- CounterPunch.org - https://www.counterpunch.org -

Corruption and Regulatory Capture

One day, a horrendous mass shooting takes place at a supermarket, a school classroom or a hospital, and we ask why?  Politicians rant and rave, pundits endlessly blather on, fingers are pointed at race-nationalist, crazy lost souls and the proliferation of pistols, rifles and AR-15-style semiautomatic war toys.  Popular attention is focused on the gun industry, and we ask, how do “they” get away with it?

Another day, our attention focuses on the problem arising due to the lack of infant formula and the trouble it poses for new new-born infants, including deaths.  And we ask, how do “they” get away with it?

These are but two examples of the social crises that seem to arise every day and appear to come out of nowhere. And, after a day or so of media attention, it seems to disappear, superseded by yet another headline grabbing crisis.  Other crises have come and gone, like pharmaceutical industry’s role in widespread opioid addiction or airline crashes.

Part of the reason we have these crisis – and so many others – is regulator capture.  As Sen. Elizabeth Warren (D-MA) declared, “Regulatory capture is a big deal.”  Going further, she argued:

It is one way in which powerful corporations rig the system to work for themselves—and the rest of America pays the price. The tilt in Congress is pretty much out there for everyone to see, but corporate influence works its magic even better in the shadows—and that’s where rulemaking occurs.

She added, “when it comes to undue industry influence, our rulemaking process is broken from start to finish. At every stage, the process is loaded with opportunities for powerful industry groups to tilt the scales in their favor.”

Concern over regulatory capture, in one form or another, is as old as the nation. Traditionally, capture was understood in starker, less whitewashed terms, as corruption or influence peddling. Scholars trace concern about it back to the Founding Fathers and James Madison’s famous 10th Federalist Papers.  In it, Madison warns about the influence of factions in “public councils” who pursed the interests of “a majority or a minority of the whole” can adversely affected “the public good,” “the permanent and aggregate interests of the community.”

Madison and others warned that the people’s government could easily be taken over for private gain. Some find capture at the root of Pres. Andrew Jackson’s battle over the Second Bank of the U.S. The Progressives of the late-19th century warned that capture was a distinguishing feature of federal government policy and operations.  It persists today in egregious forms.

In 1971, George Stigler published an influential article, “Economic Theory of Regulation,” in which he argued: “As a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.” The ability of private companies, trade associations and lobbyists to influence, if not control, federal and/or state legislation and/or agencies for private gain is not only widespread, endemic to the corporate capitalist system of politics, but a growing threat to popular democracy.

Ironically, Stigler organized a two-day gathering in 1972, “The Conference on the Regulation of the Introduction of New Pharmaceuticals,” backed by some of the major drug makers. As Alexander Zaitchit noted, it was “a first and fateful point of contact between Pharma and the organized movement to undo the New Deal and radically remake the U.S. economy to serve an ideology of unfettered corporate power.”  He added, “The current crisis in drug prices and access—as well as a quieter but no less serious crisis in drug innovation—is the result of decades of regulatory dereliction and corporate capture.”

***

Regulated capture takes place through all sectors of the economy.  Two examples are illuminating. One involves the gun industry and illustrates the role of Congressional intervention; the other involves “5G” wireless telecom and reveals the role of political-party influence in a federal agency’s rule making.

The role of regulatory capture in evident in the deepening crisis involving gun violence. The Gun Violence Archive finds that between May 24th, the date of the killing of 19 children and two teachers in Uvalde, TX, and June 4th there were 21 mass shooting throughout the country. It also finds there have been more than 233 shootings involving four or more victims in this year alone.

Brady, the gun violence prevention group, reports that every year, 117,345 people are shot and 40,620 people die from gun violence. They include:

+ 23,891 die from gun suicide.

+ 15,343 are murdered.

+ 76,725 people survive gunshot injuries.

And every year, 7,957 children and teens are shot, 1,839 die from gun violence and 992 are murdered.

It also states: “Brady Legal takes on the gun industry in court, holding it accountable, preventing gun trafficking and illegal sales, and saving lives. …

Brady Legal has brought or assisted in more than 250 lawsuits in over 40 states.”

