Regulatory capture occurs in the context of formulation of government regulations. It refers to the situation whereby the agency intended to protect the public interest falls short of that objective. Instead of advancing the public interest, the agency succumbs to the interests of sectarian interest groups and lobbyists in the relevant industry. This phenomenon leads to a captured agency, that is, the agency is incapacitated and unable to defend the public interest.
Regulatory capture is observed as a government failure. It is a byproduct of the capitalist economic system where every market player seeks to promote his own needs. To cure this capitalist approach, the government creates an agency to ensure policies and market operations do not undermine the citizenry. This is based on the premise that the government is the defender and protector of the citizens’ rights. However, the regulators often forget that the government is made of people and not machines. These people equally have self-interests and objectives which may conflict or combine with that of the market players. When the government officials in the agencies have interests that are similar to those of the market players, they (officials) fall captive to the interest groups’ demands. They, therefore, fail to protect the public interest.
Critics of government regulations have used the concept of regulatory capture to argue for the deregulation of the markets. According to that school of thought, the market can be self-efficient without necessarily having to incorporate the government agencies. In addition, the critics cite the fact that the free market system works best without regulation. However, in formulating government regulations, it is equally essential to consider the avenues that would limit the agency’s capture to the trap of the interest groups.
Moore, M. H. (1997). Creating Public Value:Strategic Management in Government. Cambridge: Harvard University Press.