The Networked Phenomenon of State Capture
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THE NETWORKED PHENOMENON OF STATE CAPTURE: Network Dynamics, Unintended Consequences, and Business-Political Relations in Hungary, 2009-2012 By Silvia Ioana Fierăscu Submitted to Central European University Doctoral School of Political Science, Public Policy and International Relations In partial fulfillment of the requirements for the degree of Doctor of Philosophy Supervisor: Assoc. Prof. Dr. Balázs Vedres CEU eTD Collection Budapest, Hungary 2017 Declaration I hereby declare that this dissertation contains not materials accepted for any other degrees, in any other institutions. The dissertation contains no materials previously written and/or published by any author, except where appropriate acknowledgement is made in the form of bibliographical reference. Budapest, 05 May 2017 Silvia Ioana Fierăscu Signature CEU eTD Collection © by Silvia Ioana Fierăscu, 2017 All Rights Reserved. Word count: 62,937 i To Artak. We’ve done it, my friend. CEU eTD Collection ii ABSTRACT Despite the fact that state capture and grand corruption are pervasive problems across countries, there is little and fragmented empirical evidence to support their understanding. As a consequence, varieties of state capture and business-political networks are largely unexplored. Moreover, current theories that explain state capture are biased towards business capture, and therefore cannot explain with the existing conceptual and analytical frameworks cases of political capture, such as Hungary. I thus re-conceptualize state capture as a system of corrupt relations between business and political actors that hijack a state function to work in their favor, at the expense of the general target group the state function was originally developed to serve. This dissertation investigates patterns of corruption risks in four high value public procurement markets and in one market between Hungary, Slovakia, and the Czech Republic. It assesses the driving actors, dynamics of issuer and winner networks, and the organization principles of political and business capture, as well as clean organizational behavior, between 2009 and 2012, before and after the government change in 2010. Using bipartite network motif analysis, regression analysis and dynamic network analysis of cross-sectional public procurement networks, I developed a standardized and robust empirical vocabulary of corruption risk network configurations, which compares varieties of state capture across procurement markets and countries, is easy to replicate, and has generalizable applications to other types of corruption networks. I also built cross-sectional statistical models using micro-level public procurement predictors to explain four types of organizational behaviors derived from the vocabulary of corruption risks: political capture, business capture, clean political behavior and clean business behavior. Finally, the dynamic network analysis was used to describe differences between mechanisms at work in the four types of behaviors. The main findings from the analyses show that in Hungary it became easier after 2010 for issuers (mostly at the regional and local levels) to get involved in political capture. Corruption risks have transformed from centralized practices around state institutions in 2009 to diffusion of high corruption risk contracting throughout the network of both business and political actors by 2012. As expected, political capture increased after 2010, while business capture weakened significantly. These trends are divergent from what can be seen in Slovakia and the Czech Republic, where political capture is much lower by 2012 and there is a significant increase in clean behavior, while no such change is registered in Hungary. Regional and local level issuers seem to be the drivers of political capture, using the public procurement process to bend the rules in their favor, especially after 2010. By 2012, the business environment changed so much that companies became more likely to engage in corrupt behavior, despite their preference so far for clean contracting. Also, by 2012, the formation of business-political cartels around construction work procurement is clear. While business companies are more susceptible to network effects, public institutions are more susceptible to administrative effects, and therefore can be easily punished and rewarded through administrative procedures based on political will. CEU eTD Collection As long as the party controls the administration of public institutions, it also controls the opportunities and instruments for engaging in state capture, typically through coercion. The dissertation contributes to advancements in the comparative, empirical, and objective measurement of varieties of state capture