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The public-spirited vision of the public interest theory of regulation began to be challenged systematically in the early 1970s when researchers suggested that the individual regulatory agencies of government did not work for the public interest at all. Instead, they worked for private interests who actually demanded to be regulated as way of enhancing profits. Going further, some even argued that each individual government agency was "captured" by the leading organized interest (a company or business association) in the industry over which a particular agency operated (Stigler 1971).
This view rests on the understanding that the political actors most interested in the regulation of a particular industry are the companies in that very industry. In Texas, for instance, the oil and natural gas industry is thought to be the single party most interested in the types of regulation that the Texas Railroad Commission promulgates, and the Texas Farm Bureau is the most interested party with regard to state agricultural policy.
Because of this tightly focused interest orientation among economic actors, it is thought that each regulating agency has been isolated and essentially taken over by a single powerful interest or interest association representing the very industry under regulation. Furthermore, it is believed that powerful interests in one industry generally do not interfere with the regulating activities in other industries. In other words, the Farm Bureau doesn't mess with the Railroad Commission and the oil and gas industry doesn't mess with the Texas Department of Agriculture.
This line of analysis implies that there is little or even no competition over control of public policy among economic interests. Within each industry a single company or industry association dominates, and each industry minds its own business being careful not to interfere with other industries and their particular public agencies.
Citizens, meanwhile, are thought to be largely absent from the processes of economic regulation. This exclusion of citizens is thought to result from two things: the issues and processes involved are complex and arcane, and the impact of regulation on any individual citizen is relatively light compared to the impact on the businesses under regulation. A citizen paying a few dollars more per month for electricity is relatively insignificant compared to the millions of dollars at stake for an electric utility company.
In short, regulation exists not because citizens need it, but because the regulated industry wants it!
The capture theory of economic regulation provides some of the theoretical foundation for the concept of "iron triangles" (also known as policy sub-governments), which depict a three-way relationship between a government agency, the industry over which it has responsibility and the relevant legislative committees. For more information on sub-governments, please see section 5.4 in the chapter on interest groups.
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