Corruption as scapegoat in Hungary

The title of today's post is not at all original. I copied it from a lengthy opinion piece in today's Népszabadság. The author is the economist Péter Mihályi, best known for having been involved in the design of the ill-fated healthcare reform. I was intrigued with the article, but I have the feeling that there will be a lot of people who will question its assertions. He makes two claims, one economic and the other political, with only a tenuous logical connection between them. First, he denies that corruption has a negative impact on the Hungarian economy. Second, he claims that the overemphasis on corruption is being used for political purposes and that although in the short run this political strategy might bring results, in the long run it shakes the very foundation of public trust.

Let's look at the second claim first. There is a certain fascination with alleged corruption in journalistic circles. Without really knowing too much about the details, the newspapers and the electronic media are absolutely full of wild speculations about hidden connections with this or that party. All this without the slightest tangible proof. I know that such topics are fodder for journalists, but it is a dangerous game and greatly contributes to the general malaise of the Hungarian public today.

Mihályi correctly states that there have been several polls that indicate that the majority of Hungarians, and their numbers are growing, reject competition, capitalism, and globalization. They don't want the return of socialism and the iron curtain, yet they look back on the Kádár years with nostalgia. A way out of this contradiction is the belief that the cause of all the problems is corruption. Corrupt politicians, businessmen, policemen, and doctors are the ones who are responsible. The Hungarian population manages to channel its aversion to capitalism, globalization, and parliamentary democracy by focusing on corruption.

The Hungarian public today remembers the Kádár regime as free of corruption but this was not the case. Corruption in an economy of scarcity is of course different from corruption in capitalism. In those days one had to bribe the salesman in the store in order to get butter or a better cut of meat. In capitalism, the state official is bribed by businessmen. In the Kádár regime there were many, many small cases of corruption while nowadays a few big cases grab the headlines. Mihályi thinks that the corruption of the old regime was even more pervasive and more dangerous than the current variety.

Of course, there is still a lot of corruption in everyday life, and the public, says Mihályi, is much more tolerant of this kind of corruption. Why? According to Mihályi there are at least two reasons. First, "the myth of being underpaid." Members of all professions feel underpaid: the policemen, the soldiers, the customs officials, the doctors, the teachers, the artists, the journalists, and so on and so forth. Therefore even judges and politicians have been heard saying that one shouldn't be surprised that these underpaid employees are corrupt. Even the State Accounting Office (Állami Számvevőszék) was ready to accept this explanation. The other reason for the general acceptance of corruption is that they themselves are not free from everyday corruption practices: cheating on their income tax, not a giving receipt for work done, and other smaller crimes that they themselves commit. These people often justify cheating the government by calling the officials and politicians corrupt.

Corruption in business circles is being used as a political weapon. Politicians often make veiled accusations against their political opponents in public. The media immediately pick up the news and the public accepts it as fact. That kind of political game with corruption certainly helps in getting votes but it does terrible damage to public morale. By now the whole country believes that all businessmen, all politicians, all parties are corrupt.

Business corruption, Mihályi contends, is "part and parcel of the market economy and the democratic structure built on parties." Every country has had its share of corruption scandals and Mihályi lists a few, from the Olympic Committee to Deutsche Bank or politicians like Kohl or Edith Cresson. Today in Hungary it is a widely accepted hypothesis that corruption is a huge problem and that the problem is growing. However, there is no proof for that whatsoever. Actually, the opposite is true. According to Transparency International and the Worldwide Governance Indicator in the former socialist countries only Slovenia is less corrupt than Hungary. And let's not talk about Italy or Greece. Comparing these indices from year to year, we can see that Hungary didn't get less or more corrupt. It remained approximately the same. President László Sólyom is among those who considered corruption one of the greatest problems in Hungary and therefore asked the Council of the Wise to study corruption. Of course, as expected, they announced that corruption was growing while the few numbers they quote contradict this finding.

A lot of people, including László Sólyom, are convinced that corruption is an obstacle to economic growth. However, this is not so. On the list of Transparency International (2009) Hungary is in the 46th, China the 79th, and Russia the 146th place. Yet both China and Russia are doing just fine economically. Ireland, where the corruption index between 1996 and 2002 became worse and worse, was growing by 9% every year. Corruption doesn't affect the GDP; it's a case of "what happens in Vegas stays in Vegas." Moreover, says Mihályi, corruption in the majority of the cases works toward the equalization of income. The driver who drove too fast will give 30,000 forints to the policeman who most likely makes less money than he does. The developer pays 3 million to the mayor who surely makes less than the businessman.

