[Senate Hearing 111-905]
[From the U.S. Government Publishing Office]
S. Hrg. 111-905
PROTECTING THE PUBLIC INTEREST: UNDERSTANDING THE THREAT OF AGENCY
CAPTURE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
AUGUST 3, 2010
__________
Serial No. J-111-105
__________
Printed for the use of the Committee on the Judiciary
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64-724 WASHINGTON : 2011
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
ARLEN SPECTER, Pennsylvania JON KYL, Arizona
CHARLES E. SCHUMER, New York LINDSEY GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland TOM COBURN, Oklahoma
SHELDON WHITEHOUSE, Rhode Island
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
AL FRANKEN, Minnesota
Bruce A. Cohen, Chief Counsel and Staff Director
Brian A. Benzcowski, Republican Staff Director
------
Subcommittee on Administrative Oversight and the Courts
SHELDON WHITEHOUSE, Rhode Island, Chairman
DIANNE FEINSTEIN, California JEFF SESSIONS, Alabama
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JON KYL, Arizona
BENJAMIN L. CARDIN, Maryland LINDSEY GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware
Stephen C.N. Lilley, Democratic Chief Counsel
Matthew S. Miner, Republican Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Feingold, Hon. Russell D., a U.S. Senator from the State of
Wisconsin, prepared statement.................................. 50
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 3
Kaufman, Hon. Edward E., a U.S. Senator from the State of
Delaware....................................................... 4
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island......................................................... 1
WITNESSES
Bagley, Nicholas, Assistant Professor of Law, University of
Michigan Law School, Ann Arbor, Michigan....................... 6
Shapiro, Sidney, Associate Dean for Research and Development,
Wake Forest University School of Law, Winston-Salem, North
Carolina, and Member Scholar, Vice-President, Center for
Progressive Reform............................................. 8
Troy, Tevi D., Ph.D., Visiting Senior Fellow, The Hudson
Institute, Silver Spring, Maryland............................. 9
SUBMISSIONS FOR THE RECORD
Babcock, Hope M., Professor of Law, Georgetown Law, Washington,
DC, letter..................................................... 34
Bagley, Nicholas, Assistant Professor of Law, University of
Michigan Law School, Ann Arbor, Michigan, statement............ 38
Carpenter, Daniel, Allie S. Freed Professor of Government,
Director, Center for American Political Studies, Harvard
University, Cambridge, Massachusetts, letter................... 46
Consumers Union, Ellen Bloom, Director, Federal Policy and
Washington, Office; and Ami V. Gadhia, Policy Counsel,
Washington, DC, letter......................................... 48
Earthjustice, Joan Mulhern, senior Legislative Counsel,
Washington, DC, letter......................................... 52
Logan, David A., Dean & Professor of Law, Roger Williams
University, Bristol, Rhode Island, letter...................... 54
Shapiro, Sidney, Associate Dean for Research and Development,
Wake Forest University School of Law, Winston-Salem, North
Carolina, and Member Scholar, Vice-President, Center for
Progressive Reform............................................. 56
Snape, William J., III, Senior Counsel, Center for Biological
Diversity, American University's Washington College of Law,
Washington, DC, statement...................................... 72
Troy, Tevi D., Ph.D., Visiting Senior Fellow, The Hudson
Institute, Silver Spring, Maryland............................. 74
Wagner, Wendy E., Joe A. Worsham Centennial Professor, University
of Texas School of Law, statement.............................. 77
PROTECTING THE PUBLIC INTEREST: UNDERSTANDING THE THREAT OF AGENCY
CAPTURE
----------
TUESDAY, AUGUST 3, 2010
U.S. Senate,
Subcommittee on Administrative Oversight
and the Courts,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:03 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Sheldon
Whitehouse, Chairman of the Subcommittee, presiding.
Present: Senators Whitehouse, Kaufman, and Franken.
OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR
FROM THE STATE OF RHODE ISLAND
Chairman Whitehouse. The hearing of the Subcommittee will
come to order. We will be proceeding without the Ranking
Member. He has responsibilities elsewhere because of the Kagan
nomination coming to the floor this morning and because of an
appointment he has at the White House as well. So it is a
scheduling conflict that is unavoidable. But I am delighted
that the witnesses are here.
I have a brief statement I would like to make, and then the
witnesses will be sworn. If other Senators have arrived, we
will give them an opportunity to make a similar opening
statement, and then we will get to your testimony, which is the
order of the day.
Over the last 50 years, Congress has passed critical pieces
of legislation to protect the public interest--laws that
protect the water that Americans drink and the air we breathe,
ensure the safety of the cars we drive and the medications we
take, and require the fair and open trading of the stocks and
mutual funds Americans invest in to finance retirement or our
children's education.
In these and other areas, Congress has tasked an alphabet
soup of regulatory agencies with the responsibility of
administering the policies established by Congress through
rulemaking, adjudication, and enforcement. As a result,
regulatory agencies have vast and vital responsibilities to
Congress and the American people. It is, thus, a vast and vital
consequence that regulatory agencies retain their integrity,
that they serve the public interest, and fulfill the missions
defined by Congress.
Our administrative state has grown more complex than
anything that our Founding Fathers foresaw. The fundamental
principle is that the administrative agencies must further the
policies crafted by Congress. But beyond that, the genius of
the Framers of our Constitution at crafting checks and balances
in Government was never applied to our modern administrative
state. Here we are on our own.
It is often not in the economic interests of regulated
industries to support the mission Congress has defined.
Regulations that protect the public interest rather than the
special interests do not always go down well with industry.
Industries often have incentives to co-opt and to control
regulatory agencies. Observably, time and time again,
industries have acquired undue influence over regulatory
agencies that exist to serve all Americans. Surreptitiously and
stealthily, industries have sought to control regulatory
agencies, to capture agencies. Sadly, industries too often have
succeeded, turning agencies away from the public interest to
the service of narrow corporate interests.
We have seen the disasters that can ensue when an agency
has been captured, from MMS, whose failures and shocking
behavior led to the horrors of the oil spill in the Gulf, to
the SEC, asleep at the switch as financial services companies
created exotic and irresponsible financial products that took
our economy to the brink of disaster.
These are the fruits of regulatory capture: the revolving
door, deliberate inattention, industry control, often outright
corruption. It is a poisonous tree indeed.
This threat of agency capture is by no means a novel
concept. As I have described previously on the floor, from
Woodrow Wilson in 1913 through Marver Bernstein, the first dean
of the Woodrow Wilson School at Princeton in 1955, to the Nobel
Prize-winning economist George Stigler, to the editorial page
of the Wall Street Journal this year, Americans from across the
political spectrum have recognized the continuing danger of
agency capture.
At bottom, agency capture is a threat to democratic
Government. We the people pass laws through a democratic and
open process. Powerful interests, nonetheless, want a second
secret bite at the apple. They want to capture the regulatory
agencies that enforce those laws so that they can blunt their
effects, turning laws passed to protect the public interest
into policies and procedures that protect industry interests.
In America we pride ourselves on open government. It is
perhaps one of our signature contributions to government around
the world. Unfortunately, however, agency capture is a deed
that is done quietly and in the dark. The tentacles of industry
intrude stealthily into the agencies. The agencies are often
obscure, and there is a conspiracy of silence that surrounds
agency capture.
Agency capture is also systemic. That is why it has been in
the canon of economics and administrative law for nearly a
hundred years. It is endemic and recurring because the
institutional pressure of industry on the regulator is
relentless.
Clearly, we in Congress must meet our constitutional
obligation of oversight of the executive branch. We must work
to stamp out agency capture whenever and wherever we find it.
But ultimately protecting the public against the systemic,
relentless, and institutional pressure will require a systemic
and institutional counterpressure.
Episodic scandals and recurring disasters are no way to go
through life. If the financial meltdown and the gulf disaster
are not education enough about the perils of agency capture,
the real harms that our country and our fellow citizens can
suffer, then shame on us.
I look forward to the witnesses' testimony and to working
with my colleagues to protect the integrity of our
administrative agencies against the threat of capture.
Senator Franken, would you care to make an opening
statement?
STATEMENT OF HON. AL FRANKEN, A U.S. SENATOR FROM THE STATE OF
MINNESOTA
Senator Franken. Well, thank you, Mr. Chairman, for your
focus on this subject and for calling this hearing. I look
forward to the testimony of the three gentlemen.
I did not prepare an opening statement, but I was re-
reading something that I had actually written about in 2003
that kind of spoke to this subject, and particularly on the
Bush administration, and I think Dr. Troy has worked for that
administration and is going to be speaking to the issue of
agency capture. It was about the Interior Department, and I
wrote about a number of people who had been appointed to the
Department.
Mark Rey was appointed as Under Secretary of Agriculture
for Natural Resources and Environment and put in charge of
regulating forests, and he had previously lobbied for polluters
of forests.
Bennett Raley was appointed to be the Interior Secretary
for Water and Science, and he was put in charge of water, and
previously he had lobbied for polluters of water.
Rebecca Watson had been appointed Assistant Secretary of
the Interior for Lands and Mineral Management, and she was put
in charge of land that contains minerals, and she had
previously been a lobbyist for polluters of land that contains
minerals.
Cam Toohey was made Special Assistant to the Secretary of
the Interior for Alaska and was put in charge of Alaska and had
previously lobbied for polluters of Alaska.
Patricia Lynn Scarlett was appointed Assistant Secretary of
the Interior for Policy Management and Budget, and she was in
charge of Government regulations and had previously lobbied for
polluters of pretty much everything.
Steven Griles, who had been appointed Deputy Secretary of
the Interior, I believe went to prison for some time.
It seemed to me that during the Bush administration there
seemed to be agency capture of a certain type, which is having
people who did not necessarily believe in the regulation of the
industries that they were regulating put into position to
regulate those industries and that these had been actually
lobbyists for those industries before they were put in.
I also remember the agency FEMA, and there was this guy
that we all remember, Michael Brown, who had been put in charge
of FEMA and had been put in charge I think because the guy
right before him, Allbaugh, had been his college roommate, and
Michael Brown's previous job had been supervising the judges of
Arabian horses.
I think that the reason that Brownie was given the job was
not just that he had lost his job because he had been
insufficiently able to supervise the judging of the horses, but
that he was there to make sure that the previous head of FEMA
would be getting contracts from FEMA, because he started a
lobbying firm. And sure enough, when Katrina happened, not only
did Mr. Brown not do a very good--not do a ``heck of a job,''
but many FEMA contracts went where they were intended to go.
