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Opinion: After Transparency International’s Report, the Facts on Corruption

By Hungary Today // 2018.04.12.

In an interview, István Fodor, the Chair of the Board of the Budapest University of Technology and Economics, reacted to Transparency International‘s criticisms of corruption linked to the government of Hungarian Prime Minister Viktor Orbán(Note: the interview below was not conducted by Hungary Today, nor do the questions asked reflect the views of the editors). 

István Fodor is an electrical engineer who was the founder of the Hungarian subsidiary of Ericsson in 1991; he served as the subsidiary’s CEO until 2002 and as the Chair of its Board until 2008. He is the recipient of numerous awards, including the Széchenyi Prize, and served from 2008-2009 on President of Hungary László Solyom’s “Board of Elders”. He is also a member of the Board of Trustees of the Friends of Hungary Foundation, which is the publisher of Hungary Today.

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  • The Hungarian branch of Transparency International (TI) recently published its report for the year 2017, which can be summarised in claims of corruption, the destruction of the rule of law and crony capitalism. These are highly trenchant statements and allegations. Do they have a factual basis? You had membership in the four-member Board of Elders, established by former President of the Republic László Sólyom, which to my knowledge also addressed this subject. Why was this council set up back then? What were its tasks and what results did it produce?

 

Around 2008, President Sólyom was greatly disturbed by the inability of the President, occupying the highest sphere of power, to restrain the moral and economic waning of the country and therefore identified education and corruption as the two fields which were in the most critical situation. Following a pattern regularly deployed in a number of countries, he established the four-member Board of Elders, commissioning us to process the situation of education and corruption in times both present and future. This effort produced the volume of studies entitled “Wings and Burden”, symbolising education as the guarantee of future take-off and corruption as the great burden of society. Both chapters of the 220-page book, published in early 2010, provide a highly accurate snapshot of the contemporary period, including the corruption situation in various periods of the 2002-2009 governmental cycle. I was responsible for the chapter on corruption, which I largely authored myself. In each of our subjects, our work was assisted by a group of experts. We naturally also approached TI’s Hungarian organisation to make a contribution; although they accepted our request and even authored some theoretical parts but finally refused for their name to be featured in the material, which they claimed was too critical of the left-wing period. This is the point where facts and opinions usually take a parting. A neutral opinion can only expected in the case of a financer with a neutral background.

 

  • As we near the end of the 2010-2018 governmental cycle, TI – Hungary, the domestic opposition and the international media are increasingly abound with allegations of corruption on the incumbent cabinet. Being confident of your proficiency in the corruption situation of both eight-year cycles, can I ask your opinion on these attacks?

 

The situation should be approached from further afar. The moral condition of Hungarian society, which bears close correlation to corruption, was catastrophic in 2005. As it is difficult to give a clear overview of the findings in prosaic text, please include the comparative table from the World Value Survey for the year 2005 in the interview. Citizens of various countries were asked on their opinion on how their fellow citizens act in various situations. The answers were the following:

These figures are astounding even if they reflect the perception of the man on the street. Twelve years later, my first argument is that the situation has changed fundamentally; in my opinion, neither of these indicators now exceeds 30 percent. Governance during the past two cycles made a major contribution to his development.

While refraining from the in-depth analysis of accusations of corruption, I consider it important to raise awareness on a few factors. Within a country, actors involved in corruption and rule-evading activity affect far broader layers than merely the sphere of the all-time government. The damage to the national economy caused by corruption present in numerous facets of society, along with protectionism and the evasion of rules, significantly exceeds acts of corruption in a narrow sense, attributed to circles surrounding the government. This also allows the conclusion that the essence of fact-based assessments is not only the extent to which a government is corrupt but also its efforts to reduce the penetration of corruption in society. Ensuring compliance with rules through direct and indirect methods is a governmental task.

Based the above, facts allow me to state that the period between 2002 and 2009 was more corrupt than the governmental cycle between 2010 and 2018. To put it another way: the claim made by domestic and international entities alleging that Hungary reached the lowest depth of corruption over the past eight years is unfounded and identifiably deficient; accusations neglect factual accomplishments and are therefore politically motivated.

 

  • As both the opposition and the world media is abundant with the defamation of the “corrupt” Hungarian government, this statement is likely to grab the attention of many. Can you make an argument for it?

