The captured state

The captured state

By Calvo, Alicia Susana

In a captured economy, public officials and politicians sell or concede, for their own benefit, public goods and various discretionary income-generating advantages to individual companies. The capture of the State is an act of power that can be instituted into laws.

In a captured economy, public officials and politicians sell or concede, for their own benefit, public goods and various discretionary income-generating advantages to individual companies. In order to compete against influential firms, established long ago and with strong ties to the State, new applicants to enter the market try to capture the State as a strategic option, not as a substitute for innovation but to compensate for weak legal frameworks and regulatory. The "capturing" firms buy such private benefits directly from the State, and improve their performance only in a captured economy, since in an economy where there is real competition they could not survive.

Not everything that is allowed is honest

Dr. Carlos Menem assumed the first magistracy of Argentina on July 8, 1989, after early elections due to the serious economic situation the country was going through. Less than two months later, on September 1, 1989, the State Reform was launched, first by decree and then by law of Congress. The architect of the reform was the Minister of Public Works, the lawyer Roberto Dromi, seconded by the secretary of the portfolio, also a lawyer, Rodolfo Barra [1]. This refocusing of the State exclusively on functions "that society cannot or must not fulfill" [2] prompted the transfer of the main State companies to the private sector, either by sale or by concession. The first corollary was the privatization of the National Telecommunications Company, ENTel, and Aerolineas Argentinas, which were sold in July and November 1990, respectively. Later YPF and Somisa were sold, and were given in concession to private firms Ferrocarriles Argentinos, Subterráneos de Buenos Aires, electricity, gas, water and sewer services, many of the national routes, airports and the Post Office, among others [3 ].

The explicit foundations of the measures were various: reducing the fiscal deficit, stabilizing the economy, generating a capital market, reducing the level of external indebtedness and providing better services. The implicit objective was to appease external creditors, the FMT and the World Bank who, in the early 1990s, demanded the downsizing of states in debt or in economic crisis: privatizations seemed to offer the best way to end waste, corruption, nepotism, price premiums and subsidies. Certainly the quality of the public utility services provided by the state was permanently questioned, but until that moment, the timid efforts of previous governments had been frustrated by the stubborn opposition of the unions and social resistance. However, the seriousness of the economic situation at the time made the citizens accept, now without reluctance, the transfer to the private sector.

It is of interest to analyze the words of one of the privatizers, to better evaluate the results. Barra says [4]:

"From the crisis of '29 / '30 and especially after the last postwar period, the State needed to advance on the field of social competence and actively intervene in economic relations to promote the process of wealth creation and improve its mechanisms distribution (...) through regulation (and) with the generalization of state ownership of the means of production of goods and services, 'publicizing' the surplus value (...) and also the losses. These mechanisms limit competition, necessarily excluded from regulated sectors and distorted when the public company burst into the market (…) Surely they were necessary, but they should have been provisional, although they became definitive and incremental. We arrived in 1989 with the practical disappearance of the market. Everything was regulated; the State was the main national businessman and the Treasury financed the losses of their companies, which were more destined to regulate the basic economic sectors and to guarantee jobs that to generate wealth and distribute it according to the will of the social actors. The system collapsed. It destroyed the economy, made the currency disappear, extinguished the social contract. In this framework, the privatization and deregulation strategies were designed as foundations for social reconstruction. It was privatized and deregulated to rebuild a State-Society relationship model, away from suffocating bureaucracy, sectoral perks, lack of competitiveness (…) [it was] A return to the capitalist system, the revitalization of the market. "

More than ten years later, let's analyze the results. There is no appreciation of the disappearance of the sectoral perks "to which Barra alluded, nor the return to the capitalist system" or the revitalization of the market. "The much shaken competitiveness is still lacking, because instead of state monopolies there are, at best, cases, cartelized duopolies. Although the quality increased notably in some services (such as telephones, gas or electricity), it is observed that tariffs rose sharply and the permanent staff of the companies decreased [5]; in many cases the canon It is not paid or paid late; the original contracts were renegotiated with marked benefits for the providers; there are practically no "discretionary" or risk investments (the providers are limited to the minimum investments provided for in the specifications and, sometimes, neither those) and in almost all cases, there is a rate of profit considered extraordinary.

