Demystifying the concept of state or regulatory capture from a theoretical public economics perspective.

Abstract

State capture is one form of corruption that has received very little research interest over the years. This could be attributed to the fact that man societies particularly in the developing world seem to have institutionalized it. State capture is a manifestation of government failure which involves the manipulation of bureaucratic rule and formal procedures by business and political elites through family ties, friendship or social groups so as to influence state policies and laws in their favor. The aim of this paper was threefold: First, to give an elaborate and detailed discussion surrounding the phenomenon of state capture from a public finance perspective; second, to discuss the extent of state capture in Zambia citing instances of state capture and how this negatively impacts on society at large; and third, to examine the effects of state capture on key socioeconomic outcomes and broader governance while making comparisons with other countries. Analysis took the form of extensive review of literature and descriptive analysis focusing on frequencies, trend analysis and simple measures of association. This paper outlines that state capture is a manifestation of government failure and is based on the principles of the predatory government view of the state in which state agents act as utility maximizers. It establishes that state capture is a combination of a weak institutional and governance structure which gives room for rent-seeking, lobbying, election rigging and class formation. Further, the study establishes that in Zambia, although the perception of state capture has reduced slightly, it exists and has an effect on socioeconomic outcomes such as human development and the growth of firms. The paper concludes by stressing the need to put in place strong social and political institutions that will help reverse this dangerous trend.