Administrative Conference Forum: Regulatory Capture in the 21st Century

Publication first appeared in the American Bar Association Section of Administrative Law & Regulatory Practice's Administrative & Regulatory Law News Fall 2016 edition.  Reposted with permission.

The statutory mission of the Administrative Conference is to study and make recommendations to improve “the efficiency, adequacy, and fairness of the administrative procedure used by federal agencies in carrying out administrative programs” (5 U.S.C. § 594).  While much of the Conference’s work involves highlighting best practices and procedures, the agency’s statutory charge includes the examination of problems that plague the administrative state in the hope that closer scrutiny and discussion will spark solutions.  Regulatory capture is one such perennial problem.  Most acknowledge that “regulatory capture” (the idea that agencies may act at the behest of private parties rather than in the public interest) exists, but beyond that there is little consensus among academics and policymakers.  In an effort to explore the concept in a more rigorous way, the Administrative Conference hosted a bipartisan forum to explore the latest thought on special interest influence and the administrative state.  On March 3, in the Senate’s Dirksen Building, Senators Sheldon Whitehouse (D-RI), Mike Lee (R-UT), and Elizabeth Warren (D-MA), along with leading experts from government, the federal bench, and the academy, gathered to explore the concept of regulatory capture and to discuss plausible solutions and preventative measures.

Senator Sheldon Whitehouse opened the forum by explaining why capture is worthy of sustained attention.  Senator Whitehouse has long decried the evils of regulatory capture, having written and spoken extensively on the topic and introduced several bills designed to combat capture.  In his remarks, Senator Whitehouse noted that special interest influence threatens democratic government, economic vitality, and health and safety standards.  Stressing the need for both Congress and the executive branch to actively tackle capture, the Senator discussed his proposal for a roving inspector general type office empowered to investigate evidence of regulatory capture in various government agencies.

Following Senator Whitehouse, Senator Mike Lee remarked upon the emerging consensus that regulatory capture is “one of the most pressing political, economic, and moral issues of our time.”  The Senator noted that political theorists have long recognized the risk of capture, pointing to the discussion of factions in Federalist 10.  Now, as then, institutional design offers a remedy. Echoing the insights of Federalist 10, Senator Lee suggested that capture might be mitigated by promoting a more effective separation of powers between the branches of government.  In particular, he proposed an enhanced role for Congress in monitoring agency rulemaking.   

The forum also included several panels. The broad scope of the panels, covering capture in enforcement as well in the rulemaking context, was based on the definition of capture in Daniel Carpenter and David Moss’s book Preventing Regulatory Capture.  In the book, Carpenter and Moss define capture as action by industry or other special interests to influence public policy in a manner derogating from the public interest.  Although the traditional definitions of the term required capture to generate more regulation, largely to erect barriers to entry, this definition of capture includes deregulation without benefit to public interest, termed “corrosive capture.”

The first panel, “Agency Enforcement and Evidence of Capture,” discussed capture in light of the 2008 financial crisis.  The speakers discussed whether prosecutions, or the lack thereof, are proof of capture or instead reflect a variety of irreducible factors.  Ronald Cass, Administrative Conference Council member, deftly moderated the ensuing discussion.  Judge Jed Rakoff of the Southern District of New York reminded the audience that, while many high level executives were prosecuted after the Savings and Loan crisis of the 1980s, not one executive has been prosecuted in the wake of the 2008 financial crisis.  Brandon Garrett of the University of Virginia School of Law and author of Too Big to Jail, noted that, while individual wrongdoers generally escape prosecution, companies are charged but then negotiate deferred or non-prosecution agreements requiring heavy fines.  These fines burden shareholders, and whether these agreements hold companies fully accountable remains to be seen.  Gretchen Morgenson of The New York Times critiqued the Securities and Exchange Commission’s generous grants of waivers and the justifications the agency offers for its waivers.

The second panel explored the latest scholarly work on regulatory capture in the rulemaking context.  Are certain types of rules less vulnerable to capture? Neomi Rao of George Mason School of Law explained her theory that congressional delegations to executive branch agencies give individual legislators excessive influence over agencies. Sidney Shapiro of Wake Forest University School of Law argued that capture can spur deregulation in addition to steering regulations in a direction that is favorable to industry.  Daniel Carpenter of Harvard University stressed the need for agreed upon standards for measuring capture as a crucial first step in addressing the problem. Mark Calabria of the Cato Institute identified some weapons to combat capture, including diffusion of power and heightened transparency.  So lively was the discussion that the panel reconvened after the remarks of the closing speaker, Senator Elizabeth Warren.

The Senator chronicled the multifarious ways industry groups delay and shape the rulemaking process, from expert public comments to numerous ex parte contacts.  She offered several potential solutions, including pushing for shorter, clearer rules; proposing that the standing doctrine might be reformed to permit members of the public to challenge agency inaction or excessively weak rules in federal court; and suggesting that agencies experiment with public interest advocates in the rulemaking process.

If conversation leads to enlightenment, as the eighteenth century philosophes would attest, this forum contributed to the formulation of a bipartisan consensus on one of the most ubiquitous and poorly understood of all governmental maladies.