State Capture

I first read about the term State Capture in 2016 in The Economist. It was referring to the state of South Africa under the seemingly serially corrupt Jacob Zuma. Many institutions were being undermined, and a particular family, the Gupta’s, seemed to have acquired covert control over many levers of power, that they were using to promote their own acquisition of power and wealth.

I don’t know a lot about Zuma and South Africa, but I guess I should celebrate that there has since been a handover of power in the ruling party, and that Zuma himself is subject to a number of court cases. Perhaps the Gupta’s will come under trial as well.

I found the State Capture term interesting, so I looked up its origin. According to Wikipedia, the World Bank first coined the term around 2000, referring to powerful individuals in the formerly communist countries comprising the Soviet Union. Subsequently, these individuals gave rise to another word that become common, Oligarchs.

The break up of the Soviet Union was a heady time. I will be forever grateful that I was given the job by Shell in 1993-94 that involved our retail market entry into those countries, which allowed me to visit many of them. The job taught me a lot about myself and about the world, and put me into contact with some inspirational young people. It might have been the most consequential job I did at Shell.

Those same times have given rise to a lot more newsprint in the last couple of weeks, following the death of George HW Bush. The period was indeed a political triumph for him, and we tend to forget now that a largely peaceful transition was far from certain, and a particular risk with nuclear weapons hanging around. The world was lucky to have Bush in power at the time. He received mixed support from his allies: it still amazes me how far on the wrong side of history that Margaret Thatcher was in not supporting the reunification of Germany.

But if that transition was a triumph politically, it was a disaster economically, at least to start with, and the blame for that lies squarely with the western economic establishment at the time.

The west had just embarked on what I call the Great Wrong Turning, under the leadership of Thatcher and Reagan, following the dogma of the Chicago School of economics. It was true that some correction had been necessary: powerful trade unions and anti-corporate states had stymied growth. Some privatisation was justified and even smart. But the dismantling of the welfare state and the unjust rewards to finance and corporations was both cruel and ultimately destructive, and of course this style of thinking still infests much of the world today.

Privatisation and deregulation made some sense in the US and UK because other state institutions were strong. It was fine for a private company, even a monopoly, to run major industries like telecoms and gas, because the terms of the sell off were transparent and because the state was able to retain some control through effective regulators. There were functioning markets to enable widespread private shareholding.

As the communist orbit collapsed, none of these safeguards were in place, yet advisors from the west still recommended the same approach. The result was inevitable – the original state capture. That error still plagues those economies and, more important, the ordinary people living in them, today. I saw the beginnings of it back in 1993. People had some notion of freedom, but that was a poor swap for weaker pensions, welfare, job security, education and healthcare.

Things have since improved in those same countries, because a market economy, even one run primarily for the benefit of a few criminals, is better than what came before. But that list of sacrifices arguably applies much more widely in the world today. Could it be that state capture has occurred in the west as well?

Wikipedia defines state capture as systemic political corruption enabling private interests to significantly influence the decision making of a state for their own advantage.  Is this a charge we can label in the US?

Look at the laws passed by congress over the last 30 years or so, and look at the acts of Republican administrations, most notably the current one, and the case can be made. The first spending bill I studied in any detail was in 2014, when Obama was president but when Republicans controlled both houses. I was stunned. Almost all of the beneficiaries were major private interests. The correlation between lobbying dollars spent in Washington and funding outcomes appeared almost complete. There was plenty of extra money and extra regulatory protection for armaments, fossil fuel energy, healthcare companies and finance, as well as for interests such as Envangelicals and Israel. Obama was talking a good game, and in places acting one too, but, perhaps hemmed in, the budget process was revealing something different.

Under the current administration it is much more brazen. All of the above areas have seen major rollbacks of former protections. The corporation is consistently valued ahead of the consumer. Perhaps the biggest lie among all the lies in 2016 was the promise to drain the swamp. In practice, the swamp has swallowed all before it.

This allocation of funds can be viewed in parallel with taxation policy, both federally and across many states. This has acted consistently to enlarge inequality, whether by making personal taxes more regressive, reducing taxes on corporations, reducing already tiny inheritance taxes, retaining egregious loopholes like carried interest, or, on the other side of the equation, cutting total taxation and hence reducing funds for items such as education and welfare.

The American people seem to have been victims of state capture as well, at least in outcome, since most have had to sacrifice pensions, welfare, job security, health care affordability and education quality, while a few private interests have benefited enormously. Luckily, advances such as technology and global supply chains have masked some of this by making everyone a bit richer – and please don’t tell me that the taxation or regulation policy has driven this. Every time I here talk of a billionaire I ask myself the question: what is enough? I can understand an answer of a million, even a few million, but several thousand million? Surely we are not allocating our riches in an equitable way?

If this would be state capture, how has this happened in a functioning democracy? I tried to answer this question by looking at it from the other side. If I were intent on state capture, how would I go about it?

I would lobby representatives intensely and rather covertly, giving them some kickbacks, maybe even personal ones. I would seek to make money a key determinant of political success, so these same representatives needed me more than they needed their constituents. I would gerrymander constituencies and suppress voting. I would pay for all sorts of spurious reports and provide lots of disingenuous talking points like “jobs” and “no new taxes”. I would support politicians who would allow me to follow this agenda while distracting some of the public with anti-immigrant dog whistles, militarism and social policy items like abortion and gun control. And I would seek to control the press and other media.

Oh look, I’ve just described the current Republican policy playbook. State capture perhaps? And before Democrats and non Americans get too smug, please note that many of the same sacrifices have been incurred elsewhere and under democratic socialist governments.

I wish everyone a blessed Christmas and peaceful 2019, and perhaps some momentum against this state capture. I realise that there is one major current topic that I have not found inspiration to blog about; the slow motion train wreck in my homeland that is Brexit. That could maybe be described as the opposite of state capture – something like wilful state surrender benefitting nobody. I’ll try to rectify that in January.