agency formation and development

Agency Formation and DevelopmentBureaucratic Politics

• Introduction• Bernstein, Marver. 1955. Regulating by Independent Commission.

Princeton, NJ: Princeton University Press• Book is from 1955, so why do we still read it?• Helps to understand agency development and behavior.• Provides evidence as to why many agencies end up being inefficient and ineffective.

• This is a theory and is largely not scientifically tested.• Agency life cycle:• Four stages:• Gestation• Youth• Maturity• Old Age

Typical Agency Life Cycle of a Regulatory Commission: Gestation

• A Growing Problem:• Protracted period of unsatisfactory outcomes or a growing problem.

• Examples:• Public scandal• Economic depression/recession

• Development of Interest Groups and Public Support:• Slow development of relevant interest groups for and against the issue.

• Equilibrium of interests• Public Support:

• E.E. Schattschneider • Need for regulatory agency, but not enough support to pass in Congress• Typically capped by a crisis event

• Public support is very high for the regulation of the economic sector in question• Battle is over legislation and not goals and objectives of a proposed agency.

• Authorizing Statute:• Congress rapidly responds with a relatively vague statue creating a regulatory agency.

• Law does not establish clear objectives, goals, or procedures for the agency.• Law is often out of date because it was enacted after the problem has existed for a prolonged period of

time.

Typical Agency Life Cycle of a Regulatory Commission: Youth

• Personnel and Budget:• Very rapid period of growth in terms of personnel and budget

• Attracts ambitious and aggressive employees• Characterized by energy, ambition, imagination

• A Limited Window of Opportunity:• Must act quickly while political support exists from Congress, the President and

the public.• Conflict with the Regulated Industry:• Inexperienced agency battles a much more experienced industry with financial

and political resources• Vague agency charter (statute) leaves bureaucrats with unclear objectives• Court Battles:

• Conflict occurs in very low salience forums (administrative hearings, federal courts)• Supreme Court must rule on the “validity and constitutionality of its powers and authority”.• Drains agency resources (budget).

Typical Agency Life Cycle of a Regulatory Commission: Youth

• End of the Youth Phase:• Difficulty of meeting high expectations for the agency• Institutionalization of agency-industry-congress relationship• Revolving door• Regulators try to get supporters appointed.• Some commissioners leave the agency and go into the employ

of the industry• Public Support:• Public support that existed to pass legislation begins to fade.• Fading awareness.

Typical Agency Life Cycle of a Regulatory Commission: Maturity

• Personnel and Budget:• Personnel and budget begins to level off (still some growth)

• Routinization and Judicialization:• Court battles lead to a judicialization of procedure and case

handling• Forms, patterns and routines form• Accumulation of significant case law

• Backlogs of cases forms• Public Support:• Public support/attention has disappeared. • Regulated industry starts to gain influence because public is not

organized.

Typical Agency Life Cycle of a Regulatory Commission: Maturity

• Protectionism:• Avoid conflicts that occurred in the youth phase and have good

relationship with those they are supposed to regulate• Shift from enforcement to voluntary self-enforcement by the industry• Begin to protect the industry • Fully institutionalized relationship with industry

• Conflict:• Competition with other agencies over “turf”

• Professionalism:• Agency becomes dominated by professionals.• Lawyers, engineers, and economists vie for control of the

policymaking.

Typical Agency Life Cycle of a Regulatory Commission: Old Age

• Personnel and Budget:• Personnel and budget growth reach plateau and begin to decline

• Congress and the president will not appropriate additional funds to deal with backlog of cases.

• Decelerator effect• Flight of quality personnel

• Agency now depends on industry for expertise and staff.• Further institutionalizes the agency-industry relationship.

• Diversification:• Agency may diversify functions to protect against budget cuts

• Other points:• Agency becomes protector of the industry it regulates

• Protects against new market entrants• Agency goals are out of date and out of touch with technology.• Poor management• Agency may not be able to respond to a problem and there is a crisis

An Agency Life Cycle Example: The Interstate Commerce Commission

• 1870’s (Gestation)• Railroads begin to use anti-competitive pricing practices

• Examples:• Rates not set by weight and distance formulas.• Rates set based on what the market could bear.• Competitive areas:

• Lower rates, rebates• Sometime prices would be higher for shorter hauls than longer hauls as a result of this pricing strategy.• Collusion

• This would upset the public:• Agricultural• Mercantile• Industrial sectors

• Initially, railroads regulated exclusively by the states • Established in the Granger cases (1877)• Munn v. Illinois (1877)

• Some states (Massachusetts and others) establish railroad commissions.• Corruption of commissioners

• 1885 (Gestation)• Eight railroad cartels, try to maintain collusive pricing (i.e. regulate themselves) but there is the

temptation to cheat.• Still want to keep others out of the industry.


