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

45 Pages Posted: 12 Oct 2000

See all articles by Joel S. Hellman

Joel S. Hellman

World Bank - Governance and Public Sector Reform

Geraint Jones

Massachusetts Institute of Technology (MIT) - Department of Economics

Daniel Kaufmann

Results for Development; The University of the Philippines Diliman; The Brookings Institution

Date Written: September 2000


In a decade of transition, fear of a leviathan state is giving way to increased focus on oligarchs who "capture the state." In the capture economy, the policy and legal environment is shaped to the captor firm`s huge advantage, at the expense of the rest of the enterprise sector. This has major implications for policy.

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 Hellman, Jones, and Kaufmann call a "capture economy" in many countries. In the capture economy, public officials and politicians privately sell underprovided 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 economywide 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 underprovides 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.

This paper - a product of the Governance, Regulation, and Finance Division, World Bank Institute; the Public Sector Group, Europe and Central Asia Region; and the Office of the Chief Economist, European Bank of Reconstruction and Development - is part of an empirical project on governance in transition. For an electronic version of this paper and related research papers and governance data, visit www.worldbank/wbi/governance/. The authors may be contacted at or

JEL Classification: D4,H0,K0,L1,L2,L5,O1,P2,P6,P5,M2,P0,H4,K2,K4

Suggested Citation

Hellman, Joel S. and Jones, Geraint and Kaufmann, Daniel, Seize the State, Seize the Day: State Capture, Corruption and Influence in Transition (September 2000). Available at SSRN:

Joel S. Hellman

World Bank - Governance and Public Sector Reform ( email )

1818 H Street
Washington, DC 20433
United States

Geraint Jones

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Cambridge, MA 02142
United States

Daniel Kaufmann (Contact Author)

Results for Development ( email )

1875 Connecticut Avenue, NW, Suite 1210
Washington, DC 20009
United States

HOME PAGE: http://

The University of the Philippines Diliman ( email )


The Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States


Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics