Crony Capitalism in the European Union: Subjective or Objective?

Long before the Panama leaks, nearly three quarters of Europeans (73%) had already endorsed the belief that bribery and connections are the easiest way to obtain public services in their respective countries. Furthermore, pan-European surveys revealed that nearly 7 out of 10 Europeans agreed that corruption was part of the business culture in their country (66% of respondents) and that favoritism and corruption hampered business competition (68% of respondents). But are such perceptions accurate, or do they reflect the general pessimism in times of austerity, uncertainty and growing inequality? This paper uses survey data to deconstruct perceptions of corruption, but also as a premiere uses fact-based data from new research projects on corruption and procurement to understand how much is real and how much is noise in the growing public perception of crony capitalism in Europe. The paper finds that individual perceptions are not disconnected with reality. Although people whose self-ascription places them in the lower part of a status scale are more inclined to perceive generalized corruption, most of the variance at both national and individual level is explained by fact based variables, for instance the number of non-competitive tenders per country.

This paper will be published in a forthcoming edited volume with Oxford University Press. Please cite as Mungiu-Pippidi, M. and Kukutschka, R. M. B (2018). Can a Civilization know its own institutional decline? A Tale of Indicators. In H. Anheier, M. Haber, and M. Kayser (eds), Governance Indicators: Approaches, Progress, Promise. Oxford: Oxford University Press.

Budget transparency – more complex than you’d think

By Tori Dykes

When talking anti-corruption, the most common buzzwords flung around by civil society activists, researchers and development professionals alike are transparency and accountability. Transparency is seen as so key to the fight against corruption that its arguably most important advocate took it as part of its name: Transparency International. It should thus not come as a surprise that the EU Horizon 2020 DIGIWHIST project also aims at increasing transparency, specifically in the realm public procurement. But how do we increase transparency, and how does this contribute to more accountable governance?

A significant part of the project involves the collection of publicly available budget data for both national- and local-level governments across the EU countries and beyond. DIGIWHIST relies on countries following through on their commitments to budget transparency in order to find the necessary data, but it’s evident that not all countries are pursuing budget transparency in the same way.

Budget transparency – and how to get it right

The OECD definition of budget transparency is “the full disclosure of all relevant fiscal information in a timely and systematic manner.” Thus, what’s important to consider when we talk about this kind of transparency is both how promptly the information in question is released, as well as how predictable and orderly its release is.

The digital era has transformed the practice of budget transparency significantly. Ideally, citizens who wish to inform themselves about their government’s budget simply need to access an online portal where they can find all of the desired information presented to them in an accessible, understandable format. Regular users of online media should, however, not be surprised that the reality of budget transparency is more complex than this. The extent to which it is realized varies radically today. Still, there are some examples of how to do digital budget transparency “right”.

The German government, for example, has two main portals for people to turn to. One is Bundeshaushalt-info.de, which allows visitors to explore the national budget via colorful infographics and interactive tables. The second is Govdata.de, the government’s official open data portal, where a simple search of “Bundeshaushalt” returns machine-readable versions of the national budget from 2012-2015. Both portals cater to diverse audiences, ensuring that everyone from casually interested citizens to dedicated data analysts (like the kind of people working on DIGIWHIST) can find the desired information in a form that works for them. On a more local level, a great example of this can be found in Spain. The Presupuestos de Aragón website offers visitors a variety of interactive tools and visualizations for understanding the Spanish autonomous community’s budget. Their open data portal, Opendata.aragon.es, also provides machine-readable budget documents for the years 2006 – 2017.

So how can we evaluate who is doing budget transparently well? One of the main organizations focusing on this is the International Budget Partnership, which conducts the Open Budget Survey. The survey tends to focus on more traditional aspects of budget transparency rather than solely on the digital aspect of it. It contains an index measuring countries’ budget transparency (amount, level of detail and timeliness of budget information), budget participation (opportunities for civil society and the general public to participate in the budget-making process), and budget oversight (capacity of institutions to influence how public resources are raised and spent). The most recent survey, published in 2015, saw New Zealand, Sweden, South Africa, Norway, and the United States leading the pack.