And I think this is a kind of cronyism that was special, not
unique to the Bush administration but led to a kind of agency
capture that was pretty remarkable.
So I look forward to hearing all the different, more subtle
kinds of agency capture than the very, very obvious ones that I
have just discussed. And I am looking forward to the testimony
of all the witnesses.
Thank you.
Chairman Whitehouse. Senator Kaufman, welcome.
STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR FROM THE
STATE OF DELAWARE
Senator Kaufman. Thank you, and, Mr. Chairman, I want to
tell you, I cannot tell you how much I appreciate you holding
this hearing. There is a lot of confusion out there, and it is
not a matter of whether we have regulations or not. We have to
have regulations. No one has come up with a plan that I have
ever read that would have the Congress of the United States
writing laws that immediately people had to adhere to. And one
of the things that has made this Government work is that we
have regulators, people who can spend every day dealing with
the incredible, complex problems we have.
Many times in the debate today it is almost like, well, we
are going to do away with the regulators; we are going to do
away with regulation. That is not an option, and I do not know
any serious thinker on either side of the political divide or
the ideological divide that believes that we can do away with
regulators and do away with regulations. Yet much of the debate
is formed that way.
So what we are trying to do is figure out how do we have
better regulators and better regulations? And some of us have
the view--and I think it was an ideological difference that I
think was truly felt by a number of people in the past
administration--that we just do not need as much regulation,
that, you know, there is too much regulation and Government is
too big, it encompasses too much, and we just have--you know, I
would say the folks by and large on this side of the aisle have
a difference of view on that. And we can talk about that and
how that worked and how it did not work in the past, and I
think Senator Franken has done a good job of laying out some of
the ugly things that happened when you have an administration
that just does not believe we should have regulation and,
therefore, has no commitment to it.
The more pervasive problem, I think, which goes from
administration to administration, is the one that we have all
read about for 30, 40, 50 years, and that is the idea of the
iron triangle or the fact that what happens is the regulators
get too closely involved with the administration and with the
interest groups. And, clearly, that has been around for a
while, and that is good grist for discussion, and I think it
raises a problem. It is a little like Madison 10, you know,
where interest groups--freedom is to interest groups as oxygen
is to fire. I mean, this is something--we are not going to--I
put this in the category of things like cutting grass. Unless
you want asphalt over your front lawn, every 2 weeks in the
summertime you are going to have to cut grass, and we are going
to have to cut this grass.
I think what is great about what Senator Whitehouse has
done to pull this together is this is just one of a whole
series of problems that have to do with regulation. It is not
whether you have a view about regulation that is ideological
and whether we should have it or not or how permissive we can
be based on an overall Government policy. It is a little bit,
but not really, the kind of iron triangle problem. This is a
very specific point which--it is a revolving door. It is the
lack of oversight. It is a lack of clear rules, and definitely
it is a lack of conflicted--it is a fact we have conflicted
regulators.
So I think what is great about this discussion today is,
OK, let us decide we are going to have regulation and we are
going to have regulators. We are going to decide that it is
going to be the policy of the Government that we do the very,
very, very best job we can in regulation. We have some
revolving door problems of our own in the Congress, and there
are revolving door problems in the administration. But what we
are going to focus on today is kind of how do you get
regulators that are going to be able to make the best decision
and not be conflicted. I mean, I think that is really what we
are coming to. How do you allow good people who are smart to
sit together and have a discussion where one is not
representing A Interest Group and one is not representing B
Interest Group and one is not representing C Interest Group,
because either that is where they came to, that is where they
are going to be going afterwards, that is where they have a
bond.
So I am really looking forward to the three witnesses today
on what they have written, and I am really interested in seeing
where we can go in order to make this better. This is really an
incredibly important problem that we have to overcome if we are
going to have successful Government, as all of us want,
Republicans and Democrats, and most of all what the American
people want. So I want to thank you again, Mr. Chairman.
Chairman Whitehouse. Thank you, Senator Kaufman. Thank you
for joining us.
If I could ask the witnesses to stand and be sworn. Do you
swear that the testimony you are about to give will be the
truth, the whole truth, and nothing but the truth, so help you
God?
Mr. Bagley. I do.
Mr. Shapiro. I do.
Dr. Troy. I do.
Chairman Whitehouse. I will just go right across the line.
The first witness will be Professor Nicholas Bagley. He is an
assistant professor of law at the University of Michigan Law
School where he researches administrative law, regulatory
theory, and health law. His article ``Centralized Oversight of
the Regulatory State,'' which he co-authored with Richard
Revesz, was selected as the best article in the field in 2006
by the American Bar Association's Section on Administrative Law
and Regulatory Practice. Professor Bagley received his B.A.
from Yale University and a J.D. from the New York University
School of Law. He clerked for Judge David S. Tatel on the U.S.
Court of Appeals for the District of Columbia and Justice John
Paul Stevens on the United States Supreme Court. He also served
as an attorney on the appellate staff in the Civil Division of
the U.S. Department of Justice. We welcome him and appreciate
his testimony.
Professor Bagley. Could you put your microphone on?
STATEMENT OF NICHOLAS BAGLEY, ASSISTANT PROFESSOR OF LAW,
UNIVERSITY OF MICHIGAN LAW SCHOOL, ANN ARBOR, MICHIGAN
Mr. Bagley. Mr. Chairman and members of the Subcommittee,
it is an honor to testify before you today about agency
capture.
In principle, agency capture is a simple concept: We say an
agency is ``captured'' when it caters to narrow, private
interests at the expense of the public welfare. As my testimony
will explore, however, agency capture is, in practice, quite a
bit more complicated than that.
The linchpin to understanding agency capture is the insight
that industry groups will generally have enormous
organizational advantages over the dispersed and apathetic
public when it comes to lobbying Federal agencies. With some
regularity, industry groups can exploit that organizational
advantage to pressure regulators to attend to their private
interests at the expense of the public interest.
For example, Federal agencies must of necessity cooperate
with the entities that they regulate in order to procure needed
information, compliance, political support, and guidance. And
sometimes that cooperation can slip into capture. Agency
officials might get distorted information from the industries
they regulate; they might want to avoid the political or legal
firestorm that would engulf their agency if they targeted a
powerful interest group; or they might just start to see the
world the way that industry sees it.
The revolving door between agencies and the industries that
they regulate can also lead to capture. Agency officials often
come from the private sector and may plan on returning once
they have completed their stints as government employees. They
may, therefore, share a common perspective with industry and
may be reluctant to jeopardize the prospect of securing future
employment.
These examples only scratch the surface of the myriad ways
that industry groups can capture Federal agencies. And as the
financial meltdown and the gulf oil spill both vividly
demonstrate, the capture problem is real and it is of deep
concern.
But a cautionary word is in order. While agency capture
offers a compelling story about how some agencies operate some
of the time, it is only a crude stereotype about agency
behavior. Some agencies succumb to interest group pressure, but
others, most others, resist it admirably. Federal agencies are
complicated places, and no one story about how they operate
will ring true all of the time.
Capture is also tricky because it is often very hard, if
not impossible, to reliably identify. Although industry-agency
contacts will occasionally be inappropriate enough on their
face to suggest capture, most of the time they will involve
altogether innocuous meetings, phone calls, and e- mails. And
even if the agency has shown some sensitivity to the industry,
that alone does not suggest that the agency has discarded the
public interest. The crucial question is whether the agency
would have more zealously performed its duties in the absence
of pressure from the regulated interests, and most of the time
it is going to be impossible to know the answer to that
question to a certainty.
Further complicating matters, there is no consensus about
exactly what agency capture is. For most academics, it means
the dynamic whereby well-organized industry groups exert undue
influence over agency decisionmakers to the detriment of the
public. But for others, it is a broader concept. That
encompasses an agency's perceived responsiveness to any outside
agenda, however public regarding that agenda might be. For
still others, capture is just shorthand for generic disapproval
of agency behavior.
I do not mean by any of this to invite complacency. Agency
capture is a recurring and urgent problem for the regulatory
state. But because capture looks so different from one agency
to the next, because it is difficult to reliably identify
capture when it occurs, and because capture means different
things to different people, no single silver bullet will
eliminate agency capture. The job will instead require
sensitivity to the particular bureaucratic and political
context in which it arises.
We may also have greater success eliminating the conditions
that allow capture to flourish than addressing capture after it
has taken hold. Promising legislative remedies include
carefully reviewing the sources and adequacy of agency funding,
ensuring that agencies have not been tasked with conflicting
missions, and enhancing the prestige of public employment in an
effort to shut the revolving door.
In the final estimation, however, eliminating agency
capture will require political vigilance. Vested interests that
capture agencies are also quite capable of influencing
politicians, and it will take more than a modicum of political
courage to press for lasting change at some of our most
beleaguered agencies. I hope that this hearing reflects a
renewed commitment to addressing agency capture across the
regulatory state.
Thank you again for allowing me to testify today, and I
would be happy to answer any questions that you might have.
[The prepared statement of Mr. Bagley follows:]
Chairman Whitehouse. Thank you, Professor Bagley. We very
much appreciate your testimony.
Our next witness is Sidney Shapiro. He is the University
Distinguished Chair in Law at Wake Forest University and the
vice-president of the Center for Progressive Reform. He is the
author of numerous books and articles, including ``The People's
Agents and the Battle to Protect the American Public,'' and two
law school textbooks on regulatory law and practice and
administrative law. In addition to his scholarly work,
Professor Shapiro has served as a consultant to the
Occupational Safety and Health Administration and the
Administrative Conference of the United States.
Professor Shapiro, welcome.
STATEMENT OF SIDNEY SHAPIRO, ASSOCIATE DEAN FOR RESEARCH AND
DEVELOPMENT, WAKE FOREST UNIVERSITY SCHOOL OF LAW, WINSTON-
SALEM, NORTH CAROLINA, AND MEMBER SCHOLAR, VICE-PRESIDENT,
CENTER FOR PROGRESSIVE REFORM
Mr. Shapiro. Thank you. Mr. Chairman and members of the
Committee, thank you for inviting me here today to share with
you my views on understanding the threat of agency capture and
its relationship to protecting the public interest.
