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Article Excerpt
Research over the last decade on the capacity of legislatures to shape the way administrative agencies implement policy has invigorated the study of bureaucratic behavior. Once assumed to have the upper hand in most dealings with legislatures, new theories suggest that the lack of frequent oversight may actually mean bureaucrats are obedient agents to the congressional principal (Weingast and Moran 1983; McCubbins and Schwartz 1984). But unless agencies are populated by automatons programmed to carry out legislative will, these utility maximizing theories must concede that the choices of bureaucrats, like those of legislators, further their own notions of what policy should be. If the process of implementation provides an opportunity for agencies to engage in policy shaping, then under what circumstances will an agency use such an opportunity to further its preferences? In other words, what political conditions encourage agencies to extend their power and influence?
I argue that the condition most conducive to political behavior by an agency, thereby creating the greatest chance of policy deviation, is when a legislature delegates extensive power but provides little guidance on its use. Not only does the agency have the opportunity to take advantage of the situation to extend its power, but may even feel pressured to do so due to the uncertainty it faces regarding the final outcome of the implementation process. Furthermore, competition with other parties, including other agencies, also trying to take advantage of this circumstance to circumscribe the agency's new authority may pressure it into acting aggressively to protect its regulatory turf. In order to test this proposition I examine the first full year of implementation of provisions in the Gramm-Leach-Bliley Act directing the Federal Reserve to act in concert with other regulatory agencies to collectively regulate banking, finance and insurance companies. I find evidence that the Federal Reserve has indeed taken advantage of the highly political and uncertain atmosphere created by this landmark law to extend its power beyond its traditional banking domain at the expense of these other agencies.
POLICY IMPLEMENTATION AND THE POLITICAL BEHAVIOR OF EXECUTIVE BRANCH AGENCIES
Two cornerstones in our understanding of policy implementation are that the process is often political and the parameters of this politicization are variable. In their study of the Economic Development Administration, Pressman and Wildavsky (1973) demonstrated how policy implementation often becomes politicized when government officials and organized interest groups involved in legislative battles shift their fight into the regulatory arena. This follows Schattschneider's (1960) argument that interests unsuccessful in one decision making arena may look for another in which they can continue their struggle on more favorable terms.
Certainly, executive agencies themselves are not above pursuing their own self-interest during times of political uncertainty. Downs (1967) and Niskanen (1971) demonstrated that bureaucrats often act politically to further their personal policy goals and the power of their agencies during implementation. Yet, positive theorists modeling the relationship between the legislature and the bureaucracy argue that the capacity of agencies to use implementation to expand their own power beyond legislative intent is conditioned on the breadth of the distribution of preferences in the enacting legislative coalition (Weingast and Moran 1983; McCubbins, Noll, and Weingast 1987; 1989). They suggest that if legislators with substantially different policy preferences are forced to compromise in order to pass a bill, then it is more likely that the bill will delegate broad responsibilities to the agency, but provide it with few specifics on how to implement the policy. This suggests that it is under this type of implementation circumstance that the agency will have the greatest discretion space in which it may engage in political behavior.
There remains considerable debate in the scholarly community as to the extent of a legislature's real capacity to constrain the bureaucracy (see Moe 1987; Wood 1988; Balla 1998) and I do not attempt to further this debate. Rather, given a circumstance where the legislature has chosen to delegate authority and empower an agency, will that agency necessarily engage in political behavior to further extend this power? John Brehm and Scott Gates (1997) suggest that agencies are by no means only looking out for their own self-interest. They often desire to faithfully interpret legislative intent and respond to public desire. Assuming they are correct, and there is variation in how agencies respond when the opportunity to engage in political behavior arises, what pressures might push an agency to exceed its legislative mandate and extend its influence? I suggest that uncertainty and competition provide the necessary pressure.
Students of legislatures over the last decade have used the uncertainty government officials face over how the policies they vote for will impact their constituents as a primary motivating factor in models of decision making. For example, Krehbiel (1991) and Cox and McCubbins (1993) theorized that uncertainty over potential policy outcomes sparked the development of a committee system populated by experts but held accountable to either the entire chamber or the majority party. Wright (1996) and Austen-Smith (1993) use uncertainty to explain why legislators grant access to, and build long term relationships with, interest groups. Interest groups, they argue, act as providers of the critical information regarding policy impacts on constituents that legislators need in order to cast votes furthering their political careers.
When diverse legislative coalitions delegate substantial authority but provide little guidance on implementation to an agency, then it is reasonable to assume that the role the agency is expected to play has not been well defined. With the scope of the agency's power still open to interpretation and change, competitors, be they other agencies or organized interests, may attempt to restrict this power, increasing the atmosphere of uncertainty for the agency. The logical response for the agency to adopt under such a circumstance is to take advantage of the implementation process to extend and entrench this new power to preserve its gains and resist its opponents. Furthermore, it is those agencies granted the most authority by the legislature who should most aggressively engage in such behavior--for they have the most to loose. Their uncertainty as to the final outcome as the implementation process slowly solidifies into a more institutionalized regulatory structure provides a strong incentive to place themselves in the best position possible while the opportunity permits. In other words, due to the uncertainty effect, those agencies delegated the most authority by the legislature are the ones most likely to use it to further their influence. And, when an agency perceives other agencies as its competitors, it will extend its power at their expense.
FUNCTIONAL REGULATION AND THE "UMBRELLA REGULATOR"
This theoretical framework provides a basis by which the first couple of years of implementation of the Financial Modernization Act of 1999 may be evaluated. Better known as the Gramm-Leach-Bliley Act (GLB), (1) this bill is almost certainly one of the most important milestones in the history of national banking, investing and insurance policy. Although a variety of regulatory and legislative actions...
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