Introduction: The Rise of ‘state capture’ and large scale corruption

 

 

Large-scale and systemic state capture, which is the root of widespread corruption, is acquiring such proportions in Serbia that it may undermine the success of its transition. This phenomenon of state capture has to be differentiated from the corrupt actions of giving and receiving bribery (“administrative corruption”) and connected with the institutional and legal weaknesses of the social system. Recent literature defines state capture as the ‘seizure’ of laws to the advantage of corporate business via influential political links in the parliament and government. When the state is captured in this manner, the whole legal system becomes the opposite of what it should be, because it works to the advantage of illegal interests that are dressed up in a legal form.[1] For the purpose if my policy paper, I have defined ‘state capture’  as any group or social strata, external to the state, that seizes decisive influence over state institutions and policies for its own interests against the public good. I will show that in Serbia, political parties are the main agents being used to appropriate the state and public assets. They are systematically expanding their political and financial power, influence and ability to employ their relatives and party cronies, and promote the personal and corporate interests of the political and economic elites in control behind the scene. The appropriation of state institutions and functions by the political party leadership is being carried out by the use of a variety of mechanisms which I will explain using my research data.  How the citizens of Serbia perceive the role of the parties in state capture and corruption will be presented using a survey of public opinion conducted specifically for this policy paper. I will conclude by presenting a list of policies that should be applied to reduce or neutralize the captured state phenomenon.

The Extent of the Problem:

 

During the first two transition years after the overthrow of Milosevic in 2000, political corruption in Serbia declined. The government was not the centre of corruption as was the case in the previous regime.[2]  When the first democratic Prime Minister was assassinated and his government[3] was forced to resign under the pressure of his political rivals (from the same victorious coalition which took power in October 2000 against Milosevic, and which were backed by the “old forces”), state capture was renewed together with the rise of party influence on the state institutions.[4]  After the elections in December 2003 and after a new government was created in March 2004, state capture began to reach alarming proportions – a trend that has continued the past two and a half years. The extent of political corruption is corroborated by the World Bank report on patterns and trends of corruption in all transition countries in the 2002-2005 period.[5] The research shows that some transition countries have recorded continued success in fighting corruption (Georgia, Slovakia, Romania, Bulgaria and Croatia made headway with regard to all dimensions, while Moldova, Tajikistan, The Ukraine and Latvia made progress along some dimensions). On the other hand, some countries, including Serbia, Albania, the Kyrgyz Republic and Azerbaijan, suffered an increase in corruption after 2002 with respect to monitored indicators. Serbia has suffered both an increase in “petty” i.e. administrative corruption (bribery)[6] and in the topic this paper deals with - state capture - which is qualified as “grand and systemic corruption” rooted in political corruption and uncontrolled powers of the political elite. With regard to higher levels of state capture, Serbia finds itself in the same group with Albania, Bosnia-Herzegovina and the FYR of Macedonia.

 

The Serbian citizens’ perceptions of corruption coincide with the WB research results and the TI CPI rank. The data of the survey conducted for this policy paper (see Annex I) show that Serbia’s citizens think corruption is widespread and that it has increased in recent years.  When asked about the proportions of corruption, only 3% of those polled think it is minor, 34% qualify it as considerable, while 53% perceive it as widespread. As many as 56% of the respondents think corruption has risen in the past two years, while merely 19% are of the view that it has decreased (the rest had no opinion). The answers to the question: “During which government has corruption been the greatest?” yielded similar percentages: 51% said it was never greater than in the Milosevic era, while 25% said it was the greatest now. Only nine percent think corruption was at its highest during the first post-Milosevic government (led by Prime Minister Djindjic) and 5% think it was the highest when Prime Minister Zivkovic led the same government after Djindjic’s assassination.[7]

 

Following the transition in government, there was a change in priorities leading to a more old-styled manner of governance, expressed in the political/party control of the police, the security intelligence agency, the media, and the judiciary, bringing back the old cadres to positions in state organs. Whereas the first Djindjic Government[8] ambitiously and enthusiastically concentrated on enabling Serbia to integrate with the EU as soon as possible, enthusiasm for the EU integration process noticeably ebbed after the second government came to power. A rightist clerical-nationalist party has played the leading role in the coalition government set up in March 2004.[9] Adverse to Western values, it has placed commitment to EU integration on a back burner.[10]

