from the conventional view of corruption, which centers on how bribery is used to influence the implementation of such laws and regulations. Recent research has identified state capture as a fundamental governance challenge in many transition economies, and emerging evidence from Latin America suggests the importance of capture in this region, as well. 30

# **State Capture**

A possible explanation for the negative feedback from per capita income to governance is the phenomenon of state capture. If the fruits of income growth largely accrue to an elite that benefits from misgovernance, then any possible positive impact of income growth on governance could be offset by the effect of the elite's negative influence. The recent in-depth empirical research on transition economies finds that state capture is pervasive in many of these countries. Yet state capture clearly is not unique to this region in the past decade. Many other countries have gone through periods of illicit influence by powerful elites in their past; the influence of the so-called robber barons in the United States at the turn of the twentieth century is one such illustration. Other research focuses on crony capitalism in the Philippines under Marcos and on Mexico during the long era of dominance by the Partido Revolucionario Institucional (PR).<sup>3</sup> ' Such cronyism is often a somewhat subtler form of the coarse manifestations of capture by oligarchs found in the early years of transition to a market economy in the former Soviet Union, but nevertheless it is indicative of serious governance failures in the interface between the private and public sectors. Even the recent spate of scandals associated with lax regulatory and legislative oversight in the accounting practices by influential firms in the United States suggests yet another variant of this private-public misgovernance nexus.

The Business Environment and Enterprise Performance Survey (BPS) carried out in 1999 in twenty-four post-socialist economies provides insights on the phenomenon of state capture.<sup>32</sup> This survey measured state capture by asking firms about the prevalence of illicit private "purchases" of laws, decrees, and regulations by firms, and about the impact of such purchases by other firms on their own enterprise. The survey measured not only the conventional types of bureaucratic and administrative 30. For details on recent research on state capture, see Heilman and others (2000); Hellman, Jones, and Kaufinann (2001); www.worldbank.org/wbi/governance/wp-statecapture.htm. 31. See Haber (2001).

32. The Business Environment and Enterprise Performance Survey (BPS), developed jointly by the World Bank and the European Bank for Reconstruction and Development (EBRD), is a survey of over 4,000 firms in twenty-four transition countries carried out in 1999-2000, examining a wide range of interactions between firms and the state. Based on face-to-face interviews with firm managers and owners, BPS was designed to generate comparative measurements inter alia on corruption, state capture, lobbying, rule of law, and the quality of the business environment, which was then related via statistical analysis to specific firm characteristics and firm performance. For details, visit info.worldbank.org/governance/beeps/.

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