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<!-- you can have any number of categories here --> [[Category:William Novak]] [[Category:Preventing Regulatory Capture]] [[Category:Deregulation]] [[Category:Obstructing Regulation And Regulatory Capture]] <!-- 1 URL must be followed by >= 0 Other URL and Old URL and 1 End URL.--> {{URL | url = http://www.tobinproject.org/sites/tobinproject.org/files/assets/Novak_Capture_Chapter.pdf}} <!-- {{Other URL | url = }} --> <!-- {{Old URL | url = }} --> {{End URL}} {{DES | des = Chapter 1 of ''[[Preventing Regulatory Capture]]''. Conservative pessimism about regulatory capture is fostered by a myopic focus on economics. Regulation's focus is often on political, not economic, issues such as "the unprecedented influence of large corporations on politics". An excellent read. | show=}} <!-- insert wiki page text here --> <!-- DPL has problems with categories that have a single quote in them. Use these explicit workarounds. --> <!-- otherwise, we would use {{Links}} and {{Quotes}} --> {{List|title=A Revisionist History of Regulatory Capture|links=true}} {{Quotations|title=A Revisionist History of Regulatory Capture|quotes=true}} {{Text | Preventing Regulatory Capture Special Interest Influence and How to Limit It Edited by DANIEL CARPENTER Harvard University DAVID A. MOSS Harvard University Cambridge University Press Not for sale or distribution. 32 Avenue of the Americas, New York, NY 10013-2473, USA Cambridge University Press is part of the University of Cambridge. It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning, and research at the highest international levels of excellence. www.cambridge.org Information on this title: www.cambridge.org/9781107646704 ⃝C The Tobin Project 2014 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2014 Printed in the United States of America A catalog record for this publication is available from the British Library. Library of Congress Cataloging in Publication Data Preventing regulatory capture : special interest influence and how to limit it / [edited by] Daniel Carpenter, Harvard University, David A. Moss, Harvard University. pages cm Includes index. ISBN 978-1-107-03608-6 (hardback) – ISBN 978-1-107-64670-4 (pbk.) 1. Deregulation – United States. 2. Trade regulation – United States. 3. Interest groups – United States. I. Carpenter, Daniel P., 1967– II. Moss, David A., 1964– HD3616.U63P74 2013 338.973–dc23 2013008596 ISBN 978-1-107-03608-6 Hardback ISBN 978-1-107-64670-4 Paperback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party Internet Web sites referred to in this publication and does not guarantee that any content on such Web sites is, or will remain, accurate or appropriate. Cambridge University Press Not for sale or distribution. 1 A Revisionist History of Regulatory Capture William J. Novak The idea of regulatory capture has controlled discussions of economic reg- ulation and regulatory reform for more than two generations. Originating soon after World War II, the so-called capture thesis was an early harbinger of the more general critique of the American regulatory state that dominated the closing decades of the twentieth century. The political ramifications of that broad critique of government continue to be felt today both in the resilient influence of neoliberal policies such as deregulation and privatiza- tion as well as in the rise of more virulent and populist forms of anti-statism. Indeed, the capture thesis has so pervaded recent assessments of regulation that it has assumed something of the status of a ground norm – a taken-for- granted term of art and an all-purpose social-scientific explanation – that itself frequently escapes critical scrutiny or serious scholarly interrogation. This chapter attempts to challenge this state of affairs by taking a critical look at the emergence of regulatory capture theory from the perspective of history. After introducing a brief account of the diverse intellectual roots of the capture idea, this chapter makes three interpretive moves. First, it sug- gests that, to a large extent, capture theory relies on a short and increasingly outmoded history of American regulation that is out of synch with the latest accounts of the development of the American regulatory and administra- tive state. Second, it questions just how “new” the insights of capture theory ever really were or are. Although earlier generations of American political thinkers and regulatory reformers did not use the language of “capture” per se, they were exceedingly well-versed in the general notion that democratic and republican institutions of government were prone to the corruptions of private interest. Finally, this chapter documents the degree to which pro- gressive regulatory initiatives were themselves oriented toward the control of undue corporate and private influence in democratic and public life. It closes by suggesting that some of those original progressive explorations 25 Cambridge University Press Not for sale or distribution. 26 William J. Novak of the ongoing problem of private coercion in a democratic republic con- tinue to provide a more satisfactory account than capture theory of the new configurations of public and private power that dominate early twenty-first century American life. A BRIEF GENEALOGY OF THE CAPTURE THESIS The basic outlines of the intellectual history of the regulatory capture thesis are fairly clear and broadly agreed on.1 Indeed, one of the most surprising things about that genealogy is the extraordinary degree of consensus about regulatory capture across a broad spectrum of economists; historians; and scholars of law, politics, and public administration. Within legal and eco- nomics scholarship, it is customary to start discussions of capture theory with the Chicago School and George Stigler’s pointed thesis in “The The- ory of Economic Regulation” that “as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.”2 However, there are a couple of other important earlier incarnations of the critique. The capture thesis first originated not in law and economics but in the fields of political science and public administration. Indeed, the first essay to attempt to show systematically that “regulation is acquired by the industry” and operates “for its benefit” was a precocious bit of regulatory revision- ism focused notably on the Interstate Commerce Commission (ICC) by a young Harvard government instructor named Samuel P. Huntington.3 In “The Marasmus of the ICC,” Huntington began by reflecting on the era of good feeling that had built up around the original federal independent reg- ulatory commission: “During its sixty-five years of existence, the [Interstate Commerce] Commission developed an enviable reputation for honesty, impartiality, and expertness” that made it “the premier federal agency in the transportation field.”4 However, the bulk of his article was dedicated to 1 See, for example, the strikingly similar accounts of Thomas W. Merrill, “Capture Theory and the Courts, 1967–1983,” Chicago-Kent Law Review 72 (1996–1997): 1039, and John Shepard Wiley Jr., “A Capture Theory of Antitrust Federalism,” Harvard Law Review 99 (1986): 713, 723–5. 2 George J. Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science 2 (1971): 3–21; Richard Posner, “Theories of Economic Regulation,” Bell Journal of Economics and Management Science 4 (1974): 335–58; Sam Peltzman, “Toward a More General Theory of Regulation,” Journal of Law and Economics 19 (1976): 211–20. 3 Samuel P. Huntington, “The Marasmus of the ICC: The Commission, the Railroads, and the Public Interest,” Yale Law Journal 61 (1952): 467. 4 Huntington, “Marasmus,” 468–9. Huntington could not help include as well the sarcastic assessment from conservative and anti–New Dealer James M. Beck, “The Commission has Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 27 a critique of that celebratory public administration orthodoxy. In contrast to the usual story of enlightened administrative regulation in the public interest, Huntington wrote a tale of trouble – a story of agency decline and what he polemically dubbed “marasmus”: a biological pathology featuring a gradual and continuous wasting away of the body from a morbid cause. Morbid cause was key here, for it was not just time or desuetude or iner- tia that contributed to this peculiar regulatory disease. Rather, Huntington proffered a more distinct and direct cause, that is, the infectious influence of pervasive railroad interest in almost every aspect of ICC policymaking. Huntington ultimately proposed abolishing the ICC with a line of argu- mentation that would soon become a staple of formal capture theory: “The independence of a regulatory commission is based upon the premise that this independence will aid it in being objective and impartial. When such a commission loses its objectivity and impartiality by becoming dependent upon the support of a single narrow interest group, obviously the rationale for maintaining its independence has ceased to exist.”5 Huntington’s pointed critique of interest group influence on regulatory agencies did not remain confined to the ICC for very long. Three years later, in Regulating Business by Independent Commission, another politics scholar, Marver H. Bernstein, extended Huntington’s analysis and capture perspective to six additional agencies: the Federal Trade Commission, Fed- eral Power Commission, Civil Aeronautics Board, Federal Communica- tions Commission, National Labor Relations Board, and the Securities and Exchange Commission.6 Continuing Huntington’s biological metaphor,7 Bernstein examined the life cycle of commissions into a ripe “old age,” where become the sacred white elephant of our governmental system. Members of the Bar and even litigants may exercise their constitutional right, when the Supreme Court decides against them, to swear at the Court, but it seems to be a species of treason for any one to question the beneficence of the Interstate Commerce Commission.” Beck’s Wonderland of Bureaucracy (from which this quote was taken) was something of an antiregulatory screed, referring to “bureaucracy” generally as involving “the irrepressible war between the individual and the State” and a “wonderland of Socialist experiments in a government, whose constitution was intended to be a noble assertion of individualism.” James Beck, Our Wonderland of Bureaucracy (New York: Macmillan, 1932), vii, x. 5 Huntington, “Marasmus,” 467 (emphasis added). 