 

The second transition government continued with the passing of a number of anti-corruption laws,[11] contributing to a trend towards improvement in Serbia’s position on the TI rate score during the period of 2003-2006  (before Serbia was not measured). The most-recent publication of the TI Corruption Perception Index (CPI) for 2006 shows that Serbia has slightly improved its position, rising from a 97-103 ranking to a 90-92 ranking (together with Suriname and Gabon), with a CPI of 3.0 (it was 2.7 for 2004 and 2.8 for 2005) among 163 countries. This grade is still very low and signifies endemic corruption (5.0 means that corruption has been reduced to a somewhat bearable level). A comparison with the ex-socialist countries shows that the best are Estonia with 6.7, Slovenia with 6.4 and Hungary with 5.2, while Albania (2.6), Russia (2.5) and Belarus (2.1) have the worst positions. Serbia is in the bottom half of the 20 ex-socialist countries It has the 13th position on the list. Its grade is only slightly better than the worst and substantially worse compared with the best countries.

 

Although Kostunica’s government has passed a number of laws which have had some effect on the country’s rating, adequate institutional reforms have not been established to ensure accountability, transparency, rule of law, public sector effectiveness and merit-based public office appointments. The implementation of some laws was postponed or had no great consequence. Rather, the government has focused on reviving nationalist values, resolving the “Serbian national issue” and preserving the staff and corruptive institutional structures that better serve such objectives. Reforms of the state institutions have merely been rhetorical. Insufficient encouragement has been given to the competitiveness of the economic and political systems. New decrees have extended discretionary decision-making methods.[12] The privatization of the big public companies has not yet begun[13]. The effectiveness of regulatory institutions has been sabotaged and the implementation of the Law on Auditing State Institutions and the Ombudsperson Law has been delayed. The Anti-Corruption National Strategy passed in December 2005 still lacks an institutional framework; specific action plans have not yet been drafted.

 

The weakening of the European orientation of the Serbian transition has been accompanied by the rebuilding by the political and business elite[14]  of ’state capture’ mechanisms. They have been able to “seize control” of state institutions, exercise excessive influence and amass considerable wealth. The phenomenon of state capture has been responsible for growing large-scale corruption and has seriously jeopardized public interest and transition in Serbia.  Although transition in the economic sphere, mainly on the macroeconomic level and privatization has continued, institution building in political, judiciary, and administrative systems has been delayed, creating the opportunity for state capture.

 

The visible consequence of the deficiencies described above has been the continual on-going corruption affairs appearing in the news during the past three years. All cases have been at the ministry level. The greatest number has been connected with the “finance party” (G17 Plus). Scandals have included: the privatization procedure of the National Savings Bank[15]; a bribery situation publicly known as the “Brief Case Affaire” involving the vice governor of the  National Bank of Serbia; the gross manipulation of a mineral water company privatization; graft in army procurement and the unauthorized commitment for the purchase of a satellite for monitoring security zones around Kosovo. Other cases of suspected corruption having potential million-dollar damages for society  involve the import of electricity (owners of the import company  are said in public to be financiers of the biggest political parties), the import of petroleum from Syria and  the buying of railway cars without tender and procurement procedures. [16]

 

None of these affairs has been resolved by legal process and the government “reacted” with silence. The president of the Anticorruption Council of the Government of Serbia, the advisory body founded by the Djindjic government to deal with this problem, has estimated recently that the level of corruption in Serbia is once again at the level before October 5^th (when Milosevic was in power). She pointed out that during the last three years there has been no audited National Final Budget Statement. She warned the public that the National Investment Plan (NIP) launched by the Minister of Finance and supported by the Government has been passed in a corrupt manner - without law for its implementation and control - by avoiding legal procedures and by giving discretional decision-making to a group of ministers. She predicted that the corruption in the country will rise significantly  if the NIP is implemented.

