1. Circuits of Profit: Business Network Research Conference 28 th January Center for Network Science, CEU, Budapest Zoltán Szántó – István János Tóth – Tünde Cserpes – Szabolcs Varga Local Government Corruption in Hungary

2. http://www.crc.uni-corvinus.hu Topics Introduction – Our earlier research on business corruption in Hungary Main results of the earlier and present research projects on local government corruption Idealtypes of local level corruption transactions and its main characteristic features Network configurations and typical cases of local government corruption in Hungary Conclusion – challange and response Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

3. http://www.crc.uni-corvinus.hu Introduction – Our earlier research on business corruption in Hungary Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

4. http://www.crc.uni-corvinus.hu Corruption Research Center of the Institute of Sociology and Social Policy at Corvinus University of Budapest (2008) (Founders: György Lengyel, István János Tóth, Zoltán Szántó) http://www.crc.uni-corvinus.hu/ Financial supporters: 2008: Transparency International Magyarország; http://www.transparency.hu/ http://www.transparency.hu/ 2008-09: TEXTREND [NKFP_07_A2-TEXTREND, OM- 0002/2008] http://www.textrend.hu/ http://www.textrend.hu/ 2009-10: Energia Klub; http://www.energiaklub.hu/en/http://www.energiaklub.hu/en/ 2010- : Gazdasági- és Versenyhivatal (GVH); http://www.gvh.hu/gvh/alpha http://www.gvh.hu/gvh/alpha Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Introduction – Our earlier research on business corruption in Hungary

5. http://www.crc.uni-corvinus.hu Introduction – Our earlier research on business corruption in Hungary Conceptual and theoretical framework of corruption research Misuse of public power for private benefit (J.G.Lambsdorff) Principals, agents, and clients The joint use of quantitative (media content analysis) and qualitative (concept analysis, in-depth interviews) methods Recent publications Government failures, rent-seeking and corruption risks in the Hungarian electric energy sector. Research report by the CRC, 2010 Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

6. http://www.crc.uni-corvinus.hu Suspected corruption cases in the Hungarian media. Content analysis of on-line newspapers. Research report by the CRC, 2009 8 internet news portals and online versions of newspapers between 1 st January 2001 and 31 st December 2007 Keywords: “korrupt” (corrupt), “korrupció” (corruption), “csúszópénz” (slush fund), “kenőpénz” (palm-greasing), “vesztegetés” (bribe), “pénzmosás” (money laundering) Total of 3469 articles/news on 444 (suspected) corruption cases Background research studies to the Corruption Risks in the Business Sector (National Integrity System Country Study – Part Two) Transparency International, 2008 (http://www.transparency.hu/part_two)http://www.transparency.hu/part_two Business corruption in Hungary: From various angles – Research summary, In: Szántó Zoltán – Tóth István János (szerk): Korrupciós kockázatok az üzleti szektorban – kutatási háttértanulmányok Review of the Hungarian research literature on corruption Interviews with business leaders (qualitative analysis) Media content analysis (2006-2007: 737 articles/news, 176 corruption cases) Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Introduction – Our earlier research on business corruption in Hungary

7. http://www.crc.uni-corvinus.hu Main results of the earlier and present research projects on local government corruption Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

8. http://www.crc.uni-corvinus.hu Conceptual framework and definition of corruption “Misuse of public power for private benefit” (J.G. Lambsdorff: The Institutional Economics of Corruption and Reform. CUP, 2007: 16-20) Private benefit: receiving money or valuable assets, increases in power or status, favors for relatives and friends etc. Public power is exercised by bureaucrats (appointed to their office) and by politicians (elected to their position), in a variety of sectors. Misuse: a behavior that deviates from the formal duties of a public role Narrow meaning of corruption: “special exchange” 1. Corrupter (or briber), 2. Corrupted (or bribee ), 3. Corruption fee (or bribe), and 4. Corruption gain (or bribery service) Principal-agent-client model Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

9. http://www.crc.uni-corvinus.hu Local level corruption Act LXV of 1990 on Local Governments More than 3400 local governments Economic management is supervised by the State Audit Office (Section 92. Paragraph 1.) In practice: slackness in supervision New local elite without former experience Intense need for a more effective monitoring system Interview analysis (30 structured in-depth interviews) A full sample survey of online reports and articles of eight dailies and weeklies on corruption topics between 2001 and 2007 Media coverage of stories about local corruption is rather weak High importance of personal networks makes corrupt transactions more stable and symbiotic Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

