Tuesday, July 5, 2016

Regulatory Capture, Ancient and Modern

From RegBlog:
Until recently, the term regulatory capture seemed stale, a mid-20th century academic construct incapable of describing the latest manifestations of special interest influence. At the opportune time, new empirical work by academics, featured in Daniel Carpenter’s and David Moss’s book Preventing Regulatory Capture, refines the concept to discern and measure capture more accurately, and, in that matter, engender plausible, contextual solutions. Many of the novel forms capture now takes and the projected remedies, are covered in the essays in this RegBlog series. At this point, a brief history of the concept of capture, in particular its antecedents in political thought, may inform, if not entertain.

It is possible to find the provenance of regulatory capture in classical republican thought. Slinking alongside the self-sacrificing virtue needed to sustain the political community was the concept of corruption. Corruption, of course, is a vague pejorative encompassing everything from graft to moral depravity. There is, however, a particular historical use of the term that contains the key element of capture, specifically the concern that private interests are intruding in the public sphere—a boundary has been crossed. In earliest incarnations, we find it in the classical anxiety over the tyrant, who swallows government entirely, depriving citizens of access to the public realm and the chance to participate in political affairs. For Plato, this confinement to the private sphere of the domestic was the most baleful and dehumanizing effect of tyrannical government. By way of a gloss, Aristotle added that the tyrant reduces to his own personal self-interest the common good, which rightly is the product of shared deliberation in assemblies.

Greece, Kos Island, Nymphaeum at archeological siteThe Roman Constitution, which was unwritten, devised a solution for tyranny into which the Greek republics invariably descended. As described by the Greek historian Polybius, mixed government combined the rule of the one (monarchy), the few (aristocracy), and the many (democracy), by providing each caste with its own governmental institutions, which zealously guarded their prerogatives. Patricians composed the senate and the consulate, while the plebians had the tribunate and the assemblies. Delayed rather than defeated, tyranny reappeared, but its path charted a more sophisticated course as chronicled by Cicero and Sallust. The late Roman republicans honed in on a specific type of corruption: as Rome expanded, the private financial interests of the patrician class became parasitic on the government, through acquiring, at cutthroat prices, land conquered by Roman legions that should have been distributed to plebians. The civil wars ensued and ensured the rise of Caesar.

The next phase in the evolution of capture came in the precocious city-states of Renaissance Italy. In Venice, Milan, and especially Florence, many of the recognizable accoutrements of the modern state appeared: centralized administrative bureaucracies and complex commercial economies. The Florentine Republic, in particular, struggled to be both broadly participatory, by standards of the time, and effective. Over the course of the 15th century, governmental decision-making, though ostensibly open to all citizens selected to take part in various government councils through sortition (rapid rotation in office prevented any one citizen from accumulating too much power), was increasingly confined to a small elite of great merchants and bankers. Foremost among them were the Medici, the bankers who, according to Italian diplomat and political philosopher Niccolò Machiavelli, acquired outsized political power via private means—essentially through an extensive network of loans and private favors—to win partisans, who would in turn serve in public office so that the Medici need never serve. So successful was this subversion of state that Lorenzo de Medici, while a private citizen, was given free rein to negotiate treaties with foreign powers. More relevant to our purposes, Lorenzo was granted special tax concessions in 1482 “to preserve the public interest by preserving Lorenzo,” the official documents intoned.

Solutions were offered. Machiavelli was an early proponent of transparency. Francesco Guicciardini, a historian and statesman, suggested shoving the grandi into a powerful senate, in the faint hope that blatant oligarchy might rise to aristocracy given the chance. States, as we all know, can go backwards rather than forwards. What was a dynamic, prosperous city-state, weakened by incessant war, became a patrimonial state, the inheritance of the Medici, who suborned the machinery of state to serve their family interests and those of their courtiers. Banking and the wool industry withered. Patrimonialism may well be the culmination of capture....MORE
HT: Economist's View