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Regulatory Capture: Who's Serving Whom?

Written by James Pomeroy | 31-Jan-2025 12:14:42

Like the best metaphors, ‘Regulatory Capture’ conjoins two simple words to represent a complex and abstract idea. By linking Capture, the physical act of taking hold, with Regulatory to represent the regulating body, a picture is formed in our minds: The agency supposed to protect us is in the grip of industries it supposed to regulated! It creates a vivid and compelling narrative.

The metaphor is frequently cited after major disasters. It has been associated with the Deepwater Horizon blow out, the Boeing 737 Max, Fukushima, the Morandi Bridge collapse and the Brumadinho damn collapse. Before the dust has barely settled on the disaster, questioning will often turn to the regulator and why the failures were not identified before or why a regulator approved or did not intervene in something that was alleged to have contributed in some way to the disaster. This is the 'shoulda, coulda, woulda' of hindsight. It not long before this leads to allegations that the decision-making of the regulatory agency were ‘captured’ before the disaster. In this article I explore how the metaphor can play out in the field of safety and environmental. I share what I read and study, so I hope you find my rambling notes useful.

Unpacking the Concept

Emerging from economics, Regulatory Capture has been found in many sectors. It was created by George Stigler, a Nobel laureate economist. Stigler observed there is an asymmetric imbalance between the regulated (i.e. the private firms, industry and sector bodies) and those protected by the work of the regulators, i.e. the general public. Regulated industries maintain a keen and immediate interest in influencing regulators, whereas the general public who are the ultimate beneficiaries of regulation, are less motivated to engage with the work of the regulator. Stigler’s asymmetric imbalance comes down to this simple fact:

Industries devote large budgets and time to influencing regulators and their decisions, while individual citizens spend scant resources or little interest to advocate for, or protect their own rights.

How a regulatory is ‘captured’ can be quite subtle. They might deliberately lower safety standards, be slow in introducing them or less stringent in enforcing them, or be overly-lenient in granting exceptions because of industry influence and capture. But there are many other reasons for Regulatory Capture. I am only going to explore a few of them at a high-level. Using some well-known disasters, below I explore some of the different ways that Regulatory Capture has been alleged to have contributed to safety, quality and environment failures.

The Connecting Thread: Deepwater Horizon, Boeing 787Max, Brumadinho Dam Collapse and the Morandi Bridge collapse

Revolving Doors

One of the common ways that regulator's interests have been alleged to have been ‘captured’ is when they become too close to the firm or sector that they are charged with overseeing. Often a regulator is in close contact and communication with an organization or sector, then they can end up being sympathetic to their point of view. In specialist sectors, there can be a so-called ‘revolving door’ where people move jobs between the regulator and the regulated firms. It is argued that this inter-sector movement and resulting personal relationships reduces the distance and dispassion required to regulate rigorously and independently. The close relationship that results from 'poacher turned gamekeeper' can present a structural and hidden challenge in the regulation of high risk sectors. Following the Boeing 787Max crashes, it has been alleged in the U.S. House of Representatives report that the FAA became too close to Boeing because and was ‘captured’ by the commercial arguments the firm made.

The revolving door between the regulator and operator leads to the creation of 'shared frames of reference' where both parties come to view issues and risks in an identical way, and the regulator loses their 'independent perspective'. The closer the relationship, the more we all wish to avoid conflict in their everyday work life. Hence, closeness and familiarity of working relationships can work against constructive challenge and ultimately regulatory oversight.

The Public vs. Economic interest

Sometimes the Regulatory Capture emerges from a regulator being conflicted from the outset, such as where they have both an economic regulatory role and an oversight of safety and environmental protection. Just as a worker has to navigate the often conflicting tensions of meeting productivity and safety goals, so a regulator may be in an impossible position in trying to address contrasting goals.  In the Deepwater Horizon disaster, it was alleged that the Mineral Management Service was “captured” by the commercial interests and was influenced by pressure and influences from the industry.  Similarly, it has been alleged that the Brumadinho mine in Brazil was such as large financial contributor to the region, that the regulator failed to adequately challenge Vale in the poor management of safety and tailings.

The researchers Makkai and Braithwaite found that regulators increasingly sympathise with industries they regulate over time; the longer regulators are involved with an industry, the more likely they can be 'captured'. They also found that regulators who once worked for the industry they oversee are more loyal to industries rather than to the goals of regulatory institutions. So ‘capture’ can often be subtle and not obvious. The investigations in the VW ‘Dieselgate’ scandal have argued that one significant factor in the failure by government bodies to act earlier was the national regulators turning a blind eye to the glaring evidence of cheating emissions testing by VW with the aim of protecting their national carmakers. So, this is difficult stuff and gets into the Realpolitik of regulation.

Mike Keefe, Cagle Cartoons, The Denver Post

The Asymmetries of Information

Now this is where it gets interesting (well, for nerds like me this is interesting). The sheer volume of assets and activities a regulator must oversee overwhelms the capacity available at any regulator, and hence no regulator can possibly oversee every aspect of a system without the cooperation of those actually operating it. If we accept a Machiavellian argument that Knowledge is Power and that effective regulation requires an understanding of the technical issues being regulated, then this reveals an asymmetric imbalance. Many regulators in high hazard sectors rely on information coming from the firm. This information could be product safety testing, safety case or risk modelling. Often the firm has much greater understanding, knowledge and expertise than the regulator. This imbalance becomes more pronounced with the complexity of the technology.

