The term ‘capture theory’ has been developed to describe how government lawmaking and regulations tend to be ‘captured’ by special interest groups, who drive policy to their own benefit -- frequently at the expense of the common good.
George Stigler, a University of Chicago economics professor, ranks among the most influential leaders in this area. Stigler’s classic article “The theory of economic regulation” analyzed the sources of demand and supply of regulation, with Stigler concluding that “A central thesis of this paper is that, as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.” In contrast to a common perception that businesses “don’t like regulation,” Stigler documented how effective businesses are at controlling regulation, frequently at the expense of consumers and/or taxpayers.
A “school” of economics related to the “Chicago school” is the “public choice school of economics.” This branch of public policy analysis starts with the central assumption of economics generally – that people are rational in the sense that they try to pursue their self-interest. It then develops a theory of government and regulator behavior assuming that politicians and regulators aren’t that much different from the rest of us, and that they are driven primarily by their self-interest, not necessarily the “common good.” As a result, special interest groups tend to dominate policy, because they are better organized and effective in swaying policymakers.
A news story last week may illustrate how capture theory can work – and sometimes, in reverse. Last Thursday, the Financial Accounting Foundation announced the appointment of three new members of the Governmental Accounting Standards Advisory Council. They included David Lillard, Treasurer of the state of Tennessee, “representing the National Association of State Treasurers,” James Wells, Director of the Nevada Governor’s Finance Office, “representing the National Association of State Budget Officers,” and Terri Wenck, senior financial analyst with Fitch Ratings, “representing bond rating agencies.”
In other words, insiders. Insiders of the same groups that got many state and local governments into the mess they are today.
No Average Joes, representing Average Joes.