 

Recent events related to the preparation, approval process and content of the new Constitution of Serbia confirm my initial hypothesis about ’capture state’ by the political/party elite. In mid September 2006, leaders of the four biggest parties[17]  agreed literally over night[18]   about their Constitution Proposal. Without one day of public debate, based on the decisions of the party leaders, Parliament passed the Proposal and called for a referendum for its approval. Even the members of the Parliament never received the Proposal, nor did they have a chance to discuss it in session when adopted. Citizens and their organizations did not have a chance to debate it either. Among items that reinforce capture state mechanisms of the political parties in the Constitution, MP mandates belong to the parties. In Article 102 it is stated that “the MP is free to (…) irrevocably put his mandate at the disposal of the party on whose list he was elected as MP”.[19] In addition, the immunity rights for the MPs have been broadened. These changes will strengthen the political power of the party elite and its interests (i.e. executive power) and additionally degrade Parliament and the MPs’ responsibility to the constituent’s interests by re-confirming their impunity. The public has given the new Constitution the name “The Functionary’s Constitution”. The legitimacy of this public reputation of the Constitution was soon demonstrated when the Basic Law on the Implementation of the Constitution was on the Parliament’s agenda. The parties made a “deal” that they would vote for the Law only if, during the first session of the new Parliament (after the January elections), the heads of the two independent institutions would be replaced: the Governor of the National Bank of Serbia and the Ombudsman for Information. [20]

 

The new Constitution will not help curb ‘capture state’ and its damaging consequences. It will not make political leadership accountable to the public. Even worse, judicial independence is not guaranteed by preventing party/political influence over the courts, the police and public prosecution.  Getting to the roots of corruptive practices in governance is crucial to Serbia’s ability to break the grip of rigid institutional structures constructed to protect vested interests so that it might proceed successfully in the European Union enlargement process. However, these two clear mandates in the new Constitution will make it difficult to eliminate the parties’ use of public offices for their private interests rather than for representing constituents’ interests and the pursuit of the public good.[21]

 

 

I. The Capture State Model in Serbia and its Mechanisms

 

From the point of view of system theory, capture state is caused by a weak functional differentiation of the social system. Boundaries between the subsystems do not exist or are porous. Power and goods from the economic sub-system are convertible for influence and goods from the political sub-system and vice versa, depending on where the dominant power of the social system lies. The dominant power in Serbia is still located in the political system.

 

The most important ’capturing’ agents are the political party leaderships who have seized huge state property including public companies, public offices and institutions for their own interest. The second important agent is the 10-15 richest tycoons of the country who finance all the relevant parties, thereby becoming part of the system.[22] Both elites, in collusion with each other, have established a system of integrating their influences, interests, and services for mutual gain. This collusion has created an oligarchy social structure in Serbia that undermines effective institution building and the rule of law. The main chains of influences and the connection of interests are demonstrated in the Model of State Capture in Serbia (Picture1).

 

Picture 1:  Model of State Capture in Serbia

Picture 1 above shows the mutual  dependence between the political and business elite and how the tycoons help sustain their political positioning by financing all of the relevant parties; in return, the ruling parties protect economic markets, fix tenders and auctions, and pass favorable legislation for the tycoons.  It also shows how Government, Parliament and Parties are connected with public companies and public institutions as their own shares of power. The (black) links which go from the government to the parties show that the position of the ruling parties in the described context has a feedback effect on the parties, making their decision-making more centralized, oligarchic, and located practically in the hands of the president of the party.

 

The Mechanisms Used:

 

The following analysis will concentrate  on ’state capture’ as a specific  process  in which political elites gain control of public offices, enterprises, utilities, and resources through a mingling of state, political party, and economic power. Emphasis is placed on the concrete mechanisms which explain how political parties impose their own benefits over public interests, how these mechanisms are incorporated in the multy-party system and how the party-state amalgamation has been achieved.

 

I have selected the following six interconnected mechanisms of state capture:

 

1) Division, of the government and the entire public sector into a feudal type system whereby each party in the ruling coalition is given control over the portion it receives (based roughly on the number of MPs it has in parliament) as if it were its own private fief. ^[23]  “Vertical Partition” of the Government, as it is called in public, has eliminated the mutual political control of the coalition partners.

 

2) Connected with the first, the second mechanism entails appointing leading party officials (presidents, their deputies, etc) to manage the ’fiefs’ although they are simultaneously actively discharging their party offices. Because the party leader – feudalist has MPs in the Parliament providing majority support to the Government, corruption is practically incorporated into the manner in which the government operates.[24]  If a minister were to be dismissed for corruption, he would withdraw his MPs and the Government would lose the parliamentary majority and fall.

