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State Capture

One Possible Definition

 

In a working paper for the World Bank, Hellman, Jones, & Kaufmann (2000) have defined “state capture” as

 

“firms shaping the formulation of the basic rules of the game through illicit and non-transparent

private payments to public officials.”

 

By “rules of the game” they mean laws, rules, decrees, and regulations which influence the profitability of the firms such as tax policy, environmental regulations, or consumer protection legislation.

 

Our Definition

 

We find the above definition’s emphasis on “illicit and non-transparent” private payments to be too narrow for our purposes because the United States has developed legalized ways of making private payments to public officials in order to shape the “rules of the game.”

 

In particular, the U.S. has developed a system of campaign financing which means that such payments can now be made right out in the open.

 

Moreover, we find this definition’s emphasis on payments made by the private sector to public officials to be quite limiting because firms have also used other methods try to influence the “rules of the game,” such as lobbying or having their lobbyists directly take policy-making positions.

 

(See for example, Pres. Trump appointed a lobbyist for a financial services company to work on tax and retirement policy & legislation.)

 

We also find this definition’s emphasis on firms to be too limited. For example, wealthy individuals have also tried to use methods outside of the democratic process, to wield disproportionate influence on the “rules of the game.”  

 

(Although it should be noted that Hellman, Jones, & Kaufmann do acknowledge that firms are not the only organizations that can capture the state, but chose to focus on firms because their study was particularly focused on post-Soviet oligarchies.)

 

Thus, we define “state capture” more broadly as

 

“a form of government failure in which private interests shape the formulation of the basic rules of the game.” 

 

State capture thus refers to a situation in which firms and/or wealthy individuals are able to formulate the “rules of the game” by making payments to public officials, by taking policy-making positions themselves, or by placing agents in policy-making positions to act on their behalf.

Published: December 7, 2017