Corruption, Weak States and Economic Rationalism in Central and Eastern Europe

Leslie Holmes, 9th IACC, Workshop contribution, Financial Sector

Corruption, Weak States and Economic Rationalism in Central and Eastern Europe

Leslie Holmes
University of Melbourne


Introduction

While its very nature means that nobody can be certain about this, there is a widespread perception that corruption has been increasing in virtually all kinds of politico-economic system since the 1980s1 . The problem often appears to be even more acute in post-communist states than in most other kinds of system, however. Moreover, many see the dramatic rise in corruption - and, often linked with it, organised crime - as impacting upon countries way beyond Central and Eastern Europe (hereafter CEE). The issue is significant.

This paper is divided into three main parts. In the first, an outline of the scale and nature of the problem is provided. Second, I consider just a few of the many reasons for the apparently dramatic increase in corruption in the CEE countries in the 1990s. One controversial proposition made in that section is that a major explicator is the international context into which post-communism was born. It is argued that the neo-liberal (economic rationalist) ideology that has come to dominate so much of the Western world over the past two decades has impacted upon CEE corruption levels, albeit in a complex manner. While neo-liberalism might lead to increased levels of corruption in Western states, it is particularly problematic when combined with the communist legacy in CEE; yet this formula is still better than the combination of communist legacy and partial (incomplete) reform. Following this, the extent to which there appears to be a relationship between the ideology of neo-liberalism and the weakness of the post-communist state is examined. The third section focuses on the methods that can be adopted to combat corruption. In the conclusions that follow the three main sections, there is consideration of the extent to which the problem of corruption in the CEE states is being exaggerated, and is partly a function of Western constructions. Having argued that the problem really is serious, it is maintained that the social and political implications of corruption are of even greater concern in post- communist countries than in, notably, Western states.

Corruption in CEE

There has been an enormous number of cases of official corruption - both actual (subsequently proven) and alleged (but ultimately unsubstantiated) - in CEE during the 1990s. They have ranged from the top of the state's hierarchy to the most local levels, and across all the state's agencies. In one way or another, corruption has threatened or more negatively affected the careers of post-communist presidents (such as Poland's Aleksander Kwasniewski2); several prime ministers (including Albania's Fatos Nano in 19913; Poland's Waldemar Pawlak in 1995; Lithuania's Adolfas Šlezevicius in early-1996; Estonia's Tiit Vahi in February 1997; Latvia's Andris Škele in July 1997; Czechia's Václav Klaus in late-1997; Georgia's Niko Lekishvili in July 1998; Lithuania's Gediminas Vagnorius in April 19994); numerous senior privatisation officials (including Polish privatisation minister Janusz Lewandowski in 1993; the head of the Czech privatisation, Jaroslav Lizner, in 19945; and the entire privatisation board in Hungary in October 1996 6); police officers (for instance in Poland in the mid-1990s7 , Yugoslavia in 1998 8); military officers (as in Estonia in late-1995 9, Russia in mid-199610 , Bulgaria in 1997 11, Romania in early-1998 12, Slovakia in mid-199813 , and Latvia in late-199814); and many other state officials. Even after they have ceased to hold office, allegations of corruption can be made against former politicians and other officials; at the time of writing (mid-1999), the most notable example of this was the series of allegations of embezzlement being made against former Ukrainian prime minister (until June 1997), Pavlo Lazarenko15 and the formal charge of embezzlement against former Belarusian prime minister Mikhail Chyhir16 .

As alluded to briefly in the opening sentence of this paper, the very nature of corruption means that it is impossible to provide authoritative data on its scale and incidence in any country. Unlike most crimes, corruption often has no obvious 'victim' who would report the crime to the authorities. Where cases of corruption involve at least two agents (e.g. bribe-taker and bribe-giver), there is often a mutual interest in hiding the improper activity from the state. Unfortunately, this typically applies even if one of the parties has been reluctant to engage in corrupt activity. A citizen might well resent the fact that s/he is expected to pay a bribe to an official before the latter will provide goods or a service that the citizen believes should be an entitlement anyway; but once the bribe has been paid, the citizen will in most cases opt not to report the 'meat- eating'17 activity of the official for fear of being punished by the authorities. In countries that are perceived to be particularly corrupt, citizens might even believe that there is a high probability that a police officer to whom they report the crime will him- or herself be corrupt, so that the problem will be exacerbated. It is of concern, for instance, that in a fairly recent poll conducted by the Centre for Democratic Studies in Bulgaria, 57% of respondents claimed it was a 'waste of time' to report cases of corruption, and that an almost identical percentage (56%) believed that police officers readily accepted bribes, while 63% believed judges did . 18

Given all this, it becomes clear why statistics on corruption must be treated with extreme caution. The most we can glean from them is that they provide some evidence on the very minimum extent of the problem. Beyond that, the most useful information - in terms of assessing the potential social and political implications of corruption - is public perceptions of the problem. While this may be based on a gross overestimation of the scale of the problem, it is perceptions rather than 'reality' that matter in terms of the state's legitimation and transition problems. The rest of this section will consider some of the statistics available on corruption in CEE countries, followed by some of the survey and focus group data that have been published. This overview cannot be systematic, for two main reasons. The first is the practical one of space; merely summarising the numerous corruption-related surveys conducted in so many CEE countries during the 1990s would require far more pages than can be allocated here to this issue. Second, in most cases, neither the corruption statistics nor the survey data are standardised across polities, so that direct comparisons are not possible. Hence, what follows is necessarily somewhat random and impressionistic.