3) Degradation of the Parliament and the mechanism used for bribing MPs assuring their loyalty. Obedience is obtained by offering the MPs multiple functions such as being appointed to the managing boards of the public companies or being appointed to perform executive functions in local and regional governments, enabling them to receive several sources of income. 

4) Parties in the ruling coalition have the exclusive ’right’ to make appointments in state administration, public companies, utilities, institutes, agencies, funds,  health, social and cultural centers, dormitories, veterinarian stations, schools, theatres, hospitals, libraries, monuments and memorial parks maintenance services –  all of which belong to the public and are supported from the public budget. Management positions are not advertised and based on merit, which additionally damages public interests and constitutes widespread discrimination of citizens on the basis of party affiliations. [25]

5) The relationship between parties (government) and business is not regulated in a transparent manner because the Law on the Funding of Political Parties, passed in 2003, is deficient in its controlling mechanisms and was not strictly and effectively implemented in practice. The effectiveness of this law is the same as that of other similar laws for which “political will” is needed. There is a tacit agreement between the parties not to implement the law strictly.[26] As a result, corruption in this area has not diminished.  The parties have remained the center of the corruption.

 6) Political influence over the judicial system is excessive, and there is a lack of checks and balances between the three main state powers. The executive branch (which again means party influence) has gained control over the Parliament, the courts and public prosecution. This key mechanism is an extremely-extensive, separate topic which must be investigated in-depth independently, and it will therefore not be part of this research.

 

II. How the Government Functions as a Confederation of Party „Fiefs“

 

 

I will analyze the party feudal system at the national level by presenting details about the cases of the Ministry of Finance and the Ministry of Education and Sport. I will then describe how the “party state” functions at the local level by presenting the case of Novi Sad which is the third largest city in Serbia and the capital of Vojvodina province.

 

 

 

The Political System and What the Parties in the Ruling Coalitions Own.   Serbia has adopted a parliamentary political system. The party (or the coalition of parties) which gets a majority of MPs in Parliament (250 seats) elects the Government as an executive state organ. The Government now has 19 ministries, but the number is changeable (each government decides about the number of ministries). It has the President of the Government (Prime Minister). The number of MPs of a particular party that are elected, if the party is a member of the government ruling coalition, defines the proportion the party will receive of the ministries and all other positions in the public enterprises (there are 17 public companies founded by the Government), institutions, agencies, foundations and services which are under the jurisdiction of the Government. Many positions are under the jurisdiction of each Minister. Since Serbia is a highly-centralized country, one Minister, for example, the Minister of Education and Sport has the authority to appoint more than 3000 directors of primary schools, and about 400 directors of secondary schools in Serbia[27] (schools in Vojvodina are not under the Serbian Ministry). The Minister of Health has similar appointment authority, appointing directors for the hospitals, health centers, and other health institutions founded by the Government etc. In addition to the appointments at the National level, there are a huge number of appointments in the public sector at the local level (governments, public companies, services and institutions which are under the jurisdiction of the autonomous provinces (Vojvodina and partly Kosovo), cities, and municipalities. Appointments in the provinces, cities and municipalities (there are about 160 municipalities) belong to the parties’ coalitions at that level. Proportions vary from one city or municipality to another.  It is estimated that the magnitude of power in the hands of the government/parties amounts to 40,000 appointments counting all levels - national, provincial, city and municipality.

 

 

The Feudal/Party System at the National Level: The Cases of the Ministry of Finance and the Ministry of Education and Sport

 

At present, in Serbia, the ruling coalition is composed of 4 parties[28] so the distribution of ’fiefs’ is the following:

 

Party	MPs	Ministries	Quotas in Public Companies (managing positions)
DPS	53	10 (11)	50%
G17+	34	4 (3)	30%
SRM-NS	22	5	20%
SPS	20	-	Quota of DPS

The striking fact is that institutions, like the tax and customs administrations, the National Bank of Serbia[34], the Securities Commission, The State Statistics, and other institutions that have to be independent from political influence are interwoven with party functions[35].  The lack of transparency in the recruitment process for government and state institutions’ positions and in the way party/state functions are fused at the central level has severely damaged the accountability of the government. 

