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The Political Economy of Regulation: The Case of Insurance.

The Political Economy of Regulation: The Case of Insurance The Political Economy of Regulation contributes to an ongoing debate among political scientists and economists about the process of government regulation and the degree to which that process is dominated by the industry involved. In this book, Kenneth J. Meier uses the insurance industry as a case study to challenge existing theory and to put forth an alternative. In particular, Meier's argument is directed against George Stigler's theory that it is the regulated industry that controls the regulatory process, a position that Meier repeatedly asserts has long been discredited. Meier contends that regulatory policy-making is an interactive process involving four actors: the industry, consumer groups, the regulatory agency, and political elites. In any given instance, the relative importance of these four groups in a policy outcome is affected by the issue. When the issue is salient, that is, of intense concern to the general public, consumer groups and political elites have more influence. When the issue is complex, requiring specialized knowledge, the industry has the advantage. Meier argues the merits of his theoretical approach first through an examination of the history of insurance regulation and specific cases and second by presenting a quantitative analysis of current state insurance regulation.

After a very general historical overview, Meier concludes that the insurance industry did not control the regulatory process, but he presents very little evidence to support this conclusion. Rather, he seems to assume that the existence of any regulation at all is evidence that other actors were determining policy. Thus, for Meier, the New York Armstrong Committee investigation in 1905-6 of abuses and misuse of funds by insurance company executives and the resulting passage of new regulation prove that the insurance industry lacked control. Since Meier does not consider the detrimental impact that flagrant industry abuses might have on public opinion and sales, he ignores the role regulation might play in maintaining or restoring credibility and consumer confidence. There is a difference between the power to prevent public criticism and the power to shape regulatory policy outcome and implementation. Indeed, regulation may be an industry's strategy to diffuse public opposition.

Meier extends his treatment of the history of regulation by examining the 1985-86 liability insurance crisis, a case in which consumers appear to have played a large role. It should be noted, however, that since this crisis pitted the property and casualty insurance industry against a regulated professional group, it may not lend itself to clear conclusions about the insurance industry's control of insurance regulation.

In the second stage of his argument, Meier presents a quantitative analysis of current regulatory policy in all fifty states. This necessitates choosing variables to represent each of the four actor groups in order to perform statistical operations. In addition, to interpret the results, Meier must make assumptions about the policy goals of each of the four actors. The persuasiveness of this analysis depends in large part on the degree to which a reader agrees with the decisions made by Meier at each of these interpretative steps.

The value of Meier's work for historians is somewhat limited. By identifying the actors that may be involved and suggesting how the issue at hand may enhance the importance of one group over the others, Meier presents a useful approach for analyzing historical cases of regulation. But, though he may be correct in asserting that industry does not exercise total control over the regulatory process at all times, he tends to underestimate the power that industry has exercised historically. Ultimately, conclusions about the role of industry and the degree to which it has controlled government regulation must be derived from an in-depth examination of the dynamics of the historical process of policy-making and enforcement using many specific cases rather than from a mathematical abstraction.

Anita Rapone is associate professor of history at the State University of New York at Plattsburgh. She is the author of The Guardian Life Insurance Company, 1860-1920: A History of a German-American Enterprise (1987). At present, she is completing a history of the movement of women into office work in the late nineteenth and early twentieth centuries in Albany, New York.
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Author:Rapone, Anita
Publication:Business History Review
Article Type:Book Review
Date:Jun 22, 1990
Words:695
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