It’s gradually emerged in recent months that the Food and Drug Administration not only spied on its employees, but did so on a massive scale — collecting tens of thousands of employee emails to one another, as well as to journalists, members of Congress and congressional staff workers. The FDA also intercepted draft statements to the Office of Special Counsel, which investigates complaints of whistleblower harassment and reprisal. This monitoring, authorized by the agency’s chief counsel, was clearly a deliberate policy of the highest levels of FDA leadership.

So what problem was all the surveillance directed against? Embezzling? Sexual harassment? No. The FDA was out to punish whistleblowers for talking out of school about dangerous radiation levels in medical imaging devices approved by FDA for mammograms and colonoscopies.

That’s right. FDA leadership was out to prevent employees from talking to members of Congress — which the civics books tell us safeguards the public safety and welfare by, among other things, creating regulatory agencies like the FDA — about the very kinds of concerns the FDA was allegedly created to address.

If you think this is just a case of post-Reagan “regulatory capture,” by corporate money, of an agency originally created for idealistic purposes back in Art Schlesinger Jr’s Golden Age — well, think again. The regulatory state hasn’t been “captured” by the regulated industries; it was created by them.

According to New Left historian Gabriel Kolko, in The Triumph of Conservatism, Progressive Era regulatory measures like the FDA were created primarily to serve the corporate economy’s need for stability.

In the standard narrative, industry responded to problems of excess capacity and overproduction by creating cartels — the Trust movement of the turn of the 20th century — to restrict ouptut and set prices in each industry. And that much is really true.

But in the dominant narrative, Progressive Era legislation was an idealistic response to the trusts — an attempt by the state, under Great Trustbuster Teddy Roosevelt, to rein in corporate excesses in the public interest. This part of the standard narrative is almost entirely false.

In fact the trust movement was a failure. Private, voluntary trusts are vulnerable to defection for all the Prisoner’s Dilemma reasons game theorists talk about, and tend to break down in price wars. And because the big players in a cartel are so highly leveraged from mergers and acquisitions, and burdened with liabilities from watered stock, they’re vulnerable to competition from upstarts operating with lower overhead. So the Trusts began losing market share as soon as they were organized

Progressive Era regulations were an attempt to organize non-defectable cartels under the aegis of the government. Quality and safety regulations like the Meat Inspection and Pure Food and Drug Acts operate exactly like an industry Quality Code, only without possibility of competitive injury by defectors. And since they apply a common set of quality standards across the board, they effectively remove safety, health and quality standards as competitive issues between firms.

At the same time, Progressive Era antitrust regulations actually made stable trusts — i.e., cartelized oligopoly markets based on administered pricing — feasible for the first time. Antitrust legislation outlawed price wars by making it “unfair competition” to set prices below actual production cost.

On top of everything else, government regulatory standards protect regulated industries against attempts by outside actors and “loose cannons” to subject them to more stringent liability standards. As Kolko pointed out, the minimalist federal regulatory state preempted state and local regulations from holding industry to higher safety standards. A recent illustration of this principle is federal telecomm legislation, which prohibits state and local regulation of cell phone tower radiation as a safety hazard.

Government regulations also tend to become de facto health and safety ceilings as well as floors. Because they’re presumably based on “sound science,” they effectively preempt more stringent traditional common law standards of liability. How many times have you seen a corporate PR announcement using “in compliance with all regulatory standards” as an official seal of approval?

Worse yet, sometimes when a company even voluntarily meets and advertises a higher standard of safety, competitors seek government action to suppress “product disparagement.” By even voluntarily advertising your food as GMO-free, or testing your meat for Mad Cow Disease more frequently than the USDA requires, you’re implying that the product of your competitors — which adheres to those regulations based on “sound science” — isn’t perfectly fine.

So the primary effect of the regulatory state was to create an economy of oligopoly cartels, in which a handful of producers in each industry meet the same dumbed-down minimal health and safety standards, and compete almost entirely in terms of image rather than price or quality.

The FDA’s “scandal” is just the latest example of the regulatory state doing exactly what it was designed to do: Protect big business from real accountability.

Written by Kevin Carson and published by the Center for a Stateless Society July 24, 2012.

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