The Political Economy of State Capture in Central Europe
ABBY INNES
London School of Economics and Political Science
Abstract
This article demonstrates that most new EU Member States experience serious problems of state
capture. It argues that central European states cluster around two dominant modes of party
competition. In the first, predominantly ideologically committed elites (Poland, Hungary, Estonia,
Slovenia and Estonia) established relatively ‘electoral professional’ party competitions, only to
face deepening fiscal constraints on mainstream ideological competition. Following the collapse of
the social democratic left, both Hungary and Poland experienced attempts to reassert political
monopoly, i.e., ‘party state capture’. In the second group (Czech Republic, Slovakia, Romania,
Bulgaria and Latvia), more entrepreneurial political elites established ‘brokerage’party systems, in
which public policy remains a side-product of an essentially economic competition. All five states
show high levels of ‘corporate state capture’ in which public power is exercised primarily for
private gain. These findings contest the more optimistic expectations of the institutionalist literature
on state-building and democratic consolidation.
Introduction
The stable party competitions and Weberian states of post-war western Europe were
founded on strong elite commitments to democracy and socially embedded through
sustained productivity growth and universally rising living standards. But those conditions
have never existed in central Europe (see Epstein, 2014). Consequently, their states are
not consolidating as those of post-war western Europe did, nor are they likely to in the
foreseeable future. What we are seeing instead are serious problems of state capture, not
just in the usual suspects – Romania, Bulgaria and now Hungary – but in the majority of
the new Member States.
The argument advanced here is that the region is peculiarly vulnerable to two modes
of state capture: party state capture and corporate state capture. In the former, parties
re-politicize the state in pursuit of political monopoly. In the latter, public power is
exercised primarily for private gain, and private interests pay to subvert the legitimate
channels of political influence (Hellman et al., 2000, pp. 2–3). While it is plausible that
both modes could operate together, the evidence suggests two surprisingly clear clusters
of central European states around a dominant mode, with some relatively non-corrupted
systems facing vivid attempts to re-monopolize the values and allegiance of the state (for
example, Hungary, Poland) and the more corrupted systems showing a clear and consistent
prioritization of the extraction of financial value (for example, in the Czech Republic,
Bulgaria). In the latter, attempts to penetrate the state are evidently aimed more at financial
than political monopoly. Post-EU membership, the only systematic attempt to roll back
democracy has occurred where hitherto effective representation failed for political
economic reasons: in Hungary.
JCMS 2014 Volume 52. Number 1. pp. 88–104 DOI: 10.1111/jcms.12079
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The clustering of states seems to follow from distinct patterns of party competition;
one established on the basis of public representation, the other on the basis of corporate
competition between only nominally ‘political’ actors. Which pattern took root was
determined by the level of initial elite commitment to democratic values and its sustainability
was subject to political economic conditions. The early and deep institutionalization
of these modes and hence the clear clustering of cases was possible because of the
near total character of institutional site-clearing and rebuilding that ensued in the postcommunist
transition.
Our order of business, then, is to establish where each of the new Member States stand
in this picture; to explore why much of the political science literature has tended to be
over-optimistic about party-state development and democratic consolidation in the region;
to unpack the mode of party competition thesis in more depth and to provide critical case
studies: Poland and the Czech Republic. In conclusion, the article explores why, excepting
in egregious violations of the separation of powers (see Sedelmeier, 2014), the current EU
can do little to change these trends once they are established.
I. State Capture in Practice and Theory
The World Bank Governance Indicator, ‘control of corruption’ (Kaufmann et al., 2010,
p. 4) offers a reliable measure for corporate state capture and the Czech Republic,
Slovakia, Latvia, Bulgaria and Romania have consistently fallen within the mid-50th to
mid-60th percentile in worldwide rankings (1996–2011), placing them in the same
cohort as South Africa, Brazil and Peru. The Czech Republic moved downwards from
scores in the high 70th percentiles in the mid-1990s to a plateau of low to mid-60th
scores by 2000, from which it has not risen. In fact, performance has tended to plateau
through the 2000s in all five countries, despite EU membership. Estonia, Slovenia,
Poland and Hungary ranked between the 70th and 80th percentiles during the same
period, with Lithuania staying steady in the mid-to-high 60th percentile. Poland and
Hungary, however, saw deteriorating control of corruption during their anti-system governments,
those of Law and Justice in Poland (2005–07) and FIDESZ in Hungary
(2010–present).
For party state capture we can use the World Bank Governance Indicator of ‘government
effectiveness’, which measures perceptions of the quality of public services and
policy formulation and the degree of administrative independence from political pressures.
Estonia, Slovenia, Poland, Hungary and Lithuania again perform well, between the
70th and mid-80th percentiles (1996–2011). But Hungary steadily deteriorated after 2008
and worsened through the FIDESZ administration, with Poland likewise dropping to the
high 60th percentile ranking, coincident with the Law and Justice government. Lithuania
saw its government effectiveness improve from 2004 onwards, moving into the 70th
percentile rankings. What is also notable and helps explain their unwarranted reputation
for consolidation is that the Czech and Slovak Republics have also ranked in the 70th to
80th percentiles for government effectiveness. But as Darden (2008) has demonstrated,
between the two worldwide clusters of negligibly corrupt states with high government
efficiency and failed states with massive corruption, there is actually no linear correlation
between state capacity and state corruption. In other words, it is possible to combine high
corruption with high social order.
