What is Regulatory Capture?

Mary McMahon

Regulatory capture is a situation where a government agency responsible for regulating a specific industry finds itself advocating for major companies in the industry instead of the interests of members of the public. People may refer to such agencies as “captured agencies.” There are a number of steps governments and organizations can take to limit the possibility of regulatory capture.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

This situation is very common; companies usually bring substantial money and pressure to bear when regulatory agencies are making decisions, while members of the public may not express very much interest, or could lack the clout of members of the industry. When the majority of input an agency receives is from the industries it is supposed to regulate, there is a tendency to start responding to that by shaping policy directions to favor those industries. It can be difficult to maintain independence and integrity.

Sometimes, regulatory capture is obvious. Companies can use tools like paid vacations, free luxury flights, and other perks to woo officials while weighing in on policy matters. The legality of such activities may be ambiguous. In some nations, governments have very strict policies to prevent regulatory capture. They try to limit outside influence by not allowing agencies or officials to accept any gifts from outsiders, and require people to disclose attempts at gifts and bribes. In other nations, regulation may be more lax, or members of an agency collectively agree to skirt the law.

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The problem can be compounded by political issues. Companies do not just pressure government agencies, they also play a role in the electoral process with donations to political campaigns and other political support. Companies can push for the election of people favorable to the interests to assure beneficial political appointments and policy maneuvers, creating a web of influence that may be difficult for agencies to escape. Especially when agencies have limited funding and personnel, it can be very easy to end up in the pockets of industry, even with a conscious desire to avoid this situation.

Measures to address regulatory capture beyond limiting gifts can include frequently rotating personnel to prevent the development of relationships between agencies and companies, setting clear policies for soliciting feedback and commentary on proposed regulatory activities, and using regular outside auditing. Scrutiny from members of the media can also be helpful, as it reminds agencies that the public is watching. Media outcry over particularly egregious examples of regulatory capture tends to result in increased attempts to prevent future incidents.

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