While overall crime statistics on almost all post-communist states are far more readily available now than they were during the communist era, those on corruption are still very patchy 19. Russia is one post-communist country that does provide fairly detailed statistics on corruption. The statistics are usually presented in three categories of corruption among state and public officials - embezzlement, bribery and abuse of office. Although the number of recorded offences has been increasing in each of the latter two categories since the end of 1991, the number of recorded embezzlement cases (which is by far the largest category) has actually declined. Nevertheless, the recorded number of embezzlement cases involving officials stood at 35,460 in 1995 (compared with 40,364 in 1991); the 1995 figures for bribery and abuse of office were respectively 4889 and 3240 (compared with 2534 and 2451 in 1991, or 93% and 32% increases in just four years)20 .

Bulgaria is more typical than Russia, in that it provides very few specific statistics on corruption. But we do know that between 1991 and 1995, only some 370 acts of bribery (i.e. an average of 74 p.a.) were recorded 21; anyone with some knowledge of post-communist Bulgaria will appreciate that such figures appear ludicrously low. The figures may have increased a little under the present government, with approximately 100 state employees (mostly customs officers and officials from the Interior Ministry) being investigated for possible corruption as of November 199722 .

Even where a relatively high number of officials are accused of corruption, the rates of prosecution and conviction, as in the West, are often remarkably modest23 . Hence, despite numerous corruption scandals and allegations in Poland 24, only four public officials were convicted of corruption in the seven-year period 1990-6, according to the Polish Ministry of Justice 25. Similarly, only 17 officials were found guilty of being involved in bribery in Bulgaria in 199526, despite the fact that, less than eighteen months later, a new governing coalition was elected that had made the fight against the widespread problem of corruption one of its leading campaign planks (i.e. which strongly suggests that corruption was a major problem, whatever the statistics). Only two judges were convicted for accepting bribes in Lithuania in the period 1991-7, in spite of a popular perception of widespread corruption in the judicial and law- enforcement agencies27 . And only twelve officials (ten of them police officers) were charged with bribe-taking in Czechia in 1994 28.

Most of these figures (possibly unlike the Russian ones) are grossly out of kilter with public perceptions. There is by now abundant survey and focus group evidence to demonstrate that corruption (as well as organised crime) is a major concern of citizens in most post-communist states. A poll conducted in Russia in May 1992 indicated that almost 75% of interviewees either 'fully agreed' (53.4%) or else 'tended to agree' (20.8%) with the statement that 'corruption represents a serious threat to our society'. Time-series data conducted in Russia between 1994 and 1998 reveal that although only approximately one quarter of respondents (rising to almost 30% in January 1997 and 32% in July 1998) considered corruption to be one of the most serious threats to them personally, crime more generally was consistently perceived as either the second, third or fourth greatest threat, after inflation and, sometimes, unemployment and non-payment of wages and pensions29 . Another over-time survey, of what Russians feared most,revealed that 'complete lawlessness','criminalisation of society' and'corruption of the power structures' (vlastnykh struktur) did not rank quite as highly as in the first survey cited; they nevertheless ranked, respectively, 3rd, 4th and 7th out of 43 possible variables in 1996 and 4th, 5th and 6th in 1998. Moreover, the percentages opting for these three variables in their listings were, again respectively, 67%, 65% and 53% in 1996, compared with 61%, 61% and 54% in 1998 30.

Results similar to these Russian findings can be found elsewhere; in many countries, the figures are even higher than the Russian ones. A July 1991 Polish survey revealed that 71% of respondents considered corruption a major problem, while a 1995 one suggested that almost 94% of Poles considered corruption to be either an important or a very important issue, for example31. A more recent (April 1997) CBOS survey revealed that the percentage of Poles who believed that the highest authorities - inc. the parliament, government and ministries - were corrupt had increased approximately 50% 'within the last few years'32 . Polls conducted in Slovakia during the 1990s have repeatedly indicated that corruption is one of the three most serious concerns for citizens33. When asked in a November 1997 survey to name just one problem as 'the most serious' in their country, some 41% of Bulgarians identified 'corruption among state officials'; trailing in second place, as the first choice of 24% of respondents, was 'encroachments upon personal property'34 . A July 1995 World Bank survey of 200 Lithuanian businesspersons revealed that 54% of those operating in Vilnius and Kaunas had paid bribes to officials35. A 1997 survey of 1017 Lithuanians revealed that 'criminalisation of society', 'corruption of the power structures' and 'complete lawlessness' ranked 4th, 5th and 7th respectively out of 45 possible factors respondents could cite as those they most feared in their country, while a comparable survey of 450 Ukrainians in 1998 ranked these variables (out of 43 rather than 45) in, respectively, 6th, 7th and 3rd places 36. Finally, a 1998 World Bank survey in Latvia revealed that some 60% of companies and households interviewed believed that corruption had increased in their country over the previous four years, and that most people believed this was because of a lack of commitment to combat corruption on the part of cabinet ministers37 .