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One reason these trajectories may come as a surprise is that the transitions literature has
often drawn more optimistic conclusions about the consolidation of central European states
versus the deterioration of those further east. But the evidence of the last ten years suggests
the reason for this optimism may be methodological – namely, that the dominant institutionalist
approaches have downplayed the substance of ideological values and government
practice. Institutionalist accounts, for example (Hellman, 1998; Grzymała-Busse and
Jones-Luong, 2002; O’Dwyer, 2006; Grzymała-Busse, 2007; Vachudova, 2014), have
tended to agree that it is the institutional robustness of competition between political elites
that explains degrees of Weberian state-building: a formalized variable on which central
Europe has fared relatively well. But these studies have carried pluralist assumptions over
from the post-war west European context about how an institutionally robust political
system begins competition and how, once started, the mechanics of polyarchy sustain the
necessary incentives to take the state out of the political game. But the sharpening political
conflicts and deteriorating government performance through the 1970s and 1980s in the
west had forced pluralist thinkers to admit the dependence of their assumptions on the
ideological and political economic conditions of that post-war era: conditions which central
Europe has simply never had.
Because of these missing conditions, the institutional robustness of competition alone
can make little sense of the advent of anti-system, state-capturing governments in two
countries that started the transition with among the strongest political competitions and
state-building thereafter: Poland and Hungary (Grzymała-Busse, 2007, pp. 11–12). Or
why the Czech Republic, endowed with the most stable bipolar party competition and the
most classically pluralist structural conditions of the entire region (O’Dwyer, 2006), has
shown levels of corporate state capture on a par with those of Ukraine (World Bank, 2011,
p. 20).1
More generally, the ongoing failure of the majority of new Member States to
consolidate autonomous state structures over time runs counter to the pluralist optimism
that underpins institutionalist conclusions.
Given space constraints, I will focus on the rightly influential and comprehensive text
by Anna Grzymała-Busse, Rebuilding Leviathan (Grzymała-Busse, 2007), to highlight
those factors that institutionalist methods necessarily elide but that, with the benefit of
hindsight, are significant. Leviathan also identified the institutional robustness of party
competition as central to state-building dynamics. It argued that clear, critical and monitoring
party competition and plausible governing alternatives were what drove rational
actors to take the state out of the political game since the credible threat of their imminent
replacement in government made it prudent for them to do so (Grzymała-Busse, 2007, pp.
10–15). In Leviathan then, the flaw of the Czech, Slovak, Latvian and Bulgarian systems
compared to those of Poland, Hungary, Estonia, Slovenia and Lithuania was that they
came into their transitions semi-formed in terms of political competition. In contrast to the
higher-performing cases, their legacies of relatively weak dissident oppositions and hence
hard-line communist parties had prevented the emergence of reformed ex-communist
social democratic parties to play the disciplining role of strong opponents. The resulting
dominance of single parties meant less state reform and higher levels of state exploitation.
1
According to World Economic Forum survey data from 2008, the latest available, the Czech Republic ranked equal with
Ukraine for the diversion of public funds to ‘companies, individuals or groups due to corruption’. The Czech Republic was
thus fifth worst out of 22 post-communist states, behind Bulgaria, Armenia, the Kyrgyz Republic and Russia.
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But since the World Bank indicators show Leviathan is entirely correct in identifying the
higher corruption of these ‘intermediate’ cases, what is it exactly that this institutionalist
approach is failing to capture? The difficulty is that the book’s formal criteria a priori
cannot account for the subversion of political competition by relatively dominant parties,
or for the deterioration of political competition where it was formerly robust.
The unwillingness of weakly institutionalized party systems to build regulated state
institutions has done more than allow enormous private benefits for parties in otherwise
functioning democratic systems: the verdict of Leviathan. Rather, their preference for
non-regulation in key institutions under the guise of neo-liberalism (Czech Republic) or
through more clandestine forms of de-institutionalization (Bulgaria, Romania, Latvia and
more erratically, in Slovakia) has built a system of incentives for primarily opportunistically
entrepreneurial party behaviour. What followed was less the incidental exploitation
of the state than the evolution of parties into brokerage firms: a far more systematically
corrupt development than Leviathan implies. The theoretically pluralist background to
Leviathan would also suggest that this more corrupt cluster should have improved their
state-building over time rather than levelling out at a globally just-above-average level of
performance, even ten years into EU membership.
In their ground-breaking essay on state-building written just a few years earlier,
Jones-Luong and Grzymała-Busse had argued that the stronger a country’s capacity for
voluntary association and popular mobilization, the more elite competition would be
constrained into robust forms. Furthermore, the more formal institutions with credible
capacity existed over informal norms, the more competition would be constrained to
operate within those institutions (Grzymała-Busse and Jones-Luong, 2002, pp. 537–8). But
far from such optimistic trajectories playing out in these cases, their flat-lining performance
suggests that the early institutionalization of corporate state capture pre-empted the
constructive relationship anticipated between political systems, deepening electoral cleavages
and civil organization. The competitive element in what Mungiu (2006, p. 94) calls
‘competitive particularism’ remained motivated by access to state assets.