 

Apart from the horizontal (at the national level) party rule, this party also rules vertically by appointing the heads of local tax administrations, customs boards and other local administration units.  Procedures for local appointments include proposals from the local party units.  In practice, employment opportunities for the heads of local tax administrations, customs, etc. are not publicly advertised or discussed officially; local party boards recruit the heads of the local administration units all over Serbia.[36] The selected candidates are sent to the Minister for approval. About 90% of the director appointments at the local level for tax, or customs offices are from the ranks of the G17 Plus.  In practice, horizontally and vertically, all the financial branches and the money circulation are under the control of one party without internal or external control, nor competition for the appointments. Two hierarchies – the party and the state have overlap. That is how the closed, ’fief’ system of authority functions. 

 

The case of the Ministry of Education and Sport (MES)

 

The next analysis shows the comparison between the first and second post-Milosevic governments related to the party membership of the Ministry itself, appointed Heads of the County Educational Departments and the appointments in institutions, companies and commissions dealing with education in Serbia. It reveals the degree to which professionalization has been replaced by the party system in this Ministry:

 

Party Membership of the Ministry in the First and Second Governments:

Positions	I Government	II Government
Minister	CAS	DPS
Vice-Minister	DP	DPS
Deputy Minister	Non- party	DPS
Deputy Minister	Non- party	DPS
Deputy Minister	Non- party	DPS coalition party
Deputy Minister	CAS	Unknown

Composition of the Heads of County Educational Departments, by party affiliation:

 

Counties	2000/ Minister/ CAS[37] Heads	2004/ Minster/ DPS Heads
Sombor	Non-party	DPS
Zrenjanin	-||-	DPS
Novi Sad	-||-	DPS
Pozarevac	CAS	DPS
Valjevo	DP	DPS
Kragujevac	Non-party	DPS
Nis	CAS	DPS
Zajecar	DC	DPS
Leskovac	Non-party	DPS
Beograd	CAS	DPS
Kosovo-Ranilug	Previous	DPS
Kosovka Mitrovica	-||-	Previous
Cacak	-	DPS
Krusevac	-	DPS

When the new government came into power, the Heads of County Educational Departments appointed in 2000 were all dismissed (except one in Kosovo); the turnover at this middle rank position was one hundred per cent. All new appointments were exclusively selected from the dominant party for this party fief (the Minister’s Party is the Democratic Party of Serbia - DPS). Since their professional reputations were much lower, this turnover meant that more-qualified people were replaced with less-professional directors. This change reflected the changes in the Ministry itself: the best experts available in Serbia were hired as leaders of the educational reform in the first government, but they were all thrown out to give place to the “reliable“ people of the new dominant party.

 

The same type of one-party control criteria can be found in all other educational institutions: The Centers as well as the semi-independent institutions (founded by the Ministry) devoted to development and evaluation of the quality of education, professional training of teachers, etc.) were reorganized. The directors of the Centers (experts and non-party people) were dismissed and replaced with less qualified people from the DPS.[38] Public companies founded by the Ministry such as the very profitable Text Book Publishing Company, were given to the DPS.

 

The same party (DPS) got the position of President of the Commission for Education in the Parliament.  On the lower side of the hierarchy, going down to the directors of the schools, the official procedure theoretically empowers the schools boards composed of 9 people (3 parents, 3 school employees, and 3 from the local government) to elect the director and send the elected candidate to be approved by the Minister. But in practice it is not so, because the 3 people from the local government who are from the party, impose the selection of the school director in many cases.[39] The forging of party criteria for appointing directors of the primary and secondary schools all over Serbia, has led to numerous public conflicts between the Minister and schools which did not want to accept the imposed and unqualified directors. Only when the schools threatened to go on strike because of the political appointments imposed by the Ministry, were they able to win the battle for more qualified and professional directors of the schools. [40]

 

The analyzed pattern of “party recruitments” is not specific only for the Ministry of Education, or for the Ministry of Finance. Upon investigating the individual appointments of directors at the local level, in schools, libraries, cultural centers and etc., and noting the number that were appointed by the central government, it was evident that non-party candidates have had almost no chance to get a director position in local-level institutions[41]. The analysis of some individual cases has shown that at the very moment when one party   “conquers” a ministry, the local party functionaries start insisting to party headquarters that they get the leading position against other candidates in the competition. The party administration prepares the case for the Presidency of the Party to influence their ministers to appoint “our people”.

