Hungary, a mid-corrupt country

Transparency International believes that while Hungary’s perceived level of corruption has remained the same, the CE European average has slowly but steadily improved. Hungary has been losing its favorable position in the region both in terms of corruption level and competitiveness.

Corruption is a widespread, multifaceted phenomenon ranging from bribery to nepotism. Many would argue that corruption enhances bureaucratic operation, however, on the long run, costs of corruption are extremely high. On the political front, corruption constitutes a major obstacle to democracy and the rule of law. In a democratic system, offices and institutions lose their legitimacy when they are misused for private advantage. Economically, corruption leads to the depletion of national wealth.

It is often responsible for the funneling of scarce public resources to uneconomic high-profile projects at the expense of less spectacular but fundamental infrastructure projects such as schools, hospitals and roads. Furthermore, it hinders the development of fair market structures and distorts competition, thereby deterring investment. The effect of corruption on the social fabric of society is the most damaging of all. It undermines people's trust in the political system, in its institutions and its leadership.

Frustration and general apathy among a disillusioned public result in a weak civil society. That, in turn, clears the way for despots as well as democratically elected, yet unscrupulous, leaders to turn national assets into personal wealth. Demanding and paying bribes become the norm. Those unwilling to comply often emigrate, leaving the country drained of its most able and most honest citizens. Environmental degradation is yet another consequence of corrupt systems. The lack of, or non-enforcement of, environmental regulations and legislation has historically allowed the North to export its polluting industry to the South. Environmentally devastating projects are given preference in funding, because they are easy targets for siphoning off public money into private pockets.

Global network

Transparency International (TI), established in 1993, is a civil society organization leading the fight against corruption. TI is a global network including more than 90 locally established national chapters and chapters-in-formation. These bodies fight corruption in the national arena in a number of ways. They bring together relevant players from government, civil society, business and the media to promote transparency in elections, in public administration, in procurement and in business. TI’s global network of chapters and contacts also use advocacy campaigns to lobby governments to implement anti-corruption reforms.

Politically non-partisan, TI does not undertake investigations of alleged corruption or expose individual cases, but at times will work in coalition with organizations that do. Transparency International Hungary, launched in 2006, has been active in raising awareness and offering systemic solutions to corruption problems is Hungary.

Mid-corrupt country

TI’s most known product is the Corruption Perception Index (CPI), a ranking of countries published year by year. The CPI  measures the perceived level of public-sector corruption in 180 countries and territories around the world. It is a "survey of surveys", based on 13 different expert and business surveys. Each country is given a score from 0 to 10; the latter would  refer to corruption-free countries. Hungary’s result has not changed much for the last 10 years, it has been around 5 (in 2009 it was 5.1).

According to some politicians, being a mid-corrupt country is not such a bad result. However, comparing Hungary’s position to the regional trends raises some concerns. While Hungary’s perceived level of corruption has remained the same, the Central-Eastern European average has slowly but steadily improved. Hungary has been losing its favorable position in the region both in terms of corruption level and competitiveness. After Estonia and Slovenia (CPI score 6.6 in 2009), Hungary is still the third among those states that joined the European Union (EU) in or after 2004 – but probably not for a long time. And if we compare ourselves to the 15 old EU member states’ average (7.5 in 2009), we have to admit that there is room for improvement.

CPI gives a snapshot of corruption situation in a country but does not provide information about the roots and causes of corruption. In order to gain a deeper view about the systemic problems causing corruption, Transparency International applies various other measuring and research tools.

One of them is the Global Corruption Barometer that assesses general public attitudes toward and experience of corruption in dozens of countries around the world. The 2009 Barometer interviewed 73,132 people in 69 countries and territories, including Hungary. Main findings of the survey showed that corruption in and by the private sector is of growing concern to the general public; political parties and the civil service are perceived on average to be the most corrupt sectors around the world; ordinary people do not feel empowered to speak out about corruption; governments are considered to be ineffective in the fight against corruption. In Hungary – and in most of the post-Communist countries – most bribes are paid in the health sector, while the worldwide average is led by the police and the judiciary.

The least trusted sector by Hungarians is political parties followed strictly by the business arena. 96% of Hungarians having experienced corruption would not report the case because of fearing retaliation or due to lack of trust in law enforcement agencies. Many people argue that these features are the heritage of the Communist regime and can be changed over a long time – which is probably partly true. However, in a well-functioning proper framework, corruption risks can be considerably reduced. The National Integrity System country study is a research tool, developed and applied by Transparency International, provides a qualitative analysis about the functioning of the pillars of a democratic system and comes up with recommendations to improve the legislative framework and its implementation.

Changes needed

After careful examination of Hungary’s integrity system, we clearly see that without structural changes, it is impossible to counter corruption in Hungary. Investors’ major complaints are about the procurement system, because regulations are overcomplicated and frequently changed and they feel that some tenders are exclusive for certain companies. This phenomenon is strongly interrelated to the non-transparent party and campaign financing system. Parties spend huge amounts of funds on their political activities without providing information which interest groups are behind them. Research shows that great part of these illegal funds come from state and local government funds through kickbacks in procurements and investments.

Besides the improper legislative framework, the implementation of laws is not strict in Hungary, corruption cases have been tolerated by the prosecution and police. This is partly due to their lack of capacity, but internal corruption within the police and political influence on certain cases also contribute to the lack of big court cases and severe sanctions. Fortunately, bribery is not a major problem at the Hungarian judicial system, however, the lack of transparency and accountability of judges’ work does result in non-efficient functioning.

Ambassadors for transparency

Stepping up against corruption needs joint efforts by the political, business and civil sector. An excellent example of how alliances can result in systemic change is the work of the Transparency Working Group of Ambassadors. The informal cooperation of ambassadors (whose countries provide 85% of FDI to Hungary) started in 2007. Besides raising awareness of the corruption problem and exercising pressure so that competition rules are better respected, their activity was crucial in introducing legal protection for whistleblowers in Hungary. Due to the expertise provided by the Group, the countless occasions of meeting government officials as well as, of course, the government’s willingness to protect those reporting corruption cases, the law entered into force in April 2010.

Even though, the institutional framework is to be set up by the new government, this is a key success story in the region. The business community also has substantial responsibility in fighting against corruption. Even though, conducting clean business practice might cause competitive disadvantage in the short run, its long-term impacts are considerable on the economy and competitiveness of a country. TI Hungary is proud of the members of its Corporate Supporters Forum, usinesspeople committed to the fight against corruption.

When fighting corruption, most responsibility relies on the political elite setting up the rules of the game. Since the governing party holds qualified majority in Parliament, they are in an exclusive position to mark the framework for a transparent and accountable society. Measures introduced during the first three months of governance do not reflect systemic approach to counter corruption. The way of changing the nomination rules of members to the Constitutional Court; an active politician appointed to lead the most important independent control institution, the State Audit Office; the new media law; levering the obligation of state owned enterprises to provide public interest data are signs of weakening control mechanisms.

We do hope that after local elections are over, anticorruption rhetoric will also be reflected in policies and laws.Corruption, economic growth and competitiveness are strongly interrelated factors. We all know that Hungary’s current economic position requires strong measures, including the anticorruption ones.