Deregulatory Capture

Here’s Tim Lee:

Once a “private” company becomes deeply intertwined with the state, it can be difficult to ever fully separate them. Formally repealing state privileges may not fully undo the damage if the incumbent continues to enjoy the fruits of past favoritism. And incumbents can leverage their intimate knowledge of the regulatory process—and decades of political capital accumulated from past interaction with regulators—to twist facially neutral regulations into weapons against their competitors.

This means that deregulated incumbents like AT&T and Verizon may never become fully private entities. And so a truly free-market agenda requires more than just reflexively opposing all government interventions in the telecommunications market. The government is not monolithic. Sometimes (as with the AT&T breakup and theComputer Inquiries) one part of the government works to check the harmful policies of another.

This principle is complicated, and reasonable people are going to disagree about how best to apply it. But one of the most obvious ways to check the power of incumbents is by making sure they have plenty of competitors. Competitive markets make regulators’ jobs easier because they force companies to serve consumers well even when regulators aren’t watching. So if regulators see a nice, clean opportunity to preserve or expand competition, they should probably take advantage of it.

I’ve written about my concerns over “deregulatory capture” before, but I think Tim’s post sums those up much better. Read the whole thing.

I think this might also be a good case for breaking up the big banks. The political and financial capital they have accrued over the years makes them too impervious to both regulation and deregulation. Breaking them up would be a remedial step. The tough part is letting the competition flourish once it’s taken hold, and not succumbing to political pressure to implement new favoritism down the road.

Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the editor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

One Comment

  1. The legacy effects are even worse when the “deregulation” is fake, like a lot of the utility deregulation where the underlying transmission infrastructure is by its nature monolithic and the “competing” providers are little more than a hollowed-out middleman with a letterhead and P.O. box repackaging the electricity and billing for it.

    And then there are the corporate welfare queens passing off no-strings corporate welfare as a “free market” policy. For example, there are the states and munipalities that subsidized the construction of fiber-optic infrastructure in return for promises — never collected on — to provide free wireless. And now the telecom lobbyists, whose employers received all this largesse, are squealing like pigs as they demand legislation to prohibit competition from free muncipal wireless.

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