On regulatory capture, from finance to narcotics

A very useful discussion of how regulatory capture takes place:

Two archetypal scenarios for regulatory capture exist. The first is an underpowered, understaffed regulator working to control a wealthy, concentrated industry. In these situations, the sheer imbalance in resources means that the regulated parties can reward or punish the agency, but not vice versa. Predictably, rational bureaucrats will choose to cater their policies to the benefit of the subjects instead of suffering their wrath – recall, a regulatory job well done rarely carries any significant benefits to its engineers. The Department of Interior’s Minerals Management Service is a perfect example of a body that appears to have fallen prey to this pattern. Even a person of upstanding moral character can understand the difficulty of resisting the repeated entreaties of Exxon and the like for the sake of sticking to an unadulterated scheme of allocating oil and gas exploration rights. Someone sitting at the MMS desk may well wonder if anyone would ever notice a shift away from the prescribed approach towards one that favors the companies they deal with on a day-to-day basis. These incentives to cooperate exist even though the relationship between the regulator and the regulated parties is facially adversarial, with MMS holding rights that producers want but cannot get.

The second standard scenario for regulatory capture takes place when the same agency identifies items to source from the private sector and supervises the production of these items. The Department of Defense springs to mind as an example. The Pentagon almost certainly has the best interests of the Armed Forces in mind when it sets out its procurement goals. The combination of public (“free”) money and a desire to avoid saying one’s coworkers and superiors made a mistake, however, means that projects live on even when they go horribly wrong. Private-sector contractors benefit from bloated budgets for littoral combat ships that suffer from fundamental structural defects (the program has since been scrapped), military officers occasionally pick up a kickback, and the taxpayer ends up footing the bill. The political prominence of the Pentagon aggravates the effects of regulatory capture, since colonels know they can fight off most allegations of inefficiency by claiming that a critic is unwilling to support the troops.

Which raises an interesting question: which of these two archetypal forms does the regulatory capture of the drug enforcement bureaucracy represent? 

My sense is that it's a blended model. On the one hand, it's pretty clear that the current narcotics Prohibition, by providing a basis for extremely high profit margins, represents a pretty satisfactory situation for the drug lords, which is why the "facially adversarial" relationship is actually more symbiotic than it would appear, with the ongoing Prohibition regime also being extremely beneficial to the prison-industrial complex, DEA bureaucrats, enterprising prosecutors, etc. On the other hand, it's also true that the (recently surrendered?) "war on drugs" is a story littered with failures that no one in the anti-drug bureaucracy wants to come clean on, so long as the taxpayers are willing to keep footing the bill; so in that sense, it's also a bit like archetype two.