Hungary Near Top On The “Corrupt Countries” List

  • 9 Apr 2015 9:00 AM
Hungary Near Top On The “Corrupt Countries” List
There are a variety of signs, some screaming to be notices, others barely visible that signal corruption could be present in a public procurement. Hungary came out near the top of a sample of countries that were showing signs of corruption, István János Tóth, co-founder and director of Corruption Research Center, Budapest (CRCB), tells business website

István János TÓTH [look at his CV] has recently attended a European Union conference in Latvia where he demonstrated a research methodology his center designed, which put Hungary in third place on the list of most corrupt countries in the EU, following Romania and Bulgaria.

Tóth also said that regarding the effectiveness of anti-corruption measures, Romania has been doing better than Hungary since, in his view recent amendments to Hungary’s public procurement legislation have increased rather than decreased corruption. The way he put it, the Hungarian taxpayers have an important decision to make: do they want to up the country’s development level to stay on par with the countries trying to improve, such as Chile, Slovakia, and Croatia, or would they prefer to end up on par with Bulgaria and/or some African and Asian countries.

Q: A recent survey in Hungary came up with shocking numbers regarding corruption infestation and attitudes toward it among the business managers interviewed. The method you designed – how does it measure and quantify corruption in public procurement, which is really tough to measure?

A: The method we use at CRCB – designed by my colleague Mihály Fazekas [see his CV] and myself – is quite different from the ones used till now. We don’t measure opinions about corruption or the perception of corruption like, for instance, Transparency International’s Corruption Perception Index (CPI). Instead we pick up information on the risk of corruption, and we can measure the level and direction of the suggestion of corruption in public procurement, when institutions call for bids and when an entity wins a bid, and we can extrapolate to regional, sectoral, or national level.

Since corruption is a micro-category not a macro one, “national level” is not where measurements should be made. In addition, measuring by opinions about corruption is very misleading. For instance, take the following question: “In your view, what is the level of corruption in Hungary today. Respond with a number from zero to 10, in which zero means you believe there is no corruption and 10 means you think there is corruption in all walks of life.” The responses simply do not reflect the real situation. But what you can do, for instance with public procurements, is to observe each and every public procurement transaction and collect information on it.

The idea behind this is that corruption occurs on micro or individual level. It involves a transaction in which there is a person (the person being corrupted) on the purchasing end of the deal or is providing the permit or levying the fine, etc. and a person (the corruptor) selling the product or service or obtaining the permit or hit with the fine, etc. The corruption is always linked to a lawful transaction (applying for a permit, traffic issues, public procurement, the drafting and adoption of legislation, and so on).

While the lawful transactions are underway we can observe the behavior of the actors and check the documents drawn up during the transaction, which tell us a great deal about the size of the corruption risk for the given transaction.

With public procurements for instance, the running of the procurement procedure, the call for bids and the publicly announced results yield a great deal of information on the corruption risk involved. A few examples: Was the procedure open or negotiated? Was the call for bids made public? What weight was assigned to price-related considerations when evaluating the bids? How lengthy was the description of the businesses whose bids could be considered? How much did they charge for the bidding documentation? How many working days went by between publication of the call for bids and the deadline for submitting those bids? How many valid bids were submitted or did only a single bidder put in an offer?

If we collect and organize this information – which is all available on the Public Procurement Authority’s website – and then weight it mathematically, we can come up with a composite statistical index that opens a window on the probability of corruption, in other words, just how likely it is that corruption is involved.

This is essentially the logic used by OLAF (the European Anti-Fraud Office) and EU monitoring institutions when hunting for procurements that violate the law. To them certain indices are red flags and when they pop up, they focus their monitoring on them. Our method is new in that after observing the red flag we design a composite index around it which yields a condensed version of the information pointing to corruption. These calculations can be made for every single public procurement case, in other words, we can ascertain the corruption risk level under which every single contract was implemented.

Q: While it’s good to have a reliable way of measuring, but it would also be important to know the motivations behind corruption in public procurement. Care to share a few thoughts on the typical concrete manifestations of corruption?

A: Our corruption index actually can measure a variety of corruption techniques. I admit that we didn’t discover them by ourselves. We learned about them through interviews: thirty with the people asking for the bids and another thirty with the bidders in public procurements – both people doing the preparatory work and those handling the bids themselves. We also interviewed a number of lawyers who specialize in public procurements and the former heads of the monitoring arms of various authorities, and the methods surfaced when we collected and organized their comments.

It’s definitely a wake-up call when a public procurement call for bids is made public on, say, Tuesday, and the deadline for submitting bids is Friday. This trick was actually used in the first case of corruption in public procurement in Hungary to be made public. In other words, a really short deadline is a definite red flag. And when public procurement bids are called for but the criteria that potential bidders need to meet are so specific that only a single bidder can meet them all you have another tipoff. Corruption slang – yes, we have corruption slang – calls this “the job that fits like a glove.” When the charge for bidding documentation is very high compared to the value of the job, we take that as another warning signal. Still another widely used trick is to give price a really low value when listing the points assigned to the various aspects of the job while giving high point values to considerations that can’t be monitored, such as references.

