Crony Capitalism: Unhealthy Relations Between Business and Government a White Paper by the Committee for Economic Development of the Conference Board October 2015

Total Page:16

File Type:pdf, Size:1020Kb

Crony Capitalism: Unhealthy Relations Between Business and Government a White Paper by the Committee for Economic Development of the Conference Board October 2015 Crony Capitalism: Unhealthy Relations Between Business and Government A White Paper by the Committee for Economic Development of The Conference Board October 2015 Crony Capitalism: Unhealthy Relations Between Business and Government Table of Contents Sustainable Capitalism Subcommittee 2 Executive Summary 4 Introduction 8 Business-Government Relationships — Good and Bad 9 The Causes And Tools Of Crony Capitalism 20 The Economic Cost of Crony Capitalism 29 Policy Options for Combating Crony Capitalism 31 Notes 38 CED Members 41 1 Crony Capitalism: Unhealthy Relations Between Business and Government Sustainable Capitalism Subcommittee Co-Chairs Lydia I. Beebe Robert H. Dugger Timothy B. Goodell Corporate Secretary Founder and Managing W. Bowman Cutter General Counsel (Ret.) Partner Senior Fellow and Hess Corporation Hanover Provident Director, Economic Chevron Corporation Capital LLC Policy Initiative Bill Goodwyn The Roosevelt Institute David L. Bere President & CEO Chairman and CEO Debra Fine Discovery Education Chief Executive Officer Larry D. Thompson Nonni’s Foods, LLC I Have A Dream EVP Government Kathy Hopinkah Hannan Foundation - Los Angeles Affairs, General Counsel Shideh Bina National Managing & Corporate Secretary Partner Partner, Global Lead Howard Fluhr (Ret.) Insigniam Partner Chairman PepsiCo, Inc. KPMG LLP Angela Braly The Segal Group Patrick W. Gross President & Founder Margaret Foran Hollis W. Hart Chairman The Braly Group, LLC Vice President, Chief President, International The Lovell Group Franchise Management Neri Bukspan Governance Officer and Secretary Citi Partner, Financial Prudential Financial Members Accounting Advisory Ben W. Heineman Services Michael G. Archbold Henrietta H. Fore Senior Fellow, Schools of EY Chief Executive Officer Chairman Law & Government GNC Holdings, Inc. Holsman International Harvard University Michael Chesser Chairman and CEO James Bacchus Barbara Hackman Jack A. Hockema Partner (Ret.) Franklin Great Plains Energy, Inc. Chairman, President & Greenberg Traurig, LLP President & CEO and CEO Former U.S. Secretary of Kaiser Aluminum Bernard C. Bailey David Chun Commerce Chairman and CEO CEO and Founder Barbara Franklin Lisa A. Hook Authentix Equilar, Inc. Enterprises President and CEO Neustar Chris Bart Kenneth W. Dam Thomas P. Gerrity Founder and Lead Max Pam Professor Joseph J. Aresty Professor Faculty, The Directors Emeritus of American of Management Lloyd W. Howell College; & Foreign Law & Senior The Wharton School Executive Vice President CEO, Corporate Missions Lecturer of the University of Booz Allen Hamilton Inc., The Directors University of Chicago Pennsylvania Inc. College Law School Raymond V. Gilmartin Larry Jensen Bruce Batkin William H. Donaldson Chairman, President & President & CEO Chief Executive Officer Chairman CEO (Ret.) Cushman & Wakefield/ Terra Capital Partners Donaldson Enterprises Merck & Co., Inc. Commercial Advisors 2 D. Bryan Jordan Patricia A. McKay R. Timothy Rice Jeffrey Sonnenfeld Chairman, President and Partner Chief Executive Officer Senior Associate CEO Templeton & Co. (Ret.) Dean, Yale School of First Horizon National Cone Health Management Corp. Linda E. McMahon Yale University Co-founder and former Alice M. Rivlin CEO Andrea Jung Senior Fellow, Economic Robert J. Stanzione WWE President and CEO Studies Chairman, President and Grameen America, Inc. Chief Executive Officer Lenny Mendonca The Brookings Institution ARRIS Group, Inc. Theo Killion Director Emeritus Nathan O. Rosenberg Vice Chairman McKinsey & Company Founding Partner - Paula Stern Herbert Mines Associates Brian A. Murdock California Chairwoman The Stern Group Ronald J. Klein Chief Executive Officer Insigniam Strategic Investment Partner Frederick W. Telling Holland & Knight LLP Group Landon H. Rowland Chairman of Lead Bank Vice President, John