State capture – definitions and key features – theoretical framework

In an attempt to explain analogous social dynamic within various transition countries, the state capture theory by Joel Hellman in 1998 became part of the mainstream paradigm. The concept

71 of state capture was introduced to elucidate how the private sector infiltrates decision making and consequently runs the state.

This concept enabled a wide array of applications, but it does not have a single definition. It is frequently used in different contexts and covers various types of phenomena. Essentially, the concept of a "captured state" relates to the question: how to discover in what manner the power is acquired in a society, how this power is abused. This query refers to potentially unlimited power that utilises the whole state to fulfil its needs (Hadzic, 2018).

The concept of state capture mainly explains various phenomena arising in different states, referring to the establishment of control of the institutional capacity of the executive power by political parties aimed at extracting corruption rents, or influence on legislative power by business sector entities (bribing state officials) aimed at obtaining privileged status or preferential treatment (Heliman et al., 2000). In addition, state capture is also used when referring to influence of mafia over the state (Fazekas, and Tóth, 2016; Felbab-Brown, 2011;

Leitner and Meissner, 2017; Maharaj, 2017).

Different applications of the concept of state capture all indicate a set of common features of the phenomena described i.e. deviant relations between the state actors, the political networks and private entities, hence the key participants in the state capture process (SELDI, 2017) The use of the term deviant suggests that the concept of state capture explains a deviation from the regular form of relations between these actors. Some authors suggest that such definition would be most appropriate for the states in which the commonly accepted normative ideal is that of a liberal social order in combination with a neo-liberal economic model (Southeast Europe Leadership for Development and Integrity - SELDI, 2017).

This may be perceived as a normative definition, as it refers to assumed predefined norms establishing legitimate relations between the key actors in the state i.e. legitimacy of government established through general elections; non-monopolistic economy; neutral state administration to the different interests in society; the political parties do not undermine the structure of the economy or the neutrality of the administration (SELDI, 2017). World bank utilises the definition proposed by Hellman, Jones and Kaufmann (2000) which distinguishes between three types of relationships marked by deviant relations of the private sector and the state: a) state capture, defined as shaping the basic rules (i.e. laws, regulations) through illicit

72 and non-transparent private payments to public officials; b) influence, defined as the firm's capacity to impact the formation of the basic rules without necessary resorting to private payments to public officials (as a result of ownership ties to the state and repeated interactions with state officials) and c) administrative corruption, which is defined as private payments to public officials to hinder the implementation of official rules and policies (Hellman, Jones and Kaufmann, 2000).

A definition of state capture proposed by the Centre for the Study of Democracy combines different forms of corruption which have a single objective: to secure wholesale (by default) and long term privileges to captors by exploiting the power of government for private benefit.

According to the Centre for the Study of Democracy, state capture usually involves the following features: a) realization through corruption transactions and mechanisms; b) state capture schemes do not include large groups, but refer to collective actors, including networks, who have high leveraging power, control substantial resources and have influence capacity, and c) state capture is systematic and not an ad hoc action (Centre for the study of democracy, SELDI, 2016).

Along with the definition, the Centre for the Study of Democracy (Centre for the study of democracy, SELDI, 2016) proposed an interesting model of the key elements of state capture.

The first element refers the actors, which mainly involve private entities, network of the state institutions, and political parties/networks. The actors all have the capacity to be the captors, pending the type of relationship developed. The second element is the results, referring to the privileges and status the captor obtains (e.g. the ability to enjoy undue advantages and extract corruption rents). In case of private entities as captors, the results vary, and may refer to obtaining priority of the captor’s rather than the public interest, developing monopoly, and the like. For state institutions as captors, the result may involve the ability to extract corruption rents or seizure public resources.