Another method is simply to fail to issue a public call for bids since that makes it easy to grant the project to the actor that had been preselected,” the “buddy-buddy.” These techniques are all aimed at one thing – keeping out those who “don’t belong,” and pulling off the corrupt transaction.

Obviously we cannot observe the actual corrupt transaction with these tools – that can’t be done – but the actors tend to give themselves away during the process and that gives us the chance to measure the corruption risk.

Q: Your latest research involved an investigation of data for 830,000 public procurement cases in the European Union countries and you actually used EU data for 63,000 of them. What results did your corruption risk index come up with using that huge sample? What differences have you found – if any – between public procurement projects that employ EU funding and those that don’t?

A: We used the EU’s TED (Tenders Electronic Daily – 2009-2013 database to compare public procurement proceedings with different financing configurations (some were EU, some national) but were very similar in other significant ways. We used a statistical method allowing us to compare apples to apples – in other words, expressway construction to expressway construction. We found that in the EU overall, public procurement processes financed by the EU slightly increase the risk of corruption in the public procurement process. However, when broken down by country we found major differences.

For instance, we found a sharply negative effect on increasing corruption in Poland and Greece, and a slightly upside effect in Romania and Bulgaria. There are a variety of reasons behind the differences but they are probably related to the general level of corruption in the given country, the spending-structure for EU grants (i.e. how concentrated the spending is), and the amount of EU money available.

Q: Working with that huge sample, where did you find Hungary on the list of countries infested with public procurement corruption?

A: It did very poorly, being one of the most corrupt countries. Nowadays, when making international comparisons, it has become the fashion to point to Hungary as the bad example. The data we studied confirms the truth behind this. The only positive thing is that we are not the absolute worst. Romania and Bulgaria show higher public procurement corruption risks than we do. But that may very well change, if, for instance, the new government in Romania manages to take effective measures. But, put another way, we’re competing with Romania and Bulgaria for the slide to the bottom.

Q: Does your research suggest any significant concrete actions that might be taken on international level – and for Hungary, what do you think the most important steps should be?

A: Our first idea is a very easy one – sadly, it is really hard to make it happen: that is that we need to collect more data. We need more organized and continuously collected data that has to be publicly accessible. That is the prerequisite for any analysis.

The Hungarian situation is incredibly poor in this regard. We’re actually on Romania’s level here and Slovakia is light years ahead of us.

But, the fact is that the European situation is not ideal either. The EU makes public all procurements in a common database if they exceed a particular value – I think we were the first people in Europe to analyze it – but a great deal of data is incomplete or incorrect.

Remedying this should be simple. The EU needs to specify that for all public procurements exceeding a certain value every single member country needs to submit all data into a central database in xml or xlsx format. It also needs to require submission of 5, 10, or 15 criteria for all public procurements to a database. These might be data on the entity calling for the bids, on the bidders, the important dates (e.g. the date the official request for bids was made public, the deadline for submitting bids, and the date the contract was signed), the number of bidders who submitted valid bids, the estimated value of the project, and the contract price.

If we can analyze public procurement data we can garner a real image of how affected by corruption a country, sector, or business actually is. This has to precede any intervention. I should add that increasing transparency, in other words, organizing data, will of itself reduce the risk of corruption since it increases the probability they will be caught as everyone involved will immediately recognize.

Q: What do you think of the amendments to the Hungarian public procurement law being considered, or what regulations would you consider important to include in the pending legislation?

A: The most recent amendment to the Hungarian public procurement law [see the text of the law here] unequivocally increased the risk of corruption. It made it possible for a much broader circle of businesses to run public procurement processes without having to publicly call for bids.

Another consequence, which has already shown up in our analysis, is that procurements have become an average of 5 to 8 percent more expensive. One reason for that is to that they are apparently including the money to pay the bribes.

If the regulators push up the value under which calls for bids won’t need to be made public, they will simply promote the corruption phenomenon. The wider-spread and the more powerful transparency is the harder it is to get away with a corrupt transaction, and that goes for public procurement, too. For instance, in the United States, supplying data and making public the major public procurement parameters is required for any project over a few thousand dollars in value. Even Chile is ahead of us on this.

So, the essential question becomes: where do we want to belong – to the advanced countries or to countries trying to close the gap between themselves and the advanced countries such as Chile, Slovakia, and Croatia, or should we set our sights downwards, towards some of the African and Asian countries that are infamous for corruption? It’s the Hungarian taxpayer’s job to decide.


Translated by Budapest Telegraph

  • How does this content make you feel?