10. http://www.crc.uni-corvinus.hu Local government corruption: lessons from the interviews Concept of corruption ethics based-approach, wide definition Trends unquestionably on the rise over the past 5-10 years emergence of new mechanisms Penetration of political influence? “… previously it [corruption in personnel selection] reached down only to the level of under-secretaries, but now it controls all positions down to deputy department heads.” Size and scope more than half of our interviewees mentioned local level corruption as the most typical business and government sector cannot easily be separated, often intertwined Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

11. http://www.crc.uni-corvinus.hu Local government corruption: causes and consequences Causes of the widespread local level corruption “fully organized, non-party system based on the common complicity of local government officials” Consequences of corruption Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Source: Corruption Research Center, Corvinus University of Budapest

12. http://www.crc.uni-corvinus.hu Local government corruption: lessons from the interviews Personal experiences of our interviewees Come from different areas and take multifarious forms Main types of local government corruption Promoters of countering corruption Government and politicians may be seen as primary promoters Possibly a bottom-up strategy (small institutions and local government as initiators) Business leaders can have important role Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

13. http://www.crc.uni-corvinus.hu Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Lessons from media analysis: characteristics of the corruption situations and transactions Suspected corruption cases by the institutions involved, 2001-2007, (multiple response, %, N = 444) 34,5 3,8 18,7 32,2 5,2 11,0 7,0 6,5 0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 PoliceCourtsLocal governments Ministries /national authorities Tax officeCustoms and financial guard Local institutions Other institutions Source: BCE Corruption Research Center, 2009 more than half of the cases the corrupted was the employee of national authorities or local governments more than third of the cases can be related to organisations that have been given the mandate to fight corruption

14. http://www.crc.uni-corvinus.hu Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Lessons from media analysis: characteristics of the corruption situations and transactions Suspected corruption cases by the procedures involved, 2001-2007 (%, N = 444) 19,3 1,4 15,2 20,0 44,0 0,05,010,015,020,025,030,035,040,045,050,0 Other State subventions Licences, permits Public, procurements Inspections Source: BCE Corruption Research Center, 2009 most of the cases are connected to inspections the share of cases related to licence and permit granting and public procurement is high

15. http://www.crc.uni-corvinus.hu Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Lessons from media analysis: emergence of a corruption network system? Share of multiplayer corruption cases, 2001-2007 (%, N=444) 25,0 28,8 51,6 23,6 55,0 36,6 60,0 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 2001200220032004200520062007 Source: BCE Corruption Research Center, 2009

16. http://www.crc.uni-corvinus.hu Main results of the earlier research projects – summary Corruption is widespread and increasing in Hungary Earlier research results only show perception and judgement but not actual mechanisms and motivations Corruption has been developed to a systemic – regular, predictable, quasi-institutionalised – transaction The ratio of multi-player, chain-like, networked corruption is increasing year by year Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

17. http://www.crc.uni-corvinus.hu Idealtypes of local level corruption transactions and its main characteristic features Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

18. http://www.crc.uni-corvinus.hu Idealtypes of corruption: basic model Principal-agent-client triad (Lambsdorff 2007: 18-19) The agent is entrusted with power by her/his superior (the principal): The principal delegates a task to the agent, sets up the formal rules as to how this task is to be fulfilled, and pays salary to the agent The agent is supposed to serve the client in accordance to these rules Different forms of corrupt behavior: the agent defects some ways from her/his rule bound behavior – the principal’s rules are trespassed and his/her interests are hurt Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

19. http://www.crc.uni-corvinus.hu Idealtypes of corruption: basic model Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Principal AgentClient

20. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Bribery The client acts as a briber, and makes a payment (bribes) to the agent (the bribee) In return the client obtains an advantage (such as a service or a license) (s)he is not entitled to obtain (for example a tax rebate or a public contract) Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

21. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Bribery Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Principal BribeeBriber

22. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Extortion The agent (as an extorter) uses her/his power to extract money (or other benefit) from the client (the extortee) The client (the extortee) may have to pay for a service, although (s)he is legally entitled to obtain it without such payment The agent (the extortee) uses coercion, violence, or threats to obtain this payment Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

23. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Extortion Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Principal Extorter Extortee

24. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Embezzlement Theft of public resources by the agent (the embezzler) The disloyal agent (the embezzler) steals from the principal (the embezzlee) Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

25. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Embezzlement Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Embezzlee EmbezzlerClient

26. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Fraud Information asymmetry: the agent is commonly better informed about details of her/his daily tasks and her/his efforts devoted to their fulfillment The agent can benefit from informational advantages (hidden information, hidden action, moral hazard) The agent can also actively conceal information from the principal (swindle, trickery, manipulation of information, facts etc.) - fraud Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

27. http://www.crc.uni-corvinus.hu Idealtypes of corruption: Fraud Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Principal AgentClient

28. http://www.crc.uni-corvinus.hu 1. Public procurement Recurrent complaints: the decision is made before the actual end of the tender 2. Licenses, permits High risk of bribe money because of lack of supervision and instable, non-transparent procedures 3. Assignments and buying services Buying services at an ”improved” price (higher than market price) An effective way to siphon money out of the budget system if the local government buys services at this way 4. Buying and selling local government property Local government sells own property at lower price than market price and then the agent gets bribe from the buyers and / or Local government tries to buy property at an „improved” price and the agent tries to get more money out of this transaction Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Main characteristic features of local level corruption

29. http://www.crc.uni-corvinus.hu Network configurations and typical cases of local government corruption in Hungary Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

30. http://www.crc.uni-corvinus.hu Interpersonal and institutional embeddedness of corruption – some typical local governmental corruption cases in Hungary Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions Relations: Personal relationship: actoractor Business relations: actoractor Ownership relation: owner owned Bribe: agentclient Advantage:agentclient False service:„seller”„buyer” False price„seller”„buyer” Actors P 1 : (real) principal P 2 : (hidden) principal A: agent C: client B 1, B 2 : brokers

31. http://www.crc.uni-corvinus.hu 1.1. Simple model, two actors, resource conversion Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions P1P1 A C 1. case: the „Hunvald’s model” - real estate selling of local government (Budapest, VII. district) false price ( < market price)

32. http://www.crc.uni-corvinus.hu 1.2. Simple model, two actors, two principals, resource conversion (political party financing) Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions P1P1 A C [P 2 ] 2. case: „Hidden princial moldel” political party financing with resource conversion – buying a real estate by local government (Békés county) false price ( > market price)

33. http://www.crc.uni-corvinus.hu 2.1. Three actors, one broker with A, resource conversion 3. case: „Sophisticated model” public procurement with resource conversion – reconstruction of city roads by the capital city’s government Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions P1P1 A C B1B1 false price ( > market price)

34. http://www.crc.uni-corvinus.hu 2.2. Three actors, one broker with A, ownership and business relations Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions P1P1 A C B1B1 4. case: „Feasibility study modell” Reconstuction of a building – feasibility study - bribery of local government offical: „countryside case” payoff False service enterprise

35. http://www.crc.uni-corvinus.hu Conclusions – challenge and response Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

36. http://www.crc.uni-corvinus.hu Conclusions: The evolution of corruption networks – corruption as an institutionalized process? The evolution of corruption networks in terms of the number of actors the complexity of network configurations the level of interpersonal and institutional factors the multiplicity of relationships Corruption as an institutionalized process in terms of stability mixing the reciprocity, redistribution and market forms of economic integration Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

37. http://www.crc.uni-corvinus.hu Conclusion: A response to the evolution of corruption networks – anti-corruption strategies and research research focus: revealing and classifying the mechanisms of corruption; explanatory approach is also preferred with an application of a mix of qualitative and quantitative methods; successful anti-corruption policies identify the typical corruption situations and intervene targeted to these situations; initiatives and implementation should come from the political sphere; strong NGOs and the independent media may impose the necessary pressure on politics and may become the most important catalysts of efforts to counter corruption; developing an anti-corruption strategy is urgent, because it is much harder to fight highly institutionalised corruption when it has become embedded Topics  Introduction  Earlier results  Idealtypes  Networks  Conclusions

38. http://www.crc.uni-corvinus.hu Thank you for your attention! http://www.crc.uni-corvinus.hu/ http://www.crc.uni-corvinus.hu/