Regulatory capture
Based on Wikipedia: Regulatory capture
The Watchdogs Who Learned to Love the Wolves
In October 1966, a mountain of coal waste slid down a Welsh hillside and buried a school full of children. One hundred and sixteen kids died that morning in the village of Aberfan, along with twenty-eight adults. The tip—a massive pile of mining debris—had been built directly on top of known water springs, in direct violation of safety procedures. It had rained for three weeks. The saturated waste became a black avalanche.
What makes this tragedy more than a freak accident is what investigators found afterward. Her Majesty's Inspectorate of Mines, the government body charged with overseeing coal mining safety, had failed to catch the obvious danger. More damningly, when a tribunal examined what went wrong, the Inspectorate went largely unchallenged. Researchers Iain McLean and Martin Johnes later concluded that the safety regulators had, over time, aligned themselves with the interests of the National Coal Board—the very entity they were supposed to police.
This is regulatory capture in its most lethal form.
What Capture Actually Means
The idea is deceptively simple. Governments create regulatory agencies to protect the public: to keep our food safe, our banks solvent, our air breathable, our workplaces survivable. But these agencies don't operate in a vacuum. They interact constantly with the industries they regulate. They need industry expertise to write rules. They hire people who understand the technical details—which often means hiring from the industry itself. They face lobbying, political pressure, and sometimes outright corruption.
Over time, something shifts.
The agency starts seeing the world through industry eyes. Its staff socialize with industry executives. Its leaders know their next job might be at a company they're currently regulating. Its institutional culture drifts toward accommodation rather than confrontation. The regulated become, effectively, the regulators.
This is capture. And a captured regulator is often worse than no regulator at all—because it wields the authority of government while serving private interests.
The Economics of Influence
Why does this happen? The Nobel laureate economist George Stigler provided the foundational explanation in the 1970s. His insight was almost embarrassingly obvious once stated: the people who care most intensely about regulations are the people most affected by them.
Consider a proposed rule that would cost a single industry $100 million while providing $150 million in benefits spread across all taxpayers. From society's perspective, this is a good deal—$50 million in net benefit. But for each individual taxpayer, the gain might be a few cents. Meanwhile, for the handful of companies bearing that $100 million cost, the stakes are enormous.
Who's going to show up at the hearings? Who's going to hire lobbyists? Who's going to wine and dine the commissioners? Who's going to fund the think tanks that produce favorable research?
Not you, worried about your fraction of a penny.
This asymmetry is the engine of capture. Concentrated interests will always outspend and outorganize diffuse ones. It's not even corruption in the traditional sense—it's the rational behavior of economic actors pursuing their interests through available channels.
The Revolving Door
But Stigler's framework, while powerful, missed something important. He talked about industries capturing regulators, as if "the industry" acted as a unified bloc. Later researchers, particularly Elise Brezis and Guillaume Cariolle, showed that capture is actually more concentrated than that.
It's not the industry. It's the biggest companies.
They documented that the top five financial firms account for roughly eighty percent of all revolving door movements between Wall Street and Washington. This creates a specific mechanism: large firms offer lucrative post-government careers to regulators who treat them favorably, while smaller competitors in the same industry have no such leverage. The result isn't just capture—it's a systematic tilting of the playing field toward incumbents.
The revolving door spins in both directions. Industry veterans join regulatory agencies, bringing their perspectives and their loyalties. Regulators leave for industry jobs, taking their relationships and their inside knowledge. The line between overseer and overseen becomes a blur of shared assumptions, social connections, and economic entanglement.
Two Flavors of Capture
Researchers distinguish between materialist and non-materialist capture, though in practice they often blend together.
Materialist capture—sometimes called financial capture—is about money. Bribery, obviously, but also the subtler inducements: campaign contributions, the promise of future employment, the funding of a regulator's budget through industry fees. When your paycheck depends on keeping the regulated industry happy, your judgment bends accordingly.
Non-materialist capture—cognitive capture—is sneakier. It happens when regulators genuinely come to believe that industry's interests align with the public's. They're not being bribed. They've simply absorbed the worldview of the people they interact with most.
