Publication Theme: Favouritism

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.

Red tape, bribery and government favouritism: evidence from Europe

Red tape has long been identified as a major cause of corruption, hence deregulation was advocated as an effective anticorruption tool, an advice which many country followed. However, we lack robust systematic evidence on whether deregulation actually lowers corruption. This is partially due to the difficulty of defining what is good regulation, but also to the lack of theoretical clarity about which type of corruption regulations impact on and to the deficient measurement of different types of corruption. In order to address the latter two gaps, we differentiate petty corruption from government favouritism and propose novel measurement of the latter by developing two objective proxy measures of favouritism in public procurement: single bidding in competitive markets and a composite score of tendering ‘red flags’. Using publicly available official electronic records of over 2.5 million government contracts in 27 EU member states and two European Economic Area countries in 2009–2014, we directly operationalize a common definition of favouritism: unjustified restriction of access to public contracts to favour a certain bidder. Petty corruption is measured using business surveys while the extent of business regulation is measured by Doing Business expert assessment of precise regulatory costs. Using country-level panel regression analysis, we find that deregulation has a heterogeneous impact on both low and high level corruption. It is largely ineffective in tackling government favouritism, with business start-up deregulation even facilitating such corruption. Whereas deregulating the various channels through which governments and businesses interact (e.g. obtaining construction permits) often decreases the perception of bribery and petty corruption. Policy consequences are profound and point at a more targeted and context-dependent promotion of the deregulation agenda. Full public procurement database is available at http://digiwhist.eu/resources/data/

An Objective Corruption Risk Index Using Public Procurement Data

In order to address the lack of reliable indicators of corruption, this article develops a composite indicator of high-level institutionalised corruption through a novel ‘Big Data’ approach. Using publicly available electronic public procurement records in Hungary, we identify “red flags” in the public procurement process and link them to restricted competition and recurrent contract award to the same company. We use this method to create a corruption indicator at contract level that can be aggregated to the level of individual organisations, sectors, regions and countries. Because electronic public procurement data is available in virtually all developed countries from about the mid-2000s, this method can generate a corruption index based on objective data that is consistent over time and across countries. We demonstrate the validity of the corruption risk index by showing that firms with higher corruption risk score had relatively higher profitability, higher ratio of contract value to initial estimated price, greater likelihood of politicians managing or owning them and greater likelihood of registration in tax havens, than firms with lower scores on the index. In the conclusion we discuss the uses of this data for academic research, investigative journalists, civil society groups and small and medium business.

Measuring Government Favouritism Objectively: The Case of Romanian Public Construction Sector

Government favouritism in the allocation of public funds raises costs for any society in which corruption prevails. Particularistic transactions can be identified in three different situations: uncompetitive awards of public contracts when there is only one “competitive” tender, when public money is spent on contracts supplied by politically connected firms, and a situation of capture in which one private contractor obtains a disproportionate share of contracts issued by some public agency. This present research has tested for the relevance of those three types of particularistic transactions that signal government favouritism as they apply to the Romanian construction sector for the period from 2007-2013, and to do so has made use of original public procurement databases. Furthermore, it will be proposed here that the “kickback”—a percentage of particularistic awarded values—can be used as a measurement of corruption. Even conservatively estimated, kickbacks account for much of the cost borne by any society that fails to eradicate corruption. For our purposes here, amounts of kickbacks at county level have been controlled against criminal convictions for corruption at county level. As a result, data analysis provides strong evidence that kickbacks based on particularistic allocation of public funds are indeed relevant in the measurement of corruption, and the steps used to evaluate kickbacks can be used just as well for other countries.

Corrupt Contracting: Partisan Favouritism in Public Procurement. Hungary and the United Kingdom compared.

For politicians seeking to use a clientelist approach to achieve political and private gain, i.e., to prolong their hold on power and maximize personal profit, control of government contracting is a key tool. We theorise that politicians wishing to exploit government contracting for such ends will seek to increase their influence over three stages of public procurement – policy formation, implementation and monitoring – but that their efforts can be constrained by institutional controls and checks. We examine these influence strategies and institutional constraints by comparing one young democracy and one mature democracy, Hungary and the United Kingdom. Developing new procedural and outcome indicators of corruption risk in contracting, we use a change of government as a natural experiment to analyse partisan favouritism in procurement. We find that, in Hungary, where political influence is systematic and far-reaching, 50-60% of the market is dominated by favoured companies, compared to only 10% of the UK market.

