“Regulatory capture” is a counterintuitive concept to some, but it makes perfect sense to those who have watched Washington work.
The idea here is that government regulators end up being a boon to the big businesses they are regulating, at the expense of competitors, customers, workers, and taxpayers. The reason: Nobody cares more about the actions of the regulators than do the regulated, and so over time, the regulated companies will take over the agency.
Alex Tabarrok at Marginal Revolution described the end of the process this way: “The industry never looks away. It lobbies Congress, hires former regulators, trains future ones, and supplies much of the information the agency needs. As the agency matures, accommodation replaces confrontation. By old age, the regulator has become the industry’s protector.”
Tabarrok discussed this concept in a recent blog post to argue that this is not at all what is happening today, as the chieftains of the artificial intelligence industry call for regulation.
“Notice that classic regulatory capture takes time,” Tabarrok wrote. “It’s a process of erosion rather than a battle, it happens in the shadows, in the backrooms, away from the public’s eye.”
Tabarrok makes this argument as a defense of Dario Amodei, Sam Altman, and Elon Musk, who are in charge of Claude, ChatGPT, and Grok, respectively, and all of whom want stricter federal regulation of AI.
This isn’t a case of regulatory capture, Tabarrok argued.
Fine. Maybe. But I think that’s a semantic argument that accidentally obscures the larger truth.
The fact is this: Big Business often lobbies for and benefits from stricter regulation. As with Anthropic, OpenAI, and X, Big Business is often the architect of the strict new regulation, or at least the first to propose it. No “capture” by industry is needed because Big Business has custody, as the father of the regulations.
Some examples off the top of my head, of industries that proposed or supported federal regulation before there was federal regulation of them: Tax preparers, hedge funds, casualty insurers, financial planners, toymakers, foodmakers, meatpackers, light-bulb manufacturers, Big Tobacco, trucking companies, flood insurers, and Portland, Oregon, cabbies. I could name others if I wanted to.
Tabarrok’s account of capture is too innocent. He posits an innocent, even populist origin to regulation and to regulatory agencies, and a later corruption, or capture. This is probably true in some cases, but it’s hardly a rule.
George Stigler, the great economist behind the idea of regulatory capture, put it this way: “Regulation is acquired by the industry and is designed and operated primarily for its benefit.”
AI IS HARDLY THE FIRST INDUSTRY WHERE THE BIG GUYS DEMANDED REGULATION
The Progressive Era was largely a story of Big Business and politicians teaming up to combat the evil of unbridled competition. Same for the New Deal.
In much of the past 150 years, industry hasn’t been capturing regulatory agencies — it’s been fathering them. And now the AI giants want to do the same thing. I call it “regulatory robbery.”