Another view on evaluating budget transparency comes from the Open Knowledge Foundation, which publishes a ranked government budget dataset. They have a specific focus on the availability of government data in digital forms, and rankings are based on nine different factors, such as whether budget data is openly licensed, if it is available online, and if it is machine readable. Because this index is more narrowly focused than the Open Budget Survey, it is hard to compare the two data sources, and they often have strikingly diverging rankings (for example, the Open Budget Survey ranks Russia 11th overall, while the OKFN rankings have Russia tied for 105th place). Thus when evaluating budget transparency, it’s important to be clear about what aspects of it you are specifically interested in.

Transparency – and then what?

Just having the data in hand does not mean the battle is won. More transparency does not automatically equal more accountability. On the contrary: exerting accountability via budget transparency is no easy feat. The mere existence and general availability of budget data does not mean that it is immediately possible to make observations on and draw meaningful conclusions from the data. First of all, the way the data is published is often problematic. It does no good for a country to boast that all of its budget information is published online if that information is buried in a difficult-to-navigate finance ministry site, or in a chaotically-organized open data portal. Other countries still exclusively publish budgetary information in PDFs or publish only select portions of their budget data in machine readable formats. This is prohibitive to organizations like DIGIWHIST who want to automatically extract and analyze budget data, as extracting information from PDFs is much more difficult and error-prone.

Second, the actual analysis of budget data and what changes in allocations from year to year actually mean can be challenging without sufficient contextual background. Huge changes can be explained away by departmental consolidations, and small shifts in numbers may actually be indicative of changes that warrant scrutiny – the point is, a casual observer of this data can’t necessarily look at it and understand what is happening and identify potential causes for concern.

Third, the budget data needs to be sufficiently detailed to be useful from an accountability perspective. For DIGIWHIST’s work with public procurement data, for example, it is not sufficient to know how much money is being allocated or spent by a single ministry. Since the project is interested in matching contracting authorities from procurement tenders with the specific government agencies to which they correlate, a deeper layer of detail is needed; budget experts refer to this as the “economic classification.” But not all countries release budget information at levels this specific, making it that much more difficult for organizations like DIGIWHIST to hold governments accountable for their budget allocations.

Though progress at times feels slow, there is a clear trend toward greater budgetary transparency in governments and better provision of structured, accessible data. Projects like DIGIWHIST help in furthering this push thanks to the pressure they place on governments to be more accountable. Their researchers make transparency and accountability more than just buzzwords and help citizens and civil society activsts in their fight against corruption.

This post was originally published as part of the DIGIWHIST project.

EU Aid and the Quality of Governance

Using a panel dataset on 103 developing countries, this paper empirically analyzes the impact of the European aid flows on quality of governance in aid recipient countries. The analysis employs aggregated Official Development Data as well as disaggregated project level data. The results show that while bilateral aid from the largest European donors does not show any impact, multilateral financial assistance from the EU Institutions leads to an improvement in governance indicators. These findings thus suggest that European development assistance can help to promote good governance if aid is allocated at the EU supranational level rather than at the national level of the member states.

EU Aid and the Quality of Governance

Using a panel dataset on 103 developing countries, this paper empirically analyzes the impact of the European aid flows on quality of governance in aid recipient countries. The analysis employs aggregated Official Development Data as well as disaggregated project level data. The results show that while bilateral aid from the largest European donors does not show any impact, multilateral financial assistance from the EU Institutions leads to an improvement in governance indicators. These findings thus suggest that European development assistance can help to promote good governance if aid is allocated at the EU supranational level rather than at the national level of the member states.