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.

Multi-Nationals and Corruption Systems: The Case of Siemens

Scholars tend to agree and evidence has shown that domestic businesses adapt to the local type of corruption, but little is known whether large multinational corporations also adapt to the local forms of corruption. Institutionalist theories of corruption and of international political economy would suggest that this would be the case, but the hypothesis has not, to our knowledge, been systematically tested. This paper, drawing on investigative materials about the activities of one such multinational, the German corporation Siemens AG, examines how it used corruption and bribery to advance its business around the world. We extrapolate from the logic of four “syndromes of corruption”, as Michael Johnston terms them, to develop specific hypotheses about the kind of behavior multinational corporations would be expected to exhibit when doing business in each of the four kinds of syndromes. We examine and compare Siemens’ activities in the United States, Italy, Russia and China. We find that Siemens did adapt to the local corruption form (or “syndrome”) and used, among others, different types of intermediaries to approach the local elites. The evidence from these case studies supports the institutionalist argument that multinationals distinguish between corrupt environments and further supports the argument that there exist different types, or syndromes, of corruption.

The Quest for Good Governance. How Societies Develop Control of Corruption

Why do some societies manage to control corruption so that it manifests itself only occasionally, while other societies remain systemically corrupt? This book is about how societies reach that point when integrity becomes the norm and corruption the exception in regard to how public affairs are run and public resources are allocated. It primarily asks what lessons we have learned from historical and contemporary experiences in developing corruption control, which can aid policy-makers and civil societies in steering and expediting this process. Few states now remain without either an anticorruption agency or an Ombudsman, yet no statistical evidence can be found that they actually induce progress. Using both historical and contemporary studies and easy to understand statistics, Alina Mungiu-Pippidi looks at how to diagnose, measure and change governance so that those entrusted with power and authority manage to defend public resources. The Quest for Good Governance presents a comprehensive empirical theory of governance unifying important disparate contributions in the areas of corruption, quality of government and rule of law and is the first attempt to directly answer the big question of what explains virtuous circles in good governance. It features research and policy tools to diagnose and build contextualized national strategies. The book was published on 27 August 2015 as a paperpack and hardcover.

Please find more information, as well as order the book on the website of Cambridge University Press.

Reviews for this publication

“This is one of the most important books ever written on the most universal governance challenge of our time – how to control corruption. In this brilliant integration of theory, history, case studies and quantitative evidence, Alina Mungiu-Pippidi shows how countries move from the natural state of corruption, clientelism and particularistic governance to the impersonal norms of fairness, integrity and transparency that make for good governance. This is an indispensable work for any scholar, student or policy-maker who wants to understand how societies mobilize and states reform to control corruption.”

Larry Diamond, Center on Democracy, Development and the Rule of Law, Stanford University, California

 

“Along with Tilly and Acemoglu and Robinson, Mungiu-Pippidi in this volume smartly re-frames the nature of the modern state.

Elsewhere in her superbly thoughtful and conceptually enriching book, Mungiu-Pippidi focuses on how the Italian city-states in their rise to republicanism largely contained corrupt practices and, by focusing on equality, avoided the kinds of wholesale corruption that is (and has been for years) widespread in the modern Italian state.

Fortunately, Mungiu-Pippidi’s remarkable book provides a welcome trove of possible solutions to the historical problem of corruption”.

Robert Rotberg “Considering Corruption’s Curse: Venality across Time and Space”. Journal of Interdisciplinary History, Summer 2016

 

“The Quest for Good Governance combines sophisticated conceptual discussion (for example, of the varying definitions of corruption and their consequences) with a historical perspective and a critical statistical analysis of various databases.  It is a good example of a multi-method approach to a huge and complex problem… I find this an accomplished and important book, and one which deserves very wide readership”.

Christopher Pollitt in International Review of Administrative Sciences, vol. 82:3, 2016

 

“Reformers who read this essential book will learn rather than seeking ‘toolkits’ to attack specific corrupt activities, successful societies have made integrity and accountability widely-accepted norms, backed up by the self-interest of a wide range of citizens. Alina Mungiu-Pippidi makes clear that societies which keep corruption under control have succeeded not just a due to their present laws and enforcement, but through a longer-term story of political development, widespread expectations and the building of effective performance of public institutions.”