Unfortunately, it is not possible on the basis of existing survey results or methodologies to prove that the widespread concern about corruption in post-communist countries is undermining the legitimation attempts of the governments in these countries. However, it does not seem fanciful to suggest that the limited evidence available from Kazakhstan and Uzbekistan, which indicates that many citizens are ambivalent about democratisation and economic reform precisely because they associate these processes with the perceived increase in corruption and organised crime38 , would probably be replicated in other post-communist states were similar surveys to be conducted. Two further pieces of evidence can be adduced here to support this proposition.

First, there is the fact that so many leading politicians in the post-communist world have focused on the issue of fighting corruption when they are attempting to increase their popularity (especially during election campaigns). Examples include Presidents Constantinescu in Romania, Lukashenka in Belarus and Yeltsin in Russia, and Prime Minister Kostov in Bulgaria. They do this because they perceive the issue to be one of major popular concern.

Second, recent large-scale focus group and interview- based research into attitudes towards corruption, conducted by a team based at Glasgow University, demonstrates that there is widespread and ultimately rather similar concern about the phenomenon in several CEE countries. Since the four countries investigated (Bulgaria, Czechia, Slovakia and Ukraine) represent a broad 'spread' in terms of levels of economic development, political culture and religious traditions, proximity to the West, etc., the fact that so many findings were basically similar strongly suggests that public attitudes towards corruption are more or less duplicated across much of CEE. While a detailed analysis of these findings lies beyond the scope of this article, a few general observations are pertinent.

Although the relative rankings of which types of state officials were perceived to be the most corrupt, and which the least, varied somewhat from country to country, the most salient point is that all groups of officials were considered corrupt by at least 40% of citizens in all four countries, and by more than half of the citizens in all countries except Czechia (with the highest average percentages occurring in Ukraine). Another finding is that, although rather more Czechs and Slovaks expressed a preference for a 'clean' (i.e. corruption free) state than did Ukrainians and Bulgarians - often, it appears, because the latter states were seen as being so dysfunctional that corruption was considered by some to be a necessary evil to ensure the realisation of desired outcomes! - there was still a majority in both Bulgaria and Ukraine who would prefer a system free of corruption. Finally, it is clear that citizens in all these states are less tolerant of high-level corruption than of improprieties among local officials; and that the vast majority of citizens in all four countries found improper behaviour among state officials more annoying than such behaviour among businesspeople39 .

In addition to surveys of citizens within the post-communist countries themselves, there are numerous polls of foreigners' perceptions. The July 1995 World Bank survey in Lithuania referred to earlier, for example, also targetted 200 foreign businesspeople who had invested in the country. Of these, 80% claimed they had been asked to pay bribes, while 90% indicated that corruption was preventing them from investing further in Lithuania40 .

But unquestionably the most frequently cited index of perceived corruption since the mid-1990s has been the 'corruption perception index' (hereafter CPI) produced and published by Transparency International (TI), in conjunction with Dr. Johann Graf Lambsdorff of Göttingen University, annually since 1995. The 1998 index is more comprehensive than any of the earlier ones, ranking 85 countries worldwide. Of these, 12 are post-communist CEE states. According to the index, Estonia is perceived to be the least corrupt of the CEE states (at position 26), while Russia is the most (at position 76); in ascending order of perceived corruptness, the intervening countries are Hungary (position 33), Czechia (37), Poland (39), Belarus and Slovakia (joint 47th), Romania and Yugoslavia (joint 61st), Bulgaria (66), Ukraine (69) and Latvia (71). Unsurprisingly, the post-communist states are perceived to be in aggregate more corrupt than Western states, though less corrupt than Latin American or sub-Saharan African states41 .

One final survey worth citing is Freedom House's 'Nations in Transit - 1998'. Among the several ways in which the post-communist states are ranked in this analysis is in terms of their levels of corruption. Freedom House suggests four categories - A (lowest levels) to D (highest levels). In the D category are Albania, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Hence, with the exception of Albania, all the countries in this 'highest corruption levels' are FSU states. The next worst group includes several Central and South East European states (in addition to three FSU states), the list comprising Belarus, Bulgaria, Croatia, Georgia, Macedonia, Moldova, Romania and Slovakia. In the B group are the three post-communist Baltic states (i.e. Estonia, Latvia, Lithuania) plus Czechia, while the least corrupt group (A) consists of Hungary, Poland and Slovenia. For those reasonably familiar with the perceptions of corruption in the various post-communist countries, this list holds few surprises. However, it is worth noting that Freedom House ranks Latvia very differently from the position attributed to it by TI42. At this point in my research, pure intuition suggests Latvia is closer to the Freedom House ranking than to its TI one, especially since TI has Latvia as more corrupt than Ukraine.

Reasons for Corruption

There is a vast number of reasons for corruption in the post-communist world. Rather than seek to elaborate them all here - which would, given space limitations, necessitate doing little more than provide a superficial listing - the focus here is on just three factors that are either entirely or largely peculiar to post-communism.