 

There are only two methods of justification: we either list facts one by one or point out that opinions in various international assessment processes, such as in TI’s network and system in the case of corruption, are highly subjective and manipulative, pointing out the strong preconceptions and political intentions. In the latter case, let us reference the fact that for example, the international media over the past week – the New York Times, Reuters, Bloomberg, Der Spiegel, Die Welt, Die Presse, Le Monde, Der Standard, Süddeutsche Zeitung, etc. – has been abundant with articles on the enrichment of people linked to the Hungarian Prime Minister and their acquisition of EU funding. Long-term readers of such news items who play a role in TI’s scoring as evaluators and influencers automatically become a tool of political manipulation and indifferent to facts.

I will make an attempt to support my claims with facts, providing a non-exhaustive list of cases of corruption and disregard for rules, as well as answers and measures in response to these, in both the left-wing period beginning in 2002 and the right-wing cycle ensuing 2010. The list does not necessarily follow order of importance.

The volume “Wings and Burden” includes detailed reference to mistakes and shortcomings during the eight-year left-wing period. It should be pointed out in advance that the broad palette of corruption covers the evasion of rules, serious protectionism and intentionally creating an irregular advantage, i. e. intest-based evasion of rules alike.

  1. Financial services and the banking sector. Although this phenomenon had existed beforehand, certain financial institutions committed infringements increasingly often, inflicting major damage mostly upon the population. For example, in the case of foreign currency-denominated banks lured ignorant people with siren-songs featured in intensive advertising without proper reference to the risks involved, while the government remained passive. Furthermore, banks allowed themselves moves unusual in trading when dealing with their customers of financial services which they would never have done with clients of their Western European branches. In itself, this exhausts the definition of corruption.

Thanks to regulations adopted by the cabinet, as well as its energetic and professional, internationally acknowledged action taken in the field, the correction of these has been abolished. It is possible to claim that the financial service sector has been purified over the second eight-year period.

  1. The other segment of the financial sector saw phenomena typical of the third world taking place. The operation of certain brokerage firms and illegal pyramid schemes wreaking havoc on a vast number of families, blossomed largely during left-wing governance without having to face resistance.

After 2012, these were ended by the right-wing government once and for all by imposing new regulations and monitoring.

3. PPP investments were concluded exclusively during the reign of the Left.

PPP investments were concluded exclusively in the left-wing period. Contracts were concluded with a 20-year maturity period as private investments in a total value of 400-50 billion forints; it has been proven that returns amounted to several times the market average and attached services were, on average, overpriced by 30 percent. Moreover, competition was disregarded in the majority of investments. In a significant share of the some 100 PPP investments, unlawful conduct or irregularities, i. e. corruption, can be detected. providing high extra-profits to investors and often also the banks supporting them.

In 2010, these investments were halted by the cabinet. Public funds cover the burdens of completed facilities and the state is attempting to purchase back the generally half-term investments in the hope of a 30 percent decrease in operation costs.

       4. In all of its reports published in the 2000s, Transparency International correctly featured the issue of party financing among the leading and strongest factors of corruption. In public discourse, corruption became synonymous with party financing. While left-wing cabinet repeatedly pledge to solve this issue, they never took action even to curtail it.

After 2010, the right-wing government practically abolished the previously severe problem of party financing with the new electoral law. It is unfortunate that TI’s reports fail to make reference to this.

  1. During the eight-year left-wing cycle, Hungarian private individuals and economic actors exploited offshore banks and business registration without encountering any difficult. This is clear proof of corruption on its own; let us recall global reactions sparked by recently leaked information.

After taking office in 2010, the right-wing government relatively quickly adopted a sequence of laws abolishing this course of legal evasion, which is now viable only at the cost of great risk. Take a look at banks’ obligation to report transactions between private individuals and enterprises and governmental measures aimed at whitening the economy.

  1. Tax evasion, tax fraud and corruption are siblings. From the transition to democracy onwards, the very low level of tax compliance has become a continuous token of society. Moreover, in times not so long ago, tax fraud was downright chic.

In its eight-year period, the right-wing government announced a drastic programme in which it significantly whitened the economy through adopting necessary legislation, efficiently applying electronic technology and setting tax rates at appropriate levels, reducing this problem to a significantly lower level in a pattern that has been followed by other countries. Together with the tax reform, having been harmoniously synchronised with guaranteeing lawfulness, these measures significantly enhanced tax revenue.

