State Capture

POLICY DUDE

The limits of the power elite have been exposed in South Africa. Jacob Zuma and his private sector cronies have finally been brought to book. Perhaps they got away with corruption for so long that they thought they were untouchable. In any case, their spectacular demise has put the term ‘state capture’ on the lips of millions of people around the world.

The people of South Africa are still reeling from the political upheaval caused by Zuma’s messy removal and from the dawning recognition of what his reign has cost them. Far worse than the money stolen, they now realize that their institutions have been compromised, their democracy hijacked. Public officials have not partnered with the private sector for the public good—they have conspired to capture the state for their own selfish gain.

The term ‘state capture’ conjures up images of a weak state being forcibly overcome and controlled by a strong private sector. However, it does not work that way. It is essential to be very clear that it only works if the corrupt public officials are powerful. The private partners do not have to be powerful, they only have to be crooked

For good reasons most countries have chosen capitalism as the dominant system around the world, but let us not fool ourselves; it is not sweet and innocent. Its raw force must be controlled by strong democratic institutions. The hunger of capitalists to maximise selfish profit sparks the imagination and fuels extra effort. But it can also destroy the environment and enslave people. The unconstrained drive for selfish profit can go so far that powerful individuals even try to change the rules of the game to their own ends.

The more benevolent individuals who try to change the rules of the game are called lobbyists. They operate within the law to influence and advocate for decisions that favour their particular agenda. At the other extreme are the predators who collude with corrupt public officials with the power to subvert legal systems. Between the lobbyists and the predators is a grey zone in which it is sometimes hard to tell one from the other. Trump’s simplistic call to ‘drain the swamp’ tapped into a deep and instinctive rejection of the unequal advantage obtained by lobbyists and predators.

Now, let’s bring it home to Jamaica. A recent World Bank publication described our governance arrangement using the same term: ‘State Capture’. They concluded that to a significant extent public decision-making is controlled by a local power elite in league with corrupt public officials. A 2016 publication by the Inter-American Development Bank, ‘Engine of Growth? The Caribbean Private Sector Needs More than an Oil Change’, analysed the government-private sector interface focusing on unproductive rent-seeking and graft and its impact on competitiveness and growth. Needless to say, it concluded that, except for Barbados, Caribbean countries are located at the higher end of a State Capture Index! The IDB agreed that graft ‘greases the wheels’. However, the chilling conclusion was that state capture is advancing in the Caribbean despite our vaunted democratic institutions. Corruption can cut corners for the individual, but it also lowers the overall productivity of the economy.

The IDB report on the Caribbean details key characteristics of the phenomenon: ‘ . . . state capture refers to efforts to influence how laws, rules and regulations are formed; bribes to parliamentarians to “buy” their votes on critical pieces of legislation; bribes to government officials to enact favourable regulations or decrees; and bribes to judges to influence court decisions.’ One insidious side effect is that new and dynamic entrepreneurs have an incentive to invest in capturing the state rather than in increasing productivity and innovation.

Our watchdogs against state capture are the anti-corruption and transparency laws and the institutions that implement them. It is for this reason that we must be ever vigilant for any erosion of these aspects of these democratic institutions. We must make sure they keep getting stronger and keep up with the technology revolution. Retribution for corruption must be swift and sure. Our democratic institutions compare well with those of many emerging economies. However, the recent political and economic implosion of the Maldives (often cited as a shining example to other small emerging economies) is a clear warning against becoming complacent.

South Africa will now start the arduous task of rebuilding trust and the integrity of its institutions. The Jamaican government needs to focus its energy and imagination to confront the cancer of State Capture. We must heed the warnings of our multilateral partners that the private elite and corrupt government officials will use their considerable influence to obstruct policy reforms that could dilute their unfair advantages. This is a war that requires extraordinary leadership and courage. Our institutions cannot stop it on their own and the cancer is spreading.  For that reason civil society should be relentless to ensure that our politicians and policy-makers face up to it. That’s how they did it in South Africa.

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