"In the bustling archipelago of Metro Andongsekar, where the sun kisses the sea and the mountains whisper secrets, there lived two enigmatic figures: Mr T and Miss V. Both were legends in their own right but for very different reasons.Mr. T—do not be confused with Laurence Tureaud the A-Team star, the shadowy bigwig of the online gambling world, was a master of disguise. He could be anyone, anywhere, at any time. Some said he was a former magician who turned to the dark arts of gambling after his rabbit ran away. Others believed he was a tech genius who coded his way into the underworld. But no one knew for sure. His operations were as elusive as a cat in a hat of the red magician, and his identity was a mystery wrapped in an enigma, sprinkled with a dash of conspiracy.On the other side of the spectrum was Miss V—similar to Scarlett Johansson's 'Black Widow' in Marvel, the virtuous vigilante of virtue. She was the head of the Virtue Protection Agency, dedicated to eradicating vices from society. Miss V was known for her strict adherence to the law and her unyielding moral compass. She once fined a squirrel for hoarding too many nuts, claiming it was a form of gambling with nature.One day, Janaloka the apprentice, the head of the Andongsekar Migrant Workers Protection Agency, decided enough was enough. He declared war on Mr T, vowing to unmask the elusive gambler and bring him to justice. Janaloka’s announcement sent shockwaves through the nation. The Prabu and the National Bregada Chief scratched their heads, wondering who this Mr T was and why they hadn’t received an invitation to his secret poker nights.Meanwhile, Miss V saw an opportunity. She decided to join forces with Janaloka, hoping to cleanse the nation of Mr T’s corrupting influence. Together, they launched a series of public awareness campaigns, warning citizens about the dangers of online gambling. They even created a catchy slogan: 'Don’t Bet Your Life Away, Play It Safe with Miss V!'As the investigation progressed, rumours swirled. Some said Mr T was hiding in plain sight, disguised as a humble street vendor selling lottery tickets. Others claimed he had fled to a remote island, where he was teaching monkeys to play blackjack. Foreign media had a field day, with headlines like 'Mr T: The Man, The Myth, The Mystery' and 'Miss V’s Virtue Crusade: Can She Catch the Gambler?'In the end, the truth remained elusive. Mr T continued to evade capture, his legend growing with each passing day. Miss V, undeterred, vowed to keep fighting the good fight, one virtue at a time. And Janaloka? Well, he became a national hero, celebrated for his bravery in taking on the shadowy world of online gambling.And so, the tale of Mr. T and Miss V became a part of Andongsekar folklore, a story of intrigue, virtue, and the eternal battle between good and evil.""Now let's make a metaphorical example. In the Innovatia empire, the rulers are the wealthiest and most influential business leaders," Seruni continued our discussion."They have built their fortunes through innovation and entrepreneurship. However, as they ascend to power, they face the challenge of governing the empire while maintaining their business interests. The rulers of Innovatia established a regulatory body called the Golden Gate to oversee trade and commerce. The Golden Gate is supposed to ensure fair competition and protect the interests of the citizens. Over time, the most powerful merchants in Innovatia, who are close allies of the rulers, begin to influence the Golden Gate. They lobby for regulations that favour their businesses, such as high tariffs on foreign goods and subsidies for their industries. Many officials of the Golden Gate are former employees of the Merchants’ Council. After their tenure, they often return to lucrative positions within the council. This revolving door creates a situation where the regulators are more aligned with the interests of the merchants than with the citizens.As a result, the citizens of Innovatia face higher prices and fewer choices. Small businesses struggle to compete, and innovation slows down because the regulations favor established players. Some citizens begin to advocate for reforms. They push for transparency and accountability in the Golden Gate, aiming to break the cycle of regulatory capture and ensure that the regulations serve the public interest.In this metaphor, the rulers of Innovatia represent entrepreneurs who become regulators. The Golden Gate symbolizes the regulatory body, and the Merchants’ Council illustrates the special interest groups that capture the regulators. The citizens’ dilemma highlights the negative impact of regulatory capture on the public.The concept of Regulatory Capture was introduced by George Stigler, a Nobel laureate economist, in the 1970s. Regulatory capture occurs because industries have a strong incentive to influence regulators, while individual citizens, who are less directly affected, have less motivation and fewer resources to advocate for their interests. Stigler argued that regulatory agencies often end up serving the interests of the industries they regulate rather than the public interest. This happens because industries have a strong incentive to influence regulators