Regulation and the Revolving Door

The current nuclear crisis in Japan is just the most recent example of a critical force shaping business today: the relationship between government regulation and its revolving door.

As we have starkly seen over the past decade, the effectiveness of government regulatory bodies is frequently compromised by the inflow and outflow of “interested” people who are connected to the industries that are being regulated.

Simply put, regulating bodies and the industries they are supposed to monitor are often made up of the same folks.

From the marginalization of the FAA as the overseer of aviation security prior to 9/11; to Congress and the SEC blocking any oversight of the derivatives market; to the massive oil spill in the Gulf of Mexico, one common theme is present: regulators, who previously had worked for the same industry, turned a blind eye when confronted with uncomfortable decisions which may have hurt that industry.

In the end, the public good was exponentially harmed, while a select few benefited and no one was ever held to account.

The patriot Thomas Paine in his classic Common Sense warned Americans to be wary of “interested men who should not be trusted”. For those of us who play by the rules, we would be wise to heed this advice today.