Transcript Political Economy of Public Deficit Perspectives for

Kvalita institucí a state capture
Adam Geršl
Teorie pravidel a tranzitivní ekonomiky
7.4.2011
The issue
Some authors argue that the general
improvement of the institutional framework
in central and eastern European countries
has been mainly driven by the pressure
from the EU institutions as these countries
were negotiating their terms of accession
during late 1990s and early 2000s
(Vachudova 2001; Moravcsik and Vachudova
2003).
Formal vs informal institutions

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But: did the pressure have impact on both
formal and informal rules, and on the
enforcement?
Formal rules
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
Law, directives (written)
Institutional framework within which individuals
behave
Role of enforcement
Informal rules

Traditions, unwritten procedures
How to measure institutions…
Empirical indices:
 What do they measure?
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The degree of accordance with some „standards“
(objective: EBRD Transition Indicators, ICRG)
Based on subjective opinions of individuals
(subjective: WB&EBRD Business Environment and
Enterprise Performance Survey BEEPS)
The perspective: constitutional economics ideal
or investors‘ perspective?
Do the indices allow for differentiating between
formal and informal rules?
Indices: the breakdown

Source of data:
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The degree of objectivity

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Locals (more familiar with the environment)
External experts (better comparability across countries)
The aim of the index


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Objective, hard data (length of a commercial trial)
Subjective, soft data (respondents‘ opinions)
The composition of respondents in subjective indices
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Unique (data from a special survey)
Composite (aggregating already existing data)
Degree of correspondance with standards
Happiness of the people
The degree of how they can disentagle the three components of an
institutional framework (formal, informal, enforcement)
WB Governance Indicators
Governance: traditions and institutions by which
authority in a country is exercised
6 areas of institutions/Governance:
Political process
1. Voice and Accountability
2. Political Stability
Government‘s policies
3. Government Effectiveness
4. Regulatory Quality
Respect of citizens
5. Rule of Law
6. Control of Corruption
Voice and Accountability
2.0
1.8
1.6
1.4
1996
1.2
2004
1.0
0.8
0.6
0.4
0.2
0.0
MT
HU
EE
PL
SI
SK
CZ
CY
LT
LV
EU15
1.6
1.4
1.2
1.0
0.8
CZ
0.6
NMS
0.4
EU15
0.2
CZ_gap
0.0
-0.2
-0.4
-0.6
-0.8
1996
Source: World Bank.
1998
2000
2002
2004
Political Stability
2.0
1.8
1.6
1.4
1996
1.2
2004
1.0
0.8
0.6
0.4
0.2
0.0
MT
SI
LV
EE
HU
LT
CZ
SK
PL
CY
EU15
1.4
1.2
1.0
0.8
CZ
0.6
NMS
0.4
EU15
0.2
CZ_gap
0.0
-0.2
-0.4
-0.6
1996
Source: World Bank.
1998
2000
2002
2004
Government Effectiveness
2.0
1.8
1.6
1.4
1996
1.2
2004
1.0
0.8
0.6
0.4
0.2
0.0
MT
CY
SI
EE
LT
HU
SK
CZ
LV
PL
EU15
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
CZ
NMS
EU15
CZ_gap
1996
Source: World Bank.
1998
2000
2002
2004
Regulatory Quality
2.0
1.8
1.6
1.4
1996
1.2
2004
1.0
0.8
0.6
0.4
0.2
0.0
EE
MT
CY
HU
LT
SK
LV
CZ
SI
PL
EU15
1.8
1.6
1.4
1.2
1.0
0.8
CZ
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
NMS
EU15
CZ_gap
1996
Source: World Bank.
1998
2000
2002
2004
Rule of Law
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
1996
2004
MT
SI
EE
CY
HU
CZ
LT
PL
SK
LV
EU15
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
-1.4
CZ
NMS
EU15
CZ_gap
1996
Source: World Bank.
1998
2000
2002
2004
Control of Corruption
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
1996
2004
MT
SI
EE
CY
HU
SK
LT
CZ
LV
PL
EU15
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
-1.4
-1.6
-1.8
CZ
NMS
EU15
CZ_gap
1996
Source: World Bank.
1998
2000
2002
2004
Korupce a GDP per capita
2.6
Denmark
Control of Corruption in 2004 (World Bank)
2.4
Sw eden
2.2
2.0
United Kingdom
1.8
Euro area
1.6
1.4
Malta
1.2
Slovenia
1.0
Estonia
Hungary
0.8
Cyprus
0.6
Lithuania Slovakia
0.4
0.2
Latvia
0.0
30
40
Czech Republic
Poland
50
60
70
80
90
100
110
120
130
GDP per capita in Purchasing Pow er Standards in 2003 (in % of EU 25)
Update CZ

Chamet, Ch. (2008): Teorie pravidel a naše realita
v transformačním a post-transformačním období.
Bakalářská práce IES.
Interpretation
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The position of CZ relatively bad, but a certain
degree of improvement is noticable
Where lies the problem?
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Formal rules?
Informal rules?
Enforcement of rules?
c evolutionary dynamics of a mixture of
inappropriate formal rules, inherited und lived
informal rules and ineffective enforcement
State-Capture-Hypothese
How is it possible that inappropriate rules
survive?
c via a combination of inherited and unintended
by-products of selected way of transition

Path-dependency of informal rules (no „point zero“ in
1990 c old behavioral rules from the „ShortageEconomy times“)
 Influence of interest groups that emerged within the
transition process (banking socialism) and that prefer
Status Quo, on (a)formal rules and/or (b) their
enforcement („state capture“)
= > effect on prevailing use of corruption to „get things
done“

