Michael J Kopanic Jr

From 29 October to 6 November 1999 I attended a conference on corruption sponsored jointly by Princeton University and the Central European University at the CEU campus in Budapest, Hungary. The conference had a multi-disciplinary character and continued a theme that Princeton's History Department had been sponsoring in the United States. At CEU, the Legal Studies Department's Professor Andras Sajo hosted the conference with the generous assistance of the Soros Foundation. One of the main purposes of the conference was an understanding of the contemporary corruption that has plagued the post-Communist world. The theme of understanding corruption in general provided a common thread for the papers and presentations; papers concerned the definition of corruption, its historical origins and precedents, its development under Communism and corruption during the transformation from Communism. The following are just a few samples of themes touched upon in some of the papers.

Professor James Jacobs of New York University's Sociology Department opened the conference with a summary of his study on the history of anti-corruption practices in the Big Apple. After looking at the cyclical nature of corruption, reform movements to eradicate it and its reemergence as the scandals cooled off, he concluded that a certain amount of corruption will exist in any society and that "corruption control" itself carries costs. It can lead to the politics of scandal and even paralyze effective governance. Thus, he concluded, society should tolerate a necessary or healthy amount of corruption if it enables the system to function.

Hungarian historians Andras Cieger and Andras Gero looked at corruption practices in East Central Europe before and after the First World War. Cieger found the granting of export and import licenses to be a common form of interwar corruption. Gero showed that the need to finance pre-war Hungarian election campaigns made a certain amount of corruption common and virtually unavoidable. Gero likened the anti-corruption duel between the politicians Zoltan Desy, a member of parliament for the district of Nagyolves who carried out an aggressive campaign against the corrupt practices of the ruling National Labor Party, and former Prime Minister Laslo Lukacs, dubbed "panamanian" for his corrupt conduct, to a personal duel without the pistols.

Sociologist Elemer Hankiss turned the focus to a discussion of the corrupt norms that Communist societies created. He noted that people came to accept corruption as part of social reality and learned how to deal with it, much like playing a game. All knew the rules, how to break them and what roles had to be acted out in order to get things done by bribery or whatever form corruption took. Thus he defined corruption as much more than a crime; it was a social pathology that was a symptom of the general dysfunction of the Communist system. Corruption provided a way to cope with the skewed reality forced on people.

Taken a step further, Hankiss's paradigm helps us understand why corruption is so difficult to eradicate. Such is the situation in Russia, according to Nodari Simonia, Deputy Director of the Institute of the World Economy and International Relations. Many of the same people and the same bureaucratic practices persist in everyday bureaucratic life. While the system has changed, Simonia stated, the mindset has not. It has become embedded in the culture of post-Communist societies, and only time and the process of unlearning it will allow it to fade away gradually. Professor of Law Josip Kregar of the University of Zagreb reinforced the persistence of this cultural paradigm in the example of Croatia. Despite the fact the Croatian parliament has passed numerous laws modeled with the help of Western lawyers, corruption remains rife. He remarked that the Croatians boast that their laws are now even more progressive than those of the Germans; the problem has been that while people applaud how wonderful the laws are, in practice they simply ignore them. They think having them down on paper suffices. With the recent passing of President Franjo Tudjman, Croatia has a chance to start anew; but if the past is any clue to the future, Professor Kregar would have us believe that old habits will persist well into the future.

The journalist Natalia Gevorkian of the Commersant Publishing House in Moscow presented one of the most moving speeches at the conference. She basically stated that the West is deluding itself if it believes that a genuinely free press exists in Russia. Truly, she said, the press belonged to no one after perestroika. But since 1994, the politicians have maintained a firm grip over the media. Ever since the chief of Channel One was murdered, journalists have become afraid to do any real investigations into corruption. A single divorced mother with one child, Gevorkian found her own job or even her son threatened when she planned to write certain articles.

Contrary to what the American media were telling us about the recent parliamentary elections, she would argue that the government is tightly controlling the free dissemination of information. Gevorkian expressed frustration as she explained how Russian readers themselves are not interested in the real truth; they have resigned themselves to passivity. They see one newspaper accusing someone of corruption and another answering that this is not true. The public trust has broken down in Russian society, and Gevorkian did not see any sign of it returning in the near future.

This author's own paper detailed the story of how Alexander Rezeš built a personal fortune that is virtually unmatched in Slovakia's history [See accompanying article in this week's CER). With the aid of former Prime Minister Vladimír Mečiar's government, he began buying shares in the Eastern Slovak Ironworks (VSŽ) in Kosice at bargain basement prices. Before becoming Transport Minister in Mečiar's government, Rezeš bankrolled and successfully managed Mečiar's 1994 election campaign. Afterward, he proceeded to weave an intricate web of connections that increased his leverage by allowing him to obtain a controlling interest in banks affiliated with the company. VSŽ controlled as much as eight percent of Slovakia's GDP and was Slovakia's leading exporter (14 percent).

Rather than using profits and loans to update VSŽ's primary steel-producing enterprise, Rezeš squandered money in all sorts of ventures, ranging from a villa in the Mediterranean to the bankrupted Sparta soccer club in Prague. Overly extended in debt, the VSŽ's fairy tale of prosperity began to unravel after prices for steel plummeted worldwide. Then, Mečiar's party, the Movement for a Democratic Slovakia (HZDS), lost the September 1998 elections to a five party coalition (SDK) led by Mikuláš Dzurinda. Shortly after the new government took power, VSŽ defaulted on its debt to the investment banking firm Merrill Lynch. Soon afterwards, the government took a controlling interest, divested some of its assets and sought to reach an investment deal with US Steel to put the company back into profitability. Too many jobs were at stake to allow the company to go bankrupt. Meanwhile, Rezeš made several unsuccessful attempts to win back control of the company in 1999. He is currently under investigation by Slovakia's Interior Ministry, and Dzurinda's government has been passing new laws to try to prevent such brazen corruption from recurring - although many Slovaks think this government is just about as corrupt as its predecessor.

This is just a brief sampling of the many papers given at the Budapest conference. If anything, all participants came away with the awareness that while some progress has occurred in transforming the former Communist societies along Western legal models, it will take much longer than many had anticipated. People need to view laws more seriously and to rid their societies of some of the worst forms of corruption. The farther east one goes, the more difficult and lengthy the process will be. At the same time, laws must be flexible. As Andras Sajo pointed out, laws aimed at curbing corruption can actually impede progress if they are too rigid. Long-term contracts constitute a special problem, because they need to adjust to changing conditions, fluctuating prices and the unforeseeable.

Finally, one should not have the impression that no progress has been made. A civil society has been gradually emerging and acting as a watchdog during the transformation to democracy and free markets. Transparency International has been setting up new local offices staffed by volunteers to monitor financial deals and privatization schemes to ensure that they are in keeping with international norms. (A new office just opened in Bratislava in September.) But clearly the battle to combat corruption and establish Rechtsstaaten in the region will continue to be a challenge well into the 21st century.

Michael J Kopanic Jr, PhD, 22 December 1999

Visit the website of the Joint Conference on Corruption.

The author's article on corruption at the Eastern Slovak Ironworks is HERE