The Book's Home Page The Politics of Regulation Wilson Q. James (ed),
The Politics of Regulation,
Basic Books, New York, 1980.

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James Wilson's (the editor) Introduction:

These essays were written out of a common interest in discovering the relationship between private power and public purpose. This relation-ship is of special importance in a liberal regime such as that of the United States. Liberalism now means many things, but in the beginning it signified a commitment to liberty and, properly understood, it still refers at least to that. A liberal democracy erects, between the public and the private sectors, barriers that, though often porous and always changing, require the government to respect certain matters as private and to impose legal controls on private action only for publicly agreed- to purposes and in accordance with due process of law. That aspect of liberalism is well understood by conservatives.

By the same token, a liberal democracy can only formulate public purpose and protect constitutional procedures if the government itself is not the instrument of some private faction that seeks to use' public powers for narrow or self-seeking ends. No large government such as ours can hope to act only in accordance with the "will of the majority." The majority of citizens do not have a "will" on most political matters, and if they did-and could always insist on it-the resulting policies might be as tyrannical as those of a single despot. But if the majority cannot always rule, then it is important to make certain that narrow interests do not rule in their stead. This aspect of liberalism has been generally understood by liberals.

Finding arrangements that would permit a democratic republic to avoid rule by either impassioned majorities that were heedless of the barriers between public and private life or by self-seeking factions that ignored the distinctions between private and public power was the central problem confronting the Founders. James Madison and his colleagues were at pains to devise a constitutional order that would minimize the possibility of either kind of tyranny. Their solution, of course, was to make "ambition counteract ambition," so that the many factions found in a large nation, operating through a constitutional system that required the sharing of powers and the fragmentation of authority, would make it impossible for one faction to capture the government or for the government to dominate society. They hoped that policy would be enacted only by means of a "coalition of the majority" acting on the principles of "justice and the general good."

This system may have worked well during the century and a half of limited government when Washington was content to operate the post office, issue the currency, devise a tariff, distribute the public lands, and fight the Indians. From time to time some private interest group might dominate one or the other of these policy areas, but a government that did little was but little feared. Federal politics were essentially legislative politics, dominated by political parties and carried out more or less in an arena of clearly competing interests.

Today the federal government is active with respect to virtually the full range of human affairs; much of its power is exercised, and many of its purposes are defined, by a large bureaucratic apparatus. We are aware that the government affects almost every aspect of our lives; moreover, we worry that the agencies that have this effect operate, not in an arena of competing interests to which all affected parties have reasonable access, but in a shadowy world of powerful lobbyists, high- priced attorneys, and manipulative "experts." Many persons believe, in short, that ambition no longer counteracts ambition, but rather that the ambitions of bureaucrats are reinforced by the electoral needs of congressmen and the private claims of interest groups.

This concern is certainly shared by citizens who today complain of the "oil companies" or "the unions" or "the intellectuals" and their alleged grip on the reins of political power. The oft-remarked decline in popular confidence in government has been accompanied by-in-deed, it is in part measured by-a rise in the belief that government works for the benefit of a few large interests. Citizens disagree over the identity of those interests, but not over their power.

Younger, more critically disposed scholars and journalists have sharpened this fear of large interests by asserting that the political order will in large measure reflect underlying economic interests and by directing their inquiries to the discovery of exactly what these interests are and how they operate. Some write in a traditional Marxist perspective; others simply are restless with the formulation, suggested by some older scholars, that the United States is a pluralistic political system in which continuous bargaining among all relevant interests ensures the development of politically, if not philosophically, optimal policies.

The language of these critics has entered the everyday vocabulary of citizens and writers. One cannot mention regulatory agencies without adding the observation that, of course, such agencies are likely to be "captured" by the interests they are supposed to regulate. To suggest that matters are any different from this is to mark oneself as hopelessly naive, or even disingenuous.