The first is the legacy of communism. Various analysts have referred to 'path dependence' - here meaning that a given country has both a limited range of options to choose from during its transition phase and a proclivity to choose some rather than others, which is determined by the context from which it is emerging43. - for explaining a wide range of aspects of post-communist behaviour. Contrary to what some comparative analysts appear to have believed 44., there was a considerable amount of corruption in the communist world 45. Certainly, some post-communist politicians have argued that it is precisely the legacy of communism that has led to so much corruption in CEE in the 1990s; the then President of Albania, Sali Berisha, made this observation in December 1994, for instance46. Numerous aspects of this legacy could be cited to explain such 'path dependent' corruption. But one to be singled out, since so many citizens refer to it when asked to suggest explanations for post-communist corruption, is the decline of coercion. Many citizens apparently believe that, as a direct reaction to the 'totalitarian' coercive methods applied during the communist era, the sanctions against corrupt officials are now too mild. In any case, the perception is that even these weak sanctions are so rarely applied (which the Polish data cited above appear to endorse 47), that officials are barely discouraged from engaging in corruption.

Second, one of the features that distinguishes post- communist states from transitional societies elsewhere (such as in Latin America, Southern Europe from the mid-1970s, or South Africa) is that they have been undergoing multiple and simultaneous transitions since the collapse of communist power in 1989-91. Whereas the other transitional states had to undergo political revolutions, the post- communist ones had, in addition, to introduce fundamental economic, legal, ideological, and social change. Many also had to redefine their boundaries and identities, and realign themselves in international military and trading blocs. The sheer scope of attempted change is one significant reason why most post-communist states have suffered a severe legislative lag in the past decade. This lag has meant that laws have often been either in essence non- existent or else vague and contradictory. This situation is ripe for both corruption and organised crime 48.

The final point in this section relates to the international context in which post-communism was born. It is widely accepted that the emergence of post-communism coincided with a recession in the West, and that the sheer number of states in which communist power was rapidly overthrown, more or less simultaneously, only added to the more general pressure on foreign capital. This meant that there was less investment available for individual post-communist countries than would probably have been the case had just two or three countries transited at a time. But this was not the only aspect of the international economic situation that helps to explain corruption in the post-communist world during the 1990s. Another factor, which is typically overlooked, is that the birth of post-communism coincided with the increasing dominance of neo-liberal (economic rationalist) ideology in the West. This requires elaboration.

The rise of economic rationalism in the West is generally associated with the coming to power of Margaret Thatcher in the UK (1979) and Ronald Reagan in the USA (elected 1980); its leading economist theoreticians are the members of the so-called Chicago School, of whom Milton Friedman is the best known. This version of capitalism is a purer but also more socially stratifying form than Keynesianism or the economic approach of social democracy. It advocates minimising the role of the state in the economy, and encouraging society - in theory, civil society - to assume many of the responsibilities that had in many West European countries been accepted by the state in recent decades. One way in which this occurs is through the privatisation of services and industries that had once been run by the state. Even where the state continues to accept responsibility for services, its method of supplying them typically differs substantially from previous practices. There is a move away from state-run monopolies towards competition, marketing, outsourcing and contractual relationships, the notion of 'user-pays', and the maximisation of cost-effectiveness.

Some analysts have argued that this changing role of the state necessarily leads to a reduction in corruption, for the simple reason that, since the new state is smaller (i.e. it has less officers), there are fewer opportunities for corruption 49. In short, so the argument runs, ceteris paribus the fewer officers the state has, the less corruption there will be. At first sight, this argument appears to be persuasive in its simplicity.

But simple arguments are not invariably the most convincing when analysing the complexities of human society, and there are powerful counter-arguments to this one. For example, the very process of privatisation - which is ultimately implemented by the state - provides new opportunities to state officials. They can (and empirical research reveals they often do) demand or request bribes and kickbacks from private agents interested in purchasing a hitherto state-owned business, in a way they cannot when there is no privatisation process. It must be acknowledged that, in the particular case of privatisation, there is a dynamism to the process that means that once the process is complete, the opportunities also disappear. In the real world, the situation might not be as neat as this, since the state might subsequently opt for re-nationalisation, which in turn opens up the possibility of subsequent re-privatisation. But let us not muddy the waters with such largely hypothetical scenarios. Instead, it is worth focusing on the other dimensions of economic rationalism that can have implications for corruption.

Most neo-liberals favour outsourcing, but often do not acknowledge the potential negative implications of this for corruption. Other things being equal, there are fewer opportunities for officials to request or demand bribes or kickbacks where a municipality manages its own (monopolistic) garbage removal service than where private agents bid competitively for the contract to perform these tasks. Since a major plank of the neo-liberal argument is that outsourcing is more cost- effective precisely because it involves competition, the tendering process must be regularly iterated if it is to achieve the desired effect. This means that there are ongoing opportunities for corruption among those state officials involved in awarding contracts.

Unfortunately, the state's moves towards the outsourcing and commercialisation of functions that it once performed often leads to greater secrecy (less transparency). Commercial-in-confidence laws usually apply in cases where, had the state still been performing tasks it has now transferred to the private sector, freedom of information acts would have permitted citizens to investigate questionable actions and transactions. This reduced transparency is highly conducive to corruption.