  1. From 2003 onwards, longer-term service contracts following the EBSCO pattern were concluded in the energy sector in large numbers. Generally due to the major increase in energy prices, the modernisation of furnaces in public institutions was largely covered under a ten-year contract in which the cost of the investment was paid in instalments together with the price of heating. Parties divide the decrease in the price of purchased gas among themselves. Similarly to PPP investments, the fault lied not in the construction but in its implementation. Almost automatically corrupt elements appeared in these contracts in a broad, publicly financed institutional field. The traits of embezzlement, irregularities, fraud, etc. are not hard to discover, resulting in growing prices. At the beginning olf the period, such contracts were purchased in bulk by multinationals, resulting in two or three times larger public utility bills in public institutions compared to market prices. Examples for this can be found even today.

In this set of customers, a different variety of corruption is also present. During the 2000s, largely foreign-owned service providers and suppliers based in Hungary recognised that by identifying a corruptible decision-maker, they can become a regular contractor or long-term service provider of state-funded institutions (schools, universities, hospitals, municipalities, etc.) without having to participate in meaningful competition. This fact is easy to prove even today. In the left-wing governmental period, a large number of such contracts were concluded.

In order to monitor the operation of higher education institutions and enhance efficiency, the right-wing cabinet introduced the chancellory system. Consequently, this practice is being constantly phased out. A number of external suppliers and service providers were surprised by having to take part in genuine competition.

  1. Public procurements have always been a disputed field of corruption. Beyond legal regulations, the purity of these depends on the extent to which regulations are respected and imposed by authorities. In left-wing cycles, irregularities committed with advanced methods at the cost of the public pure were common. Leapholes in the law, along with the questionable level of monitoring, meant that rules were evaded continually. In a lengthy legislative procedure, the right-wing government created a legal environment that significantly reduces chances of corruption. Observing these rules continues to leave no room for corruption. On a separater note, it is highly difficult to produce results in this field. On th consumber’s side, the introduced stricter monitoring slows down procurement and, for example, renders tasks of research and development more difficult. A further possible move could be to entrust those responsible with procurement in the case of framework tenders, as reaching an optimal price/value rate is in their elementary interests. The situation can also be improved by increasing precedental fines.
  2. In more distant corners of the county, official regulations and authorisations occasionally forced even everyday actors into corruption. Permit swiftly, and often unlawfully, gained with a bottle of cognac or box of chocolates were a symbol of a society deeply contaminated by corruption.

By continually simplifying administration, cutting deadlines and significantly reducing liabilities, the government fundamentally abolished irregularities in this segment, which were plenty in number but generally of lesser value.

  1. In the first period, EU funds’ method of distribution and allocation implied a vast number of irregularities, and there was no genuine willingness or governmental intent to curtail these. The majority of funding was cast into concrete or large-scale investments. In this field, examples not involving corruption could perhaps only be found in the domain of the most outstanding mayors. One of the most important differences between the two political cycles is that while the Left did not have a stable, lasting and comprehensive strategy at national level, this was swiftly elaborated by the right-wing government if only to recover from the initial bankruptcy situation. The utilisation of financial resources was synchronised with this. Due to processes overarching the change of political cycle in 2010, time was necessary to bring things into order.

The central decision stipulating that 60 percent of funding is to be directed towards the economy and SMEs in particular has significantly improved tenders’ social efficiency. The intention to fully exploit EU funding frameworks, together with the reorganisation of their distribution, use and efficiency, resulted in the major purification of the tender system. The evasion of rules and corruption is, in a methodological sense, reduced even if the same sum is, for example, distributed among five instead of fifty actors. Tenders have become more targeted and the role of promoters, having previously induced the evasion of regulations, has been reduced. While much remains to be done, fact prove the current government’s role in reducing corruption in this area.

