By Kaufmann | February 6, 2011 No Comments »
The global financial crisis that started in Wall Street a few years ago brought to the forefront the notion of ‘capture’ in the financial sector. Policy-makers, experts and academics still disagree whether regulatory capture was a major determinant of the crisis. Nonetheless, the problem of capture has at least become an important part of the policy debate in the US. This is in sharp contrast with the past, when the problem of capture tended to be ignored in the US, and associated with countries like Russia instead.
Even among those who write about capture in the US there is a lively debate regarding what constitutes capture, and which manifestations of capture matter in particular in the US. The terminology has been steadily expanding, and include terms such as state capture (which we used and analyzed well over a decade ago first in transition countries), regulatory capture, cognitive capture, social and cultural capture, soft and hard capture, among others…
It can all get rather confusing. Even more so because then there are other terms that do not explicitly contain the term capture but which are difficult to clearly distinguish from many of these notions of capture, including legal corruption, undue influence (in, say, private interests affecting public policy outcomes), vested interests, and cronyism.
And some of these notions, such as cognitive, cultural and/or social capture, are even difficult to disentangle from ideology. So when is capture actually present, what manifestations of capture matter in particular, and what can be done about those? And if it is not the case that the fox is guarding the hen house, or that public policy is being privatized (for the benefit of the few, rather than the broader public), aren’t we over-stretching the notion of capture, and thereby undermining it? Further, by listing so many manifestations of capture (and related) that were ‘culprits’ in the recent financial crisis that originated in Wall Street aren’t we begging the question of which were the 3 or 4 key contributing determinants to the crisis?
It is therefore timely that the Fordham Law School and its Journal of Corporate and Financial Law will be holding their 2011 Spring Symposium on the subject of capture in financial services tomorrow, Monday February the 7th, in New York (here). I have been asked to join a panel of experts, namely Lawrence Baxter, James Kwak, Steven Davidoff and Robert Weber. Rick Carnell will be moderating, and Senator Sheldon Whitehouse (Rhode Island) will keynote. The event is open to the public and even offers CLE credit for lawyers.
In my contribution I will be raising some of the above questions, and contribute some thoughts on approaches to the analysis of actual capture. Since I am the foreigner in the panel, I will try to provide a bit of an international comparative perspective although the focus will be the US (after all, I have been in the country long enough). And given my background as an empirical economist, I will let data do some of the talking, and emphasize the role of incentives, which sometimes is not given its due.