The type of capture that receives the most attention is
when an agency fails to protect the public and the environment
because administrators friendly to industry block new
regulatory efforts or do not enforce the laws and regulations
then in effect. The situation at MMS, as Senator Whitehouse has
pointed out, is a good example of this form of capture.
Capture can also occur from an imbalance in representation.
This occurs when industry representatives regularly appear
before an agency offering detailed comments and criticisms,
while the agency seldom, if ever, hears from public interest
groups or members of the public. A number of empirical studies
revealed this imbalance is significant. The studies are
described in my written testimony.
In one, a study of 39 controversial and technical, complex
air pollutant rules, industry averaged 77.5 percent of the
total comments while public interest groups averaged only 5
percent of the comments. In fact, public interest groups file
comments for only 46 percent of the total number of
rulemakings.
The final form of capture receives less attention, but it
is no less effective in preventing reasonable regulation than
the other forms of capture. This is sabotage capture. It occurs
when regulatory critics create roadblocks that slow or prevent
regulation, even in administrations that seek to protect the
public and the environment. Because this capture is subtle and
difficult for the public to perceive, it constituents a kind of
sophisticated sabotage of the regulatory process.
The two most prominent forms of sabotage capture today are
the de-funding of the regulatory agencies and the
politicization of rulemaking by the White House. In my written
testimony, I give examples of each problem. Allow me to mention
one related to funding.
OSHA took more than 10 years to update its regulatory
standard on cranes and derricks, even though the agency,
employers, employees, and Members of Congress all agreed for
that period what needed to be done.
If Congress is to reduce capture, it is more likely that
agencies can fulfill its intention to protect people and the
environment. I have four suggestions as to what Congress might
do.
First, Congress cannot count on the administrative law
system to ensure the accountability of regulatory agencies.
Public interest groups lack the resources to match up with
industry in terms of advocacy before agencies and the courts.
Likewise, they are often not in a good position to call
Congress' attention to capture. It is, therefore, up to
Congress to institute more systematic oversight.
Second, one reason for the de-funding of the regulatory
agencies is that Congress has failed to study the impacts of
funding cuts on the agencies. Without this information,
Congress is not in a position to consider what tradeoffs are
involved when agencies lack the resources they need and whether
re-funding them is a higher priority than other items in the
budget. But, frankly, regulatory agencies are such a small part
of the discretionary budget that modest increases in funding
would not affect the budget or the deficit in any significant
way.
Third, the deterioration of regulatory government has gone
relatively unnoticed because Congress lacks good means for
measuring the performance of regulatory agencies. Congress
should, therefore, require the development of positive metrics
or measurements of agency performance that would alert Congress
and the public when health and safety agencies have been
captured.
Finally, the Congressional dialog over funding would be
improved if agencies were required to make it clear how much
money it would take to actually implement their mandates. Such
true-up estimates would focus on the resources Government
itself would need to do the work that Congress expects it to
do.
In conclusion, the problem of capture is persistent,
suggesting it is not easily remedies. In the 1970s, the Senate
undertook a major study of Federal regulation. A similar effort
focused on capture, and including the consideration of such new
ideas as positive metrics and true-up budgets may be in order.
The study could also consider the costs of delay when agencies,
because of a lack of funding, are unable to protect the public
and the environment. The newly reformed Administrative
Conference of the United States could be tasked with assisting
Congress in this investigation.
Thank you.
[The prepared statement of Mr. Shapiro appears as a
submissions for the record.]
Chairman Whitehouse. Thank you very much, Professor
Shapiro. We really appreciate you being here and lending your
expertise to this inquiry.
Our final witness is Dr. Tevi Troy. He is a Visiting Senior
Fellow at the Hudson Institute, a Senior Fellow at the Potomac
Institute, and a writer and consultant on health care and
domestic policy. From 2007 to 2009, Dr. Troy was the Deputy
Secretary of the U.S. Department of Health and Human Services
where we worked together through our common interest on
advancing health information technology. Before going to HHS,
Dr. Troy served as Deputy Assistant to the President for
Domestic Policy. He also has worked in both chambers of
Congress. He holds a Ph.D. in American civilization from the
University of Texas, and we welcome him here today. Dr. Troy.
STATEMENT OF TEVI D. TROY, PH.D., VISITING SENIOR FELLOW, THE
HUDSON INSTITUTE, SILVER SPRING, MARYLAND
Dr. Troy. Thank you, Mr. Chairman, and thank you, members
of the Committee, for this opportunity to come and provide
insight into the question of influence on the regulatory
process. I ask with your permission, Mr. Chairman, that my
entire written testimony be placed in the record.
Chairman Whitehouse. Yes, the full written testimony of all
the witnesses will be in the record.
Dr. Troy. Thank you, Mr. Chairman.
My name is Tevi Troy, as you said, and I am a Fellow at the
Hudson Institute and former Deputy Secretary at the Department
of Health and Human Services, and as you mentioned, while I was
at HHS, I had the pleasure and opportunity to work with you on
advancing health information technology, which I appreciated,
and I appreciate your dedication to the subject.
Capture theory, about which we are here to speak today, I
think speaks to a real phenomenon, which is the mix of human
nature and human incentives with increased Government power and
authority and increasing Government influence. And it makes
sense, as laid out in public choice theory, that when you have
people with more skin in the game, people who are affected more
by regulations, they will make more attempts to influence the
process. They have more incentive to do so. They will put more
resources into it. But I think it is important to remember in
this context that this theory applies to more than just
industry and that there are multiple countervailing interests
that I saw in my time in Government that try and have an
influence on the process. Unions, nongovernmental
organizations, think tanks, and public interest groups all have
a say in the process, and that procedures that are in place to
combat capture should address capture from any of the potential
sources that can all get in the way of protecting and improving
the public interest.
And in terms of procedures and mechanisms in place to
prevent capture, what I saw in my time in Government is
obviously you have the APA, the Administrative Procedures Act,
which is supposed to inject sunshine into the entire process.
It gives specific amounts of times for regulations to be out
there, for Notice of Proposed Rulemakings, Advance Notice of
Proposed Rulemaking, et cetera, and also requirements about
meetings with outside influences to be put in the record or in
the Federal Register. We know the Obama administration has
actually increased some of those requirements. Any meetings
with lobbyists, whether they be from industry or outside, need
to be made public, and the full transcripts need to be put in
the record. And I think those are important mechanisms.
I also want to put in a good word for the staff at OIRA,
the Office of Information and Regulatory Affairs. They are the
staffers at the Office of Management and Budget who have
oversight over all the regulations, and they are very good at
what they do, and they are by very nature designed to prevent
capture because they do not work for the specific agencies that
are doing the regulating. They do not work for the regulatory
agencies. They work for OMB and they have overall oversight,
and I think they are helpful in the process.
Then obviously you have political appointees who are
supposed to provide some oversight into the process as well and
make sure that the public interest is being served. And then,
of course, the career staffers. Now there is a lot of talk
about the career staffers, whether they are captured, whether
they are beholden to industry. I know that in my time in
Government, it was very rare that people thought that they were
specifically beholden to industry, and you often have people
speculating whether career staffers are either pro-Democratic
or pro-Republic or pro-business or anti-business. But what I
found in my time in Government is that career staffers do have
a bias, and their bias is in favor of their own agency. This
bias is designed to make them protect the interests and the
prerogatives of their agency. Sometimes it means they may have
a narrower view, and that is why the overarching view or the
wider view of either the political officials or of the OIRA is
important and helpful, but they do have their agency's interest
in mind.
Of course, there is also external oversight. You have
Congress, the Inspectors General, the GAO. And then another
layer on top of that is the press, which is supposed to make
sure that these problems are not taking place, and they will
highlight it if there are problems, and believe me, you will
hear about it, and they will do so with glee.
In acting about this issue of capture, there are two things
to watch out for. First, expertise is needed. You need to have
people who know about the systems that they are regulating, and
whether they come from industry or NGO's or public interest
groups or unions, they bring to Government preconceptions with
them, but they also bring expertise. And it is their job and
obligation, once inside, to drop the preconceptions, but also
maintain the needed expertise.
And then, last, I would say that regulatory capture is also
potentially a two-way street, that sometimes you see in the
FDA, for example, that the industry folks are so terrified of
their regulators that they will not call out the agency even if
it appears to overstep its bounds because they know that the
agency has life-or-death power over their own industry and
their own company.
In conclusion, Mr. Chairman, I will just say that I found
the system is not perfect, but there are also key actors,
especially the staff at OIRA, who are aware of the flaws in the
system and work very hard to try and make sure that we are not
brought down by those flaws.
Thank you very much for this opportunity.
[The prepared statement of Dr. Troy appears as a submission
for the record.]
Chairman Whitehouse. Thank you very much, Dr. Troy.
I am going to be here, obviously, until the end of the
hearing, so I am going to yield shortly to Senator Kaufman. But
I did want to open with one point. When we have a panel of
witnesses--I have read carefully through all of your testimony,
and I like to try to identify the places in which everybody
seems to agree, and I found in your testimony six areas that I
believe are areas of common agreement.
The first is that this problem of agency capture is a
widely accepted phenomenon, to quote Dr. Troy's testimony just
now, ``a real phenomenon.'' Professor Bagley cited, you know,
Stigler, Huntington, Posner. There is a wide array of very
prestigious names that for decades have accepted that this is,
again to quote Dr. Troy, ``a real phenomenon.''
The second is that there is a lot at stake here for the
regulated industries. This is a matter of millions, tens of
millions, even hundreds of millions of dollars in some cases.
The third point is that there is a mismatch out there,
whether you describe it as an enormous organizational
advantage, the way Professor Bagley did, or describe that
certain actors do have greater interest and put more effort
into the process, as Dr. Troy did.
The fourth is that some of the mechanisms of administrative
procedure lend themselves to abuse, and, therefore, the system
can be gamed.
The fifth is that regulatory capture is by its nature done
in the dark and done as quietly as possible. No one plants a
flag when they have captured an agency. In fact, they will do
their utmost to deny it.
And, finally, it is that the potential damage from agency
capture, as MMS and the SEC have shown, can be huge, both in
terms of the violation of Government principles, of openness,
candor, and responsiveness to the electorate and all of that,
but more to home in terms of the terrible potential outcomes
that the gulf has seen and that families in Rhode Island and
across the country have seen as the tsunami of misery that
flowed out from the Wall Street meltdown, hit town after town,
city after city, county after county.