This is particularly common in highly technical fields. If you're regulating nuclear power plants or derivatives trading or pharmaceutical manufacturing, you need deep expertise. Where do you find experts? The industry. So your staff comes from industry, thinks like industry, speaks the language of industry. They may sincerely believe they're serving the public interest—while systematically underweighting risks that industry would prefer to ignore.
The Gulf of Mexico Case Study
In April 2010, the Deepwater Horizon drilling rig exploded, killing eleven workers and unleashing the largest marine oil spill in history. Millions of barrels of crude poured into the Gulf of Mexico for nearly three months before the well was finally capped.
The agency responsible for regulating offshore drilling was the Minerals Management Service, and it became a textbook example of capture so complete it bordered on farce.
The MMS had allowed BP and dozens of other companies to drill without obtaining legally required permits to assess threats to endangered species. It had granted blanket exemptions from environmental impact statements. When the National Oceanic and Atmospheric Administration warned about the risks of deepwater drilling, MMS dismissed the concerns. Agency scientists reported that their findings were overruled and altered if they identified high risks. One environmental advocate described the situation bluntly: "MMS has given up any pretense of regulating the offshore oil industry. The agency seems to think its mission is to help the oil industry evade environmental laws."
The new Interior Secretary, Ken Salazar, was tasked with cleaning up the mess. His appointment was itself controversial—as a senator, he had voted against repealing tax breaks for major oil companies and had supported expanding offshore drilling. When asked about the new secretary, a spokesman for the National Mining Association praised him as "not doctrinaire about the use of public lands."
The agency was reorganized, renamed, and split into separate bureaus. Salazar promised that no more permits would be issued pending review. Three weeks later, at least five new permits had been quietly granted. Within a year, drilling was expanding again in the Gulf.
The Counterintuitive Truth About Size
One might assume that larger, more powerful government bodies would be harder to capture. The opposite is often true.
Small, concentrated industries can capture state and provincial governments with relative ease, then use their captured jurisdictions to block national policies. Timber companies capture the legislatures of forested states. Mining interests capture mountain state delegations. These captured sub-units then fight as a bloc at the national level, able to veto or water down regulations that the broader public might prefer.
But the very largest industries—energy, banking, weapons manufacturing—can play the reverse game. They capture national governments and use that leverage to override state or local regulations. The oil industry writes federal rules that preempt state environmental protections. Banks secure federal charters that exempt them from state consumer protection laws. The capture happens wherever power concentrates.
Researchers call this asymmetry the "distortion gap." Geographic representation in democratic systems creates natural leverage points for industries concentrated in particular regions, allowing minority economic interests to punch far above their weight in national policy.
Beyond Government: Deep Capture
Legal scholar Jon Hanson and his collaborators have argued that the phenomenon extends far beyond regulatory agencies. If industries have incentives to capture their regulators, they have similar incentives to capture anything that shapes public perception: media outlets, academic institutions, popular culture.
This "deep capture" explains why certain perspectives dominate public discourse on regulatory issues. Industries fund research institutes that produce favorable studies. They purchase advertising that influences editorial coverage. They support academic programs that train future policymakers in sympathetic frameworks. They sponsor entertainment that normalizes industry perspectives.
The result is a comprehensive shaping of the intellectual environment in which regulatory decisions get made. By the time a policy question reaches a regulator's desk, the terms of debate have already been set by decades of industry investment in the ideas that frame the question.
The Original Optimism and Its Failure
Regulation wasn't always viewed with such cynicism. The original theory—what economists call the "public interest" theory of regulation—held that markets sometimes fail, and government steps in to correct those failures. Monopolies charge too much, so we regulate their prices. Industries pollute because they don't bear the costs, so we impose environmental rules. This was the progressive vision: expert agencies, staffed by public-spirited professionals, correcting market imperfections for the common good.
The theory ran into the rocks of American history.
When researchers examined the actual operation of regulatory agencies, particularly the Interstate Commerce Commission's regulation of railroads starting in 1887, they found something unexpected. Regulation wasn't correcting market failures. It was increasing industry profits. In supposedly competitive industries like trucking, regulations prevented new entrants and allowed higher prices. In natural monopolies like electricity, price regulation seemed to make little difference—utilities earned excess profits regardless.
The evidence pointed toward a darker interpretation: regulation existed not to constrain industry but to serve it. The agencies created in the public name had become instruments of private enrichment.
