John Cochrane, who is an adjunct scholar at Cato as well as a professor at the University of Chicago Booth School of Business, had a nice post on the evolving nature of modern regulation earlier this month. He starts by quoting a Wall Street Journal account:

Your No. 1 client is the government,” John J. Mack, Morgan Stanley’s chairman and chief executive from 2005 to 2009, told current CEO James Gorman in a recent phone call. Mr. Gorman, who was visiting Washington that day, agreed…


.…regulators prowl the office floor looking for land mines, and Mr. Gorman phones Washington before making major decisions…

About 50 full‐​time government regulators are now stationed at Morgan Stanley. There were none before 2008, when it was regulated as a brokerage firm instead of a bank.

Cochrane adds that this is “a useful anecdote to remind people what ‘regulation’ means.” People often imagine, he says, that it means something like enacting a knowable, impartial equivalent of a speed limit and enforcing it by putting more cops on the road.

No, we put 50 cops in your car. And how long can this possibly go on before the cops start asking where you’re going and why? How long can 50 regulators sit in the bank approving every decision, before “you know, you haven’t made any green energy loans in a long time” starts coming up? But contrariwise, how long before those 50 regulators come to the view that Morgan Stanley’s survival and prosperity is their job? 50 full‐​time government employees calling the shots on every deal at a supposedly private bank is a good picture to keep in mind of what “regulation” means.

And it isn’t just banking. On‐​site government inspectors are becoming more common in other lines of business, especially when a company has copped a deal to some earlier charge of regulatory violations — and few big companies have not been hit with charges of that sort. Notre Dame law professor Veronica Root explains what happens next:

…the corporation and the government often enter into an agreement stating that the corporation will retain a “monitor.” … A monitor, unlike the probation officer, is not solely charged with ensuring that the corporation complies with a previously determined set of requirements. Instead, a corporate compliance monitor is responsible for (i) investigating the extent of the wrongdoing already detected and reported to the government, (ii) discovering the cause of the corporation’s compliance failure, and (iii) analyzing the corporation’s business needs against the appropriate legal and regulatory requirements. A monitor then provides recommendations to the corporation and the government meant to assist the corporation in its efforts to improve its legal and regulatory compliance — the monitor engages in legal counseling.

Something to keep in mind next time you wonder why government officials and the leadership of big business so often seem to be working in harness, on issues where you might expect them to oppose each other.