Regulatory capture

Today’s newspapers report that the cladding on the Grenfell Tower, which appears to have been a major factor in the dreadful loss of life there, was banned in Germany and permitted in America only for low-rise buildings. It would have cost only £2 more per square meter to use fire-resistant cladding instead.

The tactical way of looking at this is whether the landlords or the builders were negligent, or even guilty of manslaughter, for taking such a risk in order to save £5000 on an £8m renovation job. The strategic approach is to ask why British regulators are so easily bullied by the industries they are supposed to police. There is a whole literature on regulatory capture but Britain seems particularly prone to it.

Regular readers of this blog will recall many cases of British regulators providing the appearance of safety, privacy and security rather than the reality. The Information Commissioner is supposed to regulate privacy but backs away from confronting powerful interests such as the tabloid press or the Department of Health. The Financial Ombudsman Service is supposed to protect customers but mostly sides with the banks instead; the new Payment Systems Regulator seems no better. The MHRA is supposed to regulate the safety of medical devices, yet resists doing anything about infusion pumps, which kill as many people as cars do.

Attempts to fix individual regulators are frustrated by lobbyists, or even by fear of lobbyists. For example, my colleague Harold Thimbleby has done great work on documenting the hazards of infusion pumps; yet when he applied to be a non-executive director of the MHRA he was not even shortlisted. I asked a civil servant who was once responsible for recommending such appointments to the Secretary of State why ministers never seemed to appoint people like Harold who might make a real difference. He replied wearily that ministers would never dream of that as “the drug companies would make too much of a fuss”.

In the wake of this tragedy there are both tactical and strategic questions of blame. Tactically, who decided that it was OK to use flammable cladding on high-rise buildings, when other countries came to a different conclusion? Should organisations be fined, should people be fired, and should anyone go to prison? That’s now a matter for the public inquiry, the police and the courts.

Strategically, why is British regulators so cosy with the industries they regulate, and what can be done about that? My starting point is that the appointment of regulators should no longer be in the gift of ministers. I propose that regulatory appointments be moved from the Cabinet Office to an independent commission, like the Judicial Appointments Commission, but with a statutory duty to hire the people most likely to challenge groupthink and keep the regulator effective. That is a political matter – a matter for all of us.

3 thoughts on “Regulatory capture

  1. The Frankfurt fire department chief (Frankfurt being the town with the most high-rise building in Germany) was in high demand by the press after this catastrophe.

    He also mentioned the difficulty of safe building standards (and how the Frankfurt fire department was ridiculed for mandating a fire lift for building above 30m and a second escape staircase for buildings above 60m, never mind the material would not be allowed in Frankfurt) even across Germany (apparently there is no federal bulding regulation for high-rises), never mind the EU.
    One problem he also cited was industry influence in standard setting bodies and expert panels.

  2. I remember confronting the same issue years ago with BT and Oftel over Internet access costs. As a state monopoly, where did everyone who knew about UK telecoms work? BT, of course! So, we suspected it was largely staffed by “ex” BT people who never really changed sides.

    As we found, Oftel were more interested in defending the status quo (“PAYG Net access is really cheap as long as you hardly use it, so we see no reason to allow flat-rate”) than achieving value for the consumer they supposedly existed to serve.

    I would love to see regulators with the independence and resolve to rock boats, instead of existing to make excuses for the status quo. Independent appointments might help there – but what about taking culpability a step further, and prosecuting the regulator itself for making the negligent decision they did? They have very obviously failed in their sole purpose here – if they can get away with that without consequence, why would any regulator bother doing their job in future?

  3. I could not agree more. I have been a serial whistle-blower in the jobs I have had which has brought me into close contact with the great and the good who are supposed to resolve disputes. I have also made complaints against the NHS when not working in it, financial and banking industry, police, planning departments, EU (academic research grants) and numerous other organisations I have encountered over the years. My complaints were all genuine, but I must confess to an interest in how complaints are handled and, more often than not, the tactics used to kick them into the very long grass.
    I believe that in the main an organisation is only as good as its complaints procedure. This requires individuals to be truly independent by adhering to rational, transparent and objective procedures (given I have had an Ombudsman acting unlawfully, I should add lawful). At present those occupying top positions in the complaints and regulation ‘profession’ are often awarded, along with a gong, a senior position like Ombudsman at the end of their distinguished careers (very often legal careers), or have been promoted from administrative position from the lower ranks of the ‘profession’, or, as James has observed, are drawn from the monopoly industries they are supposed to be regulating, or come from HR (we all know how fair and objective HR are). Of course there are exceptions but in general, the complaints and regulation ‘profession’ is a closed shop. The situation is also not helped by academic applied ethicists in medicine, business, engineering, etc., who often ignore the issues of whistle-blowing, complaints procedures and regulation. One of the consequences of the professionalisation of ethics is that many organisations can ‘appear’ to take the higher moral ground if they have an ethics committee or employ a professional ethicist.

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