Hollow states

Skim government when fat cats drank the cream

March 13, 2019 — March 13, 2019

hand wringing
Figure 1: Boardgame of Mates

States whose return on investment (or perceived ROI) to most of their citizens drops down towards the ROI on overthrowing them to replace them with something better, because these states have been captured by certain privileged elites. Archetypically: states run by kleptocrats when the mechanisms of democratic (or other) oversight no longer keep nepotism in check. There are many coordination problems and principle agent problems and such that have hollowed states throughout history. I’m interested in the modern ways that states hollow, if in fact those is any different than the historical ways.

Karan Mahajan, “State capture”: How the Gupta brothers hijacked South Africa using bribes instead of bullets:

In South Africa, the Guptas found a country with the allure of the white First World, but all the guile of the Third World in which they’d been raised. And unlike other Indians in South Africa, they were free of the country’s history of oppression; as Hindu males born in independent India, they had been like white men back home. Which is why, when opportunity presented itself in South Africa, they acted like white men before them—with impunity.

…State capture goes far beyond paying off greedy officials; it’s about distorting government policy for personal gain. In April 2010, the state-owned Industrial Development Corporation lent the Guptas $34 million, which they used to buy a uranium mine. It seemed like a risky move: at the time, worldwide uranium prices were plummeting. But the Guptas appeared to have inside knowledge that Zuma was planning—over the objections of his own treasury—to sign an expensive deal with Russia to open a series of nuclear power plants. Once the facilities were up and running, they would buy uranium from the Guptas, who wound up pocketing all but $1.8 million of the government loan

…The Guptas, remarkably, seem hurt that their former fiefdom—the place that made them who they are—has turned against them: had they acted so differently from the white colonialists before them?

The Australian version is not so extreme but possibly more streamlined and institutionalized, and has been termed the Game of Mates by Cameron K. Murray and Paul Frijters.