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State Capture
State capture is a type of systemic political corruption in which private interests significantly influence a state's decision-making processes to their own advantage.
The classical definition of state capture refers to the way formal procedures (such as laws and social norms) and government bureaucracy are manipulated by government officials, state-backed companies, private companies or private individuals, so as to influence state policies and laws in their favour.
State capture seeks to influence the formation of laws, in order to protect and promote influential actors and their interests. In this way it differs from most other forms of corruption which instead seek selective enforcement of already existing laws.
State capture is not necessarily illegal, depending on determination by the captured state itself, and may be attempted through private lobbying and influence. The influence may be through a range of state institutions, including the legislature, executive, ministries, and the judiciary, or through a corrupt electoral process. It is similar to regulatory capture but differs in the scale and variety of influenced areas and, unlike regulatory capture, the private influence is never overt.
A distinguishing factor from corruption is that, though in cases of corruption the outcome (of policy or regulatory decision) is not certain, in cases of state capture the outcome is known and is highly likely to be beneficial to the captors of the state. In 2017, a group of South African academics further developed the concept in a report on state capture in South Africa, titled "Betrayal of the Promise Report". The analysis emphasised the political character of state capture, arguing that in South Africa a power elite violated the Constitution and broke the law in the service of a political project, which they believed unachievable in the existing constitutional/legal framework.
https://en.wikipedia.org/wiki/State_capture
Regulatory Capture
In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests of a minor constituency, such as a particular geographic area, industry, profession, or ideological group.
When regulatory capture occurs, a special interest is prioritized over the general interests of the public, leading to a net loss for society. The theory of client politics is related to that of rent-seeking and political failure; client politics "occurs when most or all of the benefits of a program go to some single, reasonably small interest (e.g., industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers)".
Theory
For public choice theorists, regulatory capture occurs because groups or individuals with high-stakes interests in the outcome of policy or regulatory decisions can be expected to focus their resources and energies 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 the actions by interest groups when this is successful at influencing the staff or commission members of the regulator.
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 major developers.
Likelihood of regulatory capture is a risk to which an agency is exposed by its very nature. This suggests that a regulator should be protected from outside influence as much as possible. Alternatively, it may be better to not create a given agency at all. A captured regulator is often worse than no regulation, because it wields the authority of government. However, increased transparency of the agency may mitigate the effects of capture. Recent evidence suggests that, even in mature democracies with high levels of transparency and media freedom, more extensive and complex regulatory environments are associated with higher levels of corruption (including regulatory capture).
George Stigler framed the problem of regulatory capture as "the problem of discovering when and why an industry is able to use the state for its purposes". He focuses on whole industries. But, it is never a whole industry which is ‘capturing’ its regulators, but only the big companies which, using the tool of the revolving door, ‘highjack’ the regulator by offering high salaries. Brezis and Cariolle (2019) has shown that the connected firms are always the big firms. Indeed, the top 5 financial companies concentrate around 80% of the stock of revolving door movements and regulatory capture. This leads to inequality of influence among firms in the same sector.
It should also be noted that regulatory capture in developed country is not anymore related to corruption and illegal behavior, but to abuse of power.
Relationship with federalism
There is substantial academic literature suggesting that smaller government units are easier for small, concentrated industries to capture than large ones. For example, a group of states or provinces with a large timber industry might have their legislature and/or their delegation to the national legislature captured by lumber companies. These states or provinces then becomes the voice of the industry, even to the point of blocking national policies that would be preferred by the majority across the whole country. Moore and Giovinazzo (2012) call this "distortion gap".
The opposite is possible. Very large and powerful industries (e.g. energy, banking, weapon system construction) can capture national governments, and then use that power to block policies at the national, state or provincial level that the voters may want, although even local interests can thwart national priorities.
Economic rationale
Regulatory capture has an economic basis: vested interests in an industry have the greatest financial stake in regulations affecting them, and so are more likely to try to influence the regulator than relatively dispersed individual consumers, each with little incentive. When regulators form expert bodies to examine policy, these invariably feature current or former industry members, or at the very least, individuals with lives and contacts in the industry. Capture is also facilitated where consumers or taxpayers have a poorer understanding than businesses of underlying issues.
Jon Hanson and his co-authors argue that the phenomenon extends beyond political agencies and organizations. Businesses have an incentive to control anything that has power over them, including the media, academia and popular culture, and will try to capture them too. This is called "deep capture".
