Dr Donald S Siegel and Dr Robert M Sauer

by Donald S. Siegel and Robert M. Sauer Cardinal Mindszenty In 1970, Harvard economist Albert Hirschman published his classic tome, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. In this book, Hirschman theorises that some agents in an economic system may experience lapses from efficient or rational behaviour. If the system functions smoothly, forces exist that will rectify this inefficient activity: More specifically, private or public institutions that fail their customers or constituents provide their victims with three options. The first option is to vote with their feet and go elsewhere, which he called “exit,” in the spirit of Adam Smith's “invisible hand”. The second option is to ‘voice’ their dissent, by complaining, protesting, lobbying, or taking direct action. Exit is an economic response, while voice is, by nature, political and possibly confrontational. The third option is to do nothing and remain loyal to the firm or government institution. In a free market, voice can sometimes be quite effective. An example was intense customer opposition to Coca Cola in 1985, when it introduced a new formula for Coca-Cola, known as “New Coke”. The consumer outcry caused the company to bring back the old formula, now re-branded as “Classic Coke”. In a political context, voters who are dissatisfied with their party’s policies can vote for another party...

by Dr. Donald S. Siegel and Dr. Robert M. Sauer In his seminal article in 1971 on the economic theory of regulation, the Nobel Laureate George Stigler of the University of Chicago argued that government agencies were often “captured” by the industries they were designed to regulate. Before Stigler, the common view was that noble regulators worked assiduously to correct “market failures”, in order to promote the public interest. Stigler argued that if regulators have other goals in mind besides promoting the public interest (e.g., covering up their own government failure or enhancing their power, prestige, budget and future income) they will eventually represent the interests of the industry they are charged to regulate. This cynical behaviour of regulators is referred to as “regulatory capture”. It is what leads to a “revolving door” between defence contractors and the Ministry of Defence, pharmaceutical companies and the MHRA, and large energy firms and the Environment Agency. When there is regulatory capture, the interests of firms become more important than the public interest, which results in a net loss to society.  Traditionally, capture theory applies mainly to private sector interests, i.e., firms and industries. However, capture theory can be equally applied to public sector unions. In the U.S., it was recently discovered that the American Federation of Teachers and the CDC have colluded on school...