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

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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.