Uncovering High-Level Corruption: Cross-National Corruption Proxies Using Government Contracting Data

Measuring high-level corruption and government favouritism has been the object of extensive scholarly and policy interest with relatively little progress in the last decade. In order to address the lack of reliable indicators, this article develops two objective proxy measures of high-level corruption in public procurement: single bidding in competitive markets and a composite score of tendering ‘red flags’. Using publicly available official electronic records of over 2.8 million government contracts in 27 EU member states plus Norway in 2009-2014, it directly operationalizes a common definition of corruption: unjustified restriction of access to public contracts to favour a certain bidder. Corruption indicators are calculated at the level of contracts, but produce aggregate indices consistent with well-established country-level corruption indicators. Due to the common EU regulatory framework, indicators are consistent over time and across countries, while WTO regulations underpin global generalisability. Indicator validity is supported by correlations with well-established perception-based corruption indicators, and novel micro-indicators such as prices and supplier registration in tax havens. The utility of the novel indicators is demonstrated by using them to explain the effect of deregulation on corruption risks at the country level. In order to facilitate wide use of the data and indicators by researchers, journalists, NGOs, and governments, they are made publicly available at digiwhist.eu.

Fixing Europe Is About Performance, Not Democracy

The gradual drop in public confidence in the EU since the beginning of the 2008 economic crisis indicates an erosion of the long-held belief among citizens and elites alike that European integration is the best option to secure a better future. But is it EU democracy that is being challenged here, or is democracy itself challenging the prospects for EU integration? To answer this question, this article briefly reviews first-hand evidence of the basis of trust and the loss of it in European institutions. The evidence is dealt with at a national rather than individual level, and comprises mostly survey data and primary facts that can inform a policy argument. This article does not offer a full explanation of populism nor of attitudes to democracy or globalization, each of which clearly deserve an article in their own right. Instead, it uses data to deconstruct the myths of the EU loss of confidence and its connection with democracy. The two main factors found to decrease trust in the EU are economic growth and confidence in national governments’ performance in terms of controlling corruption.

Good governance powers innovation

Many believe innovation can lead the way out of the present economic crisis. In Europe and the United States leaders have repeatedly referred to the importance of innovation, research and education to sustaining economic growth. The concept that innovation is the key to prosperity is great- but we must understand that this applies to a certain governance context which is seldom encountered in the real world.

The Splintering of Postcommunist Europe

There are two radically different versions of the postcommunist narrative. One tells the triumphal tale of the only world region in which the reforms recommended by the “Washington consensus” worked. The other and more realistic account speaks of a historic window of opportunity that lasted for only a quarter-century, during which efforts by the West and patriotic elites of Central and Eastern Europe managed to drag the region into Europe proper, leaving Europe and Russia pitted against each other along the old “civilizational” border between them. This essay argues that while Institutional choices matter in the postcommunist world, geopolitical and civilizational boundaries still set the horizons of political possibility.

ERCAS Awarded Second Major EU Research Project

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Photo credit: Steven Depolo, Flickr

The tell-tale signs of public spending gone wrong are easy to spot: An airport that is many years behind schedule and billions of Euro over budget, or a highway leading to nowhere. In many cases, corruption is at the core of the problem. For too long, it has been hard to identify such core problems and it has been even harder for civil society to play a role in preventing corrupt practices in public sector spending. A project is about to help change this: Together with five other European partners, the European Research Centre for Anti-Corruption and State-Building (ERCAS) at the Hertie School of Governance has just won a new EU-funded research project, DIGIWHIST, aimed at empowering society to combat public sector corruption.

The project is “The Digital Whistleblower:  Fiscal Transparency, Risk Assessment and Impact of Good Governance Policies Assessed” (DIGIWHIST), funded with three million Euro by the EU’s Horizon 2020 programme, will run for three years (March 2015 – February 2018). It is the second major EU Research Project awarded to ERCAS, led by Alina Mungiu-Pippidi, Professor of Democracy Studies at the Hertie School.

The central objective of DIGIWHIST is to improve trust in governments and efficiency of public spending by empowering civil society, investigative journalists, and civil servants with the information and tools they need to increase transparency in public spending and thus accountability of public officials in Europe.

Specifically, the project will create several interactive products:

  • national procurement portals and mobile apps allow users to: 1) making the database and documentation downloadable, 2) providing easy-to-useanalytic tools, and 3) making it possible for users to contribute to data and 4) allowing for anonymous whistleblower reports and freedom of information requests;
  • a European Transparency Legislation Observatory similar to the national procurement portals which allows users to access, and understand, existing legal frameworks related to public procurement;
  • an easy-to-use risk assessment software for public authorities, based on the indicators developed by DIGIWHIST, to assess corruption risks.