Another mistaken notion is that corruption is rampant because the financing of parties hasn't been solved over the years. Indeed, the parties receive too little money from the budget and therefore they must get hold of money from elsewhere. Yet it is no more than an urban myth that every time there is a transaction between the state and business 3, 5, or 10 percent of the price of the job goes to representatives of the parties. Mihályi claims that even if this were true the amount of money involved would be minuscule in comparison to the big corruption cases. Most of the money ends up in private bank accounts. According to Mihályi the country is in trouble not because of corruption but because the state is too large and is wasteful. Mihályi suggests the following calculation. Let's assume that out of every 100 forints 1 forint goes to party coffers. At the same time 5 forints go into private pockets while 44 forints are simply wasted. He comes up with this figure because the same project if done for a private company costs only 50 forints instead of 100 if it is funded by the government. 

The real problem is not so much corruption per se but that "the crime is not followed by punishment." For that the parties bear some responsibility. In twenty years they have not managed to come up with legislation that would give some teeth to the parliamentary committees. As it stands now the "accused" doesn't have to show up and he or she is not under oath. In the justice system, most of the judges are unfamiliar with economic crimes. It takes them four or five years to decide a case and the most severe punishment is ten years. What makes investigation particularly difficult is the onerous restriction on using personal data.

Corruption is a cultural matter. Any kind of change in public attitude will take many decades. Avoiding taxes, paying off the doctors, not paying fare on the buses are ingrained in the Hungarian psyche. I just heard that the Greeks try to explain the incredible level of corruption in their country by blaming the Turks who left Greece almost two hundred years ago. Hungarians, it seems, are not very different from the Greeks when it comes to phony explanations. In Hungary the Turks are mentioned here and there, but the real blame goes to the Habsburgs. If only Hungary had had a native king…. then of course everything would be different today!

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Odin's lost eye
Corruption is always a problem in any state. It is especially true where there is no clear distinction between the Legislators who decide policy and the Executive who carry it out. It is made worse if the Legislators appoint the Senior Executives who are now beholden to the politicians for their livelihood. In Hungary this lack of separation is historic. Anyone who was anyone had to be a member of the communist party, and there was a promotion bar for those who were not party members. Unless this cycle is broken and the Executive becomes autonomous, responsible for its recruitment, discipline, grading and promotion the problem will continue. Have a look at ( I have tried to remove the hyper-link but it comes back) The Legislators define the duties of the Executive and monitor/censure for failure. Actually it is the Minister concerned who is censured for the failures of the ‘civil servants’ in his department. Those Civil servants who are concerned with receiving money and paying money (taxes, revenue and payment of Government debts) are generally separated into different departments within their ministry and across ministries. A good example is personal (wage related) taxation. Your liability for tax is… Read more »
@ESBalogh: Péter Mihályi’s piece is a depressing piece for the simple reason it underlines the often repeated, but never acknowledged observation that those in power really don’t and haven’t understood that normal Hungarians are sick to their bellies with the oligarchy. Just taking the two assertions in turn: 1. “he denies that corruption has a negative impact on the Hungarian economy.” This is simple minded nonsense. Obviously it’s true on a superficial level, because markets quantify the risks of investing in any distorted and biased market. However, that risk has to be paid for, so corruption obviously does have a cost. Really is this man so functionally illiterate that he thinks markets do not make people pay for the uncertainty and corruption they exhibit? Really I could go on and on about the various effects of corruption on the market, but how about also on the workforce: motivation, instilling work ethic etc… in people. Corruption undermines decent people’s belief that honest and hard work is what matters. That one can achieve and should strive to achieve the best for oneself with society. This simply does not exist in Hungarian society at any level. 2. “he claims that the overemphasis on… Read more »

Well said Vándorló – any social contract between government and the governed relies on trust. Perceptions of corruption exist without the opposition politicians drawing attention to them. These perceptions exist because corruption exists. I am glad that the opposition are talking of this, and I can also imagine they could be eventually hoisted by their own petard. In any case, it drives home the need for genuine change in Hungary – and not the changes that Mihály has, so disastrously, attempted to inflict.

John T

There are three other factors to add. Firstly, people need to act as mature adults – there are too many spoilt kids in positions of authority. Secondly, they need to embrace the the true meaning of society and realise there are actually 10 million Hungarians to think about. Thirdly, to accept proven facts for what they are – facts.