If one believes that regulatory agencies are captured, one must explain why business firms so often complain of their decisions. One possibility is that business is lying-pretending to be hurt to disguise the benefits it receives. Another is that complaints are sincere, but they are addressed chiefly to the minutiae of regulatory irritants or to specific decisions affecting a single firm, and not to the pattern of industry protection created by the existence of competition-reducing regulations. Still another possibility is that different regulatory agencies have different effects: those that fix prices or control entry may confer advantages on an industry while those that enforce standards governing the quality of a product or the conditions of its manufacture may impose significant costs. Finally, business may be correct-it is hurt-but of course that leaves open the question of whether the hurts endured by industry are worth the benefits created for citizens.

But if the "capture" theory is correct-at least in some cases-it is unreasonable to assume that only business firms would be able to capture an agency. As government regulates more aspects of our lives, a greater variety of interests-occupations, professions, institutions, associations-acquire a stake in influencing the behavior of the regulatory agencies. If we assume that the airline companies will try to capture the Civil Aeronautics Board, it makes sense to assume that professors will try to capture the National Science Foundation, teachers to capture the Department of Education, environmentalists to capture the Council on Environmental Quality, and civil rights activists to capture the Office for Civil Rights. 'the plausibility of this assumption is sometimes obscured by calling agency-interest relations of which we approve "citizen participation" and agency-interest relations of which we disapprove "capture," but the issue is very much the same whatever rhetorical label we choose to employ.

If we accept the largest implications of the capture theory, we are forced to the unhappy conclusion that the more the government at-tempts to do, the more its various parts will fall under the control of specific and self-seeking groups in society. An activist government win become-at least under existing constitutional arrangements-a government of cartels and clients. That this has already occurred is one of the arguments of Theodore J. Lowi's influential book, The End of Liberalism. If he is right, then only two remedies are available. One, favored by liberals, is new constitutional or legislative devices that will allow the government to be both active and uncaptured (these proposals include "clear standards," "sunset laws," widened court review of agency decisions, and "consumer advocacy"). The second, favored by conservatives, is to have the government do less, thus leaving a greater variety of decisions to the market or to private lawsuits.

The empirical question is whether capture--or clientelism-has become so pervasive and so immune to change that either a very different, or a very much smaller, government is necessary. The essays in this book cannot give a full answer to that question, but they can shed light on agency-interest relations in a variety of important policy areas. It will not be giving away too much of the argument of these chapters to say that, when one examines matters closely, they appear to be a good deal more complicated than is assumed by either liberal or conservative critics of clientelism.

Many people find complexity dull: simple statements are easier to remember; dramatic arguments are more interesting to read. Persons who found the various Ralph Nader books on regulatory agencies memorable will be disappointed by what follows here. Naderite accounts of the Federal Trade Commission and the Antitrust Division are catalogs of real and imagined horror stories, written in the best muckraker tradition and useful precisely because they stimulated many people to take an interest in the shadowy but significant world of the regulatory bureaucracy. But if matters are left where Mr. Nader and his young colleagues left them, we acquire little more than a sense of an antinomian struggle between Good and Evil that can be resolved only by the advent of a new Savonarola who, by preaching and punishment, will, expunge the Devil.

This book is an effort to go beyond an account of the newsworthy scandal to an exposition of how various regulatory agencies ordinarily operate. People-and groups-are affected more by routine performance than by the occasional crisis. The behavior of the Antitrust Division cannot be inferred from what one believes did or did not happen in the ITT case during the Nixon administration any more than the behavior of state public utility commissions can be inferred from the fact that Samuel Insull, the utility magnate, was instrumental in their creation.

The agencies covered by this book were selected by no particular plan: at various times over the last several years, students of mine have expressed an interest in studying regulatory politics and they chose, on the basis of their own inclinations, what agency interested them. The results, however unintended, comprise a reasonably comprehensive selection of such agencies. There are some traditional rate-setting or entry-controlling agencies (the Federal Maritime Commission, the Civil Aeronautics Board, and the state public utility commissions); there are also some major examples of the "new" product- or process-oriented agencies (the Occupational Safety and Health Administration and the Environmental Protection Agency.) There are agencies that deal with only a few industries (the Food and Drug Administration) and agencies that deal with all industries (the Federal Trade Commission and the Antitrust Division of the Department of Justice.) And there is one study of an agency that regulates nonbusiness organizations-the Office for Civil Rights in the Department of Health, Education, and Welfare. Some of these agencies have scarcely changed at all (the Federal Maritime Commission); others have changed greatly (the Civil Aeronautics Board).

