‘State Capture in Transition’:
Summary Findings
Joel Hellman and Daniel Kaufmann
The World Bank
http://www.worldbank.org/wbi/governance
New Research Program & Findings on
State Capture and ‘Grand’ Corruption
• New work ‘unbundles’ and measures corruption, state capture
and governance: evidence from 3600 firms in 22 transition
economies. Key input to new Anticorruption in Transition report.
• Questions about investment climate, enterprise performance and
behaviour; interactions between the state and firm
• Implemented jointly by World Bank and EBRD in collaboration
with ECA region (Wbank), in context of Anticorruption Report.
• Corruption is dissected: administrative corruption, State Capture
and procurement kickbacks -- with major implications
• “Seize the State, Seize the Day” paper, Sept. 2000
• Details and data available at http://www.worldbank.org/wbi/governance
Data subject to margins of error and need to be interpreted with caution. Data and views are not necessarily official-institutional.
…Small firms and New Entrants face more
administrative (petty) corruption in transition
Bribes as a percentage of
revenues
0.04
0.03
0.02
0.01
0
De Novo
Privatized
State Owned
...Yet the focus ought to shift to ‘Grand Corruption’: firms shaping the
legal, policy and regulatory environment by illegally ‘purchasing’ the
laws, policies and regulations of the state (“State Capture” by corporates)
State Capture Index and its Components
(% of firms affected by corporate purchase of:...)
Country
Albania
Armenia
Azerbaijan
Belarus
Bulgaria
Croatia
Czech Rep
Estonia
Georgia
Hungary
Kazakhstan
Kyrgyzstan
Latvia
Lithuania
Moldova
Poland
Romania
Russia
Slovakia
Slovenia
Ukraine
Uzbekistan
Overall
Parliamenta
Central
ry
Presidential Bank
legislation
decrees
(%of
(% of firms) (% of firms) firms)
12
7
8
10
7
14
41
48
39
9
5
25
28
26
28
18
24
30
18
11
12
14
7
8
29
24
32
12
7
8
13
10
19
18
16
59
40
49
8
15
7
9
43
30
40
13
10
6
22
20
26
35
32
47
20
12
37
8
5
4
44
37
37
5
4
8
24
21
25
Crimin
al
Courts
(% of
firms)
22
5
44
0
28
29
9
8
18
5
14
26
21
11
33
12
14
24
29
6
21
5
Commer
cial
Courts
(% of
firms)
20
6
40
5
19
29
9
8
20
5
14
30
26
14
34
18
17
27
25
6
26
9
Party
finance
(% of
firms)
25
1
35
4
42
30
6
17
21
4
6
27
35
13
42
10
27
24
20
11
29
4
Capture
Economy
index
(% of
firms)
16
7
41
8
28
27
11
10
24
7
12
29
30
11
37
12
21
32
24
7
32
6
18
18
20
20
Capture
Economy
Classificat
ion
Medium
Medium
High
Medium
High
High
Medium
Medium
High
Medium
Medium
High
High
Medium
High
Medium
High
High
High
Medium
High
Medium
Source: Hellman, Jones and Kaufmann “Seize the State, Seize the Day”, http://www.worldbank.org/wbi/governance/
Extent of the “Capture Economy” in Transition
(based on overall State Capture Index -- see previous slide)
45
(% of firms affected by state capture)
State Capture Index
40
35
30
25
20
15
10
5
0
For details, including margins of error and data sources, visit www.worldbank.org/wbi/governance/
For Firms, Capture is strategy that started with
insecure property rights they faced
% Firms that are Captors
12
10
8
6
4
2
0
Insecure
Secure
Security of property rights three years ago
Country-wide: State capture is associated with
incomplete civil liberties (& slow economic reforms)
Degree of State Capture
0.4
0.3
0.2
Low Reform
0.1
Medium Reform
High Reform
0
High Civil
Liberties
Medium Civil
Liberties
Low Civil
Liberties
…Capture brings substantial gains to the captor firms -within the Capture Economy (in high capture countries)
Percentage growth rate of
sales
35
30
25
20
15
10
5
0
Non-Capture Economies
Captor
Capture Economies
Non Captor
Further Social costs of state capture:
Average rate of growth '97-'99
Much lower growth in sales and investment in economy
25
20
15
Sales
Investment
10
5
0
High capture Countries Low capture countries
...And further Social costs for the whole economy: the
security of Property Rights for Enterprise is low (selected
Proportion of firms with secure
property rights
%
countries for illustration only)
100
90
80
70
60
50
40
30
20
10
0
Estonia
Poland
Georgia
Security three years ago
Source:
Kazakhstan
Russia
Ukraine
Security of property rights today
Hellmann, Jones, Kaufmann and Schankerman (2000). "Measuring Governance, Corruption, and State Capture" Policy Research Working
Paper 2312, The World Bank, Washington, D.C. and BEEPS Survey (1999). http://w w w .w orldbank.org/w bi/governance
Some Policy Implications
• Anti-corruption efforts should focused more on state
capture as the root of governance problems
• Need to factor in that the roots of state capture result
from partial civil liberties, lack of transparency and
insecurity of property rights
• Need to address link between corporate (including
FDI) and national-level governance
• Political and Economic competition limit state capture
– deconcentration of economic activity
– civil society, collective action and political accountability
For details and data: http://www.worldbank.org/wbi/governance/