Unlike known cases of enormous profitability (gold export, money laundering, theft and smuggling of automobiles), where crimes typified by law are committed (tax evasion, theft, smuggling, falsification of public instrument, breach of the duties of an official public, etc.), in the privatizations there are no normative transgressions or crimes.

The Latin quote "non omne, quod licet, honestum est" reminds us that sometimes the law allows what honesty rejects. This is what we are talking about: in privatizations, actions are not contrary to law but they insult honesty.

From "corruption" to "state capture"

Belligni postulates that "corruption is a particular form of crime and the corrupt person is who deviates from his formal, legally defined duties, linked to his position or violates the rules established for the exercise of public authority." If we applied only that criterion to privatizations, we would not observe major transgressions. But to legality (insufficient proof) the criterion of morality could be added ("the transgression affects the ethical norms that regulate the political or bureaucratic profession, thus deviating from what public opinion or the group to which it belongs considers fair and lawful "[6]), and to establish what is lawful or fair for society, an efficacy criterion can be added, understood as an assessment of the infringement of the public interest [7].

Others affirm that corruption, defined as "exchange of favors", has four constituent elements: violation of norms or legally sanctioned rules (illegality); clandestine exchange between political settings and the economic market (secret); use of public resources for objects not provided for by law (appropriation of public resources) and de facto modification of power relations in decision-making processes (purchase of wills) [8].

Pizzorno [9] proposes that, in addition, the "moral cost" be evaluated, more or less high according to the cultural environment of origin of those affected. What is tolerable in one context is considered corrupt in another. This author refers to a system of values, obviously inserted in a culture and therefore, in a political culture.

Crossing the variables "power and economic interest", corruption can be understood as a "hidden form of participation in the decision-making process, which modifies the structure of political opportunities (that is) a transaction in which money is exchanged for influence on decisions of power "[10]. Caciagli emphasizes that what distinguishes corruption from patronage and organized crime is that in the former, both actors, corrupter and corrupt, are aware of committing a bad act [11].

The actors in the process can be politicians, civil servants, "complainants", magistrates, businessmen, professionals, trade unionists and journalists. Among the structures liable to corruption are the legislative assemblies, public works grantors, tenders to obtain public jobs, public financing, authorizations and controls and the money market [12]. Sapelli affirms that the fundamental element of corruption is the companies that manipulate the market, leading it to forms of monopoly and oligopoly. For him, in contemporary societies, the economy and politics mutually support each other and produce a "neo-patrimonialism", the current form of invisible power, which inevitably implies corruption [13].

Corruption is considered to be the increase in public intervention in the economy, the growth of regulatory norms, partisan competition, the decrease in the autonomy of the bureaucracy and the judiciary, the lack of trust in the State and, from the supply side, pressure from employers [14]. What has been observed in the Argentine privatizations makes us think not only of pressure groups but also of a true "capture of the State" by its former suppliers, who carry out operations contrary to the public interest and morally reprehensible (all the more as the economic crisis deepens of the country) but legally impeccable.

The hypothesis we present is that, in these cases, the capture of the State is an act of power that manages to be instituted into laws.

We rely on the notion of "captured state" [15], which points to the way in which firms influence the state, especially public officials and politicians, to obtain advantages in economies in transition: some companies (firms "captors") manage to design or alter the rules of the game for their own benefit, with high social cost. In a captured economy, public officials and politicians sell or concede, for their own benefit, public goods and various discretionary income-generating advantages to individual companies. The "capturing" firms buy such private benefits directly from the State, and improve their performance, but only in a captured economy, since in an economy where there is real competition, they cannot survive.

Contrary to what is postulated by the aforementioned authors, we observe that in the Argentine privatizations the companies that win in the tenders for the sale or concession of public utility services are not newcomers "to the market, to the activity or to the country, but rather in In general, these are influential, old firms with a long history as providers of the State. The mechanism used, however, is similar to that described by Helíman et al., since there were civil servants in the committees in charge of drafting the bidding documents and conditions. who later became members of the winning organizations of the bid for the provision of services. The contracts already included changes with respect to what was stipulated in the specifications and then, through renegotiations and addenda, the operating conditions were mutated, they were extended the concession or duration of the monopoly, royalty payments were postponed or canceled, the realization of a as infrastructure and risky or "discretionary" investments. All the planned rate increases were met (and even exceeded), due to exceeding the quality parameters or due to higher costs, but practically no fines for non-compliance were paid, nor were rates reduced when costs were reduced: for example, the An important labor reform after the privatizations, which reduced salaries and exempted from employer contributions, allowed a sharp drop in labor costs that was not reflected in rates. As a consequence, it is not surprising that the profits made by most providers are large [16]. In the rare cases where bankruptcies are declared, tax evasion or money laundering is suspected.