F. Olson Corporate Policy & Robert J. Kueppers Ever Glades Financial Partner Strategic Management Senior Partner - Global Gibson Dunn & Crutcher (Ret.) Regulatory & Public Patricia F. Russo Pfizer Inc. Policy (Ret.) Chief Executive Officer Jane Palmieri Deloitte (Ret.) Business President, Dow Davia B. Temin Alcatel-Lucent Building & Construction President and Chief David H. Langstaff Technologies, Inc. The Dow Chemical Executive Officer President Company Temin and Company Argotyche, Inc. Mary Schapiro Donald K. Peterson Advisory Board Vice Mark Leiter Scott Wieler Chairman and Chief Chair Chairman Chief Strategy Officer Executive Officer (Ret.) Promontory Financial Nielsen Signal Hill Avaya Group, LLC Daniel J. McCarthy John C. Wilcox Todd E. Petzel Elliot S. Schreiber President and Chief Chairman Managing Director and Chairman Executive Officer Chief Investment Officer Sodali Ltd. Schreiber Paris, LLC Frontier Offit Capital Advisors LLC Communications Keith Williams Catherine Reynolds Larraine Segil President and Chief Martha McGarry President & CEO Chief Executive Officer Executive Officer Partner Catherine B. Reynolds The Little Farm Underwriters Skadden Arps Foundation Company Laboratories Inc. 3 Crony Capitalism: Unhealthy Relations Between Business and Government Executive Summary Sustainable Capitalism: its best uses, at low transactions cost). If it does, Why This Policy Statement? the system will... • Facilitate the formation of new and innovative Capitalism is the economic system, if you will, businesses, and that underlies all of the economic decisions — • Cause productivity growth, output growth and big, small, profound, mundane — that we make high employment, and therefore widely shared every day. prosperity (which is CED’s stated goal). But the nature of our economic system is not a By these standards, capitalism has performed question that people necessarily ask every day. spectacularly throughout history. It has supported the Societies do not need a profound philosophy to development of the greatest economy that the world produce and exchange; the motivation comes from has known. It has also allowed for the reduction of instinct. Adam Smith did not in the 18th century poverty at home and abroad on an epic scale. establish the economic system of his time — capitalism; he observed, described, and analyzed However, in the most recent decade, the U.S. what he saw already going on around him. economy has suffered; and some would blame capitalism itself. Pre-Adam Smith, there was less philosophical • Some would argue that capitalism has imposed a or analytical underpinning to thought about substantial cyclical and perhaps even structural economic systems. More of the variation in systems shock on the economy, although of course came from alternative approaches to ownership. capitalism’s responsibility (as opposed to other For example, a sovereign might own everything forces, such as government policy) is in dispute. and make the decisions of who gets what, and what • It arguably has imposed excessive costs of they do with it. Alternatively, property (including allocating capital (although many dispute that the individual citizen’s own labor) could be owned argument). privately, and all owners could make independent • It arguably has less accurately allocated capital, decisions — the system that Adam Smith observed judging from very low new business formation and analyzed. Post-Adam Smith, variations were (again debated). more self-conscious. Socialism and communism • Since the financial crisis, the economy has were created, advocated, and put into practice. One generated less employment (though again might say that they have evolved into “state-owned causation is subject to intense debate), and capitalism,” as it is being practiced today in the therefore has shared income growth more formerly communist China and Russia. narrowly than we would want. But capitalism is our economic system — basically The remarkable success of capitalism in the United what Adam Smith observed — based on private States has been made possible by widespread property, independent choices of work and public support for that system. Sadly, in recent investment, and free exchange. years, and especially since the September 2008 financial crisis, that support has seriously eroded. The Committee for Economic Development of Increasingly the public is coming to view the The Conference Board (CED) judges capitalism system as unfairly benefitting the few and as according to three basic criteria — the functions favoring Wall Street over Main Street. Moreover, we expect an economic system to perform: the system is no longer perceived to be producing • Allocate capital, accurately and efficiently (i.e. to the same impressive economic results as before. 