When a regulatory agency serves the interests of the industry it is supposed to oversee
Regulatory capture occurs when a government regulatory agency, created to act in the public interest, advances the commercial or political interests of the industry it is supposed to regulate. The captured agency becomes a tool of the industry rather than a check on it, approving products, overlooking violations, and shaping rules to benefit the regulated entities at the public's expense.
The concept was formalized by economist George Stigler in his 1971 paper "The Theory of Economic Regulation," though the phenomenon is as old as regulation itself. The revolving door between industry and government is the primary mechanism: former industry executives take positions at regulatory agencies, and former regulators take lucrative positions in the industries they oversaw. This creates shared perspectives, personal relationships, and financial incentives that align regulators with industry interests.
Examples are pervasive across sectors. The FDA's approval processes have been criticized for relying on industry-funded studies and for the close relationships between FDA officials and pharmaceutical executives. The SEC's failure to detect Bernard Madoff's Ponzi scheme despite multiple warnings has been attributed to regulatory capture. The FAA's delegation of aircraft safety certification to Boeing itself contributed to the 737 MAX crashes that killed 346 people.
