The third dimension of categorization is the action of the state (public actors) aiming at appropriating property. Indeed, every state, by definition, “exercises the monopoly of legitimate use of violence to extract, manage and distribute resources,” and in this sense engages in coercive appropriation and re-allocation of private people’s property. However, to be able to distinguish states by this dimension, we must make three distinctions in the concept of coercive takeover. First, we differentiate between property appropriation (a) for private gain, when someone takes over property and uses it to increase the consumption of himself as well as other concrete, targeted persons (his family, party members etc.), or (b) for public gain, when someone takes over property and uses it not to increase his consumption per se but to give it to other people he does not target specifically in advance as future owners (taking it to public use, handing it out for everyone who meets objective criteria not unique to them etc.).[1] Second, we distinguish takeover of (a) monetary property, like in case of taxation, and (b) non-monetary property, like in case of property-taking intervention or nationalization (in liberal democracies). Indeed, in case of (a) we cannot speak about private or public gain per se, because—speaking about states—most taxes are not collected for specific purposes—say, that the income tax would be collected specifically to finance healthcare and education. In modern states, tax monies go to a so-called general fund from which most (central) governmental programs are financed.[2] Thus, the monetary property that is collected from people simply fill up the revenue side of the budget, and it is the budget which is then spent on different gains, public as well as private. However, when monetary property is being redistributed and spent for private gain, we can distinguish legal and illegal instances of such action—whether it is in line with existing legal code to provide a particular (familiar) person or company from tax monies or not.
Keeping these three distinctions in mind, we can meaningfully distinguish state types by the interpretative layers belonging to this dimension (Table 2.7).
The starting point is the state led by the ruling elite, possessed of the monopoly of legitimate use of violence and using it for taxation, that is, extracting monetary property from the people living under the authority of the state [→ 5.4.3]. Further categories can be defined as follows:
- Rent-seeking state is a state where taxation is boosted to perform, beyond public services, various tasks in the particular favor of the ruling elite and its beneficiaries. “Rent-seeking” refers to increased incomes, whereas illegitimate expenditures can be dubbed as “favoritism.” On this level, both governmental rents and favoritism stays within the limit of legal rules.
- Kleptocratic state is a rent-seeking state where favoritism happens illegally. Illegal diversion of current incomes and rents can take place outside the transparent and regulated channels of government spending, or they can be transacted inside state channels (such as the public procurement system) by disabling effective checks.
- Predatory state is a kleptocratic state where monetary as well as non-monetary property (such as a company) is appropriated for the private gain of the leading political elite. The method of predation utilizes acts that are unlawful in and of themselves (such as extortion or misappropriation of funds), often combined with acts that are not unlawful in and of themselves (such as motions submitted by independent parliamentary representatives or instigating tax audits).
That rent-seeking is understood as the broadest of all categories is not particular to us. Indeed, this term is often used for all the above-mentioned activities, from overtaxation to predation.[3] However, it is analytically useful to distinguish subtypes, pursuing qualitatively different practices, and using the term “rent-seeking state” only for those institutions of the ruling elite which do not reach the kleptocratic or predatory level.
Among the several definitions of rent in the literature, we rely on a Weberian understanding, based on the idea of Iván Szelényi and Péter Mihályi.[4] Weber distinguishes two types of social relationships—open and closed ones.As he writes, a socialrelationship “will be spoken as ‘open’ to outsiders if and insofar as its system of order does not deny participation to anyone who wishes to join and is actually in a position to do so. A relationship will […] be called ‘closed’ against outsiders so far as […] participation of certain persons is excluded, limited or subjected to conditions.”[5] Accordingly, we distinguish open and closed markets, based on whether it depends on the state or incumbents that a new participant can enter, and we define “rent” as the difference between (1) what income would have been in an open market and (2) the actual income, resulting from closing the market to certain participants. In short, rent is the profit stemming from the lack of competition, and the more closed the market is, the higher the rent is (all other things equal) [→ 5.4.2].
Rent is usually understood as a market phenomenon, but there is no good reason to narrow its definition this way. For we can say that the state, disposing of the local monopoly of a number of services, effectively collects rents whenever its revenues (taxes and other current incomes from natural or artificial state monopolies) surpass the income it would have reached if it provided its services not as a monopolist but as a free market entrepreneur—that is, in an open relationship instead of a closed one [→ 5.4.2.4]. Using this understanding, we can say that the ideal typical “state” does not collect rents, as there the government, committed to the principle of societal interest, provides public services at the same or lower price in tax as what could have been reached on the free market. Indeed, actual states with such motives attempt to minimalize governmental rents via public tenders—setting only the public goals but leaving their fulfilment to private actors, at a price determined by the market competition of tender participants [→ 5.5.2.1]. However, governmental rent collection happens when a tax above the market price of government services is charged. This can also be called overtaxation. Further, where rent collection happens on purpose—that is, where the state indeed shows rent-seeking behavior—there exists an expenditure side as well: the extra incomes are spent on goods and services in the particular favor of the ruling elite and its beneficiaries. This kind of state spending can be called favoritism, a more neutral term than the also often used “nepotism” [→ 5.3.2.2].