4 This apparent recent erosion of consensus about community, or of capitalism itself; and that is the merits of the U.S. economic system, however by no means our intent. We emphasize that U.S. well- or ill-founded over the long term, at least business, operating under capitalism, has over the reduces the comity of our dialog over public issues, long term produced tremendous improvements in threatens our policymakers’ ability to mobilize income and living standards for the population at consensus in any future emergency, and diverts our large; and that capitalism must, for that reason, be energy from vital public concerns. made sustainable. But we recognize that a small minority in the business community did cause Looking forward, we want to reestablish and fulfill enormous harm in the course of the financial the fundamental objectives of an economic system. crisis. We also will describe a gradual and perhaps But we can’t
Recommended publications
  • How Does Corruption Affect the Adoption of Lobby Registers? a Comparative Analysis
    Politics and Governance (ISSN: 2183–2463) 2020, Volume 8, Issue 2, Pages 116–127 DOI: 10.17645/pag.v8i2.2708 Article How Does Corruption Affect the Adoption of Lobby Registers? A Comparative Analysis Fabrizio De Francesco 1 and Philipp Trein 2,3,* 1 School of Government and Public Policy, University of Strathclyde, Glasgow, G42 9RJ, UK; E-Mail: [email protected] 2 Department for Actuarial Sciences, University of Lausanne, 1015 Lausanne, Switzerland; E-Mail: [email protected] 3 Institute of Political Studies, Faculty of Social and Political Sciences, University of Lausanne, 1015 Lausanne, Switzerland * Corresponding author Submitted: 14 December 2019 | Accepted: 19 March 2020 | Published: 28 May 2020 Abstract Recent research has demonstrated that some governments in developed democracies followed the OECD and the EU rec- ommendations to enhance transparency by adopting lobby registers, whereas other countries refrained from such mea- sures. We contribute to the literature in demonstrating how corruption is linked to the adoption of lobbying regulations. Specifically, we argue that governments regulate lobbying when they face the combination of low to moderate levels of corruption and a relatively well-developed economy. To assess this argument empirically, we compare 42 developed countries between 2000 and 2015, using multivariate logistic regressions and two illustrative case studies. The statistical analysis supports our argument, even if we include a number of control variables, such as the presence of a second par- liamentary chamber, the age of democracy, and a spatial lag. The case studies illustrate the link between anti-corruption agenda and the adoption of lobby registers.
    [Show full text]
  • Lobbying, Corruption and Other Banes
    IZA DP No. 3693 Lobbying, Corruption and Other Banes Nauro F. Campos Francesco Giovannoni DISCUSSION PAPER SERIES DISCUSSION PAPER September 2008 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Lobbying, Corruption and Other Banes Nauro F. Campos Brunel University, CEPR and IZA Francesco Giovannoni University of Bristol and CMPO Discussion Paper No. 3693 September 2008 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. IZA Discussion Paper No. 3693 September 2008 ABSTRACT Lobbying, Corruption and Other Banes* Although the theoretical literature often uses lobbying and corruption synonymously, the empirical literature associates lobbying with the preferred mean for exerting influence in developed countries and corruption with the preferred one in developing countries.
