God, luck and Viktor Orbán

In the last decade, we have been witnessing how formal structures went hand-in-hand with informal structures in Viktor Orbán’s hybrid regime, where the state allocates its resources to individuals and groups closely related to its leader. Photo: European People's Party (CC) www.flickr.com

In the last decade, we have been witnessing how formal structures went hand-in-hand with informal structures in Orbán’s hybrid regime, where the state allocates its resources to individuals and groups closely related to its leader. While power is concentrated mainly in the hands of Prime Minister Orbán, which has been characterised by János Kornai as “central-vertical coordination based on a hierarchical command system”. The hybrid regime could not even operate without informal institutions and practices. As a result, Hungary has become a textbook case of systemic corruption and clientelism in the heart of the European Union. It has tumbled down the rankings in Transparency International’s Corruption Perceptions Index to 64th in 2019 (in 2010 it was ranked 50th), which means that, within the EU, only Bulgaria and Greece were performing worse.

Instrumental tools

Although various Hungarian governments have developed their own network of wealthy businessmen linked to political parties since the democratic transition in 1989, Orbán’s second cabinet has changed this dynamic in three key aspects. First, the ruling Fidesz party has achieved a monopolistic position among political parties in determining the economy’s trajectory in terms of distribution of resources. Second, they have weakened the rule of law and undermined institutional checks and balances that have made the state vulnerable to systemic corruption. After Fidesz came to power for the second term in 2010, Orbán declared a new system – named a “system of national co-operation” – where the government systematically subordinated state agencies such as the state prosecution, the central bank, the media authority, and the state audit office to the executive power. The main formal institutions initially designed to control the government’s endeavours, have become a tool in the hand of the ruling elite. Although the Constitutional Court had been the strongest check on the executive before 2010, given that its competences were curbed and its personal composition was altered, it also adjusted its operation to the government-dominated political system. Furthermore, as the prosecutor general is currently under the government’s influence and the occupied prosecutor’s office is in a position to block any investigations into cases related to the governing elite.

Thanks to these institutional conditions, politically-organised and centralised corruption has become a key feature of the Orbán regime. This is a unique model within the EU: as Transparency International in Hungary called it, a top-down system of reverse, or political state capture. In contrast to other regional systemic patterns, where strong interest groups gain hold of weak public institutional systems, a very strong administration is wilfully co-operating with business circles to establish a complex, impenetrable, centralised and legalised corruption ecosystem.

Last but not least, the third aspect is a new string of pro-government oligarchs are contributing to the construction and the long-term survival of the Hungarian illiberal regime. The governing party’s main goal has been to create, at any price, a new national middle class. In fact, this was expressed directly in a 2015 newspaper interview with András Lánczi, who was then the head of the Századvég Foundation, the most important pro-government think tank. Lánczi claimed: “What [the critics of the Orbán regime] call corruption in practical terms is the most important policy goal of Fidesz. What do I mean? The government puts forth such goals as the creation of a domestic entrepreneurial class, or the building of the pillars of a strong Hungary in agriculture and industry.”

“Smarter” than Zuckerberg

While Hungary became the most centralised country in the EU, both politically and economically, this new crony clientelist system is fixed around the prime minister. After parting ways with Fidesz’s former business strongman and party cashier Lajos Simicska in 2015, Orbán purposefully created a new circle of oligarchs, dependent on him personally. One of the key figures of this ecosystem is Lőrinc Mészáros, a gas fitter and close childhood friend of Orbán’s. As the former mayor of Felcsút (the village where the prime minister grew up), he not only became a billionaire in 2013, but also accumulated wealth at an unprecedented rate in global terms. In just a few years, he became the county’s wealthiest person. By the beginning of 2019, Mészáros topped Forbesʼs list of the 50 richest Hungarians with total assets amounting to 381.3 billion Hungarian forints (over one billion euros), overtaking long-time leader Sándor Csányi, the chairman and CEO of OTP Bank Group.

Mészáros, who explicitly claimed that he owes his fortune to “God, luck and Viktor Orbán”, became the biggest player in the construction market thanks to opportunities provided by Orbán’s government. His companies have successfully targeted megaprojects such as the Paks II nuclear plant financed by a 10 billion euros Russian credit line, among others. While he insists that he can build his wealth faster than Mark Zuckerberg because he is “smarter” than the founder of Facebook, Mészáros lost in a case before the Budapest–Capital Regional Court of Appeals against the liberal-centrist opposition party, Együtt, which claimed that he is a proxy of the Hungarian prime minister.

Another systemic feature, according András Sajó a leading constitutional scholar, is that the Hungarian public procurement system’s tailor-made criteria make it inevitable that the pre-selected bidder often wins tender. The share of tenders with a single bidder remains very high in Hungary – between 25-33 per cent during 2006-2015. In comparison during the same period, the share of tenders without competition did not exceed 12 per cent in older EU member states. Mészáros’s main companies (Mészáros and Mészáros Kft. and R-Kord Kft.) together with László Szíjj’s Duna Aszfalt have won an unprecedented number of public contracts – an equivalent of 2.1 trillion forints (6.3 bllion euros) in the last couple of years. Most importantly, these tenders come from four key state entities, mostly dealing with road and railway infrastructural development and flood prevention. On top of that, the Belgrade-Budapest railway is an additional bonus of 600 billion forints (1.8 billion euros) for RM International, one of the companies close to Mészáros. Moreover, it is important to note the growing role of László Szíjj in the ecosystem. He is a businessman close to the prime minister and another beneficiary of the conflict between Orbán and Simicska­.­ Szíjj has managed to take over Közgép, which was one of Simicska’s flagship construction companies.