Another aspect of economic rationalism that can help to explain the apparent rise in corruption in Western states in recent years is the reduced loyalty it engenders. In the past, a person could opt for a career in either the private or the public sector on the assumption that the conditions would be different. In crude terms, a position in the latter would be less risky (i.e. there would be greater job security, a more reliable career path, a better pension scheme), but also less potentially lucrative, than a position in the former. But with the adoption of many aspects of the private corporate sector's modus operandi, including much less job security, by the state's agencies, many state employees feel that their employer is not showing them the loyalty it once did - which in turn reduces their own loyalty to the employer. This problem is frequently compounded by the fact that salaries and perks in the state sector typically still do not match those in the private corporate sector. Hence, there can be a sense among state employees that they are losing twice over; although being subjected to the insecurities, stresses and competitiveness of the private sector, they do not usually have access to the highly lucrative reward packages that successful performers in the private sector do. The problem is further compounded if state officials see criminal elements playing a significant role in and profiteering from the private sector and getting away with this. All this can lead to resentment, and increases the probability that officials will engage in corruption.

Finally, and intimately related to the last point, the increased interaction between the state and the private sector of the economy, typical of Western neo-liberalism, tends to blur the boundaries between both 50. How do these points relate to the post-communist states of CEE?

Like many Latin American countries in the 1980s, several post-communist states have explicitly been influenced by neo- liberal ideas. In the early-1990s, the most obvious examples were Poland and Russia, in which Leszek Balcerowicz and Egor Gaidar respectively acknowledged the influence of Western advocates of radical economic rationalism such as Harvard economist Jeffrey Sachs. In Czechia, Václav Klaus frequently cited Margaret Thatcher as his role-model and hero in terms of economic management. Estonia, with its low flat-rate income tax policy, is often cited by neo-liberals as a model of good (efficient) post-communist government. More recently, the governments that came to power in Romania in November 1996 and Bulgaria in April 1997 made clear their commitment to basically neo- liberal principles. While other CEE states have in most cases been less open about their commitment to economic rationalism, there can be little doubt that they are affected by the pervasive ideology of the West; this becomes even more obvious when they compare their own economic performances with that of several of the CEE countries that overtly espoused economic rationalist principles early on 51.

Unfortunately, while neo-liberal economic policies may have helped some post-communist countries to recover economically faster than might otherwise have been the case, they have also contributed to the problem of corruption. Ironically perhaps, some aspects of neo- liberalism in practice even overlap with and endorse communist legacies. Thus the 'blurred boundaries' point made above finds strong resonances in the communist experience; not only was the demarcation line between the state and the economy difficult to determine, but the confused relationship between 'the party' and the state increased the general fuzziness of boundaries in the system as a whole.

If the general effect of economic rationalist policies is to increase corruption, the likely effect specifically in the CEE countries is more complicated. On one level, it certainly adds new dimensions to the problem. The Western problem of 'kickback' corruption during the privatisation phase, for example, is compounded in the CEE countries - not merely because of the scale and pace of privatisation, but also because state officials have sometimes sold off state assets to themselves, at prices considerably below what the market would have determined. This both discredits the privatisation process and deprives impoverished and struggling states of revenue.

Another major reason why neo-liberalism exerts a negative influence is because the ideological gap between the old system and the new is much wider than would have been the case had the post-communist states attempted to transfer to what used to be known as the Nordic or Rhineland model (i.e. a more social democratic model). State officials would have felt less dislocated, confused, insecure and basically alienated in the latter case, which in turn should have made them less prone to anti-social and anti-systemic behaviour.

To argue this last point is not to suggest that the CEE states should have adopted a version of the Nordic/Rhineland model. Regrettably, this was not a realistic possibility, even had CEE politicians wanted to pursue it. This social democratic model has only ever been successful in highly developed and affluent countries - and none of the CEE states could have been so described at the beginning of the 1990s (or, indeed, at the end of the 1990s 52). Moreover, even the Scandinavian and Germanic countries that once had it have, to varying degrees, been moving away from it in recent years and towards the more ruthless and individualistic 'Transatlantic' model. The coming to power of left- of-centre parties in almost all of the EU states in the mid-to-late- 1990s, plus the references by various Western leaders to 'the Third Way' or the 'New Centre', might suggest a return at the start of the next millennium to something akin to the former Nordic model in at least some of these countries (although one of the leading theorists of the new version of the Third Way has explicitly ruled out the possibility of this in the competitive context of the globalised economy 53). Even if this were to happen, it will be a long time yet before any of the CEE states have sufficiently strong economies to make this a feasible option54 .

Thus, while the international context of a dominant neo-liberal ideology might help to explain the higher levels of corruption in the post-communist states, it is ultimately pointless to suggest that these countries should have attempted to pursue some other - more 'caring' - form of capitalist development. This was simply not an option. Equally, just because the 'larger gap' thesis (i.e. between two ideologies and systems) is used here to provide part of the explanation for increased corruption in the post- communist world, it should not be taken to imply that there was a better alternative; in fact, it is argued here that the legacy of communism meant that there was going to be corruption in these societies anyway, and that it is better to have corruption in a society and economy that is progressing than in one that is stagnating. This point leads nicely to the enigmas of Estonia and Poland, two of the most successful post-communist states - and two which might appear to undermine the hypothesis being made here. Observant readers might have noticed the apparent contradiction that Estonia has been cited as both a prime example of a country adopting radical economic rationalist policies, and as the least corrupt of the post-communist CEE states in the 1998 TI rankings. While this is something of an enigma, the following points need to be borne in mind.