As for those countries that got off to a more competitive start, institutionalist indicators
necessarily strain to capture changes in values within these systems. A priori such
indicators cannot identify anti-system actors who fulfil the institutional criteria of robustly
competitive players but undermine the separation of powers: a methodological constraint
revealed as problematic in more recent years. While Hungary ostensibly confirms Leviathan’s
depiction of ‘declining competition equalling declining performance’ – FIDESZ
became more ambitious for state power following the collapse of the main competitor, the
Hungarian Socialist Party – this cannot explain why the pillar of the liberal left mainstream
in Hungary suddenly collapsed over ten years into transition nor why, even before
the Socialists’ troubles, FIDESZ had indicated anti-pluralist tendencies in its first administration.
The rise of Poland’s anti-system Law and Justice Party is straightforwardly
confounding of the institutionalist theory since party competition has remained strong.
When it came to understanding cases of deteriorating state performance GrzymałaBusse
was clear in Leviathan that she was not trying to theorize institutional ‘stickiness’:
thus if the robustness of competition changed she argued that this change would
have immediate effects on state exploitation (Grzymała-Busse, 2007, p. 15, fn. 39). But
though theoretically consistent this makes for a restricted theory of democratic statebuilding
insofar as consolidation remains mysterious. The implication of Leviathan is that
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institutionally robust competition must exist at all times for state integrity to be sustained,
but this is questionable given that post-war western Europe experienced numerous party
crises that failed to undermine the integrity of the given state, and Latin America is replete
with cases of historically competitive party systems and weak state-building. All of which
suggests that political competition is a necessary but insufficient guarantor of Weberian
standards.
II. Legacies, Elites, Party Organization and Competitive Strategies
The high point of polyarchic analyses coincided with the post-war era of ‘embedded
liberalism’ (Ruggie, 1982) but the benefits to democracy of pluralist political structures
had turned out to depend on vocational elite commitments to democratic values and
political economic conditions that maintained their popularity. The west European party
systems literature has consequently long monitored the corrosion of stable party competitions
after the ‘Golden Age’ of European growth. From Kirchheimer’s (1966) ‘catch all’
parties to Panebianco’s (1988) ‘electoral-professional’ parties, Koole’s (1994) modern
cadre parties, Katz and Mair’s (1995) cartel parties and Hopkin and Paolucci’s (1999)
‘parties as business firms’ this literature has focused on socio-economic changes and
concomitant shifts in the ideological values and strategies of political elites. As these
scholars established, the resulting changes in the identity, social embeddedness and
organizational characteristics of parties have significantly altered the effective constraints
on governing elites.
If we review central Europe’s revolutionary legacies we can see a clear distinction
between political elites that began with deep ideological commitments to democracy and
those that did not, the issue being whether the latter were nevertheless strategically
constrained and if so, by what. In Politics without a Past Cohen (1999) distinguishes
‘ideological’ and ‘mass elites’. ‘Ideological’ elites she describes as those that remained
bearers of alternative ideological visions to communism: democratic and nationalist, civic
and ethnic. These elites preserved historical consciousness of non-communist ideas
and, either via organized dissent through the last decades of communism or through
the resonance of nationalist identity politics, possessed connections to relatively stably
defined and coherent social bases (Cohen, 1999, pp. 5–6). Applying Cohen we can
identify the dissident and reformist-led parties of Poland and Hungary, but also Estonia,
Lithuania and Slovenia as standing within this category.
In distinction to ‘ideological elites’ Cohen developed the idea of the ‘mass elite’ to
describe the product of Czechoslovak communist socialization (the fragmented ideological
elite around Vaclav Havel and Charter 77 notwithstanding). A ‘mass elite’ is a political
elite with the characteristics of the mass as associated with the writings of Hannah Arendt:
a group that has been unhinged from traditional institutions and ties by a militantly
orthodox or repressive communism but without being integrated by any modern ideological
framework or interest groups. Cohen (1999, pp. 5–6) identified ‘mass elites’ as
ideologically non-committed and hence motivated by short-term personal self-interest.
The Czech Republic, Romania, Bulgaria, Latvia and, with caveats, Slovakia have clearly
remained dominated by mass elite parties.
The strategic calculations of these relatively socially and ideologically unanchored
‘mass elites’ regarding party longevity were necessarily different from those of relatively
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constrained ‘ideological’ elites. Two different logics of competition thus emerged in the
region over time, logics which were further confronted with the management of performance
in government and the electoral response to it.
Where parties were attached to emerging electoral cleavages and social bases through
their ideological commitments they developed into relatively ‘electoral-professional’
parties – that is, historically rooted parties increasingly dependent on political ‘professionals’
to develop new strategies of party competition (Panebianco, 1988). For such
parties seeking to maintain the credibility of their normative identities, programmatic
competition was the most sustainable source of party establishment, assuming conducive
political economic conditions over time. And as Tavits (2012) has shown, those that also
invested in organizational strength and membership, other things being equal, fared better
than their ideological matches in like cases.
Even more than their kin in western Europe, however, these central European electoralprofessional
parties confronted daunting political-economic challenges in government.
Party state capture occurred when a pillar of this competition, on the social democratic left
in both instances, was knocked out by deepening fiscal constraints on credible economic
competition. Given the region’s dominant socio-economic electoral cleavage the collapse
of the left ushered in a political battle for the support of lower-income voters but in
conditions where the impossibility of sustaining redistributive programmes had been
proven. Party state capture duly followed from conspiracy-rich nationalist appeals that
required the ‘renewal’ of the state and the closing down of democratic competitions now
argued to have failed ‘the people’.
