The politics of regulation: Four dominant perspectives

How much politics goes into the development, implementation, evaluation, and reform of regulation? Over the next few weeks, I will write a short series of blog posts that map how scholars of public administration in general and regulatory scholars in particular have theorized the politics of regulation.

In this blog post, I will look at four dominant perspectives that seek to answer that central question.

Recap

Keeping this in mind the broad understanding of regulation (that has been subject to considerable change over the last fifty years; see the previous blog post), it will come as little surprise that there is no one-size-fits-all theory of the politics of regulation.

Rather, multiple theories exist side by side that each address different aspects. Here, I will touch on four dominant perspectives. Again, by no means this is an exhaustive overview, but it will give you a good point of departure for further exploration.

The four perspective can roughly be clustered as:

Public interest theories (or perverted public interest theories) that largely focus on the challenges that come with designing and implementing regulation to achieve societal desirable ends;

Public choice theories (or theories of self-interested agents) that largely focus on the challenges of designing and implementing regulation within and by the public bureaucracy;

Private interest theories (or economic and capture theories of regulation) that largely focus on how regulation and regulators are influenced by private interests; and,

A range of institutional theories that largely focus on the (incremental and accelerated) change and stability of regulation over time.

Public interest perspectives

Public interest perspectives of regulation hold that regulation is developed and implemented to pursue goals that serve the public at large—generally speaking, to address market failures or to ensure just and equal welfare provision.

The challenge for those seeking to develop and implement regulation in the public interest is that ‘the public interest’ is an elusive concept [1]. As a result, they will find it difficult to come up with consistent and clear regulation due to a lack of information and information asymmetries, flawed understandings of the cause-effect relationships in regulation, and (unintended) side effects that can be exploited by opposition of regulation [2].

In addition to these ‘typical’ public interest challenges, those who pursue regulation from a public interest point of view may find it difficult to justify the (economic) costs of regulation due to a lag time between implementation of a regulatory intervention and its results, the transaction costs and costs of unintended consequences of regulation that are difficult to predict (and measure), and the difficulty of comparing the societal costs of regulation with a counterfactual situation of no or different regulation [3].

A final challenge addressed within this perspective is that of ‘perverted public interest’ [4]—that is, situations where the introduction of regulation results in the opposite of what was intended. For example, targets of regulation may become hostile towards a regulator due to its coercive stance, or they may seek ‘creative compliance’ by adhering to the letter but not the spirit of regulation [5].

Public choice perspectives

Public choice perspectives of regulation hold that regulators as well as their targets, beneficiaries, and political principals pursue or oppose regulation as self-interested agents.

Two distinct arguments stand out on how self-interested actors affect the politics of regulation. First, those pursuing or opposing regulation seek personal gain and in doing so undermine the (public) interest that regulation seeks to serve. Second, because the rationality of those pursuing or opposing regulation is limited their actions may eventually not serve their interests best.

The first argument touches on self-interested bureaucrats that are not willing or even neglect their regulatory responsibilities (shirking), bribing of individual regulators by targets or beneficiaries (or even policymakers), and the tendency of (some) bureaucrats to shift their career between holding public office to regulate an industry at some times and working at key-positions in that industry at other times (the ‘revolving door’ mechanism) [4].

At the level of regulatory agencies, units may pursue objectives contrary to those of public policies (which may result in bureaucratic slack or turf wars), or agency appointments are used as political rewards or political strategies [6]—think of the recent Trump government in the United States appointing vocal anti-regulation individuals to lead regulatory agencies.

The second argument holds that those pursuing or opposing regulation are faced by challenges related to their bounded rationality. This includes typical arguments about the bounded rationality of bureaucrats (e.g., limited cognitive abilities and limited time to make decisions), but also more specific ones such as electorates that chose policymakers whose (anti-)regulatory agenda does not serve their interests; rhetorical challenges faced by regulators to explain regulatory performance to beneficiaries; and, jurisdictional challenges when the consequences of regulatory interventions (or lack thereof) in one jurisdiction fall on (the populace of) another jurisdiction [6].

Private interest perspectives

Private interest perspectives of regulation hold that regulators are influenced (‘captured’) by their targets (but also by their beneficiaries and political principals) to such an extent that it systematically favors their private interests and systematically ignores the public interest [7].