In the evidence to the Grenfell Tower, expert witness Professor Luke Bisby argued technical expertise and knowledge can lead to regulatory capture. Often the regulator is required to regulate a safety or environmental topic which only the manufacturer, supplier know, capture can occur through knowledge and expertise asymmetries. As the French historian and philosopher Michel Foucault highlighted in his concept of 'power/knowledge', information is power, and this can change the power in the relationship. The more unique a scientific and technical expertise is, the higher the chance for an imbalance of power between the regulator and the firm or industry. This explains why nuclear and aviation regulators are often accused of regulatory capture.

Resource Imbalance

The resources and headcount of firms typically far outweighs the regulator who is limited by government expenditure. When appropriate laws do exist for regulating safety or environmental issues, there are often too few governmental resources dedicated to enforcement and mitigate non-compliance. This can result in the regulator delegating certain regulatory duties to firms they are regulating, which introduces other challenges as is discussed below.  For example, the House of Representatives’ report in the Boeing 787Max points to the FAA’s practice of delegating responsbility for some of its inspection functions to Boeing’s own engineers and allowing the aircraft maker to self-certificate critical safety test that would routinely be overseen and witnessed by an agency. It has been argued that the regulator shifting responsibility for safety check and vouching for safety to the airplane manufacturer itself is a contributing cause for the 787Max crashes. The House report lambasts the FAA, saying they:

"[The FAA] undercut the authority and judgment of its own technical experts and sided with Boeing on design issues that failed to adequately address safety issues and appear to have violated FAA regulations or guidance.”

A Confidence Trap

The academics Akhil Bhardwaj and Henk Akkermans argue that regulatory capture is less the result of corporate greed, misuse of power, and opportunism, but rather both fall into a false sense of confidence. The refer to this as ‘constructed ignorance’ which results from a belief that disasters are unlikely leading to excess cooperation between the operator and regulator. Over time, the complex sociotechnical system drifts toward failure, the quality of the oversight declines, remedial action is not taken and both parties collectively gloss over or discount the likelihood of a disaster. This is a continuation of the silent and insidious view of regulatory capture – it’s less overt and conscious, and arises from excess cooperation and constructed ignorance enabled by operators and regulators falling into a confidence trap

Words Matter

Sometimes ‘capture’ can occur is very subtle ways such as viewing the parties being regulated as customers. This can lead regulators to lose sight of who the real beneficiary of regulation is, and can significantly soften and make ineffective the ways that a regulator responds to breaches of the law and safety standards. A way for a regulator to address this is to consider specifically the kind of relationship required by the regulator with a regulated party, describe it clearly and inculcate an appropriate approach in the culture of the regulator. There was a trend 10-15 years ago for regulators to describe regulated businesses as ‘customers’. This practice has now thankfully stopped.

Some Final Words

These are just a few ways that regulatory capture can occur. I have highlighted the examples that have appeared within the reports into safety, quality and environmental disasters. There is doubtless much more than I have covered here and I'd welcome your insights and reflections on Reglatory Capture.

It’s an interesting metaphor that represents a highly complex matter.

▶️Do you recognize the concept?

▶️Have you experienced it?

▶️What have I missed, overlooked or got wrong?

▶️What should we do to address it?

Sources and Futher Information

▶️ Grenfell Tower Inquiry Phase 2 - Regulatory Testing and the Path to Grenfell. Pp 274-302

https://assets.grenfelltowerinquiry.org.uk/LBYP20000001_Professor%20Luke%20Bisby%20Phase%202%20Report%20-%20Regulatory%20Testing%20and%20the%20Path%20to%20Grenfell_1.pdf

▶️ U.S. House of Representatives Final Committee Report on the Design, Development, and Certification of the Boeing 737 MAX: https://democrats-transportation.house.gov/imo/media/doc/2020.09.15%20FINAL%20737%20MAX%20Report%20for%20Public%20Release.pdf

▶️ Akhil Bhardwaj and Henk Akkermans, ‘Frontiers in Operations: The Confidence Trap in Operations Management Practices: Anatomy of Man-Made Disasters’. Manufacturing & Service Operations Management. 1 Jul 2024.

▶️ The Economist: https://www.economist.com/business/2019/03/23/regulatory-capture-may-be-responsible-for-boeings-recent-problems

▶️ Dolruedee Kramnaimuang King & Jan Hayes ‘The effects of power relationships: knowledge, practice and a new form of regulatory capture’ , Journal of Risk Research, 21:9, 1104-1116,

▶️ Robert L. Glicksman, 'How Regulatory Failures Made the BP Disaster Possible, and How the System Can Be Fixed to Avoid a Recurrence '

▶️ Toni Makkai and John Braithwaite, ‘In and Out of the Revolving Door: Making Sense of Regulatory Capture’. Journal of Public Policy. 1992;12(1):61-78.

▶️ Rebecca Bratspies, ‘Human rights and environmental regulation’. NYU Envtl. LJ 19 (2011): 225.

▶️ The Economist, ‘Brazil’s worst ever dam disaster follows years of regulatory capture’ https://www.economist.com/the-americas/2019/02/02/brazils-worst-ever-dam-disaster-follows-years-of-regulatory-capture

Toles Cartoon on Regulatory Capture by Adam Thierer