The described widespread practice to give almost absolute advantage to a “party candidate” has marginalized both fair competition and professionalism for the managing positions. By preventing competition and weakening professionalism, corruption has become protected within the political/party hierarchy and has been influenced from the top positions of the government. This is a general rule that is being applied in all ministries and middle administration positions in the county institutions and companies - down to the local level offices.[42]

 

Public companies[43]

 

Privatization in Serbia is only half finished. In total, about 50 percent of the companies are still owned by the state, or have mixed state, “social” and private property. When taken together, 40 percent of the total workforce lives in the unreformed economy.

 

The most important aspect of state capture is the ‘seizure’ of the public companies. Parties in the ruling coalition exclusively manage them. Public property has thereby effectively been converted into “party property” and is managed in its interests.  And it is a huge amount of assets that has been captured. The 17 biggest companies founded by the government of Serbia are managed by the parties that comprise the ruling coalition at the National level: - the managing boards, presidents, and directors - are compiled and by a quota system are divided up among each of the parties of the ruling coalition which appoint the management positions as if the companies were their own property. All other public companies – about 500 – are in the hands of the ruling coalitions at the local levels (see the quadrant[44], below).

 

There are many indicators that management hiring decisions in the public companies do not follow the criteria of merit, experience and qualifications. Nor are managers held responsible for results. If the government wants to keep low prices, producing losses, the managers appointed by the parties must comply. This is the case with electricity prices that are lower than in the rest of the region. Justification for controlling prices in electricity (or other prices) is the socially- based argument of subsidizing the low salaries of the population; it also serves to present inflation nominally lower. But the low prices have also provided substantial real benefits to the private interests of the party-related firms that are selling electricity abroad. Such discretional decisions about prices in public companies can bring enormous profit to the tycoons who are financing the parties of the ruling coalition.

 

Since public companies are the political-power stronghold of the ruling parties, they are used in many different ways. Benefits for the party include the companies being used for the employment of party members and for rewarding party functionaries for their loyalty with the extra incomes of directorships. Parties may also get free direct services such as publicity for their campaigns, the publishing of journals and advertising materials, the delivering of presents to the socially deprived in the name of the party, etc. They even serve to control media: the biggest public company, Electro-distribution of Serbia, has purchased 14 percent of the shares of the daily newspaper Politika, using public money to retain government control over the news media.[45]  The Government has direct control over the public company Radio-TV of Serbia (RTS), even though it was supposed to be an independent information public service[46]. In a somewhat different way, the Government controls Vecernje Novosti, the most popular daily, by preventing an independent person from buying a majority stake. On the contrary, it was sold to tycoons close to the government and its ruling parties. On the local level, the ruling parties control the public media. The most-recent drastic case was to dismiss the editorial board of the weekly papers in Zrenjanin. This was done by Kostunica’s DPS, which had taken control of the municipality.[47]

 

The ‘right’ to appoint directors, as well as managing boards, is not subject to any public control regarding the use of resources or salaries for the management board. Nor is there any independent external auditing of the real situation in the company. When asked about the salaries of the top management, the directors of the public companies chose not to answer, saying that it is a “secret”.[48] Detailed research on salaries in public companies shows that the average income of the employees is not significantly higher that in other enterprises. Income is much higher only for the top-management boards who, in individual cases, receive more than 500.000 dinars per month (6 thousands euros, in a country where the average salary is 200 -250 euros). Incomes for the members of the managing boards vary from company to company but they can be two or three times the average managerial salary. The true benefit is even much greater because it is not a job, but a position that can be held in addition to regular jobs or other positions.

Party-nominated management boards are not there to control and supervise the business results of the company and work for the public interest, but to “close the eyes” for their own and party interests. Public companies are the nest of corruption and the loss of public money. This can be changed only by the process of privatization. The IMF suggests that real reforms will start when public companies, (most often monopolies) enter an adequately-designed and controlled privatization process.[49]  Only then will the real reforms in Serbia take place.

 

 

 Local level: The Case of the City of Novi Sad

 

The city of Novi Sad was selected as a case study to demonstrate the link between party gains and the turnover of executive employment in municipalities and their public companies, utilities and services.  This city is a clear case of the party shift after local elections because the Serbian Radical Party (SPR) won the last elections in 2004 (with two coalition partners: the Socialist Party of Serbia and the DPS) after the Democratic Party (DP) with its coalition partners had dominated the city for 8 years. The Radicals got 35 elected members of the City Assembly, and with their partners, had a majority of 42 representatives (out of 78 assembly members).

