In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks. ~ Spencer Bachus, U. S. House of Representatives
The death-knell of the republic had run as soon as the active power became lodged in the hands of those who sought, not to do justice to all citizens, rich and poor alike, but to stand for one special class and for its interests as opposed to the interests of others. ~ Theodore Roosevelt
Today we want to consider the idea of state capture. What does this concept mean, and why should we care about it? State capture occurs when one class or group or interest asserts enough control over the state, that the state acts on behalf of that group rather than for the polity as a whole. Given the mortal threat state capture poses to a democratic republic, we want to recognize it when it occurs, understand its consequences, and know how to respond to it.
When the founders of our republic praised the checks and balances in our Constitution, they pointed not only to the branches of government, but also to constitutional balances that would prevent one faction, among competing interests, from obtaining too much influence. Historically, democratic republics quickly fail if one powerful interest manages to gain control of some significant portion of the state’s organs of power. These organs include the treasury, the army or the military more generally, the judiciary, the executive, or even basic administrative functions. Once the external faction has control, it is hard to dislodge.
Democratic checks on state power quickly disappear after state capture occurs. In fact, state capture indicates that the equipoise essential to pluralist democracy has already disappeared. If checks and balances among groups outside as well as inside the state remain effective, state capture cannot occur. When one group captures the state, or a portion of it, democratic controls and processes that compel a state to act in the interest of all groups – or at least to balance the interests of all groups – suffer a serious setback.
Why should we even think about state capture in the United States? Don’t we have a Constitution where that kind of thing cannot happen? Think again. State capture occurred in the United States in 2008, when large financial firms used taxpayers’ assets to ward off bankruptcy. The firms committed fraud, lost trillions as a result of their activities, and drew on public resources to protect themselves from ruin.
During the collapse of 2008, we heard phrases like moral hazard, too big to fail, and Washington looks out for Wall Street but not for Main Street. If you hear these phrases often enough, they begin to obscure what actually happened. State capture actually happened. A financial panic unfolded, and financial firms responsible for the panic took what they needed from us to protect themselves. The firms that practiced fraud could not have rescued themselves had they not asserted sufficient control over the United States Treasury and the assets in it.
Now we come to the last question: how should democratic citizens respond to state capture? If they respond with confused apathy, the new status quo experiences no challenge. If they respond with conventional regulations and appeals for stricter oversight, they are unlikely ever to redress the balance of power that went awry when the state suffered its initial defeat. To redress the balance of power – to assure restoration of democratic checks on the state and the entities that captured it – citizens must replace the government that allowed itself to be captured in the first place.
That is not easy. No group relinquishes power voluntarily. No group, having captured a key arm of the state’s apparatus, will give up its advantages without resistance. Similarly the state, even if it knows it suffered a defeat, rationalizes the errors that led to its ignominy. It is compromised and cannot self-correct. To return to democratic control, the state must have new leadership. To give the state new leadership, citizens must replace both leaders and the institutions they lead. History does not hold a promising outlook for citizens who try to do less.