In a rent-seeking state, favoritism does not break the legal rules of the state. It manifests in acts such as offering positions with high salaries in state bureaucracy or companies to friends and party members, spending tax monies on extra benefits for politicians, or giving bailouts to particular firms.[6] Dušan Pavlović analyzed post-communist Serbia and found that party favoritism has produced a bloated bureaucracy and a set of “money-wasting” public agencies, all paid from overtaxation that has hampered the country’s economic development.[7] However, we speak about “kleptocratic state” when favoritism happens illegally. In this case, benefits are provided to certain actors either (a) outside the transparent and regulated channels of government spending or (b) inside state channels by disabling/disregarding effective checks. For the latter, the public procurement system can be an example, if the state publishes custom-tailored tenders or orders the committee to decide in favor of some particular actors [→ 5.3.3.3].
Andrew Wedeman summarizes the features of “pure kleptocracy” as follows: “(1) endemic corruption, with corrupt activities pervading both the lower and the upper reaches of the state; (2) a tightly integrated hierarchy of corrupt syndicates headed by a godfather-like thief-in-chief; (3) unchecked plunder; (4) near-total impunity for those authorized to loot by the thief-in-chief; (5) large outflows of corrupt monies; and (6) extensive use of these monies to influence politicians and officials in other countries.”[8] This list already includes several features we do not include in our definition, which focuses on the necessary and sufficient conditions to classify a state kleptocratic. However, several extra features that appear in Wedeman’s list indeed go hand in hand with kleptocratic functioning, like the top-down nature of corruption (feature 2 [→ 5.3.2.3]) or politically selective law enforcement (feature 4 [→ 4.3.5]). However, while the word “kleptocratic” alludes to the illegal activity of the ruling elite, the term “predatory state” indicates the violence that accompanies this activity.[9] More precisely, we define predation as follows:
- Predation is the coercive takeover of non-monetary property for private gain.
We define “predation” more narrowly than is typical social sciences, where it is used to refer to any kind of coercive takeover of (private) property.[10] The reason we narrow the term, using the distinctions we made earlier, is to be able to identify states which, besides redistributing monetary property in form of taxation, routinely take over non-monetary property—such as companies—for the ruling elite’s private gain. Following the principle of elite interest, the aim of such a takeover can be to reallocate property to the members of the ruling elite and/or to remove them from the hands of their enemies [→ 5.5.4]. To achieve this, the predatory state uses the instruments of public authority, regulation and discretional taxation, combined with illegal practices such as extortion and economically “drying out” a targeted company via misappropriation of state funds [→ 5.4-5]. In Chapter 5, we will identify such action as “centrally-led corporate raiding,” which is also a subtype of what is known as “reiderstvo” in the Russian literature.[11]
It is important to underline that, as Table 2.7 suggests, the predatory state does not only predate but combines the features of previous state types. That is, a state which, from the perspective of property-taking action, is regarded as a predatory state, uses (1) legal rent-seeking (overtaxation and favoritism), (2) illegal rent-seeking (kleptocratic spending through channels like state payments and procurements) and (3) predation (centrally-led corporate raiding) to promote the personal-wealth accumulation of the ruling elite. All these techniques are combined by a corrupt network that covers the entire state, typically at the command of a chief patron who can coordinate all accumulation and the means thereof [→ 2.6].
[1] Cf. a similar distinction in Epstein, Takings, 161–81.
[2] Browning, “Collective Choice and General Fund Financing.”
[3] For a meta-analysis, see Holcombe, “Political Capitalism,” 2015.
[4] Szelényi and Mihályi, Rent-Seekers, Profits, Wages and Inequality, 57–58.
[5] Weber, Economy and Society, 43.
[6] Cf. Mitchell, “The Pathology of Privilege.”
[7] Pavlović, Mašina Za Rasipanje Para: Pet Meseci u Ministarstvu Privrede [The Money-Wasting Machine: Five Months Inside the Ministry of Economy].
[8] Wedeman, “Does China Fit the Model?,” 90–91.
[9] Yakovlev, Sobolev, and Kazun, “Means of Production versus Means of Coercion.”
[10] Vahabi, The Political Economy of Predation, 41–45.
[11] Lanskoy and Myles-Primakoff, “Power and Plunder in Putin’s Russia”; Viktorov, “Russia’s Network State and Reiderstvo Practices.”