Table of Contents

Introduction James Wilson

Part One - Traditional Regulation: Rates and Entry

Chapter 1: State Regulation of Electric Utilities, Douglas Anderson
During the past decade, the lives of few public officials have been more harried than those of state commissioners charged with the responsibility of regulating electric utilities. Caught between the demands of utilities to raise rates, of consumers to keep them down, and of environmentalists and others to "do something" about conservation and the energy crisis, commissions have been asked to mediate some of the most rancorous of recent domestic political disputes and to take on planning and pricing tasks that are historically unfamiliar to them. Explaining how state commissions have coped with these competing demands, especially in California and New York, with be a chief purpose of this chapter. Some perspective on recent changes can be gained through an evaluation of the forces that led to the establishment of electric utility regulation by the states.
Content of the chapter:

Origins of State Utility Commissions, 1898-1907
    The Utilities
    The National Civic Federation
    The Reform Governors

Regulatory Tasks
    Day-to-Day Activities of the Staff
    The Formal Regulatory Process
    Electric Power Production and Pricing

Structural Change in the Process of Regulation
    Utility Rate Cases
    Consumer Response
    Environmental Representation
    The Issues

Life-line in California: The Politics of Pricing
    The PUC Life-line Decision
    Implementing the Life-line Law

Peak-Load Pricing in New York: The Politics of Efficiency     The Environmental Defense Fund
    The Utilities
    Implementing Marginal Cost in LILCO Rates
    Breaking Up the Opposition
    The LILCO Decision
    The Effects

Conclusion

Chapter 2: Federal Maritime Commission, Edward Mansfeld
All ocean-going common carriers engaged in United States foreign commerce come under the jurisdiction of the Federal Maritime Commission (FMC), which uses two principal tools to regulate these carriers: the power to approve or disapprove price-fixing agreements and the power to reject discriminatory rate schedules. Five commissioners preside over the FMC, which was established in 1961 to administer a statute that dates back to 1916. With a budget of approximately $8 million and a staff of only 314, the FMC is one of the smallest independent regulatory commissions.

Among those who are familiar with its operations, the FMC has a reputation for poor performance. This paper discusses some of its problems.

Table of content:

Origins: Conferences and Regulation

The Office of Tariffs

The Office of Agreements

What's Wrong with the FMC?

Congress and the FMC

Conclusion

Chapter 3: Civil Aeronautics Board, Bradley Behrman
Few regulatory agencies - if any - have ever altered their policies as rapidly or radically as did the Civil Aeronautics Board (CAB) between 1974 and 1978. In 1974 the CAB was striving vigorously to protect the airline industry from competition and was regarded by many critics as the epitome of an agency "captures" by the industry it regulates... By 1978 the CAB not only was supporting deregulatory legislation but was also doing everything it could to deregulate without even waiting for new legislation. When the Congress passed the Airline Deregulation Act of 1978 - which will make the CAB the first major federal regulatory agency ever to be abolished - it did not so much impose reforms on the CAB as it affirmed policies that the CAB had been trying to implement for almost a year. In fact, the CAB's pursuit of deregulation played a prominent role in diminishing congressional opposition to the new legislation. This chapter discuss the politics of regulatory change in the aviation industry.

Table of content:

The History of the CAB
    The CAB's Principal Functions: Route Licensing and Rate Regulation
    The Creation of the CAB
    The CAB's Interpretation of Its Mandate, 1938-1974: An Overview

The Road to Deregulation
    Pre-1975 Evaluations of CAB Regulation
    The Airline Industry's Motive for Opposing Deregulation
    Aviation Regulatory Reform Ripens as a Political Issue, 1969-75
    The CAB Decides to Endorse Fundamental Regulatory Reform, 1975-1976
    The CAB Embraces Deregulation, 1977-1978

Part Two - Regulation of Competitive Practices

Chapter 4: Antitrust Division of the Department of Justice, Suzanne Weaver

The Antitrust Division of the United State Department of Justice is the nation's oldest example of a major federal effort to use the courts to regulate business activity. rather than relying on a commission or administrative agency to oversee some particular industry, Congress, in creating the division, sought to restrain certain business malpractices wherever they occurred by challenging them through the adversary system. Presumably, the industry-wide scope of the division and the involvement of the courts would minimize any tendency toward business "capture"; but, as we shall see, these methods created problems of their own.