First, the Baltic republics were usually considered to be among the least corrupt of the former Soviet federal units. If it is borne in mind that the Northern European states (Denmark, Finland, Sweden and Norway) are perceived to be the least corrupt in the world, then Estonia's position in the table looks far less impressive; it only looks good in comparison with other post-communist states.

Second,there is some evidence that the Estonian media have not been reporting corruption as much as they might have done, allegedly because the Estonian public does not react to reports of corruption as much as citizens do in other countries 55. Since the TI index is based primarily on the perceptions of foreign businesspeople, and assuming that few of these read the Estonian media, this explanation might initially appear misguided or irrelevant. However, foreigners' perceptions of the level of corruption in a given country are often at least partly formed through conversations and other forms of interaction with people living in that country. Thus, if Estonians themselves do not believe corruption is a major problem, to some extent as a function of comparatively low levels of media reporting of the phenomenon, then it is less surprising that foreigners do not either.

Third, it was mentioned earlier that corruption might increase as a result of resentment that criminal elements are benefitting from the new economic arrangements. It hardly seems necessary to point out that this is a very pertinent point in many of the CEE countries. The influence of external Russian criminal elements appears to be weaker in Estonia than in its Baltic neighbours; but it is still a factor. This, plus the legacy-related comparative state of the economy and welfare provisions, helps to explain why corruption in Estonia is still far worse than in the neighbouring Nordic countries.

Finally, the Estonian enigma suggests that the ramifications of the communist legacy constitute a more powerful explicator of corruption than the influence of neo-liberal economic policy. This interpretation would also be compatible with the fact that Latvia, which has had much less radical economic reform than Estonia but is also a post-Soviet (not merely a post-communist) state, fares so poorly in the TI index56 .

Poland is not quite as much of an apparent enigma as Estonia, but has adopted radical neo-liberal policies in some areas. While not performing as well as Estonia in the TI tables, it nevertheless fares better than most post-communist states, and is one of the three countries in Freedom House's list of 'least corrupt' post-communist states. Again, particular features of Polish development in recent times might help to explain this.

Perhaps most important is precisely the fact that the economy has overall outperformed every other in the region. Poland's rapid turnaround after the collapse of communist power should not be attributed solely to Balcerowicz's radical policies, even if these probably were the most important factor. Poland was also helped by the fact that it was seen by many in the West as having played the most significant role in CEE in bringing about the end of communist power in the region, largely via Solidarity; when the former leader of the latter and then President of Poland, Lech Walesa, sought a write-off of Polish debt to Western institutions, he was listened to more sympathetically than almost anyone else in the region would have been 57. This got Poland off to a good start in its economic transformation, which had at least two implications for corruption. First, Polish officials did not become as desperate as some of their peers in other parts of the region where the economy did not appear to be improving much, if at all. Second, Poles could take more pride in their country than most other peoples in CEE, and were less alienated than many of these other groups. Unfortunately, both of these explanations are and can only be speculative. Moreover, neither of them should be pushed too far. Poland has had its fair share of both corruption and public disappointment in the 1990s; all I am seeking to do here is to suggest reasons why Poland's levels appear to be somewhat lower than other countries', and why this does not per se disprove the neo-liberalism argument being made here. We have reached the point at which the relationship between economic rationalism and weak states can be explored.

It has often been observed that transition states are typically weak. There are many reasons for this weakness. One is the sheer scale of what they have been expected to do - the multiple simultaneous transition referred to above - which has meant that all have been overloaded, and hence less effective than they might have been in more settled circumstances.

But the overload implications of the multiple transition in CEE are not the only legacy-related aspect of the apparent weakness of post-communist states. Another has already been mentioned in another context. This is that many politicians (as well as citizens) wanted to distance themselves as much as possible from the authoritarianism of the communist era. Related to this was the fact that they often wanted to minimise the use of bureaucrats from that period; while they typically found they would have to rely, more than they would have preferred, on people who had been officials in the communist era, the latter usually appreciated that they were to change their attitudes and style if they were to survive, let alone prosper, in the new arrangements. Old dogs attempting to teach themselves - or being taught - new tricks can result in confusion which, in turn, can make an organisation function less efficiently. In a case where there are lots of new bureaucrats, it can take time before such people develop confidence and expertise in their new positions, while experience is necessarily a function, to some extent, of time. All this helps to explain the weakness of the state.

One other but significant explanation for the weakness of post- communist states relates to their socio-economic structures. Among the many reasons for the relatively peaceful move from communist to post-communist power in most CEE states is that the old political elites had seen the writing on the wall for their economic - and ultimately political - systems, and had done little to resist pressure for change. Indeed, far from resist it, many sought to secure themselves a front row seat in the new arrangements, and in some cases even encouraged the transformation. Many anticipated that, in the new systems, economic power would ultimately be more important than political power, in marked contrast to the previous configuration. These are the people who have both driven and benefitted from the so- called 'nomenklatura privatisation'. In the near absence of an indigenous bourgeoisie, this group has in some ways become a major component of a new substitute bourgeoisie. Yet it has typically not been in the group's interest to develop a strong, rule-of-law state. This requires explanation.

