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When regulation fails, we instinctively reach for "capture"—the idea that industry has corrupted the regulator. But capture is one cause of failure, not a synonym for it. Understanding the full taxonomy is essential for choosing the right fix.
Regulatory failure has at least four distinct causes. Each requires different solutions.
Regulated industry dominates the regulator through lobbying, revolving doors, or corruption
Mechanism: Bad actors exploit weak oversight
Requires: Corruption, undue influence, or compromised incentives
Solution: Independence reforms, ethics rules, revolving door bans
Institution loses ability to process decisions at required rate, substitutes rules for judgment
Mechanism: Structural overload degrades decision quality
Requires: Only: decision demand exceeds processing bandwidth
Solution: Load reduction, bandwidth increase, authority insulation
Institution lacks expertise or skills needed for effective regulation
Mechanism: Knowledge gaps lead to poor decisions
Requires: Skill deficits, inadequate training, brain drain
Solution: Training, hiring, competitive compensation
Regulatory structure itself is poorly designed for the task
Mechanism: Bad architecture produces bad outcomes regardless of inputs
Requires: Flawed mandate, conflicting objectives, wrong scope
Solution: Structural reform, mandate clarification
| Question | Capture | Capacity | Competence | Design |
|---|---|---|---|---|
| Bad actors required? | Yes | No | No | No |
| Visible externally? | Sometimes (follow the money) | Rarely (looks like bureaucracy) | Sometimes (obvious errors) | Depends (may be normalized) |
| Self-correcting? | No (captured incentives persist) | No (overload compounds) | Possibly (if feedback works) | No (requires structural change) |
| Common misdiagnosis | Assumed for all failures | Called 'capture' or 'incompetence' | Called 'bureaucracy' | Called 'government failure' |
"Capture" has become the default explanation for regulatory failure. This creates two problems:
Wrong solutions get applied
Ethics reforms won't fix an overwhelmed institution. Revolving door bans won't help a poorly designed mandate.
Anti-corruption measures can make things worse
Adding compliance requirements to an already overwhelmed institution increases load without addressing capacity—potentially accelerating collapse.
No. Capture (industry dominating regulators) is one cause of failure. Other causes include underperformance, underfunding, poor design, and capacity collapse—when decision demand exceeds institutional processing power, forcing substitution of faster rules for slower judgment.
Four main categories: (1) Capacity collapse—overwhelmed institutions substitute rules for judgment; (2) Competence failure—skill gaps lead to poor decisions; (3) Design failure—the regulatory structure itself is flawed; (4) Resource constraints—underfunding prevents effective oversight.
Because solutions differ dramatically. Capture requires independence reforms and ethics rules. Capacity collapse requires load reduction and bandwidth increase. Competence failure requires training. Design failure requires structural reform. Wrong diagnosis → wrong solution → failure persists.
Ask: Who benefits? (Capture favors specific parties.) Is there evidence of corruption? (Capture usually leaves traces.) Is the institution visibly overwhelmed? (Capacity collapse shows backlogs, delays, rule-substitution.) Do decisions show knowledge gaps? (Competence failure.) Is the mandate itself confused? (Design failure.)