So I think that we actually have a certain amount of common
agreement here despite the fact that we have a diverse panel of
witnesses, and I just wanted to lay that out there. We can talk
more about that when it is my time.
I will yield now to Professor Kaufman--to Senator Kaufman.
Mr. Shapiro. What a demotion.
[Laughter.]
Senator Kaufman. No, not really.
I think that is excellent, presenting that, and it really
is amazing when you start reading about this how unanimous it
is about this is a great concern and how difficult it is to
solve.
Professor Bagley, you said that most agencies are able to
resist capture admirably. Could you start and then each one of
you give an example of one or two poster--what you think are
kind of the poster children in agencies that were able to
resist regulatory capture?
Mr. Bagley. I can certainly speak in general terms. I think
very few people believe that the Federal Trade Commission is a
subject of capture. They have a professional staff. They take
their jobs very seriously.
I think that, generally speaking, EPA has not been subject
to capture, although it has been clearly subject to political
influence from the White House, but I think the staff there
is--again, they are professional. They act with integrity. They
care deeply about the values that their agency espouses. And I
think like most Government officials, they do their jobs well.
Senator Kaufman. Professor Shapiro.
Mr. Shapiro. This is really going to sound like an academic
answer, and I do not mean it to be. But first we have to decide
on what we mean by capture, and I think I have a slightly
different concept of capture than perhaps the other two
speakers.
I agree with Dr. Troy that when a conservative President
takes office, he or she is entitled to appoint administrators
who reflect that President's point of view. And so as a result,
for some of us we see agency performance which is less robust
than would be my personal political preference. But that is the
way of the system.
Senator Kaufman. Yes, and I would like to say I totally
agree with you on that. So what I would like to focus in on is,
you know, just the--not the fact that there are differences in
the rest, but an agency that you think, using your examples of
regulatory capture, the three kinds, an agency that is pretty
well, you know, fought it off.
Mr. Shapiro. Well, that is right. So what we are talking
about are instances where the political administrators seek not
to move the ball down the field, albeit in their particular
policy way, but do not move the ball at all or toss it
backwards. You know, to what extent can agencies resist that?
And I think that of all the agencies EPA has been the most able
to do that, and I think there are two reasons for it: that
among the agencies we are talking about, although they are all
short on funds, it is probably the best financed and has the
biggest professional staff. And I think that both of those
things go well towards its ability to fight off this because it
has a dedicated staff who attempt to fight it off.
Senator Kaufman. Thank you.
Dr. Troy.
Dr. Troy. Yes, thank you for the excellent question,
Senator. I would turn it around a little bit and say that for
me to pick one agency would make it sound as if I think that
the majority of the rest of them are----
Senator Kaufman. No, no. By the way--no, let me----
Dr. Troy [continuing]. Subject to capture, so I--I just
want to make it clear that I----
Senator Kaufman. Let me stipulate the fact that this is
not--you are not saying that the rest of them are all bad. What
I am trying to do is kind of get the good agencies I have had,
because I am not--you know, I look at it and I see some
agencies that I am not happy with, but I would really like--
especially you, you have worked and so kind of--your view. No,
by that I am not--I am stipulating the fact that these are just
the shining stars, the 10s. There are loads of 9s out there,
and 8s and 7s. But we are looking for the 10-pluses.
Dr. Troy. Right. So that said, that I believe that most
agencies do resist capture or at least have these
countervailing forces that they are trying to prevent capture
from any one place. But the FDA did a very good job. I know a
lot of people criticize the FDA, and they get a lot of
criticism from the industry, but also from Congress and also
from the public interest groups. So they are sort of hit on all
sides, but I think that they do a very good job of trying to
resist capture and base their decisions on sound science and on
the public health.
Senator Kaufman. And so what is the reason--I mean,
Professor Shapiro gave his reasons. Why do you think those
agencies--and spread it out a little, just successful agencies.
What is it about them? Is it the structure of the agency?
Funding is part of it, and staff is part of it. I think part of
it, too, would be how big your job is. The Securities and
Exchange Commission has a pretty big staff, but they have got a
gigantic area that they are trying to cover, so it is kind of
how--is that, Professor Shapiro, fair to say, that it is the
staff, funding in relation to what the job is, right?
Mr. Shapiro. It is also the adequacy of the regulatory
statute, so some agencies I think are more easily captured
because they are starting from a position that is, you know, 10
yards behind where they want to be, so they are more easily
captured because it is harder to get stuff done.
Senator Kaufman. I think I am going to stop now. My time is
up, and I will come back again. Thank you very much.
Chairman Whitehouse. Senator Franken.
Senator Franken. Professor Bagley, former Chair of the FCC
Reed Hunt--and this is while he was Chairman of the FCC--once
said that FCC stood for ``firmly captured by corporations.''
Like Mr. Hunt, I am deeply concerned about agency capture at
the FCC.
In June, public interest groups criticized the FCC for
keeping them out of critical meetings that the agency held with
executives at AT&T, Verizon, the National Cable and
Telecommunications Association, Google, and Skype to work out a
compromise on net neutrality legislation. What is your advice
to advocates who do not represent a media conglomerate or a
trade association who would want to be in meetings like that
one?
Mr. Bagley. That is a good question, Senator.
Senator Franken. Thank you.
Mr. Bagley. I am not an expert on FCC practice, but I
suspect that they should cultivate the kind of relationships
that industry groups have cultivated over a long period of time
with folk who work at the Commission. Obviously, they are going
to be outmatched in that game in many respects. But it is only
by being a consistent player and being diligent about efforts
to bring your issues before the Commission that you are going
to be successful.
But I think the point that you are making is one that is
largely intractable in the sense that these groups are going to
be outmatched no matter what they do, and so it is really not
up to them to help even the playing field. I think it is----
Senator Franken. It is up to us?
Mr. Bagley. I think it may have more to do with you. It may
have more to do with the Commissioners and the FCC staff taking
steps to ensure that the public interest is heard. But
Congressional oversight is an enormous factor.
Senator Franken. Well, I want to follow up with the FCC on
this and maybe do this for Dean Shapiro.
Another piece of evidence that I think that the FCC has
been captured by corporations that it is supposed to be
regulating is the fact that it has accepted unrealistic
promises from the corporations that it is regulating without
setting up mechanisms for enforcing those promises.
Now, I go back to when the FCC was going through renewing
fin-syn, the financial syndication regulations which limited
the number of shows, programs that networks could own. And I
remember during those hearings all the networks promised that
if fin-syn was discontinued or was allowed to expire, they
would not use this to favor their own programming. And they
made all kinds of promises: ``Why would we favor our own
programming? We are in the business of ratings. Whatever the
best shows are, those are the ones we are going to put on.''
Well, as soon as fin-syn was rescinded, boom, the word went
out to the creative community, ``We are going to own the shows.
And if you are an independent producer and you want a show on
our network, you are going to have to give us ownership.'' And
everybody knows this. And yet the FCC did nothing, and we are
seeing the same thing now in this proposed Comcast-NBC/
Universal merger where they are promising all kinds of things,
and I do not see any reason why anyone would expect that they
would hold to those promises.
Do you have any advice on how we can avoid the effects of
this and how the FCC can avoid this or what we can do about
this?
Mr. Shapiro. Well, if I had the solution, my books would
sell better, but two things.
First, the sort of classic administrative law solution to
being excluded from the front end from the rulemaking is the
opportunity, as Dr. Troy mentioned, to put evidence in the
rulemaking record with which the agency has to deal and the
courts will take a look at that evidence and see whether or not
the agency has adequately dealt with it.
As I mentioned in my testimony, the flaw there is that the
public interest groups are often not well financed to even take
that step, and there are lots of rulemakings where there are no
comments whatsoever by the public interest community.
Second, as you have put your finger on, as weak as the
public interest groups may be many times in the rulemaking
phase, their ability to monitor the enforcement phase, the
actual implementation, is even weaker because there are no good
administrative law solutions where they can come in and try to
force the agency to actually implement what it has said it will
do.
So the best I can come up with is, again, to suggest that
we need to develop over time some sort of metrics to measure
the performance of agencies, and an important aspect of those
metrics would be what they do on the enforcement side and
whether or not they actually enforce the regulations as they
are written.
Senator Franken. My time is up, but maybe we will get back
to this because I want to get into the kind of--perhaps in the
instance of a merger, that if it is allowed to go forward, the
kind of rigorous conditions that can be placed on it and the
setting up of mechanisms to enforce those conditions.
Thank you, Mr. Chairman.
Chairman Whitehouse. Before I return to Senator Kaufman and
Senator Franken for a second round, I would like to go back to
my six postulates, if you will, where I think we have
agreement. It is a real problem. There is a lot at stake for
the regulated industries, lots of motive, one might say. Three,
the organizational advantage, mismatch. Four, administrative
procedure can, in fact, be gamed. Five, agency capture is
inherently done surreptitiously and, therefore, evades
accountability and notice. And, finally, as we have seen from
both MMS and the SEC, the potential damage to regular families
and ordinary people and the well-being of our country is often
vast when there is a very significant regulatory failure.
So that is my hypothesis, that those six points are
essentially undisputed by the panel. Professor Bagley?
Mr. Bagley. That sounds right to me, Senator. I think that
the core point that I would want to take away from our
testimony today is that when you talk about agency capture, you
are talking about a complex of problems whereby well-organized,
well-heeled interest groups are likely to be able to bring a
lot of pressure to bear on agencies under the cover of
darkness. And there are a great many mechanisms that one might
employ, depending on the agency and the bureaucratic and
political realities on the ground. We will therefore want to be
attentive to those differences as we look at different
agencies. What works at the Department of the Interior may not
work at the financial regulatory agencies.
Chairman Whitehouse. Professor Shapiro.
Mr. Shapiro. I also agree with all of those and, in
particular, No. 6 about the potentiality of the damage.
Going back to my OSHA example, for example, that is where
OSHA took over 10 years to bring out this crane and derrick
rule, which nobody opposed. In fact, it was the industry that
petitioned the agency to try to update the rule. By OSHA's own
estimates, each year there are 89 crane-related deaths and 263
crane-related injuries each year. And OSHA has estimated the
rule, which they finally adopted, would decrease that by 60
percent. So, in other words, for every year the rule sat on a
desk, 53 people died and another 155 were injured
unnecessarily. So it is not only the big things, the gulf oil
spill that everybody recognizes, but it is agency by agency in
these small details of not doing what Congress has expected the
agency to do.
