“Regulatory capture” is a habitual hand-wave used by tech advocates to dismiss AI regulatory arguments. A Tourettic outburst of facile policy analysis. Without actually saying how, it’s a catch-all to claim:
big companies → regulation → big companies win
What regulation? Which companies? (Apparently it’s a secret)
But “the biggest donor in the midterm elections” and the rest of the Patagonia Patrol keep repeating “regulatory capture” over and over like it’s a complete thought.
They remind me of that kid in 8th grade who read Catcher in the Rye once and then made Holden Caufield their whole personality.
…running around calling everyone “phonies.”
You Keep Using this Word…
The concept of regulatory capture is simple enough, as shown in George Stigler’s canonical 1971 article. Using a public choice framework he shows how and why inefficient market regulation persists to the benefit of some and cost to others.
It’s possible they mean to imply some other accepted theoretical basis and meaning for “regulatory capture,” separate from the Nobel Laureate who birthed a whole new literature in economics. If that’s the case, I’ll withdraw my complaint and see myself out.
But for now I limit the explanation to Stigler’s article. These are not necessarily my views though. I’m happy to go beyond that if only one of these people starts by reading the damn Stigler article and using the phrase correctly.
Regulation is Captured by Industries, Not Individuals
Stigler’s analysis does not explain one or a few companies erecting barriers to entry. While they do act as an implicit barrier, his culprit is an existing “industry or occupation” benefitting at the expense of consumers, not individual competitors. Oil, trucking, airlines, and banks are among his examples.
Poor Little Guy
And it doesn’t show up as big vs. small, as per the tedious Little Tech chorus. In fact, the cartelizing effect of regulation is better for small producers:
The political decisions take account also of the political strength of the various firms, so small firms have a larger influence than they would possess in an unregulated industry. Thus, when quotas are given to firms, the small firms will almost always receive larger quotas than cost-minimizing practices would allow.
—George Stigler, “Theory of Economic Regulation,” The Bell Journal of Economics and Management Science, Vol. 2, No. 1 (1971)
It’s funny because this is not unique to this regulatory capture case. It’s just how cartels work. I say it’s funny because it’s this same guy Stigler who explained it six years earlier,1 along with Mancur Olson,2 with direct extensions of Stigler by Sam Peltzman3 and Gary Becker.4
The Little Tech’s story goes: BIG GUY uses regulation to keep out LITTLE GUY. That may be true, but you’ll have to look elsewhere to explain how.
In a privately-enforced cartel (no legal constraint):
small producers evade detection easier and more likely to defect, and
a given proportionate increase in production → less impact on market price AND higher return to the small firm.
In a government regulation cartel:
a public interest message needs as close to unanimity as possible to maintain political support (Stigler).
smaller firms are proportionately larger political constituency even within the cartel for a political-maximizing regulator (Peltzman) which is why you DON’T often see conferring monopoly benefit on a single firm. Which would be easier but not politically optimal.
small/new firms (at some margin) are cheaper to buy off by large incumbents vs. deadweight political cost of losing coalitional support (Becker).
Price Floors for AI?
Stigler’s policy mechanisms — the tools the captured regulators use to prop up their industry friends — are a curious choice to point to as a concern for the American Innovators Network.5
Tariffs & import quotas, price floors, and occupational licensing: Do any of these seem like a particular concern for AI companies? Licensing, okay has the same word as some of the regulatory proposals. I’ll let you work out amongst yourselves why licensing for lawyers and physicians ain’t the same thing as for frontier models.6
Addendum
Don’t get me started on the rhetorical corruption of the Bootleggers-and-Baptists theory, not the least of which by the guy who thinks introspection is overrated.7
I swear…
George Stigler, “A Theory of Oligopoly,” Journal of Political Economy (1965)
Mancur Olson, The Logic of Collective Action (1965)
Sam Peltzman, "Toward a More General Theory of Regulation," Journal of Law and Economics (1975)
Gary Becker, “A Theory of Competition Among Pressure Groups for Political Influence,” Quarterly Journal of Economics (1983)
Hint: it’s because the ABA and AMA want a sufficiently high but uniform barrier to entry. There’s no “Big Doctor” license or “Big Lawyer” bar exam preventing “Little Lawyer” from taking cases. The “cartel” is uniform in nature and designed to protect everyone equally from new entrants who are also in the aggregate uniform.
Incidentally the guy who coined that term had his office down the hall from me.