How the Orbán government “eradicated” corruption in Hungary

In 2010 Viktor Orbán and the Fidesz party came to power in Hungary with a strong anti-corruption drive. However, they have been accused of their fair share of unscrupulous practices, often defending their actions in the name of “national security.” Has Fidesz eradicated corruption or have they simply re-packaged it? We talk to David Jancsics, a well-known Hungarian corruption scholar, to find out.

Photo: European People´s Party


By the end of their terms, the socialist-liberal governments ruling between 2002 and 2010 were deeply mired in corruption cases. The press reported numerous cases of bribery – stories on cash-packed Nokia phone boxes, and scandals involving the termination of astronomical payments to public company officials and several high profile judicial cases. The news is still full of scandals, but there does not seems to be anymore big corruption cases.  Why do you think it is so? Has the level of corruption decreased?

Definitely not, and I would emphasize that the press is uncovering many cases of corruption, but it is true that these cases are not properly followed up by the judiciary. The difference is the way the current government and the prosecution look at the phenomenon of corruption: for them corruption is basically the simple bribe – a few thousand euros cash in an envelope handed over somewhere to a mid-level public official in secret.

Even those cases like the investigation by the non-profit watchdog journalism site, Atlatszo.hu, that showcased data acquired through FOI-requests, 1 dropped dramatically . . .

While they are – at least on paper – fighting against these small-scale corruption practices, these cases are statistically registered. The real big cases do not even count as corruption in the eyes of the current government. The big, EU-funded infrastructure projects managed through the public procurement process, the frantic football stadium construction drive through a dubious scheme of tax breaks for companies (including by the way the stadium in the Prime Minister’s native village was developed), 2 the allocation of government tobacco shop franchises to cronies of the ruling party, 3 the hefty public contracts rewarded to companies close to Orbán’s family members and associates 4 – all these cases are not considered corrupt to the current regime.

As a matter of fact, in a recent interview the Orbán government’s chief ideologue said that the corruption the government is accused of is its main public policy initiative, namely the priority given to local, Hungarian entrepreneurs over multinationals. So corruption is basically a national interest here 5. . .

This interview also shows that corruption has become systemic in Hungary. It seems all control mechanisms, and checks and balances meant to properly regulate power in the above-mentioned cases have been disabled. The interview is proof that there is a very strong ideological argument behind this; they are using state power to create a new class of local capitalists. Favoring smaller domestic companies over multinationals may even be a legitimate goal of a conservative right-wing government. The problem is that most often the winners of this process are not the best and most competitive local entrepreneurs, but those with strong political connections. I usually evoke the allocation of tobacco franchises as the perfect example of that.

Why is it the perfect example?

This case shows how a whole sector of the retail industry was redrawn thanks to a new regulation that turned the sale of tobacco into a state monopoly; the number of retail units entitled to sell tobacco were dramatically decreased, approximately to a tenth. Researchers and investigative journalists uncovered hundreds of cases where party people, their pals, family members and their neighbors were rewarded with licenses, but it is next to impossible that in such a large number of cases, that only cronies would put forward the most competitive offers. This was an act of corruption on a large scale, possibly affecting hundreds of families and  thousands of people; and this scheme necessitated a highly coordinated action. Although reports were filed with the police, no proper investigation followed, and the whole sector – a very profitable business – was redistributed. Corruption was evidently involved and it was mostly cronies that received licenses on all levels, and this was green lighted by every state institution.

The tobacco case had some additionally negative social consequences. The fact that tobacco is now available at a significantly reduced number of locations in Hungary has clearly boosted illegal black market activity and cigarette smuggling from unidentified sources. Dealing with smugglers can also criminalize ordinary citizens.

Lobby interests were prevalent even before Orbán came to power in 2010: several laws were suspected of favoring businesses and businessmen close to the left, particular sectors or sometimes even specific companies; an example being the tailor-made legislation for the national oil company, uncovered by the famous Lex Mol. 6 What is so different since 2010?