Table of content:

Origins

Early Enforcement

The Division Matures

Finding a Case

Managing the Lawyers

Outsiders

Chapter 5: Federal Trade Commission, Robert A. Katzmann

Today, antitrust is once again in the public spotlight. In part, it thrives because the issues which it touches - the extent to which the state should regulate business, the nexus between corporate wealth and political influence, the effect of market concentration on economic problems - are still very much debated. Antitrust is a banner under which many march but fro quite different reasons: politicians grappling with inflation; consumer groups convinced that large manufacturers charge supra-normal prices; populists fearful that corporate giants corrupt the political process; businessmen threatened by the anticompetitive behavior of others; private attorneys dependent on antitrust practice as a source of income; and economists concerned with the welfare costs of monopoly and the estimated consumer gains from its elimination.

Whatever their policy objectives may be - social, political, economic - these sundry groups closely monitor the activities of those public agencies that largely set antitrust policy. This study endeavors to examine the ways in which one such agency, the Federal Trade Commission (FTC), selects cases for antitrust action.

The FTC: Its Antitrust Duties and Powers

The Goals of the FTC's Antitrust Policy

Explaining Outocmes: The Conventional Wisdom

Antitrust Decision-making in the FTC
    The Bureau of Competition
    Policy Choice: The Reactive and Pro-active Approached
    Professional Economists and the Caseload: The Impact of the Bureau of Economics
    Attorney Tasks, Expertise, and the Case-Selection Process
    Case Selection and Organizational Maintenance
    The Role of the Commissioners
    The Criteria for Determining Whether to Vote to Issue a Complaint
    Outside Actors and Case Selection Decisions

Conclusion: The Federal Trade Commission, Antitrust and Public Policy

Part Three - The "New" Regulation: Products and Processes

Chapter 6: Food and Drug Administration, Paul J. Quirck
For many years the federal government has been intervening in the market place to ensure the safety and efficacy of prescription drugs. Ones might ask whether such efforts are potentially useful or even necessary. Don't drug companies have to make drugs as safe and effective as they an just to satisfy their customers?. If drugs sometimes cause ham or do not work, does this failure not simply reflect the limits of what the companies can produce at a price consumers can pay?.

This chapter examines the response of the federal government to the problems of drug safety and efficacy. It will consider first the legislative origins of Food and Drug Administration (FDA) authority to regulate drugs and the terms of that authority. A second section describes various influences on the FDA's behavior and the resulting pattern of its decisions. In the third section, the effects of FDA regulation are discussed. Finally there is a brief consideration of possibilities and prospects for drug regulatory reform.

Through out the chapter there is a persistent theme: The political circumstances of prescription drug regulation have shaped - and continue to maintain - an inefficient basic statutory structure. Consequently, no matter how skillfully the FDA uses its authority, it provides inadequate consumer protection while imposing excessive burdens on the development of valuable drugs.

Content of the Chapter:

The Legislative Politics of Drug Regulation
    Results

FDA: Administrative Behavior
    Dilemmas of Drug Regulation
    Internal Factors
    External Influences
    FDA's Regulatory Performance

The Effects of Regulation

Regulatory Change

Chapter 7: Occupational Safety and Health Administration, Steven Kelman

Content of the chapter:

The Passage of the Occupational Safety and Health Act of 1970

Agency Tasks

Explaining Why the Agency Acts as It Does: Setting Regulations

Explaining Why the Agency Acts as It Does: Enforcement

Controversies over OSHA

Conclusion: OSHA - The Policy Issues

Chapter 8: Environmental Protection Agency, Alfred Markus
The creation of the Environmental Protection Agency (EPA) in 1970 and the passage shortly thereafter of statutes giving the new agency broad powers to reduce pollution were political moves informed by a theory of how to best prevent a regulatory agency from being "captured". When the White House, with congressional approval, merged 15 existing programs managed by 5 different departments or councils, it brought into being an organization headed by a single by a single administrator - not a commission - and charged with regulating virtually all sources of pollution rather than a single industry. It was thought that fixing responsibility in one person and equipping him with authority over many different industries would minimize the chances that the EPA would become the tool of any single source of influence.

