Monday, June 15, 2015

Cop or Colleague? Regulatory Capture under the Microscope

One form of regulatory capture occurs when a government regulator works in such close proximity for such a long time with a regulated entity that the regulator abandons his or her zeal for the public interest and replaces it with loyalty to, affinity for, and social cohesion with the regulated.

Such circumstances are thought by some to be a variance of the Stockholm Syndrome.*  The phenomenon may be more likely to develop when the executive branch at the moment is infused with a laissez-faire philosophy.

One sign of regulatory capture is the regulator’s reference to the regulated as “colleagues” or “partners.”  Other signs are frequent gifts, courtesies or privileges given to the regulator by the regulated.  In one instance I observed, the regulated entity featured a flattering article about its primary regulator on the entity’s website, obviously composed with the regulator’s input.

Collegiality in this kind of relationship invites deception like that which occurred in recent years at the Detroit Water and Sewerage Department.

Wonder if a regulator who has sold out the public interest while continuing to draw a public paycheck is open to a citizen complaint under the federal False Claims Act or a state equivalent?

* “Hockett, who testified at the November hearing, said the potential problem isn’t examiners trying to get jobs with banks they supervise, so much as ‘cognitive capture, like a kind of Stockholm Syndrome where you identify with or come to see through the eyes of the party you’re regulating.’ “

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