True, there were similar cases under the previous governments as well, but the difference is that during those years, the judiciary, due to increased public pressure, finally started some investigations, as opposed to now: no matter how big public pressure has become at times, this has altogether been neglected.

Is this the direct consequence of the power structures  altered after 2010, including the strengthening of the executive powers? Although Fidesz has lost its two-thirds majority in Parliament, and an actual constitutional majority, they still have political appointees in key positions, including the prosecution . . .

Absolutely. Institutions normally in charge of guaranteeing democratic checks and balances are controlled by the ruling party.

In 2011, one year into Orbán’s term, the international, anti-corruption organization, Transparency International, had already declared that Hungary was in a state capture situation. Where do you think the country is in this respect now, five years later? Has the situation deteriorated?

The most typical form of state capture is described as a situation in which powerful business interest groups “capture” the state and influence legislation, using the administrative powers of the state to their benefit. Hungary’s state capture has been slightly different, because the  political class initiated the capture. A small group of politicians led by the prime minister used the state’s power for their own benefit, and also made the majority of the country’s powerful oligarchs dance to the tunes of the government. This very much resembles the system Putin established in Russia after Yeltsin. The only difference between 2011 and today is probably that now politically controlled oligarchs monopolize an even larger section of the economy.

So can we say that Hungary had a period of competing oligarchs until 2010, and a very centralized and monopolized system of government, led by the prime minister and his people after 2010?

Yes. Until 2010, there was a regular alternation of power between the left and the right, who had equal chances to win elections. As a consequence, both sides kept each other under control: oligarchs supporting the left were rewarded when their party was in power, and it was the other way around when the right wing won. This period was characterized by mini state captures: particular sectors, cities or state companies could by captured and could then syphon state funds. Because as a general rule both political parties were trying to maintain a balance, none ever attained to much power. Although significant public resources were misallocated to particular interest groups, the actors’ power was not absolute. However, since 2010 siphoning state funds by powerful groups of people has become the general rule; taxpayers’ money has been transformed into private property.

However there has been an important development since 2014. The former Fidesz party cashier and friend of the prime minister, Lajos Simicska, a long-time oligarch and financial mastermind, who owned a huge infrastructure company and media empire, fell from grace. 7 Until last year he largely profited from state contracts. Now his business interests are threatened by different government actions. Some even speak about a war between Orbán and Simicska. What is your take on this change?

One explanation is that Simicska has become too powerful for the prime minister’s taste. He even basically had a complete ministry under his control in charge of the biggest infrastructural projects. Orbán has probably realized that now, with the whole system established, he does not need his old ally anymore, and can manage this structure alone. He is seemingly gathering less powerful businessmen around him now, who win the same contracts as Simicska previously won, without facing the danger of their interference in Orbán’s political goals.

You described the systemic corruption and how the Hungarian judiciary – due to the state capture – is unable to cope with it. Do you think that the criticism coming from the US, for example, could change that?

True, a very important development was that the US, in an almost unprecedented move against an EU member country, banned some of the highest ranking officials of the tax authority due to corruption charges; 8 and the new US ambassador to Budapest recently gave a major public address where she expressed US concerns with corruption. 9 However, I think that the US’ criticism concerning corruption in Hungary was only important because US companies were involved, and their competitiveness was in danger – and this led to the travel ban of the tax authority executives. This was clearly a strong message from the US, but will not change anything fundamentally.

Is the EU equally toothless in fighting this type of corruption? Billions of euros of EU funds are involved.

The EU institutions are probably aware of how state funds, including EU subsidies, are partly being diverted to private hands, but are apparently unable to do anything about it. The EU subsidies budget for the next period until 2020 has been approved, which shows that EU institutions do not want to send strong messages to the Hungarian government. At the same time, due to the refugee crisis, Orbán’s political clout is much stronger now in Europe than a year ago, which limits the EU’s ability to fight corruption in Hungary.

Is the EU simply accepting that a portion of EU funds are being diverted due to corrupt practices?