Returning to the airport example, an investigative journalist seeking to understand more about the airport project could visit the DIGIWHIST platform and look up the public body overseeing the construction or the construction firms involved, etc. The information on the platform would include whether the public body has complied with public procurement laws, or whether tendering behaviour has posed any corruption risks. This journalist could then file a report with the appropriate government agency to get more information on the project or even file a whistleblowing report if warranted.

“Our research has proven that only the combination of engaged civic actors plus legislative instruments work in fighting corruption,” said Professor Mungiu-Pippidi. “For example, Freedom of Information Acts (FOIAs) are more effective when civil society is empowered to use them and hold governments accountable for corrupt actions.”

The consortium, led by the University of Cambridge, includes ERCAS (Hertie School of Governance), Corruption Research Centre Budapest, Hungary; Datlab, Prague, Czech Republic; Open Knowledge Foundation Deutschland, Berlin, Germany; and Transcrime (Università Cattolica del Sacro Cuore) organised crime research centre, Milan, Italy. DIGIWHIST builds extensively on the partners’ prior innovative work in this area, particularly EU FP7 ANTICORRP.

European civil society groups, investigative journalists and civil servants involved in or concerned about transparency in public spending are invited to contact the project for more information. Contact: Kerry Schorr, ERCAS Communications Officer, schorr@hertie-school.org, +49 (0)30-25-92-19-337.

Why Eastern Europeans did not vote

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“I vote, you vote, he/ she votes, we vote, you vote, they vote? , #they rob us!” (Photo from: Uniti Salvam)

By Alina Mungiu-Pippidi

The night before the European elections I dragged myself – despite not being in top form – to plead for one hour by myself in a TV talk show that my Romanian countrymen should vote the next day. A boycott had been called by a group of Facebook activists under the catchy slogan: “Always voting for the lesser evil amounts in the end to choosing an evil.” As turnout in the previous elections for European parliament in Romania (when I declined being a candidate for the President’s party unless his daughter, a model, stepped down) had been 27%, I was worried that the boycott call would be answered massively in all urban areas. In poor rural areas subsistence farmers are ferried to vote by political entrepreneurs. Leaving Romania, a country of 18 million voters, to be represented by its poorest and most disempowered voters seemed to me an extraordinary forfeit of our efforts prior to 2007 to make the country join EU.

Voters have good reasons to be upset with politicians. They always do. Romania’s successive governments were unable to spend more than 25% of its EU development funds. Had the EU not introduced a rule allowing engaged money to be spent even after the end of the budgetary cycle (but not indefinitely), the opportunity costs would have been at about 18 billion Euro presently and they will probably stabilize at half of this. Romanian MEP Mr. Severin, filmed on tape taking money to pass legislation, was the only MEP who did not resign after the scandal. And at the current rate of growth, the trade with the rest of the Community might get some balance after 2019- until then Romania is a net importer. An op-ed of mine called “Futility of Joining the EU” got 50,000 likes on Facebook in a few hours last November. People do not blame the EU, but they blame their leaders, and for good reason, for wasting a historic opportunity.

But why boycott the vote? How would this help? I was still arguing, my eyes on the clock as the Champions League Final was approaching when I knew everyone would switch the channel, that this will be the strongest Parliament still on record. That issues everybody is concerned with, from Ukraine to fracking (hydraulic fracturing) are far more likely to be decided in Brussels than Bucharest. That the elections for European parliament might not always be, if people like Nigel Farage or Marine Le Pen win (they did). At the gas station on the way back home people then asked me how would they even know who in Brussels favors fracking and who is against. They had no idea. In one month of domestic political bickering otherwise known as an ‘electoral campaign’ nobody had told them anything and since they work all day long, they don’t have time to search on the Internet.

All over ‘new’ Europe voters, even in capitals, do not know what these elections were about. This is why only 17% of Slovaks came out to vote (Romanians actually outdid themselves with over 30% turning out this time). People have absolutely no idea:

  • What is decided in their capitals and what in Brussels;
  • What is the position of the European parties on major issues;
  • How their national parties position themselves on issues compared to their EU party family.

