Re-evaluating Regulatory Capture: The Limits of Industry Influence in Pharmaceutical and Consumer Financial Regulation

Regulation has become an increasingly important tool of government for safeguarding the public interest. As public services have become privatised, government regulation has been introduced to ensure that public goals are realised through private companies. Moreover, as risks from consumer goods have become more well-known, such as health risks arising from foods and medicines, governments have increasingly regulated markets to ensure consumer safety. As a consequence, we have seen a large increase in regulatory agencies that are staffed by experts and that operate independently from the rest of government. Expert institutions are thus taking many decisions that have a direct bearing on society. However, regulatory agencies are often accused of a phenomenon called 'regulatory capture'. Capture is the idea that private business interests excessively influence government regulation thereby diverting the ability of government to work in the public interest. Scholarship on the subject has been dominated by theoretical accounts that are rooted in so-called 'public choice' and 'principal-agent' theories. These are underpinned by the assumption that government regulatory officials are inherently prone to being captured since they have many incentives to shirk from the responsibilities given to them by elected leaders. For example, in this line of thought it is often argued that regulatory officials want to favour the businesses they are meant to regulate because this helps them to get lucrative jobs in the private sector after leaving their government job. This theoretical work has been complemented by mainly quantitative empirical work, especially in the US context, that shows that there are correlations between the decisions taken by government regulators and the presumed interests of regulated businesses.

This project shines a critical light on this scholarship and suggests that regulatory capture may be far less common than often assumed. It suggests that existing literature has insufficiently taken into account scholarship on the actual behaviour of regulatory officials: this literature has demonstrated that public officials usually have a strong belief in the societal value of their work and that their belonging to a professional group provides them with resilient norms and incentives to resist capture. For example, scientists working for a government regulator have strong incentives to follow principles of good scientific work in order to maintain their reputation among colleagues. The main objective of the project is to demonstrate that regulatory capture is not inevitable, and to provide a hitherto missing understanding about the conditions under which the professionalism of regulatory officials acts as bulwark against capture. To avoid the tendency to equate any regulatory decision that appears congruent with industry interests with capture, this research project suggests that we need to define capture as industry influence that results in the shifting of regulatory decisions away from the public interest towards special interests. In this light, studying capture requires the use of qualitative process-tracing analysis that, in contrast to existing quantitative research on regulatory capture, is uniquely suited to the identification of causation. This has been neglected in capture scholarship that mainly demonstrates correlations, not causation between industry interests and regulatory decisions. The project tests its novel theory of capture by comparatively tracing regulatory decision-making processes in two fields of regulation that are widely assumed to be vulnerable to capture: pharmaceutical market approvals and financial product consumer protection over four decades (from 1970 to 2010) in the United Kingdom.

The project benefits government regulators, consumer advocacy and civil society groups by helping them to prevent capture. It also aims to benefit the wider public by informing public discourse on regulatory agencies.

The project benefits UK government regulators by providing a cross-sector forum for discussion about the difficult topic of regulatory capture. This is of benefit to them as it allows them to share best practices on how to avoid capture, as well as being introduced to the state-of-the-art of social sciences scholarship on how to prevent capture. Preventing capture is not only beneficial to the reputation of regulators. Rather, preventing capture is ultimately beneficial to society as it diminishes the undue influence of special interests and enhances the public legitimacy of government. To ensure that regulators -and society- will be impacted in these beneficial ways the project will host a workshop for regulators to be held in September 2021. This workshop is crucial for informing regulatory agencies in the UK about the aims, objectives and findings of the research project and the larger research agenda attached to it. The workshop focuses on short presentations of regulators about internal safeguards they have in place to prevent capture (or why these do not exist in their organisation), followed by a plenum discussion about 'best practices'. The plenum discussion will be guided by succinct policy briefs that highlight under which conditions industry can skew regulatory decision-making away from the public interest, based on the findings of the research project. The workshop also serves as a basis for co-design of research into regulatory capture by providing regulators with an opportunity to input into a future, cross-country and cross-sector research project on regulatory capture. Representatives of sixteen UK regulators are invited to the workshop. Next to the avenue of engaging directly with regulators, I will also contribute to any government consultations and Select Committee inquiries on regulatory agency reform to provide input on how to prevent capture through agency design.

The project will benefit consumer advocacy groups by empowering them to contribute to the prevention of capture. The scholarly literature on regulation widely assumes that third parties, such as consumer advocacy groups and other civil society groups, play a key role in safeguarding the public interest from undue private interests in regulatory processes. Based on the findings of the research project, specific information bulletins targeted at these groups will be created which will outline action points for effective intervention. These will be shared with groups via e-mail and the website with an invitation for personal meetings to discuss the project in September 2021. The focus of this one-to-one meeting approach will be the Money Advice Service, Citizens Advice, Which?, The Patients Association, National Rheumatoid Arthritis Organisation and the Stroke Association. These were selected in order to represent some umbrella consumer advocacy organisations as well as specialised organisations that stand in direct relationship with the case studies covered in the project. Empowering third parties is crucial in order to realise the wider societal benefits of preventing capture referred to above.

The project also aims to be of benefit to the wider public by raising awareness about government regulation and capture. Ultimately, the project aims to bring the enormous impact regulators have on society into sharper public focus. This has the potential to enhance the public accountability of regulators. To realise this impact, the public-facing part of the project website will include information bulletins and videos that outline the project's aims and findings. The Principal Investigator will also regularly contribute to media discussions on the topic of regulation.