Gábor Papanek:

Corruption in Central Europe - A Business Point of View

1. The importance of corruption

When we started our work, we thought it would be important to have some general comments before the legal regulation and the cases pertaining to foreign trade activities are presented.

First we must mention the economic influence of corruption. In the recent past there were some documents, which criticised the Central and Eastern European Countries (CEECs) because of the widespread corruption practices in business life. For instance, the European Bank for Reconstruction and Development showed with empirical data in its 1999 Transition Report that the companies of the region pay more and more substantial bribes for favourable loans, tax allowances, etc. In Spring 2000, a BBC television report directly condemned the corruption practice of Hungarian civil servants and businessmen. The World Bank's latest Anticorruption in Transition publication explicitly states that in the region corruption is one of the most important obstacles to development. Nonetheless, the Hungarian experts agree that business corruption should be treated less straightforward than the above statements.

We should underline that corruption - according to the regular surveys conducted by the Transparency International (TI) in almost a hundred countries - is of "medium" level in Hungary, and other CEECs alike. Thus criticism meant for the "laggards" seems to be over-amplified.

Corruption indexes of the Transparency International
(Indexes of corruption perceptions (CPI) and bribe payers (BPI) computed from large-scale surveys. The maximum and minimum values are 10 and 0.)

We must also mention that on average, the region's foreign investors are as corrupt as the domestic firms; according to the above quoted World Bank report.

On the other hand we must definitely refuse if some "experts" of the region lay blame on corruption analysts for spoiling the "country image". It can be proved that business corruption is one of the most important problems of the region; it always causes substantial losses for the society; it significantly hinders development of all the countries involved, and remaining silent about the problem would also hide the necessity of anticorruption measures. In the proof first we should refer to that the level of GDP - despite some critics e.g. environmentalists - is one of the key measures of economic development. It can be computed that the Corruption Perceptions Indexes of the Transparency International (see above) are in very strong correlation with the annual GDP per capita figures as far as the studied countries are concerned. For the 2000 CPI indexes and the 1996 GDP data the correlation was 0.87, which is an extremely high value for cross-sectional data. The conclusion is twofold: today corruption is "reasonably" small in the developed countries and successful measures against corruption in the developing world can accelerate economic development. (Earlier [Mauro] reached a similar conclusion.)

Relationship between the levels of corruption and development
(Based on the data of 87 countries.)

Yugoslavia, Tanzania and Taiwan were left out from the 90 countries surveyed by the Transparency International, otherwise the GDP figures would have had to be taken from different sources.
Source: GDP - International Financial Statistics. International Monetary Fund. August 2000. Corruption indexes - Transparency International, www.transparencyinternational.com ].

The result of correlation calculus is supported by some results of the GKI Co. surveys as well. In the decade elapsed the responding company managers always mentioned unfair competition - the "breeding-ground" for corruption - as one of the most important obstacles to the growth of their company. (These enterprise surveys are based on the representative sample of about 8000 companies. The response ratio is usually around 10%. The reliability tests of the results are favourable. See: [As enterprises see…].)

The most important obstacles to increase production

In the survey - in line with the general use of the word - we termed "unfair" every conduct that violates legal norms, and not only those infringing the competition law.
* Data of the Autumn survey
Source: GKI Co. Spring Surveys.

Finally we have to mention that sometimes there is a substantial difference between the moral/legal judgement and the economic evaluation of corruption. Sometimes the "premium" or "commission" that does not infringe law may cause substantial social losses (e.g. the visiting doctors persuading their colleagues to apply expensive medicine). In other cases the direct losses of corruption are negligible (e.g. when tip is paid for accelerating the administration of land registration).

2. Corruption types

The first review of corruption cases could already reveal some Hungarian specialities as far as the types of corruption are concerned.

The World Bank report [Helping…] distinguishes three basic types of corruption in Central and Eastern Europe. As far as certain rules and proceedings (e.g. of privatisation) are concerned, corruption of the state results in solutions that conflict social interests. Administrative corruption gives incentives to the "flexible" handling of rules and prescriptions. Bribery during public procurement procedures results in gaining unlawful advantage at government purchases.

The GKI Co. survey revealed that the above grouping is too narrow for our region. The passive parties of corruption include not only the civil servants, many of them can be found among company employees as well. Bribery of company correspondents is a source of substantial losses in some economic branches (in healthcare, energy distribution, but with respect to intellectual property also in high-tech industries). Nonetheless, there are examples when the state - employees of the state - also takes active role in corruption. For instance, substantial costs incur if the competent employee expects the assertion of personal (or political party) interests as a "counter service" for reaching "favourable" procurement decisions (or for appointing somebody to a high position, etc.). In the case studies we would like to present some specific types of the above mentioned broadly interpreted corruption that appear in "foreign trade".

References

1. Act XXXVII of 2000: On the announcement of the international treaty that concerns the fight against the bribery of foreign citizens, in: Magyar Közlöny 2000/51.
2. EBRD: Transition Report 1999, Paris, 1999.
3. GKI Co.: As Enterprises See… (semi-annual pubication)
4. Mauro, P.: Corruption and Growth, in: Quarterly Journal of Economics 1995/3.
5. OECD: Public Sector Corruption, Paris, 1999.
6. Transparency International: Bribe Payers Index and Corruption Perceptions Index, http://www.transparency.de/documents
7. Transparency International: Releases the Year 2000 Corruption Perceptions Index, http://www.transparency.de/documents/cpi/2000.
8. World Bank: Hungary - On the Road to the EU, Washington, 1999.
9. World Bank: Helping Countries Combat Corruption, Washington, 2000.
10. World Bank: Anticorruption in Transition, Washington, 2000.

(GKI Economic Research Co., 2000)

Updated: 2001-06-06 12:47
© Hungarian Gallup Institute, The Gallup Organization