"Seize the state, seize the day": state capture, corruption, and influence in transition
The main challenge of the transition has been to redefine how the state interacts with firms, but little attention has been paid to the flip side of the relationship : how firms influence the state - especially how they exert influence on, and collude with public officials to extract advantages. Some firms in transition economies have been able to shape the rules of the game to their own advantage, at considerable social cost, creating what the authors call a"capture economy"in many countries. In the capture economy, public officials, and politicians privately sell under-provided public goods, and a range of rent-generating advantages"a la carte"to individual firms. The authors empirically investigate the dynamics of the capture economy, on the basis of new firm-level data from the 1999 Business Environment and enterprise performance survey (BEEPS), which permits the unbundling of corruption into meaningful, and measurable components. they contrast state capture (firms shaping, and affecting formulation of the rules of the game through private payments to public officials, and politicians) with influence (doing the same without recourse to payments), and with administrative corruption ("petty"forms of bribery in connection with the implementation of laws, rules, and regulations). They develop economy-wide measures for these phenomena, which are then subject to empirical measurement utilizing the BEEPS data. State capture, influence, and administrative corruption are all shown to have distinct causes, and consequences. Large incumbent firms with formal ties to the state tend to inherit influence as a legacy of the past, and tend to enjoy more secure property, and contractual rights, and higher growth rates. To compete against these influential incumbents, new entrants turn to state capture as a strategic choice - not as a substitute for innovation, but to compensate for weaknesses in the legal, and regulatory framework. When the state under-provides the public goods needed for entry and competition,"captor"firms purchase directly from the state, such private benefits as secure property rights, and removal of obstacles to improved performance - but only in a capture economy. Consistent with empirical findings in previous research on petty corruption, administrative corruption - unlike both capture and influence - is not associated with specific benefits for the firm. The focus of reform should be shifted toward channeling firms'strategies in the direction of more legitimate forms of influence, involving societal"voice", transparency reform, political accountability, and economic competition, Where state capture has distorted reform to create (or preserve) monopolistic structures, supported by powerful political interests, the challenge is particularly daunting.
|Date of creation:||30 Sep 2000|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kaufmann, Daniel & Wei, Shang-Jin, 1999.
"Does 'Grease Money' Speed Up the Wheels of Commerce?,"
8209, University Library of Munich, Germany.
- Daniel Kaufmann & Shang-Jin Wei, 2000. "Does 'Grease Money' Speed Up the Wheels of Commerce?," IMF Working Papers 00/64, International Monetary Fund.
- Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
- Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc.
- Shang-Jin Wei, 1999. "Corruption in economic development - beneficial grease, minor annoyance, or major obstacle?," Policy Research Working Paper Series 2048, The World Bank.
- Rose-Ackerman,Susan, 1999. "Corruption and Government," Cambridge Books, Cambridge University Press, number 9780521632935.
- Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1089-1127.
- Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-81, August.
- Levine, Michael E & Forrence, Jennifer L, 1990. "Regulatory Capture, Public Interest, and the Public Agenda: Toward a Synthesis," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(0), pages 167-98.
- Rose-Ackerman,Susan, 1999. "Corruption and Government," Cambridge Books, Cambridge University Press, number 9780521659123.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
- BRUNETTI, AYMO AART OLIVER & Kisunko,Gregory & Weder,Beatrice Silvia, 1997. "Institutional obstacles to doing business : region-by-region results from a worldwide survey of the private sector," Policy Research Working Paper Series 1759, The World Bank.
- de Meza, David & Gould, J R, 1992. "The Social Efficiency of Private Decisions to Enforce Property Rights," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 561-80, June.
- Antonio Estache & D. Martimort, 2000. "Transaction costs, politics, regulatory institutions and regulatory outcomes," ULB Institutional Repository 2013/44072, ULB -- Universite Libre de Bruxelles.
- Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
- Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
- Daniel Kaufmann & Sanjay Pradhan & Randi Ryterman, 1998. "New Frontiers in Diagnosing and Combating Corruption," World Bank Other Operational Studies 11530, The World Bank.
- Spiller, Pablo T, 1990. "Politicians, Interest Groups, and Regulators: A Multiple-Principals Agency Theory of Regulation, or "Let Them Be Bribed."," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 65-101, April.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2444. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.