    [Show full text]
  • Understanding Regulatory Capture: an Academic Perspective from the United States
    Chapter 2 Understanding Regulatory Capture: An Academic Perspective from the United States Lawrence G. Baxter Duke Law School In the wake of the Financial Crisis of 2008, the About the Author: Lawrence Baxter is professor of huge Deepwater Horizon oil spill in 2010, and practice of law in the Duke Law School. He has published other industrial catastrophes, the media and extensively in the areas of United States and global academic journals are now replete with charges of banking and regulation; and administrative law. He began that industries have captured their regulators. his academic career at the University of Natal in South Africa, where he held tenure from 1978 to 1984. In 1995, There are well-documented reports of constantly Baxter joined Wachovia Bank in Charlotte, NC, serving revolving doors in which the regulators and the first as special counsel for Strategic Development and regulated frequently change places, of huge later as corporate executive vice president, founding amounts spent by industries in lobbying both Wachovia’s Emerging Businesses and Insurance Group legislators and regulators, and of close social and its first eBusiness Group. He served as chief eCommerce officer for Wachovia Corporation from 2001 relationships that exist between senior regulators to 2006 before returning to Duke in 2009. and executives. A recent Bloomberg BusinessWeek profile describes the “chummy relationship” between the chairman of Citigroup, Sometimes it seems almost as if the United States Dick Parsons, and the Secretary of the United Treasury (not to mention the staff of the White States Treasury, Timothy Geithner, whom Parsons House itself) is run by a cadre of officials who apparently calls “Timmy” – a term that one were either recently members of Goldman Sachs leading Wall Street analyst observes ‘does not or who had spent most of their waking hours exactly acknowledge the authority of the interacting with the CEOs of Goldman, JP Morgan, Secretary, a post once occupied by Alexander 1 Citi and other New York banking giants.
    [Show full text]
  • Greece, Capitalist Interests, and the Specular Purity of the State
    Discussion Paper No. 8 Corrupt Compared to What? Greece, Capitalist Interests, and the Specular Purity of the State Peter Bratsis August 2003 The Hellenic Observatory The European Institute London School of Economics and Political Science Acknowledgements This paper was made possible by a research fellowship from the Hellenic Observatory of the European Institute. It is based on a talk given at the London School of Economics on October 22, 2002. Many of the ideas and arguments presented here were developed during discussions with Constantine Tsoukalas, without his input and encouragement this paper would not have been possible. Stanley Aronowitz, John Bowman, Andreas Karras, Lenny Markovitz, Randy Martin, Eleni Natsiopoulou, Frances Fox Piven and Yannis Stavrakakis have read earlier versions of key sections of the current paper and have provided important comments and suggestions. Kevin Featherstone and Dimitris Papadimitriou have been kind enough to read the paper and provide useful criticisms and suggestions. I hope that the arguments contained here are clear and provocative enough to engender discussion. Table of Contents Introduction: Political Corruption and Greece Part I: Legitimation What is Political Corruption? Why Corruption? Rules of Separation: From Leviticus to Washington D.C. The Australian Case: Fetishism Revealed Part II: Accumulation The Opacity of Transparency Instrumental Reason and the Relative Autonomy of the State The Globalization of the Capitalist State Conclusion: Future Directions for Research on Corruption and Greece Works Cited 3 Introduction: Political Corruption and Greece Political corruption is under attack. Technocrats, mainstream academics, and media pundits qua ‘experts’ have increasingly set their sights upon the blight of corruption.
    [Show full text]
  • Crony Capitalism: Caricature Or Category?
