EH 6: state capture, political risks Flashcards
what is state capture, what are the political risks
when private actors seize public institutions and legal-political processes to realise theirparticularistic interests of accumulating power and private wealth
-by informal networks
-uniting political and economic power
-importance of informal institutions: = socially shared rules, usually unwritten, that are created and enforced outside of officially sanctioned channels
political risks:
-> systemic corruption
-> systematic favouritism
-> institutional ambiguity
systemic corruption
officials use their authority to sustain their status and wealth by demanding for and collecting illegal payments systematically (monetary corruption)
risk to businesses:
-confronted with different forms of corruption at different levels
-entrance fees, kickbacks as well as protection payments necessary to ward off unjustified claims by authorities
systematic favouritism
use of public office to foster the business interests of the ruler himself or the ruler’s clientele, while impeding initiatives by actors not part of the ruler’s network (non-monetary corruption)
Political risks:
-Political elites control significant shares of the national economy
-international companies suffer from difficulties in gaining any (sustainable) access to such networks
-Depend on goodwill
-might “fall”
institutional ambiguity
laws, institutions and regulations are abused, side-stepped, ignored or even tailored to fit the ruling elite’s interests
Political risks:
-Lack of a stable framework for doing business
-Legal uncertainty / Politically controlled judiciary
-Systemic uncertainty about which regulations to use: formal vs. informal ones
soviet legacy
Key argument: Soviet legacy (still!) predominant, establishs the post-Soviet space as a region, and determins political risks in the region
-> At country level and international/geopolitical level
-Deficient and centralised state institutions
-State capture, clientelism and corruption
-Political Instability, Frozen Conflicts and Wars
-Russian Hegemony and Imperialism
state capture as political risk: country differences
-The more centralised, the more predictable
-New generations of clientelistic groups vs. old guards
-country differences: various forms and different degree of informality (Turkmenistan worst, Georgia to a lesser degree; Ukraine before war: decentralised, vs. Azerbaijan and Belarus: centralised, etc.)
Management strategies
Discerning vested interests of local partners and actors: identify business sectors and cases that are less risky than others, to choose the right local partners, and to create win-win constellations.
Case of Azerbaijan: foreign enterprises are less prone to arbitrariness, expropriation and dis-favouritism when they offer Western cutting-edge technology and know-how, locally not available
Portfolio and security strategies applied in state capture constellations directed towards shifting business activities into safer business areas, avoiding concentrating assets in the country, setting up a local branch instead of establishing a fully operating local subsidiary and/or attracting as little attention from bureaucrats, governors and oligarchs as possible (“stay below the radar”)
“bribery solicitation” a common non-market strategy? Doubts!
mobilisation of external actors: companies regularly turn to the embassies of their home countries, to national chambers of commerce, European Union institutions and/or high-level home government officials to enforce their rights (Raiffeisen case in Austria)
