The Government-Industry Revolving DoorFriday, December 14, 2012
This little item in Politico might have gone unnoticed if not for the sharp eye of blogger Glenn Greenwald:
Elizabeth Fowler is leaving the White House for a senior-level position leading “global health policy” at Johnson & Johnson’s government affairs and policy group.
Why should anyone care? Because it’s the latest lesson in how government actually works, showing that the real political world bears almost no resemblance to the one portrayed in the textbooks. Our children are taught (as we were) that government officials are uniquely public spirited, with both the requisite motivation and knowledge to act exclusively for the general welfare. But in the real world, as the Public Choice school of political economy teaches, “public servants” are no less motivated by self-interest (career, influence, and prestige) than anyone else. The difference is that they spend other people’s money, which they obtain by force (also known as taxation). That difference distorts the normal incentives of the private sector, where people must please willing consumers in order to prosper (unless they get their hands on political power).
What’s to be learned from the Elizabeth Fowler story? As Greenwald notes, Fowler spent time in the White House “oversee[ing] implementation of Obamacare…. She then became Special Assistant to the President for Healthcare and Economic Policy at the National Economic Council.”
So she’s moving from Obama administration point person on health policy to Johnson & Johnson. As the National Center for Public Policy Research noted, “Johnson & Johnson is a member of the Pharmaceutical Researchers and Manufacturers of America (PhRMA) lobby. Through its contributions to PhRMA, Johnson & Johnson directly supported the passage of ObamaCare.”
As we all know, Obamacare mandates that virtually everyone must be a customer of a health insurance company, whose policies cover not only physician and hospital services, but pharmaceutical drugs too.
This is only the tip of the Fowler iceberg. Her involvement in Obamacare did not begin with her jobs in the administration. Before going to the White House to carry out the law, she worked in Congress, where she played a key role in formulating the complicated legislation. Specifically, Fowler was the chief health policy staffer for Sen. Max Baucus, whose Senate Finance Committee generated the bill that became Obamacare. As Marcy Wheeler pointed out three years ago, “It’s actually Liz Fowler’s health care plan (if you open the document and look under document properties, it lists her as author).” Wheeler quoted Politico: “If you drew an organizational chart of major players in the Senate health care negotiations, Fowler would be the chief operating officer.”
Okay, so what? Well, the plot thickens—for we must ask what Fowler was doing before she went to work for Baucus. And the answer is: She was vice president for public policy and external affairs (also known as lobbying) at WellPoint Inc., which according to Wikipedia is “the largest managed health care, for-profit company in the Blue Cross and Blue Shield Association.” Greenwald adds, “Before going to WellPoint, as well as after, Fowler had worked as Baucus' top health care aide. And when that health care bill was drafted, the person whom Fowler replaced as chief health counsel in Baucus' office, Michelle Easton, was lobbying for WellPoint as a principal at Tarplin, Downs, and Young.” This all appears quite cozy.
As the writing of the health care bill was underway, WellPoint (and other insurers) expressed concern that Obamacare would include a “public-option,” or government-run insurance plan, to compete with them. In the end, the bill that Fowler drafted did not include that option. Coincidence? (This is not the say that a public option is a good idea, but only that the law ended up with a mandate to buy coverage from a private insurer.)
No wonder Wheeler dubbed Obamacare “The
The Fowler case may be especially flagrant, but it’s not unusual.Bill Moyers reports that hundreds of health care lobbyists used to work in Congress.
Nor is this unique to the health care industry. The revolving door that is so plain in Fowler’s case can also be found between the U.S. government and the banking industry, as well as other major industries. Personnel readily go back and forth between an industry’s lobbying arm and the relevant congressional committees or White House offices.
This phenomenon is sometimes called “regulatory capture” and is associated with the late Nobel Prize-winning economic George Stigler of the University of Chicago. Related to Public Choice theory, regulatory capture arises because the producers in a particular industry constitute a relatively concentrated and well-organized group, each member of which stands a great deal to gain from influencing, if not outright shaping, legislation and regulatory rule-writing. In contrast, the members of the larger public have many more-pressing day-to-day concerns than any particular bill or regulation and therefore no incentive to monitor the esoteric goings-on Washington. What’s more, while each member of a regulated industry stands to gain immensely from successful lobbying, each member of the public pays only a small amount for any specific government action, further diminishing the incentive to engage in counter-lobbying. (The aggregate cost of all government action, of course, is huge.)
Also promoting regulatory capture is the fact that industry personnel have technical expertise that regulators will want access in doing their jobs; this facilitates contact between regulators and the regulated that tends to skew the rule writing. Further, the judgment of a regulatory agency or congressional committee staff member could be shaped by his or her wish to work for the regulated industry after retiring from government work. A lobbyist once employed by an agency or committee has obvious attraction for an industry.
This not to say that it would be preferable for regulators to be ignorant of and antagonistic to the industry they monitor. Neither friendly nor hostile regulation is good or necessary. Government regulation is premised on the fallacy that freed markets would be unregulated. But this is patently false. The very idea of a market entails regulation by market forces as an inherent characteristic, and that sort of regulation is superior in every way to bureaucratic regulation. (See my “Regulation Red Herring.”)
The Fowler story, like hundreds of other similar stories, should be a lesson to those who look to government to rid the marketplace of abuses. In thinking about what institutions best serve the public, we must take care to compare realistic alternatives. A government devoid of the perverse incentives described here is not one of our options. To think otherwise is to commit what economist Harold Demsetz calls the “nirvana fallacy.” As Demsetz put it: “
The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.
In other words, it is illegitimate to posit an all-knowing benevolent government regulator as an answer to economic problems. The advocate of regulation must be specific not only about how the regulatory agency would obtain the knowledge necessary for achieving the public’s true interest, but also about the incentives it would have to do so. If the regulation advocate cannot provide realistic details, we have been given no reason to believe that government can solve any problem better than the market.
We can take this a step further. When we examine the problems that are addressed by government regulators, we invariably find that they have their roots in earlier government anti-competitive interventions. Free competition is the best protector of consumers and workers. So before considering new regulations or agencies as solutions to problems, let’s first look for the ways government has suppressed free competition. I predict that finding the culprit interventions won’t be difficult.
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