to create favourable conditions for them. Industries invest resources to capture regulators because the benefits of favourable regulation (like reduced competition or higher prices) can be substantial. Regulators, on the other hand, may be influenced by the promise of future employment in the industry or other benefits.Stigler includes several insightful case studies that illustrate the dynamics of regulatory capture and its impact on various industries. For example, in Electricity Regulation, Stigler examines how regulatory bodies often fail to control prices effectively and how the electricity industry can influence regulators to secure favourable outcomes. He also discusses the federal regulation of petroleum prices, highlighting how regulatory policies can lead to unintended consequences, such as supply shortages and market distortions. Another case study focuses on the natural gas industry, exploring how regulatory frameworks can be manipulated by industry players to maintain high prices and limit competition. Stigler also touches on the ecological abuses in energy production, discussing how regulatory agencies sometimes overlook environmental concerns due to industry pressure. These case studies provide concrete examples of how regulatory capture occurs and its broader implications for market efficiency and public welfare.Public choice theory, as discussed by Stigler, applies economic principles to the study of political behaviour. Stigler posits that regulators, like all individuals, act in their own self-interest. This means they may be influenced by personal benefits, such as future job prospects in the industry they regulate. Public choice theory examines how politicians and bureaucrats make decisions. It suggests that their actions are often driven by the desire to maximise their own utility, which can include gaining votes, increasing their power, or securing financial benefits. The theory highlights the role of special interest groups in shaping regulatory policies. These groups have a strong incentive to lobby for regulations that benefit them, even if such regulations are not in the public interest. Stigler also introduced the idea of a 'market for regulation,' where industries and interest groups compete to influence regulatory outcomes. This competition can lead to regulations that favour well-organized and well-funded groups.Brink Lindsey and Steven Teles provide a detailed analysis of how powerful special interests manipulate the policymaking process to their advantage, leading to slower economic growth and increased inequality. Lindsey dan Teles has several key mechanisms through which this occurs.Regressive regulations are rules and policies that disproportionately benefit the wealthy and powerful, often at the expense of the general public. For example, tax loopholes and subsidies for certain industries can lead to a concentration of wealth among the elite. This creates an uneven playing field, where the rich get richer while economic mobility for the rest is stifled. It can also lead to inefficient allocation of resources, slowing down overall economic growth.Subsidies for risk-taking, Particularly evident in the financial sector, these subsidies encourage banks and other financial institutions to take on excessive risks, knowing they will be bailed out if things go wrong. This can lead to financial crises, as seen in the 2008 global financial meltdown. The costs of these crises are often borne by taxpayers, while the benefits of risky ventures accrue to the financial elite.Intellectual property laws are intended to protect innovation, but when they are overly stringent, they can stifle competition and innovation. Large corporations can use patents and copyrights to maintain monopolistic control over markets. This limits new entrants and innovation, leading to higher prices and less choice for consumers. It also allows established companies to maintain their dominance and continue extracting high profits.Licensing requirements for certain professions can be excessively stringent, creating barriers to entry for new professionals. While some regulation is necessary for public safety, overly restrictive licensing can protect established businesses from competition. This reduces opportunities for entrepreneurship and employment, particularly for lower-income individuals who may not have the resources to meet these requirements. It also leads to higher costs for services due to reduced competition.Policies like zoning laws and building restrictions can limit the supply of housing, particularly in desirable areas. These controls are often driven by NIMBY (Not In My Backyard) sentiments, where existing residents oppose new development. This drives up housing costs, making it difficult for people to afford homes, especially in urban areas. It also exacerbates inequality, as wealthier individuals can afford to live in these areas while others are priced out.These mechanisms illustrate how regulatory capture can distort markets and policy outcomes to favor the powerful, leading to broader economic and social consequences.Daniel Carpenter, David Moss and other contributors propose several strategies to mitigate regulatory capture. They offer some