Mass elite parties, in the meantime, carried the extreme elite flexibility we associate
with ‘business-firm’ parties. Hopkin and Paolucci (1999) observed that new parties in the
post-authoritarian democracies of Greece, Portugal and Spain faced strong pressures
towards the ‘electoral-professionalism’ of the established parties of western Europe but
without the inherited constraints on pushing that model to its logical conclusion. Consequently,
they could more readily become parties, in Downs’ phrase, ‘that might formulate
policies in order to win elections rather than win elections in order to formulate policies’
(Downs, 1957, p. 28). Thus ‘the [business-firm] party, instead of being a voluntary
organization with essentially social objectives, becomes a kind of “business firm”, in
which the public goods produced are incidental to the real objectives of those leading
it; in Olson’s terminology, policy is a “by-product”’ (Hopkin and Paolucci, 1999, pp.
310–12).
Since the 1989 revolutions had called for the dismantling of the communist patronage
state the continuation of that monopoly was impossible, but the greater the postrevolutionary
continuation of mass elite control the greater the capacity of these elites to
monopolize the process of the state’s demise. Central Europe’s mass elite parties,
however, unlike Forza Italia, were not established businesses seeking access to democratic
parliaments, but were formed by MPs arising in either reform-communist or ‘opposition’
parliamentary groupings who instrumentalized the dismantling of the state to establish
brokerage businesses and party hierarchies built on those businesses. Such parties established
themselves by monopolizing and asset-stripping state resources and information –
for example, state reserves, including of oil and metals, and domestic and foreign
company data – and protected themselves by disabling existing formal state oversight over
government action (Ganev, 2001).
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These measures gave first-mover advantage to communist elite networks in what
developed into electorate-mediated competitions over ongoing brokerage rights over state
assets. Even where communist elite ties to the state were ostensibly broken by the election
of dissident-led governments, as in the Czech and Slovak Republics, we see functionally
equivalent efforts to maximize elite discretion after their small ideological elites were
effectively purged following the partition of Czechoslovakia by two mass elite parties
(Innes, 2001). In the five countries starting out with predominantly mass elites their
convergence on the brokerage model is evident despite very different economic inheritances
and reform timelines. And in the absence of vocationally democratic elites voters in
these systems can do little more than churn through different factions of political-business
networks, hence their convergence towards chronically high corporate state capture
rankings combined with high voter volatility and party turnover rates.
Shefter (1994) concluded that ‘internally created parties’ – that is, those emerging
from within state institutions – will consider patronage a viable option as a key survival
strategy. Given that the majority of central European parties emerged and still emerge from
within existing parliamentary parties we should not be surprised that only when they were
led by committed and constrained democratic elites were there efforts to build Weberian
states. Thus where Leviathan argued that it was robustness of competition that counted, I
would contend that it was the predominance of vocational elites that determined a
democratic mode of institution-building. The result is the same division of cases as
Leviathan’s but on a different basis and with different expectations. It is also worth noting
how un-amenable the corrupt cluster is to explanation through different variables often
cited as relevant in accounting for party system, and hence party-state, dynamics – that is,
in creating barriers to entry. In practice, variation in electoral systems or the effective
number of parties is too high across both clusters to account for the patterning that we
see. The following two critical case studies – the first examining the pressures on ‘electoral
professional’ competition in Poland and the second on the evolution of brokerage parties
in the Czech Republic – are offered to test this theory, with both cases providing
confirmation.
III. Ideological Competitions, Government Performance and Party-State
Capture: Poland
As the country with the strongest and most diverse legacy of dissent: an established
dissident elite rooted in large sections of society, a committed generation of reformist
former communists, and a society distinguished by a vibrant and uniquely independent
Catholic Church, Polish experience illustrates the pressures facing even the most well
founded party systems of the region: those engaged in relatively ‘electoral professional’
modes of programmatic competition. Like their western counterparts, these party systems
had to address the pressing public policy problems of the day to maintain their credibility
(Kitschelt, 2010, pp. 669–70). Moreover, with a dominant socio-economic cleavage
regionally (Rohrschneider and Whitefield, 2009), a successful economic policy had to
stand at the heart of any government’s reputation for competence. If we then consider the
astonishing scope of the transitional project of marketization and integration into the
single European market, particularly for an economy as in need of industrial restructuring
as Poland’s, it is clear that the biggest performative challenges would be confronted by
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those parties on the economic ‘left’– that is, by those seeking to mitigate the social impact
of marketization on lower-income groups via public spending.
When Kitschelt showed how modern, office-seeking west European social democratic
parties pivoted left-libertarian or right-centrist depending on the credible competitors to
their left or to their right, even the centre-right pivoting social democrats retained positions
on the economic left (socialist-capitalist) axis (Kitschelt, 1994). If this retention of
leftist economic space becomes impossible, however, if social democratic parties in
government lose all serious traction on social justice issues in economic terms, then this
logically forces the collapse of their normative project and the credibility of the party as
such. It diminishes the space for economic representation and opens up the risk of
anti-system players increasing their vote among lower-income voters. This scenario is
exactly played out in the Polish, but also, notably, in the Hungarian case.