6 Marver H. Bernstein, Regulating Business by Independent Commission (Westport, CT: Greenwood Press, 1955); Bernstein, “Independent Regulatory Agencies: A Perspective on Their Reform,” The Annals of the American Academy of Political and Social Science 400 (1972): 14. 7 The return of biological metaphorical thinking about modern governmental institutions in these 1950s studies is a matter of concern given the earlier attempts of American social science to develop a more realistic and pragmatic approach to law and government that dispensed with just such naturalistic metaphors. Cambridge University Press Not for sale or distribution. 28 William J. Novak sclerotic relations with specific interest groups yielded agencies protecting the industries they were originally designed to regulate. Bernstein’s resulting indictment of regulatory agencies exceeded Huntington’s more focused cri- tique and, in fact, outstripped the research bounds of his own investigation: Commissions have proved to be more susceptible to private pressures, to manip- ulation for private purposes, and to administrative and public apathy than other types of governmental organization. They have lacked an affirmative concept of public interest; they have failed to meet the test of political responsibility in a demo- cratic society; and they tend to define the interest of the regulated groups as the public interest.8 Two historical contexts are important in coming to terms with this origi- nal burst of capture theory in the1950s. First, methodologically, Huntington and Bernstein were writing at the high tide of the influence of behavioralism in political science – an approach impatient with formal philosophical and juridical abstractions such as “the public interest” and eager to examine more “critically” and “scientifically” the real individual and group interests that were so frequently viewed as constituting and producing actual political behavior. Huntington relied explicitly on David B. Truman’s The Govern- mental Process: Political Interests and Public Opinion (1951) – something of a culminating synthesis of the long methodological revolution begun by A. F. Bentley, Charles Merriam, Harold Lasswell, V. O. Key, Herbert Simon, and many others.9 Second, coming as they did within a decade of the passage of the Administrative Procedure Act, Huntington’s and Bernstein’s critiques of the regulatory commission have to be read in the political context of a series of high-profile efforts to reorganize and control (if not exactly roll back) a maturing and sprawling administrative regulatory apparatus, including the persistent and contested efforts at executive reorganization advocated by the Brownlow Commission and the First and Second Hoover Commissions.10 Like the First Hoover Commission that originally aired issues of undue industry influence as early as 1949,11 Huntington recommended transfer- ring the ICC’s executive functions to the Secretary of Commerce. Bernstein 8 Bernstein, Regulating Business, 296 (emphasis added). 9 David B. Truman, The Governmental Process: Political Interests and Public Opinion (New York: Knopf, 1951). For a couple of useful summaries of the behavioral revolution, see Robert A. Dahl, “The Behavioral Approach in Political Science: Epitaph for a Monument to a Successful Protest,” The American Political Science Review 55 (1961): 763–72; Bernard Crick, The American Science of Politics (Berkeley: University of California Press, 1959). 10 For the best overarching history of these efforts, see Joanna Grisinger, The Unwieldy American State: Administrative Politics since the New Deal (New York: Cambridge University Press, 2012). 11 Grisinger, 302–4. Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 29 even more explicitly linked the academic exercise of piercing the veil of commission independence to a policy prescription of increased political and executive supervision. With Eisenhower and Hoover guiding such rec- ommendations, the links between the scholarly development of a capture thesis and the more general resurgence of interest in competition and pri- vate enterprise as countervailing forces to the rise of a bureaucratic state were already being forged.12 Despite these very specific intellectual and political contexts, however, over the next decade, this early political exploration of private influence in public regulation hardened into the prevailing wisdom known as regulatory capture theory. As Louis Jaffe put it in “The Limits of the Administrative Process” in 1954, “The phenomenon loosely and invidiously described as ‘industry orientation’ is much less a disease of certain administrations than a condition endemic in any agency or set of agencies which seek to perform such a [regulatory] task.”13 Undue influence (from malfeasance to ex parte approaches to “subtle but pervasive methods pursued by regulated industries to influence regulatory agencies by social favors, promises of later employment in the industry itself, and other similar means”) was a major preoccupation of the 1960 Landis Report on Regulatory Agencies.14 By the time the Chicago School began to focus seriously on the issue, Bernstein himself had already summarized that “The most familiar charge against independent commissions is that they develop an orientation toward the views and interests of their clientele and become ripe for capture.”15 For the most part, early formulations of capture theory were mildly reformist in orientation – usually concluding with a call for something such as increased judicial review or enhanced executive supervision or a higher level of administrative formality in regulatory practice to rein in or counterbalance industry influence.16 In the 1960s and 1970s, however, capture theory and social science investigations of regulatory agencies grew 12 In a campaign speech in Seattle, Washington, on October 7, 1952, Eisenhower complained about certain “zealots” who urged a “whole-hog Federal Government” believing “that it must own and control just as many of our resources as it can lay its hands on – by fair means or foul.” Quoted in Grisinger, 348–9. Also see Herbert Hoover, The Challenge to Liberty (New York: C. Scribner’s Sons, 1934). 13 Louis L. Jaffe, “Effective Limits of the Administrative Process,” Harvard Law Review 67 (1953–1954), 1113. See also, Harold Seidman, Politics, Position, and Power: The Dynamics of Federal Organization (New York: Oxford University Press, 1970). 14 James M. Landis, Report on Regulatory Agencies to the President-Elect (Washington, D.C.: U.S. Government Printing Office, December 1960), 12. 15 Bernstein, “Independent Regulatory Agencies,” 23 (emphasis added). 16 Theodore J. Lowi, The End of Liberalism (New York: Norton, 1969); Kenneth Culp Davis, Discretionary Justice: A Preliminary Inquiry (Urbana: University of Illinois Press, 1969). Cambridge University Press Not for sale or distribution. 