moments. I had at particularly grumpy moment earlier this summer when I was sitting at a hearing listening to a bunch of high-tech companies bash each other’s brains in and basically calling for lawmakers to throw everyone else under the regulatory bus except for them. Instead of heeding Ben Franklin’s sound old advice that “We must, indeed, all hang together, or assuredly we shall all hang separately,” it’s increasingly clear that high-tech America seems determined to just try to hang each other. It’d be one thing if that heated competition was all taking place in the marketplace, but, increasingly, more and more of it is taking place inside the Beltway with regulation instead of innovation being the weapon of choice.
That episode made me think back to the outstanding 2000 manifesto penned by T. J. Rodgers, president and CEO of Cypress Semiconductor, “Why Silicon Valley Should Not Normalize Relations with Washington, D.C.” I went back and re-read it upon the 10th anniversary of its publication by the Cato Institute and, sadly, came to realize that just about everything Rodgers had feared and predicted had come true. Rodgers had attempted to preemptively discourage high-tech companies from an excessive “normalization” of relations with the parasitic culture that dominates Washington by reminding them what Washington giveth it can also taketh away. “The political scene in Washington is antithetical to the core values that drive our success in the international marketplace and risks converting entrepreneurs into statist businessmen,” he warned a decade ago. “The collectivist notion that drives policymaking in Washington is the irrevocable enemy of high-technology capitalism and the wealth creation process.” And he reminded his fellow capitalists “that free minds and free markets are the moral foundation that has made our success possible. We must never allow those freedoms to be diminished for any reason.”
Alas, as I point out in my new Cato Policy Report essay “The Sad State of Cyber-Politics,” no one listened to Rodgers. Indeed, Rodgers’s dystopian vision of a highly politicized digital future has taken just a decade to become reality. The high-tech policy scene within the Beltway has become a cesspool of backstabbing politics, hypocritical policy positions, shameful PR tactics, and bloated lobbying budgets. I go on in the article to itemize a litany of examples of how high-tech America appears determined to fall prey to what Milton Friedman once called “The Business Community’s Suicidal Impulse“: the persistent propensity to persecute one’s competitors using regulation or the threat thereof.
It’s a sad tale that doesn’t make for enjoyable reading, but I do try to end the essay on an upbeat (if somewhat naive) note. If you are interested, you can find the plain text version on the Cato website here and I’ve embedded the PDF of the publication down below in a Scribd Reader. Continue reading →
In the current issue of *Foreign Affairs*, Deputy Defense Secretary William J. Lynn III, has one of the [more sober arguments](http://www.foreignaffairs.com/articles/66552/william-j-lynn-iii/defending-a-new-domain) for government involvement in cybersecurity. Naturally, his focus is on military security and the Pentagon’s efforts to protect the .mil domain and military networks. He does, however, raise the question of whether and how much the military should be involved in protecting civilian networks.
One thing that struck me about Lynn’s article is the wholesale rejection of a Cold War metaphor for cybersecurity. “[The United States] must also recognize that traditional Cold War deterrence models of assured retaliation do not apply to cyberspace, where it is difficult and time consuming to identify an attack’s perpetrator,” he writes. Given the fact that attribution is nearly impossible on the internet, he suggests that the better strategy would be “denying any benefits to attackers [rather] than imposing costs through retaliation.”
What’s interesting about this is that it is in utter contrast to the recommendations of cybersecurity enthusiasts like former NSA chief Michael McConnell, who wrote earlier this year in a [1,400-word op-ed](http://www.washingtonpost.com/wp-dyn/content/article/2010/02/25/AR2010022502493.html) in the *Washington Post*:
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An important anniversary just passed with little more notice than an email newsletter about the report that played a pivotal role in causing the courts to strike down the 1998 Child Online Protection Act (COPA) as an unconstitutional restriction on the speech of adults and website operators. (COPA required all commercial distributors of “material harmful to minors” to restrict their sites from access by minors, such as by requiring a credit card for age verification.)
The Congressional Internet Caucus Advisory Committee is pleased to report that even after 10 years of its release the COPA Commission’s final report to Congress is still being downloaded at an astounding rate – between 700 and 1,000 copies a month. Users from all over the world are downloading the report from the COPA Commission, a congressionally appointed panel mandated by the Child Online Protection Act. The primary purpose of the Commission was to “identify technological or other methods that will help reduce access by minors to material that is harmful to minors on the Internet.” The Commission released its final report to Congress on Friday, October 20, 2000.
As a public service the Congressional Internet Caucus Advisory Committee agreed to virtually host the deliberations of the COPA Commission on the Web site COPACommission.org. The final posting to the site was the actual COPA Commission final report making it available for download. In the subsequent 10 years it is estimated that close to 150,000 copies of the report have been downloaded.
