State Capture: How Selfish Governments Really Work

State capture is systemic political corruption when private interests influence a state’s decision-making to their own advantage. Think of it as state-scale selfishness. The original definition is when formal procedures and government bureaucracy (e.g. laws, social norms) are manipulated by government officials, state-backed companies, or private companies or individuals to influence state policies and laws in their favor. In this way state capture differs from other forms of corruption: instead of seeking to reinforce existing laws, it seeks the formation of new laws to protect and promote the state’s interest.

What’s interesting is that state capture is not necessarily illegal. It depends on what the state intends to do. Also, it hinges on how the state achieves its influence: private lobbying, legislature, executives, ministries, or corrupt electoral processes. Most of the time the goal of state capture is widely known. Sadly, the majority of these do not serve the common good. The vested interests serve the selfish desires of the corrupt parties. This phenomenon isn’t merely political, either. A corporation could secure favorable tax treatments via financial incentives or lobbying. The company profits but broader societal interests are the expense.

State capture stands out in its scale. Its not about isolated acts of corruption. Rather, it involves an entrenched web of relationships between powerful individuals and state institutions. Those private individuals could be business elites. With enough money and supply leverage, they can effectively control legislative and/or judicial processes. The entire decision-making system is skewed towards their benefit. It doesn’t take a genius to understand that this undermines the core principles of democracy itself. The government’s ability to act for the greater good is reduced as decisions are made to serve a narrow group. Does that sound like the form of government where “state power is vested in the people of a state”?

It ruins the economy, stupid. While state capture results in short-term gains for those involved, it results in long-term economic inefficiencies for the rest. As private interests capture more state functions, the lack of accountability fuels further capture. It forms a vicious cycle. Favorable policies for certain industries stifle competition and innovation. Other corporations have no way to develop. Once regulatory agencies are overruled by powerful elites, reforms become impossible. Corruption and inequality are further entrenched. Rinse and repeat.

Real-world examples of state capture:

• South Africa: during a period of public scrutiny, the relationship between certain business conglomerates (e.g. the Gupta family) and government officials resulted in policies that disproportionately benefited these private interests. The result was widespread economic turmoil. The public lost trust in the government.

• Eastern Europe and Russia: in several post-Soviet states, oligarchs have been able to exert influence over state institutions. Laws and regulations remained in favor of their business interests. The intertwining of business and politics distorted the economy. Innovate in that environment.

• Developing Economies: in many developing countries, powerful private groups control key sectors like natural resources or construction. They use their influence to secure favorable deals with the state. This dynamic results in public resources being diverted from essential services. Poverty and inequality only get exacerbated, not alleviated.

How you can use state capture as a mental model: (1) find the leaking pipe — analyze how corporations and public institutions are funded if you are skeptical of their good deeds, looking for signs of undue influence such as overrepresentation of certain businesses or frequent changes in a policy that benefit private actors; (2) stay see-through — advocate for and implement transparency in your decision-making, be it corporate or political; (3) don’t get captured — ensure that a range of stakeholders, including independent experts and high- and low-suite employees have a voice in decision-making; (4) set up surveillance systems — use performance indicators in your business to assess whether everyone’s interests are being served as opposed to one powerful actor.