Types
There are two basic types of regulatory capture:
- Materialist capture, also called financial capture, in which the captured regulator's motive is based on its material self-interest. This can result from bribery, revolving doors, political donations, or the regulator's desire to maintain its government funding. These forms of capture often amount to political corruption.
- Non-materialist capture, also called cognitive capture or cultural capture, in which the regulator begins to think like the regulated industry. This can result from interest groups lobbying the industry. Highly specialized technical industries can pose a risk of cultural capture because the regulating agency typically needs to employ experts in the regulated area, and the pool of such experts typically consists largely of existing or former employees from the regulated industry.
Another distinction can be made between capture retained by big firms and by small firms.[19] While Stigler mainly referred[20] to large firms capturing regulators by bartering their vast resources (materialist capture), small firms are more prone to retain non-materialist capture via a special underdog rhetoric.
Bureau of Ocean Energy Management, Regulation and EnforcementFederal Aviation AdministrationFederal Communications CommissionFood and Drug AdministrationFederal Reserve Bank of New YorkInterstate Commerce CommissionNuclear Regulatory CommissionOffice of the Comptroller of the CurrencySecurities and Exchange CommissionFederal Trade CommissionDistrict of Columbia Taxicab CommissionWashington State Liquor and Cannabis Board and I-502
https://en.m.wikipedia.org/wiki/Regulatory_capture
Iron triangle (US politics)
In United States politics, the "iron triangle" comprises the policy-making relationship among the congressional committees, the bureaucracy, and interest groups, as described in 1981 by Gordon Adams. Earlier mentions of this ‘iron triangle’ concept are in a 1956 Congressional Quarterly Weekly Report as, “Iron triangle: Clout, background, and outlook” and “Chinks in the Iron Triangle?”
Central assumption
Central to the concept of an iron triangle is the assumption that bureaucratic agencies, as political entities, seek to create and consolidate their own power base.
In this view an agency's (such as State-owned enterprises of the United States, Independent agencies of the United States government or Regulatory agency) power is determined by its constituency, not by its consumers. (For these purposes, "constituents" are politically active members sharing a common interest or goal; consumers are the expected recipients of goods or services provided by a governmental bureaucracy and often are identified in an agency's written goals or mission statement.)
Apparent bureaucratic dysfunction may be attributable to the alliances formed between the agency and its constituency. The official goals of an agency may appear to be thwarted or ignored altogether, at the expense of the citizenry it is designed to serve.
Cultivation of constituency
The need of a bureaucracy for a constituency sometimes leads to an agency's cultivation of a particular clientele. An agency may seek out those groups (within its policy jurisdiction) that might make the best allies and give it the most power (civic intelligence to act on their collective social capital) within the political arena.
Often, especially in a low-level bureaucracy, the consumers (the declared beneficiaries of an agency's services) do not qualify as power brokers and thus, are perceived as poor constituents. Governments are instituted among Men, deriving their just powers from the consent of the governed. Large segments of the public have diffused interests, seldom vote, may be rarely or poorly organized and difficult to mobilize, and often, are lacking in resources or financial muscle.
Private or special interest groups such as 501(c) organizations and 527 organizations, on the other hand, possess considerable power as they tend to be well-organized, have plenty of resources, are easily mobilized, and are extremely active in political affairs, through voting, campaign contributions, and lobbying, as well as proposing legislation themselves.
Thus, it may be in an agency's interest to switch its focus from its officially designated consumers to a carefully selected clientele of constituents who will aid the agency in its quest for greater political influence.
Dynamics
In the United States, power is exercised in the Congress, and, particularly, in congressional committees and subcommittees. By aligning itself with selected constituencies, an agency may be able to affect policy outcomes directly in these committees and subcommittees. This is where an iron triangle may manifest itself.
The image above displays the concept.
- At one corner of the triangle are interest groups (constituencies) and non-state actors. These are the powerful interest groups that influence Congressional votes in their favor and can sufficiently influence the re-election of a member of Congress in return for support of their programs.
- At another corner sit members of Congress who also seek to align themselves with a constituency for political and electoral support. These congressional members support legislation that advances an interest group's agenda.
- Occupying the third corner of the triangle are bureaucrats, who often are pressured by the same powerful interest groups their agency is designated to regulate, and in some cases have close ties to the regulated industry.
The result is a three-way, stable alliance that sometimes is called a "sub-government" because of its durability, impregnability, and power to determine policy.