In one of the best articles to date on post-communism, Harvard political scientist Joel Hellman has argued persuasively that the winners of early post-communism, including those who have benefitted from privatisation, have only sought limited economic reform. Basically, they have wanted sufficient reform to enable them to take advantage of rapid and often poorly-monitored privatisation; once this has occurred, they have sought to block further reform, since they can see the dangers to their own privileged positions of continued moves towards regularity, transparency, and the rule-of-law. According to Hellman, they have therefore sought what he calls 'partial reform equilibrium'-

As a result, while the winners have acquired an early stake in the reform process, they have also developed a stake in the very distortions that impede the realization of the efficiency gains of a fully functioning market.58

Assuming this argument is correct, our analysis of the impact of neo-liberalism on the post-communist states has to be refined, indeed substantially modified. While most of the criticisms of the economic rationalist approach still hold, it becomes clear in the light of Hellman's point that the problems of post-communist transition have been exacerbated by the incompleteness of the adoption of the neo-liberal model. Expressed bluntly, citizens of the CEE countries have been getting the worst of both worlds. On the one hand, the multi-faceted legacy of the communist era is still affecting the functioning of the state, even if this legacy is more tangible in some countries than in others. On the other hand, the negative aspects of neo-liberalism are manifesting themselves, while the potential advantages of this ideology - notably greater efficiency, lower prices, greater choice, more competition, and less power to the state - are often barely discernible (again, the extent to which they are varies from country to country).

It is maintained here that the above analysis, with its focus on the gap between the theory and practice of neo-liberalism and the unusual social structure of post-communist societies, helps to explain both the apparent increase in corruption in the West since the 1980s - and why the situation is even worse in the post-communist states, at the same time as there is some connection between the corruption in CEE and Western Europe59 . Many Western economic advisers not only did not understand the institutional and cultural specificities and limitations of the CEE countries they were seeking to influence, but they also missed this all-important point about the class nature of the social structures.

Control and Prognosis

There are numerous ways of dealing with corruption. Many of the most appropriate and best-known methods are not peculiar to post-communist states, and will therefore be listed and elaborated only briefly here60 . Following this is a sub-section focusing on the dynamism of both post-communism and corruption, which will in turn permit some hypothesising on likely future scenarios in CEE.

Perhaps the most obvious method of dealing with corruption is to use the weight of the law. To do so, particularly against senior officials charged with corruption, would be one concrete indication of the consolidation of the rule of law in the CEE states 61 . At present, the very low number of convictions for corruption, compared with the number of allegations, suggests that there is still a long way to go. Moreover, even on the relatively rare occasions when officials are found guilty of corruption, their punishments are typically light62 . Thus, of the 70 sentences passed in 1996 on Polish officials found guilty of accepting bribes, the most severe was two years' imprisonment 63 . Indeed, it could be argued that if officials perform a crude cost- benefit analysis, for many of them it is economically rational to engage in corruption even if they get caught and are found guilty. This is highly problematic if governments are serious about dealing with corruption.

A second, related method is to strengthen existing bodies responsible for combating corruption and related crimes and/or to establish new ones. An example of the former was the July 1996 announcement that the number of troops attached to the Russian interior ministry was to be augmented by 10,000, specifically in order to make the force more effective in dealing with organised crime and the black economy. Among the numerous instances of the latter that could be cited are the July 1991 establishment in Poland of a special police force to combat economic crime and corruption, and the founding of a special task force on crime announced by new Polish Prime Minister Oleksy in March 1995; the 1996 establishment of a task force attached to the Hungarian parliament and whose brief was to tackle corruption; and the establishment in September 1997 of a Council for the Prevention of Corruption in Latvia. In addition to more general agencies, specialised bodies targetting corruption in particular state organs can be established. Examples include the November 1995 Russian announcement of a new department in the interior ministry specifically established to investigate corruption within that ministry; and the General Customs Inspectorate that was initiated in Poland in 1997 as part of a drive to clean up the Polish customs services 64 .

Third, legislation can be improved. Loopholes can be removed (or at least made smaller!), and new laws introduced to address problems that either did not exist or else were not officially perceived as such during the communist era. One of the most obvious kinds of legislation that can be - and in several post-communist countries has been - introduced in the 1990s is conflict of interest laws; examples include Latvia in 1996 and Poland in June 1997. During the communist era, it was not usually possible for state officials to be company directors or own shares in private companies; with the moves towards privatisation and marketisation in the post-communist world, it is not merely possible but also frequently happens that both elected and appointed officers of the state have become shareholders and members of company boards. As in the West, quite what is legal and what is not in such circumstances is often hazy until legislation is adopted that can draw reasonably clear-cut lines 65 .

Unfortunately, there have been several cases in the 1990s of CEE politicians rejecting attempts to have their privileges, actual or potential, limited by conflict of interest laws. In 1992, for instance, following a major banking crisis that had revealed that many parliamentarians were members of company boards, there was an attempt to introduce such a law in Hungary; but this was defeated in parliament in April of that year66 . Moreover, attempts to increase transparency concerning officials' incomes continue to fail in some CEE states. In March 1999, the Latvian parliament voted against a proposal to grant citizens the right to access more detailed information about the income of officials at both the central and local levels 67 .