We consider that the capture of the State has reached a point such that the very high social cost will not be correlated with a suitable legal sanction, since this extraction of extraordinary benefits does not (yet) constitute a crime typified by the Penal, Civil or Commercial codes. In the Argentine examples analyzed, unlike that highlighted by Helíman et al., It is not a strategic option adopted by companies that otherwise could not compete or even enter the market, but rather a decision made by former State providers (names that are repeated in the various services) to avoid competition and risky investments and ensure not only legal stability and property rights but also the continuity, by other means and in the new scenario, of disbursements that the State had been doing [17].

The capture of the State is not a sudden act but a becoming: the "capturing" firm first learns the business and then appropriates it. With the knowledge gathered as a supplier of the State, the privileged information contributed by the friends and the direct collaboration of members of the company to be privatized (who would have even helped to draft the bidding documents) the offer is made. Once installed (concession or purchase), the private firm incorporates the former officials mentioned above, to operate the service and to obtain additional benefits through the existing gaps in specifications and contracts (expressly left during their drafting, and then exploit them for the benefit operator).

It would seem, then, that the powerful former government providers, faced with the withdrawal of the State to its minimal functions, found "a new wave to surf" in those activities in which they had previously participated and which they now fully administer. This situation was tolerated by society, due to the initial improvement in benefits and the favorable economic context, but currently the level of satisfaction, especially in the cost-benefit comparison, has dropped sharply.

Recurring situations

After analyzing the various bidding processes we have detected the existence of recurring situations [18]. Among others, we can mention the following.

· The specifications were drawn up by expert officials, many of whom were hired by the winners of the bids. This indicates a chain of complicities, on the one hand, and a gap in the requirements to provide services in the provider: the reverse of the conditions to integrate a regulatory entity; The members of the firm are not prevented from having belonged to the state enterprise.

· Consortia made up of an experienced and internationally renowned operator (of the service in question), an Argentine company and a bank had to submit to the bids. The amount to be paid consisted of a part in cash and the other in foreign debt securities. In all the winning consortiums in the bids, the Argentine company is a former supplier to the State and the bank, a strong external creditor.

· The adjudications were tinged with suspicion in many cases. In Aerolineas, let us remember, there was only one bidder who, apart from that, did not make any disbursement. In other examples, the amount actually paid was only a small percentage of what was declared, given the low value of debt securities on foreign exchanges [19].

· Between the proclamation of the winner and the inauguration, varied timeframes elapsed in which private groups pressured the government to pay for voluntary retirements and layoffs of personnel. The most conspicuous example is that of Undergrounds, where it took a whole year.

· Contracts were renegotiated repeatedly, always for the benefit of the providers.

· The State continues to pay subsidies. The Railways continue to cost "a million dollars a day" [20]. Through different forms of renegotiation, companies avoid paying or reduce the amounts corresponding to the canon.

· New works are carried out with subsidies from the State or with percentages of rates. When the previous network was in poor condition at the beginning of privatization, as in most routes, the first investment is the toll booth (or the installation of meters in electricity or gas); then the improvements are started. "Discretionary" investments are conspicuous by their absence, except in telephony.

· Although it was ensured that, under private management, rates would not increase, they rose: due to inflation in the US, higher costs, rise in international prices, quality improvement, added a surcharge to extend the service (water, underground) or to transfer it to the province of Santa Cruz (electricity). It is ensured that, even with state management, with these values, improvements could have been made in almost all services.

· Plant personnel (severely reduced before delivery) became precarious, exchanging stable personnel for subcontractors that provide "non-essential" services and pay low wages.

· The decreases in costs have not impacted on rate reductions.