The Polish ex-communist social democratic left had risen on claims to reformism,
pro-Europeanism and its ability to mitigate the worst social costs of transition. Programmatically
constrained by the structural requirements of transition, the Social Democrats
adopted a stance of social-liberal technocracy only for them to collapse when the established
post-communist and already comparatively minimal welfare bargain became untenable
and could not be credibly re-engineered within the terms of adopted emerging market
economic orthodoxies. Given a regime divide of notable historical potency Polish Social
Democrats were constrained to not simply start out as market-supporting, but to pivot
rightwards in search of higher growth over time, only for this to mean that when growth
proved insufficient the party was effectively forced to exit the leftist economic space. As
an ex-communist party the Polish Social Democrats would have risked accusations of
ideological recidivism had they dared pivot economically leftwards, an anyway unappealing
move given no credible competitors on that flank.
In practice, growth rates were not high enough to maintain credible welfare bargaining
in the context of liberal fiscal regimes and Poland had hit fiscal difficulties long before the
2008 financial crisis. More specifically, Poland’s Social Democrats struggled to maintain
their transitional social contract wherein the most vulnerable to market reforms – pensioners
and the unemployed – were to be protected through indexed income transfers.
Successive governments faced ongoing domestic commitment and continuing investor
pressure to cut public spending, on the one hand, but continuous upward pressures on
public finances, on the other, as deindustrialization, restructuring, foreign direct investment
(FDI) subsidies, inequality and, in more recent years, ageing took hold. The funding
bind was further tightened by the unintended consequences of liberalization and liberal
tax regimes, the deepening dualization of Poland’s labour markets in particular. As Polish
restructuring began in the early 1990s the taxation and social security contributions
needed to maintain income transfers induced a significant tax burden. Because neo-liberal
economic orthodoxy dictated low tax regimes for personal income tax (Poland saw
declining progressivity of personal income taxes [PIT] and corporate rates through 2000–
11; OECD, 2011) and this was reinforced by a regional race to the bottom on tax
competition for FDI, the taxation burden was shifted onto employers. This induced what
Esping-Andersen has elsewhere dubbed the ‘death spiral’ scenario of low employment
and lowered tax contributions, requiring high payroll contributions to support the welfare
system, which further lowers employment, stunting growth and business investment and
increasing welfare pressures (cited in Pierson, 2001, p. 87).
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Polish Social Democrats were eventually forced to break their initial promises of
indexed income transfers and improved welfare. But even after transfer entitlements were
slashed – unemployment insurance coverage was cut from 80 to 20 per cent throughout
the 1990s (Riboud et al., 2002, pp. 3, 7, 10) and unemployment benefit as a percentage of
previous earnings reduced to 10.2 per cent by 2007, one of the OECD’s lowest levels
(OECD, 2008) – the Social Democrats found themselves without the fiscal reserves to
develop even minimal endogenous growth strategies (for example, higher investment
in education, training and infrastructure) on which liberal social democratic parties
in western Europe have increasingly depended. As the region-wide tax competition
deepened, spurred on by the EU’s crackdown on subsidies, not only did Poland’s liberal
left lose its margin for any credible economic policy in social justice terms, but over time
they also lost the institutional requirements for more co-ordinated economic solutions, as
union density fell and unions were estranged by radically liberal labour market policies
(Ost, 2005).
The denouement in democratic system stability came with the Social Democrats’
Hausner Plan, which proposed cutting public administration and already minimalist social
transfers in conditions of 19 per cent unemployment. By 2004 Prime Minister Miller
could no longer plead the ‘extraordinary politics’ of transition and the normative contradiction
of austerity measures coming from a ‘leftist’ government proved fatal: the programme
also coincided with a series of personal corruption scandals – the worst to
date – that suggested a left-wing government lining its own pocket while emptying those
of its electorate. The SLD duly saw a 25 percentage point decline in support between 2003
and 2004 due to the combination of scandal, spending cuts and Miller’s neo-liberal
leanings, with the support of those with secondary education falling further than among
higher-educated voters: a proxy for income in Polish polls (CBOS, 2011). The Alliance
won only 11.5 per cent of the vote in the 2005 election and consequently barely a
quarter of its previous seats in the Sejm. The result was the fragmentation of the
Polish left and the advent of Law and Justice’s coalition government: the most socially
illiberal administration since 1989. This was followed by Tusk’s liberal government: a
continuation of ‘institutionally robust’competition, but now between pro- and anti-system
parties.
As the Polish case illustrates, the loss of the left’s normative credibility is particularly
severe when the failures to manage welfare bargaining are apparently endogenous to
economic management. But the consequences for the evolution of the state are potentially
greater because the collapse of effective economic representation by the left in Poland but
also in Hungary necessarily limited the credible space of economic competition and
encouraged competing political elites to abandon ‘mainstream’ political-economic discourses
(Ost, 2005). In these circumstances those political players not constrained by
value commitments and seeking to gain the newly de-aligned lower-income vote were
highly likely to choose re-politicization of the state as a powerful alternative source of
party longevity. Constituency-building through programmatic competition was no longer
credible in economic terms and ‘brokerage’-style corruption was riskier in these more
consolidated systems.
