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I can't understand one thing. How is it possible to have a decisive impact on the contents of the legislative regulations that provide a regulatory framework for economic activities if these regulations are the result of the work of a large number of individuals, members of legislative bodies? Hardly could anyone bribe them all. I would be very grateful to those who will give me references to works (if such basics are considered in authoritative works) explaining mechanisms of 'state capture'.

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    If by state capture you mean regulatory capture, here's a well researched, 15 chapter story by Deep Capture about how it works. – Denis de Bernardy Oct 18 '17 at 22:33
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    Thank you very much, Denis. Could you please add a few details about the original source of this information? Journal title, names of the authors of the publication... – Noir Oct 18 '17 at 23:12
  • As the url suggests it was published on Deep Capture. This was the result of investigative journalism done by an in-house hire at a time where OverStock was leading a full blown war against naked short selling against Wall Street a decade ago (story on the site). The story and the rest of the site is very well sourced (or was, when I read it 10 years back; many of the references seem to have gotten deleted since). – Denis de Bernardy Oct 18 '17 at 23:17
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There are two primary strategies for state-capture (Grzymala-Busse, 2008):

  • Clientelism is a strategy where public agents take the state's resources and distribute them to their supporters. This provides the ruler political support.
  • Predation is a strategy where the public agent can take state resources for their own benefit. Maintaining this arrangement requires destroying opposition to the ruler.

When asking how this happens, it is probably important to keep the scope of the problem in mind: it typically isn't the case that a single shadowy organization corrupts the state. Usually what you will see is that the state becomes porous to outside agents. For example:

In fact, according to Johnson et al. (2002), who surveyed 1,471 enterprises in Poland, Slovakia, Romania, Russia, and the Ukraine in 1997, as many as 90% of the Russian and Ukrainian companies surveyed had made extra payments for public services or the acquisition of a license... [reported in Iwasaki and Suzuki, 2007]

Macro Level Factors

So how do they get away with it? The first reason is that these states have high-level weaknesses which prevent it from being stopped.

State capture is undermined by strong political rights (Hellman et al., 2000). The first control on public figures is the public. A strong, independent media can shine light on corruption and with strong political rights the public can remove people from office (or engage in other legal demonstrations). Transitioning nations (the ones most prone to state capture) lack these rights and therefore there isn't much of a political reason not to appropriate state resources.

Economic development is also relevant (Hellman, ibid). In a more developed economy, the price of corruption is higher (meaning that an external agent would have to spend more to successfully corrupt a state agent). In less developed countries with less established property rights, the cost to corrupt is low.

Although not principally a literature about state capture, Putnam's work on social capital shows cultural reasons for state control (Putnam, 1993). For example, Putnam's field research notes that in some regions of Italy there was a cultural expectation that a person would use their position to benefit their family (for example, by giving preference to their family during the performance of their job).

Short story: State capture is most common among transitioning states. These countries have significant risks. They are inexpensive to corrupt due to having relatively undeveloped economies and property rights, and a lack of civil liberties means that political consequences of being caught are low.

Specific Factors

I don't know of a broad survey of the specific approaches that have been used.. Below are two examples I read about while preparing this answer. You might also see Boix and Svolik(2013)'s discussion of authoritarian regimes (it turns out that authoritarian regimes typically only need support from a few key groups).:

  • When a country has restrictions on foreign businesses, this can be used to direct foreign investment wherever the captured official wants (World Bank, 2014). For example, when McDonald's approached Tunisia about beginning operations there the President asked for an exclusive franchise to be granted to his family. McDonald's refused, and they could not open in Tunisia. This scheme didn't require a large number of collaborators - only influential ones.
  • Former Soviet states are already accustomed to fraud and corruption. Iwasaku and Suzuki (2007) describe how state capture started under the U.S.S.R.: as shortages of crucial goods became more common and the bureaucracy increasingly unhelpful, corruption became more common. Government agents could supply private citizens or interests with goods at their own discretion, on the side. This would later be the basis of state capture, because government officials were used to accepting bribes and working "under the table."

Boix, Carles and Milan W. Svolik. 2013. "The Foundations of Limited Authoritarian Government: Institutions, Commitment, and Power Sharing in Dictatorships." *Journal of Politics. * Link.

Gryzmala-Busse, 2008. "Beyond Clientelism: Incumbant State Capture and State Formation." Comparative Political Studies. Link.

Hellman, Joel S., Geraint Jones, and Daniel Kaufman. "Seize the State, Seize the Day: An Empirical Analysis of State Capture and Corruption in Transition Economies." Presented at the ABCDE 2000 Conference in Washington, D.C. Link.

Iwasaki, Ichiro and Taku Sazuki. 2007. "Transition strategy, corporate exploitation, and state capture: An empirical analysis of former Soviet states." Communist and Post-Communist Studies. Link.

Putnam, Robert. 1993. Making Democracy Work. Princeton University Press.

Rijkers, Bob et al. "All in the Family: State Capture in Tunisia." World Bank Policy Research Working Paper #6810. Link.

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    This might benefit from a comparison of the costs for perpetrators (both internal and external) to corrupt agencies vs. the practical costs of punishment. Also perhaps the disadvantages, (if any), for non-perpetrators to oppose the process of regulatory capture -- i.e. how likely is it for a whistle-blower to be blacklisted or murdered, and how well do competitive businesses do that do not practice institutional bribery vs. how well do those that do commit bribery. – agc Oct 20 '17 at 16:45

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