 

As has been demonstrated at the national level, state capture of all positions in public offices is the model operating at the local level as well. On the local level it is more visible how elected people get jobs in public companies, and how nepotism operates together with cronyism. 

 

The Structure of the City Authority

Government/Secretariats	City Council 2004-*	City Council 2000-2004
Mayor (directly elected)	SRP	LSV[50]
City Architect/Urbanism	Quota of SRP	LSV
City manager	SRP	-
Budget and finances	SRP	DP
Communal activities	SRP	DP
Transportation	SRP	LSV
Social protection	SRP	CAS
Sport	SRP	DP
Environment	SRP	-
Culture	SRP	LSV
Education	SPS	Reform Party/Vojvodina
Economy	SPS	RP/Vojvodina
Administration and legal affairs	SPS	DP
Health	DPS	CAS
Information	-	Social democratic party (SDP)

The table shows the government structure by the party-related distribution of the “ministries” and positions in the local government. It shows that there was a 100% turnover after the local elections: one party (coalition) enters the local government and takes over all public positions; after the next election, another army comes to take their positions.  It also demonstrates that no professionalism is needed.

 

The cost in terms of managerial capacity is enormous. As soon as one group of managers gets the knowledge and experience to lead health or education etc. it may be thrown out and replaced after the next elections. Hundreds of people who were appointed by the Democratic Party before the last elections had to find another job[51], and it will be the same with Radicals when they lose the elections and a new coalition comes into power in Novi Sad. Investments in the training of local government cadres are a complete waste, without establishing professionalism criteria in the local institutions. Since local government and services are closest to the needs of the citizens, the practice of totally politicizing local functions is damaging to public interests, as if local governments exist only to employ party cronies, families and friends.

 

The “turnover” of power is used in several different ways for the benefit of the party cronies, families and friends against the citizens and the public interest:

 

1) To get leading positions in the public companies. Of the 42 members of the Assembly who were elected, 24 got jobs in public companies in the positions of directors and professional posts. Three members of the City Assembly elected from the DP list, left their party and joined the Radicals majority for family reasons (to protect their husbands from losing director positions which they had in the previous distribution of managing positions in the public companies).

 

2) More than 1000 people got jobs without public advertisement and competition in the city administration and public companies. During the first 13 months of the rule of the Radicals, 965 people from their party were employed in the public companies and utilities (while the DP employed 654 people during the 8 years of their rule).  Many of the employments were based on nepotism (family and friendship ties), creating numerous public scandals. The mayor of Novi Sad reacted to nepotism scandals by delivering a special announcement “that she is against nepotism and conflict of interests, calling appointees to show public awareness and give up positions obtained in such an immoral way”.  But nothing has changed. All the “immoral positions” have remained in the hands of family members, party cronies and friends.

 

3) More than 30 people without the required educational qualifications, via family and party ties, got jobs in the city administration, in leading positions. The jobs were in the public companies and utilities (there are 15 such companies under the rule of the city and they are in the hands of the ruling coalition) and in institutions of culture, urbanism, museums, school boards and directors and etc.

 

4) The Radicals and their coalition partners (DPS and SPS), who divided the public companies, have ignored the previous practice that the presidents of the managing boards of the public companies (and institutions) and the presidents of the monitoring boards must be from different parties. This practice had enabled some elementary internal control to be established. Now both the president of the managing boards and the presidents of the monitoring bodies are from the same party.

 

5) The dramatic lowering of the qualifications of the appointees in the local government and companies, has led to huge losses which must be covered by the city budget (which is created from the money of the citizen tax payers). The financial reports of the city companies have shown that they have been making less and less profit; the city transportation company has had a five-times bigger loss (deficit) than it had in 2004 (when the Radicals came to power) while the biggest company (The Sport Center of Novi Sad – SPENS) has suffered losses for the first time in its history. The City Assembly passed a revision of the budget by which an additional 750 million dinars in subsidies was approved for the city companies. This means that more than half of the city budget is being used to subsidize public companies.