through the theoretical and analytical frameworks developed. The results have implications for anti-corruption public policy development and can inform the design of criminal investigations based on objective data and realistic and stable corruption networks. iii ACKNOWLEDGEMENTS At the time I submit this dissertation, the very existence of my university, Central European University, is threatened by a political regime that tries to expand its political capture across all levels, from public procurement to higher education. I would like to thank those who supported and continue to support the fight for academic freedom and freedom of thought in Hungary and elsewhere. These are life-long battles with huge challenges and incremental successes. But at the end of the day, we get to be proud for taking action – writing, researching, debating, representing. Needless to say, studying corruption and even a more elusive phenomenon such as state capture is hard work. There is a lot of searching in the dark, a lot of resistance and denial, a lot of refuting of my own arguments, being thoroughly critical of the approaches of others but also my own approach to the topic. This dissertation has been the most challenging project I undertook so far, and the progress and process have been riddled with all sorts of personal, technical and intellectual obstacles to advancing our knowledge of this topic and delivering a few working ideas about how we can approach anti-corruption in practice. I would like to thank my supervisor, Balazs Vedres, for his unwavering support over the years, and especially at crossroads and moments of doubt. He has been encouraging me not only as a student, but as a scholar and a professional as well. He has helped channel my creativity and find voice in an incredibly intricate, dynamic, and inter-disciplinary environment. I am extremely grateful to the other professors in my dissertation panel, Levente Littvay, Andras Bozoki, and Zoltan Szanto for believing in me and the fact that I can deliver a very ambitious project. For all the years of teaching and advising me, I hope I can inspire new students the way they have inspired me. A wholehearted thank you goes to Mihaly Fazekas and Lawrence Peter King, who have received me at University of Cambridge with open arms, and have inspired so much of my work and my passion for helping fight high level corruption. For being limitless sources of admiration and inspiration for my work and my relationship with the disciplines I love, I thank Albert-Laszlo Barabasi, Janos Kertesz, Roberta Sinatra, Reka Albert, and Tom Snijders. Over the past five years, I have been participating in numerous academic and professional events. For their valuable feedback and support, I would like to thank participants, instructors, TAs, and colleagues at the: European Cooperation for Statistics of Network Data Science (COSTNET), Network Science and its Applications Workshop at the Isaac Newton Institute for Mathematical Sciences, Workshop on Statistical Network Analysis, Turing Gateway to Mathematics at University of Cambridge, ECPR Winter and Summer Schools in Methods and Techniques in Vienna and Budapest, Mid-West Political Science Association Annual CEU eTD Collection Conference in Chicago, Annual Doctoral Conferences at CEU, “Ideologies, values and political behaviors in CEE” Symposium at West University of Timisoara, Political Behavior Research Group (PolBeRG), Political Economy Research Group (PERG) at CEU, and the Vicsek Lab, Institute of Physics at Eötvös Loránd University in Budapest. A big thank you goes to Agnes Toth and Tom Rooney, my academic writing instructors, without whose help my work would have sounded much more awkward. iv A huge thank you to my geeky friends and colleagues for their tremendous patience, encouragements and support through five painful years of research, coding and writing. My own dissertation writing coach - Carl Nordlund, Johannes Wachs, Zbieg Truchlewski, Luca Marotta, Martin Molder, Bastian Becker, Bruno Castanho e Silva, the posh-lab people and the trash-lab people as well, the Ph.D. students and faculty members at the Center for Network Science, and my wonderful students from Rajk Laszlo Szakkollegium, for keeping me company and motivating me through the last 6 months of finishing up. For their unbroken companionship and unconditional love, I thank my sisters Bogdana Buzarnescu, Oana Pop, and my imaginary friends, Melinda Szabo, Georgiana Turculet, Bridget Millman, Stasya Ershova, Dragos Adascalitei, Alice Ruddigkeit, Federico Vegetti, Jelena Belic, Cornel Todirica, Claudia Paducel, Olivera Bulzan, and Lidia Ciurel. For their role in making me be a better science communicator, I thank my former team of mavens: Borbala Toth, Andras Vicsek, Hiske den Boer, Peter Ruppert, Nora Miklos, Mate Schnellbach,