A captured regulatory agency is often worse than no regulation at all. This is because it wields the authority of government and, other than the insiders who ride and wield all the power, everyone else suffers. The private sector and businesses have an incentive to control anything that has power over them, including institutions from the media, academia, and popular culture. This is called deep regulatory capture. Organised professional bodies also exhibit this tendency in the guise of defending the profession. Professionals, like businesses, use different ways to capture regulators and the government including through lobbying and promoting favourable legislations. The two main ways and types of regulatory capture are; materialist capture, motives based on self-interest, bribery, tenders, appointments, politics, and government funding; and Non-materialist capture, this is cognitive capture where the regulator begins to think like the industry is supposedly regulates as a result of lobbying and entrenchment.
Ever since humans started offering themselves to be at the service of others, someone has always made it their business to regulate and define how this service can be provided. More so for the services such persons have deemed important to or potentially having dangerous outcomes were they to be handled poorly. Moreover, since humans have a tendency to adhere to the laws of entropy and degenerate when left to their own devices, regulation of professionals is here with us to stay.
Regulation is a coercive intervention by the government through the establishment of rules and sanctions, which have the apparent goal of correcting failures observed in a certain industry. But “…even if social welfare could be defined, and methods of maximizing it could be agreed upon, what reason is there to believe that the men who run the government would be motivated to maximize it? To state that they should do so does not mean that they will.” This is a consideration reached by leading economists the likes of Joseph Schumpeter who have considered the question of regulating professions. Regulatory capture is a form of corruption that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the sector or the group that captures it and it is charged with regulating.
Organised persons have a tendency to pursue and use any means at their disposal to further and entrench their interests. For professional organisations, this would include the systemic capture and use of the very institutions that should be regulating them. The inquiry into the regulation of occupations has a long and distinguished tradition. Even the prolific Adam Smith in his magnum opus, the Wealth of Nations weighed in on it, he focused on the ability of the ‘crafts’ to ‘lengthen apprenticeship programs’ and limit the number of apprentices per master, through this trick ensuring higher earnings for the masters (Smith 1937, Book I, Chapter 10, Part II). This also had the effect of increasing the fees charged by the masters. Besides Smith, the Nobel winning Milton Friedman weighed in on the regulation of professionals. These tendencies resulting from the drive to regulate breed the ‘capture’.
“It is well understood that occupational licensing can serve as a barrier to occupational entry resulting in reduced employment, monopoly rents for the registered masters, and higher prices for consumers,” wrote Friedman in 1962. Because it restricts employment, licensing leads to higher prices for services faced by consumers. This is a very interesting assertion with surreal results, especially in third world countries where consumers do not appreciate professional services. When prices for professional services go up, would be consumers of professional services conveniently move from professionals and start consuming similar services offered by ‘quacks’. A means can always be conjured up to dodge an ‘unfair price’. This has the effect of killing both the professional output and the profession itself in a given jurisdiction or area where such regulations are applied.
The shoddy job done by quacks that provide the only recourse to the would be consumer inevitably goes badly. A manifestation of this could be the collapse of banks due to regulatory failure or the collapse of buildings due to misapplication of design principles. This leads to an attack by the public not to the quacks but to the professionals who react by protecting themselves further through more red tapes and regulations. The strangle grip deepens.
Many professions and professional bodies in Kenya are experiencing such a death grip and systemic degeneration. At such a stage as above an artificial shortage of professionals is encountered, information in the profession is engulfed in secrecy, and shrouded in enigma in order to prevent further attacks. Those in are suspicious of those out, yet everyone else is sceptical of those in. Since you cannot attack that which you cannot decipher, as a defence mechanism the professionals adopt an elitist stance and dismiss the public as less knowing of what is going on. Moreover, it is true those inside should know better.
It is noteworthy that more than anything else some professional bodies are structured to prevent new entrants while defending the status quo. Little wonder they are most active and vocal when it comes to deterring, stopping the would be entrant, but never involved in encouraging conformance and inclusion. Entry requirement are unnecessarily head heavy and bureaucratic to prevent the would be entrant from even attempting.
The would be entrants into the profession find themselves with no clear way of joining and contributing to the profession. Information becomes very scarce and communication becomes elliptical. Straightforward instructions and ‘public information’ that should be public and freely available in websites come at a premium, only purchasable through conferences and seminars. Should the prospective entrant scratch this surface just a little bit, they discover how much their entry process is at the mercy of a coterie of entrenched interests. Friedman would say, all entry to the profession is left at the discretion of the masters.
More regulations and acts are conjured to fortify the position of the professionals within these bodies as they become more powerful – even having some of their members in parliament and strategic areas of public service. Ill-conceived ideas are embraced and even unconstitutional laws are embraced. Through the stroke of the executive’s pen and the promulgation of acts, the insiders conspire to exclude many other professionals hitherto recognisable under the old acts.
The new acts and regulations join the captured regulator and the regulated at the hip. This is the the hallmark of a captured regulator. The acts are created in such a way that the regulated at any given time has full control of the regulator through its board or other legal mechanisms. This is done through clauses and nominations giving the regulated an unassailable control of the regulator. Such would include clauses that require the board of the regulator to be constituted with the face of the regulated. This is successful capture of the power of the state. The great communist leader Mao Zedong who stated that ‘power grows out of the barrel of a gun’ would have had to add to his saying ‘or the trick of a pen’, in this case favourable legislations.
The advantage given to such a professional body through this trick gives it the power of government and not a members club. Joining it in order to practise is no longer voluntary, but mandatory. Through its new proxy the board, the ‘welfare body’ wields the power of government upon all it seeks to control, including institutions of learning, government authorities, graduates, professionals, organisations and anyone who thinks of making inroads onto their turf. The power comes at the expense of many other hitherto sister institutions that it now actively edges out or cannibalises through the power of the state. Monopoly, especially of government power, has a way of giving private gains like tenders, and appointments to individuals while breeding societal ills and disempowering the many that cannot capture that power.
Manifestations of this capture include the persistence by which captured regulatory bodies look out for and entrenches the interests of the capturing professionals. There exists a revolving door policy between the regulator and the regulated where the individuals on one side are the exact individuals on the other side. A chairperson on one side soon becomes the chairperson on the other side. This begs the question, how does a body become both the regulator and the regulated?
Regulatory capture is one of the hardest forms of corruption to tackle since it stems out of the natural tendency of the regulated to pursue their interest and protect themselves. Solutions could include; external checks, internal checks, realistic stakeholder access, meaningful transparency and building adequate regulatory capacity.
Economists generally accept that licensing is a way of limiting competition since they argue that licenses limit labour supply, often quite explicitly through limiting the entry and statutory regulations on practising requirements. The smoke screen for this trick is ‘protecting the public’ or ‘protecting the profession’.