The COPA Report played a critical role in fending off efforts to regulate the Internet in the name of “protecting our children,” and marked a shift towards focusing on what, in First Amendment caselaw is called “less restrictive” alternatives to regulation. This summary of the report’s recommendations bears repeating:
After consideration of the record, the Commission concludes that the most effective current means of protecting children from content on the Internet harmful to minors include: aggressive efforts toward public education, consumer empowerment, increased resources for enforcement of existing laws, and greater use of existing technologies. Witness after witness testified that protection of children online requires more education, more technologies, heightened public awareness of existing technologies and better enforcement of existing laws. Continue reading →
I’ve been looking into the cybersecurity issue lately, and I finally took the time to do an in-depth read of the [Securing Cyberspace for the 44th Presidency](http://csis.org/publication/securing-cyberspace-44th-presidency) report, which is frequently cited as one of the soundest analyses of the issue. It was written by something of a self-appointed presidential transition commission called the “Commission on Cybersecurity for the 44th President,” chaired by two congressmen and with a membership of notables from the IT industry, defense contractors, and academia, and sponsored by CSIS.
What I was struck by is the complete lack of any verifiable evidence to support the report’s claim that “cybersecurity is now a major national security problem for the United states[.]” While it offers many assertions about the sorry state of security in government and private networks, the report advances no reviewable evidence to explain the scope or probability of the supposed threat. The implication seems to be that the authors are working from classified sources, but the “if you only knew what we know” argument from authority didn’t work out for us in the run up to the Iraq war, and we should be wary of it now.
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If you want another prime example of how self-serving Washington interests often seek to wield the stick of Big Government to their advantage, look no further than the effort the FCC is currently undertaking to extend its “CableCARD” set-top box industrial policy. The regulatory shenanigans here got started 14 years ago with Section 629 of the Telecommunications Act of 1996, which included authority for the Federal Communications Commission (FCC) to meddle in the video equipment marketplace. The FCC used that authority to impose a variety rules on the cable TV industry, such as CableCARD mandates, in the name of expanding device competition and consumer choice. Those regulations haven’t done much other than impose added costs on consumers for very little corresponding benefit. And whatever growth we’ve seen in the market for video devices and services has been more organic and unplanned, and it has come from unexpected quarters (think of Apple and Google’s TV efforts, and television distribution via video game platforms). Nonetheless, the FCC plowed forward today with additional layers of red tape in the hope of extending the CableCARD regulatory regime.
The Consumer Electronics Association (CEA) has long served as the prime cheerleader for this high-tech industrial policy since it would hobble video providers and benefit some of CEA’s members in the process. Indeed, to read through the CEA’s filings on this matter through the years, one is led to believe that CEA views cable systems as a sort of essential facility to which access must be granted in the name of preserving innovation by consumer electronics companies. With the CableCARD mandates, therefore, CEA is asking the FCC to impose a light form of common carrier regulation on the cable industry becuase that would help their interests in the end, regardless of what it meant for innovation at the core of networks.
Now, don’t get me wrong. There are plenty of self-serving people and organizations around Washington. Let’s face it, screwing over your competitors with regulation is what makes the “parasite economy” inside the Beltway tick! But what I find so interesting about this case study is how CEA has vociferously opposed (quite rightly, in my opinion) so many other high-tech industrial policies — the V-Chip, the so-called “broadcast flag,” HDTV tuner mandates, proposals to embed FM tuners in cell phones, and so on — and yet they wholeheartedly endorse the CableCARD industrial policy because the consumer electronics industry would benefit from this particular industrial policy. Sadly, it’s just another example of what Milton Friedman once called the “Business Community’s Suicidal Impulse”: the persistent propensity to persecute one’s competitors using regulation or the threat thereof.
Nobody said capitalists were consistent, folks. It’s capitalism for me, but not for thee.
Earlier this month, a coalition of ad and marketing associations made public a new self-regulatory program for behavioral advertising (or as we like to refer to them, “interest-based ads”). Will it be enough to whet the appetite of members of Congress waiting to chomp on the privacy bit when they get back in November?
Hopefully. But it all depends on ad network uptake and user adoption. FTC Chairman Jon Leibowitz’s wait-and-see attitude toward the self-regulatory effort probably sums up the thoughts of many pro-regulatory privacy advocates. According to Politico’s Morning Tech, Leibowitz said:
We commend industry’s effort to get a broad group of industry leaders on board. However, the effectiveness of this effort will depend on how, and the extent to which, the opt-out is actually implemented and enforced – all of which is yet to be seen. We also urge industry to make sure that the opt-out is easy for consumers to find, use, and understand.
Making it easy for consumers is what the advertising option icon (above) is all about. It’s a just-in-time “heads-up” accompanying ads that allows users to obtain more information about why they’re seeing the ad. In the future, it will allow users to opt-out. Ad networks will pay a license fee to have the right to display the icon and must submit to ongoing compliance.