Chairman Whitehouse. Dr. Troy.
Dr. Troy. First----
Chairman Whitehouse. Your microphone.
Dr. Troy. First I will turn on the microphone. But, second,
I would like to commend you, Mr. Chairman, for trying to bring
synthesis, for trying to find points of agreement, because I
think that is a very useful way to proceed, especially in our
often hyper-partisan environment that we have today. And I
would say----
Chairman Whitehouse. Not around here.
[Laughter.]
Dr. Troy. But I would say that I can have agreement with
the six points, but I would have to make slight amendments to
some of the points.
So, for example, when you say it is a widely accepted
phenomenon, I agree it is a widely accepted phenomenon that it
is attempted. I do not agree that it is always successful. I
would certainly agree that there is a lot at stake for
everyone, not just----
Chairman Whitehouse. Yes, and I would amend my point. There
is a constant pressure to do it, but it is not always
successful.
Dr. Troy. Right. Third, in terms of the mismatch, the best
way, I think, to describe the mismatch is not between industry
and non-industry actors so much as between interested and
uninterested parties. I think that is where the real mismatch
is. I think there are a whole bunch of groups, and I think your
crane example is one where there are industry and non-industry
forces that were interested in the derrick/crane rule, but the
public did not care at all. And so this larger notion of the
public interest is not represented. I would be interested----
Chairman Whitehouse. Let me challenge that briefly, because
one of the witnesses--I am not sure if it is one of the present
witnesses or one of the witnesses who filed written testimony
that we will put in the record--made this point which I think
is pertinent to the point that you are making and runs a little
bit counter to the point that you are making. That is, that
there is a difference between an interested industry and an
interested non-industry actor, like an NGO or a public interest
group; and that is, that the interested industry, if they can
make sure that the regulator does things the way they want, can
achieve very substantial results that are of immediate benefit,
very often of immediate financial benefit to them. And it is a
100-percent proposition that the benefit that they get comes
back to them in the form of real dollars, real cash, real
value; and that the proposition is a little bit different for
an NGO or another agency which is arguing on behalf of the
public interest, because what any individual gets back is only
their share of the larger public interest.
And so there is an inherent mismatch in function between
somebody who is arguing for a private interest and somebody who
is arguing for a public interest in which they only share a
small and proportionate piece.
Dr. Troy. Sure, and I understand the point. But sometimes
you have non-industry actors that have a financial stake in
something. So, for example, if a labor union has a provision
that they are pushing that will increase employment by members
of their union, that is a financial stake that they have in the
process. So I would say that it is wider than just----
Chairman Whitehouse. You would agree with the principle
that where there is a direct financial stake, that creates a
mismatch in terms of motivation, but that that direct financial
stake is not necessarily always on the side of industry.
Dr. Troy. Yes, I would agree with that.
Chairman Whitehouse. OK. Senator Kaufman.
Dr. Troy. Can I finish the six points----
Chairman Whitehouse. OK. I have gone over my time, so why
don't we come back to it later and let Senator Kaufman proceed.
Senator Kaufman. Why don't you finish the six points? I
think this is very helpful.
Dr. Troy. OK. The mechanisms that lend themselves to abuse,
I think in all of your six points you kind of laid out what you
were talking about, and I was not sure exactly what you were
referring to with respect to the mechanisms that lend
themselves to abuse.
With respect to capture in the dark, of course, all
inappropriate behavior takes place in the dark. I am reminded
of Abbie Hoffman, who had his list of the ten people who got
away with it, and there were nine named people, and the No. 1
person who got away with it was the person you do not know
about because you never heard about it. So, yes, of course, I
would agree with that.
Then the potential damage is vast. I agree with that, both
for regulatory failure, as you were talking about, but also for
poor regulations that do not manage the problem correctly and
could impose huge costs.
Senator Kaufman. Professor Shapiro, you talked about the
fact that it is hard for people to monitor what actually
happens once the regulations have passed. This was a question I
was going to ask in another--but it really fits right here.
Isn't that kind of Congressional oversight? I mean, isn't a
major thing that allows regulatory capture to occur--and I
would like each one of you to--the fact that--or be successful
or not successful depend on how much Congressional oversight
you have of the regulated--of the regulatory body and how much
is focused on trying to deal with potential regulatory capture?
Mr. Shapiro. Yes, of course. But Congress is also at a
disadvantage to do oversight effectively. We have to know
exactly what the agency has accomplished and has not
accomplished. So if we had some sort of metrics, for example,
if we knew that EPA is at 51 percent of accomplishing its
statutory responsibility to provide clean air, and if we
monitored that for a number of years, and they are either not
moving forward or, worse, we are moving backwards, that would
put Congress in a much better position to say we need to look
at that.
Now, it does not tell you why they are not moving forward,
but at least it tells you they are not moving forward. And
there is a blizzard of statistics on the EPA Website. There are
thousands of studies and statistics, and I do not think anyone
can make any sense out of them. There are just too many, and it
is too confusing, and I think we need to focus on something
that tells not only Congress but the American public what is
going on.
Senator Kaufman. Yes, but I think if you look at most of
those, it is because people are looking at different ways. I am
an engineer. I love the objective. I really do. I really love
objective. But I find more and more when you are trying to do
an oversight that the blizzard of statistics do not tell you
what is happening. It is a subjective judgment you make as a
Member of Congress with staff, with good staff, which we have
and which committees have to look at that.
But, Professor Bagley, what do you think in terms of the
role of Congressional oversight in trying to assure that the
regulations work for everybody?
Mr. Bagley. I think if you examine capture where it occurs,
it most often arises at those forgotten agencies, the ones that
have no friend left either in Congress or in the public. And so
the Consumer Protection Safety Commission is a notorious
example of a captured agency. That is in part because it is
very small, and although it has critical responsibilities for
protecting consumers from products that might be defective, it
has largely proven unable to match its industry counterparts.
What is challenging about that, I think, is that, again, as
I mentioned in my testimony, industry groups are also able to
influence legislators. And so there are not going to be a lot
of political gold stars for reforming some of those agencies.
This is strictly a good-government problem, which means it is a
hard problem to resolve, especially in a hyper-partisan
environment. But I do think it is worth expending a fair amount
of political capital to weed out the problem in an effort to
protect the American public in the way that Congress, at the
time that it enacted these statutes and created these
commissions, intended.
Senator Kaufman. Great. Dr. Troy.
Dr. Troy. I think that the more attention that is paid to
an agency, the less likely you are going to have this type of
inappropriate behavior. I remember there was one time at HHS
that there was a very obscure regulatory agency that came out
with what was just a terrible regulation that nobody really
knew about because it was such an obscure agency. The New York
Times had a piece criticizing it, and then all of a sudden,
people started paying a lot more attention, and we were able to
correct the flaw, which would have actually harmed the goal of
medical research.
So I think that when more people are paying attention, you
are apt to get better results.
Senator Kaufman. I would propound a seventh agreement for
the panel: Mr. Chairman, the fact that Congressional oversight
is key in terms of keeping regulators on track and what they
are doing.
Chairman Whitehouse. It will be added to the list.
Senator Kaufman. Thank you. I now feel vindicated.
Professor Shapiro, can you go back? In the crane incident,
it sounded to me like that was just kind of bureaucratic
arteriosclerosis as opposed to interest group. Was this
something where the crane industry held it up? Or what do you
think was the cause of the crane problem?
Mr. Shapiro. Funding.
Senator Kaufman. Funding for the agency to go out and
actually study what happened?
Mr. Shapiro. Yes--no. Just funding to get the work done.
There are just not enough bodies at OSHA to do what they need
to do. For a book I just completed, we did a study of the
budgets of the five major regulatory agencies, which would
include OSHA. And with the exception of FDA, which has received
modest increases because the pharmaceutical industry pays fees
for drug approvals, all of the five major agencies have
approximately 50 percent of the largest budget that they ever
had in real dollar terms because of inflation, and none of them
have received significant budgetary support for about 20 years.
Senator Kaufman. I think that gets back to your original
point about an administrative mind-set on whether you should
have regulation or not and how robust it would be. One of the
things to do is just squeeze the agency so it does not have any
money to do what its function is.
Mr. Shapiro. Yes.
Senator Kaufman. OK. Thank you, Mr. Chairman.
Chairman Whitehouse. Senator Franken.
Senator Franken. First of all, I think when you were
talking about the imbalance between the public interest and
groups that are fighting for the public interest and private
interests, was that from your testimony, your written
testimony, Professor Bagley?
Mr. Bagley. That is right.
Senator Franken. What I found interesting about your
testimony was how nuanced all of this is and how sometimes we
can get--by painting things with a broad brush, we can miss
things and kind of create stereotypes of capture that actually
do not serve us very well. So I am really interested in how we
in Congress can do the oversight and do it properly and--
because it seems like we get captured, too. We get captured by
the industries that sometimes you will have an industry in your
State that provides a lot of jobs, and your job is to represent
your State and the people who work in your State. So you, of
course, will want to help that industry. And you will be
working very closely with that industry. So a lot of this gets
very, very subtle.
I think you also talked about capturing sort of
subcommittees that are directly responsible and how we have to
watch out for that.
What I really would like to ask you all is how--put
yourself in our shoes. How would you advise Members of
Congress, I guess Members of the Senate, to best address the
oversight of agencies and to best address agency capture so
that we can do our jobs properly? What advice do you have for
us?
Mr. Bagley. I have a few thoughts. I think an overall
cautionary word is emphatically in order, which is this is
going to be a tricky problem. I appreciated Senator Kaufman's
analogy to cutting the grass every 2 weeks. It is a kind of
regulatory hygiene that has to take place.
One option would be to take the oversight responsibility
away from the subcommittees. For example, this Committee
oversees regulatory bodies across the administrative state. You
may not make friends on the relevant subcommittee, but if you
have concerns about an agency, there are investigations that
you can run, there are reports that you can write about
failures. And that allows you to avoid some of the capture
problems because the industry groups that you may not want to
tick off are not going to be the same industry groups that the
Subcommittee members do not want to tick off. And so it is
possible that by having a Subcommittee that has less of a
passion about the particular industry, you might be able to
make some improvements.
I mention in my testimony a few different possibilities.
One is to focus on funding. That is a recurring theme that you
are hearing today, which is that agencies have not been funded
adequately, and the lack of funding can make it very difficult
to attract good people. It can make it very difficult to retain
good people. It can make it very difficult to fend off
overtures from industry.
