The governing parties in the Czech Republic, Poland and Slovakia
came to power promising to end corruption. The Hungarian
opposition, which lost last year’s election by the narrowest of
margins, promises to do the same. The collapse of the Polish
government shows that in addition to better policing and steeper
sentences, the fight against corruption should include the
reduction of the size and scope of the state.
Two years ago, when populist parties made electoral advances
throughout Central Europe, most commentators saw it as a rebuke to
the liberal parties and the market reforms they had implemented. In
a Cato Institute study, I argued that such explanations ignored the
resentment that the people in the region harbored against their
corrupt incumbent political elites.
Corruption in Central Europe is rampant. According to
Transparency International’s Corruption Perception Index, which
measures corruption on a scale from 0 (highest) to 10 (lowest),
Poland slumped to 3.4 in 2005 from 4.6 in 1998. The Czech Republic
fell to 4.3 from 4.8, Hungary’s remained at 5, and Slovakia’s rose
to 4.3 from 3.9. Though all four countries made small improvements
in their CPI scores in 2006, they fell far short of the OECD’s
average of 7.2.
Corruption in Central Europe persists for two main reasons.
First, despite much economic liberalization over the past 17 years,
governments continue to spend, on average, over 40 percent of the
region’s GDP. Unlike in Western Europe where government spending is
also high, however, parliamentary oversight, judicial independence
and the strength of civil society in Central Europe remain
relatively underdeveloped. Government procurement programs lack
transparency and are often used as vehicles for self-enrichment by
corrupt officials.
Second, the Central European business environment remains
overregulated. The World Bank’s Doing Business report, for example,
found that businesses in Slovakia, the Czech Republic, Hungary and
Poland were more heavily regulated than businesses in most
developed economies, including most EU members. The armies of
bureaucrats in Central Europe have ample opportunities to extract
bribes from private firms.
The populists in the region, including the Law and Justice party
in Poland and SMER in Slovakia, tapped into the popular feeling of
disgust at the conspicuous spending of the governing elites and
their ill-begotten wealth, and won. But corruption in Central
Europe is systemic — it cannot be eradicated through better
procurement controls as is currently being done. Instead,
corruption has to be tackled by reducing the size and the scope of
the state, and with it the opportunities for self-enrichment among
the political elites.
As Oleh Havrylyshyn, the former deputy finance minister of
Ukraine, shows in his book Divergent Paths in Post-Communist
Transformation: Capitalism for All or Capitalism for the Few?,
countries that implemented more radical economic reforms after the
collapse of communism experienced less corruption than countries
that opted for more gradual reforms. The transition from communism
to capitalism was marked by corruption not because of too much
liberalization, but too little. Perhaps that explains why Estonia,
which is the most economically free of all ex-communist countries,
also has the highest CPI score.
By contrast, the governing parties in Poland and Slovakia
postponed further economic reforms, thus effectively ensuring that
corruption in the region continues. It should come as no surprise,
therefore, that the latest crisis of the Polish government started
with the firing of Andrzej Lepper, the leader of a small coalition
party, from the posts of deputy prime minister and minister of
agriculture. Lepper is accused of accepting bribes in exchange for
agreeing to change the designation of cheap agricultural land for
lucrative building projects. Similarly, the Slovak government’s
most recent troubles are a result of the corruption allegations
surrounding the minister of labor and social affairs Viera
Tomanova, who is accused of awarding a state subsidy to a firm that
she used to manage, even though the company in question has not
paid taxes in three years and was thus ineligible for subsidy under
Slovak law.
According to opinion polls, the winner of the early election in
Poland in October 2007 will be the liberal Civic Platform, which
leads the Law and Justice party by some 14 points. A liberal
victory could mark the beginning of the end for Central European
populism and, hopefully, a return to a reform agenda in the region.
Once in power, the liberals should address the source of corruption
in Poland — the overextended state. The same goes for aspiring
reformers in the rest of the region.
