Corruption Research Center’s analysis of Hungarian public procurement practices

It might sound like a complaint that an important study on the extent of corruption in procurement practices involving EU funds that was published on March 3 was discovered by the media only today, but I don’t mean it to be such. I actually have a high opinion of some of the Hungarian news sites, especially given their financial constraints. Yes, here and there something is missed, but it might be not their fault. Perhaps the authors of the study didn’t do a good job of publicizing their findings.

The study I’m talking about was done by an organization called Corruption Research Center, established in 2013. Their recent study is the center’s most extensive effort to date. The report examines 127,776 contracts between 2009 and 2015, details of which are available on the website of the Hungarian Public Procurement Authority.

I don’t want to dwell on the details of the study because we have a fair idea of the extent of systemic government corruption in Hungary. We also suspect, as it turns out for good reason, that when the money comes from the European Union, the government-favored “businessmen” become even greedier than usual and the government a great deal more cooperative than when the bills are paid exclusively from domestic sources. There is nothing really new in that, but there are a few interesting, unexpected pieces of information in the report.

One is that “on the basis of statistical research [the authors came to the conclusion] that overpricing in 2009 was negligible.” As we know, Gordon Bajnai was in charge of public procurement involving EU subsidies before he became prime minister, and both he and Ferenc Gyurcsány always claimed that procurement in those days was clean. The public was disinclined to believe them. But it seems that they were telling the truth: the Hungarian government prior to 2010 was not trying to “cheat” the EU. They may not have used the money wisely, but Brussels didn’t have to start all sorts of procedures against Budapest as it does now.

The other surprise for me was that even today overpricing in the construction industry is relatively rare because there are benchmarks for engineering prices which allow pretty accurate calculation of the real cost of the project. This means that for the average overall overpricing to be 30%, in some other sectors overpricing might be as high as 140-320%. The Orbán government in effect encouraged overpricing when it changed the law on public procurement, increasing the opportunities for restricted tenders. If there is no or limited competition overpricing is unavoidable. By now 50% of all tenders are restricted–only firms X and/or Y can apply.

Another fascinating part of the study is the chapter on four Hungarians who have benefited disproportionately from EU grants: Lőrinc Mészáros, István Garancsi, István Tiborcz, and Lajos Simicska. The researchers refer to these four men, who together own 66 different companies, as the MGTS-group. The following graph illustrates Viktor Orbán’s past and present political-economic-familial connections and how he is using European Union money for his own enrichment.

Source: 444.hu

Source: 444.hu

The full study can be found on the Corruption Research Center’s website.

A few months ago I heard an interview with a successful Hungarian businessman, one of the few who is not in Orbán’s inner circle. He can afford to be critical of the present government because his information technology business doesn’t depend on government orders. Most of his business is conducted abroad. During this interview, just as an aside, he suggested that the EU subsidies to Hungary do more harm than good. I tend to agree with him. The state plays a disproportionate role in the Hungarian economy, despite the massive privatizations during the Horn government’s tenure. For instance, it is the largest employer in the country. And in the last six years its role has only increased due to Orbán’s statist economic doctrine and the government’s unpredictable anti-multinational moves, which have retarded foreign investment. The tremendous amount of money that the EU gives to the Hungarian government to use as it sees fit puts a powerful weapon into the hands of Viktor Orbán.

Most of the men whose companies are the chief beneficiaries of the EU subsidies are not real entrepreneurs but ersatz businessmen who came from nowhere and who would be nowhere without the helping hand of Viktor Orbán. Lőrinc Mészáros, the former gasfitter, knows nothing about building roads, railways, and stadiums or raising mangalica pigs. And István Tiborcz would never have made his fortune if he hadn’t courted and later married Orbán’s daughter. These oligarchs are middlemen between the government and the subcontractors. They serve as a conduit for money that comes from overpriced contracts, destined for their and their boss’s pockets.

While all this shady activity is going on, a real Hungarian business class cannot develop organically. Would-be entrepreneurs don’t have the opportunity to establish and grow businesses, especially if they overlap at all with state interests. Yes, all this money coming from Brussels might be counterproductive.

