Saturday, September 5, 2009

Private Sector Capture of the State

Simon Johnson describes the perils of private sector capture of the state. Private sector capture occurs when public entities (a.k.a. states) make decisions that benefit narrow, private (a.k.a. corporate) interests to the expense of the larger public. Johnson has in the past described the banking/financial sector's "capture" of the U.S. Government.

The most cost effective way of dealing with the banking crisis was not pursued because of private sector influence. The most cost effective approach would have been to temporarily nationalize the banks and then systematically sell off good and bad assets. This approach would have cost the taxpayers the least amount of money, although bond holders would have seen hits to their assets. Johnson outlines this argument in an essay published last spring in the Atlantic, "The Silent Coup."

In my opinion, private sector capture of the state is ushering in a kind of neo-feudalism whereupon the public finances corporate greed and moral hazard with little to no benefit to the public.

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