    Munich Personal RePEc Archive Crony Capitalism: Caricature or Category? Mazumdar, Surajit Institute for Studies in Industrial Development February 2008 Online at https://mpra.ub.uni-muenchen.de/19626/ MPRA Paper No. 19626, posted 30 Dec 2009 10:14 UTC Working Paper No: 2008/02 CRONY CAPITALISM: Caricature or Category? CRONY CAPITALISM AND CONTEMPORARY INDIA-I Surajit Mazumdar ISID February 2008 ISID Working Paper 2008/ 02 CRONY CAPITALISM: Caricature or Category? CRONY CAPITALISM AND CONTEMPORARY INDIA-I Surajit Mazumdar Institute for Studies in Industrial Development 4, Institutional Area, Vasant Kunj, New Delhi - 110 070 Phone: +91 11 2689 1111; Fax: +91 11 2612 2448 E-mail: <[email protected]> Website: <http://isid.org.in> February 2008 ISID Working Papers are meant to disseminate the tentative results and findings obtained from the on-going research activities at the Institute and to attract comments and suggestions which may kindly be addressed to the author(s). © Institute for Studies in Industrial Development, 2008 CONTENTS Abstract 1 1. Introduction 1 2. Crony Capitalism as a Concept 2 3. Crony Capitalism and Arm’s‐length Capitalism in the ‘Theory’ of Crony Capitalism 7 4. Crony Capitalism and ‘Relationships’ 13 5. Crony Capitalism and the Financial System 19 6. Cronyism and the Business‐State Relationship 25 7. Crony Capitalism and the Internationalization of Capitalism 31 8. American Capitalism and Crony Capitalism: Polar Opposites or Synonymous? 34 9. Conclusion 43 References 46 List of Boxes BOX I The Diagnosis... 7
    [Show full text]
  • Markets Not Capitalism Explores the Gap Between Radically Freed Markets and the Capitalist-Controlled Markets That Prevail Today
    individualist anarchism against bosses, inequality, corporate power, and structural poverty Edited by Gary Chartier & Charles W. Johnson Individualist anarchists believe in mutual exchange, not economic privilege. They believe in freed markets, not capitalism. They defend a distinctive response to the challenges of ending global capitalism and achieving social justice: eliminate the political privileges that prop up capitalists. Massive concentrations of wealth, rigid economic hierarchies, and unsustainable modes of production are not the results of the market form, but of markets deformed and rigged by a network of state-secured controls and privileges to the business class. Markets Not Capitalism explores the gap between radically freed markets and the capitalist-controlled markets that prevail today. It explains how liberating market exchange from state capitalist privilege can abolish structural poverty, help working people take control over the conditions of their labor, and redistribute wealth and social power. Featuring discussions of socialism, capitalism, markets, ownership, labor struggle, grassroots privatization, intellectual property, health care, racism, sexism, and environmental issues, this unique collection brings together classic essays by Cleyre, and such contemporary innovators as Kevin Carson and Roderick Long. It introduces an eye-opening approach to radical social thought, rooted equally in libertarian socialism and market anarchism. “We on the left need a good shake to get us thinking, and these arguments for market anarchism do the job in lively and thoughtful fashion.” – Alexander Cockburn, editor and publisher, Counterpunch “Anarchy is not chaos; nor is it violence. This rich and provocative gathering of essays by anarchists past and present imagines society unburdened by state, markets un-warped by capitalism.
    [Show full text]
  • Department of Economics
    DEPARTMENT OF ECONOMICS Working Paper The Self-Inflicted Dimensions of Puerto Rico’s Crisis Argeo T. Quiñones-Pérez Ian J. Seda-Irizarry Paper No. 02, Fall 2017 The Self-Inflicted Dimensions of Puerto Rico’s Crisis “Puerto Rico requires a labor policy directed towards converting us into an attractive jurisdiction for establishing businesses and for creating opportunities of employment in the private sector”- Francisco Montalvo Fiol, coordinator for the Coalition of the Private Sector, January 4, 2017. Introduction The decade long socio-economic depression through which Puerto Rico is passing has caught international attention, with characterizations such as “the biggest default in U.S. municipal bonds market history” or “the Greece of the Caribbean” feeding the imagination of those that seek explanations to understand it. Local and foreign bondholders, a pro-austerity government, and a fiscal control board have all become the major protagonists in a story of social decomposition in a nation that was once thought to be a model for capitalist industrial development and social welfare. For many within Puerto Rico, past concerns and fears associated with achieving political independence from the United States, fed in large part by decades of cold war propaganda, have become very real under the colonial status. The poverty level is three times that of the United States, the island is among the most unequal nations in the world, and the emigration waves have surpassed those of the 1950s to the point that the island is being depopulated. The unhindered mobility of the “factors of production,” i.e. capital and labor, that for decades has characterized the business environment in the island has not produced the dynamic and long term economic growth, or convergence with the metropolis, that some economic theories and models would have predicted.1 Not surprisingly many explanations have been put forward to understand the causes of the crisis in Puerto Rico.
