How to Make Financial and Health Reform Last

Robert Temple doesn't look obscenely rich. He's got big glasses and a thick walrus mustache. He does not wear bling. And the fact of the matter is that Robert Temple is not obscenely rich. But he could have been.

Temple is a professional regulator—to be specific, the Director of the Office of Medical Policy at the Food and Drug Administration. The trade publication "Medical Marketing and Media" called him "an FDA icon." Dan Carpenter, author of Reputation and Power, an analysis of the FDA, says "he designed most of the modern clinical-trial regulations. He [could have] stamped his own currency if he had gone into the industry." But he didn't. And figuring out why he chose the path of adequate compensation rather than the path of personal helicopters is perhaps the most important question facing health-care reform and financial regulation in the coming years.

Both of those landmark legislative achievements of Obama's first two years in office left many of the most important decisions to regulators rather than inscribing them in law. The Wall Street bill, for instance, has more than 30 studies in it, and does not proscribe things like the precise level of capital a bank has to hold, or the precise way the Volcker rule is implemented, or what is to be done with the ratings agencies. It leaves those questions to regulators. Both bills require the construction of new institutions, such as the Consumer Financial Protection Bureau and the state health-insurance exchanges. And both bills ask existing agencies, like the Federal Reserve and the Center for Medicare and Medicaid Services, to take on much larger roles.

All this tends to play poorly politically, with naysayers worrying about unelected bureaucrats making important decisions behind closed doors. But in some ways, the greater danger is that the doors will not be closed enough. As Eric Patashnik argues in his book Reforms at Risk, recent reforms to open the regulatory process have mainly benefited lobbyists and special interests, as the people who show up and know what to do during the third phase of public comment for a regulatory act that most people will never know happened are the people who are paid to show up and trained to know what to do.

Thus, the implementation period brings a dangerous asymmetry: The public quiets down, as they think action has been taken, but the lobbyists mount up. As Binyamin Appelbaum reported in The New York Times, some industry groups made the decision to focus their energies on this phase even before the bills had passed. "When the Consumer Bankers Association convened its annual meeting in early June," he wrote, "there was still plenty of time to lobby Congress. But the group's president, Richard Hunt, told his board that the group should shift its focus to the rule-making process. The board voted to increase the group's budget and staff."

And the danger doesn't end once the rules are set: once the regulatory structure is constructed, it's in constant competition with the industries it regulates, and it doesn't have the resources they have. The problem reaches almost comical proportions with the financial and health-care sectors, who can offer a Scrooge McDuck–style swimming pool of gold coins as a signing bonus. And that's exactly what they tend to do, identifying smart, tough regulators and then hiring them away by promising them fantastic wealth. It's good business: Forbes reports than an internal probe at the Securities and Exchange Commission found evidence that "a private-equity firm was able to avoid fraud charges only after enlisting the help of William McLucas, a former SEC director who'd joined white-shoe law firm WilmerHale."

The question facing reformers, then, is how do you make sure your reforms survive construction and implementation, and then resist the relentless and inevitable efforts at erosion? To put it slightly differently, how do you get something like the FDA in the 1950s, when one of their employees was featured on a list of the 10 most admired women in America, rather than the Minerals Management Service in the aughts?

Experts say that salary is important, but you'll never be able to compete against the industries you're regulating. Instead, status and mission have to suffice. Working at the FBI, or even enlisting in the Marines, won't make you rich. But it will make you proud. The same has been true for certain agencies, like the Federal Reserve. "Washington is a big status town," says Carpenter. "It's not just your name, but who you're with."

Another key is to get the right staff at the outset, which requires getting the right leadership at the outset: you want someone that talent will want to work with, much in the way that top students will attend a certain university to work with a specific professor. The problem is that getting someone prominent in their field is not the same as getting someone who's politically prominent. It's easy to imagine top law talent wanting to work with the hard-driving, justly renowned Harvard law professor and consumer advocate Elizabeth Warren if she were to lead the Consumer Financial Protection Bureau. The same cannot be said for some well-liked former congressman.

And then there's the question of the work itself. An agency with an appealing mission, the political support to carry out that mission, and the discretion to be creative in doing it, might get top talent. An agency with an appealing mission, but not much political support, and no real discretion, will struggle to attract and retain good employees.

"A new agency or an agency that's rapidly expanding gives you this really unusual opportunity to entrench your vision years into the future," says Steve Teles, a political science professor at Johns Hopkins University. But to paraphrase Spider-Man, with great opportunity comes great responsibility not to muck everything up. Passing these bills was only the first step in a very long project.