Even more important than these organizational arrangements were the provisions of the new statutes. Congress sought to reduce the risk that the agency would abuse its discretionary authority by placing sharp limits on that authority. The EPA was required to achieve specific air and water quality goals within a fixed - and short - period of time.

The contrast with older regulatory agencies is clear. The FTC does not have an explicit deadline to eliminate unfair methods of competition, nor is that goal given a clear definition. The Antitrust Division of the Justice Department was not give a timetable t end combinations in restraint of trade, nor was it provided with any legislative determination of what that objectives requires. In contrast, the EPA has been delegated clear goals and given specific timetables to achieve them. The creation of an agency with statutes possessing these attributes was an experiment in regulatory reform that has been called for many times by scholars who criticized the vague language of the older regulatory statutes.

The creation of agency with these attributes tests the theory that the bureaucracy needs clear instructions from Congress to eliminate sloth and to avoid "capture". This chapter aims to offer an account of this experiment.

Table of content:

The Passage of Pollution-Control Laws in 1970 and 1972.

The Tasks of EPA

Controversial Issues in Implementation
    Economic Feasibility
    Technological Feasibility
    Administrative Feasibility

The Media, Professional Norms, the Courts, and Interest Groups
    The Media
    Professional Norms
    Economists
    Research Scientists
    The Courts
    Interest Groups
    Interest Groups and the 1977 Amendments

Conclusion

Chapter 9: Office for Civil Rights, Jeremy Rabkin
It is hard to find anyone will defend the record of the office for Civil Rights (OCR) over the past decade; it is equally hard to find any agreement on the nature of its faults. Many critics see OCR as hotbed of regulatory zealots obsessed with vast social engineering schemes that bear little relation to their actual statutory mandates. To its constituents, on the other hand, OCR is a lumbering bureaucracy, addressing its obligations in the most timid, half-hearted, and ineffectual manner. This paper aims to shed light on the performance of this agency in the context of the special problems of civil right regulation.

Table of content:

The Statutory Framework

Interpreting the Statutes

Explaining the Expansion of Regulatory Requirements

Enforcement Dilemmas

Part Four: Conclusion

Chapter 10: The Politics of Regulation, James Wilson
The principle argument of this book is that there is a politics of regulation. To Citizens, such s statement will appear self-evident, even trivial; to scholar studying the subject, it is controversial. Most Marxist, for example, would disagree. The bourgeoisie, and especially the large corporations, will acquire and use the power of the state to protect and enhance their interests. The claim that governmental authority can be used to control corporate power would strike the traditional Marxist as an absurdity. Some Neo-Marxist are attempting to develop a theory of the state that allows for the possibility that political power can be assembled and used independently of economic power, but even they would find it most unlikely that this independence would be exhibited with respect to economic regulation. But many non-Marxist scholars also doubts that the government will regulate an industry over the objections or against the interests of business. This view, held chiefly but not solely by certain economists, does not arise out of any conviction that the historically formed interests of the dominant social class always find expression in the prevailing political structure, but rather out of the assumption that individual behavior can best be understood by assuming that it is rationally self-interested. Indeed, most economists find the Marxist argument murky and unconvincing precisely because it lacks any psychological theory that would explain how call position determines individual behavior. As an alternative for both perspective this paper aims to develop a theory of regulatory politics.

Table of Content:

The Economic Perspective

Evaluating Economic Assumptions

The Origins of Regulation

The Behavior of Regulatory Agencies
    Careerists
    Politicians
    Professionals

The Regulatory Environment
    Technology and Economy
    Politics and Ideas
    Institutions

Conclusion

 

 


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