It’s the compliance part that’s interesting. The Better Advertising project is a new company formed specifically for the self-regulatory program. According to Internet Retailer, “the Council of Better Business Bureaus and the Direct Marketing Association, a trade group for direct-to-consumer marketers and retailers, will begin monitoring compliance with the program early next year.”
Let’s hope the coalition moves quickly and successfully, before Congress does….
I’m always amused when I read stories quoting high-tech company leaders bemoaning the fact that they supposedly don’t get enough respect from Washington legislators or regulators. The latest example comes from a story in today’s Politico (“D.C. Crowd’s Path to Silicon Valley” by Tony Romm) which begins by noting that, “A trek to Silicon Valley has become a must-do for D.C. lawmakers seeking to stress their business and tech bona fides while developing relationships that could lead to big campaign donations down the road.” And yet it ends with this ironic bit:
Silicon Valley types typically don’t mind hosting lawmakers, as the trips give businesses out West the chance to put issues and needs on the minds of their regulators. But tech bellwethers sometimes don’t take kindly to lawmakers who treat the valley as an endless ATM. “All too often, people see Silicon Valley as the wallet and set aside the words or wisdom that [it] can provide,” said Carl Guardino, president and CEO of the Silicon Valley Leadership Group.
Well, boo-hoo. If Mr. Guardino and his fellow Silicon Valley travelers don’t like being treated like an ATM, then they should stop behaving like one! No one makes them give a dime to any politician. And once you start playing this game, you shouldn’t be surprised by how quickly you’ll become entrenched in the cesspool that is Beltway politics and become less and less focused on actually innovating and serving consumers.
I wish people like this would go back and read “Why Silicon Valley Should Not Normalize Relations with Washington, D.C.” by Cypress Semiconductor President and CEO T.J. Rodgers. Everything he said 10 years ago has come true. Continue reading →
Today it was my pleasure to take part in an Information Technology and Innovation Foundation discussion about Rob Atkinson’s interesting new white paper, “Who’s Who in Internet Politics: A Taxonomy of Information Technology Policy Perspectives .” [You can find the video of the event here or embeded down below.] Rob divides the information technology landscape into 8 tribes: cyber-libertarians, social engineers, free marketers, moderates, moral conservatives, old economy regulators, tech companies and trade associations, and bricks-and-mortars. Most of those are fairly self-explanatory, but during my response time, I pushed back on a few of these groupings.
First, I pointed out that there really didn’t seem to much of a difference between “cyber-libertarians” and “free marketers.” Of course, part of the reason I feel this way is because I believe Rob is improperly equating cyber-libertarianism with Internet exceptionalism. I’ve pointed out the distinction between the two in this essay with Berin Szoka. We note that Internet exceptionalists are essentially first cousins to cyber-libertarians in that both groups believe that the Internet has changed culture and history profoundly and is deserving of special care before governments intervene. But cyber-libertarianism, properly understood, is something more than just special treatment for the Net. It refers to the belief that individuals—acting in whatever capacity they choose (as citizens, consumers, companies, or collectives)—should be at liberty to pursue their own tastes and interests online. Again, please see “Cyber-Libertarianism: The Case for Real Internet Freedom” by Berin and me for more details. Continue reading →
At the Safe Internet Alliance event earlier this week there was a surprising amount of agreement on one aspect of sharing information on the Internet: eliminating the fear factor.
“Facts, not fear” was a meme throughout the event. Rep. Boucher discussed how comprehensive privacy legislation encourages Internet use because consumers don’t need to fear how their information is protected. And Josh Gottheimer of the FCC cited a study that shows that one of the main reasons why people don’t have broadband is due to, as he called it, the “fear factor.”
For increased use and adoption of the Internet and online services, cutting through the fear is key. That’s why I stressed why one of the main goals of a group that’s discussing privacy-related public policies should be to distinguish between legitimate concerns versus overreactions.
For online safety, there was a period just a year or two ago where we saw a lot of rhetoric, but not a lot of facts, about the real risks and likely threats kids face when online. Today the discussion is less fear-based, and as a result is much more productive for making the Internet safer. The NTIA OSTWG report stressed this fact-based approach.
Today privacy is where the online safety debate was a few years ago. There’s a similar danger of overreaction where rhetoric may crowd-out productive solutions. But there’s also a risk of being too glib on each side: pro-regulatory privacy advocates may not value the need for legitimate revenue models while businesses may sometimes dismiss legitimate privacy concerns.
Ultimately it may come down to a question of who decides. Whether it’s default settings or what is personal information, is it government, companies, or consumers that decide? I’ll tip my hand here: I think the key is for consumers to on the one hand understand the decisions they make, and on the other hand be allowed to make decisions.
Fear not, NetChoice looks forward to working with the Safe Internet Alliance and policymakers on privacy issues.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.