Administrative corruption and state capture generally occur as the result of inadequate institutional structures and policies that do not support competition and free trade. Predictably, these inefficiencies have been especially prevalent in the transition process from a socialist to a market economy. Consequently, combating corruption has become a major factor in the debate over optimal reform strategies. Numerous theorists have suggested shock therapy as the optimal method to minimize corruption, but empirical evidence shows mixed results throughout transition economies. Overall, state capture and administrative corruption have had extremely negative economic, social, and political consequences that far outweigh any benefits, and have occurred largely as the result of initial conditions and political inefficiency rather than the speed of reform.Before explaining the negative consequences of corruption in transition economies, it is first important to understand the most common types of corruption. The World Bank divides corruption into two main categories, state capture and administrative corruption. State capture encompasses actions by individuals or firms to manipulate the formulation of government laws and regulations to their benefit. This type of corruption usually transpires where there is little social voice and official political influence, benefiting those at the center of a concentrated, economic network. Administrative corruption includes actions that distort the prescribed implementation of such laws and regulations, often bribes to public officials that result in selective exemptions to individuals or firms.The Business Environment and Enterprise Performance Survey has compiled corruption figures from transition economies based on these two types of corruption. Despite a high margin of error due to obvious concerns with reliability (given the nature of the subject), results have clearly indicated high levels o...
