Public Integrity and Trust in Europe

This report on trust and integrity in Europe was commissioned by the Dutch EU Presidency 2016 to a group of research institutes associated in the EU FP7 ANTICORRP project lead by Professor Alina Mungiu-Pippidi at the Hertie School of Governance in Berlin.

The report argues that economic performance alone does not explain the sometimes dramatic decline in trust in government. Europeans in many member states perceive a serious drop in the quality of governance, and the failure of current policies to redress it. Only in a minority of countries in present-day Europe we encounter a clear majority believing that success in either the public or private sector is due to merit. More than half of Europeans believe that the only way to succeed in business in their country is through political connections. Less than a quarter of Europeans agree that their government’s efforts in tackling corruption are effective. The countries where citizens perceive higher integrity and better governance are those that managed to preserve high levels of trust in government despite the economic crisis.

In pointing at these factors contributing to the growing loss of trust in national and European institutions throughout EU-28 the report takes major steps in helping to understand this crisis. It formulates lessons learned from this review if evidence and hopes to inform the policy debate on how to address the apparent lack of public integrity in Europe. The report introduces a new ranking of public integrity for the 28 EU Member States, representing the first ranking using objective measurements of public integrity in the EU.

Press coverage

News on this report was featured in the Greek News Agenda, the New East Platform and VoxEurop.

The Quest for Good Governance: Learning from Virtuous Circles

Once of interest mainly to specialists, the problem of explaining how institutions change is now a primary concern not only of economists, but of the international donor community as well. Many have come to believe that political institutions are decisive in shaping economic institutions and, with them, the course of innovation and investment that leads to a developed society. This is the shift from patrimonialism to ethical universalism, a transformation that most of today’s advanced democracies accomplished through a long historical evolution. But there has been very little research on whether and how this kind of change can be engineered and speeded up by human design. The EU-funded ANTICORRP project that I have been leading aims to help fill this gap. The big challenge is to explain the shift of the governance paradigm from particularism to universalism in the few societies that have managed to accomplish it in the postwar era. Do these success stories offer any lessons about how other societies can make that journey?

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.

Corruption in universities: a blueprint for reform

What is to be done when an entire education system is corrupted, when universities sell cheap diplomas and the best academics move abroad? Corruption in the academy can be challenged by a ‘clean universities’ ranking and the power of press coverage.

Mode of International Investment and Endogenous Risk of Expropriation

This paper analyzes the relationship between the mode of international investment and institutional quality. Foreign investors from a capital-rich North can either purchase productive assets in a capital-poor South and transfer their capital within integrated multinational firms or they can form joint ventures with local asset owners. The South is ruled by an autocratic elite that may use its political power to expropriate productive assets. The expropriation risk lowers the incentive to provide specific capital in an integrated firm and distorts the decision between joint ventures and integrated production. We determine the equilibrium risk of expropriation in this framework and the resulting pattern of international production. We also analyze as to how globalization, which is reflected in a decline in investment costs, influences institutional quality.

Financial Liberalization and Institutional Development

This study empirically analyzes the effects of de jure financial openness on institutional quality as captured by indicators on investment risk, corruption level, impartiality of judiciary system, and the effectiveness of bureaucracy. We show that a higher degree of financial openness improves institutional quality mainly by reducing investment risks. We also study the effect of a single liberalization reform. Again, we find evidence for the beneficial impact of financial liberalization with the exception of corruption. We additionally show that the benign consequences of financial opening for the institutional development are even larger if financial liberalization is supported by simultaneous political liberalization, while financial deregulation in former socialist countries tends to worsen institutional quality.