Regulatory Capture in Product Markets and the Power of Business Interests
Keywords:regulation, market power, public choice theory, capture, looting, institutions
This article explains pervasive regulatory failure, lagging productivity, and the corporate capture of policy and policymakers as possibly unintended, but not unpredictable, outcomes of the New Zealand Treasury’s radical adoption during the 1980s of public choice and Chicago school doctrines. With deregulation and a limited role of government written into statutes and embodied in regulatory practice, the pathologies identified and described by Buchanan, Tullock, Stigler and their collaborators became more, rather than less, prevalent in the New Zealand regulatory landscape. Privatisation opened the way for looting; the Commerce Act and new regulatory guidelines enabled rather than blocked anticompetitive practices and monopolistic renttaking; relaxed oversight meant that foreign direct investment became more extractive and less productive. From relatively inclusive politics and strong regulatory enforcement, New Zealand shifted towards more extractive institutions and weaker regulation. As a result, market power is exercised by the current business and financial elite in ways that have worsened wealth and income distributions, imposed deadweight burdens (both static and dynamic) on the economy, and now confront policymakers with roadblocks to achieving more inclusive institutions and pursuing a ‘wellbeing’ agenda.
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