The Controversial World Of


Nobody, it seems, is happy with the regulatory agencies. U.S. News and World Repart runs a cover story entitled “The ‘Regulators’—They Cost you $130 Billion a Year.” Consumer advocate Ralph Nader and his “Raiders” produce numerous books attacking the agencies as captives of supposedly regulated interests. To adorn a cover story on “Big Government,” Newsweek depicts a disgustingly overweight cartoon figure, recognizable only because he is wearing the star-spangled get up of the once trim Uncle Sam. And politicians of both parties promise “regulatory reform” as one of their highest priorities in streamlining the federal bureaucracy.

Not that there is ready agreement on precisely who the regulators are. Every one of the federal executive departments, for example, has regulatory functions. The State Department regulates travel abroad. The Department of Health, Education, and Welfare issues hundreds of rules on dozens of subjects. Defense, with its huge power of the purse, enforces equal employment opportunity among its thousands of contractors. Thus, the members of the Cabinet are among the most powerful individual regulators in America.

The usual meaning of “regulator,” however, applies to another group, or pair of groups. The first is engaged in economic regulation. It includes the state public utility commissions, which have substantial authority over the gas and electricity industries. It also includes such federal agencies as the Interstate Commerce Commission (with authority over railroads, trucks, and barges); the Civil Aeronautics Board (airline routes and fares); and the Federal Communications Commission (radio and television broadcasting, plus telephones). A second group regulates industrial practices or behavior. Its most powerful representatives are the Environmental Protection Agency and the Consumer Product Safety Commission. They join older regulatory bodies in this second group, like the Federal Aviation Administration (airline safety), in trying to keep the country clean and to r nimize injuries to its citizens.

At least, that is what they are supposed to do. But by almost unanimous verdict, both sets of regulators have been doing something else. Critics on the political left charge that they have surrendered to powerful business groups, and have ushered in “socialism for the rich.” From the right, on the other hand, regulators are attacked for having arrogated to themselves the prerogatives of business management and having assumed this power without the responsibility for its consequences on the balance sheet. Then too, numerous thoughtful citizens have complained that the regulators are un-American; that they violate the Constitutional system of checks and balances by combining legislative, executive, and judicial functions within each agency. And nearly everyone regards the agencies as prime offenders in creating the nonsense and red tape that have become the twin emblems of twentiethcentury government. By some miracle, then, the regulators have achieved the remarkable feat of pleasing almost none of the people almost none of the time.

If one searched out the laws that established the regulatory agencies, in quest of a clue to what they are supposed to be doing, the answer might reduce to four words: “serve the public interest.” This phrase, “the public interest,” occurs over and over in regulatory statutes. It is a key both to the history of regulation and to the reasons why the agencies have pleased so few of the American people.

The phrase has a long history in English law. One of its most memorable nonlegal uses came in Adam Smith’s famous treatise, The Wealth of Nations , published in the same year as the American Declaration of Independence. Smith was at pains to show how individual self-interest in a competitive market system inevitably benefited the society as a whole:

Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest , nor knows how much he is promoting it. … and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. [Italics added.]


For Adam Smith, and for the classical economists who followed him, the operation of the free market not only served the public interest, but was virtually synonymous with it. This is why the “invisible hand” became the bestknown metaphor ever coined by an economist ; and economists are the most notorious metaphorists in the academic world.