In my experience as a pollster, I frequently used a question called “subjective competence” where I asked people: Do you know enough on voters and candidates to make an informed choice? This question is the best predictor of turnout. People do not come out to vote in EU elections in the East because they don’t know the issues and the candidates and they are aware of their ignorance. Their leaders and media failed in informing them during their national disputes and scattered efforts such as mine were too disparate to matter.

According to the Eurobarometer, Eastern Europeans, unlike their Western counterparts, continue to trust EU institutions more than they trust their national politicians. But as national politicians are the ones claiming votes on behalf of the EU, confusion and skepticism reign supreme. And this is how the continent’s perhaps last untapped reserve of Euro-enthusiasts fall out of Europe’s politics.

Misconceptions Distort Views of the Crisis in Crimea

by: Alina Mungiu-Pippidi

1. Russia wants Crimea. For this reason, it invaded and manipulated the referendum.

This strikes me as false. About ten years ago when I put together indicators for the UNDP to warn of a potential crisis in Crimea, the ingredients of the current situation were already present: local authorities who preferred Russia to the Ukrainian Orange government, Kiev’s weak influence over the peninsula, strange paramilitaries registered as NGOs and training in shooting (referred to as the “Cossacks”, whom I had seen thirteen years before in the Transnistrian war), and a Russian-speaking population of recent settlers who saw Russia as their protector and who feared Crimean Tatar’s land claims (restitution demands for property confiscated when they were deported by Stalin).

Local authorities, whom I interviewed at the time, expressed displeasure that Russia was unwilling to have them join. Russia did not want them because they were far more useful as a threat should Ukraine go astray, a potential Transnistria or South Ossetia. Meanwhile, Russian oligarchs bought the best real estate and tourists flooded the coast. They thronged to the site of Vladimir the Great’s baptism at Chersonesos (an old Byzantine city, now merely a Sevastopol suburb), which in the nineteenth century had been canonized as a cathedral of the nation, thus indoctrinating people to the core with the idea that this is the cradle of all Russian orthodoxy. From a nearby hill one could admire the Russian navy at anchor, bearing odd resemblance to the Second World War movies we watched on Russian TV before 1989, but with no formidable rivals in sight.

Russia already held Crimea in all but name. It just needed a call to provoke the referendum, which could also have been stalled with another call – only the second has never been made.  Russia does not want Crimea, or Kharkov or Donetsk. Russia simply wants Ukraine, so it had to prevent it from joining  the EU, the same way it wanted to prevent Armenia in 2013 (and succeeded) and Moldova and Georgia (and so far failed).

2. We do not change borders in Europe

While the discourse against changing borders is perfectly legitimate, it is not factually correct to say that borders do not change in Europe or that altering borders is not accepted. In the course of EU enlargement borders did change dramatically. Slovenia and Croatia, two secessionist countries recognized by Germany, were allowed to pursue their course without being dragged down by the Milosevic government in Belgrade. Kosovo was then recognized despite formal Serbian opposition, which allowed both Kosovo and Serbia to move on. With Serbia now negotiating to join the EU, the Balkans are finally reaching equilibrium. Were Scotland to secede from the UK at the end of this summer, we would probably look for a legal solution to keep it in the EU, but we would definitely recognize it. And Scotland’s borders were not designed by Stalin and Khrushchev as are Moldova’s, Georgia’s and Ukraine’s.

Presuming that the EU would ever enlarge into Stalin’s borders is preposterous. Nobody would suggest bringing in these reluctant regions, inhabited to a great extent by the Red Army and KGB pensioners, such as Transnistria or Crimea. These borders were artificially created so to accommodate a bomb. It might prove better to detonate the bombs than letting them explode at their will. Why keep entire countries hostage due to them? The discourse that “territorial integrity” is the most important value to protect here is wrong. What matters is the will of people to determine their future themselves.