If we extend this account of the supply-side vulnerabilities of our more programmatic
electoral systems we can see that in Lithuania the social democrats’ eventual shift
to neo-liberal economic policies appeared more determined by external shocks than
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endogenous party strategy. And here the response to the Russian economic crisis and EU
accession was a populist attempt to outflank the social democrats from the left. The social
democratic left and pro-system competition survived most strongly, that is, up until the
financial crisis, where co-ordinated market development and competitive corporatist strategies
were pursued from the outset, uniquely, in Slovenia. Social democratic parties have
also survived, though not thrived (Estonia has yet to see a social democratic government)
where welfare preferences have been traded off against a dominant national question, as
in Estonia but also to a degree in Lithuania.
IV. Mass Elite Competitions, Brokerage Parties and Corporate State Capture:
Czech Republic
The Czech Republic is an open society that experienced clear state-ness (after 1993),
relatively functional administrative and fiscal legacies, low inequality and relatively high
socio-economic development, relatively high and uniformly distributed FDI (Hancke and
Kurekova, 2008) and international integration into the North Atlantic Treaty Organization
(Nato) and the EU. According to recent studies, the Czechs also have the most distinct
socio-economic/left–right cleavage of the region (Rohrschneider and Whitefield, 2009).
In this, by far the most structurally advantaged of the putative ‘brokerage’ cases therefore
we might have most reasonably expected a positive reform of the party–state relationship
over time. Because of the relatively weak opposition, however, the values of the first
Czech coalition government and its dominant party, Vaclav Klaus’ Civic Democratic Party
(ODS), turned out to be critical in framing the new political game towards corporate state
capture.
Constituted out of communist ‘grey-zone’ mass elites, the ODS claimed belief in the
impersonal power of the market and seized the technocratic high ground by insisting that
it alone understood how to institutionalize a market system. The party thus co-opted the
discursively ‘scientific’ mode of the old system, albeit now in Hayekian terms, so that the
economy and not democratic institution-building were supposed to be the engine from
which all social transformation, including democratization, would follow. But while even
a quick review of the ODS’ actual economic policies would reveal a highly pragmatic
rather than neo-liberal approach to market-making, Klaus held firm to party control of the
state and its non-regulation. As a rent-seeking mass elite party, therefore, the ODS was
consistent in its ideological inconsistencies. From the early 1990s to the time of writing
the ODS has justified the failure to professionalize the civil service as an anti-state
principle having undermined the one potentially serious reform attempt made by the
social democrats.
By the end of the Klaus coalition governments of the early 1990s, which ended in
1997 amid major bank collapses and party finance scandals involving the right-wing
coalition members and social democrats, the ODS had lost its credibility as a party able
to offer growth without pain and the ministries had clearly developed as political fiefdoms.
Support for the centre-left Czech Social Democratic Party (Cˇ SSD) had duly risen as it
embraced a platform of ‘cleaning up the state’ and their ‘Clean Hands’ campaign of
1998 proved the tipping point. The Cˇ SSD won 26.5 per cent of the vote in 1996 and
32.3 per cent in 1998. However, as the rising party of a ‘catch all’ opposition, the Cˇ SSD
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had also become increasingly factionalized and dominated by its own rising mass
elite factions.
The 1998 elections results produced a narrow Cˇ SSD victory but after failed coalition
talks the remaining option was a ‘toleration’ agreement with the ODS. The resulting
opposition agreement gave de facto legislative veto powers to the hitherto dominant party
and Klaus extracted a more majoritarian electoral law (a move to D’Hondt) as the ODS’
price. President Havel decried the agreement as ideologically incoherent and the Supreme
Court declared the electoral law unconstitutional in 2001. But in the interim, the deal
undermined the former right-wing rival and coalition partner, the Christian Democratic
Union/Czech People’s Party (KDU-Cˇ SL) and the new Freedom Union: a breakaway
faction and would-be replacement for the ODS, now exposed as impotent. The agreement
also undermined the Cˇ SSD government since the ODS voted down their major proposals
even as it extracted patronage and legislative favours (Innes, 2001). The Cˇ SSD thus rode
out the second recession unable to secure much of their mandate, weakening the party’s
ideological members even as the process of bailing out and privatizing the Republic’s
banking system strengthened the party’s more corrupt mass elites. According to the
former Senate vice-chairman, Edvard Outrata (Independent), the opposition agreement of
1998 ‘divided all the most important jobs between parties while the Cˇ SSD pretended to
govern’. As such it ‘reintroduced the worst aspects of the Peˇtka’: the group of five
coalition party leaders in 1930s Czechoslovakia who had colluded in entrenching their
control of the state.2
Within a year the ‘Clean Hands’ campaign had stalled and was
cancelled after those responsible were found to have exploited investigations for their own
purposes (East European Constitutional Review, 2002).
The isolation of ‘ideological’ factions within the Social Democrats is indicated by the
fate of civil service reform. Once in government the only Cˇ SSD minister determined to
depoliticize and professionalize the civil service was Vladimir Špidla, the new Minister
for Labour and Social Affairs but a ‘grass-roots’ politician who had joined the party in
1990 and only entered parliament in 1998: a popular technocrat on the (anti-communist)
left of his party but hopelessly weak in factional terms. The resulting Service Act 218/
2002 was only passed, already weakened in substance by ODS, so as to guarantee EU
accession, but once accession was granted this EU leverage was lost. The implementation
date of Act 218/2002 was consequently not just repeatedly postponed but eventually
dropped. In November 2006 the Social Democrat government adopted Resolution 1232
returning the basic management of the civil service to the Ministry of Interior. In August
2007 the new ODS-led coalition both postponed the Act again, to 2012, and then
announced it would replace it, suggesting it would prepare a new law in which personnel
decision-making was kept in the hands of individual ministries (Scherpereel, 2009, p.
