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Hungary is the third most corrupt member of the EU - How?

2019.01.29. 07:46 Módosítva: 2019.01.29. 11:13

Transparency International published their annual Corruption Perception Index, and it paints a gloomy picture of Hungary.  Despite improving last year's score by one point, the report shows that Hungary is still one of the most corrupt countries in the European Union. 

Transparency International's Corruption Perceptions Index (CPI) scores countries based on the perception of corruption in a given state as determined by a number of surveys and assessments in each country. The score itself is calculated from the weighted average of several other sub-indexes, projected onto a scale from 0 to 100, with a higher score meaning lower corruption.

Hungary's score this year was 46, which places it as 64th in the list of 180 countries. But being in the middle of the pack globally translates into being amongst the last in the EU, the 26th to be exact - the only European countries with lower scores were Greece and Bulgaria, which means state action against corruption seems to be the least efficient in Hungary amongst the V4 countries and amongst all the other countries that joined the EU during its 2004 enlargement. 

Still, this is an improvement over last year's score, 46, which granted Hungary the 66th place globally and 27th in the EU. But if we put that into context, and compare the Hungarian scores from the previous few years to the scores of other states in Central-Eastern Europe, we can generally see Hungary going against a generally improving trend, losing nine points over the course of six years:

The study debunks Viktor Orbán's recent claim that a stable economy is evidence for a state without corruption - the relatively high GDP and the increased competitiveness still fail to cancel out the effects of corruption. The lack of trust in state institutions is hurting foreign investments, and even if other attributes of Hungary attract investors, they still factor corruption into their calculations, hindering growth further down the line. But why is that trust low?

Concentrated public procurements

2017 saw the highest total sum of public funds spent through public procurement procedures in the last ten years, amounting to 10% of the Hungarian GDP, and never since 2008 have so much public money been spent in so few procedures:

The data support the notion that state spending is concentrated: Almost a quarter of all procurements were secured by the business interests of Lőrinc Mészáros and László Szijj, two oligarchs with close links to the government. 

The government often boasts that the number of public procurements with only one entry is on the decrease. However, the procurements can be rigged in other ways: tenders are often tailor-made to fit a certain company. For instance, Elios Zrt., a company closely associated with István Tiborcz, the Prime Minister's son-in-law, went on an incredible winning streak between 2009-2014, securing one EU-funded public lighting contract after the other, through public procurement tenders that were written based on advice from a business interest of Tiborcz's former partner. In 2018, OLAF revealed numerous irregularities in the procedures, finding evidence of fraud and organised crime - Hungarian authorities, of course, dropped the investigation. 

All in all, Transparency International found that the partiality of public procurements greatly contributed to the enrichment of entrepreneurs with close links to the government. For instance, the aforementioned Lőrinc Mészáros, a former gas fitter became the wealthiest Hungarian in just 5 years after appearing on his first top 100 list. 

93% of state contracts he won last year were funded by the EU.

Distorted media

The other factor negatively affecting Hungary's score is the current situation media, once called the fourth branch of power - but most of it in Hungary was degraded to a simple mouthpiece of the government. TI's report concludes that the "media acquisitions of business circles linked to the government, oligarchs, and even government officials constitute the gravest threat to freedom of the press." There are fewer and fewer media outlets that are independent of the government - as the acquisitions rolled on, the hostile takeovers (origo.hu), closures (Népszabadság) and sometimes just plain old capitulation (Magyar Nemzet) decimated their ranks. The creation of the giant pro-government media conglomerate last November that encompasses more than 450 titles (donated by oligarchs) and the decree setting up its subsequent exemption from any and all Competition Authority procedures citing public interest was a particularly brutal intervention from the government. 

Transparency International assesses that the Hungarian media industry is showing all symptoms of a distorted market.

  • Loyalty and servilism overrides talent and performance,
  • Pro-government outlets with microscopic reach are raking in disproportionate amounts of state advertisement,
  • Political factors are heavily affecting private decisions in the advertising market, taking priority over business rationale. Therefore, private advertising follows the state in order to express loyalty to the government and to avoid any possible repercussions of not doing so.

This is attributable to the controversial, one-sided media regulation introduced by Orbán's government only indirectly. According to Transparency International, most of the responsibility falls on the authorities it created, that instead of working to ensure the conditions necessary for a plural media landscape and real market competition, seem mostly to serve the government's goal of achieving media hegemony.

Is Hungary the victim of state capture?

TI's study references the World Economic Forum's 2018 Global Competitiveness Report. Out of 140 countries, Hungary ranks 121st in terms of conflict-of-interest regulations, 108th in the protection of private property, 103rd in judicial independence, 134th in terms of the legal framework for challenging regulations.

By now, the elite ruling since 2010 has mostly abolished the professional and organisational autonomy of independent institutions, and appointed loyalists to lead them. The Constitutional Court, the General Prosecutor's Office, the State Audit Office, the police, the tax authority, and a myriad of other institutions were all affected. This process eroded the structure of checks and balances that were supposed to restrain the executive branch to the point that most of these institutions not only withstand but in some cases straight-up incentivise corruption. The study mentions that thus far, judicial independence was more-or-less stable, but that institution is about to be thoroughly tested as well by the new administrative court system set to start working in 2020 under the oversight of the Minister of Justice, Transparency International reminds.

The term "state capture" might come to mind, but that technical phrase does not show the full picture. State capture's textbook-definition is that a strong economic interest group exerts determining influence over the weakened state power, thus controlling it, however, in Hungary, that is not quite the case. According to Transparency International, it would be more accurate to talk about cronyism and the private expropriation of state power by its practitioners to build up these businessmen. 

TI's assessment states that the institutionalisation of corruption has started long before 2010, but unlike before, it is no longer an anomaly of the system; it became the state's primary method of operation. Corruption is consciously utilised to replace individual performance with loyalty as the primary factor in the redistribution of wealth. Acts of corruption are no longer carried out in violation of existing legislation but through them. In the meantime, state power overtly reared a new economic elite by diverting public funds to grow the wealth of a select few, giving rise to the new "national bourgeoisie."

This redistribution of wealth was achieved by regulatory measures, incorporating corruption into the legal system itself and causing market distortions in several industries. Ideologists of Fidesz regard the creation of this group of "Hungarian proprietors" as a vital national interest, but in reality, oligarchs getting rich on state funds are rarely the pinnacle of innovation and competitiveness, as the steady flow of public money provides no motivation for them to be so. This practice affects others as well since it only incentivises market actors to show loyalty instead of performance and value, eroding sustainability and holding Hungary's economy back. 

Cover: Szigetváry Zsolt / MTI.

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