Regulatory capture becomes possible when a (relatively) small group of targets succeed to organize and influence or oppose regulation but when large(r) group(s) of beneficiaries and proponents fail to organize in support of regulation [5].

In such situations, regulators (or their political principals) would often and frequently be exposed to opposing targets and not by supporting beneficiaries. They are then likely to bend to the desires of these targets.

This is also the argument of the more prosaic the life-cycle theory of regulatory failure. This theory holds that young regulatory agencies are staffed with enthusiasts and have political backing from the coalition that created it, they can regulate their respective industry vigorously. Yet, over time they will face political and societal critique about their existence and the industries they regulate, and eventually they move towards taking on the opinions, values, and interests of the industries they regulate [3].

Here I should note that regulatory capture is not always detrimental for beneficiaries. In a situation of strong capture, the public interest may be violated to such an extent that the public would be better off without that regulation and its regulators. Yet, in a situation of weak capture, whilst the public interest is compromised by special interests, “the public is still being served by regulation, relative to the baseline of no regulation” [8, p. 12].

Institutional perspectives

Institutional perspectives of regulation broadly overlap with the theories of the policy process that are well known to scholars of public administration [e.g., 9].

Such perspectives argue that processes of regulatory change (and thus regulatory policymaking) result from incremental shifts over time [10], such as changing government preferences for or against regulation, regulatory agencies that divert from their statutory objectives, or large parts of industries not following regulatory requirements (all captured as ‘drift’ in historical institutionalism [11]); or, overlap, redundancies, and overregulation resulting from (uncoordinated) ongoing minor adjustments and additions to regulatory regimes (captured as ‘layering’ in historical institutionalism [11].

Alternatively, regulatory change may result from exogenous shocks such as society-wide crises or environmental disasters that regulation or regulators cannot quickly respond or adapt to [2] (captured as ‘punctuated equilibrium’ type chances in the public policy literature [12]).

Of course, there may very well also be ‘politics’ at play in situations where regulation or regulators should be changed, but when it is not happening. This could be the result of, for instance, regulatory regimes that have become self-referential and close themselves off from outside disturbances, regulatory regimes that have become so rigid that it has become virtually impossible to change them, or such a profound disappointment of the public in regulatory regimes that they do not bother to call for change anymore [2].

References

1.            Noll, R.G., Government Regulatory Behavior: A Multidisciplinary Survey and Synthesis, in Regulatory Policy and the Social Sciences, R.G. Noll, Editor. 1985, University of California Press: Berkeley. p. 9-63.

2.            Baldwin, R., M. Cave, and M. Lodge, Understanding Regulation: Theory, Strategy and Practice – second edition. 2012, Oxford: Oxford University Press.

3.            Joskow, P., Market imperfections versus regulatory imperfections. CESifo DICE Report, 2010. 8(3): p. 3-7.

4.            Horwitz, R., The Irony of Regulatory Reform: The Deregulation of American Telecommunications. 1989, Oxford: Oxford University Press.

5.            Wilson, G., Social Regulation and Explanations of Regulatory Failure. Policy Studies, 1984. 32(2): p. 203-225.

6.            Carman, J. and R. Harris, Public regulation of marketing activity, Part III: A typology of regulatory failures and implications for marketing and public policy. Journal of Macromarketing, 1986. 6(1): p. 51-64.

7.            Mitnick, B., Capturing capture: definition and mechanisms, in Handbook on the Politics of Regulation, D. Levi-Faur, Editor. 2011, Edwar Elgar: Northampton. p. 34-49.

8.            Carpenter, D. and D. Moss, Preventing Regulatory Capture. 2013, Cambridge: Cambridge University Press.

9.            Weible, C. and P. Sabatier Theories of the Policy Process – Fourth Edition. 2018.

10.          Haines, F., Regulatory Failures and Regulatory Solutions: A Characteristic Analysis of the Aftermath of Disaster. Law & Social Inquiry, 1999. 34(1): p. 23-50.

11.          Van der Heijden, J. and J. Kuhlmann, Studying Incremental Institutional Change: A Systematic and Critical Meta-Review of the Literature from 2005 to 2015. Policy Studies Journal, 2017. 45(3): p. 535-554.

12.          Kuhlmann, J. and J. Van der Heijden, What is known about Punctuated Equilibrium Theory—and what does that tell us about the construction, validation and replication of knowledge in the policy sciences? Review of Policy Research, 2018. 35(2): p. 326-347.