I recently came across a couple of interesting blog posts about corruption and the “revolving door” in the U.S. government (the cycling of individuals from the private sector to government and back again—often as representatives of the same industries they used to regulate while in government).
First, last month Chandu Krishnan (who served as Executive Director of Transparency International UK from 2004-2012) published an insightful post on the Safra Center’s blog, noting how the revolving door—and in particular the promise of lucrative post-government employment—may lead government officials to make laws that reflect the preferences of “industry lobbies” rather than the “will of the people.” Mr. Krishnan adds his voice to the chorus of calls for reform; in particular, he recommends lengthening the legally-required “cooling off” period (during which former government officials are prohibited from lobbying) from one to three years (or longer for positions involving especially high risk, such as procurement).
Around the same time, Mike Koehler, who runs the FCPA Professor Blog, posted a comment on Charles Duross’s recent departure from his position as head of the DOJ’s FCPA enforcement division to take up a position at the law firm Morrison & Foerster. In this post, Professor Koehler reiterated his earlier calls for extending and expanding the “cooling off” period, so that former government FCPA lawyers could not provide any FCPA defense or compliance services for five years after leaving government service.
What struck me about reading these two posts in rapid succession was the fact that although Mr. Krishnan and Prof. Koehler seem in agreement on the problem and the solution, in fact their hypotheses about the effect of the revolving door on government officials’ incentives are not only different, but polar opposites. Mr. Krishnan worries that the prospect of future employment at private sector firms will cause government officials to go too easy on those firms—leading to overly passive or timid enforcement of U.S. law. (He views this as a kind of “institutional corruption.”) Prof. Koehler worries that the prospect of future private sector employment causes government officials to be too aggressive in their enforcement of the law—creating or augmenting the demand for the defense & compliance services these ex-government officials then provide.
Because they’re dealing with different contexts, it’s possible that both Krishnan and Koehler are both right (just as it’s possible that they’re both wrong). But the fact that they both articulate plausible but contradictory hypotheses about the impact of the revolving door on official incentives should make us think more carefully and critically about the relationship between revolving doors and government policy.
There’s already some interesting academic scholarship that helps clarify some of the issues, including a 1995 paper by the economist Yeon-Koo Che. Simplifying a bit, Che notes that if a government official’s regulatory activity can signal to private employers that she has valuable skills (say, a deep understanding of the issues, or the ability to negotiate or litigate effectively), then the revolving door may incentivize the official to acquire those skills and to exert more effort (Koehler might say too much) in carrying out her functions. On the other hand, Che also notes that if private firms do not hire ex-regulators for their skills, but only for their ability to influence the agency they used to work for, then the revolving door will not have this benefit, and will generally have bad effects overall. (Of course, for someone like Prof. Koehler, who is worried about overzealous regulation, that might be a blessing rather than a curse.) So to figure out the effect of the revolving door on the efficacy of regulation, we need to think carefully–in the particular context–about what sorts of activities by government officials tend to improve their post-government employment prospects.
Another factor that Che does not consider explicitly, but might be important here, is the incentives that the revolving door may create for high-talent individuals to pursue government employment in the first place. It would be nice if everyone who pursued government service did so out of pure public-spiritedness, but the fact of the matter is that many high-talent individuals could make a lot more money if they stayed in the private sector. The prospect of being able to “cash out” at the end of a stint in government by taking a job with a private firm may make government service more palatable to those individuals. For that reason, proposals like Krishnan’s and Koehler’s have a significant and underappreciated drawback: even if they improve the incentives of government officials when in office, they may substantially lower the quality of the officials who serve.
I don’t want this post to sound too much like an apologia for the revolving door. I very much share Krishnan’s concerns. (I’ll confess that Koehler’s are less persuasive to me, mostly because I’m much more supportive of the aggressive expansion of FCPA enforcement than he is.) But I do think there’s a tendency to treat the “revolving door” as if it necessarily leads to corruption—or sometimes as if it’s corrupt by definition—when the reality is, in my view, significantly more complicated.