An iron triangle relationship can result in regulatory capture, the passing of very narrow, pork-barrel policies that benefit a small segment of the population. The interests of the agency's constituency (the interest groups) are met, while the needs of consumers (which may be the general public) are passed over.
That public administration may result in benefiting a small segment of the public in this way, may be viewed as problematic for the popular concept of democracy if the general welfare of all citizens is sacrificed for very specific interests. This is especially so if the passed legislation neglects or reverses the original purpose for which the agency was established. The Regulatory Capture Prevention Act of 2011 - Establishes the Office of Regulatory Integrity in the Office of Management and Budget (OMB), requires investigation when (1) agency action or inaction that fails to advance the mission of the agency or is otherwise inimical to the public interest; (2) regulation, licensing, adjudication, grants, or other agency action that favors a limited number of economic interests or is otherwise inimical to the public interest; (3) enforcement priorities that are not reasonably calculated to accomplish regulatory goals; and (4) a loss of confidence in the integrity of the regulatory process.
Some maintain to the contrary, that such arrangements are natural outgrowths of, and not discordant with, the democratic process, since they frequently involve a majority block of voters implementing their will—through their elected representatives in government.
On January 27, 2011, FBI Director Robert Mueller used "iron triangles" to refer to "organized criminals, corrupt government officials, and business leaders" which he said "pose a significant national security threat".
https://en.wikipedia.org/wiki/Iron_triangle_(US_politics)
More under construction
https://en.wikipedia.org/wiki/Crony_capitalism
https://en.wikipedia.org/wiki/Inverted_totalitarianism
https://en.wikipedia.org/wiki/Regulator_shopping
https://en.wikipedia.org/wiki/Occupational_licensing
https://en.wikipedia.org/wiki/Rent_seeking
https://en.wikipedia.org/wiki/Regulatory_capitalism
Regulatory Capture Explained: 3 Regulatory Capture Examples
Government regulation often starts with the best of intentions. The stated goal of such rulemaking is to prevent businesses from harming consumers; however, it’s still possible for regulatory agencies to become corrupt through their close ties with the industries they regulate. Learn more about why and how such regulatory capture occurs.
What Is Regulatory Capture?
Regulatory capture refers to the process by which regulatory industries end up doing the bidding of the very industries they have an intrinsic duty to regulate. These industries might use both legal (although ethically dubious) and illegal means to influence regulatory bodies. This process can prove to be as common in democracies as in dictatorships.
George Stigler, a Nobel laureate and prominent economist of the mid-twentieth century, is the father of regulatory capture theory. Since his initial findings, other economists like Adam A. Posner, Daniel Carpenter, David A. Moss, Ernesto Dal Bó, and Marver Bernstein have made contributions of their own as to how this sort of corruption occurs as well as how to prevent it.
How Does Regulatory Capture Occur?
Regulated industries have a propensity to influence the regulatory agencies that exist to keep them in check. Here are some of the reasons why regulatory capture occurs:
- Average people have fewer resources. Government agencies receive a charter to protect the interests of average citizens, but normal people do not have the same resources to advocate for themselves as special interest groups do. Well-funded industries turn to lobbying as a means to influence which regulations they face, even at the expense of the run-of-the-mill consumer.
- Close relationships develop. Regulators have an intimate working relationship with people from the industries they regulate. As time goes by, they might feel close personal ties to people with a vested interest in the deregulation of a specific industry. These sorts of relationships can make ethical decision-making more difficult for regulators.
- Industries offer favors. Companies will offer explicit and implicit favors to regulators who go easy on their industries. Outright bribes are less common than more oblique conflicts of interest. For instance, rather than offering a large sum of money for favorable policymaking, there might be an understanding the regulator could come to work for a company if they ever leave their government job. Senators and congresspeople can be as guilty of this sort of rent-seeking as administrative regulators can be.
- Regulators come from regulated industries. There’s often a revolving door between regulatory agencies and regulated industries. This is due, at least in theory, to the fact it’s easier to regulate something if you know how it works from the inside. In practice, this often leads to legislators and regulators offering favors to or withholding penalties from the industries they now oversee.
Is Regulatory Capture Inevitable?
Economists differ on the inevitability of regulatory capture. Some point to the successes of regulatory bodies in addressing market failures or breaking up monopolies through antitrust actions as proof these institutions can operate without corruption and achieve their stated goals.
Others consider these situations outliers and look more closely at the ways the same groups have failed in achieving their mandates. Ironically, preventing regulatory capture likely requires regulating the regulators themselves.