30 William J. Novak increasingly ideological, generating a much more thoroughgoing critique. And though the attack from the right and economics is most well-known, blood was drawn first on the left among an emerging generation of radical historians of American economic policy who produced what is known in the trade as the corporate liberal synthesis. The corporate liberal synthesis originated in Gabriel Kolko’s 1963 radical denunciation of progressive reform in the provocatively entitled Triumph of Conservatism. Like Huntington and Bernstein, Kolko was looking for an alternative to the public welfare, liberal consensus histories that too easily aligned economic regulation and the public good in a Whiggish morality play featuring the inevitable triumph of the democratic people over the special interests. However, Kolko took his cues from Veblen, Marx, and Weber rather than Merriam, Lasswell, and Truman. In a survey of the great episodes of Progressive-era regulation from the U.S. Industrial Commis- sion to the Bureau of Corporations to the Food and Drug Administration and the Federal Trade Commission, Kolko redefined the entire progres- sive movement as an exemplar of capture theory writ large. He defined progressivism as “a movement that operated on the assumption that the general welfare of the community could be best served by satisfying the concrete needs of business.” Consequently, Kolko contended, “Regulation itself was invariably controlled by leaders of the regulated industry, and directed toward ends they deemed acceptable or desirable.”17 James Wein- stein and Martin Sklar continued in this vein, developing an overarching critical history of capture with more of a class-based edge than either the special-interest or rent-seeking theories of economists and political scien- tists. Weinstein explicitly disparaged the historical orthodoxy of the likes of Arthur Schlesinger, Jr. (whom he identified as “intellectual in residence of the Kennedys”), where “Liberalism in America” was self-understood as a progressive effort to “restrain the power of the business community.” On the contrary, Weinstein argued, the liberal and regulatory reforms of the Progressive era were primarily “the product, consciously created, of the leaders of the giant corporations and financial institutions.”18 17 Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–1916 (Chicago: Quadrangle Books, 1963), 2–3. 18 James Weinstein, The Corporate Ideal in the Liberal State, 1900–1918 (Boston: Beacon Press, 1968), xv; Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890– 1916: The Market, the Law, and Politics (New York: Cambridge University Press, 1988). As Gerald Berk summarized this school of thought in an excellent review essay: “Corporate liberal scholarship, especially in its left-wing variant reintroduced class analysis into the study of twentieth-century politics, concluding that a powerful cadre of class-conscious corporate elites successfully used the state to stabilize modern capitalism and co-opt radical Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 31 In short, by the time George Stigler aimed his economic theories at the “idealistic view of public regulation,” there seemed to be hardly any ide- alism left. Indeed, Stigler himself admitted that by 1971, denunciations of the ICC for “prorailroad policies” had become something of “a cliche ́ of the literature.” However, like their unlikely compatriots in history Kolko and Weinstein, the Chicago School economists were not particularly interested in the reform of regulatory processes or administrative procedures. Rather, the “capture thesis” was but an opening gambit in pursuit of a more total critique of the “basic logic of political life” that undergirded the regulatory impulse as a whole. Stigler bemoaned the many “victims” of the general and “pervasive use of the state’s support of special groups.” In addition, he encouraged economists to more aggressively establish a “license to prac- tice,” a “rational theory of political behavior.” Until and unless that larger economic science of politics was produced, he concluded (rather imperi- ously and undemocratically), reformers were “ill equipped to use the state for their reforms.”19 These were the intellectual roots of what Thomas Merrill dubbed “the public choice era,” when capture theory’s original skepticism about the behavior of a certain set of administrative institutions morphed into a more general and ideological “pessimism about the capacity of any governmental institution” to serve the “public interest.”20 Gary Becker foreshadowed this trend in an audacious five-page reflection on the slight topic of “Compe- tition and Democracy” in the very first issue of the Journal of Law and Economics in 1958. He asked, “Does the existence of market imperfec- tions justify government intervention?” He responded, “The answer would be ‘no,’ if the imperfections in government behavior were greater than those in the market.” Capture theory was meant to demonstrate the per- vasive “imperfections in government behavior” that called into question the general governmental regulatory impulse as a whole. As Becker con- cluded tellingly (challenging all the assumptions of progressive and liberal economic policymaking), “It may be preferable not to regulate economic monopolies and to suffer their bad effects, rather than to regulate them and suffer the effects of political imperfections.”21 Although public interest theories insisted upon the ultimate priority of democracy over economy, policy demands from below.” Gerald Berk, “Corporate Liberalism Reconsidered: A Review Essay,” Journal of Policy History 3 (1991): 70–84, 70–71. 19 Stigler, “The Theory of Economic Regulation,” 18. 20 Merrill, “Capture Theory and the Courts,” 1053 (emphasis added). 21 Gary S. Becker, “Competition and Democracy,” Journal of Law and Economics 1 (1958), 105–9, 109 (emphasis added). Cambridge University Press Not for sale or distribution. 32 William J. Novak Becker’s conclusion (and his title) began the process of putting competition back out front. It thus echoed perfectly Friedrich Hayek’s original reasoning in Freedom and the Economic System (1939): “It is often said that democracy will not tolerate capitalism. If ‘capitalism’ here means a competitive society based on free disposal over private property, it is far more important to observe that only capitalism makes democracy possible.”22 Caught in the middle of this triple (center-left-right; 50s-60s-70s) assault of politics, history, and economics, it is perhaps not surprising that the “pub- lic interest” or “public service” theory of regulation and administration has been treated by social scientists as something akin to a pipe dream since the heyday of the late New Deal.23 Indeed, despite very different methodological and political contexts, the road from the public administration investiga- tions of Huntington and Bernstein to the more formal law and economics theories of capture developed by Stigler and Peltzman runs fairly straight and narrow. En route, descriptions of a quite specific kind of regulatory pathology or misdevelopment gave way to a more general critique of public as compared with private ordering and a general preference for individ- ual market as opposed to collective regulatory solutions. Moreover, this was an intellectual history with distinct policy ramifications, as progressive and New Deal initiatives in regulation, public utility, and social services were soon met with ubiquitous counter-reform proposals in the name of deregulation, privatization, and neoliberalism. THE LONG (RATHER THAN SHORT) HISTORY OF ECONOMIC REGULATION IN AMERICA Although the politics of capture theorists diverges significantly from Bern- stein to Kolko to Stigler (creating something like a cacophony of consensus), one thing that remains common to the perspective as a whole is the histor- ical point of departure. One thing that almost all capture narratives seem to agree on is that economic regulation in the United States began some- where around 1887. For the historically adventurous, perhaps the state 22 Friedrich A. von Hayek, Freedom and the Economic System (Chicago: University of Chicago Press, 1939), 28. 23 Two classic statements of the public interest theory are Felix Frankfurter, The Public and Its Government (New Haven, CT: Yale University Press, 1930) and James M. Landis, The Administrative Process (New Haven, CT: Yale University Press, 1938). For some signs of a renewal of interest in “public interest,” see Martha Minow, Partners not Rivals: Privatization and the Public Good (Boston: Beacon Press, 2002); and David A. Moss and Michael R. Fein, “Radio Regulation Revisited: Coase, the FCC, and the Public Interest,” Journal of Policy History 15 (2003). Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 33 railroad commission movement might push the starting date back a decade or two. But otherwise, the founding of the federal independent regulatory commissions, especially the ICC, marks the genesis from which the capture story usually unfolds. From Huntington’s marasmus to Kolko’s railroad case study24 to Stigler’s cliche ́, capture theory embeds some strong assumptions about regulation and administration as comparatively recent developments in American history – modern departures from some original position of nineteenth century smaller government, competitive markets, perhaps even laissez-faire. For most capture theorists, in other words, the history of eco- nomic regulation in America is distinctly short. Indeed, it is sometimes so short that it can be seen as aberrational – something of a flawed experi- ment with governmental intervention in economic life primarily associated with the excesses of the Progressive and New Deal eras. Regulatory inter- vention is thus safely, historically confined to the “market-in-exile”25 era between Herbert Spencer and Friedrich Hayek, when American liberal polit- ical economy went somewhat off the tracks. The capture thesis turns on a meta-narrative of exposing the short-term historical error in the interest of righting the wrong – returning policymaking to fundamental economic principles and restoring some kind of purer and lost original, natural, and classical order. In “Why Have the Socialists Been Winning,” Stigler made clear the polit- ical and ideological underpinnings of this kind of historical chronology, focusing directly on “the massive growth of governments in the twentieth century” – what he dubbed “the most conspicuous single change in the organization of social life – a growth so large and so pervasive that it would be as difficult to deny as the existence of the Pacific Ocean.” For Stigler, this distinctly modern “growth of government” was the problem to be inves- tigated – the thing to be explained, criticized, and ultimately repudiated. He ventured a hypothesis that explicitly linked this historical point about a novel departure in the scale and scope of regulatory power to the capture thesis point about the rising power of special interest groups. For as Stigler saw it, the unprecedented “growth of government” after 1887 was directly attributable to “the purposeful use of public power to increase the incomes of particular groups in society.”26 Political imperfections thus joined 24 Gabriel Kolko, Railroads and Regulation, 1877–1916 (Princeton: Princeton University Press, 1965). 