In any case, there is talk about a drastic decrease in subsidies or perhaps even their total abandonment after 2017.  At that time a completely distorted Hungarian economic structure, which is losing its competitive edge day by day, will be at the mercy of international market forces without any assistance from the European Union. The Hungarian “miracle economy” will turn out to have been a sham. As Warren Buffett famously said, “you only find out who is swimming naked when the tide goes out.”

April 10, 2016
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Member

To know how corrupt the whole process is, one just have to take a look of the enrichment of Simicska, Orban’s best friend of the past. His fortune under Orban skyrocketed, and when they “parted”, he became the lowest denominator in Hungary. Before one of our faithful Fidesz trooper jumps in by saying that probably Simicska done something terrible bad, and thank goodness that Orban saves us from Simicska’s wrongdoing… Well, Orban would be the last one, not to have a full press conference by now telling the wrongs that Simicska done. Orban would be the first who would drag Simicska in front of the courts. The truth is that Simicska likely did some horrible stuff at the expense of Hungary but Orban was in it to his neck.

Roderick Beck
Guest

The last paragraph is cryptic. Talk about reduced subsidies after 2017?

webber
Guest

EU funding is automatically tapering off.

bimbi
Guest

Way back in 2010, when the Fidesz slander machine had won the election on the basis of a campaign without any stated programme, it was obvious that, as far as Hungary was concerned, the principal, the only, task was revitalizing the Hungarian economy. The last six years have shown that Orban and his “wonkynomics” genius have failed, miserably – apparently because they had no plan and were incapable of directing any.

Their legislative ‘programme’ has been revealed as a parliament-approved system of theft and deception at the expense of the electorate that put its trust in them.

Yes, there have been successes – the Swiss franc loan rescue and, if you want to call it that, the use of insider information to rescue the government from the Quaestor collapse – but as has been repeatedly pointed out, without the huge money inflow from the EU, the economy would be a disaster.

How can one describe leadership and a government like this? Base, corrupt, devious, dishonest, grasping, selfish, uncaring, small-minded, petty, vindictive, unworthy…? You can add your own descriptors.

Hungary deserved better, it still deserves better. This den of thieves must be eliminated.

Guest

Re: ‘Hungary deserves better’

Of course. How the electorate will vote back those ‘servants’ who pilfer the tantalizing coffers of EU provided loot would have to be amazing. Might as well have a sign on their backs , ‘Kick me!’ To keep the state of affairs must be indicative that the people just do not see any upside in the economy or their future. Pretty bad.

Fidesz’s illiberal state apparently provides ‘free enterprise’ only to the few. Not a very enticing element to get the country moving forward into the fast-modernizing 21st. Outlook for the country? A way way also-ran.

spectator
Guest

“Yes, there have been successes – the Swiss franc loan rescue and, if you want to call it that…”

Which problem truly went out of hands when the value of the HUF started to drop with some 3G force, thank to the “help” from some lovely fellows from the ruling party. Curiously enough there were winners of that event too, naturally they haven’t been identified, but still.
And again and again.

But in the end it turned out as a great success to all the already wealthy it went through pretty well.
It’s truly something, isn’t it?
For all the rest we blamed, blame and will blame Gyurcsány, it was all his fault.
Amen.

tappanch
Guest

Developments in the Quaestor brokerage scandal:

Owner was a friend of the Fidesz leadership. Clients were insured up to 6 million ($20,000) before Quaestor’s bankruptcy. Fidesz’s Parliament extended insurance, as usual, retroactively to 30 million ($100,000).

The actual state compensation scheme looks like this:

A.
Claims under 30 million: 31,254.

Will receive 0 forints: 10614- few Hungaria claimants.

Average compensation: 1.35 million

B.
Claims over 30 million: 966

Average compensation: 7.04 million

http://www.portfolio.hu/befektetes/quaestor-penzek_megszereztuk_a_vegso_szamokat.4.230017.html

But where are the hundreds of billions of forints from the clients ? Most money did not reach the stock or bond markets.