Keeping the elite in check

In competitive authoritarian regimes, a clientelistic network of media ownership plays a significant role, where control over the national broadcasting regulatory agency by government appointees enables the acquisition of private media and licenses, and facilitates bias in broadcasting. Hungary became a classic example of media capture where Orbán first began with the public media and then, in co-operation with loyal government cronies, turned most independent media outlets into propaganda machines. These cronies, as noted by András Sajó, use the revenue generated in their government-supported businesses for the acquisition and operation of media outlets. These media oligarchs, including the late Andy Vajna, who was the owner of TV2, received 40 billion forints (around 130 million euro) in advertising money from the state in 2017.

The non-exhaustive list of corruption mechanisms could also include the so-called corporate tax (TAO) contributions that have become the benchmark for the new form of feudalism in Hungary. This system was established for the support of team sport organisations in 2011 and involves public funds transferred to these organisations without any transparency. According to available data highlighted by Transparency International Hungary, it is clear that sport organisations’ absorption rate is strongly related to their political embeddedness. To add a cynical twist, despite the Fidesz government’s widely known anti-migrant stance, more than 20,000 unidentified immigrants obtained Hungarian residency permits by paying into a government-run residence bond programme. Most of the companies selling these bonds are related to off-shore organisations, and earned 60 billion forints (over 180 million euro) from public funds since 2015.

The informal clientelist ecosystem has various practical advantages. One of them – as political scientist Kevin Koehler noted with regards to Egypt (but it is applicable to Hungary as well) – is that informality not only constitutes a necessary consequence of the personalist structures of decision-making, but is also instrumental in terms of structuring intra-elite competition. It allows the one on top to pit individual members of the political elite against one another, thus securing his or her position as the sole arbiter of the elite. Meanwhile, the ironic part is that EU funds are serving the role of system-legitimising and system supporting for the regime. EU funding account for 4-5 per cent of Hungary’ GDP and is often the primary target of corruption. When it comes to Mészáros and Szíjj’s revenue, two-thirds was financed by EU-funded public procurement projects.

The Budapest-based CRC centre has pointed out that EU subsidies have a three-fold perverse effect in Hungary: the funds help to reduce the intensity of competition; increase the level of corruption and the weight of price distortion; and they contributed to weak competition and high corruption. The CRC conducted extensive research on public tenders awarded to companies related to Orbán’s close acquaintances and family members, namely Lőrincz Mészáros, István Garancsi, István Tiborcz and Lajos Simicska. Their analysis highlighted that the intensity of competition was significantly lower in tenders won by crony firms than those won by other companies.

Mafia state

The case of 33-year old István Tiborcz, who is on the list of the 100 richest Hungarians, is indicative of the Orbán system as a whole. According to the European Anti-Fraud Office, Tiborcz, who is the son-in-law of Orbán, has been involved in the fraudulent use of 13 billion Hungarian forints (41 million euros) which came from EU funds. Although the investigation suggested that the EU Commission should withdraw the support of 43.7 million euros, concerning the tenders awarded to Tiborcz’s company, Elios Innovatív Zrt, the Orbán government decided not to send the invoices connected with Elios to Brussels. In other words, no EU funds were ultimately used to pay Elios. As a result, Hungarian police have already closed down two investigations regarding Elios, while Hungarian taxpayers are footing the bill. Furthermore, the Hungarian government has recently accepted a huge fine of more than 500 billion forints (around 15.9 billion euros) received from the EU for poorly managed funds.

While the Elios scandal involving Orbán’s son-in-law is only the tip of the iceberg, Bálint Magyar, a Hungarian sociologist and former minister of education, has brilliantly captured the broader phenomena by employing the theoretical framework of a post-communist mafia state. Regardless of the facts, the Hungarian government tries to create a parallel reality by blatantly claiming that there is no systemic corruption in the country simply because economic growth is the fastest in the region.

Despite the fact that EU institutions have developed a wide range of tools to which legal violations and democratic standards can be addressed, they barely restrict Orbán’s regime. Nevertheless, it is not surprising that the Hungarian government rejected the offer to join to the European Prosecutors Office in order to restrict supervision. One of the most relevant doctrinal innovations that came up was the proposal to tie EU funds to respect for the rule of law. Last May the European Commission proposed to tie payments to certain requirements: if the independence of the judiciary or the risk of fraud involving EU funds would arise, financial sanctions would be implemented. While it seems likely to go through, there is a possibility that requirements will be weakened around the negotiations of the next EU budget, even if the conditionality proposal is not technically a part of the negotiations.

Nevertheless, Orbán is right to fear that the EU may finally be ready to cut off EU funding to governments that systematically violate EU norms. All EU institutions should also enforce current existing regulations in a systemic manner, such as Article 142 of the Common Provisions Regulation which allows the suspension of payments in case of systematic violations of the rule of law. Last but not least, the EU Commission needs to come up with better legal arguments so that the EU Court of Justice will have more space to interpret EU Treaties with regards to infringement procedures and the rule of law/democratic backsliding in a more effective manner.

Edit Zgut is a political scientist and visiting lecturer at the Centre for Europe at the University of Warsaw. She is a PhD student in the Graduate School of Social Research at the Institute of Philosophy and Sociology at the Polish Academy of Sciences.

corruption, Hungary