25 Cass R. Sunstein, Radicals in Robes: Why Extreme Right-Wing Courts Are Wrong for America (New York: Basic Books, 2006), 1 (on the “constitution-in-exile”). 26 George Stigler, “Why Have the Socialists Been Winning,” in Kurt R. Leube and Thomas Gale Moore, eds., The Essence of Stigler (Stanford: Hoover Institution Press, Stanford Cambridge University Press Not for sale or distribution. 34 William J. Novak market imperfections to create something like the imperfect historical storm that yielded the modern regulatory state and the aberrational “growth of governments.” So, history is not peripheral to capture theory. Rather, temporal accounts and historical assumptions pervade the literature. Specific historical regu- latory changes over time – particularly those of the Progressive and New Deal eras – seem to animate the entire inquiry. Unfortunately, however, the historical chronology of American regulation and administrative statecraft conventionally deployed by capture theory is flawed. One of the most important developments in American political and legal historiography over the past decade or two has been a radical revision in commonly accepted notions of the lack of economic regulation or national administration in early American history.27 Indeed, the overwhelming con- clusion of a still rapidly expanding revisionist literature is that the history of economic regulation in America is distinctly long rather than short. Well before the founding of the Interstate Commerce Commission, the United States across all levels of government engaged in a huge number of regulatory and administrative activities. From the perspective of an emerging historical consensus, the growth of government is not a new deviation in American history; it is the historical norm. Economic regulation is a quite old rather than a relatively new phenomenon, found just as easily in the eighteenth and nineteenth centuries as in the twentieth and twenty-first centuries. Indeed, from the perspective of the overthrown Articles of Confederation, the growth of a stronger government, far from being a recent departure in the American political-economic tradition, is more like a founding raison d’etre. Administrative regulation in America was not invented in 1887 as a prelude to Progressive and New Deal reform; rather, it was a technique of governance with deep roots in the earliest political and economic practices of the American republic. Although it is still common for generalists to talk about American history in terms of a transition from nineteenth century laissez-faire to the twentieth century general welfare state, that political and ideological mythology has been under sustained attack from professional historians for almost half a century. On the local and state level, a whole series of historical monographs have been written challenging the myth of nineteenth century laissez-faire by University, 1986): 337–346. Although quite dissimilar in orientation, the corporate liberal theory of capture also focused on this distinctive expansion of governmental power – what Kolko dubbed a distinctly new form of “political capitalism.” 27 For an overview of just a small segment of this literature, see William J. Novak, “The Myth of the Weak American State,” The American Historical Review 113 (2008), 752. Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 35 documenting a long history of market policing, public works, inspection laws, and health and safety regulations governing almost every aspect of social and economic life before the Civil War.28 More importantly and more recently, at the national level, scholars such as Jerry Mashaw, Richard John, Gautham Rao, Nick Parrillo, and Max Edling have been making a powerful case that the story of national economic regulation and administrative gov- ernance needs to begin in 1787 not 1887.29 As Mashaw’s new book on “The Lost One Hundred Years of American Administrative Law” demonstrates clearly, the U.S. economy has developed in the shadow of almost constant and continuous scrutiny, investigation, promotion, protection, regulation, and redistribution by a cadre of public officers and national economic regulators.30 These are but few select examples from recent historical scholarship. A more comprehensive, but still quite selective list of scholars who have worked seriously and substantively on the long, distinctively non-aberrational his- tory of regulation and administration in the United States includes a broad cross-section of the modern American social science community: Richard 28 I am thinking here primarily of the so-called “commonwealth studies” of regulation in antebellum America – a literature on which I build in my own monograph, The People’s Welfare: Law and Regulation in Nineteenth-Century America (Chapel Hill: University of North Carolina Press, 1996). An exhaustive bibliography of the commonwealth studies would make for a ridiculously long footnote. Here are the classics: Oscar and Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy: Massachusetts, 1774–1861, rev. ed. (Cambridge, MA: Harvard University Press, 1969); Louis Hartz, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (New York: Cambridge University Press, 1948); Gerald D. Nash, State Government and Economic Development: A History of Administrative Policies in California, 1849–1933 (Berkeley: Uni- versity of California, 1964); and Carter Goodrich, Government Promotion of American Canals and Railroads, 1800–1890 (New York: Columbia University Press, 1960). However, it is hard to get an idea of the full import of this school without also including the work of Harry Scheiber on the Ohio canal era, Milton Heath, Bray Hammond, James Neal Primm, George Miller, Paul Gates, and Edwin M. Dodd. For fuller bibliographical summaries and analysis see Robert A. Lively, “The American System: A Review Article,” Business History Review 29 (1955): 91–6; and Harry N. Scheiber, “Government and the Economy: Studies of the ‘Commonwealth’ Policy in Nineteenth-Century America,” Journal of Interdisciplinary History 3 (1972): 135–51. 29 Jerry L. Mashaw, “Recovering American Administrative Law: Federalist Foundations, 1787–1801,” Yale Law Journal 115 (2006): 1256–344; Max M. Edling, A Revolution in Favor of Government: Origins of the U.S. Constitution and the Making of the American State (New York: Oxford University Press, 2003); Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, MA: Harvard University Press, 1995); John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic, 1787–1835,” Studies in American Political Development 11 (Fall 1997): 347–80. 30 Jerry L. Mashaw, Creating the Administrative Constitution: The Lost One Hundred Years of American Administrative Law (New Haven: Yale University Press, 2012). Cambridge University Press Not for sale or distribution. 