Guest

The Hungarian sites are already working overtime to show the Gov’s idiocies – a nice example here:

comment image

From http://kepeslajoska.tumblr.com/
and (sorry for all those swear words):
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Member

The government is going to rescind the law on Sunday closings.

http://index.hu/belfold/a_kormany_eltorolte_a_vasarnapi_zarvatartast/

I’m very confused however as I’ve been brainwashed to believe that “Orbán wins. Orbán ALWAYS wins!”

Someone please help me understand how this is a victory for our dear leader, because I’m afraid I’m at a loss…

petofi
Guest

@shoopy

Obviously you need some lessons in ‘gypsy-think’…

First off, you never lose–you surrender gallantly, and respond to the will of the ‘honoured’ citizens. Orban will not risk an obvious voting loss on the issue. It was time to throw a bone to the still-living opposition and critics. Orban plays this game with such aplomb.
He cares not. More than likely, what was behind the whole Sunday closing was probably some elaborate effort on the government (Viktor) to get the major internationals–Ikea, Auchon, and the like–to respond to the ‘needs of the country’ by volunteering some millions (euros, don’t you know) to the public purse (ahem). A little strong-arming by Viktor the Magnificent. Now, of course, the process has been speeded up by allowing the huge firms to reopen…thereby allowing the ‘play’ to be applied so much the sooner in the near future.

Viktor! If it wouldn’t be so sad, it would be hilarious.
But, hey, it’s no more than what the Hungaricoes deserve.

Hajra Magyarok!!

bimbi
Guest

Hajra Magyarok!! Indeed. The Sunday closing issue, which was a pretty big irritation (and a loss of jobs) to a lot of folk can now be reversed and played as a positive response to “The People”. VO has bigger concerns. The big issue now is his move to the Royal Palace overlooking His Capital City. He wants to take over the whole damn place for his own self-glory. As soon as Meszaros has finished rebuilding the Stables, TEK can move in there. It is 1944 all over again! Us against them, whom? Sunday shopping? It’s a give-away. Hajra Magyarok!

Istvan
Guest

I just messaged a KDNP supporting relative of mine in Hungary about the Sunday closing back off. Her response was fast and simple she said it would make life easier so the government was right to back off. Besides church attendance hadn’t increased that she had seen.

Guest

Totally OT – or not?

Just got the Tesco advertising for the weekend. Besides the usual “1000 HUF back if you shop for more than 10 000” there was a neat little ad for films on DVD:

Special offer for Clubcard owners – Son of Saul on DVD for only 2 690 HUF!

webber
Guest

Different topic: The only thing worse than being hospitalized in Hungary is being hospitalized in a psychiatric ward in Hungary. For those who read Hungarian, here’s an absolutely appalling story about how a pregnant woman in one such ward was treated when she gave birth.
http://index.hu/belfold/2016/04/11/szent_imre_korhaz_pszichiatria_ombudsman_jogsertesek/

tappanch
Guest

I wish Gyurcsany had had the same common sense in 2008 before the $1 copay referendum as Orban had today – we would not have dictatorship in Hungary now.

Orban variations on a theme:

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petofi
Guest

Not so, Tappi baby.

The people well knew that the $1 co-pay was nonsense–they’d still have to pay ‘halla penz’ to the docs & nurses.

A Hungarian says to himself: “Aha! I won’t fall for this!” But give the same joker a 13th month pension payment, and he’ll vote for the neighborhood idiot for Prime Minister.

Hungaricum.

Hajra Magyarok!

petofi
Guest

A Hungarian’s version of an ethical world goes like this:
“Virtue begins at home!”

werand
Guest

tappanch: the situation was much more complex than that. Firstly, these vizitdíj etc. were Gyurcsany’s signature achievements (or the symbols thereof). He wanted to reform at least one big state system. Sunday closing was a one off item, Orban could back out relatively easily. It doesn’t effect rezsicsökkentés, közmunka etc. which are arguably Orban’s signature “achievements”.

Moreover, vizitdíj etc. were only one reason why people were upset about MSZP.

