A still from the secret video that revealed corruption in Polish SOEs.
This post originally appeared on the TrustLaw blog.
It was a hot summer for Polish politics. Back in July, someone leaked a secretly recorded video, in which Władysław Serafin, chairman of the National Union of Farmers and Farmers’ Associations and a top member of the ruling coalition’s PSL party, talks with Władysław Łukasik, former head of the governmental Agriculture Market Agency (ARR). In the video, Łukasik lists a host of malpractices at the PSL-dominated ARR, ranging from nepotism to mismanagement of the state-owned enterprises (SOEs) that the agency oversees. The abuses included what the prosecutor’s office called “numerous financial irregularities” concerning payments made to members of the board of Elewarr, a grain company owned by ARR.
As a result of the scandal, Poland’s Minister of Agriculture resigned (albeit without admitting any guilt), the head of Elewarr was dismissed, and the investigation continues. However, one positive outcome of the “PSL tapes” has been an increased debate on the issue of nepotism and cronyism. Such practices are hard to detect because they often happen on the fringe of legality and because there is little public information available on the extent to which politicians or their relatives and friends are connected to SOEs.
Not surprisingly, anti-corruption efforts around the world tend to focus on grand scale and easier to catch bribery rather than the “other” corruption: nepotism and favoritism. Bribery is among the most common forms of corruption that people come in contact with in their daily lives. Yet, in many countries cronyism is as much a fact of life, arguably with the greater negative impact on economy and governance.
Poland’s example shows that cronyism often goes unpunished or even barely noticed except when scandal is revealed. One reason may be that at some level it reflects a natural human tendency: quid pro quo. But when taken out of context of simple interactions between family members and friends, and transplanted into modern politics and business, “you scratch my back and I’ll scratch yours” is no longer about exchanging mutually beneficial favors. Rather, it becomes the abuse of discretionary power for private gain – the very definition of corruption.
Combating the problem is complicated by the fact that in some countries nepotism, cronyism, and clientelism are acceptable and expected ways of conducting public affairs and business. After all, who can you trust more than a member of your family, tribe, religious group, or political party? However, such patron-client relationships inherently lack the transparency and objectivity needed to ensure that a protégée is qualified to do the job and performs up to par. Waste, mismanagement, and more corruption usually follow. It is all too easy, though, to shrug off crony practices as a cultural artifact. While long traditions of how “things are done” certainly play a role, a deeper look at the underlying institutions provides a more complete explanation.
In the case of Poland, one such explanation lies in the size of the public sector. Aside from government administration, education, and state-financed healthcare, over one million people work in the public sector. Curiously, many companies owned or co-owned by the central and local governments operate in sectors where there is no rational economic justification for the state to be involved: beverage and food production, metal works, or wood and related products.
Another reason is the limited access to information on individuals’ party membership and what role they play in SOEs. Even though political parties are constitutionally prohibited from keeping their structure and membership confidential, in practice it is hard to obtain information about rank and file party members. Similarly, Poles have no easy way of knowing which companies are controlled by the government, often due to the existence of multi-layer corporate subsidiaries that make it difficult to discern ownership.
Solutions, as a Polish think tank Civil Development Forum (FOR) points out, must include reforms in three key areas. First, more state-owned or co-owned companies should be privatized to reduce the opportunities for abuse – not to mention the benefits of greater efficiency under private management. Second, there should be more transparency when it comes to political party structure and membership. All parties should publish an up-to-date online register of members to facilitate public and media oversight against nepotistic appointments. Finally, greater transparency is needed when it comes to ownership of public sector entities. The government should create an easily accessible and regularly updated catalog of every company with state equity.
For sure, questionable connections at the intersection of politics and business are not unique to Poland and the abovementioned recommendations apply to other countries as well. It remains to be seen whether the investigation of ARR leads to substantive reforms along these lines or stops with just a few personnel changes. Yet, shedding light on the murky world of crony connections is already a step in the right direction.