36 William J. Novak Bensel, Ed Berkowitz, Alan Brinkley, Elliot Brownlee, Daniel Carpenter, Michele Landis Dauber, Martha Derthick, Dan Ernst, Gary Gerstle, Otis Graham, Joanna Grisinger, Oscar and Mary Handlin, Louis Hartz, Ellis Hawley, Sam Hays, Christopher Howard, Barry Karl, Michael Katz, Ira Katznelson, Morton Keller, Jen Klein, John Larson, Robert Lieberman, David Mayhew, Tom McCraw, Ajay Mehrotra, Sid Milkis, David Moss, Karen Orren, Steve Sawyer, Harry Scheiber, Theda Skocpol, Stephen Skowronek, Bat Sparrow, Jim Sparrow, Mark Wilson, John Witt, Jim Wooten – the list goes on and on. Yet the strange fact of the matter is that modern capture theory (focused directly as it is on trying to tell us something about patterns and tendencies of regulation in crucial eras of transition and transformation) rarely cites any of the authors or literatures listed previously. Somewhat curiously, capture theorists have been writing about and drawing bold conclusions from the history of the American regulatory state without actually consulting real histories of regulation. In consequence, the capture literature has been operating with a rather crimped and crabbed (if not outright fictional) portrait of the rise of the American regulatory state that no longer reflects the actual state of historical knowledge. However, does a longer and more accurate historical chronology of the American regulatory state really matter – can it actually affect the way in which we substantively think about capture in regulatory processes more generally? Can the simple act of historical re-periodization really affect the analytics and interpretation? I think so. Indeed, even on the most general interpretive level, the vast range of extraordinarily diverse regulatory ini- tiatives and practices currently being unearthed by historians as coincident with the earliest economic development of the United States simply resists easy, uniform categorization within a capture framework. The new histories provide an archive of new materials with which to investigate early national regulatory initiatives (e.g., the national steamboat inspection regime that dates from the late 1830s) as well as the habits and practices of the first real independent commissions (e.g., the Patent Office).31 These histories also suggest that regulation is not something that originates historically outside of the development of a market economy (and at some later date for exogenous reasons), but is historically endemic to and constitutive of it. However, let me suggest another more specific way in which changing 31 John G. Burke, “Bursting Boilers and the Federal Power,” Technology & Culture 7 (1966): 1; Steven W. Usselman and Richard R. John, “Patent Politics: Intellectual Property, the Railroad Industry, and the Problem of Monopoly,” Journal of Policy History 18 (2006): 96. Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 37 how we think about the history of regulation might lead to a reevaluation of capture, regulation, and public and private interest more generally. CORRUPTION: THE ORIGINAL CAPTURE THEORY Obviously, the first thing that the long history of American regulation opens up is a broader time horizon within which scholars must grapple with regulatory cause and effect, expectation and outcome, and success and failure. Lengthening the historical timeline greatly increases the range of factors behind the regulatory impulse and multiplies the social, political, and economic contexts out of which regulation emerged as a viable solution. This longer chronology thus disrupts some of the simple and politically freighted storylines that too often accompany the conventional eras that preoccupy capture theory: for example, Progressivism, the New Deal, or the new social regulation of the 1960s and 1970s. Looking at the formation of the ICC as an unsurprising mid-level development in a long regulatory history rather than as a sudden new point of departure (yet alone a violent rupture) in the American governmental tradition provides a different context from which to evaluate the interpretive implications of the capture narrative. More particularly, a longer chronology retrospectively highlights the nature of the special problems that regulation was responding to rather than the regulatory solution and the inevitable problems of implementation going forward. Capture theory all too often uses history like a rearview mirror, reading history backward from the present to the historical origin of a particular regulatory regime. In contrast, the long history of regulation in America recommends reading history forward starting with the specific historical reasons for the emergence of one set of regulatory policies over existing alternatives. One thing highlighted by that longer historical perspective is the distinc- tive set of concerns articulated by reformers themselves in self-consciously redesigning the institutions of an existing American regulatory state at the turn of the twentieth century. In contrast to the caricature of regulatory reform frequently portrayed in the capture literature, progressives did not “invent” regulation, nor did they naively advocate regulatory solutions in the interest of some ill-specified and general “protection and benefit of the public at large.”32 Rather, the chief architects of progressive regulation and administration – people such as Frank Goodnow, Ernst Freund, Woodrow Wilson, Walton Hamilton, Felix Frankfurter, and Milton Handler – were 32 Stigler, “The Theory of Economic Regulation,” 1. Cambridge University Press Not for sale or distribution. 38 William J. Novak very serious and careful students of American (as well as European) political, regulatory, and economic history. They were under no illusions that the rela- tionships of private and public interest or competition and democracy were simple matters (much less coverable in five pages in a new law and economics journal). And they were anything but unaware that businesses, corporations, unions, interest groups, private associations, professional societies, and lob- bying organizations could and would influence regulatory policymaking. In contrast to the idealistic public-interestedness frequently attributed to them in the capture literature, progressive reformers in the regulatory field were sophisticated moderns – known explicitly for their pragmatism, positivism, empiricism, skepticism, and critical realism.33 They helped professional- ize the modern social sciences in the United States, and they were some of the shrewdest and most well-read and prolific students of law, politics, and economics in American intellectual history. Although the term capture might have been coined in the 1950s, 1960s, and 1970s, the economic and political phenomena it attempts to describe would hardly strike them as news. Indeed, one of the central problems that progressive reformers were con- sciously attempting to remedy through regulation was something that itself looks very much like a version of the problem of “strong” capture delineated by Dan Carpenter and David Moss in the introduction to this volume.34 The independent regulatory commissions were themselves designed to combat what progressives envisioned as a perennial problem in republican and democratic governance – that is, the tendency of private economic inter- ests to capture the public political sphere. More particularly, they viewed late nineteenth century agglomerations of corporate wealth and power as producing a dangerous new form of the age-old threat of private interest trumping public democracy. Of course, they did not use the modern lan- guage (yet alone theory) of “capture” when they talked about this problem; rather in the vernacular of the time, they invoked the very old theme and problem of “corruption.” Although the capture thesis is frequently heralded as a new and distinctly contemporary economic theory, from the long perspective of history it looks more like old wine in new bottles. For there is simply no older theme in the Western legal and political tradition than the one highlighted by capture. 33 See, for example, James T. Kloppenberg, Uncertain Victory: Social Democracy and Progres- sivism in European and American Thought, 1870–1920 (New York: Oxford University Press, 1986); Daniel T. Rodgers, Atlantic Crossings: Social Politics in a Progressive Age (Cambridge, 1998). 34 Daniel Carpenter and David Moss, “Introduction,” Preventing Capture, 1–22. Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 39 In Plato’s Republic, Socrates noted that “our aim in founding the State was not the disproportionate happiness of any one class, but the greatest happiness of the whole.” In addition, he bemoaned “the corruption of society” whereby “the guardians of the laws and of the government are only seemingly and not real guardians” who “turn the State upside down” and ultimately destroy it.35 Aristotle’s Politics also decried the corrupting effects of private interest and private vice on the commonwealth noting, “The true forms of government, therefore, are those in which the one, or the few, or the many, govern with a view to the common interest; but governments which rule with a view to the private interest, whether of the one, the few, or the many, are perversions.”36 As Gordon Wood, J. G. A. Pocock, and many other historians have con- vincingly argued, it was precisely this classical tradition from Aristotle to Montesquieu and its preoccupation with corruption and the private cap- ture of the public sphere that structured the revolutionary political thinking of the original American founders. As Wood put it, “When the American Whigs described the English nation and government as eaten away by ‘cor- ruption,’ they were in fact using a technical term of political science, rooted in the writings of classical antiquity, made famous by Machiavelli, developed by the classical republicans of seventeenth-century England, and carried into the eighteenth century by nearly everyone who laid claim to knowing any- thing about politics.”37 Anyone who knew anything about politics in the late eighteenth century was well aware of the dangers of “corruption” and the way the legislature and other branches could be turned from the public good by the force of private vice, group interest, and/or ministerial manipulation. Two hundred years before the emergence of George Stigler, James Madi- son made a pretty compelling case for himself as the original American capture theorist in Federalist No. 10.38 There, of course, Madison explic- itly warned about the influence of faction in “public councils” and “pub- lic administrations” whereby the interests or passions of “a majority or a 35 Plato, The Republic: The Complete and Unabridged Jowett Translation (New York: Vintage Books, 1991), Book IV, 129–30. Socrates also offered a bit of wisdom on the priority of politics over economics: “Our opponent is thinking of peasants at a festival, who are enjoying a life of revelry, not of citizens who are doing their duty to the State.” 