Orban was tough (vs. the completely neutered leftists), he handled media well, changed the prevailing opinion about the 2006 events, he had Öszöd, MSZP was falling apart and it was uncool for anybody under 40, voters stilled cared about corruption etc.

It’s not the same river.

Guest
Eva’s blog is an unending drumroll of the multitude of things that are thoroughly pathetic or outright disgusting in Hungary. The blame for this all-pervasive nastiness is rightly ascribed to the Fidesz leadership that currently runs the show in Hungary, though clearly, lack of leadership and unity on the opposing side are also significant contributing factors. But let us not avert our eyes bashfully from the distasteful fact that the major political parties and their representatives in parliament are simply products of a Hungarian society in which personal integrity and decency count for little, and instead, Balkan-style ignorance, prejudice, hatred, lying, looting and malevolence predominates in both the private and public spheres. Given the moral and ethical quality of Hungarian society – or in other words the moral and ethical quality of the average Hungarian Joe – it is entirely unsurprising that politics and public life in Hungary continues to forever stumble and stagger between the thoroughly pathetic and the outright disgusting. Incidentally, there is of course nothing new in this; Hungarians today are just following a ‘haladó hagyomány’ (progressive tradition) that goes way back in Hungarian history. Over the past quarter of a century, Hungary has screwed up all… Read more »
Latefor
Guest

Horses are clever animals. Before you can make them drink, they want to make sure that the water they are about to drink is clean and not poisened. You can talk them into drinking the water, if you speak to them nicely. But, if you kick them time after time, sooner or later they will kick back. And horses are big, strong and smart domestic animals in Hungary. Have you ever been to a horse show watching a “Bo gatyas” in action?

Guest

So horses are big, strong and smart domestic animals in Hungary – smarter than their owners?

Latefor
Guest

Smarter than their feeders.

Guest

Latefor
Sunday 24 January 2016 6:52 am

“Whilst the Oh So Birghts are busy with “creative destruction” the “not so brights” -like myself- are studying the Bible. There is not much we can do. For now, that is.”

Latefor
Guest

Charlie,
Thank you for you kind research re: my brainy quotes. I’m particularly proud of this one.

petofi
Guest

@Latefor

I suppose someone has to pat you on the back…even if it’s only yourself–

Latefor
Guest

Petofi –
Would you like me to quote one of your well-known gems? I’m sure you could enjoy a pat on the back from the Hungarian public.

Guest

@Latefor
Today 3:44 am

Duh?

Latefor
Guest

@ambalint,
What? Is this the hour of my death?

webber
Guest

Latefor
Today 1:O6 am
?????

Latefor
Guest

@Webber

🙂

Guest

“…….You can talk them into drinking the water, if you speak to them nicely……….”

But it must be in English – apparently the snake in the garden of Eden spoke English and messed everything up……

See Ricky Gervais’ explanation?

https://youtu.be/3oH0ReL3Cew

Latefor
Guest

Charlie said the following in yesterday’s post: “To the Wurzburgians I am eternally greatful – even though Britain and the allies flattened Wurzburg by 90% during the war – nothing, but nothing, was denied me in my hour of need.
Thank God for those 12 hours.”

Did you say “Thank GOD” ? Wow! Interesting! Keep praying, Charlie!
Those who seek will find!

petofi
Guest

Hey, Latefor, help me out here…
Everytime I pray, I close my eyes and I conjure up a vision–there are hundred of Hungaricoes ahead of me, all shouting, “Me first, God! Me first!!!”

Guest

‘Thank God’ is an idiom you fool.

Guest

Totally OT and especially for you – one of my favourite jokes:
After an accident a guy wakes up in wonderful surroundings, music in the background, and a beautiful woman comes up to him smiling:
Welcome to the afterlife aka hell!
I’m the devil assigned to show you around and then take you to your quarters.
So she shows him the bar, one of the many buffets, a pool and a gym and so on …
He marvels at all the wonderful places but then they pass an iron door. He can see red fire through the cracks, a sulphuric smell reaches his nose and horrible screams are heard …
What is this? What’s going on behind that door? he asks his guide and the devil answers:
Nothing to worry about, those are just the Christians – they want it that way …

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