Social:Corrosive capital

Corrosive capital is a label for international financing to countries, typically from authoritarian states, that exploits gaps in the recipients’ governance systems and makes them more vulnerable to economic or political manipulation. The term was introduced in 2018 by The Centre for International Private Enterprise (CIPE), a Washington-based NGO, and has since come into use more regularly in Western policy lexicon as a response to changing global political tensions and increasing Western criticism and policy aimed at states such as, but not limited to Russia and China .

Origins

An early mention of the term appears in a January 18, 2018 transcript of the United States Joint House and Senate Hearing, 115th Congress, 2nd Session entitled "Commission on Security and Cooperation in Europe, Foreign Meddling in the Western Balkans: Guarding Against Economic Vulnerabilities." In that session, Andrew Wilson, at the time Managing Director of CIPE, in a prepared statement appeared to both use the term and provide an explanation of its intended definition:

"Corrosive capital can distort policymakers' incentives and decision-making, privileging the political influence of foreign governments over local citizens' voices. The same types of weakness in government that allowed in the 2000s Russian investment in private enterprise or privatization in the region are the same basic weaknesses that we're seeing now that might allow governments to take dubious loans from the Chinese or allow dubious construction projects.”

CIPE developed the corrosive capital concept and first explained it publicly in a September 2018 report Channeling the Tide: Protecting Democracies Amid a Flood of Corrosive Capital. Most corrosive capital examples from that report shared by CIPE involve foreign investment activities by China and Russia, including issues related to Belt and Road Initiative infrastructure projects, such as high-speed rail lines and telecom or energy projects. In the document, corrosive capital is described as “financing, whether state or private, that lacks transparency, accountability, and market orientation.” When existing democratic institutions and rule of law are circumvented and weakened, other serious issues can follow and have a “corrosive” effect on government and society.

The term has since been adopted by other organizations to describe the usage of capital as a means of influence by authoritarian regimes. The term has been used by NGOs such as The Heritage Foundation, Central European Institute of Asian Studies, American Society/Council of Americas and the National Endowment for Democracy.

Recent usage

U.S. Secretary of State Mike Pompeo used the term in April 2019 in an official statement to describe China’s foreign investment strategy. "When China does business in places like Latin America, it often injects corrosive capital into the economic bloodstream, giving life to corruption and eroding good governance,” Pompeo said during his April 12 speech in Chile."

Corrosive capital has since appeared in various other articles and publications, including a series on “sharp power” by the National Endowment for Democracy.

More recently, usage of the term in US policy making can be seen in US policy drafts such as the Madeleine K. Albright Democracy in the 21st Century Act, which has been proposed by prominent US political figures such as Liz Cheney and Tom Malinowski. The term is seen used three times in a press release from Malinowski regarding the draft legislation:

“It is vital to prioritize US development assistance and democracy support towards combatting authoritarian states’ use of corrosive capital to advance their economic and political interests. Corrosive capital exploits recipient countries’ existing governance gaps while further undermining their democratic institutions and rule of law. Left unchecked, corrosive capital threatens the interests of the United States and our allies in developing and emerging markets worldwide, and harms the competitiveness of American business and investment."