- Historic Sites
The Controversial World Of
The Regulatory Agencies
April 1977 | Volume 28, Issue 3
Landis, who served on three different federal regulatory agencies, helped pioneer the new field of “administrative law.” One of the central thrusts ofthat development was an effort to insure to all parties involved in regulation the “due process of law” guaranteed everyone by the Fifth and Fourteenth amendments. The movement culminated in the Administrative Procedures Act of 1946, which prescribed standard practices for administrative agencies in order to assure that everyone got a fair hearing.
Some of the unintended consequences of the growing preoccupation with procedure in regulatory affairs were a dominance of regulation by lawyers; a poor record by the commissions in avoiding red tape; and (in the opinion of many economists) an even poorer record in promoting industrial efficiency. In other words, the agencies have often been accused of failing in the very missions in which they were expected to excel. If they were supposed to be quick, expert, and apolitical, then even the most generous analyst would have to conclude that on the whole they have not done a good job. Some of the crises they were supposed to alleviate have instead grown worse.
Industrialization itself gave rise to the natural monopolies that in turn stimulated the creation of railroad and utility commissions and agencies like the Federal Trade Commission (1914). Periodic crises in particular industries precipitated the creation of other federal commissions. Chaos caused when early radio broadcasters overlapped one another’s frequencies, for example, forced Congress to institute a Federal Radio Commission in 1927. This agency was to allocate the finite spectrum of frequencies among the many applicants so as best to serve “the public interest.” In 1934, Congress broadened the agency’s authority and renamed it the Federal Communications Commission. The FCC now regulates television and telephones as well as radio broadcasting.
A similar crisis in the electric utility industry led to laws creating (1920), then strengthening (1930, 1935), the Federal Power Commission. The FPC received jurisdiction over the natural gas industry in 1938, and saw its powers over natural gas field prices much augmented by a Supreme Court decision of 1954.
Still another crisis led to the creation of an agency to regulate the stock exchange. The Wall Street Crash of 1929, and the long depression that followed it, demonstrated the competitive market’s failure to insure proper behavior by brokers and corporate executives responsible for new security issues. The result was the Securities and Exchange Commission, created in 1934.
A year later, Congress added trucking to the jurisdiction of the Interstate Commerce Commission, in response to a crisis in that industry and the inability of the ICC itself to regulate railroads while the rails’ major competitors, the interstate trucks, went unregulated. Aviation came under federal regulation in 1938, again in response to chaotic, destabilizing competition that caused a crisis within the industry. In this case, as with broadcasting, the industry itself asked for federal regulation.
By the end of the New Deal, the outlines of a modern system of state and federal regulation were complete. The state public utility commissions, now assisted by the Federal Power Commission and the Securities and Exchange Commission, became gradually more effective—though critics doubted that they could ever reach the goals set by their original promoters. Six major federal regulatory bodies, from the ICC to the new Civil Aeronautics Board, oversaw the operations of numerous industries. The Federal Trade Commission, revivified somewhat by Franklin D. Roosevelt’s appointees, attempted to strengthen the regulatory power of the Smithian market in naturally competitive industries.
In the years after the New Deal, the regulatory agencies gradually began to lose their reputations for service to “the public interest.” Part of the reason was a shift in national priorities, and the emergence of a booming prosperity that dissipated the atmosphere of economic crisis characteristic of the 1930’s. The problems of the 1940’s and igso’s had more to do with war and Cold War than with the behavior of businessmen or the efficacy of Adam Smith’s competitive market. As regulation seemed to become less important, regulators seemed more concerned with preserving the status quo than with policing the nation’s economic life.
But a new kind of crisis brought another wave of regulatory legislation. This was the energy-ecology-cost dilemma, first felt in the i goo’s and likely to persist for at least the remainder of the twentieth century. The consumer movement, itself in part an outgrowth of the new crisis, also contributed to the creation of new regulatory commissions. Water and air quality boards were created within the states while the Environmental Protection Agency and Consumer Product Safety Commission were established by the federal government. These agencies, both state and federal, dealt not so much with price, entry, and competition as with the quality of the environment and the safety of consumer products.