This post is part of our symposium on democratizing administrative law. You can find all the posts in the series here.
Economic inequality and political inequality go hand in hand. American government is empirically more responsive to wealthy citizens, who are better organized and more represented in policymaking institutions. These findings, coupled with an increasingly blatant and troubling attack on democracy and voting rights more broadly, have helped fuel a renewed push around democracy reform. But an often-overlooked dimension of institutional democracy reform lies within the administrative state itself. It is in the administrative state that many of the critical day-to-day governance decisions—from zoning to civil rights enforcement to worker protections, financial regulations, and consumer rights and more—all take place. Without a greater degree of democratic responsiveness and accountability within the administrative process, these substantive rights are unlikely to be vindicated or equitably enforced. This means that policymakers and administrative law scholars alike need to start approaching the task of administrative institutional design with a greater attention to power disparities—what I call, “policymaking as power-building”. In this post, I outline the idea of power-building as a focus for administrative policy and institutional design, and use the last decade of financial reform debates, particularly around the Consumer Financial Protection Bureau and the Financial Stability Oversight Council, as examples.
In the context of administrative law, scholars and policymakers have long expressed concerns about regulatory capture—the risk that special interest groups will hijack the regulatory state to drive their own interests and agendas. For critics of the administrative state, the post-New Deal state itself rests on dubious constitutional foundations, and regulatory capture is best solved by limiting the powers of the agencies altogether. For defenders of regulation, the common response to critiques of capture is to make agencies more deliberative, rational, and committed to technocratic expertise. Thus legal scholars and policymakers have embraced new models of minimalist regulation or “nudges” and a firm commitment to cost-benefit analysis. The idea of transparency has also taken on a great deal of justificatory and political weight, operating as a way to restrain and legitimate agency action, but often with a valence that is hostile and skeptical of state power.
These critics and proponents of regulation view the issue of administrative capture as a fundamentally negative problem requiring constraints on agency authority. But these concerns are better understood in a positive sense: instead of limiting state power, we need to balance power among different constituencies able to influence the exercise of state authority. In other words, the problem with capture isn’t that we have agencies that are capturable; it is that we have some interest groups that simply have too much outsized influence in the first place. This idea is, in many ways, a classic Madisonian insight: that the task of administrative institutional design is to facilitate an equitable balance of interest group power and ensure state authority is deployed towards the public (and not the partial) good.
In context of administrative law and administrative reform, this power-balancing view points to the importance of what I call in a recent article, “policymaking as power-building”: the self-conscious use of policy design to shift political power. If we start from the view that there is an already-existing disparity in economic and political power, and that in a democratic society the communities most affected should have a voice in shaping the relevant policies, then a policymaking institution will need to pro-actively engage affected constituencies and balance the disparities of power and influence. This idea in turn points to two key design principles. First, administrative institutions must possess sufficient authority to actually address the root problems they are trying to solve. A consumer protection agency without clear jurisdiction over predatory lending and lender discrimination, for instance, will not be able to address the needs of affected communities. Second, these institutions will need to establish sufficient channels and levers through which affected groups are able to participate and exercise real leverage on policymaking. These two design principles help speak to two of the most critical ways more powerful groups are able to leverage the regulatory state for their own interests: first by exploiting gaps or limits in administrative authority, and second by exercising outsized influence over regulatory policymaking.
From a power-building perspective, the differences between the Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB)—two regulatory bodies created in the wake of the 2008 financial crisis—are instructive. The FSOC was created to solve the fragmentation of financial regulation. Without a single regulator responsible for monitoring systematic financial stability, long-time players like financial firms could easily navigate and exploit the regulatory landscape to their own advantage. In response, FSOC was charged with regulating systemic risk and coordinating between other regulatory agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission. The agency’s consolidated authority ensures that officials have the ability to respond to the problem at scale. But at the same time, the FSOC itself is comprised of agency heads and led by the Secretary of the Treasury. With no representation of affected constituencies and an emphasis on technocratic expertise, the FSOC affords few opportunities for interface between civil society and the state.
By contrast, the CFPB is an excellent example of policymaking as power-building along both conditions of authority and leverage. Like the FSOC, the CFPB exercises centralized enforcement authority for consumer protection. Before the agency was established, a wide range of enforcement agencies were responsible for consumer protection, which in turn allowed private actors to play agencies off one another and exploit the gaps in regulatory coverage. However, the CFPB’s institutional design departs from FSOC insofar as the agency also engages directly with affected constituencies and is accountable to consumers. The agency’s consolidated authority provides a focal point to stakeholders affected by illicit business practices, as advocacy groups and community members know where to go with a complaint or a concern. Indeed, in a complex and fragmented regulatory ecosystem, it is the least sophisticated and resourced groups that are likely to get lost in the shuffle. A more centralized CFPB provides a more visible and accessible focal point for grassroots communities to target with their concerns, complaints, and needs.
The original design and operation of the agency also bolsters the CFPB’s ability to directly engage with affected communities. For much of its early operation, the CFPB drew on personnel with deep experience in consumer rights movements. The agency is also accountable to the public through town halls, public hearings, and a complaint database from which it sets its own enforcement priorities. The CFPB also operates a community affairs office that organizes outreach from consumer advocacy groups and constituencies often targeted by predatory consumer practices like minorities, students, and homeowners. This link to civil society thus empowers groups that typically have to battle for access against better resourced, private interests.
The FSOC and CFPB comparison—alongside other successful examples at the municipal level of policy making as power-building—offers key lessons on institutional design. First, successful power-building requires both a consolidation of institutional authority and an institutional focal point for grassroots organizing. Agencies with the authority and visibility of the CFPB enable more diffused and less well-resourced constituencies to shape policy over the long term, providing a welcome change from the opacity and fragmentation that characterize many of our administrative agencies. Moreover, agencies armed with the capacity to change social or economic outcomes also incentivize participation from the very groups they are reaching out to—groups that otherwise would have a hard time mobilizing or being heard. Second, there need to be actual hooks or levers constituencies can use to monitor and influence the agency. The CFPB’s town halls and community affairs office offer one example; direct interest group representation and the composition and selection of agency leadership is another. Over time, agencies designed to shift political power can foster meaningful participation, beyond the limited channels of contemporary administrative law, and fortify the link between civil society and state over time. More broadly, one could imagine designing agencies from the start with a more robust approach to directly enfranchising public interest groups in the regulatory system.
Of course, the Trump Administration has severely undermined the FSOC and the CFPB through a combination of policy shifts, staffing changes, and budget cuts. But should there be a new administration in Washington in a few years, policymakers would be remiss to focus solely on substantive policy goals and outcomes. Reformers should also assess how the institutional designs and processes themselves can help embed greater power for affected communities, in ways that can expand their democratic voice and influence going forward. This kind of power-shifting and power-balancing institutional design will be critical to remedying the deep structural disparities in economic and political power over the long run.