Guns are a big industry.  Small Arms Analytics & Forecasting (SAAF) found that, in 2020, 2.1 million firearms units were sold. The NSSF, the gun trade association, reports that in 2021 the firearm and ammunition industry had revenues of $70.5 billion.

In the late-1990s, the industry was under attack, with 40 cities filing suits against it.  The Trace notes, “City governments wanted redress, and legal victories in suits against the tobacco industry signalled [sic] that an avenue to reform might pass through the courts.”  In response, the National Rifle Association (NRA) mobilized.

In 2005, Sen. Larry Craig (R-ID), an NRA board member, and Rep. Cliff Stearns (R-FL), promoted the Protection of Lawful Commerce in Arms Act (PLCAA).  Craig claimed, “this bill will not prevent a single victim from obtaining relief for wrongs done to them by anyone in the gun industry.”  Congress passed, and Pres. George W. Bush signed, the bill into law, providing blanket immunity to the gun industry from nearly all legal claims.

The NRA and Institute for Legal Action (ILA) noted, “The bill provides that lawsuits may not be brought against manufacturers and sellers of firearms or ammunition if the suits are based on criminal or unlawful use of the product by a third party. Existing lawsuits must be dismissed.”

In 1791, the Constitution’s Second Amendment was adopted. It stated: “A well-regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” Two hundred-plus years later, in District of Columbia v. Heller (2008), the Supreme Court issued a split decision, ruling that the amendment protects the right of individuals to have and use guns for legal purposes.  Voting for the majority were conservative Justices Scalia, Roberts, Kennedy, Thomas and Alito; dissenting were liberalJustices Stevens, Souter, Ginsburg and Breyer.

The PLCAA does limit the gun industry’s legal immunity to any action in which a manufacturer or seller knowingly break laws that regulate the marketing or sale of their products.  That was the grounds upon which parents of children killed in the 2012 shooting at Sandy Hook Elementary School sued Remington, claiming it had promoted its Bushmaster rifle for criminal use.  The gun manufacturer agreed earlier to pay the families $73 million, the first settlement of its kind.

In the wake of the mass shootings in Buffalo and Uvalde, more suits are expected.

Postmodern America is a telecom dependent nation.  In 2019, there were an estimated are 520 million telecom subscribers — wireless, wireline and cable — in the U.S.  Tele-connectivity mediates, electronically facilitates, nearly every aspect of contemporary communications.  Of these, 413 million were wireless users and an increasing number of them having “4G” or “5G” connection.

The regulatory capturer game is evident in some of the decision of the Federal Communications Commission’s (FCC) that oversees the telecom industry.  Recent commissioners representing industry interests include Republicans Chairman Ajit Pai, a former Verizon attorney, Chairman Michel Powell, now president, NCTA, the cable association, and Commissioner Brendan Carr, worked for the CTIA, the wireless association; and Democrats Chairman William Kennard, worked with Carlyle Group and now chair, AT&T Board of Directors, and Chairman Tom Wheeler, former CEO of the NCTA, the cable TV association and the CTIA.

In 2018, Carr put forward 5G small cell technology model legislation.  “Carr’s 5G Order” was adopted by the Republican-controlled agency and helped launch the new generation of wireless communications.  However, it was most likely created by the American Legislative Exchange Council (ALEC), an influential lobbying group. Carr argued that his 5G plan would cut roughly $2 billion in administrative fees and stimulate additional investments.

In a January 2020 piece, Richard Gale and Gary Null noted, “… it is no surprise to find ALEC’s fingerprints all over the aggressive push to roll out 5G technology across the nation.”  They identified a number of ALEC “model” policy recommendations in the 5G plan, including:

+ Permit the telecommunications industry with free access to “public rights-of-ways” to assure full small cell antennae rollout.

+ Foster fast-tracking of 5G deployment to reduce time to conduct thorough reviews of the benefits and risks to local communities.

+ Create barriers for local governments to foster public broadband access.

At the time, then FCC commissioner — and now chair — Jessica Rosenworcel warned: “So it comes down to this: three unelected officials on this dais are telling state and local leaders all across the country what they can and cannot do in their own backyards. This is extraordinary federal overreach.”

However, in 2021, California Gov. Gavin Newsom vetoed SB 556, a bill to promote the deployment of small cells.  Newsom wrote:

This bill would restrict the ability of local governments and publicly-owned electric utilities to regulate the placement of small cell wireless facilities on public infrastructure and limit the compensation that may be collected for use of these public assets.