Another meaningful reform you could look at is going
through the Federal agencies and looking at how they are
structured. There are some that have built-in pathologies, and
I mention in my testimony how several of the financial
regulatory agencies receive funding from the groups that they
regulate.
Senator Franken. Right.
Mr. Bagley. Which is a problem because the groups they
regulate can shop around for the most attractive charter.
Senator Franken. There are two: the Office of Thrift
Supervision and----
Mr. Bagley. Sure. You heard during the financial crisis
that there were banks that were seeking to convert their
charters from national banks to national thrifts because they
thought that OTS had a lighter hand. That is just--I mean, that
is a fixable problem and the kind of problem that could be
resolved by an oversight committee.
Senator Franken. I think we fixed it in the reform bill by
eliminating----
Mr. Bagley. You eliminated OTS. There are still problems.
Banks----
Senator Franken. Kind of a competition between the two
agencies to be more lenient in order to get----
Mr. Bagley. Right. There is still the remaining problem
that banks can go from state to national charters, so there is
still competition between regulators. But it is a step forward.
There are lots of problems--there is a lot of low-hanging
fruit in the regulatory state, and it will require some
attention to detail. And, again, there are no political gold
stars for this, but there are fixable problems that abound.
Chairman Whitehouse. If I could follow up on that, one of
the puzzlements about this is that this regulatory capture
phenomenon has been known about for 90 or so years. It has been
all over the academic literature. It has been part of what I
learned in law school, you know, years ago. We have seen over
and over again instances of it happening. We have had these two
huge catastrophes recently to our country that seem very likely
to trace back to episodes of regulatory capture. And yet on our
side, there do not seem to be much in the way of efforts to set
up any kind of consistent institutional either counterpressure
or assessment mechanism to push back a little bit against or
shed light on what I think everybody concedes is a relentless,
constant, surreptitious pressure that needs to be looked out
for.
Some of the testimony mentioned the Senate report that was
done back in the 1970s, but other than that, this does not seem
to be a very vibrant part of our debate around here. And when
you look at the stakes and when you look at the catastrophic
effects and when you look at the persistence of the problem, I
am surprised that there has not been more work done on it. And
you all have looked at it, you know, for a long time to varying
degrees.
If we were to look back and say, OK, what are the sort of
foundational reports and documents and studies that have been
done in Congress to, you know, sort of stand on the shoulders
of giants, where do we begin? Where is the best work that has
been done in the past to flesh this out and come up with ideas?
Is there that history of Congressional effort and oversight
that we could look back to?
It does not sound like it. Professor Shapiro.
Mr. Shapiro. I think all this was done in disfavor about
10, 12 years ago when Congress--more than that, I guess--de-
funded the Administrative Conference of the United States. And
I am very happy that Congress recently has re-funded the
Administrative Conference of the United States.
During the years they were up and operating, they really
served as a kind of neutral think tank inside the Government.
The Conference had a staff. It would hire law professors to do
studies. The Conference itself was made up of perhaps 150
people from across Washington, leading lawyers, people from
inside the Government, and at least as I was able to watch it
work, I think it was a pretty objective attempt to figure out
what works and what does not work. And now that it is back, I
think you can take advantage of it.
Chairman Whitehouse. Is that why it got de-funded?
Mr. Shapiro. It is not quite clear why it got de-funded,
but it showed up one year in the House appropriations with zero
funding, and the Senate did not put it back. Then the ABA, the
American Bar Association, fought for a long time to get it re-
funded, and it is now just beginning again.
Chairman Whitehouse. Now, one of the themes that seems to
have been developed also from all of you in your testimony is
that in terms of whatever we wish to think about establishing
in order to protect against or counter the pressure toward
agency capture, it should not be something that is in the same
agency as the one that is the target of the capture.
Dr. Troy suggested that OMB might be a good location for
the very reason that it is outside of the agency and is less
vulnerable to being swept into whatever the politics are that
have allowed the agency capture in the first place.
Professor Shapiro, you have suggested the Administrative
Conference, again, an outside entity.
I do not know if you have spoken to this, Professor Bagley,
but is this a common theme, that wherever we do this, it should
be outside of the--if there is going to be an authority of some
kind that has this task, it should be in a central location
some place and can look across multiple agencies?
Mr. Bagley. I would have two comments about that. The first
is that some of the most compelling reports about agency
capture that we have heard of come from Inspectors General.
Chairman Whitehouse. From the IGs, yes.
Mr. Bagley. Which operate in sort of an ``at the agency,
but not at the agency'' capacity. The IGs have the
investigatory resources and the know-how to ferret out some of
these very difficult problems to see. They also have
relationships with staff members, so they actually can be
pretty effective voices in this process. Putting the experts in
a centralized location may insulate them from some pressure----
Chairman Whitehouse. But you will agree with me that
Inspectors General vary from agency to agency in terms of their
individual capability, their motivation, their willingness to
tangle with the power structure.
Mr. Bagley. That is absolutely true.
Chairman Whitehouse. Some are great, some are pretty lousy.
Mr. Bagley. That is exactly right.
My concern with placing a super cop in OMB is just that to
a hammer everything looks like a nail. And, in fact, a super
cop may not have the kind of deep, fine-grained regulatory
know-how to really get at the problem.
One alternative is to create a super cop-type agency within
OMB, but ensure that it is staffed, at least on a rotating
basis, from the agencies that are the targets of high-profile
investigations. So imagine for a moment that there was an
agency within OMB that decided to look into sub-agencies within
the Department of the Interior. Well, you would probably want a
few people from Interior to come on over for a little bit to
tell you what the score is, how things work.
You do not want to give the responsibility to a bunch of
generalists, especially a bunch of generalist lawyers who do
not know anything about anything and would have a very
difficult time----
[Laughter.]
Mr. Bagley. Speaking as one. Who would have a very
difficult time wrapping their hands around the problem. So we
will want to be very attentive to ensuring that the kind of
expertise necessary to find out if agency capture is occurring
and address it where it exists.
Chairman Whitehouse. Would a relationship between the
central entity and the Inspector General of the agency be a
good vehicle for getting that?
Mr. Bagley. I think it could be. Again, as you caution,
Inspectors General vary. Some are worthless, some are terrific.
But you will----
Chairman Whitehouse. The worthless ones might pick up their
socks a little bit if they felt that they had the central
agency looking over their shoulder on this.
Mr. Bagley. That could be. You can also imagine a model
where the central agency would visit IGs offices and bring
manpower, resources, staff, and hard thinking to these
particular problems. It will require money.
Chairman Whitehouse. Senator Franken.
Senator Franken. I am going to pick up where Professor
Bagley is talking and ask Dr. Troy something, because you were
talking just now about making sure that this entity that we are
talking about would have expertise from the agencies they are
investigating; and Dr. Troy talked about one of the--an area
that I want to get at, which is kind of the revolving door,
where you do need expertise in--let us say, there is a
revolving door very often between defense contractors and the
military, and you have people who are in procurement go to work
for a contractor, and so you wonder whether while they are in
procurement whether they are being extra nice to a contractor
so that when they go to the contractor, will they get hired,
and will they get hired at a very inflated salary? I mean, this
is a real problem that we have. On the other hand, you need
that expertise. That is a conundrum that I see, and I was
wondering who here--and I will go to Dr. Troy first, if you
have any thoughts about that in terms of how--there are
cooling-off periods that we have. Are there any kinds of--what
kind of thinking have you done about this kind of problem?
Dr. Troy. Thank you, Senator. I agree that the cooling-off
periods are very helpful. I think a lot of times Government
officials who may think they have been nice to a certain
industry, they leave and then they have a cooling-off period,
and they realize that the industry may not want to talk to them
anymore. So the cooling-off period can be very helpful.
I know when I was leaving Government, the ethics rules were
very strict that I could not talk to any prospective employers
while I was still in Government, and I think that is a good
rule.
Also, when you are going back into Government, you are
recused from dealing with anyone who has given you revenue,
whether you were employed by them full-time or were consulted
or gave a speech to them or wrote an article for them or
whatever, for at least a period of a year. So I think all of
those are important tools.
I also think that the OIG is one arrow in the overall
quiver of ways to prevent capture, so OIRA, which I am not sure
I would call it necessarily a super cop, but OIRA looks at each
regulation from a more macro perspective. The OIG looks at
personal malfeasance often, violations of ethics rules, and I
think that is very important. ACUS, as Professor Shapiro was
saying, is more of a think tank and has more of a generalist
approach without looking at the specific regulations per se. So
I think you want to have a lot of arrows in your quiver in
trying to fight against capture.
Senator Franken. Professor Shapiro.
Mr. Shapiro. Thank you. I am not sure I am sanguine about
OMB and its role as kind of an independent adviser to Congress.
OIRA, because of its economic perspective, has a very narrow
sort of way of looking at regulation, and there are some very
good empirical studies out there showing by and large most of
the time it opposes stringent regulation on economic grounds.
So I am not sure they have as broad a perspective as
Congress might want, but you have your--I mean, I think
Congress ought to control that, and the GAO would seem to be a
perfect vehicle for more monitoring, and it is within your
control. It has a fabulous record of professionalism, and you
can direct it, and that is where I would put it.
To answer your question, Senator, it seems to me the
revolving door most of the time involves senior managers who
were political appointees, and perhaps the best defense against
the revolving door is the career civil service, and they are
not doing so well, partly because of funding cuts and other
problems which have been well documented, and building up the
career civil service, kind of speaking truth to power, I think
is also a way of getting at it.
Senator Franken. I have got a little bit more time.
Professor Bagley, I believe you also wrote about the cultures
of agencies, and I was just wondering if you had any advice for
creating a culture for the new director at the Consumer
Financial Protection Bureau. You are starting a new bureau
there. How do you create the culture that you want?
Mr. Bagley. You need a dynamic, energetic, thoughtful,
passionate leader of the organization to get it off the ground.
I think that is absolutely critical.
Senator Franken. I wonder who that could be.
[Laughter.]
Senator Franken. Sorry.
Mr. Bagley. I think it is important that the agency be
given adequate funding to hire good people because that person
certainly cannot do everything he or she needs to do without
good people around on the ground.