strategies including enhanced transparency, which involves making the regulatory process open and accessible to the public. This can include publishing meeting minutes, decision rationales, and data used in regulatory decisions. This can bring benefits where transparency builds public trust in regulatory institutions. Regulators are more likely to act in the public interest if their actions are subject to public scrutiny. However, making complex regulatory information accessible and understandable to the public can bring more challenges.Independent oversight bodies can monitor regulatory agencies to ensure they are not unduly influenced by special interests. These bodies can audit decisions, investigate complaints, and enforce compliance. This strategy can bring some benefits, among others impartiality (independent oversight can provide an unbiased check on regulatory actions) and deterrence (the presence of oversight can deter regulators from engaging in corrupt practices). Nevertheless, effective oversight requires adequate funding and resources, and ensuring the true independence of oversight bodies can be challenging.Engaging the public in the regulatory process can counterbalance the influence of special interests. This can be done through public hearings, comment periods, and stakeholder consultations. Public participation brings a wider range of viewpoints into the decision-making process. Decisions that involve public input are more likely to be seen as legitimate. Yet, Encouraging meaningful public participation can be difficult, especially if the public feels their input won’t make a difference. Ensuring that all relevant stakeholders are represented can be challenging.Limiting the tenure of regulatory officials and promoting the rotation of personnel can prevent regulators from becoming too close to the industries they oversee. Rotation brings new ideas and perspectives into regulatory agencies. It reduces the likelihood of regulators developing cosy relationships with industry players. Still, frequent rotation can disrupt continuity and institutional memory. It may be difficult to find qualified personnel willing to take on short-term regulatory roles.Enforcing strict conflict of interest rules ensures that regulators do not have personal or financial interests that could compromise their decisions. Clear rules help maintain the integrity of regulatory decisions. They enhance public confidence in the regulatory process. Nonetheless, effective enforcement of conflict of interest rules can be challenging. Ensuring comprehensive and honest disclosure of potential conflicts can be difficult.Promoting rigorous empirical research to diagnose and measure regulatory capture can lead to more precise and effective reforms. Decisions based on empirical data are more likely to be effective. Research can identify specific areas where capture is most likely to occur, allowing for targeted interventions. After all, Obtaining reliable data can be difficult. Translating research findings into practical regulatory reforms can be challenging.If these strategies are implemented effectively, they can help to create a regulatory environment that is more resistant to capture and better aligned with the public interest.When entrepreneurs become rulers or vice versa like the revolving door, this situation often leads to conflicts of interest where policies and regulations may be designed to benefit the rulers’ business interests rather than the public good. Entrepreneurs in power might create or influence policies that favour their businesses or industries, leading to an uneven playing field and stifling competition. Regulatory bodies might be less stringent in enforcing laws and regulations against businesses owned by those in power, leading to a lack of accountability. Public resources might be allocated in ways that benefit the rulers’ business interests, such as granting lucrative contracts or subsidies to their companies. Entrepreneurs in power can influence legislation to create favourable conditions for their businesses, such as tax breaks, reduced regulatory burdens, or exclusive rights.What is the impact of these entrepreneurs-turned-rulers? The impact of entrepreneurs-turned-rulers can be quite significant both positively and negatively, but it seems that the negatives are more significant. On one hand, entrepreneurs often bring a business-oriented mindset to governance, focusing on economic growth, job creation, and efficiency. For example, Thaksin Shinawatra’s tenure in Thailand saw significant economic growth and poverty reduction. Their experience in the private sector can lead to innovative approaches to governance and public administration. Sebastián Piñera in Chile implemented several business-friendly policies that aimed to boost innovation and entrepreneurship. Entrepreneurs tend to be pragmatic and results-oriented, which can lead to more effective and timely decision-making. This approach can be beneficial in addressing economic and administrative challenges.On the other hand, When entrepreneurs become rulers, their business interests can conflict with their public duties. This can lead to policies that favor their businesses or industries, as seen with