Is Capture Inevitable?
Some theorists argue that capture is essentially unavoidable—that any regulatory scheme will eventually be bent to serve the regulated. The only question is how quickly.
This pessimism has policy implications. If regulators will inevitably be captured, perhaps we shouldn't create them in the first place. A captured regulator doesn't just fail to protect the public; it actively harms them by lending government authority to industry preferences. Better no watchdog than a watchdog that's been trained to fetch for the wolves.
But complete deregulation creates its own problems, as the public choice theorists themselves would acknowledge. Some market failures are real and damaging. The question becomes one of institutional design: can we create regulatory structures resistant to capture?
Transparency helps. Agencies whose deliberations and industry contacts are public are harder to capture quietly. Term limits and revolving door restrictions reduce the personal incentives that facilitate capture. Multiple overlapping agencies with different constituencies can check each other's drift. Funding regulators through general revenues rather than industry fees removes one avenue of influence.
Yet recent research is sobering. Even in mature democracies with high levels of transparency and press freedom, more extensive regulatory environments correlate with more corruption, including capture. The very complexity that promises thorough oversight creates opportunities for manipulation. Rules multiply; loopholes proliferate; specialists who understand the system become invaluable and therefore powerful.
The Motorcycle Gear Mystery
Consider a recent and almost absurd example. The European Union developed a new standard for motorcycle protective gear—the clothing that keeps riders alive in crashes. Industry representatives made up half the standards committee, including its chair. The result, according to motorcycle publications that investigated, was testing standards that reduced protection levels by as much as ninety percent compared to previous requirements.
This wasn't bribery. It wasn't corruption in any prosecutable sense. It was simply that the people writing the safety standards were the people who had to meet them, and they wrote standards they could easily meet. The riders who would be scraped across the pavement at highway speeds weren't in the room.
Researchers note there's a shortage of academic study on this particular capture. It's too small, too technical, too far from the concerns of policy scholars. But for the riders, the captured standard is their skin and bones at stake.
The Modern Landscape
In developed countries, capture has evolved beyond crude corruption. The contemporary version operates through what might be called abuse of power—the leveraging of legitimate authority for private benefit in ways that are technically legal.
A regulator who writes rules favorable to their future employer hasn't accepted a bribe. An agency that adopts industry positions after hearing only industry testimony hasn't been corrupted. A safety standard written by the companies it governs is simply reflecting available expertise. Each step seems reasonable in isolation. The cumulative effect is a systematic prioritization of concentrated interests over diffuse ones.
The Stanford hearing room packed with artists and writers, watching California legislators consider how to regulate artificial intelligence companies headquartered nearby, represents the eternal dynamic. On one side, dispersed individuals with much to lose but little power to wield. On the other, concentrated interests with everything at stake and every resource to deploy.
The outcome is rarely in doubt. The question is only whether it will happen quickly or slowly, blatantly or with sophisticated discretion.
Living With the Reality
Understanding regulatory capture doesn't automatically suggest solutions. If anything, deep familiarity with the phenomenon breeds a kind of resigned realism about the limits of institutional reform.
But awareness has value. When an agency ruling seems to defy common sense, capture provides a lens for understanding why. When industry and regulator speak with one voice, we know to be suspicious. When a safety standard written by manufacturers turns out to protect manufacturers rather than users, we're not surprised.
The original progressive faith in expert regulation—disinterested professionals applying scientific analysis to public problems—wasn't entirely wrong. Some regulators, some of the time, do serve the public interest. But they do so against structural forces pushing toward capture, requiring constant vigilance and periodic reform.
The children of Aberfan died because a safety inspectorate had stopped seeing the coal board as a potential danger and started seeing it as a partner. The Gulf of Mexico was poisoned because an agency charged with environmental protection had redefined its mission as facilitating extraction. In each case, the formal structures of oversight remained in place. The seals were intact. But the watchdogs had changed sides.
Capture is not a bug in the system. It's an emergent property of the system, arising wherever concentrated interests interface with diffuse ones through institutional chokepoints. The only effective response is perpetual skepticism about institutions that claim to serve the public while regulating the powerful—and the understanding that such skepticism is not cynicism but realism.