Really, it does come down, I think, to making sure that the
agency receives the kind of political support from this body
and from the House that it needs to get off the ground. The
Consumer Product Safety Commission is a good analog, and the
concern with the CPSC is that it just got forgotten. The real
risk with a new consumer protection board in the financial
sector, is that eventually, 2 or 3 years from now, we are going
to be worrying about a different set of problems, and it is
going to become politically not a worthwhile endeavor to
oversee the agency carefully.
Senator Franken. I think it was deliberately set up with a
funding stream for that very reason.
Mr. Bagley. That is exactly right, and I think that
protecting funding streams at other agencies that have been
beleaguered is one way to resolve the capture problem. But
making sure that the agency is adequately funded, well staffed,
and staffed by a vibrant leader is extremely important.
Senator Franken. Thank you.
Thank you, Mr. Chairman.
Chairman Whitehouse. Just to respond to what you said,
Senator Franken, esprit de corps I think has a lot to do with
it. You see wonderful esprit de corps in the military. Within
the elite units of the military, you see it even more
pronouncedly. I noticed it during my time at the Department of
Justice. That is a group of individuals who take enormous pride
in the institution that they serve, and one of the
demonstrations of it was that episode that we heard about in
this Committee, in the Judiciary Committee, when the President
of the United States and the Vice President in the White House
put immense pressure on the Department of Justice to approve
the warrantless wiretapping program when Deputy Attorney
General Comey and Attorney General Ashcroft had reached the
determination that it was not, in fact, lawful. And that went
to a face-to-face confrontation between the President and the
Acting Attorney General in the White House and led to that
bizarre scenario of the White House Counsel and Chief of Staff
going to visit Ashcroft in the hospital as he was significantly
disabled by his illness, and the head of the FBI and the Deputy
Attorney General, Acting Attorney General, both racing with
their lights on to the hospital with instructions called ahead
by the FBI Director to his FBI agents guarding the Attorney
General of the United States saying, ``Don't let the Attorney
General of the United States be left alone with the White House
Counsel and the White House Chief of Staff.'' It was almost an
episode from a country other than ours.
Senator Franken. Well, it looked like ``The Godfather,''
Michael moving his Dad.
Chairman Whitehouse. Yes, but that kind of thing shows that
intensity of esprit de corps and the fact that not only was
Comey willing to step down if the pressure came on from the
White House, but six or seven of the senior members of the
Department of Justice were willing to resign with him to show
that they simply are not--that ``This is an organization that
you do not mess with, Mr. President, and now you are messing
with us.'' That kind of a spirit I think is important to----
Senator Franken. But if I may, I think we did see that
Department later in that administration deteriorate to the
point where they were doing some things----
Chairman Whitehouse. With the U.S. Attorneys.
Senator Franken. Yes.
Chairman Whitehouse. It is not bomb-proof, but I think
esprit de corps matters.
I wanted to touch base on a couple of the things that, as
you said, there are a whole bunch of different vehicles--I
think everybody has said this--through which regulatory capture
can take place. Some are pretty obvious and pretty obviously,
you know, either unlawful or reprehensible or in violation of
ethics rules: direct financial inducements to people, trips,
travel, free meals, all that sort of stuff. You can get at a
certain amount of that just through the ethics laws and
reporting. It still happens. It is one device. But it has its
own way of trying to stop it.
Then you have got the revolving door problem, which is both
revolving industry folks in and then for the folks who are in,
holding out the inducement that they can revolve out to a cushy
job in the industry.
Then you have got the problem of the ability of a highly
motivated and very wealthy participant in the process to simply
swamp the regulatory process, just bury it, so that public
sector enterprises that do not have those same resources and
that have to spread their resources across a variety of issues
simply cannot keep up, and they just get left behind by the
sheer expenditure.
Then you have got the sort of gentle cajoling of ``If you
do it my way, everything is going to be fine, and we can move
on to something else. And if you do not, well, you know, we are
going to take you to court and you are going to have to testify
and there is going to be litigation and it is going to slow you
down and people are going to complain. Do it my way. Let us
just be nice about this.''
That gets very hard to pick out because, frankly, that is
very legitimate behavior, and you really have to sort of go
into the motivation, into the mind of the person who is
pursuing those strategies to determine whether there is an
abuse of the process or a legitimate use of the process.
Then there is the whole issue of political interference. Do
you get your budget cut if the White House is mad at you
because you are not playing along with their folks? Do you get
your budget cut because Congress is mad at you because you are
not playing along with their folks? Are you getting calls from
the chief of staff giving you hell about what you are doing or
encouraging you? Do you get flown home on Air Force One and get
your picture taken with the President? You can put it on your
desk and show how important a person you are if you go along
with the program.
I mean, there is just this whole array of threats and
inducements, and it strikes me that trying to go at this
problem by trying to identify all those different vectors for
regulatory capture and manage each one of them on the input
side may be very challenging and that you may want to look at
the output side. Again, that creates its own measurement and
metrics problems, but basically what is coming out of this
agency? Is it really doing its job? Are you seeing continued
casualties from cranes, you know, and look to the result that
you are seeking, is that a good metric trying to bring to this
equation? Or is it too vague, do you think? Professor Shapiro.
Mr. Shapiro. No, it is not going to be easy. But at the
moment we do not do it at all, so it is surprising what
sometimes is basic level information, what that can reveal. And
because we are not capturing that information in any kind of
straightforward way and making it accessible--this information,
if we could come up with some decent metrics--and that would be
hard. You could put it on the Web. Citizens could follow this.
You know, is the thing going up or is it going down? And it
would be misleading. I mean, there is no metric that is going
to capture perfectly what is going on. But that would not be
the aim. The aim would be to have some basic indicators that
are at least accurate enough to suggest whether the agency is
moving forward and trying, despite various hurdles, to do its
job or whether it is not doing anything. And if we could tease
out those metrics, I think that would be helpful.
Mr. Bagley. I think looking at outputs is certainly
important. That is what we care about. And if we were able to
measure effectively whether those outputs were skewed by
industry group pressure, we would care a lot about that. But I
am a little skeptical that in every case we are going to be
able to do that.
And just as you would not try to figure out if somebody had
committed a bank robbery by looking at just whether or not he
had a big influx of cash, you would instead ask: What was he
doing on the day of the bank robbery? You might want to look at
the inputs. You might want to find out both parts of the story
before you started casting stones about agency capture.
I go back to a point that I made in my testimony, and I
think to me it strikes me as a promising avenue, which is doing
your utmost to eliminate the conditions in which capture can
thrive as opposed to trying to put the genie back into the
bottle once it comes out. And there are several techniques and
approaches you can employ to do that. One is enhance the
prestige of Government employment and enhancing the kind of
esprit de corps that is an enormous bulwark against capture.
You can look at the structural infirmities of agencies and
their funding streams. And you can take steps to enhance the
ethics restrictions and close the revolving door.
But I am not sure why you would exclude anything from your
examination of the problem. It is a multi-faceted problem. For
one example, we first learned about the problems at MMS not
because of outputs, although we had one very large output
recently, but we first learned about the problem because of
inputs and reports that arose out of Colorado about
inappropriate contacts between oil industry and the people who
were managing the leases.
So we will want to think about all aspects of the problem
as you move forward. It is a tough problem, and we do not want
to artificially limit ourselves.
Chairman Whitehouse. But adding outcomes measurement, to
the extent it----
Mr. Bagley. Absolutely.
Chairman Whitehouse.--would be a valuable addition?
Mr. Bagley. Sure.
Chairman Whitehouse. Senator Franken.
Senator Franken. Well, you were just mentioning esprit de
corps, Professor Bagley, and when I made my impromptu opening
statement, I talked about some things that happened during
the--that I saw that happened during the Bush administration,
where I think esprit de corps seemed to be hurt in a number of
agencies. I talked about FEMA and what appeared to be--and I
think it is hard to argue with the perception that there was
cronyism going on there. And to the extent that so many of the
people that were selected to do regulation in the Interior
Department were lobbyists who had come directly from the
industries that they were now regulating, what is the effect of
that kind of cronyism on the esprit de corps within an agency?
Mr. Bagley. It can be devastating, as reports about the
Civil Rights Division of the Department of Justice attested to.
There were many, many members of that Division who felt like
the mission of the agency had been distorted. There are many
who disagreed with that assessment, but I definitely know that
on the ground there was a loss of confidence and faith in the
agency as an institution. This is troubling given that esprit
de corps and the cohesiveness of an agency are important
bulwarks against industry influence, against passivity, against
sclerosis, against a host of well-known agency pathologies. We
would certainly want to pay attention when, for whatever
reason, an agency started to look sick, especially when the
civil servants start revolting. You saw this at a number of
agencies during the last administration, and that should be a
canary in the coal mine for Congressional overseers.
Senator Franken. And why did that happen in the last
administration? I mean, you were also talking about funding,
and I think there was de-funding of certain agencies during
that period. And is there--if an administration and the
Congress have sort of an anti-regulatory bias and are assigning
people to head--the political appointees to the agencies who
really do not want the agency necessarily to do its job, what
happens then to the esprit de corps in the agency and what
happens to the effectiveness of the agency? I will ask that of
Professor Shapiro and then of Dr. Troy.
Mr. Shapiro. Thank you, Senator. I guess I am going to
disagree a little with Dr. Troy. He earlier described the staff
as being biased toward the implementation of their statute, and
to some extent that is true. I mean, if you go to work for EPA,
you should be in favor of doing what EPA is supposed to do. But
I think the empirical evidence shows by and large what is
called neutral competence, that lawyers perform like lawyers
and give candid advice to the political managers just in the
way we would expect lawyers to do that, and scientists try to
present the scientific evidence just as they have been taught
to do when they get their Ph.D., which is to be as fair to the
evidence as possible.
So when you have a robust, effective career staff who were
highly professionalized, then we get a kind of speaking truth
to power that is a kind of protection against the revolving
door and against political managers who would want to tilt the
agency in a certain way because the staff is presenting them
with evidence.
Now, they may ignore the evidence, and if they do----
Senator Franken. Didn't we see scientific language change
in that period?
Mr. Shapiro. Yes.
Senator Franken. And is that an anomaly, or is that
something that has happened frequently in the past?
Mr. Shapiro. Fortunately, I think it was an anomaly,
although it was--there were lots of examples of that,
unfortunately, from the last administration.
Senator Franken. OK. Dr. Troy, I will give you a chance to
respond.