    [Show full text]
  • Crony Capitalism
    Crony Capitalism CORRUPTION AND DEVELOPMENT IN SOUTH KOREA AND THE PHILIPPINES DAVID C. KANG Dartmouth College PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE The Pitt Building, Trumpington Street, Cambridge, United Kingdom CAMBRIDGE UNIVERSITY PRESS The Edinburgh Building, Cambridge CB2 2RU, UK 40 West 20th Street, New York, NY 10011-4211, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia Ruiz de Alarcón 13, 28014 Madrid, Spain Dock House, The Waterfront, Cape Town 8001, South Africa http://www.cambridge.org © Cambridge University Press 2002 This book is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2002 Printed in the United Kingdom at the University Press, Cambridge Typeface Janson Text 10/13 pt. System QuarkXPress [BTS] A catalog record for this book is available from the British Library. Library of Congress Cataloging in Publication Data Kang, David C. (David Chan-oong), 1965– Crony capitalism : corruption and development in South Korea and the Philippines / David C. Kang. p. cm. – (Cambridge studies in comparative politics) Includes bibliographical references and index. ISBN 0-521-80817-0 – ISBN 0-521-00408-X (pb.) 1. Political corruption – Korea (South) 2. Political corruption – Philippines. 3. Korea (South) – Economic policy – 1960– 4. Philippines – Economic policy. I. Title. II. Series. JQ1725.A55 K36 2001 320.95195
    [Show full text]
  • Is Capitalism the Most Effective Way to Advance Society? Yes!
    Is Capitalism the Most Effective Way to Advance Society? Yes! Peter G. Klein Hankamer School of Business Baylor University October 2020 @petergklein What is capitalism? ► Capitalism . Private ownership of the means of production (and everything else) . Resource allocation by markets and prices . Mobility of capital and labor . High levels of economic freedom . Other names: free enterprise, market economy, private enterprise system, liberalism, free society ► Socialism . State ownership of the means of production . Resource allocation by governmental fiat . No mobility of capital or labor . Absence of economic freedom . Not: welfare state, collective action, “being sociable” Types of capitalism ► Pure free-market capitalism . Night-watchman state (Smith, Mill, Hayek, Friedman) . Private ordering (Rothbard, D. Friedman, Ellickson) ► Mixed economy . Some state-owned enterprises . High levels of social welfare spending (e.g., Nordic countries) . Substantial economic regulation ► Socially responsible capitalism . Stakeholder capitalism . Cooperatives, communes, kibbutzim, social ventures, household production ► Crony capitalism . State intervention to favor politically connected firms Claim 1: (Entrepreneurial) capitalism is the largest wealth creator in human history. The “European miracle” ► Private property ► Limited government via divided sovereignty ► The rule of law ► A culture promoting entrepreneurship and innovation Economic freedom ► Comprehensive data series from Fraser Institute, World Bank, other sources ► Positively and significantly correlated with . GDP and GDP per capita . Innovation and economic growth . Health and well-being . Social, political, and cultural gains . Quality of life Claim 2: There is no feasible alternative to capitalism. Socialist society forbids “capitalist acts between consenting adults” (Nozick, 1974). Claim 3: The alleged defects of capitalism are common to any system of social organization. ► The Nirvana fallacy (Demsetz, 1969) ► Comparative institutional analysis (Coase, Williamson) .
