How the Top 1 Percent Capture Our Regulators… and the American Dream

In describ­ing the intense lob­by­ing efforts by Com­cast last year to close its merger with NBC Uni­ver­sal, legal scholar Susan Craw­ford put it this way to the New York Times: “It’s about as sub­tle as a wet fish in the face.”

That makes last week’s announce­ment by Fed­eral Com­mu­ni­ca­tions Com­mis­sioner Mered­ith Attwell Baker the prover­bial Mack truck. Baker is resign­ing to take a top lob­by­ing posi­tion at …NBC Uni­ver­sal in Wash­ing­ton, just months after she voted to approve the deal. As the Times noted last week, “Only one F.C.C. com­mis­sioner, Michael J. Copps, who voted against the Comcast-NBC merger, expressed sur­prise at her departure.”

And herein lies the scan­dal. No one is sur­prised. James Fal­lows in the Atlantic attacked this issue late last year, after Bud­get Direc­tor Peter Orzsag, who helped shape the stim­u­lus plan, announced he would be tak­ing an exec­u­tive job with Cit­i­group, a ben­e­fi­ciary of tax­payer bailout dol­lars. There’s been no alle­ga­tion of per­sonal cor­rup­tion against Orzsag or Baker, who came out swing­ing in a state­ment Fri­day. She insisted she went above and beyond in fol­low­ing all the ethics rules while get­ting the NBC Uni­ver­sal job and will adhere to for­mal lob­by­ing restric­tions after tak­ing the job. But Janine argues that there is a dizzy­ing array of infor­mal, unreg­is­tered lob­by­ing that flies under any exist­ing dis­clo­sure rules.

Fal­lows put this kind of shadow influ­ence in the case of Orzsag into perspective:

…unavoid­ably he will call on knowl­edge and con­tacts… devel­oped while in recent pub­lic ser­vice. [Taken together, these] Orszag-like migra­tions [i.e., Baker’s new job].….pile up in the back­ground to cre­ate a broad Amer­i­can sense that pol­i­tics is rigged, and oppor­tu­nity too.

This kind of struc­tural cor­rup­tion reminds him of com­mu­nist China, where he has done much report­ing, just as Janine sees strik­ing sim­i­lar­i­ties between the tran­si­tion away from com­mu­nism that she wit­nessed in East­ern Europe, and modern-day influence-peddling here in the West.

Often the response to such sto­ries is, essen­tially, “it’s always been this way, tell me some­thing I don’t already know.” But polit­i­cal sci­en­tist Tom Fer­gu­son and Rob John­son, exec­u­tive direc­tor at the Insti­tute for New Eco­nomic Think­ing (INET) make the case that it hasn’t always been this way. They charted the top salaries of finan­cial reg­u­la­tors ver­sus the top salaries of those they reg­u­late on Wall Street. From 1949 to the late 1970’s, there was almost no gap. But the divide cracked open in the late 1970’s, and grew larger until it exploded start­ing in the early 1990’s. (While the gap is per­haps most dra­matic in finance, this trend cuts across most, if not all, indus­tries — exec­u­tive pay has soared pretty much across the board.) The authors call the gap the “oppor­tu­nity cost of doing good”:

Ris­ing eco­nomic inequal­ity was trans­lat­ing into a crip­pling insti­tu­tional weak­ness in reg­u­la­tory structure.…[R]egulatory agen­cies turned into barely dis­guised employ­ment agen­cies, as staff increas­ingly focused on mak­ing them­selves attrac­tive hires to the firms they were sup­posed to be reg­u­lat­ing. Once that gulf reaches a cer­tain point, talk about improv­ing reg­u­la­tion .… is largely idle.…Some way has to be found to pre­vent reg­u­la­tors from being swept up by a golden equiv­a­lent of the whirl­wind that car­ried the prophet Eli­jah up to heaven.

That “whirl­wind” of pri­vate sec­tor riches inevitably makes some reg­u­la­tors less apt to con­front a pos­si­ble future employer. Con­sum­mate insider Larry Sum­mers recently made this point (and used it to explain why he thinks reg­u­la­tion often back­fires.) In a dis­cus­sion Janine attended at the Bret­ton Woods eco­nomic con­fer­ence spon­sored by INET, the for­mer Trea­sury Sec­re­tary said “there are deci­sions going to be made.…and peo­ple are going to have incen­tives and they’re going to fol­low their incentives.…”

Increas­ingly, they fol­low them right out the door to a cor­po­rate lob­by­ing post. And as Janine has doc­u­mented, these play­ers often load up with other roles that aug­ment their power in ways that are hard to mea­sure and call to account, whether in think tanks, media, acad­e­mia or infor­mal “advi­sory” posi­tions. (The New York Times also noted last fall, in chron­i­cling Comcast’s lob­by­ing blitz, that because “not all of Comcast’s per­sua­sive tech­niques are sub­ject to dis­clo­sure, it is impos­si­ble to know exactly how much money has been spent.” Indeed, they showed that phil­an­thropy had its uses: one direc­tor of a Boys and Girls Club who received $20,000 also received a draft let­ter from Com­cast, to be sent to the F.C.C., let­ting them know what an upstand­ing cor­po­rate cit­i­zen Com­cast was.)

The Times last week addressed the prob­lem of what lob­by­ing really encom­passes in an edi­to­r­ial on Baker’s move, called “That Didn’t Take Long.” Like Janine, they argue “the def­i­n­i­tion of lob­by­ing [should be expanded] beyond face-to-face encoun­ters to any effort to influ­ence gov­ern­ment deci­sions for their clients.” The paper said that var­i­ous lob­by­ing rules and cooling-off peri­ods are eas­ily evaded, and they advo­cate cap­ping what for­mer offi­cials and for­mer law­mak­ers can earn from lob­by­ing before for­mally reg­is­ter­ing as lobbyists.

There’s another pos­si­ble rem­edy some have sug­gested: pay reg­u­la­tors more, enough to remove the temp­ta­tion to approach the reg­u­lated with kid gloves. We can almost hear the fis­cal aus­ter­ity hawks hyper­ven­ti­lat­ing at the mere sug­ges­tion of pay­ing gov­ern­ment employ­ees more. It seems unfath­omable that idea will go any­where, in this age of relent­less rhetoric exhort­ing small government.

And yet con­sider the words of the one intre­pid dis­senter to the Comcast-NBC Uni­ver­sal deal, Michael J. Copps, the only one sur­prised by his colleague’s new job at the cable giant. After cat­a­loging the many rea­sons he believed the deal was bad for aver­age Amer­i­cans, he adds, “…sim­ply bless­ing busi­ness deals is not the FCC’s.… job.” Not exactly the kind of talk that would win favor with a future cor­po­rate employer, but pre­cisely what you’d want to hear from a reg­u­la­tor pro­tect­ing the lit­tle guy. As Copps says, “the sta­tus quo is not serv­ing the pub­lic inter­est.” He was talk­ing about cable indus­try con­sol­i­da­tion but this could eas­ily describe the whole of the sys­tem. Too bad we can’t give Copps the big, fat raise he deserves: his term is up at year’s end.

By Linda Keenan and Janine Wedel

Pub­lished in The Huff­in­g­ton Post, May 16, 2011.

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