I would also emphasize that the whole system has been professionalized, and now this systemic corruption is difficult for EU institutions to trace. There are no more bribes or money handed over in envelopes – funds are siphoned through a complex system of companies, subcontractors are documented in perfectly drafted contracts and even laws and regulations are in place to support the system. Moreover, the bridges and the highways are built, public procurement tenders are done, and everything looks well and perfect on paper but is still deeply corrupted. The projects are significantly overprized, or even originally designed according to particular oligarchs’ tastes.

What about domestic conditions: public pressure, the press?

Orbán is politically stronger than ever, due to the refugee crisis. He is popular among the electorate, the opposition is in ruins and the EU funds keep flowing in, which helps him economically. So beside the investigative press, which is doing a great job, I do not think there are any factors that will force the government to change course.

Notes:

  1. “Top prosecutor heralds drastic drop in corruption investigations in Hungary,” Atlatszo.hu, February 12, 2015, http://english.atlatszo.hu/2015/02/12/top-prosecutor-heralds-drastic-drop-in-corruption-investigations-in-hungary/ (accessed January 12, 2015).
  2. “A Village Stadium Is a Symbol of Power for Hungary’s Premier,” The New York Times, April 3, 2014, http://www.nytimes.com/2014/04/04/business/international/the-village-stadium-a-symbol-of-power-for-hungarys-premier.html (accessed January 12, 2015).
  3. “Hungary’s Tobacco Scandal,” Financial Times, July 1, 2013, http://blogs.ft.com/beyond-brics/2013/07/01/hungarys-tobacco-scandal/ (accessed January 12, 2015).  
  4. “Viktor Orbán’s son-in-law awarded billions in state and local contracts,” Budapest Beacon, December 22, 2014, http://budapestbeacon.com/public-policy/viktor-orbans-son-in-law-awarded-billions-in-state-and-local-contracts/16982 (accessed January 12, 2015).
  5. “It’s not corruption, it’s national interest,” The Hungarian Spectrum, December 27, 2015, http://hungarianspectrum.org/2015/12/27/its-not-corruption-its-national-interest/ (accessed January 12, 2015).
  6. “Hungarian differences put aside to pass law,” Financial Times, October 10, 2007, http://www.ft.com/intl/cms/s/0/194b98b2-76b5-11dc-ad83-0000779fd2ac.html#axzz3x1scLw8c (accessed January 12, 2015).
  7. “Curse like an oligarch,” The Economist, February 9, 2015 http://www.economist.com/news/europe/21642647-countrys-biggest-media-mogul-turns-against-viktor-orban-no-uncertain-terms-how-cuss (accessed January 12, 2015).
  8. “Hungary’s tax chief says she is on U.S. travel ban list,” Reuters, November 5, 2014, http://www.reuters.com/article/us-hungary-usa-corruption-idUSKBN0IP10J20141105 (accessed January 12, 2015).
  9. ]“US-Hungary: outlook for a troubled relationship,” V4Revue, November 2, 2015, http://visegradrevue.eu/us-hungary-outlook-for-a-troubled-relationship/ (accessed January 12, 2015).
Attila Mong

Attila Mong

is an editor of the V4 Revue. Attila is also currently working as editor for an innovative investigative journalism NGO, Atlatszo.hu and a researcher for Mertek, a media think-tank in Budapest. He also does journalism trainings in Asia and Africa for the DW Akademie,

David Jancsics

David Jancsics

is a Postdoctoral Associate at Rutgers University Newark, School of Public Affairs and Administration. David completed his PhD in Sociology at the Graduate Center of the City University of New York. His general fields of interest are public management, organization theory and economic sociology. The more specific areas of his research involve organizational corruption, informal institutions and transition in post-communist societies. David has published several articles in leading academic journals such as Administration & Society, International Public Management Journal and Crime, Law and Social Change. In 2014 one of his co-authored papers, “The Role of Power in Organizational Corruption,” received the Public and Nonprofit Division of the Academy of Management’s Best Article Award.