Beyond those already listed, several anti-corruption measures were implemebted by the government, the impact of which can be measured in a matter-of-fact approach, and the proof of these is mostly publicly available. Let us not forget that instead of a fully-fledged solution, we are now discussing the difference and development between the two eight-year cycles.

a. The extent of corruption and evasion of rules improved significantly within law enforcement authorities.

b. New laws and regulations resulted in increased transparency and better planning in the operation of the court system.

c. In higher education, the practice of “buying” examinations and degrees, which was worryingly widespread in the 2000s, has been practically eliminated.

d. In the field of gratuity payments, the agreement concluded with a large number of young doctors is a minor but existent improvement.

e. The digitalisation of the pharmaceutical budget practically eliminates the possibility of unnecessary public expenditure and irresponsible medicine use.

f. The previous, unacceptable level of political corruption has effectively been rendered ineffectual by the new electoral law adopted by the right-wing government. This is confirmed by the events of the day.

g. An increasing number of desk administrators at municipalities and government authorities help with a smile on their face instead of exercising power or handing out favours.

Looking back on my factual enumeration, I recall experiences gathered over close to two decades in Scandinavian industrial culture, according to which criticism of somebody or something should be preceded by the acceptable performance of the target of criticism. Afterwards, say what your dissatisfied with before you voice criticism. What is the explanation for the Hungarian branch of Transparency International, an organisation that lays claim to being a professional organisation, fails to take into account or even mention these factually based accomplishments in its annual report? In contrast, society’s moral mevel has improved also in a broader sense – just take a look at the present rate of tax fraud, littering and speeding in comparison with the findings of the expert poll conducted in 2005. Is corruption the only factor that has worsened instead of improved? This is the message implied by TI-Hungary’s annual report. As opposed to this, the previous list’s effect in reducing corruption can be estimated and may result in an improvement totalling up to 5-10 points in the perception index, the matter-of-fact assessment of corruption in the country.

  1. Finally: state investments of gigantic proportion (motorways, railways, roads, the metro line 4, etc.) took place in both periods. In hindsight, if we were to disregard corruption in the construction of metro line 4 and it vsst proportions, the two eight-year periods could even be equated. However, due to the involvement of the construction industry, while mostly foreign compnies benefited during the left-wing period, domestic capital also gained ground in the right-wing era. For example, in the period between 2002 and 2009, the domestic construction sector was abundant with rumours of foreign prime contractors “messing” with Hungarian subcontractors, using them to produce extra-profits. This resulted in the bankruptcy of several small enterprises and widespread debt chains. Today, word has it that there is no “messing” with domestic prime contractors and the government has promptly eliminated debt chains with appropriate legislation. In the circles with which TI cooperates, patriotic governance is unacceptable oinly in the case of V4 countries but fully natural in, for example, France, where it is impossible to stand ground for foreign enterpreneurs, the only exception being the lack of a French competitor. Another seldom voiced argument is that cohesion funds are meant to serve the development of Hungary; the more of these find their way back to Western European countries, the less they fulfil their purpose.

 

  • Is it correct to narrow down the issue of corruption in Hungary to these two eight-year power cycles?

 

Indeed, the Left already produced major shortcomings in this domain between 1994 and 1998. The privatisation of public utility companies commanding a monopoly situation carried major elements of corruption not in their conclusion but rather in the methods of this, the various contracts and authorisations. The supply of water, sewage, gas and electricity, which is profitable enough on its own, was corrupted with various irregular and occasionally unlawful agreements, thus providing foreigners extra-profit. The contract in question remains valid until this day. These concessional contracts resulted in a loss of hundreds of billions of public funds and such money continues to be taken out of the country in this way.

 

  •  If I am correct, you were the leader of negotiations which first saw the transfer of first the operation rights of the Csepel Sewage Purification Plant and later the ownership to the Budapest Waterworks to the capital. With view to corruption, you could certainly reveal several interesting details. As a result of public utility price cuts, additional companies have also returned to public ownership over the past eight years. Can any experiences be drawn from that period?

 

Of course, in addition to several returning unlawful practices, it was difficult to name the individual responsible  for spending public funds. In general, court rulings spread out  responsibility. In the majority of cases, not even a visible  sign hinted to the protection of the public purse.

 

  • Having listened to your list and arguments, what can explain TI’s failure to take these facts into account in any part of the report?

 

Corruption is a poison to both the left-wing and the right-wing political world and a poison to society as a whole.  Consequently, an NGO that genuinely seeks to serve the benefit of society over all must take note of facts, as these are the basis of truth. However, factuality cannot be expected when such a civil society organisation becomes a political instrument. In this case, I believe that by misleading less well-informed people, their actions are especially unjust and damaging.