Another area ripe for legislative refinement is (political) party financing. The more familiar and obvious way of addressing this issue is by specifying the conditions for funding. These conditions may include details on who may fund parties (e.g. should funding be exclusively from the government, and, if so, according to what criteria? Should businesses be permitted to fund parties, and, if so, to what level?); on whether or not donations to parties should be publicly declared; and, if they are to be declared, should this be for all donations or only for contributions in excess of some specified amount?68 But, particularly in the context of the limited funds available in post-communist countries (though I would argue this approach is advisable even in the relatively affluent Western countries too), it might make more sense to think laterally, and to seek to limit the possible spending of parties rather than attempt to supervise their sources of income. In this connection, it is encouraging that Czechia reduced the opportunities for political advertising in the 1998 pre-election campaign, for instance by banning the use of billboards. Other things being equal, where the opportunities for spending are reduced, so too is the demand for extra (and often extra-legal) resources.

There are potential drawbacks in tightening up legislation in states that are at the same time attempting to move closer to a rule-of-law basis, however. The most obvious one is that some proposals potentially infringe citizens' privacy, and have therefore been criticised by citizens and politicians concerned about civil rights. A good example is the attempt in 1993-4 to grant the Polish police the right to tap telephones and mount 'sting' operations in cases of suspected economic crime and corruption69 . But this case also demonstrates that at least some of the concerns of civil rights defenders can be addressed in a way that represents a reasonable compromise between citizens' rights and the need to combat corruption; the law that permitted the police to engage in these two activities required officers wanting to eavesdrop on or attempt to 'trap' suspects to seek permission from the chief prosecutor (i.e. the justice minister)70 , thus providing some supervisory control over the process.

Fourth, the state can launch anti-corruption campaigns. Several post-communist states - including Bulgaria, Czechia, Poland (1994), Russia and Slovakia - have launched so-called 'Clean Hands' campaigns, in emulation of the mane pulite campaign of the early-1990s that accompanied the Tangentopoli corruption scandals in Italy 71. Another major campaign was that officially launched by the Albanian government in June 1998. Such campaigns are often publicised not only in the printed but also the electronic media. In July 1992, for example, President Walesa proposed televising major corruption trials as one way of making the public more aware of the problems and how the state was dealing with it.

Anti-corruption campaigns can have a legitimising effect, in that they usually suggest that the state is serious about fighting corruption. But if they are poorly managed, they can have either little or a negative impact. Their impact fades over time if they are too prolonged, since citizens become almost immune to them, and the campaign begins to sound like mere rhetoric. They can even exert a negative influence if they stay merely at the level of declarations and are not accompanied by meaningful action. This is because the state can raise public awareness of the problem of corruption, but then frustrates expectations that measures are actually being implemented to combat it. Finally, the public can become cynical if some senior political actors appear to be downplaying the significance of corruption while others are campaigning against it. The then prime minister of Poland, Waldemar Pawlak, was in early-1995 widely accused by of being 'soft' on police corruption when he initially appeared reluctant to accept the resignation of national police chief, Zenon Smolarek72 . Even worse is the situation in which leaders who have campaigned against corruption and established bodies to investigate it then shut down those bodies and/or dismiss their heads because they are embarrassed by these agencies' or individuals' findings. A classic example of this is when President Yeltsin sacked his chief anti-corruption fighter, Yurii Boldyrev, when the latter started making allegations about corruption among close allies of the President73 .

A fifth method that has been used in some parts of the world is the rotation (or transfer) principle. According to this, officials are regularly moved from office to office, on the assumption that they will therefore be less able to develop clientelistic networks and other corrupt practices that are typically related to long-term tenure in a given position. Research conducted into the Indian public service by Frank de Zwart reveals that this method is not without problems, and that it can itself generate new forms of corruption and clientelism 74 . Nevertheless, post-communist states could learn lessons vicariously from the experiences of others 75.

Sixth, post-communist states can collaborate with foreign agencies that are particularly experienced in fighting corruption and organised crime, and which have the world's most sophisticated techniques and equipment for use in this struggle. Several post-communist states have joined Interpol in the 1990s, for instance. Moreover, both Russia and Poland now have FBI offices in their capitals; these exist primarily to fight organised crime, but their presence necessarily has a spin-off impact on corruption. The FBI also established an International Law Enforcement Academy in Budapest in 1996, at which police officers from many CEE states are being trained inter alia in fighting organised crime and corruption. The principal reason for US interest in this project appears to have been growing American concern about CEE's involvement in the international drug-smuggling trade; this type of crime often involves state officials, most obviously corrupt police and customs officers.

Related to the last point is that post-communist states can enhance the exchange of information on criminality between themselves. This has already started. One recent example is that the interior ministers of the Moslem-Croat Federation and the Serbian Republic in Bosnia signed an agreement in June 1998 to cooperate much more closely in fighting organised crime; given the often close ties between organised crime and corruption in the CEE countries, this should impact upon corruption. While steps have already been taken in this direction, far more needs to be done.

According to Arnold Heidenheimer, one of the most effective methods for reducing corruption is to improve officials' conditions, especially their salaries. He cites Singapore as a prime example of a country that has dramatically reduced corruption by increasing salaries. In this connection, it is interesting to note that Singapore is the only Asian country to appear in the 'top ten' least corrupt countries in TI's CPI (at position number 7 in the 1998 index)< docCorruption, Weak States and Economic Rationalism in Central and Eastern Europe

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