36 Aristotle, The Politics and The Constitution of Athens (New York: Cambridge University Press, 1996), Book III, 71. 37 Gordon S. Wood, The Creation of the American Republic, 1776–1787 (Chapel Hill: Uni- versity of North Carolina Press, 1969), 32–3; J. G. A. Pocock, The Machiavellian Moment: Florentine Political Thought in the Atlantic Republic Tradition (Princeton: Princeton Uni- versity Press, 1975). 38 James Madison, “The Federalist No. 10: The Utility of the Union as a Safeguard against Domestic Faction and Insurrection (continued),” Daily Advertiser, November 22, 1787. Cambridge University Press Not for sale or distribution. 40 William J. Novak minority of the whole” were pursued adversely to “the public good” or “the permanent and aggregate interests of the community.” Madison concluded, moreover, that the causes and sources of factions, interests, and parties could not (and should not)39 be stamped out or eliminated, for “the latent causes of faction are . . . sown in the nature of man.” As he wisely noted, “It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good.” However, notably, and thankfully, Madison at this point did not put down his pen in pessimistic resignation about the prospects for legislation, regulation, or republican governance. Rather, the famous conclusion to which he was drawn was that although “the causes of faction cannot be removed,” relief could still “be sought in the means of controlling its effects.” In other words, the existence of faction, corruption, and capture was not fatal to the conceit of legislation and regulation in the public interest. Rather, they were prods to better public institutional design – the never-ending task of thinking through better plans of governance to control the noxious effects of all-too-human corruption: “factious tempers,” “local prejudices,” “sinister designs,” and the “cabals of the few.” In Federalist No. 10, Madison thought carefully through representation, voting, and the appropriate size of a body politic, because, as he put it, “The regulation of these various and interfering interests forms the principal task of modern legislation.” Long before the advent of the twentieth century, in other words, concern about private interests or factions capturing public governing institutions and bending them toward selfish ends rather than general benefits was a well-developed (indeed perhaps the central) trope in American political and economic commentary. In the Jacksonian era, just such a perspective dominated critiques of special incorporation via legislative charters. From Jackson’s notorious fight with the Bank of the United States to calls for more general incorporation in states such as Massachusetts and Pennsylvania, reformers questioned the mixture of public/private motive and profit that guided the legislative distribution of monopoly privileges, land grants, rights-of-way, and other valuable statutory benefits. As the Boston Daily Herald complained in 1836, “They are not for the public good – in design or end. . . . They are for the aggrandizement of the stockholders – for the 39 On the attempt to eliminate the causes of faction, Madison contended that the “remedy” would be “worse than the disease.” As he put it, “Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency.” Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 41 promotion of the interest of the few. . . . We wish to have public good and private speculation more distinctly separated.”40 So, although seldom recognized by capture theory, it should come as no surprise that by the turn of the twentieth century, the problem of pri- vate interest in public governance was well understood. Indeed, the theme of public corruption was something of a leitmotif for progressive reform. Beyond the well-known exposes of the muckraking journalists Ida Tarbell, Lincoln Steffens, and Ray Stannard Baker who gathered around McClure’s Magazine, progressive intellectuals and social scientists mounted a sus- tained attack on the corruptions of the so-called Gilded Age. So strong was the progressive preoccupation with private influence on public policy that historian Richard L. McCormick placed the “Discovery that Business Corrupts Politics” – the awakening of the people to illicit business influence in American public life – at the very origin point of progressivism itself.41 Progressives used “corruption” in its classical sense indicating the despoiling of a distinctly collective public sphere (a republic supposedly devoted to res publica – the public things) by private and individual economic interests. They spent a great deal of time exposing the various frauds, thefts, bribes, extortions, and schemes that linked unvirtuous robber barons to corrupt politicos (to use Matthew Josephson’s evocative terms).42 However, although concern about public corruption was as old as the republic, what was new at the turn of the twentieth century was an acute awareness of the unprecedented threat to the polity posed by the arrival of large-scale business and corporate interests in rail, oil, meatpacking, and insurance, whose corruptions were cataloged in a seemingly endless series of reports and even fictional portrayals from Charles and Henry Adams’s Chapters of Erie (1871) to Frank Norris’s McTeague, The Octopus, and The Pit (1899–1903).43 “Laissez-faire constitutionalism” was understood as a 40 Oscar Handlin and Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy, Massachusetts, 1774–1861 (New York: Cambridge University Press, 1969), 213; Louis Hartz, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (Cambridge: Harvard University Press, 1948); James Willard Hurst, The Legit- imacy of the Business Corporation (Charlottesville: University Press of Virginia, 1970). 41 Richard L. McCormick, “The Discovery that Business Corrupts Politics: A Reappraisal of the Origins of Progressivism,” American Historical Review 86 (1981): 247–274. 42 Matthew Josephson, The Robber Barons: The Great American Capitalists, 1861–1901 (New York, 1934); Matthew Josephson, The Politicos, 1865–1896 (New York: Harcourt Brace, 1938). 43 Charles Francis Adams, Jr., and Henry Adams, Chapters of Erie (Boston: J.R. Osgood and Company, 1871); Frank Norris, McTeague: A Story of San Francisco (New York: Doubleday and McClure Co., 1899); Norris, The Octopus: A Story of California (New York: P.F. Collier, 1901); Norris, The Pit: A Story of Chicago (New York: Doubleday, Page, and Co., 1903). Cambridge University Press Not for sale or distribution. 42 William J. Novak corruption of the American rule of law in precisely this sense – as a usurpation (a capture) of the public law by private economic interests and philosophies. In “Business Principles in Law and Politics,” Thorstein Veblen contended that “constitutional government has, in the main, become a department of the business organization and is guided by the advice of business men.”44 For just such sentiments, Veblen became something of a prophet for capture historians like Kolko, Weinstein, and Sklar. However, the important point here is that there was nothing particularly unusual or prophetic in Veblen’s perspective. Rather it was common wis- dom – the baseline assumption from which much American constitutional development and almost all progressive reform proceeded. In the economic regulatory field, the reformer who most clearly artic- ulated the explicit relationship between regulation and corruption was Charles Francis Adams, Jr. It goes without saying that Adams was neither a wooly-headed idealist nor particularly na ̈ıve about the limits and possi- bilities of American politics. A lawyer, a historian, a regulator, a railroad executive, and a member of one of the most influential families in American politics and letters, Adams was well equipped to size up the problem of rail- road economics in the late nineteenth century and its impact on the body politic. The picture he painted was not pretty, let alone rational. He talked about the railroad problem not in terms of market failure or externalities but as nothing less than a national “emergency.”45 In “A Chapter of Erie,” he described the battle for control of the Erie Railroad between the Erie men – Jay Gould, Jim Fisk, and Daniel Drew – and Cornelius Vanderbilt as nothing less than the “Erie war.”46 Although capture theory’s ex post analysis fre- quently draws attention to the “roads not taken,” for example, competition or legislative regulation, Adams made clear ex ante that the starting point for regulatory reform was the explicit recognition that those “other roads were indeed taken” and found completely wanting. As Adams started his chapter on “The Government and the Railroad Corporations”: “Neither competition nor legislation have proved themselves effective agents for the regulation of the railroad system.” And so Montesquieu-like, Madison-like, he probed further: “What other and more effective [instrument] is there within the reach of the American people?”47 44 Thorstein Veblen, The Theory of Business Enterprise (New York: A.M. Kelley, 1904), 287. 