Silvio Berlusconi in Italy, where his media empire raised concerns about media bias and conflicts of interest. Regulatory capture can become more pronounced when rulers have significant business interests. This can undermine the effectiveness of regulatory frameworks and erode public trust. Some entrepreneur-rulers may adopt authoritarian practices to protect their business interests or consolidate power. Thaksin Shinawatra faced accusations of undermining democratic institutions and human rights abuses during his tenure. The blending of business and political power can lead to public distrust in government institutions. This can be exacerbated if there are perceptions of corruption or favoritism. For examples, Donald Trump, his presidency was marked by significant deregulation efforts, tax cuts, and a focus on boosting the economy. However, his business dealings and potential conflicts of interest were a constant source of controversy. Silvio Berlusconi, his tenure as Prime Minister was characterized by numerous legal battles and accusations of using his political power to protect his business interests. His control over media outlets also raised concerns about press freedom and democracy.The long-term implications of having entrepreneurs as rulers can be quite profound. Entrepreneur-rulers often bring a strong focus on economic growth, innovation, and efficiency. Their business acumen can lead to the implementation of policies that foster entrepreneurship, attract investment, and create jobs. For example, Thaksin Shinawatra’s tenure in Thailand saw significant economic growth and poverty reduction. However, their policies might disproportionately favor large businesses or specific industries, potentially neglecting small businesses and other sectors. This can lead to economic imbalances and increased inequality.Entrepreneur-rulers can introduce a results-oriented and pragmatic approach to governance, potentially leading to more effective and timely decision-making. Sebastián Piñera in Chile implemented several business-friendly policies that aimed to boost innovation and entrepreneurship. The blending of business and political power can lead to conflicts of interest, regulatory capture, and public distrust. When policies appear to favour the ruler’s business interests, it can erode public confidence in government institutions.Entrepreneur-rulers might push for reforms that streamline bureaucracy and reduce corruption, leveraging their experience in the private sector to improve public sector efficiency. On the flip side, their dual roles can undermine the integrity of regulatory frameworks. For instance, Silvio Berlusconi’s tenure in Italy raised concerns about media bias and conflicts of interest due to his control over major media outlets.Entrepreneur-rulers may prioritize economic development, which can lead to improvements in infrastructure, education, and healthcare. However, their focus on economic growth might come at the expense of social and environmental considerations. Policies might prioritize industrial and commercial interests over environmental protection and social welfare.Entrepreneur-rulers can bring a fresh perspective to politics, challenging the status quo and introducing innovative solutions to longstanding problems. But there is a risk of authoritarian tendencies, where rulers might consolidate power to protect their business interests. This can undermine democratic institutions and processes, as seen with Thaksin Shinawatra’s tenure in Thailand, which faced accusations of undermining democratic institutions and human rights abuses.If managed well, the entrepreneurial approach can lead to sustained economic growth, improved public services, and a more dynamic economy. But still, if conflicts of interest and regulatory capture are not adequately addressed, it can lead to long-term issues such as corruption, economic inequality, and weakened democratic institutions.The following are two historical examples where the intertwining of business and political power has caused serious harm. Mobutu Sese Seko who ruled Zaire from 1965 to 1997, amassed a vast personal fortune through corrupt practices, including the exploitation of the country’s natural resources. His regime was characterized by extreme corruption, economic mismanagement, and human rights abuses. The country’s infrastructure and economy deteriorated significantly, leading to widespread poverty and instability. Marcos, who ruled the Philippines from 1965 to 1986, used his political power to enrich himself and his associates. His regime was marked by widespread corruption and cronyism. The economic mismanagement and corruption led to severe economic decline, increased poverty, and social unrest. His rule ended with a popular uprising, but the long-term damage to the country’s institutions and economy was profound. These examples highlight the potential dangers of regulatory capture and the blending of business and political power. They underscore the importance of strong institutions, transparency, and accountability to prevent such harm.So, what is the role of Civil society in identifying and addressing patterns of regulatory capture? Harmful instances of regulatory capture often exhibit