Experts assess the corruption of politics by private interests through ‘state capture’

14 June 2019

A roundtable of experts examined how politics can be co-opted by private interests through corruption and the unfair influencing of the ‘rules of the game’ – a process termed ‘state capture’ – in a workshop at Wolfson College this week.

The World Bank first coined the term state capture around the turn of the millennium to account for the systematic corruption evident in post-Soviet countries, where weak institutions were being appropriated by small private groups, but the term has since been used to describe corruption in South Africa, the power of drug barons in Latin America, and electoral funding in the United States.

Daniel Smilov and Bogdan Iancu opened the first session of the workshop by describing the efforts of business in Eastern and Central Europe to change the ‘rules of the game’ through private payments to public officials, in order to influence parliamentary votes, presidential decrees, central bank decisions, and to make illicit payments to parties and electoral campaigns.

Prof Iancu warned that, despite endemic malpractice, the anti-corruption rhetoric that is often espoused by the EU can be self-defeating, since it promises oversimplified solutions and presents idealized ‘Manichean’ scenarios of angels and devils that distract from and can actually exacerbate the problems in countries.

In Session II, Abby Innes from LSE examined corporate power in the UK state, describing a situation not of outright corruption, but instead a supply-side revolution that involves no illegality, and therefore is all the harder to combat. The outsourcing of complex state functions like the probation service to large corporations – which constitutes a third of all public spending in the UK – represents an ideological shift akin to Leninism, she argued.

It is a political culture that systematically favours one small group of megacorporations over the state or SMEs, and fulfils none of the ideological promises on which it is based, since in the drive for efficiency, suppliers have been incentivized instead to maximize profits rather than to provide innovative, effective services.

Elham Fahkro described the experience of state capture in Gulf states, particularly Bahrain, where vast reserves of oil and gas insulate ruling elites from demands for political participation. Dr Fahkro described the Bahrain Financial Harbour case, in which $40bn of prime Bahraini seafront land had been handed over to the Premier Group and Stone Group, owned by the Prime Minister and the King of Bahrain, the profits of which are then channelled into assets in UK such as exclusive London properties, hotels and the like.

Arab Spring protests in response to such blatant corruption were suppressed by the government, and legislation was subsequently passed to weaken the Parliament to prevent them from holding the government to account.

Katarína Šipulová recounted the capture of one arm of the state – the judiciary – in Slovakia and the Czech Republic, where post-Soviet democratization was largely influenced by the EU accession conditionality, and consequently paid little regard to the specific factors at play in the region, leading to vague rules and poor oversight of the judiciary, which was consequently captured from within.

Nick Friedman brought the workshop to a close by examining the situation in South Africa, where a huge corruption scandal involving a trio of brothers from the Gupta family seized control of the state under President Zuma, leading to his resignation last year. The Gupta brothers acquired the Optimum Coal Mine, which subsequently tipped into bankruptcy, unable to pay the miners who worked there. This proved to be just the most notable of a series of corrupt deals which may have cost the nation as much as $7 billion.

Dr Friedman noted that despite the failures at state level, the scandal showed the importance of maintaining robust actors within the system, such as the minister who exposed the scandal, the fiercely independent media that broke the story, and a court system that is conducting an investigation into the wrongdoing. Following Zuma's resignation, there is now an opportunity to learn the lessons of the need for greater control over the appointing power of the presidential office in order to mitigate against the creation of such a pernicious ‘shadow state’ open to corruption in future.

Podcasts of the session will be available from our Podcasts pages next week.