215). The abandoned law has yet to be replaced with new proposals.
For a survey of the rise of corrupt practices, internal network disputes and the growing
dominance of formerly senior communists in the top ranks of the Cˇ SSD, Jordan (2002)
offers a compelling account. It is clear by now, however, that the brokerage properties of the
emerging party–state relationship have become systemic. According to recent data on
public procurement, compiled by ZIndex at the Institute of Economics, Charles University,
2
Author interview with Edvard Outrata, Wallenstein Palace, Prague, 30 November 2005.
98 Abby Innes
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80 per cent of all contracts awarded by Czech ministries between 2006 and 2010 were
awarded without competition or ‘in private’(ZIndex, 2011). Some 67 per cent of purchases
occurred entirely outside of the Ministry of Information’s Public Procurement Information
System (ISVZ) and a further 14 per cent involved an identical number of candidates and
winners – typically, one. Only the Ministry of Finance had more than 50 per cent of its
contracts going through nominally traceable channels (52 per cent) – and as the purseholder
to the other ministries this, post-privatization, is not surprising. Every other ministry,
however, showed less than 30 per cent of their procurement going through traceable
channels and the Ministry of Defence, Ministry of Local Development and the Ministry of
Justice managed only 17, 14 and 11 per cent of transparent contracts, respectively.The value
of contracts awarded through these opaque channels is estimated at 276 billion crowns or
roughly one-fifth of the current national debt (ZIndex, 2011).
For everyday politics, party elites have become adept at a form of facade activity in
which multiple anti-corruption initiatives are launched while the leadership remains safe
in the knowledge that none will be implemented. Regulatory legislation can be derailed
because of the ease of parliamentary amendment and lobbying is unregulated. At the
ministry level, however, the answer is simply non-execution. For example, back in 1999,
under Špidla’s influence and under growing pressure from the EU to improve state
function, a government programme for combating corruption (PCC) was adopted on 17
February and re-adopted in more developed form again in 2001, 2002 and 2003. It soon
became clear, however, that the PCC was so weakly implemented that many of the
agencies with roles in the programme had little knowledge of it (SIGMA, 2003, p. 9). By
2003, moreover, the EU/OECD-sponsored organization SIGMA (Support for Improvement
in Governance and Management) highlighted the following obstructions to clean
government in the Czech Republic: a Czech Bribery Law that was broadly in line with EU
standards, but was unsupervised and ineffective; a ‘dormant’ Civil Service Act [now
defunct]; a Conflict of Interest Law dating from 1992 which applied to no one below the
level of minister or administrative head of department, for which there was little proof of
compliance and which provided no sanctions for violations; a weak ‘general duty’to avoid
conflicts of interest stated in a broadly un-enforced Labour Code and a weakly developed
and barely implemented Code of Ethics for public officials and elected officials; the
absence of effective protection for ‘whistleblowers’ despite a legal obligation to report
corruption (SIGMA, 2003, p. 10).
SIGMA’s writ ran out with EU accession but hands-off monitoring continued via the
OECD’s working groups on governance conventions. As with the EU pre-accession
period, however, Czech authorities continue to combine failure to comply with substantive
measures, including the introduction of legal liability for foreign bribery, with enthusiasm
for soft measures involving the publicizing of OECD conventions and the country’s
signatory status (OECD, 2009). The EU’s efforts to encourage state capacity-building
through regulatory impact assessments (RIA) and policy audit have also fallen on stony
ground. The Czech Legislative Rules of Government introduced a RIA requirement in
1998 after strong EU encouragement, but it only entered into force in January 2008 under
the technical government of Jan Fischer. And with the Department for Regulatory Reform
based in the Ministry of Interior the RIA unit had no power to monitor or supervise other
line ministries which subsequently showed no interest in standard adoption (Staranová,
2010, pp. 122, 133).
The political economy of state capture in central Europe 99
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According to Transparency International’s David Ondracka3
one can speak of the
privatization of the Czech party system with the brokerage of state–corporate interests
dominating all the main political parties from the top down and the bottom up, since the
limited membership of political parties makes their entrepreneurial takeover at the local
level easy. The process has intensified as the rents available from privatization dried up
and this shrinking market encouraged political parties and their established business
networks to turn to state-based opportunities. It has consequently ceased to be appropriate
to look for inner party democracy per se in these parties as their internal structures are
determined through vote buying, patronage and manipulation, primarily in the service of
building brokerage networks. And although the factionalism of the major parties might
imply a vibrant ideological life, these factions are defined by the competing interests of
different networks rather than by differences in policy, ideology or personality. The
ascendance of Petr Necˇas to the leadership of ODS and position of prime minister
(2010–13), for example, was widely attributed to the fact that this reputedly ‘clean’
politician did not head a brokerage network and was consequently the only leader on
whom factions could agree. Necˇas was nevertheless forced to resign in June 2013 following
the arrest of his chief aide (and supposed lover) for the alleged bribery of MPs and
abuse of military intelligence: to spy on Mrs Necˇas. The Czech government remains
‘effective’: the macroeconomy continues to be managed, income transfers paid and so on.