    [Show full text]
  • State Capture Analysis: How to Quantitatively Analyze The
    DISCUSSION PAPER No. 2 June 2019 Governance Global Practice State Capture Analysis: Public Disclosure Authorized How to Quantitatively Analyze the Regulatory Abuse by Business-State Relationships Andreas Fiebelkorn Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized This series is produced by Governance Global Practice of the World Bank. The papers in this series aim to provide a vehicle for publishing preliminary results on Governance topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take into account this provisional character. For information regarding the Governance Discussion Paper Series, please contact contact: Ayse Boybeyi, at aboybeyi@ worldbank.org © 2019 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved ABSTRACT Abundant qualitative evidence reveals how public and private actors abuse regulations to seek rents, impede reforms, and distort the economy. However, empirical evidence of such behavior, including its economic costs, remains limited. For that reason, the objective of this paper is to help practitioners who seek to quantitatively analyze state capture make better use of experience, methodologies, and potential data sources. Based on a comprehensive body of existing empirical studies, it provides guidance to analyze state capture and its impact on the economy. Chapter 1 discusses the concept of state capture and its relevance for economic development.
    [Show full text]
  • A Better Way to Fix Lobbying Lee Drutman
    Number 40 June 2011 A Better Way to Fix Lobbying Lee Drutman EXECUTIVE SUMMARY hat Washington is corrupted by Tspecial interests is perhaps the most Recent Issues in Governance Studies common critique of the “Cultivating Conscience: How federal government. Good Laws Make Good Poll after poll reveal a People” (December 2010) public convinced that “The Age of Leverage” lobbyists are a (November 2010) destructive influence,1 and most lobbying “Beyond Additionality in Cap- reform ideas and-Trade Offset Policy” accordingly take a (July 2010) © Reuters/Jim Young distinctly moralizing “The Senate Syndrome” tone. “Drain the swamp” was Nancy Pelosi’s rallying cry in 2006, backed by a (June 2010) promise to, on Day One, “break the link between lobbyists and legislation.”2 “Can a Polarized American President Obama, too, spent his campaign bashing special interests (as did Party System Be “Healthy”? McCain), and also made a symbolic point of enacting new lobbying rules for his (April 2010) administration on Day One. This paper argues that high-handed moralizing about lobbying misses the To view previous papers, visit: point: Lobbyists are not inherently corrupting, nor does their primary influence www.brookings.edu/governance/Issu es-in-Governance-Studies.aspx stem from some devilish power to automatically compel legislative outcomes through campaign contributions and/or personal connections, as is commonly believed. Rather, their influence comes from their ability to become an essential part of the policymaking process by flooding understaffed, under-experienced, and overworked congressional offices with enough information and expertise to help shape their thinking. This situation, however, is far from benign.
    [Show full text]
  • The Costs of Corporate Welfare
    March 2016 The Costs of Corporate Welfare Bob Dick Introduction Over the last four and a half decades, government spending in the Keystone State has risen dramatically. Consequently, Pennsylvania workers now labor under one of the highest tax burdens in the country. Of the last 46 state budgets, only one did not increase total spending.1 This explosion has been fueled in part by special subsidies doled out to select businesses, creating an economic system favoring the privileged few at the expense of everyone else. Matt Mitchell, in his 2012 paper, Pathology of Privilege, explains the danger of such government favoritism:2 Privileges limit the prospects for mutually beneficial exchange—the very essence of economic progress. They raise prices, lower quality, and discourage innovation. They pad the pockets of the wealthy and well-connected at the expense of the poor and unknown. When governments dispense privileges, smart, hardworking, and creative people are encouraged to spend their time devising new ways to obtain favors instead of new ways to create value for customers. Privileges depress long-run economic growth and threaten short-run macroeconomic stability. The evidence in this paper mirrors many of Mitchell’s findings. Government favoritism stunts economic growth, misallocates resources, and leads to higher tax bills. By ending government favoritism and moving toward a tax system devoid of special treatment for moneyed interests, lawmakers can improve the state’s business climate and create opportunities that will lead to better lives for all Pennsylvanians. For reformers, the best place to begin is with the $700 million in special subsidies identified in the 2015-16 budget.3 Regrettably, Gov.
    [Show full text]