Seize the State, Seize the Day: State Capture, Corruption and Influence in Transition

By J. Hellman, Geraint Jones, Daniel Kaufmann. 2000

228 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/29d18f989565598e2d3d4e15085a4921068ef645

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Citations in the corpus

The New Comparative Economics (2003, unknown): “Three enormously important economic events in the ending decades of the Russia, also moved to establish democracies and market institutions, but their experience has been more checkered.”
Corruption and Productivity: Firm-level Evidence (2010, unknown): “6 Hellman et al. (2000) also find a negative correlation between bribe payments and sales, although these authors do not instrument for bribe payments. 7 For an overview of the consequences of corruption, see Lambsdorff (2003), Svensonn (2005), and Shleifer and Vishny (1998).”
Does Giving Lead to Getting? Evidence from Chinese Private Enterprises (2010, unknown): “Anecdotal evidence suggests that China's private enterprises have found various ways of enhancing the protection of private property what McMillan and Woodruff (2002) called "informal substitutes for the lack of market supporting institutions.”
The Quality of Accounting Information in Politically Connected Firms (2011, unknown): “2 See Svensson (2003), Cull and Xu (2005), and Hellman, Jones and Kaufmann (2003) for a discussion of bribes, and Bertrand, Kramarz, Schoar, and Thesmar (2004), and Fan and Wong (2007) for vote-buying behavior.”
Social Capital in Transition: A First Look at the Evidence* (2002, unknown): “State institutions may be ‘captured’ and subverted to serve not the public interest but private gain [Hellman et al. 2000a].”
Political connections, financing and firm performance: Evidence from Chinese private firms ☆ (2008, background): “…impose heavy regulations (red tape) or “extralegal” fees on private enterprises (De Soto, 1989; Brunetti et al., 1997; Johnson et al., 2000, 2002; Hellman et al., 2003; Guriev, 2004), and legal systems may be too weak to secure property rights and enforce contracts (Hay and Shleifer, 1998;…”
A Comparative Study of Inequality and Corruption (2005, unknown): “The experience of massive privatization that was accompanied by enormous corruption in Eastern European countries offers further evidence (Black, Kraakman, and Tarassova 2000; Hellman et al. 2000).”
Does bribery help or hurt firm growth around the world? (2011, unknown): “Entrenched large firms with good political connections may even capture the state, and derive private benefits by distorting state policies and imposing high costs on small firms (Hellman et al., 2003).”