Regulatory capture

Regulatory capture
Type	idea
Interest of	• Bill Gates • Rockefeller Foundation
When a regulator becomes a tool of the groups it was intended to regulate.

Regulatory capture is when a regulator becomes a tool of the groups it was intended to regulate. It is an effect of the revolving door and can cause norms that are otherwise in place to prevent harm, to be applied selectively.

“Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street's regulators are people who are paid by Wall Street to accept Wall Street's explanations of itself, and who have little ability to defend themselves from those explanations.”
Michael Lewis (September 2014) 

Selected Examples

SEC

The SEC is regarded as a prime example of regulatory capture.

FDA

“The Food and Drug Administration. The FDA was charged with overseeing the manufacture of cereal, along with all other processed foods except meat and poultry, which were controlled by the Department of Agriculture. It steadfastly refused, however, to see sugar as a threat to the public's health. Moreover, it repeatedly declined to require food manufacturers to disclose, on their packaging, exactly how much sugar they were adding to their products... Where Washington had failed to act, two men working on behalf of the public took the Big Three on themselves. One was an enterprising dentist, Ira Shannon, with the Veterans Administration Hospital in Houston, who [in 1975], alarmed by the exploding rates of tooth decay he’d seen in his young patients, decided that he’d had enough. (By one estimate, there were at any given moment one billion unfilled cavities in American mouths.) So the dentist took a trip to his local supermarkets, brought seventy-eight brands of cereal back to his lab, and proceeded to measure the sugar content of each with damning precision. A third of the brands had sugar levels between 10 percent and 25 percent. Another third ranged up to an alarming 50%, and eleven climbed even higher still — with one cereal, Super Orange Crisps, packing a sugar load of 70.8%. When each cereal brand was cross-referenced with TV advertising records, the sweetest brands were found to be the ones most heavily marketed to kids during Saturday morning cartoons.”
Michael Moss (2013) 

 

A Regulatory capture victim on Wikispooks

Title	Description
National Institutes of Health

 

Related Quotations

Page	Quote	Author	Date
Warren Buffett	“In the pharmaceutical world of economic durable competitive advantages, having a patent on a best-selling drug is about as good as it gets. The next best thing is having a monopoly on selling a country’s national health program the vaccines it needs for its childhood inoculation programs. Both of these businesses are hugely profitable and GSK (GlaxoSmithKline) excels in both these categories. The vaccine business is particularly attractive because an individual shot (or jab) costs GSK approximately $1.50 to manufacture and it sells to national vaccine programs for approximately $9 a shot. That gives GSK a net profit of approximately $7.50 a shot. This markup gives GSK a very healthy profit margin that improves with each and every new disease that the company develops a vaccine for. Consider this: GSK's profits rose 10% with the 2009 Swine Flu outbreak—a disease for which the company had a state-of-the-art vaccine ready to inoculate the masses. In addition to its patents and the durable competitive advantage GSK has with the vaccines, it also established the relationships with the world's governments, and it has the financial capital to create, manufacture, and sell vaccines on a world scale. If you were in charge of the health of a nation's 30 million-plus children, who would you buy your vaccines from? Every year? Year after year? You’d pick the biggest and the best. There are only four pharmaceutical giants that control most of the vaccine production in the world and GSK is one of them. There is another component to the vaccine equation that also spells BIG MONEY: Every year, women all over the world give birth to approximately 133 million new babies, 4.3 million babies in the U.S. alone. With the United States Centers for Disease Control (CDC) recommending that children aged birth through six receive 34 individual vaccine shots/jabs, that means the market for those 34 vaccine shots/jabs increases every year by 4.3 million in just the U.S. alone. This in turn means that the vaccine manufacturers selling in the U.S. have the potential to earn a profit of $1.09 billion every year (4.3 million x 34 x $7.50 = $1.09 billion). Consider the number of yearly vaccines worldwide and the numbers are staggering—approximately $34 billion a year (133 million x 34 x $7.50 = $33.9 billion). After ten years, in the U.S. alone, vaccine manufacturers will see more than $10 billion in net profit. On a world scale, the number jumps to a potential $340 billion in profits. And wait, it gets even better. With the invention of each new vaccine comes a patent that is good for twenty years and guarantees that no one else can make the vaccine. In other words, the company has a monopoly. Even when the patents expire, other companies rarely step into the market because the major manufacturers have a permanent relationship with the government health departments of the world. This enables manufacturers to continue making the same vaccines year after year while maintaining their large profit margins even after their patents have expired. And last but not least, vaccine manufacturers in the US are completely immune from lawsuits. Back in the 1980s several bad batches of vaccines injured so many children that the resulting successful lawsuits threatened to bankrupt the manufacturers, so the manufacturers lobbied a bill through Congress making them a protected class.”	Warren Buffett Mary Buffett	2011
Richard Olney	“The Commission... is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things... The part of wisdom is not to destroy the Commission, but to utilize it."<a href="#cite_note-5">[5]</a>”	Richard Olney	1892

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