State Capture in Illiberal Hungary

By Danny Tiley

David Jancsics, a Post-Doctoral Associate at the School of Public Affairs and Administration at Rutgers University, recently gave a lecture at Miami University titled “State Capture Inside the European Union: Developing the “Illiberal State” and Systemic Corruption in Hungary” for the Havighurst Colloquium. This is an issue of great importance because he cites it as the cause of Hungary lagging behind the rest of Europe.

Jancsis detailed four different types of corruption: market corruption, social bribe, national corruption, and state capture. In this case of Hungary, he said it was an example of state capture in which redistribution is the form of transfer and individuals are the primary beneficiaries. Before examining the case of Hungary specifically, he gave an overview of state capture. In this system of corruption, flaws and loopholes are intentionally written into laws and built into institutional arrangements. There is gross misallocation of public resources for the benefit of particular interest groups. This set up leads to monopolies with no free market determined prices, and corruption becomes the guiding principle around which public institutions, laws, and their enforcement are designed and structured.

Jancsics chronicles the rise of corruption in Hungary beginning in the early 1990s when former communist elites converted political capital into economic wealth. Communist elites began this process early in Hungary and Poland, converting state owned enterprise into private firms by using “spontaneous privatization”. This lead to the rise of oligarchs, powerful businessmen who created monopolies in energy mining media and construction. Budapest Transport PLC or Hungarian state railways are examples of such captured organizations. The Budapest Erzsebetvaros district case 2003-2005, in which a corrupt group led by mayor sold 26 multi story buildings serves to further illustrate how politicians used their power to fuel the situation. To prove the strong government ties to corruption, Jancsics showed data indicating that firms with right wing political affiliation flourish much more under right wing governments and visa versa.

The corruption up to this point is characterized as competitive particularism, where no one has complete control over the corruption. This all changed when PM Viktor Orban won two thirds of the parliamentary seats and competitive particularism disappeared, leading to power becoming monopolized. Horizontal networks transformed into vertical ones, and oligarchs were disciplined or forced to step back. Now Orban decides who can be an oligarch, and the government structure is entirely adjusted to the demands of informal groups. Furthermore, the constitutional court system is used as a control mechanism. As government judges began to outnumber consensus judges in April 2013, the government went from winning 20% of cases to 70% of cases. Since 2010 no elected politician has gone to jail for corruption. Orban was able to make his friend Meszaros, a gas pipe filler from his home town, one of Hungary’s richest entrepreneurs over the past 5 years. A newspaper that was reporting on corruption was sold to Meszaros to shut down its reporting.

The result of this situation is the creation of an illiberal democracy, a system with free elections but the winner takes all. Jancsics displayed Freedom House data showing Hungary getting progressively less democratic while Slovakia, Poland, and the Czech Republic generally stay the same. He points out that Hungary has demonstrated that it is possible to create an illiberal democracy within the European Union which is a terrifying precedent. Hungary is not kicked out because OLAF, which is the European Commission’s anti fraud department, has no real power. Current anti-corruption measures include German Chancellor Merkel cancelling a meeting with Orban in 2015. The U.S. issued visa ban against 6 Hungarian public officials. In closing, Jancsics gave both a pessimistic and optimistic vision for the future of Hungary.

I cannot agree more with the importance that Jancsics associates with this issue. If one illiberal democracy can be birthed within the European Union itself and not be kicked out, then there is no reason it cannot happen again, and again, and again. When corruption is the law of the land, the European Union will be powerless to stand up to modern expansionist Russia. Furthermore, I agree that this is an issue that absolutely must be acted on swiftly and decisively. As the purpose of the E.U. is to preserve democratic ideals, this is a threat to the very existence and purpose of the Union. Additionally, by allowing Hungary to behave this way, the credibility of E.U. membership requirements is called into question. I wonder, facing these dire consequences, would it be a sound strategy to threaten Hungary with expulsion?

Danny Tiley is senior majoring in diplomacy and global politics with minors in business management and leadership and Russian Eastern European and Eurasian Studies. After graduation he will begin his career at Avalution Consulting in Cleveland, Ohio.

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