Oligarchy State Capture and the Mafia State The

Oligarchy, State Capture, and the Mafia State: The Curious Case of Hungary Bálint Madlovics Central European University 2018. 05. 09.

Illusions Ø of linear progress towards liberal democracies after the change of the political regimes in 1989 -1990; Ø that any regime can be built on any kind of ruins of communist dictatorships. Transitional systems or terminal stations?

Proliferation of political regime categories Liberal democracies Hybrid regimes Dictatorships Representative democracies (consensual or majoritarian): • polyarchy • participatory democracy • deliberative democracy • elitist democracy Mixed regimes between democracy and dictatorship: • democradura • semi-democracy • electoral democracy • delegative democracy • defective democracy • illiberal democracy • competitive authoritarianism • etc. Authoritarian, totalitarian regimes: • communist dictatorship • closed authoritarianism • hegemonic authoritarianism • post-totalitarian dictatorship Source: András Bozóki and Dániel Hegedűs, “An Externally Constrained Hybrid Regime: Hungary in the European Union, ” Democratization, April 13, 2018, 1– 17.

Adding a Sociological Dimension: A New Interpretative Framework of Post-Communist Regimes Illiberal democracy Communist dictatorship Liberal democracy Patronal democracy Bureaucratic autocracy Patronal autocracy

Patronage Politics: Making Sense of the Sociological Dimension The basis for the term used Alternative terms used for the description of patronage in hybrid regimes 1. Actor network / patronal / clan / mafia state 2. Action rent-seeking / kleptocratic / predatory state 3. Legality corrupt / partially captured / criminal state

Who is the actor? Interpretative layers of categories to describe the mafia state The type of state 1. State 2. Network state 3. Patronal state 4. Clan state 5. Mafia state Interpretive layers of the category To which features of the state the category refers to Monopoly on the right to authorize the Institution by which the ruling elite legitimate use of violence exercises legitimate coercion 1 st feature + increasing informal character of The ruling elite’s exercising power the connections within and between the units through mainly informal power of the state network 1 st + 2 nd features + the personal, patronal, The ruling elite’s internal dependency, hierarchically dependent character of the ruling patron-client relations (patronal power elite network) 1 st + 2 nd + 3 rd features + the adopted political The ruling elite’s anthropological family (political-economic clan) structure of the structure and cultural patterns ruling elite 1 st + 2 nd + 3 rd + 4 th features + the illegal The legality of the ruling elite’s actions character of the ruling elite’s practice of power

What is the action? Interpretative layers of categories to describe the mafia state The type of state Interpretive layers of the category To which features of the state the category refers to 1. State Monopoly of taxation (tax, rent, etc. ) for maintaing public functions Primary source of state revenues 2. Rent-seeking state 1 st feature + legal overtaxing in favor of public or private actors Favoritism to expand state bureaucracy for supporters 3. Kleptocratic state 1 st + 2 nd features + non-legal diverting of current incomes to private hands Illegal favoritism 4. Predatory state 1 st + 2 nd + 3 rd features + expropriation of property using non-legal state coercion Illegal predation Internal dimensions: public policy vs. private goals; normative vs. discretional; legal vs. non-legal

Is the action legal? Interpretative layers of categories to describe the mafia state The type of state Interpretive layers of the category To which features of the state the category refers to 1. State Monopoly of taxation (tax, rent, etc. ) for Primary source of state revenues maintaining public functions 2. Corrupt state 1 st feature + the abuse of entrusted power for private gain (occasional, nonstable chains of vassalage) Corruption = deviant element of the system 1 st + 2 nd features + chains of corrupt 3. Partially captured state vassalage with a permanent character Corruption = structural element of the system 4. Criminal state Corruption = constituting element of the system 1 st + 2 nd + 3 rd features + subordinated to and monopolized by a political enterprise (governance led as a criminal organization)

Petty corruption Political /govern mental actors Oligarchic state capture High level Low level High Public level administration Low level Private sector High level Low level Legend: Red: demander of corrupt service; Blue: supplier of corrupt service; Green: server of corrupt transaction Continuous line: regular transaction; Dashed line: occasional transaction; Double arrow: voluntary transaction; Single arrow: subordination

Party state capture Political /govern mental actors Criminal state High level Low level High Public level administration Low level Private sector High level Low level Legend: Red: demander of corrupt service; Blue: supplier of corrupt service; Green: server of corrupt transaction Continuous line: regular transaction; Dashed line: occasional transaction; Double arrow: voluntary transaction; Single arrow: subordination

Charasteristics of the Hungarian Post-Communist Mafia-State (10 points)

The distinctiveness of the Mafia State as a subtype of autocracy: 1. ) The concentration of political power and the accumulation of personal/family wealth occur in unison. 2. ) The Mafia state – while coercively extracting personal fortunes – constrains or eliminates individual and competitive forms of corruption, and replaces them with ransom levied from above, in a centralized and largely legalized form. 3. ) The forced and systematic replacement of the political elite takes place in parallel with that of the economic elite. 4. ) The organised underworld’s illegal physical coercion, characteristic of the classic mafia, is replaced by bloodless, “legalized” public authority sponsored coercion.