several common patterns. Regulators or political leaders have significant financial or personal interests in the industries they regulate. This leads to biased decision-making that favours their own interests over the public good. For example, Silvio Berlusconi’s media empire influenced his political decisions, raising concerns about media bias and conflicts of interest.Regulatory bodies fail to enforce laws and regulations strictly, often due to pressure from powerful industry players. This results in a lack of accountability and can lead to significant economic and social harm. The leniency of the SEC towards financial institutions before the 2008 financial crisis is a notable example.Policies and regulations are crafted to benefit specific industries or companies, often those with close ties to political leaders. This creates an uneven playing field, stifles competition, and can lead to economic imbalances. Thaksin Shinawatra’s policies in Thailand often favored his telecommunications business.The blending of business and political power erodes public trust in government institutions. This can lead to political instability, social unrest, and a weakened democratic process. Donald Trump’s presidency saw significant public distrust due to perceived conflicts of interest and lack of transparency.The focus on personal or business interests leads to poor economic policies and mismanagement. This can result in economic decline, increased poverty, and long-term damage to the country’s development. Mobutu Sese Seko’s regime in Zaire is a stark example of how corruption and mismanagement can devastate a country’s economy.Leaders may adopt authoritarian practices to consolidate power and protect their interests. This undermines democratic institutions and can lead to human rights abuses. Ferdinand Marcos’ rule in the Philippines was marked by authoritarianism and significant harm to democratic governance.Decision-making processes are opaque, and there is little public oversight or accountability. This allows for unchecked power and can lead to widespread corruption. The lack of transparency in regulatory processes often exacerbates the effects of regulatory capture.Civil society plays a crucial role in identifying and addressing patterns of regulatory capture. Civil society organizations (CSOs) can raise awareness about regulatory capture and its impacts. They advocate for transparency, accountability, and reforms to prevent capture. By educating the public and policymakers, CSOs can build pressure for change and promote policies that serve the public interest.CSOs monitor regulatory agencies and industries to identify instances of regulatory capture. They often publish reports and conduct investigations to expose conflicts of interest and corruption.Civil society encourages and facilitates public participation in the regulatory process. This includes organizing public consultations, forums, and campaigns to gather input from diverse stakeholders. Increased public participation ensures that regulatory decisions reflect a broader range of interests, reducing the influence of powerful industry players.CSOs can take legal action to challenge regulatory decisions that are influenced by capture. This includes filing lawsuits, supporting whistleblowers, and advocating for stronger legal frameworks. Legal challenges can overturn biased regulations and set precedents for more transparent and accountable governance.Civil society contributes to the development of policies and regulations by providing expertise, research, and recommendations. They often collaborate with governments and international organizations to design effective regulatory frameworks. By participating in policy development, CSOs help create regulations that are fair, transparent, and in the public interest.CSOs often build coalitions with other organizations, including media, academia, and grassroots movements, to amplify their impact. These coalitions can mobilize broader support for reforms and create a united front against regulatory capture.Civil society works to empower communities affected by regulatory capture, providing them with the tools and knowledge to advocate for their rights. Empowered communities can more effectively challenge unfair regulations and demand accountability from regulators and industries.And if an entrepreneur is elected to a public office, such as a minister or president, what are important considerations regarding their involvement with their business? We'll answer it in the next discussion, biidhnillah."Then Seruni's soulful singing conveyed deep emotion,Do we need somebody just to feel like we're alright?Is the only reason you're holding me tonight'cause we're scared to be lonely? *)
Citations & References:
- George J. Stigler, Citizen and the State: Essays on Regulation, 1975, University of Chicago Press
- Brink Lindsey & Steven Teles, The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, 2017, Oxford University Press
- Daniel Carpenter & David Moss (Eds.), Preventing Regulatory Capture: Special Interest Influence and How to Limit It, 2013, Cambridge University Press
*) "Scared to be Lonely" written by Giorgio Tuinfort, Nathaniel Campany, Kyle Shearer, and Georgia Ku
