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Policy Responses Towards Corruption in Developing Democracies

November 20, 2001
Council on Foreign Relations

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[Note: A transcript of this meeting is unavailable. The discussion is summarized below.]

November 20, 2001

Joel Hellman, Speaker

Michael Weinstein, Presider

On November 20th, the GEC-Columbia Series Policy Responses Toward Corruption in Developing Democracies held a meeting entitled, "The Dynamics of State Capture in Transition Economies," with Joel Hellman/World Bank. Michael Weinstein presided.

Hellman defines 'state capture' as the manipulation of policy formation by oligarchs (or other actors such as the military, ethnic groups, kleptocratic politicians) who take an active role in shaping the "rules of the game" to their advantage. Thus, corruption is not just extortion by the state, but a mutually beneficial (and inherently illicit) practice between the state and the firm. More problematically, it is a relationship very difficult to dismantle with economic reform.

In a survey of over 3,600 firms in 22 transition economics, the World Bank found that firms that engaged in state capture activities fared better in economies where such activities were more common, though across the board, 'low capture' economies had substantially higher growth rates than 'high capture' economies. New entrants and joint ventures between foreign and local firms tended to be more likely to take part in state capture in economies where state capture was prevalent.

In order to eradicate state capture, comprehensive political reforms are needed before economic reforms can take effect. At that point, policies could start focusing on increasing market competition and restricting monopolies, which in turn would prevent state capture from reemerging.

Participants had numerous questions during what proved to be a very novel look at corruption.

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