45 Charles Francis Adams, Jr., “The Railroad System,” in Charles Francis Adams, Jr., and Henry Adams, Chapters of Erie and other Essays (Boston: J.R. Osgood and Company, 1871), 333–429, 414. 46 Charles Francis Adams, Jr., “A Chapter of Erie,” in Adams and Adams, Chapters of Erie, 1–99, 6. 47 Adams, “The Railroad System,” 414. Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 43 Adams’s other explicit starting point was capture – or as the progressives referred to it – corruption.48 For Adams, the railroad problem involved not just the economic problem of expensive “natural monopolies” operating in an atmosphere of “ruinous competition” between states and localities (as Herbert Hovenkamp summarized the situation: “railroads seemed des- tined to be either filthy rich or perpetually broke”).49 Rather, anticipating Richard McCormick’s analysis, Adams recognized that the railroad prob- lem also involved the explicitly political problem of business corrupting the body politic – “the sturdy corporation beggars who infested the lobby” of state legislatures.50 As Adams saw it, “Our legislatures are now univer- sally becoming a species of irregular boards of railroad direction” creating persistent “scandal and alarm.” “The effects upon political morality have been injurious,” he suggested, adding that “many States in this country, and especially New York, New Jersey, Pennsylvania, and Maryland have now for years notoriously been controlled by their railroad corporations.” Noting that “there is no power which can purify a corrupted legislature,” Adams turned instead to the regulatory commission – independent, permanent, and competent tribunals that he analogized to courts.51 Now, at this critical juncture in the historical development of the modern regulatory commission, it must be noted that Charles Francis Adams was under no illusion that regulatory commissions would be somehow magi- cally immune from private influence, economic interest, or other forms of group special pleading. On the contrary, he specifically anticipated the exact question of regulatory capture as early as 1871: “But it will be said, Who will guard the virtue of the tribunal? Why should the corporations not deal with [the commissions just] as [they did] with the legislatures?” Who would 48 In Prophets of Regulation, Thomas K. McCraw draws attention to one of Adams’s many classic depictions of Gilded Age corruption during the Erie war featuring an interrupted meeting of Daniel Drew in his New York office: They were speedily aroused from their real or affected tranquility by trustworthy intelligence that processes for contempt were already issued against them, and that their only chance of escape from incarceration lay in precipitate flight. At ten o’clock the astonished police saw a throng of panic-stricken railway directors – looking more like a frightened gang of thieves, disturbed in the division of their plunder, than like the wealthy representatives of a great corporation – rush headlong from the doors of the Erie office, and dash off in the direction of the Jersey ferry. In their hands were packages and files of papers, and their pockets were crammed with assets and securities. One individual bore away with him in a hackney-coach bales containing six millions of dollars in greenbacks. McCraw, Prophets of Regulation (New York: Cambridge University Press, 1984), 16. 49 Herbert Hovenkamp, Enterprise and American Law, 1836–1937 (New York: Cambridge University Press, 1991), 148. 50 Adams, “The Railroad System,” 427. 51 Ibid., 417–418. Cambridge University Press Not for sale or distribution. 44 William J. Novak guard the guardians? Adams’s answer to this question was very important to the overarching goals and perspectives that animate this volume of essays on “Preventing Capture.” For like Madison, Adams concluded that there was no final answer, no silver bullet, no complete economic theory or polit- ical model that would forever preclude the capture and corruption of any governmental institution in a democratic republic. Rather, the very nature and history of democracy suggested that the capture of public institutions by private interest was an ever-present weakness and danger. Vigilance was as necessary as it was eternal. The public virtue of the people themselves, of course, was perhaps the best line of defense against such corruption and capture, but as Madison famously observed long ago, “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.”52 No, Adams recognized that corruption and capture were endemic and historic problems in any truly popular form of government and that the only viable solution was the pragmatic, ongoing, never-ending Madisonian constitu- tional tradition of, as Adams marvelously phrased it, continually develop- ing “all the checks and balances that human ingenuity can devise.”53 In the late nineteenth and early twentieth centuries, the independent regulatory commission offered a new, historical check and balance to offset private economic corruption and public legislative capture. Adams had no pre- conception that further checks and balances would not be necessary in a democratic American future. So, progressive regulatory reformers were certainly not lacking basic awareness about the problem of capture. Quite the contrary, they explic- itly emphasized the theme of corruption as a prelude to and a basis for their own reform proposals. The peak years of muckraking disclosure from 1904 to 1908 were accompanied by a wave of legislative activity specifi- cally designed to curb the influence of private interest and private money in American politics, including federal and state corrupt practices, laws regulating campaign contributions and the solicitation of funds from cor- porations, laws regulating legislative lobbying, laws prohibiting free trans- portation passes, and political reforms such as direct primaries.54 The devel- opment of the independent regulatory commissions (as well as economic 52 James Madison, “The Federalist No. 51: The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments,” Independent Journal, February 6, 1788. 53 Ibid., 427 (emphasis added). 54 McCormick, “Business Corrupts Politics,” 266–7; Earl Ray Sikes, State and Federal Corrupt Practices Legislation (Durham: Duke University Press, 1928); Helen M. Rocca, Corrupt Practices Legislation (Washington: National League of Women Voters, 1928). Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 45 regulatory and police power measures) must be understood in this larger context of: (a) long American experience with regulatory and administrative techniques; and (b) a heightened concern about the susceptibility of existing democratic politics to capture by new organizations of private economic interest. Viewing regulation and administration within this much longer arc of historical American regulatory practice (as opposed to exceptionalist depar- tures from nonexistent traditions of laissez-faire) thus highlights a much more complex backdrop to regulatory change and innovation than sug- gested by the simple binary of public interest and private capture. Propo- nents of regulation were not unaware of the potential for corruption in state-directed activities – in fact, it was one of their main concerns about the status quo ante. Indeed, their original and almost obsessive focus on the undue influence of private economic interest on existing configurations of democratic politics eventually brought them to a more comprehensive reevaluation and critique of the new systemic forms of private coercion emerging from within the modern corporate economy. The problem of private “governing power” was not an oversight in the progressive theory of economic regulation; it was a driving force. In the end, however, progressive reformers did not rest content with “corruption” analysis or some kind of incipient “capture” theory. Rather, their early inquiries into the influence of private economic actors on demo- cratic politics soon gave way to a much more sophisticated concern with the role of “private coercion” more generally in American social and economic life. Beginning in the late nineteenth century and extending through to the early New Deal, a rather extraordinary group of legal, economic, and social science authors (some of whom Barbara Fried dubbed the “first law and economics movement”) developed a deeper critique of the role of private economic power in modern societies.55 Here organized business interest came to be seen as a threat not simply because of its secondary effects on the corruption of the polity, but as a primary concern in and of itself. The problem of organized private coercion – the creation of new forms of private 55 Barbara H. Fried, The Progressive Assault on Laissez Faire: Robert Hale and the First Law and Economics Movement (Cambridge, MA: Harvard University Press, 1998). The list of key authors in this tradition (and I include a prototypical text for each) includes Henry Carter Adams (“Relation of the State to Industrial Action” and “Economics and Jurisprudence”), Thorstein Veblen (Theory of Business Enterprise), Richard T. Ely (Property and Contract in their Relations to the Distribution of Wealth), John R. Commons (Legal Foundations of Capitalism), John Maurice Clark (Social Control of Business), Bruce Wyman (Control of the Market), Samuel P. Orth (Relation of Government to Property and Industry), Robert Lee Hale (Freedom Through Law), Walton Hale Hamilton (The Politics of Industry), and Rexford G. Tugwell (The Economic Basis of Public Interest). Cambridge University Press Not for sale or distribution. 