Surowiecki: The Regulation Crisis
James Surowiecki argues, correctly I think, that one of the key factors in effective regulation is the societal attitude about the value of what regulators do:
The Regulation Crisis, by James Surowiecki: A few weeks after B.P.’s Deepwater Horizon oil rig blew up and crude started spewing into the Gulf, Ken Salazar, the Secretary of the Interior, ordered the breakup of the Minerals Management Service—the agency ... supposedly in charge of offshore drilling. It was a well-deserved death: during the past decade, M.M.S. officials had let oil companies shortchange the government on oil-lease payments, accepted gifts from industry representatives, and, in some cases, literally slept with the people they were regulating. When the industry protested against proposed new regulations (including rules that might have prevented the B.P. blowout), M.M.S. backed down. ...
M.M.S.’s bad behavior was unusually egregious, but it’s hard to think of a recent disaster ... that wasn’t abetted by inept regulation. Mining regulators... Financial regulators... The S.E.C... These failures weren’t accidents. They were the all too predictable result of the deregulationary fervor that has gripped Washington in recent years, pushing the message that most regulation is unnecessary... The result is that agencies have often been led by people skeptical of their own duties. ...
The obvious problems of graft and the revolving door between government and industry, in other words, were really symptoms of a more fundamental pathology: regulation itself became delegitimatized... This view was exacerbated by the way regulation works... Too many regulators, for instance, are political appointees, instead of civil servants. This erodes the kind of institutional identity that helps create esprit de corps, and often leads to politics trumping policy. Congress, meanwhile, often takes a famine-or-feast attitude toward funding, allocating less money when times are good and reinflating regulatory budgets after the inevitable disaster occurs. ... This ... also contributes to the sense that regulation is something it’s O.K. to skimp on. ...
[T]he history of regulation both here and abroad suggests that how we think about regulators, and how they think of themselves, has a profound impact on the work they do. ... So reforming the system isn’t about writing a host of new rules; it’s about elevating the status of regulation and regulators. More money wouldn’t hurt: as ... George Stigler and Gary Becker point out, paying regulators competitive salaries ... would attract talent and reduce the temptations of corruption. It would also send a message about the value of what regulators do. That’s important... If we want our regulators to do better, we have to embrace a simple idea: regulation isn’t an obstacle to thriving free markets; it’s a vital part of them.
Posted by Mark Thoma on Monday, June 7, 2010 at 12:06 AM in Economics, Market Failure, Regulation |
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