• 1886 (Gestation)• Wabash v. Illinois (1886)

• The Supreme Court says states cannot regulate portions of interstate journeys.• Rule that one state affects the other (interstate commerce).

• 1887 (Gestation – Youth)• Interstate Commerce Act passed by Congress which establishes the ICC (first independent

regulatory agency).• Structure:

• Headed by five commissioners• Six year terms

• Powers:• Investigate railroads• Compel witnesses to testify• Secure relevant materials• Require railroads to submit annual reports• Require railroads to use a uniform accounting system• Enforcement would occur through the U.S. Circuit Courts of Appeals

• Fuzziness:• Law made traffic pools illegal but collective rate setting was not• Prevented charging more for a short haul than a long haul but was qualified by saying “under substantially similar

circumstances.”


• 1888 (Youth)• Industry and ICC begin to fight over rates and rules.• ICC lacks enforcement power due to weakness of the Act

• Must have courts enforce their rulings.• 1893 (Youth?)• Economy takes a disastrous turn and members of Congress and the President begin to

focus on other items.• The public has also shifted its attention.• Railroads suffer heavily as a result of the economy.

• 1897 (Youth)• The Supreme Court Destroys the Commission:

• ICC v. Cincinnati, New Orleans and Texas Pacific Railway (1897)• The ICC cannot set rates

• ICC v. Alabama Midland Railroad (1897)• Created exceptions to the short-haul/long-haul clause that rendered it useless.• Railroads therefore raised rates.

• Like other businesses at the time, they relied on Sherman Antitrust Act (rate setting) and the 14 th Amendment (equal protection).


• 1900’s (Youth)• Congress rehabilitates the ICC

• The Hepburn Act of 1906• Allowed ICC to set maximum rates.• Number of commissioners expanded to 7• Expanded ICC jurisdiction:• Express and sleeping car companies• Oil pipelines• Others

• Expanded jurisdiction leads to a flood of cases.• This stifles agency imagination.

• 1910’s (Youth-Maturity)• The agency is starting to wear down.

• Emphasized value-of-service rates rather than cost-of-service rates.• Evidence of support of the industry creeping in.

• Congress passes the Mann-Elkins Act of 1910 which places the ICC in charge of telephone, telegraph, and cable lines.


• 1917 (Youth-Maturity)• World War I• The ICC is starting to become professionalized as the commissioners rely

more heavily on staff.• The number of commissioners is expanded by Congress to 9.• In spite of ICC action, the railroad industry is failing.

• 1920 (Maturity)• Esch-Cummins Transportation Act of 1920 • Expanded the number of commissioners to 11• Finally gave the ICC the ability to set minimum and maximum rates.• All the while, size/budget of agency has been growing

• ICC now focuses on erecting barriers to entry • Agency capture

• Stock market crash sinks the railroad industry• Government gives bailouts


• 1934 (Old Age)• 1934 FCC (telephone) – functions taken from ICC

• 1935 (Gestation, new cycle)• Motor Carrier Act of 1935• Trucking, a new industry using similar anticompetitive practices, is rolled into ICC

jurisdiction (highlights new gestation/crisis)• Begins to set trucking rates and limit new entrants

• 1960’s (Maturity-Old Age)• From 1955 to 1968, the ICC approved 33 out of 38 railroad merger

applications.• Evidence of support of the industry

• Department of Transportation takes over safety functions of the ICC (1966)• 1970’s (Old Age)• Deregulation of the trucking industry by Carter.


• 1980’s (Old Age)• Commissioners cut from 11 to 7 (1982)• Commissioners cut from 7 to 5 (1986)• Staff dropped from 1,946 (1981) to less than 1,300 (1983).

• In 1985, the OMB recommends for the abolishment of the ICC.• Demonstrating the strength the industry had over the ICC, they attempt

to resist its demise for 10 years.• 1995 (Death)• The ICC closes its doors on the last day of 1995.• Is there a need for regulation again?

agency formation and development

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