Republic Reborn

Fight For The Future of Liberty

The importance of understanding “regulatory capture”

Libertarians find joy in proclaiming that they are against “regulation” of the economy, much to the horror of the majority of people who don’t quite know what they mean. In essence what they mean is that they are against any undue restriction on voluntary activity, which restricts the number and variation of voluntary interactions which would occur, thereby putting a damper on the prosperity that would emerge.

Most people would counter with, ‘Sure, that works in theory, but we need regulatory bodies to watch over the dominant players in any industry to ensure they’re playing fair’.  Which would be a good time to bring up the concept, and very real phenomenon, of regulatory capture.

Basically, regulatory capture refers to when the major companies in an industry gain such influence over the regulatory agency supposedly keeping them in line that the agency itself begins promoting and protecting the interests of those dominant players.  The agency becomes the policy arm of the industry, effectively “captured” by those players.

Wikipedia explains it slightly better: …“regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting 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.[2] Regulatory capture refers to the actions by interest groups when this imbalance of focused resources devoted to a particular policy outcome is successful at “capturing” influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest groups are implemented.”

It doesn’t take much imagination to realize this is happening at every level of government, at all times.

It’s fascinating, in a way, but more importantly it’s a stark example of how good-intentioned intervention into the market can have the exact opposite effect of the one desired.  For society to function, we merely need to protect voluntary behavior. Everything will fall into place as long as voluntary interaction is expanded into as many areas of the economy as possible. Regulatory interventions backfire spectacularly.


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