There are two primary strategies for state-capture (Grzymala-Busse, 2008):
- Clientelism is a strategy where public agents take the state's resources and distribute them to their supporters. This provides the ruler political support.
- Predation is a strategy where the public agent can take state resources for their own benefit. Maintaining this arrangement requires destroying opposition to the ruler.
When asking how this happens, it is probably important to keep the scope of the problem in mind: it typically isn't the case that a single shadowy organization corrupts the state. Usually what you will see is that the state becomes porous to outside agents. For example:
In fact, according to Johnson et al. (2002), who surveyed 1,471 enterprises in Poland, Slovakia, Romania, Russia, and the Ukraine in 1997, as many as 90% of the Russian and Ukrainian companies surveyed had made extra payments for public services or the acquisition of a license... [reported in Iwasaki and Suzuki, 2007]
Macro Level Factors
So how do they get away with it? The first reason is that these states have high-level weaknesses which prevent it from being stopped.
State capture is undermined by strong political rights (Hellman et al., 2000). The first control on public figures is the public. A strong, independent media can shine light on corruption and with strong political rights the public can remove people from office (or engage in other legal demonstrations). Transitioning nations (the ones most prone to state capture) lack these rights and therefore there isn't much of a political reason not to appropriate state resources.
Economic development is also relevant (Hellman, ibid). In a more developed economy, the price of corruption is higher (meaning that an external agent would have to spend more to successfully corrupt a state agent). In less developed countries with less established property rights, the cost to corrupt is low.
Although not principally a literature about state capture, Putnam's work on social capital shows cultural reasons for state control (Putnam, 1993). For example, Putnam's field research notes that in some regions of Italy there was a cultural expectation that a person would use their position to benefit their family (for example, by giving preference to their family during the performance of their job).
Short story: State capture is most common among transitioning states. These countries have significant risks. They are inexpensive to corrupt due to having relatively undeveloped economies and property rights, and a lack of civil liberties means that political consequences of being caught are low.
I don't know of a broad survey of the specific approaches that have been used.. Below are two examples I read about while preparing this answer. You might also see Boix and Svolik(2013)'s discussion of authoritarian regimes (it turns out that authoritarian regimes typically only need support from a few key groups).:
- When a country has restrictions on foreign businesses, this can be used to direct foreign investment wherever the captured official wants (World Bank, 2014). For example, when McDonald's approached Tunisia about beginning operations there the President asked for an exclusive franchise to be granted to his family. McDonald's refused, and they could not open in Tunisia. This scheme didn't require a large number of collaborators - only influential ones.
- Former Soviet states are already accustomed to fraud and corruption. Iwasaku and Suzuki (2007) describe how state capture started under the U.S.S.R.: as shortages of crucial goods became more common and the bureaucracy increasingly unhelpful, corruption became more common. Government agents could supply private citizens or interests with goods at their own discretion, on the side. This would later be the basis of state capture, because government officials were used to accepting bribes and working "under the table."
Boix, Carles and Milan W. Svolik. 2013. "The Foundations of Limited Authoritarian Government: Institutions, Commitment, and Power Sharing in Dictatorships." *Journal of Politics. * Link.
Gryzmala-Busse, 2008. "Beyond Clientelism: Incumbant State Capture and State Formation." Comparative Political Studies. Link.
Hellman, Joel S., Geraint Jones, and Daniel Kaufman. "Seize the State, Seize the Day: An Empirical Analysis of State Capture and Corruption in Transition Economies." Presented at the ABCDE 2000 Conference in Washington, D.C. Link.
Iwasaki, Ichiro and Taku Sazuki. 2007. "Transition strategy, corporate exploitation, and state capture: An empirical analysis of former Soviet states." Communist and Post-Communist Studies. Link.
Putnam, Robert. 1993. Making Democracy Work. Princeton University Press.
Rijkers, Bob et al. "All in the Family: State Capture in Tunisia." World Bank Policy Research Working Paper #6810. Link.