Dr. Troy. First of all, I would like to just clarify what I
was saying with Professor Shapiro. What I said is not that the
career staff is biased toward the implementation of their
statutes but toward the prerogatives of their agency and toward
making sure that their agencies are not embarrassed. And to the
extent that there is malfeasance in any administration or in
any organization, I think that is harmful to the esprit de
corps at an agency, and I think you in your remarks, Senator
Franken, said that the problems of political appointees are not
unique to any one administration, that sometimes you have bad
actors. But overall I thought that the administration had very
high standards for employing people, and generally the esprit
de corps was very good. But when you do have problems like the
ones that we have been talking about, malfeasance definitely
can negatively impact the esprit de corps.
Senator Franken. Thank you.
Thank you, Mr. Chairman, for this hearing.
Chairman Whitehouse. Thank you.
There is one point I would like to come back to that
Professor Shapiro made. I assume we will agree on some
limitations around the point you made, but you said, in effect,
that when a new President is elected, then there is an ability
and a proper ability on the part of that President to bring
their own political point of view, the one they were elected
with, into the agency process. And I will concede that that is
true, but I would also suggest that there is a floor below
which that executive policymaking discretion cannot go.
Mr. Shapiro. Absolutely.
Chairman Whitehouse. And that that floor is one that is set
by Congress when it passes a law and makes it the law of the
United States of America that an agency shall or shall not take
on a certain function, adhere to a certain standard, and so
forth.
Mr. Shapiro. I agree completely. I think there is a world
of difference to a conservative administrator at OSHA adopting
regulations to protect workers that might not be quite as
robust as, say, the unions want but still are well within the
legality of the statute; and an administrator at OSHA who
stalls regulation for the 2 or 3 or 4 years that she or he is
in office and nothing comes out; or an administrator who simply
makes it impossible or very difficult for the agency to enforce
the regulations that are then on the books. That is not a
difference of policy. That is stonewalling.
Chairman Whitehouse. Well, if anybody would like another
round, I am happy to accommodate my colleagues, but we are
close to closing time, and I wanted to put a few things in the
record. I want to in particular thank the witnesses. I think
that each one of you has been very helpful and has brought an
important perspective to this hearing.
My personal feeling is that this problem of agency capture
deserves a great deal more attention than it is presently
getting, and that given the constant pressure of industry in
particular, although not necessarily, on these agencies and the
organizational power mismatch and the huge stakes both in the
short run, if you could win with the agency, and even greater
consequences if the agency's failure results in a massive
public catastrophe. We have known about this for decades. It is
a recurring problem. There is no consistent, institutional,
thoroughgoing vehicle for counterpressure. And I view this as
an opening hearing that has tried to raise the profile a little
bit of this agency capture phenomenon, look into its elements
and its nature, the sort of topography of the problem, and
begin to learn our way around it with a view that in future
hearings and in future legislative efforts we can try to build
an apparatus in Government that allows for adequate
counterpressure so that the bubble goes back to the center
rather than being pushed way over by all the pressure coming
from ordinarily the industry, but I take Dr. Troy's point that
it is not necessarily the industry.
You know, I came out of a Foreign Service family, and I
went to a lot of crummy and dangerous places as a kid, and the
message that I took from that that my father and my mom were
willing to take us there is that there is something more about
this Government than just the convenience of, you know, the
average American, that we stand for something. Everybody who
serves in uniform in this country or has a family member
serving in uniform understands that there is something that is
extraordinarily important about the Government of the United
States.
If you look at our history, this is the Government of
George Washington, of James Madison, of Thomas Jefferson. It is
the Government that Abraham Lincoln served, that Theodore
Roosevelt served, that Franklin Roosevelt served, that John F.
Kennedy served. It is an institution on this planet that is
probably the greatest force for good on the planet, probably
the greatest force for good ever on the planet. And the notion
that some industry or some other private entity with a special
interest could creep its way into the very fabric of that
Government and take an agency of that Government and turn it
away from the service of the public, away from the service of
the country, away from the best interests of the United States
of America and co-opt it to become its servant is to me very,
very deeply offensive. That is something that everyone in
America should be concerned about, upset about. And we talk
about zero tolerance in other contexts. There really ought to
be zero tolerance for that. The Government of the United States
of America ought to serve the United States of America, and so
I am pretty highly motivated to try to at long last begin to
craft a solution to this problem. And as I said in my opening
statement, if the financial meltdown and the catastrophe that
we have suffered across this country has not taught us
something about the importance of protecting our agencies
against regulatory capture, if what happened in the Gulf has
not taught us something about that, my gosh, are we ever slow
learners.
And the fact that these two have gone off does not mean
that that is the end of it. It does not mean that there are not
other agencies just as co-opted as MMS was, just as co-opted as
the Securities and Exchange Commission was, where it simply has
not blown up yet. And so I think for us to be about our
business of trying to get this right and prevent those next
disasters from happening, where the constants are always there,
the constants of the pressure, the constants of the superior
ability of the insiders, the constants of the massive transfer
of wealth that is possible from successful agency capture, all
of that does not go away. And we simply have to step up and be
ready for it.
As I said, this is an opening episode. I think the
witnesses, each of you, have been extraordinarily helpful, and
I really appreciate what you have done.
I have a couple of things I would like to put in the
record, if there is no objection. One is the statement of our
colleague, Senator Feingold, who has put in a wonderful
statement with a particular focus that has been developed a bit
in this hearing, but that he focused more on, which is how this
plays out in terms of our increasing reliance on Government
contractors. He cites the Council of the Inspectors General on
Integrity and Efficiency reporting recently that the total
number of suspensions and debarments in fiscal year 2008 was
half the total from 5 years previously and that suspensions and
disbarments had been steadily decreasing over the last 5 years.
So up in terms of the amount of Government contractors, up in
terms of the money we spend on Government contractors, down in
terms of suspension and debarments, which are at least one
measure of whether we are looking at them. So I appreciate
Senator Feingold's statement, and that will be added to the
record without objection.
[The prepared statement of Senator Feingold appears as a
submission for the record.]
Chairman Whitehouse. Wendy Wagner, who is the Worsham
Centennial Professor at the University of Texas School of Law,
has provided important testimony that has helped support what I
mentioned earlier about the capacity for insider players to
overwhelm agency procedure. She describes, ``For example,
because the agency must respond to all comments, administrative
law allows stakeholders with time and energy which generally,
but not always, consists primarily of regulated parties, to
effectively capture the agency by controlling their agenda, the
framing of problems, the supply of information, and the issues
on which the agency will be held accountable in the courts.
Indeed, as this form of informational capture becomes more
prevalent, it increases the costs of a rulemaking to the extent
that only the most expert insiders can follow and process the
information relevant to agency decisions.''
She goes on to say, ``Aggressively gaming the system to
raise the costs of participation ever higher will in many cases
ensure the exclusion of agency watchdogs that lack the
resources to continue to participate in the process.'' And I
thank Professor Wagner for her testimony, and that will be
added to the record.
[The prepared statement of Ms. Wagner appears as a
submission for the record.]
Chairman Whitehouse. Hope Babcock, who is a professor of
law at the Georgetown University Law Center, teaching courses
in environmental and natural resources law, has offered
testimony: ``If agencies allow themselves to become servants of
the interests they are mandated to regulate, then their
capacity to make balanced and broadly informed decisions is
seriously compromised.'' And she has some good suggestions on
how to make the process more transparent so that particularly
adjudicatory licensing hearings and their heavy resource burden
on public protestants are not used to keep the public
participants out.
[The prepared statement of Ms. Babcock appears as a
submission for the record.]
Chairman Whitehouse. The Consumers Union has provided a
helpful statement, particularly with respect to the National
Highway Traffic Safety Administration, what they describe as an
``agency with a revolving door of regulators who left the
agency to work for Toyota in safety matters before the
agency,'' obviously relevant to the safety concerns we have
seen recently about the Toyota automobiles.
[The prepared statement of Consumers Union appears as a
submission for the record.]
Chairman Whitehouse. Professor William Snape has offered
his statement from the Center for Biological Diversity at
American University's Washington College of Law. He notes, ``A
powerful combination of agency and industry rhetoric results in
a deceiving mainstream `view' that the agency behavior at issue
is either desirable or inevitable until the bubble literally
bursts; e.g., we must increase oil drilling for national
security, or the market will self-correct any artificial
inflation of stock, bond, or derivative price.'' And he cites
Judge Posner for some of his testimony.
[The prepared statement of Mr. Snape appears as a
submission for the record.]
Chairman Whitehouse. Roger Williams University, my home
State law school, has a statement from Dean David Logan, who
teaches administrative law and tort law and sees regulatory
capture as a problem that takes away from adequate public
decisionmaking. His phrase is that it leads to ``serious
corrosion of the regulatory system.''
[The prepared statement of Mr. Logan appears as a
submission for the record.]
Chairman Whitehouse. And, finally, Professor Daniel
Carpenter at the Harvard University Center for American
Political Studies--he is the director there and the Allie S.
Freed Professor of Government--writes to say, ``Let me say that
I believe this issue to be one of the most vital policy issues
of our times, perhaps the single most salient regulatory issue
facing our Nation for the next 10 to 20 years.''
[The prepared statement of Mr. Carpenter appears as a
submission for the record.]
Chairman Whitehouse. So I thank all of them for
participating in this hearing through their written testimony.
Since this is an ongoing process, we will continue to be in
touch with them, and I want to particularly thank Senator
Kaufman, who has been called away to his responsibilities at
the Armed Services Committee, and Senator Franken for
participating in this. As observers of this Committee will have
seen, they are two of the brightest and most thoughtful and
most sort of trenchant in their thinking Members of the Senate.
The fact that they chose to spend their day with us, their
morning with us today I think has been very valuable and
helpful and instructive. So, Senator Franken, thank you very
much.
The record of this hearing will remain open for one
additional week for anybody who wishes to add anything to it.
And, again, I thank our Ranking Member, Senator Sessions, for
allowing us to proceed in his absence. We understand perfectly
that, given the nomination of your Supreme Court Justice's
successor, Professor Bagley, he has important work on the floor
and an important meeting at the White House and, of course, it
is perfectly understandable that he would be there rather than
here. But he has been very courteous about working with us on
the hearing and about allowing it to proceed in his absence, so
I thank Senator Sessions as well.
If there is no further business of the Subcommittee, we
will stand adjourned. Thank you all very much.
[Whereupon, at 11:55 a.m., the Subcommittee was adjourned.]
[Submissions for the record follow.]
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