Issue Paper

(1) Large-scale and systemic (political) corruption has acquired such proportions in Serbia that it may undermine the success of its transition. I have identified the phenomenon of state capture as the key cause which may result in the failure of Serbia’s transition. Literature defines state capture as ‘seizure’ of laws to the advantage of corporative business via influential political links in the parliament and government. I have defined it more broadly because of the Serbian tradition in which political (party) elites is the main agents appropriating the state and public assets. Their actions are geared at staying in power[1], at using their offices to consolidate the financial power and influence of their parties, at employing their relatives and party cronies, but also at achieving their personal and corporative interests. In this context, state capture entails a set of mechanisms by which political elites appropriate state institutions and functions, using them as their own and in their own interest.

 

(2) My initial hypothesis is that party leaderships are the chief mediators in the exchange of services between the state and the political parties. [2] I will first review the theoretical and historical causes of state capture and then focus on the recent ones. From the viewpoint of systems theory, the high convertibility of political offices and their domination over other social sub-systems indicates an integrative deficit, compensated by obligatory ideology.  Serbia lived for half a century in such a system – the one of ‘real socialism’. Amidst the global collapse of real socialism, Serbia revitalized the old system by adapting it to extremist nationalism and preparing for the wars of the nineties. The ensuing centralization stripped local governments of much of their jurisdiction and took over their property (as yet not restored). Under global pressure, a multi-party system was introduced in authoritarian circumstances. The war economy and international blockade encouraged large-scale smuggling of cigarettes, oil, weapons and drugs, organized by the state and entrusted to its cronies. The plants and businesses that still operated successfully were also entrusted to reliable people,[3] who appropriated the socialist companies they managed, acquired riches in exchange for regularly paying state racket. As the nouveaux riches were the first to realize that the regime was to be ousted, they secretly funded opposition parties to preserve their property. The oligarchic structure was practically formed during the old regime.  When the new authorities took over (October 2000), they launched transition reforms but went on using the inherited infrastructure of power in internal clashes and 'positioning' of their parties.

 

(3) The following issues bring us to the present. How were the state capture mechanisms incorporated in the multi-party system and how was the party-state amalgam achieved?

 

(a) The chief mechanism lies in the division of powers, based on a secret coalition agreement. The agreement sets out the percentages of power each ruling party gets in accordance with the number of seats won in the Parliament.[4] The second part of the agreement focuses on content and classifies all offices by portfolios (horizontally and vertically). State capture and monopolies constitute part of the division – each coalition party has received a number of related portfolios to manage and staff by itself. Power has been feudalized – each ruling party is the absolute ruler of its own fief and the government has operated as a confederation of 'power fiefs'. For instance, one party has been allocated all portfolios regarding finance; its leader is the Finance Minister[5] and he has appointed reliable associates and party cronies to the posts below him; the same party has been given rule over other central institutions and services having to do with finance, such as the National Bank, Tax Administration, Customs Administration, Lottery, Securities Commission, et al. Apart from the horizontal rule, this party also rules vertically and its local boards recruit heads of the local tax administration offices, customs bureaus, lotteries, etc. in all municipalities and cities of Serbia. Another party, the strongest in the coalition, sovereignly rules over the police and intelligence agency through its officials. The Police Minister has replaced 700 senior police officials since he took over. And so on, from party to party. Moreover, there is no audit or supervision of budget spending, nor any civilian control of the police. 

 

(b) Another important dimension of state capture, when connected with the first one, entails appointing leading party officials (presidents, their deputies, etc) to manage the 'fiefs' although they simultaneously actively discharge their party offices. As a party leader – feudalist has MPs in the Parliament providing majority support to the Government, corruption is practically incorporated in the manner in which the government operates.[6] Ministerial abuses literally go unpunished. If a minister were dismissed, he would withdraw his MPs and the Government would lose the parliamentary majority and fall.

 

(c) Party chiefs' control over seats in the Parliament is another relevant corruptive mechanism of state capture.[7] The party chiefs compose the candidates’ lists and decide which candidates will enter Parliament after the elections, irrespectively of their order on the list. If an MP is disloyal or does not vote as instructed, s/he is stripped of his or her mandate and thrown out of the Parliament.[8] To cement their obedience, MPs are corrupted by being given money for trips they never made and parliament committee sessions they never attended. But their main advantages lie in immunity from the Law on Conflict of Interests and opportunity to earn additional income as directors, management board chairpersons or members of public companies and companies partly or wholly owned by the state, seats allocated to them by their parties. They are allowed to accumulate offices: MPs can simultaneously be mayors, members of local governments and parliaments, business advisers, city land bureau directors or engage in private business.  

 

(d) The amount of power in the hands of the parties becomes even more evident if one is aware of the fact that some 40,000 offices in Serbia are divided in the above manner. This both undermines public interests and constitutes widespread discrimination of citizens on grounds of party affiliation. Senior management positions are not advertised.[9] Additionally, parties manage public companies owned by the state i.e. the parties.[10]

 

(e) Finally, the relationship between the parties (government) and the business constitutes the key aspect of state capture. The Law on Funding of Political Parties was passed in 2003 but its implementation did not diminish corruption in this area. The Law does not provide for the establishment of a separate institution to monitor the funding of parties and the body charged with supervision (Parliament Finance Committee) has practically rendered the law inapplicable. The law suffers from numerous other deficiencies.[11]  Not only did the Law fail to make the operations of the parties transparent (it may have rendered them even less transparent); it also enabled parties to draw between 5 and 7 million Euros a year from the state budget. There are many indications that politicians have systematically been creating loops of companies through which they have acquired a lot of money. [12]

 

From the policy point of view, eliminating of the corruptive mechanisms of state capture simultaneously constitutes measures for curbing excessive political power, such as the strengthening of individual responsibility of the MP’s[13], the de-politicization of public functions via competition, preventing ‘feudal’ government coalitions, the exclusion of function-accumulation, the adopting of new laws on conflict of interest and party financing, the strengthening of monitoring and regulatory institutions in these areas, and the support of faster privatization of public enterprises.