· The State has failed in the three fundamental missions that it had to fulfill through the drafting of the specifications and the conformation of the regulatory entities: divide the non-natural monopolies, created without a solid foundation during the state administration; increase competition and control compliance with the quality parameters set for the reference service. In reality, when you have divided monopolies, you have created duopolies that cartelize. Therefore, there is no competition, but rather complementation to request (and obtain) rate increases or new perks.

· The regulatory entities in charge of the control of the privatized activities were created (some by Law and others by Decree) after the sale or delivery in concession, by indication of the international financial organizations. Currently the World Bank itself recommends, considering the Argentine experience, to create and strengthen control entities before starting the privatization process.

· The control entities created by decree have been "politicized". In them, the directors are appointed by the Executive Power. At first they were led by technical experts on the subject but later they were replaced by politicians and economists. The argument used was that the renegotiation period was approaching and this is "an eminently political and economic activity."

· The entities do not fulfill their function of controlling the quality of service and defense of users. The fines applied (with the exception of the sanction to Edesur after the "great blackout") have not been consistent with the feeling of low quality and defenselessness that public opinion has. This is fundamentally due to the fact that the control is carried out on the basis of the information provided by the controlled, thus reproducing the "State capture" mechanism.

· When the providers reach the "production frontier" (maximum possible with current resources), new sources of income are sought by obtaining contracts to carry out public works or less profitable sectors are discarded to serve the "solvent demand" . The railways have closed multiple branches that served small towns, although they were the only means of transportation. The Miter Railroad, which serves the northern part of Greater Buenos Aires, provides excellent and almost luxurious service and the Sarmiento Railroad, owned by the same owner, provides very low quality services to the less affluent population in the western area. In Subterráneos, line E had the most modern fleet, although few passengers traveled to the impoverished southern area: the wagons are now on line D, whose passenger flow increased exponentially with the extension of its route (paid by the treasury ) and serves the wealthiest northern area of ​​the city of Buenos Aires.

The change in the conceptualization of network services

In private management, there are marked conceptual differences with respect to state management of network services. In them, the jump from the state economic logic (operating without deficit) to the private one (maximizing profits) was violent.

On the other hand, current electric and gas technicians admit with amazement the robustness and excess capacity of the old facilities, designed to "provide service at any cost." The current ones are at the limit, because the current objective is to provide the least possible service without penalties, at the lowest cost. "The high degree of" redundancy "in the networks (duplication or triplication of the necessary capacity) and the low load of System occupation allowed that, in the event of a failure, the service was restored by bringing gas or energy from another sector of the network through a diversion or "by-pass." The current saturation of the networks ("lean security" [21]) prevents that before a failure (archetypal example, blackout of 1999) the service can be derived by another sector of the system.

On the other hand, during the state administration the lack of service was frequent. Large consumers were penalized with higher rates, trying to lower consumption and employing a logic of distribution of scarce resources. Not a few clients were also exempted from payment, such as employees (present and past) of companies and many public welfare entities. Most services had strongly subsidiary "political prices". In addition, the level of tolerance to fraud and evasion ("hooked" on electricity or the telephone, alteration of gas meters) was high: it was considered that all inhabitants had the right to enjoy services "of public utility", They will pay them or not, applying the logic of "universal right of access". With private management, highlights the diametrical change in logic both in the operation of the system and in the provision of the service. Fraud is pursued, new customers are sought, large consumers obtain discounts and the commercial logic of profit maximization and supply to wealthy demand governs.

The captured society and its future

From the point of view of the structure of opportunities for the appearance of corruption phenomena, we see that in the analyzed cases all the "occasions" are presented together: concessions, regulations, financing, authorizations and controls, the money, monopolies and oligopolies, the appropriation of public resources for private benefit, providers and contractors of the State and the exchange of power for money (and let's not forget that, as someone said, "power is impunity").

Let us add that at the time of privatization, public services were considered the paradigm of clientelized organization (where nepotism and inefficiency prevailed) and also the main sources of waste and corruption. The idea that privatization would bring competition to these natural or state-created monopolies had also been installed in society.

Another characteristic of the structure of opportunities indicated by Caciagli for the Italian case was clearly observed in Argentina: the existence, for a prolonged period, of a government of the same sign [22]. In Italy it was a center-left coalition (Christian Democracy and Italian Socialist Party) [23]. In Argentina it was a center-right coalition (Partido Justicialista and Ucedé) that, through the constitutional reform of 1994, allowed President Menem to govern for ten consecutive years.

