‘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

State Capture Index and its Components ...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:...) 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 40 35 30 25 State Capture Index (% of firms affected by state capture) 20 15 10 5 Albania Armenia Belarus Bulgaria Croatia Estonia Georgia Azerbaijan Czech Rep Hungary Latvia Kazakhstan Lithuania Moldova Poland Romania Russia Slovakia Slovenia Ukraine Overall Kyrgyzstan Uzbekistan 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

Country-wide: State capture is associated with incomplete civil liberties (& slow economic reforms)

…Capture brings substantial gains to the captor firms -- within the Capture Economy (in high capture countries)

Further Social costs of state capture: Much lower growth in sales and investment in economy

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/