Brains on drugs: as it considers how to regulate the financial sector, Congress should heed the lessons of the Food and Drug Administration.

• Author: Teles, Steven
• Position: Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA - Book review

Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA

by Daniel Carpenter

Princeton University Press, 856 pp.

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As this issue goes to press, congressional deliberations on the mammoth financial reform bill have entered the trench-warfare stage, over a seemingly obscure question: where to put the new Consumer Financial Protection Agency (CF PA), which will centralize the writing and (to some degree) enforcement of federal financial regulations on such things as mortgages, savings accounts, and consumer debt. Should it be an independent agency, like the Securities and Exchange Commission, or a subunit of the Treasury Department or the Federal Reserve?

Liberal Democrats, having been burned over the public option in health care, have now promised to die in the ditch to make the CFPA independent, on the theory that institutional autonomy will make the agency more powerful and thus less vulnerable to pressure from the financial sector. Republicans like Senator Bob Corker of Tennessee seem to agree with the liberals' theory and fear that a freestanding agency would tend toward overregulation, which explains why they are so opposed to making the CFPA independent. All sides concur that while the specific powers given to the CFPA are important, in the long run the capacity of the agency to develop operational and strategic independence matters more. What is really at issue in this debate, as in so many others, is the question of bureaucratic autonomy--a principle that liberals rarely give pride of place, but probably should.

Bureaucratic agencies are often created in the wake of a scandal or crisis, to protect the interests of the public. But as Eric Patashnik argues in his recent book, Reforms at Risk, once the crisis fades from the public view special interests and their lobbies use the pressure points of the democratic process to claw back their legislative losses. Governmental agencies muscular enough to defend themselves and influence the evolution of public policy can help ensure the vindication of the general interest once the public has moved on to other things. While participatory democracy might be the ideal way to prevent reforms from being reversed, bureaucratic autonomy is a realistic, necessary, and, indeed, worthwhile second best. The success of liberal objectives in areas like financial regulation and health care reform, in short, may depend on learning how to arm agencies with the weapons of their own defense.

Thankfully, we have been graced with a genuine magnum opus to guide us through these questions: Daniel Carpenter's remarkable, exhaustive, and frankly (at more than 850 pages) exhausting historical study, Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA. It is, without question, the best study of a federal agency since Martha Derthick's Policymaking for Social Security, and, like Derthick, Carpenter reminds us that bureaucrats are not mere functionaries and timeservers. They have the capacity, under certain conditions, to be powerful agents of political, economic, and social change.

The questions that Carpenter raises are of vital importance for liberals, since the question of bureaucratic power turns out to be central to the possibility of effective governance. To make sense of Carpenter's argument, let's take a short detour into a long-standing debate among political scientists, one with deep roots in American political culture.

Americans have traditionally shuddered at the danger that bureaucracies pose for democratic self-government, and thus for liberty. Liberals get nightmares thinking about J. Edgar Hoover's FBI snooping on civil rights activists or the CIA torturing suspected terrorists, while conservatives fear "jackbooted thugs" from the Environmental Protection Agency or the Bureau of Alcohol, Tobacco and Firearms invading their property. We are reassured, then, when we discover that agencies are firmly under the control of the people's representatives in Congress and the White House.

Political scientists and economists have largely sympathized with our traditional fear of out-of-control bureaucracy. As academics are wont to do, they have formalized this fear, describing the relationship between elected officials and bureaucrats as akin to that between corporate shareholders and management--between "principals" and their "agents." Principals hire agents because they lack the time or expertise to do the work themselves. In so doing, however, they take the risk that their agent will exploit their limited knowledge and oversight capacity to either "shirk" (fail to work, a la the policemen in doughnut shops) or "subvert" (use the principal's resources for purposes that he has not approved).

Put simply, the main purpose of this school of research has been to explore how it is that the will of politicians--and, by extension, the voters who put them in office--can be faithfully translated into the actions of far-flung government agencies. Political scientists have identified numerous mechanisms by which politicians can impose their will. Congressional oversight and control over appropriations give politicians the ability to question, shame, and punish officials whose agencies get out of line. Presidents who detect bureaucratic freelancing can appoint officials sympathetic to their agenda, promote preferred bureaucrats through the permanent ranks, and, in the extreme case (as with President Harry S...