The interventions of the US to present claims or complaints about the operation of the privatized activities were repeated, starting with the scandal called "Swiftgate" in 1992, and the impossibility of intervening in the tender of the airline and the telephones, since, by law, firms are prohibited from giving bribes, unlike those of EEC member countries, which can include amounts earmarked for bribery as costs or investments in their balance sheets.

Together with their foreign partners, some national businessmen with a long history as state suppliers managed to maintain their privileged positions by winning bids with à la carte specifications and renegotiating at will and for their benefit the contracts just signed; thus materializing the figure of "State capture" described by Helíman et al.

However, in the Argentine case, one of the characteristics of the corrupt acts on which the experts agree, secrecy, was not present. Indeed, many politicians, trade unionists, civil servants, businessmen and judges, of humble birth and without known professional successes, came to occupy the place of the stars of cinema and sports in gossip magazines. Some of them were denounced and prosecuted after appearing on the central page of one of these weeklies, showing their lavish houses, fields, cars and even wardrobes. This exhibitionism of the last decade, in our opinion, was combined with the worsening of the economic context and caused a change in society that, from tolerance to corruption, passed to criticism.

Indeed, as of 1995, a process of decline in employment and loss of purchasing power of the middle class began that, in many cases, led to impoverishment and even social exclusion. The budget constraints of nearly all middle families stood in stark contrast to the obscene ostentation of certain businessmen and "public servants."

This unequal situation became a socially problematic issue that ended in a media scandal. Citizens and the press became, in the absence of the will to judicial control, elements of social control of corruption. The complaint, prosecution and imprisonment of the person who had led the gigantic pensioners' social work (PAMI) was the first of a series that, until today, has cost him his freedom (at least for a time) even to former president Menem, detained by order of one of the judges who, allegedly, proposed himself to ensure his own peace of mind and that of his collaborators. In these aspects of corruption, it will be necessary to wait for the development of events before being able to ascertain whether it is the beginning of a serious purification, in the mani pulite style or an exercise in Gatopardismo.

However, until now there has been no talk of the revision of the leoninos contracts for the provision of public utility services. Worse still, recently, many lenders have liquefied their liabilities with the new exchange rate, although only a few had solvency problems, thus repeating the process of nationalization of private debt that had taken place in 1982.

Several European countries advocate for the approval of new credits to Argentina, highlighting the crisis that the country is going through, but simultaneously weighing the sharp decrease in royalties obtained from the exploitation of privatized Argentine companies [24]. The paradigmatic case is Repsol-YPF, but the most recent statistics indicate a marked drop in the billing of services in general, even those considered "essential" such as electricity, gas and telephones.

In the midst of an economic and social situation considered by scholars to be the most serious in history, the citizenship captured by service providers (supposedly of "public utility") waits, but no longer patiently but strongly mobilized, that the situation will reverse


