<body><script type="text/javascript"> function setAttributeOnload(object, attribute, val) { if(window.addEventListener) { window.addEventListener('load', function(){ object[attribute] = val; }, false); } else { window.attachEvent('onload', function(){ object[attribute] = val; }); } } </script> <div id="navbar-iframe-container"></div> <script type="text/javascript" src="https://apis.google.com/js/plusone.js"></script> <script type="text/javascript"> gapi.load("gapi.iframes:gapi.iframes.style.bubble", function() { if (gapi.iframes && gapi.iframes.getContext) { gapi.iframes.getContext().openChild({ url: 'https://www.blogger.com/navbar.g?targetBlogID\x3d5529474\x26blogName\x3dDimmy+Karras\x26publishMode\x3dPUBLISH_MODE_BLOGSPOT\x26navbarType\x3dSILVER\x26layoutType\x3dCLASSIC\x26searchRoot\x3dhttp://dimmykarras.blogspot.com/search\x26blogLocale\x3den_US\x26v\x3d2\x26homepageUrl\x3dhttp://dimmykarras.blogspot.com/\x26vt\x3d2234159095245132931', where: document.getElementById("navbar-iframe-container"), id: "navbar-iframe" }); } }); </script>

Friday, July 25, 2003

The Politicization of US Regulatory Agencies

The Economist has an interesting leader and business article on this subject in the new issue, prompted by the House vote against the FCC media ownership rules. They explore reasons for increased politicization of regulatory decisions and hold that the agencies should be allowed to make choices without congressional interference and with better guidance from the president:

"One reason why political interference in regulatory policy may be spreading is that political funding from big business has risen sharply in recent years, and donors want results. Today's ruling Republicans play the regulatory game particularly well. Tom DeLay, the Republican leader of the House of Representatives, is a master at extracting special-interest funding. Mr Bush's team is full of ex-officials from heavily regulated utilities.

"The deregulation over two decades ago of airlines and the trucking industry involved government stepping out of the way, says Robert Litan of the Brookings Institution. The deregulation of the telecoms and electricity industries in the 1990s, on the other hand, entailed regulators prising open monopolised markets, against the wishes of incumbents. That necessitated a system of 'managed' competition, with elaborate rulebooks to set terms of access, pricing and so on, subject to periodic revision. This has created incentives for firms to lobby politicians in hopes of changing rules in their favour. In telecoms, where the rules are reviewed every three years, arcane rulings by the FCC can boost or harm even the biggest firms, and create or destroy smaller fry...

"It is tempting to blame the regulators. Harvey Pitt, the SEC's ex-head, was roasted for his clumsy political skills. The FCC's Mr Powell now faces similar charges. It might be fairer to blame George Bush... Without protection from on high, regulators are exposed to the whims of Congress. So it is hardly surprising that, despite their best intentions, they start to behave like politicians with short time horizons instead of technocrats implementing long-term policy. With all that lobby cash sloshing about, it seems it has become too difficult for politicians such as Mr Bush to give policy a clear direction."

On theoretical grounds, the Economist's argument is sound, though in these cases, following their preferred course would have left Pitt and Powell unchallenged, and that, in my view, would have led to bad policy outcomes. If the regulatory agency does not overstep its bounds, no Congressional action follows, but when the agency usurps effective legislative power in some area, the legislature should have the right to check the executive's authority, as it has in these examples.

Harvey Pitt was trying to make a law passed by Congress ineffective by naming an official who would almost certainly not have enforced the law as members intended. Powell's actions at FCC could have re-made the media landscape in such a way that adversely impacted many citizens and interest groups, and the reps responded accordingly to protect their voters' interests--this was not (400-21) a party-line vote by any stretch. In extreme cases of an agency misbehaving, Congress can act to eliminate it, as in the case of the legislators currently trying to dissolve the Federal Elections Commission.

Greater interest group involvement in lobbying the regulators has led to more politically controversial regulatory decisions, which has in turn brought the legislative branch into the picture out of necessity, despite the general undesirability of having the legislators there. Rather than regretting that Pitt and Powell were mistreated by politicians, as the Economist does, we should focus on averting future fiascos by increasing institutional safeguards so that lobbyists and political forces do not infiltrate the agencies in the first place.