Share of public procurements without public notice in Hungary between 2009 and 2015 (%) (N =121. 849; source: CRCB 2016) 70 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014 2015

Corruption risk at the public procurements in Hungary between 2009 and 2015 (N: 118. 843; source CRCB 2016) (Corruption risk index: 0 = if there is competition and public notice; 0, 5 = if one of them is missing; 1 = if both of them is missing) 0. 6 0. 55 0. 45 EU Funds Non-EU Funds 0. 4 0. 35 0. 3 0. 25 0. 2 2009 2010 2011 2012 2013 2014 2015

The change of overpricing in Hungarian public procurements between 2009 and 2015 (N = 123, 224; source: CRCB 2016) 8 7 6 5 4 3 2 1 0 2009 2010 2011 2012 2013 2014 2015 (The mean squared error (MSE) of contract prices of Hungarian Public Procurements from theoretical (Benford’s) distribution by year, first digits, 2009 -2015, N = 123, 224)

5. ) The practice of nationalization in the mafia state: reiderstvo or transit nationalization Strength of the state „Legiti-macy” of raiding White raiding Strong state I I Gray raiding I I Weak Black raiding state Institutional environment and features of the raiding action The initiator or client of the corporate raiding Organized upperworld: Low or middle level chief patron (top level public authority) XXXXXXXXXXXXXXXXX Rival entrepreneurs or oligarchs XXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX Criminal state Single-pyramid patronal system Monopolized Oligarch capture Organized underworld: criminal groups XXXXXXXXXXXXXXX State crime Corporate crime Crime Multi-pyramid patronal system Oligarchic Partial state capture Competitive n. a.

Hungarian examples for white raiding Action by the criminal state ESMA (outdoor advertising company) Land leases of state lands Slot machines, casinos, online gambling Tobacco retail concessions injured party private sector private + public sector private sector connectedness multi-staged institutional scope interinstitutional (horizontal and vertical) interinstitutional (horizontal) inter-institutional (horizontal and vertical) extent of the authority of nationwide the collaborating inst. s local and nationwide type of collaborating institutions according to their branch of power legislative, executive branches (ministries, tax authority) legislative, executive branches (ministries, National Land Fund Management Org. ) legislative, executive branches (ministries) legislative, executive branches applicable statutory definition of crime extortion, abuse of authority, abuse of a public service position, buying influence, bribery of officials (active and passive) buying influence, racketeering, bribery of officials (active and passive) abuse of authority, abuse of a public service position, racketeering, bribery of officials (active and passive)

6. ) Single pyramid patronal network: key players and the “separation of branches of power” Executive power Party background Economic power Media power Personal wealth Chief patron + + + Poligarch (1) + - +- - + Poligarch (2) - + +- - + Oligarch (1) +- - + Oligarch (2) +- - - + + Front man (political) - + - - - Front man (economic) - - +

7. ) Decisions are taken outside the competence of formalized and legitimate organizations. Informal power network. It is not the model of the communist parties’ “politburo”, but the „chief patron’s court” run by the adopted political family. 8. ) Patronal servants: the takeover of the leading positions of administration is not done by „party commissars”, who are loyal to the party, but by clients who are loyal to the chief patron, to the head of the adopted political family through personal links. • The party is a transmission belt of the patronal network. • The Mafia state is not ideology driven, but ideology applying.

9. ) Public interest is systematically subverted to private interest; decisions concern power concentration and the wealth of the adopted political family at the same time. The „rule of law” is substituted by the „law of rule”. Custom-tailored parliament and selective law-enforcement. 10. ) The Mafia state is compelled to bridge the gap between the sociological nature and legality of autocratic rule with quasidemocratic procedures by restricting civil rights and electoral rules. It is neither a liberal democracy, nor a dictatorship based purely on coercion.

Thank you for your attention!

Modelled Trajectories of Post-Communist Regimes: 1. Hungary Illiberal democracy Liberal democracy 1990 -1998 19 98 -20 Communist dictatorship 02 2002 -2010 Patronal democracy Bureaucratic autocracy - 10 20 Patronal autocracy

Modelled Trajectories of Post-Communist Regimes: 2. Poland Illiberal democracy 1990 -2015 Liberal democracy Communist dictatorship 2015 - Patronal democracy Bureaucratic autocracy Patronal autocracy

Modelled Trajectories of Post-Communist Regimes: 3. Romania Illiberal democracy Communist dictatorship Liberal democracy 002 0 -2 199 20 02 - Patronal democracy Bureaucratic autocracy Patronal autocracy

Modelled Trajectories of Post-Communist Regimes: 4. Ukraine Illiberal democracy Liberal democracy 4 199 Communist dictatorship 19 9 9 00 -2 4 04 01 15 20 9 -2 -20 0 4 20 201 1520 Patronal democracy 4 -2 00 4 0199 Patronal autocracy Bureaucratic autocracy

Modelled Trajectories of Post-Communist Regimes: 5. Russia Illiberal democracy Communist dictatorship Liberal democracy 9 -199 19 99 -20 03 1991 - 03 20 Patronal democracy Patronal autocracy Bureaucratic autocracy

Modelled Trajectories of Post-Communist Regimes: 6. Uzbekistan Illiberal democracy Communist dictatorship 19 91 - Liberal democracy Patronal democracy Bureaucratic autocracy Patronal autocracy

Modelled Trajectories of Post-Communist Regimes: 7. China Illiberal democracy Communist dictatorship 19 90 - Liberal democracy Patronal democracy Bureaucratic autocracy Patronal autocracy