46 William J. Novak despotism in large and influential corporations and property holders (what Roscoe Pound once talked about as “the new feudalism”) – supplemented earlier concerns about the corruptibility and capture of democratic power. The economic power of business came to be seen as problematic not simply for its undue influence on politics, but because of its implications for the imbalance and the concentration of power and wealth more generally in a supposedly free and democratic republic. Robert Lee Hale’s jurisprudential contribution (along with the work of Commons and Ely in economics and Pound and Morris Cohen in law) came when he detected in the new economic organizations of the late nine- teenth and early twentieth centuries some of the attributes of “sovereignty” – unchecked social coercion and force. The problem of unprecedented pri- vate power in trusts, unions, corporations, and other large associations became the focus of legal-economic inquiry and experimentation in the first decades of the twentieth century precisely because such organizations seemed to operate beyond the jurisdiction of the traditional authority of state legislatures and common laws. The legal-governmental remedy in these analyses was not a series of political regulations insulating the polity from economic influence (yet alone a traditional reliance on common law litigation or ex post criminal prosecutions), but the development of new reg- ulatory police powers and administrative agencies that envisioned an active state apparatus as a continuous, countervailing force to the organization of new forms of economic power in modern American life. CONCLUSION When looking at the history of economic regulation in the United States, capture theory frequently assumed that the main problem that regulation was attempting to solve was essentially an economic problem – for which a political solution was proposed. Theorists such as George Stigler and Gary Becker then went further and examined the political solution itself from the perspective of economic theory – that is, Stigler’s promotion of an economic “license to practice on the rational theory of political behavior.” From such an “economics all the way down” perspective, democratic political solutions were found to be (surprise, surprise) “inefficient.” Consequently, regulatory policies almost always fared poorly when compared with some kind of ideal, theoretical market solution. In the process, democracy and government went from being viewed as the key political forums for the resolution of social and economic problems to being viewed, in Ronald Reagan’s famous formulation, as part of (if not all of) the problem. Cambridge University Press Not for sale or distribution. A Revisionist History of Regulatory Capture 47 However, capture theory went somewhat astray in assuming that eco- nomic regulation was primarily motivated by an economic problem. As progressive theorists made perfectly clear in text after text, the problem of economic concentration at the turn of the century was viewed by and large as a political problem – both in terms of the unprecedented influence of large corporations on politics per se as well as the more subtle corrosive effects of an increasingly unequal distribution of wealth and power in an allegedly democratic regime. Political failure rather than market failure was the first priority of the reform tradition. And democracy came before competition. In our own neoliberal era, it is a bit hard to fully comprehend this fun- damentally political rather than economic perspective despite 2,000 years of development in the Western philosophical tradition and 200 years of experience with American constitutionalism. However, something of the continued salience of the priority of democracy over economy was sug- gested by Justice Oliver Wendell Holmes, Jr., when he opened the most famous dissenting opinion in American history with these words: This case is decided upon an economic theory which a large part of the country does not entertain. If it were a question whether I agree with that theory I should desire to study it further and longer before making up my mind. But I do not conceive that to be my duty, because I strongly believe that my agreement or disagreement has nothing to do with the right of a majority to embody their opinions in law.56 For Holmes, Herbert Spencer’s Social Statics and late nineteenth century theories of laissez-faire prioritized economy over democracy and thus curi- ously elided or confused the basic principle undergirding the historic devel- opment of popular government in the Western world – the right of the people to embody their opinions in law. In many ways, late twentieth cen- tury capture theory made something of the same mistake.57 Working with a foreshortened narrative of nineteenth century laissez-faire and twentieth century regulation, capture theorists missed the degree to which the prob- lem of capture and corruption animated most previous American polit- ical, constitutional, and legislative (as well as regulatory) development – and indeed motivated the development of the regulatory commission in the first place. Thinking that the capture problem was peculiar to the reg- ulatory form rather than endemic to democratic institutions in general, modern capture theory mistook the discovery of a general precondition for an immanent and incisive critique. Consequently, capture theory’s tradi- tional prescription – usually some form of deregulation or simply ending 56 Lochner v. New York, 198 U.S. 45 (1905) (emphasis added). 57 As Mark Twain observed, “History may not repeat itself, but it sometimes rhymes.” Cambridge University Press Not for sale or distribution. 48 William J. Novak the regulation as we know it – ended up being as shortsighted as the myopic history that stood behind it. The Jacksonian critique of the role of special influence and interest in the Bank of the United States did not mean the end of central banking in American history. And the discovery of regulatory or agency capture does not signal the end of regulation in America. For, as this chapter has attempted to demonstrate, the regulatory impulse itself is rooted in a much longer and wider historic American struggle with the problem of corruption – with the persistent threat that agglomerations of private interest continually pose to the aspirations of the commonwealth. As James Madison reminded us long ago, “It is of great importance in a republic, not only to guard the society against the oppression of its rulers; but to guard one part of the society against the injustice of the other part.”58 If history is any guide (or contemporary politics any indicator), the problems of faction, special interest, special privilege, and private coercion are not going away anytime soon in this still open and democratic society. And it is but a chimera to presume that a simple dismantling of an earlier era’s checks and balances and regulatory institutions will somehow automatically and spontaneously vitiate the age-old problems of inequality, privilege, and private (as well as public) coercion. The problems of regulation and capture will not be solved by fleeing to some kind of imaginary laissez- faire past. No, the way forward involves neither ignoring the problems of corruption and capture, nor capitulating to the private interests that seek undue influence in the polity as well as the economy. Rather, a more sensible approach is recommended by both Western political tradition and American constitutional experience. The chapters in this volume build on the example of Montesquieu and Madison in embracing fresh thought on the question of institutional (as well as constitutional) design to prevent capture in new and uncertain times. And they continue the endless, vigilant democratic-republican project endorsed by Charles Francis Adams – the simultaneously mundane and heroic task of attempting to blunt the force of perennial public corruptions and private coercions by simply piling on “all the checks and balances that human ingenuity can devise.” 58 James Madison, “The Federalist No. 51: The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments,” Independent Journal, February 6, 1788. }}
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