Guptagate

Gupta affair a classic example of state capture

State capture.jpg

The undue involvement of the Gupta family in South Africa’s national household is but one example of a much wider, deeper and serious problem.

A furore erupted at the latest lekgotla of the ruling ANC’s national executive committee over the influence of the Gupta family on government – a classic example of what in literature is described as ‘state capture’.

It is a problem domestically restricted to the Guptas and is not unique to South Africa.

The fact that the Gupta problem is so now prominently tackled in South Africa is a positive sign of the health of our democracy.

For a broader understanding of, and perspective on the issue, it is instructive to take a look at a 2014 report by Transparency International (TI) on the subject, titled: State Capture: an overview.

In its introduction the report describes state capture as follows: “State capture is one of the most pervasive forms of corruption, where companies, institutions or powerful   individuals use corruption such as the buying of laws, amendments, decrees or sentences, as well as illegal contributions to political parties and candidates, to influence and shape a country’s policy, legal environment and economy to their own interests.” 

And it is not restricted to central government, as illustrated recently in South Africa by developments around the mayor of Beaufort West, Truman Prince, attempting to generate party political funds from official tenders. So, too, the channelling of an alleged R80 million to an Angolan friend of President Jacob Zuma from a Passenger Railway Agency of South Africa (Prasa) contract.

In this regard the TI report states: “Public institutions such as the legislature, the executive, the judiciary and regulatory agencies (and state enterprises) both at the federal and local levels are subject to capture.”

Different forms

The report identifies different forms or the use of different platforms in different countries, often depending on the level of development of, and governance structures in, a particular country.

It also makes it clear the problem does not only afflict developing countries. Most developed industrialised countries and those with economies built on service industries like the financial sector, also battle with this problem.

In the United States, one of the countries with presently the largest problem with state capture, it is, for instance, reported that “corporations have become extremely powerful and they have been using lobbying, the revolving door and campaign financing to exercise control over the rules governing their operations, as well as over the allocation of public resources in several sectors.”   

It can also have severe impacts on the global economy. The financial crisis of 2009 can largely be ascribed to what is happening on this front in the US and other advanced economies. The final report on the financial crisis published by the US’s Financial Crisis Inquiry Commission (2011) concluded that the financial industry itself played a key role in weakening regulatory constraints on institutions, markets and products.

It is also revealing that developing countries, including South Africa, are not always the worst exponents of this form of corruption.

In 2009, in an article, Daniel Kaufmann, a senior fellow at the Brookings Institution and former director of governance at the World Bank, noted that in 2009 the US on a Corruption Perceptions Index was rated 53rd out of 104 countries “a few ranks below Italy. Chile rated 18th. Also rating better than the U.S. were countries like Botswana, Colombia and South Africa.”

Guptas a classic example

What has happened, and is happening around the Gupta family in South Africa is a classic form of state capture in a developing country under particular circumstances.

The following three paragraphs in the TI report are particularly telling:

  • ""… countries in Central and Eastern Europe, where the transition from socialism (think apartheid to democracy) entailed radical transformations of political and economic institutions which in turn created opportunities for powerful interest groups to influence the formulation of economic policy to their own advantage;
  • “In these countries, state capture was facilitated by: (i) the rewriting of an exceptional volume of laws, regulations and policies; (ii) the unusual redistribution of wealth from the state to the private sector; and (iii) the virtual absence of institutions either within or outside the public sector that could effectively check the abuse of public office,” and
  • “State capture can also be found in other nations where the military, ethnic groups, (think BEE, affirmative employment and racial quotas) kleptocratic politicians or organised criminal groups become extremely powerful and manage to shape laws and policies. For instance, this is the case in Colombia, Pakistan, conflict states in Sub-Saharan Africa, among others.”

What has made the problem of state capture in South Africa unique, to some extent, is the prominence the head of state, his family and intimate circle of friends have enjoyed in the controversies that developed around the issue.

As the Beaufort West situation, to mention but one example, illustrates, it would, however, be a mistake to regard it as just a “Zuma problem” or to think that the broader business community and other special interest groups in the country are squeaky clean.

Dealing with the problem

Across the globe countries find it difficult to come to grips with this “corruption of a special” kind in its multitude of manifestations. Simplistic solutions, like simply the removal of a head of state, will not be enough. A much more holistic approach is needed.

In its report TI writes: “Addressing state capture requires reforms and improvements across a whole range of institutions and in relation to the internal organisation of the political system, as well as a complete overhaul of the relationship between state and business.

“Consequently, anti-corruption strategies addressing state capture usually aim at enhancing state capacity and public sector management, strengthening the accountability of political leaders, enabling civil society and increasing economic competition.”

It also stresses the importance of strong corruption-fighting institutions and civic organisations in the fight against state capture and broader corruption.

The mere fact that the Gupta sore has now burst open, that the Nkandla controversy has become so prominent and that exposure of other incidents of corruption occur regularly, are indications that South Africa is not doing too badly on this score.

Opportunity

That the Gupta situation has now exploded onto the public scene offers South Africa a unique opportunity for some housecleaning, to send out a message that corruption will not be tolerated from anyone and to take a fresh look at how our image on this front can be improved.

Utilising this opportunity will be good for the economy, increase investor attractiveness and improve the national psyche in general.

by Piet Coetzer

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