Sadly, the telecom industry has, for decades, failed to upgrade the nation’s copper-wire infrastructure with fiber optics.  Instead, the telecom industry diverted money to wireless, a cheaper and more profitable technology. As a result, the digital divide persists, and the U.S. remains a second-tier telecom nation with among the highest fees in the world.

***

There are innumerable other examples of regulatory capture, three representative examples are suggestive of the scope and consequences of capturer.

Baby Formula – Could the baby-formula crisis have been avoided and, if so, why wasn’t it?  In late April 2022, Rep. Rosa DeLauro (C-DT), the chair of the House Appropriations Committee, reported receiving a 34-page complaint from a former employee of Abbott Nutrition documented his concerns that the company was hiding safety problems.  She stated, “in September 2021, the Federal Drug Administrations (FDA) learned of the potential link between a rare and deadly foodborne pathogen and powdered infant formula manufactured by Abbott Laboratories in a facility in Sturgis, Michigan.”  At least four children were hospitalized and the two died, and the whistleblower was fired when the company learned about his actions.

Rep. DeLauro added:

I am equally concerned that the FDA reacted far too slowly to this report. The report was submitted to the FDA on October 20, 2021. The FDA did not interview the whistleblower until late December 2021. According to news reports, FDA did not inspect the plant in person until January 31, 2022, and the recall was not issued until February 17, 2022.

Three multinational corporations dominate the infant formula market, estimated at $4 billion.  For 2020, GlobalData estimated that Abbott Laboratories had 28.5 percent market share, with Gerber at 28 percent and Reckitt at 25.9 percent. Most suggestive, Gerber is owned by Nestle of Switzerland; Reckitt is based in the United Kingdom; and Abbott’s parent company is in Argentina, and, for many years, it paid — i.e., avoided paying — federal taxes by registering in Ireland.  Their biggest customer is the Department of Agriculture’s Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Alzheimer’s drug — In June 2021, three members of an 11 member FDA’s expert advisory committee resigned over the agency’s approval the drug “Aduhelm” (aducanumab, ADU) for the treatment of Alzheimer’s disease that costs $56,000 per year. They published a scathing critique of the FDA’s process in JAMA and one of those who resigned, Dr. Aaron Kesselheim, a Harvard Medical School professor, called it “probably the worst drug approval decision in recent U.S. history.”

Biogen, the company that manufactured the drug, “by removing the subset of people for whom the drug didn’t work, they found a slight statistical effect in favor of the drug.”  The advisory committee voted 10-0 against approving the drug yet the agency approved it, leading to the three resignations.

Mutual funds – The economist Susan Woodward noted, “… the SEC is a more likely candidate for capture for two reasons. First, the lawyers (the majority of SEC professional staff) who work in the regulation writing divisions often find their best, and best by a wide margin, post-SEC employment opportunities working for the regulatees, and must change fields completely if they go elsewhere.”

Stewart Brown, of Florida State University, warns that the Security and Exchange Commission (SEC) “has been effectively captured ….” He argues that “the investment management industry has succeeded in manipulating advisory fees, distribution fees and soft-dollar commissions.” He also points out, “the Commission has slow-walked the disclosure of information crucial to investors and has failed to reform the fund distribution system in spite of clear abuses and documented evidence that distribution fees are deadweight costs.”

***

A cursory search of online sources will reveal innumerable additional possible examples of regulatory capture.  Most egregious concerns the Federal Aviation Administration (FAA) failure to ground theBoeing 737 Max 8 that led to two fatal crashes and over 300 deaths.  Still others include the Government Accounting Offices (GAO) concerns regarding the New York office of the Federal Reserveand the Federal Deposit Insurance Corp.  Similarly, questions have been raised about the Patent and Trademark Office.

The most underreported example of influence due to regulatory capture may be the federal government’s granting to pharmaceutical companies blanket liability protection for harm caused by Covid-19 vaccines. Under the 2005 Public Readiness and Emergency Preparedness Act (PREP Act), vaccine manufacturers cannot be held liable for harm caused by the vaccines.  In addition, those injured by Covid vaccines cannot seek compensation under the National Vaccine Injury Compensation Program.