Michael Johnston, Charles A. Dana Professor of Political Science Emeritus, Colgate University

 

“Mungiu-Pippidi writes that creating collective action and providing political support is the only proven effective strategy against corruption. Specialists will appreciate the comprehensive summary and review of the literature … Highly recommended.”

E. Hartwig, Choice

 

“Reading the book was really a roller-coaster… It touches upon all the key issues of corruption: It looks at measurement, theory, at policy; it uses quantitative methods, but also process tracing tools. It’s really a tour de force on various things and, while you might not agree with all of its conclusions, it really is a textbook even though it’s not a textbook on corruption”.

Finn Heinrich, Research Director at Transparency International

 

“What I was impressed by was the historical depth and the combination of various methods, from court case analysis to survey data and econometrics. You really had the impression to get a comprehensive picture. What I was also impressed by was the refusal to give easy and simple answers. This is not a cookbook; it’s a book to think about very specific cases and come up with very specific solutions.”

Hans-Dieter Klingemann, WZB

 

“A strong argument for framing the anti-corruption debate in terms of ethical universalism and impartiality with a focus on grassroots citizen involvement. Mungiu-Pippidi realistically acknowledges the difficulty of lasting reform, but at the same time she usefully seeks to move the policy debate beyond platitudes to concrete proposals that can attract domestic support and fit local contexts.”

Susan Rose-Ackerman, Henry R. Luce Professor of Law and Political Science, Yale University

 

“Mungiu-Pippidi’s work is a significant contribution to our understanding of the subject, and one to which policymakers and international donors should pay attention. Her work systematically explores the failed and successful trajectories of different countries in arriving at norms of universalism in governance. It is an important work in its welcome focus on the importance of societal norms in creating and sustaining various types of political corruption, and in the finding that what matters most is not international efforts, but domestic ones… [ The book] would be a welcome addition to an advanced undergraduate or graduate course on the political economy of corruption, and on the political economy of development. It should also serve as required reading for domestic and international policymakers, donors, and NGO activists concerned about corruption.”

Carolyn M. Warner, Arizona State University, in Governance, June 2016

 

“A brief review can scarcely do justice to Mungiu-Pippidi’s complex and subtle achievement. Her book is a powerful synthesis of theory, empirical analysis, and policy prescription. She is not just a scholar but also a leading anticorruption campaigner in her home country of Romania. She has known both the sweet savor of success in promoting an anticorruption agenda, and the bitter aftertaste that comes when it falters and particularism returns. This experience underpins her analysis, and the resulting combination of hard-edged realism and scholarly care gives her writing considerable power. Readers who are familiar with a country where corruption is part of the fabric of social and political affairs—my own speciality is Indonesia—will discover many moments of recognition in these pages, as well as a framework to aid understanding and useful lessons about how to move forward. The Quest for Good Governance deserves to have a major impact on how scholars and practitioners understand corruption, and on their efforts to help societies overcome it.”

Edward Aspinall, Professor in the Department of Political and Social Change in the Coral Bell School of Asia Pacific Affairs at the Australian National University, in the Journal of Democracy.

Report on Croatia on institutions in public procurement for the infrastructure sector

This report seeks to assess the extent of favouritism – i.e., preferential treatment for some bidders over others – in the allocation of public procurement contracts in the construction sector in Croatia. The methodology is based on identifying opportunities for favouritism and evaluating the effectiveness of constraints. The research finds that Croatia’s public procurement law sets a high standard and there are numerous transparency and control mechanisms in place. Nevertheless, the integrity of procurement is undermined because a large share of it is contracted by entities which are owned by government units and thus subject to political influence and constrained by a much weaker control framework. Data on the procurement of high-value construction works is analysed for indicators of favouritism in the process or outcomes. Whilst there is only limited use of restrictive procedures, competition for public contracts is surprisingly weak in a sector under considerable economic pressure. Moreover, around one-half of the total contract value is won by tenderers which are not private companies but rather entities that are partially or fully owned by the state. This raises further questions about the potential for political leaders to influence the process in order to achieve favouritism in the allocation of public contracts, to benefit themselves or third parties. Evidence from the verdict of a trial involving high-ranking politicians suggests further that such favouritism may be widespread.

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.