Tesla and Elon Musk had a horror story of their own just before the Halloween season began. On Sept. 27, they were sued by the Securities and Exchange Commission which, when settled two days, resulted in a $20 million dollar fine for both Tesla and Musk with Musk stepping down as chairman and Tesla hiring him a glorified babysitter. 

While many view this settlement as a success for the SEC, the specifics of the Musk case reveal the reality of regulatory capture — when a regulatory agency begins to serve the interests of the industry it was intended to regulate. The SEC and many other agencies in the United States are considered captured agencies, and this is evident in the settlement with and appeasement of Tesla — the SEC, by failing to hold Musk accountable, also fails to fulfill their obligation as an agency. Regulatory capture is an extremely dangerous threat to democracy and global stability, and this problem can only be solved by democratizing the economy and opposing capitalistic policies and initiatives. 

The Tesla lawsuit came after Musk falsely tweeted that the company was going private, and that he had the nearly $70 billion dollars required to do so secured. The SEC claimed that Musk had no genuine intention of going private and lied about the specificity of his proposed plan, a blatant violation of its rules. And while the idea that a tweet could have dramatic consequences seems ridiculous, the volatility of capitalism proves otherwise. Nearly 30 million shares of Tesla stock were traded the day of the tweet, compared to 6 million the day before. 

Initially, the SEC lawsuit sought to strip Musk of his status as chairman and CEO. In the settlement, however, they took his stepping down as CEO off the table. To add to the embarrassment, Tesla rejected the initial settlement after Musk threatened to quit both positions. Ultimately the SEC did win out in negotiations and gave Musk a higher penalty. However, many are confused as to why the SEC didn’t take Musk to court after his refusal of the initial offer and his blatant attempt to hold both his board and the SEC hostage. 

Adding to the confusion is a statement by director Jay Clayton, in which he said: “corporate fines often are financed with funds that could otherwise benefit shareholders, and the skills and support of certain individuals may be important to the future success of a company.” What this translates to is that despite the fact that Elon Musk clearly violated SEC rules, he is too important to the profit margins of his company to justify punishing him for this violation. This statement is an indirect signal to directors and executives that you can get away with violating any of our rules, so long as you produce a significant profit. What makes matters worse is that his steep fine is roughly 0.1 percent of Musk’s total net worth, and so even the SEC’s victory in the settlement seems questionable. 

The SEC is not the only agency that has fallen to regulatory capture — other agencies include the Environmental Protection Agency and the Federal Communications Commission. While the problem of regulatory capture seems overwhelming, one solution is economic democratization — to give the decision-making powers to the public instead of to managers and shareholders. By definition, this puts the regulation of private companies within public interest, therefore preventing regulatory capture. 

However, what this solution says about capitalism as an economic structure is more interesting than the solution itself. If economic democratization is an acceptable solution to regulatory capture, a problem created by capitalism, then it is also acceptable to say that capitalism and democracy, within purely economic terms, oppose each other. As members of a largely hegemonic capitalist world, a decision needs to be made about what is most important going forward: the free market, or freedom. 

Opinions expressed on the editorial pages are not necessarily those of WSN, and our publication of opinions is not an endorsement of them. 

A version of this article appeared in the Tuesday, Oct. 9 print edition.

Email Cole Stallone at [email protected]