The final element refers to state capture mechanisms, and involves a set of different methods used by captors, such as a) lobbying for legislation, or influencing public policies, which ensures exemption from prosecution, market advantage or economic policy, budget allocations; b) political corruption aimed at influencing the executive, or the legislative or preferential access to the judiciary as well as judiciary corruption; c) institutional corruption:

73 bribing civil servants in public institutions to enable the protection of captors’ interests, and d) corruption in public procurement (privileged access to public resources)

The proposed model offers a valuable picture of the key elements of state capture across states. However, when observing the forms of state capture in transition countries, there seem to exist additional dynamics, which may be attributed to specific development contexts (e.g.

transition), as well as to distinctive societal factors. Some authors make a distinction between administrative corruption and state capture, arguing that state capture (perpetrated by the private sector through bribes aimed at altering the rules or by politicians controlling market entry) is the problem in transition countries (Hellman and Kaufman, 2001; Wallis, 2010).

Explorations on post-socialist states have indicated that they do not comply with conventional notion of the state capture. Rather, as Ganev (2007, p.3) supports “behind such fluctuations lies a dynamic autonomously generated within the state domain itself”. It is argued that a number of inherited and new pathologies typical for transition states, along with the interplay of broader political forces and larger social constituencies, account for the sudden fluctuations of stateness (Ganev, 2013). Ganev perceives this as:

The unique institutional legacy of state socialism, the unusual structure of incentives facing powerful elites, and the peculiar dynamics unleashed when fundamental social relations, related to the collecting, managing, and distribution of resources were radically altered.

(Ganev, 2007, p.2).

In other words:

The historical distinctiveness of the behaviour of successful predatory elites in post- Communism is that they have had an incentive to behave as state breakers, not state makers.

(Ganev, 2007, p.96).

It could therefore be argued that a state capture phenomenon does not provide sufficiently clear framework for examining the corruption issue in transition states (Bowser, 2003).

According to Pesic (2007), from the point of view of system theory, state capture is caused

74 by a weak functional differentiation within the social system. Boundaries between the subsystems do not exist or are porous, hence power and goods from the economic sub-system are convertible for influence and goods from the political sub-system and vice versa, depending on where the dominant power of the social system lies. Pesic maintains that dominant power in Serbia remains located within the political system. She argues that such collusion enables an oligarchic social structure in Serbia that undermines effective institution-building and the rule of law (Pesic, 2007).

Serbia is surely not a single transition state in the region facing these problems. Reports indicate that in a number of South European states the phenomenon of corruption impacts the quality of public governance as a whole, as it is not limited to individual acts of bribery or minor offences (Centre for the study of democracy, SELDI, 2016).

In 2016, SELDI monitored corruption activities in the region in Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo*, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The 2016 findings indicated that the overall level of corruption is sufficiently high for it to be of serious concern to thestakeholders, even though there are considerable differences between the most and least corrupt countries. The more tangible reductions were identified in countries under more EU scrutiny but also with fairly high levels of corruption pressure, such as Bulgaria or Montenegro.Nonetheless, these small improvements have been insufficient, as on average, corruption pressure is 25.9 % – which is solely a percentage decline since 2014, when the regional mean was 27.1 %.

Moreover, Hungary has become one of the politically captured states in the region (Agh, 2016; Bozoki, 2011; Fazekas et al., 2016). The study analysed the country to explore business – political networks that lead to state capture and developed a new conceptual and analytical framework for assessing state capture based on micro-level contractual networks in public procurement. A study on state capture in Poland by Alwasiak et al. (2012) found that the EU accession did not prevent state capture in Poland. The results of the study provided an insight into the reasons when state capture occurs in a post-transition country, using an original sample of 1.363 legal acts that were passed in Poland in the years 1990–2011. The study demonstrated that in Poland the majority of legal acts were passed with the aim to satisfy the

75 interest of particular groups hence that state capture is accompanied by regulatory capture and regulatory opportunism.

Despite the fact that state capture, corruption and organized crime are pervasive problems across transition countries, there is little and fragmented evidence to support the understanding of their connectedness. Previous theoretical investigations mainly focused on the influence of the private sector and state institutions or corruption per se and largely ignored the interplay between criminal networks and state actors/legitimate networks.

3.4.3. State capture and/or crooked states – deviant state functioning as a point of arbitrage