Neoliberalism and Regulatory Capture

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The primary advocates and beneficiaries of neoliberalism are a relatively small group of global financial institutions have been at the heart of pushing the philosophy[1].  They in turn have recruited a number of multinational corporations from many industries to fund and promote the rise of this fundamentalist and radical economic theory.

The governments that have fallen under their influence have a number of characteristics, but two primary ones emerge that define the reality of these states.

  1. If any law must choose between supporting business or supporting the people and environment; then business is always supreme.
  2. If any conflict emerges in society on any topic; then the business friendly view is upheld by the police and army.[2]

These are not principles to be engaged with deliberate thought for each situation; it is the simple method by which the state determines its course of action – because that is what business is telling them to do.  We must also define that ‘business’ in this context is not family run affairs that employ a few dozen people or less.  They are corporations both national and multinational with highly paid lobbyists working on the government permanently.  Small business is always excluded from neoliberal government planning and this is one of the reasons the societies in these countries become unstable and desperate – small business creates the overwhelming majority of jobs in any economy.

The scope of this influence has come to be known as regulatory capture.[3]  The fundamental idea is that over time the government regulator largely employees staff who used to work for one of the organizations they are meant to be regulating.  What this means is that the work of the lobbyist moves from trying to influence separate individuals and groups who work for the government, to simply being the government and making decisions in favour of their industry.  The mining industry in Australia is a particularly good example of this.  Any attempts to tax or regulate are met with large, well-funded publicity campaigns that are used to justify the government complicity on not pursuing these goals.

The real problem is in trying to prevent this capture from occurring and creating safeguards for systems of regulation.  The Austrian school of economics sees this as an inevitable problem of government interference in the market, the cure being to remove the government interference – the regulation.  This has been shown to be even worse than regulatory capture as no industry that commands vast profits has ever self-regulated effectively.   The current problem with major financial institutions being bailed out by the US government with no punishment or repayment made by either the organizations or the individuals involved tells a sad story of collusion.

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