Analysis, Side Feature, South Asia

Democracy is the Root Cause of Regulatory Capture

which Secures Benefit of a Corrupt Capitalist Elite, at the Expense of the Public

On 14th December 2020, a Pakistani investigation commission, comprising of fifteen members, issued a 163-page report about the oil crisis, which occurred in June 2020. It focused blame primarily on OGRA (Oil and Gas Regulatory Authority) during its regulation of the oil sector and recommended its dissolution. The report claims that a wide range of operations in the oil sector were against the law, operating in a vacuum, without any check and balance. It further said that having seen the affairs of OGRA, the commission was “compelled to recommend” a performance audit of all the regulatory bodies, including National Electric Power Regulatory Authority, Pakistan Electronic Media Regulatory Authority, Competition Commission of Pakistan and Drug Regulatory Authority of Pakistan. Earlier, the commission, headed by the former head of the Securities and Exchange Commission, exposed the embezzlement of hundreds of billions of rupees, which occurred with the connivance of previous governments and regulatory authorities in the power sector, and is ongoing.

The report of the commission on the oil crisis focused on regulatory capture, in economic parlance. It is a form of government failure in which a regulatory authority, set up for the organization of a sector and responsible for safeguarding the public interest, comes under the influence of the private sector. Thus, public interests are sacrificed for the benefit of the private sector. The problem of regulatory capture is not confined to countries like Pakistan, who fall in the Third World where Democracy is fragile or ensuring rule of law is a major problem. Instead, regulatory capture has been imported from developed countries, like Northern America and Europe, where Democracy is stable, with a rule of law. It is so because regulatory capture is part and parcel of the ideology of Capitalism and its ruling system, Democracy. A recent example of regulatory capture in the developed world is the US’s Federal Aviation Administration (FAA). In 2005, the FAA turned its safety certification responsibilities over to aircraft manufacturers, with some prerequisites. When two Boeing 737 Max’s crashed in quick succession, the first in October 2018 and then the second in March 2019, with a combined loss of 343 souls, the FAA did not ground these deathtraps until Boeing itself requested grounding.

Democracy does not and never can protect the public interest, because in Democracy the power to legislate is in the hands of human beings. So the powerful, capitalist ruling elite, including the corrupt within the political and military leadership, use their wealth and power to influence legislators, ensuring regulations of their choice at the cost of the public interest. Thus, audit, dissolution or replacement of OGRA or other regulatory authorities will never end the problem of regulatory capture. The root cause is Democracy and the absolute sovereignty of man over law making. The only permanent solution is the abolition of Democracy and the re-establishment of the Khilafah (Caliphate) on the Method of the Prophethood in its place. In the Khilafah, the entire energy sector will be under state supervision, whilst most of the heavy industry and infrastructure projects will be under state ownership. So, the issue of regulatory capture is eradicated from its basis. Even regulatory functionaries auditing segments of the economy in the Khilafah cannot be perverted by the private sector, as legislation is according to the Quran and Sunnah, rather than the whims and desires of human beings. Allah (swt) said, كَيْ لَا يَكُونَ دُولَةً بَيْنَ الْأَغْنِيَاءِ مِنْكُمْ So that it may not merely circulate between the rich among you.[Surah Al-Hashr 59:7].


Media Office of Hizb ut Tahrir in Wilayah Pakistan

Thursday, 02nd Jumada I 1442 AH

17/12/2020 CE

No: 1442 / 34