Ukrainians in major cities want to join Europe. Crimeans want to be part of Russia. Rather than blocking one or the other, we should concede that Ukraine will never join the EU with Crimea included – or Moldova with Transnistria. Plans to unify them will lead nowhere and should be replaced with backup plans to help them separate peacefully if this is what they want. Can we discuss in earnest during the next European Parliament elections where the Eastern border should stop?

3. This is a conflict of interests between East and West, between Russia and Europe

While the conflict may be escalating because of the way Mr. Putin thinks (it is hard to dance tango with someone who thinks you are doing the box step), this is, however, not how the conflict started. As Europeans, we have never wanted Ukraine to join the EU.  We are aware of the artificial borders of this state, which is forcing the cohabitation of two different nations, a new Ukrainian one (which turned out to be quite impressive) and an old Soviet one (widespread across much of the former Soviet space). Ukraine is a also a failed transition by many accounts: It is a crony capitalist state if ever there was one, with corruption lines cutting across pro-Russian-Western camps there. The attractive democratic path does not have clear parties to represent it yet – and its proponents know that. The EU has not been good at curbing crony capitalism and democracy. Just look how little Greece, Italy, Romania and Bulgaria have evolved since joining.  Thus, Ukraine has always been the bridge too far.

But neither can we stand idle forever and listen to the Russian doctrine of legitimate domination in their neighboring countries. Their bullying of Armenia, Georgia, Moldova and now Ukraine has gone too far. This is a conflict between democracy and the right of people to decide wherever they want their countries to go. Between our “empire”, reluctant to expand and Russia’s invasive behavior, our old enlargement policy has us paralyzed. The time has now come to defend those countries against Russia by other means, to convey the clear single message that we do have foreign policy tools other than enlargement, and that these countries can have Western (EU and US) protection even if they are not, and may never be, EU members. These countries want Europe, not the other way around. And if Russia wants them it had better developed an attractive model as the EU has done. By this, I mean one that would attract more than Belarus.

Meanwhile the situation has never been as dangerous since the aborted coup d’etat in Moscow in summer 1991. How did we win that one? The people of Moscow won it for us, and the incompetence of putschists. Let us at least show more dignity than we did then, when some EU member countries rushed to recognize the generals.

Alina Mungiu-Pippidi is Professor of Democracy Studies at the Hertie School and chairs the European Research Centre for Anti-Corruption and State Building Research. She consulted for UNDP’s early warning system in Crimea and the World Bank in the Caucasus. Her research interests include Europeanization, state building, and institutional transformation.

This piece previously appeared on the Hertie School of Governance’s European Elections Blog: “Decision 2014”:  http://www.hertie-school.org/blog/misconceptions-distort-views-ukrainian-crisis-crimea/

The Legacies of 1989: The Transformative Power of Europe Revisited

Why has the EU succeeded in promoting democracy in the new member states but failed in promoting good governance?  This essay seeks to answer this question first by distinguishing governance from political regimes, and second by exploring to what extent national governance—which is defined as the set of formal and informal institutions that determine who gets what in a given country—is susceptible to being improved by external pressure or intervention. It concludes that improving governance remains a challenge even for the democratic character of the European project.

The Anticorruption Report. Volume 1: Controlling Corruption in Europe

The first volume of the Anticorruption Report series provides a comprehensive analysis of causes and consequences of corruption in three European regions, presenting corruption risks for several European countries and concrete policy recommendations on how to effectively address those risks.

Print and e-book version of the report can be purchased here.

The Good, the Bad and the Ugly: Controlling Corruption in the European Union

For many years corruption was seen as a problem only of developing countries, while the European Union (EU) on the contrary was the temple of the rule of law, exporting good governance both to its own peripheries and worldwide. Many European countries indeed remain among the best governed in the world, although the downfall of the Santer Commission on charges of corruption, the enlargement of the EU by its incorporation of new member countries with unfinished transitions, and the economic crisis all strongly indicate that control of corruption is difficult to build and hard to sustain. Older member countries Greece, Italy, Portugal and Spain have all regressed rather than progressed since they joined – the first two of them to worrying levels – and that has raised doubts about the EU’s transformative effect on its members.