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Regulatory Capture outside of Finance: NHTSA not just asleep at the Toyota wheel?
By Kaufmann | February 5, 2010 No Comments »
Plenty has been written on the role of financial institutions in the global crisis, and also in how they may have influenced their own generous rescue by the government. Many writings also touch on the ineffective role of the financial regulatory institutions. Some of the writings, including in this space, have suggested that such financial regulatory institutions may have been subject to some modality of (soft or hard) capture by the financial conglomerates themselves…
Elsewhere, some writings also looked at the less-than-fully successful results of the lobbying by the largest US car makers in bailing them out last year, contrasting the government’s largesse towards the banks — the Main vs. Wall St. divide in bailout treatment.
But there is a paucity of writings about whether there may be a parallel between the financial and auto industry regarding regulatory capture. For instance, the soft capture of the Securities and Exchange Commission (SEC) by the investment banks years ago has been discussed here repeatedly, and elsewhere.
But now the Toyota safety debacle should raise questions well beyond the conventional writings about Toyota’s ills due to their unbridled growth, sacrificing safety and transparency in the process. Let us keep in mind that other car makers are recalling cars, even their scope is less.
More importantly, where was the relevant regulator in all this, the National Highway Traffic Safety Administration (NHTSA)?
I am no expert on the auto industry and its regulators, but having looked at the abdication by the SEC of its financial regulatory role years ago, a review of evidence that is currently emerging in the media in the context of the Toyota debacle ought to raise some questions about the NHTSA:
Was the NHTSA simply asleep at the wheel? Was it too star-struck by the ‘Toyota #1 quality’ halo effect?
Or perhaps worse, the politics of influence and soft (or even harder) capture by the car makers compromised the agency’s independence to conduct serious investigations and reach conclusions with consumer safety as its key objective?
It may be premature to reach a definitive conclusion at this early stage of the car safety saga. But let us consider excerpts from two media articles for now, starting with the story that Toyota’s current recall of millions of cars excluded many that might have a faulty electronic throttle system that may result in unintended acceleration, according to a class-action lawsuit filed in federal court in Charleston already a couple of months ago.
Specifically, the Charleston Gazette reports that the lawsuit from last year already explicitly stated:
“Complaints and incident reports from Toyota customers who had experienced sudden, unintended accelerations continued to come in to NHTSA and Toyota in substantial numbers after the NHTSA investigation was closed… Both the agency and the manufacturer issued statements blaming the driver’s-side floor mat, despite evidence that floor mats were almost never the cause.”
The article goes on to say: ‘During George W. Bush’s presidency, the agency and the auto industry had close ties, safety expert Bloch said. Andrew Card, Bush’s chief of staff, was a former lobbyist for the auto industry who worked for General Motors. ”While NHTSA staff tries to do a good job, they are headed up by political appointees in the administrative and legal counsel offices. During the 2001-2008 era, those appointees included lawyers from GM and Chrysler,” he said. “So it may be that some investigations were terminated for political reasons.”
‘In a sworn deposition in December, Christopher Santucci, who worked for the NHTSA’s Office of Defects Investigation before going to work for Toyota in 2003, said he “discussed” the agency’s investigation with his former colleagues before the agency decided to limit the scope…’
“Did NHTSA ask Toyota the questions I just asked you, about what is different about these models that you’re recalling and from the earlier models that also had the [problem]?” a lawyer asked during the deposition. ”I don’t recall them asking,” Santucci said.’
Further, today’s first page article in The Washington Post states:
‘The National Highway Traffic Safety Administration, which is charged with protecting the nation’s drivers, has long relied on automakers to help identify perils posed by the cars they make. The reliance on automakers’ cooperation, however, might have diminished drivers’ say in the safety review process. During agency reviews, officials have at times minimized or simply rejected consumer accounts of what happened in favor of the manufacturers’ assessments, records show. The questions about safety have highlighted long-standing criticism of the agency.”
“Unfortunately, if the manufacturer says it’s OK, then it’s OK with them,” said Jeffery A. Pepski, 54, a Minnesota driver who unsuccessfully petitioned the NHTSA with a complaint that his Lexus ES 350 accelerated unexpectedly on his way home from work last year. “The agency follows that logic all the way through their investigations. They’re not really investigating with an open mind.”
“The agency and the manufacturers know each other well. Two top officials in Toyota’s Washington office, which deals with the NHTSA, are former agency employees… Clarence Ditlow, director of the Center for Auto Safety, says the agency appears to have been too willing to accept Toyota’s version of events.”
The Washington Post article then provides further detail on NHTSA having typically sided with Toyota when confronted with consumer safety complaints.
These are meant to provide food for thought at this stage.
But at the very least it is safe to suggest that focusing the wrath on Toyota alone, while failing to ask tough questions about regulatory failures may be misguided for policy-making purposes, and dangerous for drivers in the future. NHTSA’s own performance appears to have been well short of their own logo showing a full 5 stars.
And just like in high finance, one cannot be blind to the role of politics and the revolving door for those that traverse from a regulatory agency to a lucrative job with the (regulated) industry, or with lobbyists.
It is easy to point to managerial or technical lapses, and then rush to patchwork pedal fixes. It is much harder to delve into the role of the money and politics in regulation and policy-making.
………
[Postcript: As further evidence came to light, I wrote this longer opinion article at Brookings a few days later (here).]
Topics: capture, Corruption, financial crisis, Public-Private Linkages, Regulation & Security, Rule of Law, Transparency | | Read and Submit Comments