 

  • However, it is impossible not to comment on the statement on page 16 of the TI report, claiming that corruption has become a fundamental characteristic of the system since 2010.

 

I see this as an entirely political situation and based on what I have explained above, I am unable to give a professional opinion on it. I would rather add to this that while the right-wing cabinet did make mistakes between 2010 and 2018, it did more against corruption than all of its precedessors in the twenty years since the transition to democracy. The falling degree of corruption and various forms of legal evasion, coupled with an improvement in society’s moral standards, represents a greater social value than the consequences of possible errors and overdue measures.

 

  • On page 7 of the TI report, I read the following: “Business people named the insufficiently skilled workforce and corruption as the chief barriers to successfully concluding business”.

 

This is a highly revealing sentence. What do industrial investors arriving to Hungary in ever greater numbers say? They come here because of the presence of well-educated workforce, although in declining numbers; only the shortage of skilled workers may possibly constitute a problem. Over the past years, the number of state-of-the-art, foreign-owned industrial production investments has increased substantially. The rapid decline of unemployment and the fast-paced development of the economy both indicate growing competitiveness. New and already present, widely known international companies are not only unlikely to decide on their investments based on TI – Hungary’s report, but they even disregard the major share of the international media that continuously attacks the “maverick” Hungary. A growing number are arriving and making developments. Does this not discredit these reports? 

 

  • TI’s report thoroughly condemns Hungary in two dimensions: the level of corruption and economic performance, as well as the rule of law and the investment rate. What is your opinion on this?

 

My objection is related not to these principles but to their application to present-day Hungary. I would accept both coarsely simplifying propositions: an increase in corruption brings about declining economic performance and a decline in the rule of law results in falling foreign investment and capital flight. Of course, the opposite of this is also true. But what does the TI report claim? Both the performance of the economy and the investment rate are declining and therefore corruption is spreading and the rule of law if weakening. This is more than a misrepresentation, it is factually untrue.

The IMF has exited Hungary and the large global rating institutions (S&P, Fitch, Moody’s), along with the EU, all recognise the above-average performance of the Hungarian economy over the past years. Furthermore, the rate of investments has broken its annual record. Applying TI’s principle, the conclusion should be reversed: corruption is contracting and the rule of law is strengthening. It is impossible that TI’s authors and evaluators are unaware of these events. What kind of attitude is required to portray the opposite of reality as a fact?

However, such peculiarities are present not only in the TI report. In six subsenctions of the World Bank assessment referred to by TI, governmental performance (political stability, internal security, efficiency, corruption, etc.) is rated flatly 15-20 points lower on a scale from 1 to 100, comparing figures for 2006 with data for 2016. It would be interesting to know the sources of data producing such findings.

 

  • Against this background, what is your opinion on the TI report’s claim stating that “Between 2012 and 2017, Hungary’s CPI score fell from 55 to 45, corresponding to the greatest loss in the assessment of anti-corruption performance in the region over the past six years.”?

 

My first reaction would be to ask TI’s leaders to name the country which did more against corruption than Hungary in the region and the current period. Secondly, how well-known are governmental measures and facts listed by me under dozens of headings in Berlin, TI’s assessment centres and the various organisations forming the basis of evaluiation. Within TI’s network, whose task was it to raise awareness on these? It is remarkable that the corruption perception index of three in four Visegrád countries has worsened in the face of the report prepared in Berlin.

 

  • Following your work in the Board of Elders, did you think that such a situation will develop ten years later around this subject and you will give this interview?

 

Not at all. Back then, we believed and professed to holding up a mirror to the situation at that time and assisting, or perhaps accelerating, the process of recovery with a number of proposals. I am happy to see that significant progress has been made in several fields, as referred to in this conversation. This process has not ended and never will. However, it distresses me to see that the very organisation that considers itself the flagship of struggle against corruption continues to treat corruption as a political issue instead of a professional one. Transparency International and its Hungarian organisation has reduced this topic to a political campaign exercise ahead of parliamentary elections in the country and thus discredited its anti-corruption mission.

 

  • Thank you for the interview.

March 2018

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Interviewee: István Fodor, electrical engineer, recipient of the Széchenyi Prize and a member of the Friends of Hungary Foundation


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