But across the board of policy-making, from welfare to education, from energy to environment,
new public policies are largely the by-products of identified opportunities for
rent-seeking by allied party and business elites.
The ODS received their lowest ever electoral vote in the 2010 elections, the Cˇ SSD their
lowest since 1992, but the institutionalization of the brokerage party system is illustrated
by the two main beneficiaries of this volatility. The first ‘breakthrough’ party, TOP09, was
an attempt to outflank the ODS on the nominally neo-liberal right by the former KDUCˇ
SL faction under Miroslav Kalousek: the Christian democratic faction most mired in
corruption scandals through the 1990s. In TOP09 Kalousek consolidated a relatively
disciplined vehicle re-branded under the popular leadership of the diplomat and now
foreign minister, Karel Schwarzenberg: multiple scandals have ensued. The second
‘breakthrough’ party, Public Affairs (VV), had championed anti-corruption only to be
exposed in April 2011 as an ongoing front for a private security firm, ABL. Despite a blaze
of scandal regarding private payments to VV MPs by the former ABL boss-turned
transport minister (and, it transpired, de facto interior minister) Vít Bárta, VV, incredibly,
remained in the governing coalition. As for the old guard, Richard Falbr, former leader of
the Confederation of Czech and Moravian Trades Unions, Cˇ SSD senator and now Cˇ SSD
MEP, describes the political system as having shifted from one of ‘basic artificiality’ to
one in which ‘corruption is the rule’. ‘The number of actual Social Democrats in my party
at this point is an absolute minimum’, he concludes.4
In spring 2012 police raided the
home of former Cˇ SSD health minister and MP, David Rath and found 7 million crowns
hidden in a wine box and, according to a BBC report, a further 30 million under the floorboards.
Klaus’ final act as outgoing president of the Republic was to declare an amnesty
3
Author interview with David Ondracka, Transparency International, Prague, 18 April 2011.
4
Author interview with Richard Falbr, Prague, 21 April 2011.
100 Abby Innes
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that included some of the most notorious cases of fraud and embezzlement during
his tenure.
Conclusions
Where has the EU been in all this? The EU’s leverage is necessarily limited in cases of
party state capture rooted in domestic fiscal constraints and the collapse of economic
competition. In a region dominated by a growth model in which consumption and
dependence on foreign capital has been prioritized over increases in employment and
innovation even the strongest party systems in these open economies are exceptionally
vulnerable. Long before the European financial crisis the deepening of the region’s
fiscal constraints had encouraged coping mechanisms ranging from the proliferation
of short-term employment contracts to the replacement of public welfare by personal
debt; strategies that precluded the output legitimacy so important in embedding the
values of post-war western European democracies (see also Epstein and Jacoby,
2014).
The EU’s leverage in the cases of corporate state capture rooted in brokerage party
systems is equally weak. Why? Because, as Mungiu (2006, p. 87) has pointed out, where
public goods are distributed on a particularistic basis that mirrors the distribution of
economic power within these societies, any anti-corruption strategies that these elites care
to take on are typically adopted and implemented in co-operation ‘with the very predators
who control the government and, in some cases, the anticorruption instruments themselves’.
In this light, the chronically high rates of voter volatility in these cases – between
20 and 60 per cent in each election between 1990 and 2010, where west European party
systems are hitting a ‘spike’ if volatility exceeds 20 per cent (Dassonneville and Hooghe,
2011, pp. 33–4) – is unsurprising, as is the steady rise in the effective number of parties
at both the electoral and parliamentary levels through the same period, encouraging a
vicious circle of non-consolidation (Tavits, 2005). The only solution to such serious
instability is an effective war on particularism and this battle is necessarily domestic and
civil, as Dimitrova and Buzogány (2014) illustrate so well.
Can the EU do something to alter these domestic balances of power? The EU already
mitigates the imbalances of public investment and development through its structural,
cohesion and agricultural subsidies. And although these are targeted for abuse within the
brokerage party systems it would surely have been worse for these countries to have
opened to the globalized world economy without EU membership and the massive
subsidies and, latterly, bank bail-outs that have come with it. But the more pressing issue
raised by the current eurozone crisis is whether the EU will seek to re-engineer the model
of European capitalism away from the dominant neo-liberalism in which the rising profit
share and tendency to boom and bust are pitching hitherto stable Member States, old and
new, into unlooked for political storms. Thus the EU has promoted an increasingly liberal
capitalist game only to find itself in an unprecedented crisis as to how to reinforce its
legitimacy. In the meantime central Europe has developed party systems increasingly
polarized between economically highly liberal right-wing parties who speak to the socioeconomic
‘winners’ and, absent credibly programmatic social democrats, socially and
politically illiberal parties seeking to attract ‘the losers’. Half of the new Member States
are characterized by brokerage parties that instrumentalize the effective mainstream space
The political economy of state capture in central Europe 101
© 2013 The Author(s) JCMS: Journal of Common Market Studies © 2013 John Wiley & Sons Ltd
of ideological competition to primarily private ends. Consequently, we should not expect
stable party–state relations in this region any time soon.
Correspondence:
Abby Innes
European Institute
London School of Economics and Political Science
Houghton Street
London WC2A 2AE, UK
email: a.innes@lse.ac.uk
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