State Capture (indirect measure via "impact")
Presidential/
Parliamentary Government
votes
decrees
Central
Bank
Criminal
Courts
Commercial
Courts
Party
Finance
Capture
Index
Czech Republic
1999
2002
18%
6%
11%
6%
12%
4%
10%
10%
9%
13%
6%
10%
11%
8%
Estonia
1999
2002
14%
4%
7%
7%
8%
4%
8%
4%
8%
4%
17%
10%
10%
6%
Hungary
1999
2002
12%
4%
7%
5%
8%
4%
5%
3%
5%
7%
4%
8%
7%
5%
Latvia
1999
2002
40%
18%
49%
23%
8%
9%
21%
18%
26%
19%
35%
22%
30%
18%
Lithuania
1999
2002
15%
11%
7%
13%
9%
3%
11%
9%
14%
13%
13%
13%
11%
10%
Poland
1999
2002
14%
5%
10%
5%
6%
4%
12%
4%
18%
7%
10%
11%
12%
6%
Slovakia
1999
2002
20%
10%
12%
16%
37%
5%
29%
17%
25%
21%
20%
16%
24%
14%
Slovenia
1999
2002
8%
8%
5%
10%
4%
4%
6%
5%
6%
9%
11%
11%
7%
8%
Percentage of firms responding to a question "what impact does the sale of … have on your firm" with "significant" or "very significant".
State Capture or Influence?
Captor firms*
1999
2002
Influential firms**
1999
2002
Czech Republic
6.5%
6.7%
10.4%
29.6%
Estonia
4.9%
12.5%
21.0%
13.0%
Hungary
4.0%
9.1%
2.3%
6.8%
Latvia
14.1%
12.7%
26.4%
12.7%
Lithuania
13.6%
5.6%
6.6%
9.2%
Poland
9.0%
12.3%
7.9%
5.6%
Slovakia
12.1%
9.5%
10.3%
22.6%
Slovenia
10.4%
6.2%
9.3%
11.3%
* firms responding to "How frequently do firms in your line of business have to pay some
irregular "additional payments" for any of the following? To influence the content of new
laws, decrees and regulations" with "sometimes" and more frequently.
** firms responding to "How much influence does your firm have, when a new law, rule,
regulation, or decree is being discussed" with "moderate influence" and more.
Enforcing the Rules of the Game
Perception of the court system
Broad perception*
Extreme perception**
Fair and impartial Honest and uncorrupt
Fair and impartial Honest and uncorrupt
1999
2002
1999
2002
1999
2002
1999
2002
Czech Republic
29.7%
26.7%
20.3%
25.7%
0.0%
2.9%
0.0%
3.7%
Estonia
64.6%
50.9%
67.3%
58.0%
5.5%
6.9%
5.8%
7.1%
Hungary
67.5%
55.3%
67.5%
55.9%
15.3%
10.0%
22.5%
9.5%
Latvia
31.6%
36.5%
30.8%
25.8%
2.2%
2.2%
2.3%
3.1%
Lithuania
21.0%
24.7%
11.3%
19.0%
1.2%
5.3%
2.5%
4.5%
Poland
44.9%
31.7%
43.9%
30.2%
4.3%
2.7%
6.8%
2.4%
Slovakia
39.9%
26.0%
31.0%
25.3%
1.6%
4.0%
4.1%
3.3%
Slovenia
66.4%
42.6%
62.2%
46.6%
11.5%
4.5%
13.4%
4.9%
* firms responding to "How often do you associate the following descriptions with the court system in resolving business disputes?" with
"frequently", "mostly" and "always"
** firms responding to "How often do you associate the following descriptions with the court system in resolving business disputes?" with "always"
The near-term outlook
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EU-pressure
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FDI
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Via links to EU law – effect on enforcement
Effect on informal rules: limited (may be even negative given the
flow of EU money via structural help)
Preference for fair and transparent environment across the whole
EU
No path-dependency in their behavioral rules (if they need to get
things done…
Limited dependence on state, relatively easy exit
Crisis and the privatization of banks (1999-2001)
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In interest of government (revenues)
Limiting the influence of „old“ pressure groups
No direct formal or informal link to the state limiting the state
capture
Otázky k diskusi (a do testu)
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Jaké jsou druhy empirických indexů pro
měření kvality institucí a jaké jsou jejich
výhody a nevýhody?
Jaké jsou základní druhy korupce, jak ji lze
měřit a jaké jsou možné vlivy na její rozvoj a
omezení?
Co je to „state capture“? Jaké jsou důvody
vzniku a důsledky na institucionální rámec
zejména v post-komunistických zemích? Jaká
je role path dependency?
Literatura:
Závazná literatura: Geršl, Adam (2006): Development of formal
and informal institutions in the Czech Republic and other new
EU member states before their EU entry: did the EU pressure
have impact? Prague Economic Papers 1/2006, pp. 78-90.
Doporučená literatura:

Hellman, J. S., Jones, G., Kaufmann, D. (2000), Seize the State,
Seize the Day. State Capture, Corruption, and Influence in
Transition. World Bank Policy Research Working Paper No. 2444.

Kaufmann, D., Kraay, A., Mastruzzi, M. (2005), Governance
Matters IV: Governance Indicators for 1996 – 2004. World Bank,
Washington.

Körner, P., Kudrna, Z., Vychodil, O. (2002), Measuring the
Quality of Business Environment in Central Europe. Merit
Research Working ePaper No. 1/Finance a úvěr 12/2002.