[1] The first two privatizations (ENTEL and Airlines) are considered to be the most unfavorable for the State and users, due to lack of experience. However, Minister Dromi is considered one of the most expert Argentine constitutionalists and the secretary of O. y S. Públicos Barra, who handled the legal aspects of the privatizations, after finishing his administration became a member of the Supreme Court; then Minister of Justice and Auditor General of the Nation.
[2] Source: "The privatizing model", article signed by Rodolfo Barra. La Nación newspaper, June 3, 2001, p. 16.
[3] It is cheaper to highlight what has not yet been privatized: the Yacyretá entity; the National Atomic Energy Commission; the Bank of the Nation; 49% from Banco Hipotecario; 16% from the freight railways, 30% from the Savings and Insurance Fund; 20% from Interbaires (tax-free shops at airports), 55% from Edcadassa (tax warehouses at airports); 49% of the Dique Hydroelectric Plant; 26% from the Piedra del Águila Hydroelectric Power Plant and 30% from the Güemes Thermal Power Plant.
[4] Source: "The privatizing model", Op. Cit
[5] Entre los estudiosos se acuerda que, si se suman los empleados de planta con los contratados y los que prestan servicio en empresas subcontratistas, se alcanza o supera la cifra de trabajadores previa a la privatización. La principal diferencia es la falta de estabilidad en el puesto, los menores salarios y la exención de aportes patronales a la seguridad social.
[6] Belligni, S. "Corruzione e scienza politica: una riflessione agli inizi". Teoria Politica, 1987, 1.
[7] Sería una "traición a la confianza social". Cuando un hecho corrupto ocasiona un escándalo mediático", éste puede ser considerado una forma de control social. Cfr. Jiménez, F., Detrás del escándalo político. Opinión Pública, dinero y poder en la España del siglo XX. Tusquets. Barcelona. 1995.pp. 14-15.
[8] Cazzola, F. "Della Corruzione. Fisiología e patología del sistema politico". Citado en Caciagli, M. "Clientelismo, corrupción y criminalidad organizada". Cuadernos y Debates N0 60. Centro de Estudios Constitucionales. Madrid, 1996.*
[9] Pizzorno, A. "La Corruzione nel sistema politico". Citado por Caciagli, M. Op. cit
[10] Belligni, 5., Op. cit.
[11] "Sin conciencia de ilegalidad, y aún más, de ilegitimidad y de ilicitud, no hay corrupción". Caciagli,M. cit, pág. 62.
[12] Caferra, V Il sistema della corruzione. Le ragioni, i soggetti, i luoghi. Laterza. Roma – Bari. 1992.
[13] Sapelli, G. Cleptocrazia. II ‘meccanismo unico de la corruzione tra economia e política. Feltrinelli. Milán. 1994.
[14] Vanucci A. "La corruzione nei sistemi democratici. Alcuni spunti per un’analisi comparata". Cit
[15] Hellman, J.,Jones, G. y Kaufmann, D. "’Seize the State, Seize tbe Day’. State Capture, Corruption aud Influence in Transition", Policy Research Working Paper. The World Bank. World Bank Institute. Governance, Regulation and Finance Division. Septiembre 2000.
[16] Los beneficios netos declarados por YPF-Repsol y Telefónica, para el primer trimestre de 2001 ascienden, entre ambas empresas, a U$S 900 millones.
[17] Una de las criticas a la gestión estatal de los servicios públicos estaba precisamente dirigida a los exagerados sobreprecios que el gobierno abonaba (amén de los intereses punitorios y las multas por mora en los pagos) a sus proveedores. Estos, a su vez, afirmaban que, en el contexto de inflación imperante desde los ’70, y ante la habitual demora del gobierno en los pagos, debían aumentar en cierta medida sus cotizaciones iniciales para hacer frente al "impuesto inflacionario". El retraso de los desembolsos originó múltiples acciones judiciales que el Estado nacional perdía religiosamente, debiendo pagar no sólo las sumas exigidas, actualizadas y con intereses sino también las costas del juicio y los exorbitantes honorarlos de los abogados, procedimiento denominado, a la época "industria del juicio".
[18] Cfr. Calvo, A., "Pri­vatizaciones y Captura del Estado". Ponencia presentada en el Congreso del CLAD. Noviembre de 2001.
[19] En Subterráneos, el ganador conspicuo contratista de obras de infraes­tructura, venció a través de un ingenioso proceder: en la oferta omitió consignar si el subsidio solicitado incluía o no el IVA. Ante el empate técnico y económico, el actual concesionario fue consultado sobre ese particular (el otro competidor declaraba "no incluir el IVA") y respondió que su oferta si lo incluía.
[20] Argumento esgrimido para destacar la necesidad de privatizar
[21] Walter j y Calvo, A. "Las organizaciones de seguridad magra: el gran apagón de Edesur". Ponencia presentada al Congreso Latinoamericano de Sociología. Mayo de 2000.
[22] Caciacli, M., Op. cit.
[23] Alianza que se mantuvo en el poder mientras duró la guerra fría y existió el temor de que el Partido Comunista Italiano (el más grande del mundo fuera de la Unión Soviética) subiera al poder esta amenaza terminó con la caída del Muro de Berlín y la subsiguiente disolución de la URSS.
[24] No olvidemos que la mayoría de las vencedoras en las privatizaciones son empresas estatales de países europeos.

* Calvo, Alicia Susana: "El Estado capturado", Buenos Aires, Revista Encrucijadas No 19, Universidad de Buenos Aires, mayo de 2002.

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