3 Potential Examples of Regulatory Capture
Regulatory capture has occurred in different sectors of the economy throughout history. Consider these three examples of regulatory bodies failing to perform their duties:
- Environmental regulations: Public policy can shift from one administration to the next with regard to the environment. Some assert the EPA (the US Environmental Protection Agency) has fallen under the sway of private interest groups funded by the fossil fuel industries when the administration in power denies the effect of carbon emissions on climate change. As with many instances of regulatory capture, it can be difficult to prove such an accusation.
- Financial services: During the financial crisis of 2008, critics asserted the United States’s financial regulatory agencies worked against the public interest. They pointed to the deregulation of the financial sector that led to the housing bubble and subprime lending, as well as to the Federal Reserve of New York turning a blind eye to the unscrupulous activities of certain Wall Street banks.
- Transportation agencies: After the Interstate Commerce Act went into effect in the late nineteenth century, railroad barons overtook the Interstate Commerce Commission (ICC) the act had formed. In this classic example of regulatory capture, rail magnates shaped the very regulations that existed to keep them in check and operated as a private cartel of sorts. Trucking companies did the same thing in the twentieth century.
https://www.masterclass.com/articles/regulatory-capture
https://www.economicshelp.org/blog/141040/economics/regulatory-capture/
Protecting the Public Interest: Understanding the Threat Of Agency Capture
At bottom, agency capture is a threat to democratic Government. We the people pass laws through a democratic and open process. Powerful interests, nonetheless, want a second secret bite at the apple. They want to capture the regulatory agencies that enforce those laws so that they can blunt their effects, turning laws passed to protect the public interest into policies and procedures that protect industry interests.
In America we pride ourselves on open government. It is perhaps one of our signature contributions to government around the world. Unfortunately, however, agency capture is a deed that is done quietly and in the dark. The tentacles of industry intrude stealthily into the agencies. The agencies are often obscure, and there is a conspiracy of silence that surrounds agency capture.
Agency capture is also systemic. That is why it has been in the canon of economics and administrative law for nearly a hundred years. It is endemic and recurring because the institutional pressure of industry on the regulator is relentless.
https://www.govinfo.gov/content/pkg/CHRG-111shrg64724/html/CHRG-111shrg64724.htm
Institutional Capture and Local Participation
Institutional capture: A process by which institutions meant to advance the public interest are “captured” and instead made to serve the interests of certain groups or individuals, often including politicians, political parties, economic elites, and commercial actors. In the natural resource sector, an example would be the agency in charge of mining authorizations accepting payoffs from corporations in exchange for granting them permits despite those corporations’ failure to meet certain administrative requirements or environmental standards.
Institutional capture refers to the subversion—or “capture”—of elements in a democratic political system by certain elite interests through corrupt means. Put differently, institutional capture exists when democratic processes are undermined or manipulated such that government policies and practices no longer favor the public interest, but rather those of private actors. In relation to the natural resource sector, for example, institutional capture might lead to a situation in which public goods—such as mineral or timber reserves on public lands, or the minerals and timber extracted for export—are illegitimately converted into private payoffs for an elite minority (Heidenheimer & Johnston 2002).
Private actors’ ability to bend or shape state policies or practices to their advantage ultimately depends on their political power. Such power might be attained through democratic means, i.e. running for office, supporting campaigns, starting civil society organizations, or joining political parties. However, private actors might also acquire political power through corrupt channels such as vote buying, influence peddling, lobbying, patronage, nepotism, or violence. Because these latter mechanisms, by definition, exclude any sort of democratic accountability, their pervasive use is clear evidence of a captured system.
When state actors’ power depends on the backing of corrupt elites rather than popular support and consent of citizens, policies and practices regarding access to and management of natural resources will favor the interests of such elites instead of those of the general population or the people living in the vicinity of these resources. It could be the case that resource extraction or exploitation is pursued by an elite few with little-to-no benefits going to local communities or society at large. Indeed, as was discussed in the previous section, it is precisely the prevalence of such circumstances that has fueled the turn to community-based approaches in anti-corruption efforts and environmental management—with some notable successes. Yet, as the case from northern Madagascar considered below will illustrate, community-based approaches can only go so far in circumventing the consequences of institutional capture. In contexts of institutional capture where elite interests in particular high-value resources or landscapes clash directly with those of communities, locally-focused CBNRM and anti-corruption initiatives will have a much more limited impact.
