Private: Rethinking Regulatory Reform

By Nicholas Bagley, Assistant Professor of Law, University of Michigan Law School.

These are heady days for administrative law. In hearing after hearing on Capitol Hill, members of Congress have examined the virtues and vices of a host of pending bills that aim to encumber regulatory decision-making. There are bills to require congressional approval before major regulations take effect, bills to subject informal agency guidance to notice-and-comment rulemaking, and bills demanding the elimination of one regulation every time another is imposed. For all their differences, however, the bills share a common purpose: to put the kibosh on what their sponsors decry as job-killing regulations.

This is all a bit surreal. Hobbling federal agencies makes sense if the burdens of regulation systematically exceed the public benefits. But they don’t. In comprehensive studies, both Republican and Democratic administrations have repeatedly found that regulation confers substantial net benefits. The notion that federal bureaucrats as a group are heedless of social costs — or worse, that they regulate just for the thrill of it — has no foundation in either fact or theory.

The truth is that some agencies grow so close to industry groups that they may not regulate diligently enough. A few examples: Even before the Deepwater Horizon spill, reports detailed sordid contacts between oil-industry representatives and employees at the agency that ostensibly regulated drilling safety. Lackluster SEC enforcement efforts have been partly chalked up to agency employees reticent to put out potential future employers. And Medicare is beholden to a panel of physician specialists when it decides how much to pay for the services those same specialists provide.

In catering to the interests of regulated industries at the expense of the public welfare, these agencies have become victims of what scholars call regulatory capture. And rooting out capture is hard. Congress and the President need at least two things to manage it: good information and political will. It’s not always easy to figure out whether capture has taken hold, to understand the relevant capture dynamic, or to tailor strategies to reorient agencies more firmly toward the public interest. Of even greater significance, Congress and the President need the political will to implement those strategies in the face of stiff industry resistance.

But both information and political will are in short supply. They need not be. That’s the big idea in a new bill, the Regulatory Capture Prevention Act, introduced two weeks ago by Senator Whitehouse. Drawing on a recommendation made in a piece of mine, the bill would establish an Office of Regulatory Integrity within OMB.

The new office would coordinate with inspectors general across the regulatory state to police for symptoms of capture. Through careful investigations into agency–industry contacts, regulatory action and inaction, and enforcement patterns, this capture czar would work to ferret out untoward pressure from regulated entities. Because OMB is a White House agency, the President would own whatever problems the office exposed. Publicly available reports identifying agency capture and suggesting how to remedy it would have immediate credibility and would be difficult to ignore.

Why should Congress worry more about capture and less about hyper-regulation? Simple. Well-heeled industry groups with a lot of skin in the game relentlessly pressure agencies and their political masters in an effort to squelch any regulation, however salutary, that imposes costs or forces changes in market behavior — which is to say, most regulation. All too often, they succeed.

In contrast, it’s much harder to organize a coalition to push for regulatory initiatives that would benefit the public. While large in the aggregate, the benefits of regulation tend to be small for each individual. Most people don’t have much of an incentive to contribute to the collective effort of securing the regulation. As compared to their industry counterparts, the citizen coalitions that do form are often disorganized, cash-strapped, and ineffective.

Industry groups regularly exploit their organizational and financial advantages in an effort to tilt the regulatory field in their favor. Sometimes they even capture the agencies that regulate them. Outmatched, groups representing the body public can get clobbered. The Regulatory Capture Prevention Act is one way of fighting back.

Look, no one likes mindless regulation — especially the job-killing kind — and it’s altogether appropriate to periodically review old rules and discard or rewrite the outdated ones. A recent presidential order pushes agencies to do just that. But Congress shouldn’t waste its time on bills that would only gum up the regulatory works. It should instead embrace reform efforts that further the public interest by cabining untoward industry influence on the regulatory state.