 

6) The salaries of the directors in the public companies have been raised to such an extent, that 44 of the directors of the public companies and institutions (as well as their advisors and deputies), were on the list of millionaires of Novi Sad. The Director of the Public Transport Company which has had the biggest deficit has the biggest salary; the second on this list is the Director of the Institute for Building Novi Sad, the third is the Director of the Business Premises Areas, and so on. All directors with the highest salaries are high functionaries of the SRP and some of them are also members of the National Parliament. 

 

In conclusion, data for the City of Novi has demonstrated that the “capture state” and its feudal mechanisms installed by the ruling parties, has operated on a local level in an even more visible and arrogant way; it has severely corrupted the public sector at the expense of the citizens and their public interest.

 

 

 

III. Degradation of the Serbian Parliament and Multiple Functions of MPs[52]

 

Serbia has a proportional election system: the whole country is one electoral unit, and each competing party offers its list of candidates for the 250 seats in the Parliament. This electoral system usually produces coalition governments because no single party can gain a majority. The parties’ top leaderships (mainly the president of the party) have been able to take control over the seats in the Parliament first by composing the candidates’ lists and then by deciding which candidates will enter the Parliament after the elections, irregardless of their order on the list. The arbitrary selection of who will enter the parliament is a relevant corruptive mechanism of state capture permitted by the electoral law.  Moreover, those who are selected to enter the Parliament are obliged to sign blank resignations prior to entering the Parliament. This has become an illegal ‘invention’ of the parties. These blank resignations are kept by the party leaders, who activate them as needed. If an MP is disloyal or does not vote as instructed (this is especially so for the MPs of the ruling parties), s/he is stripped of his or her mandate and thrown out of the Parliament. This illegal practice was introduced by Kostunica’s minority government.[53]  It was illegal because (on May 27, 2003) the Constitutional Court (responding to the complaint of Kostunica’s Democratic party of Serbia which was stripped of its mandates) decided that the mandate belongs to the individual MP, thus establishing the principle of the “independent mandate”.  This decision limited the power of the party, but it opened up the opportunity for the misuse of the mandates, such as “selling the mandates”. Mandates were bought, when needed, either to keep the majority of the Government, or by the opposition to try to overthrow government. Not all cases of “disobedience” fell into this category[54], but the illegal expulsion of the MPs became the “method” used by the Government to assure its majority and the composition of the Parliament. The “method” was implemented through the Administrative Board of the Parliament which is composed of the ruling parties’ representatives.[55]

In trying to eliminate the corruptive mechanisms in the Serbian Parliament, the Venetian Commission on Serbian Electoral Legislation has suggested that the electoral legislation in Serbia has to be changed to make clear that (a) mandates belong to the individual MPs, and (b) parties and coalitions must announce in advance the numerical order of the candidates who will enter the parliament from the lists instead of being allowed to choose after the elections which candidates will get the mandates. Under current practice, citizens never know who they are voting for. But instead of enacting the suggested reforms of the Electoral Legislation, the new Constitution, created by the agreement of the four leaders of the parties, clearly states that the mandates belong to the parties. The ratification of the new Constitution made it more difficult to eliminate corruptive mechanisms from the Parliament.

To cement their obedience, MPs are corrupted by being given money for trips they never made and for Parliament committee sessions they never attended. But the main bribery mechanism lies in the opportunity of the MPs to accumulate offices: MPs can simultaneously be mayors of cities (or municipalities), president of the regional government[56], or members of the local governments (“councils”) and be on the managing boards of funds or agencies, They can be elected as assembly members  on all other local levels (city and province).They can be business advisers, city land bureau directors and members of the managing boards, presidents or directors of public companies. The only limitation for MPs imposed by the Law on the Conflict of Interests (passed in April, 2004) is that they may not have a managerial position in more than one public company at a time.  By the same law, MPs explicitly have the right “to keep their managing rights in other business enterprises, if that does not influence their public functioning and their impartial and independent performance”.

Holding multiple functions allows MPs to have several sources of income (see Chart 1). It is shown in Chart 1 that 61% of MPs have other functions, of which  44% have one more function and 17% hold two or more functions.  Getting the most lucrative functions in a public company is possible only by decision of the president of the party. This gives the party presidents great power by allowing them to deliver ‘rewards’ to other party functionaries. The richer the public company one gets, the more he/she will gain by sitting on the managing board.

Chart 1: MPs multi-functions  - Total MPs=246

 

Chart 2: MPs multi functions by content - Total MPs=246

I have identified 23 individual MPs who have 4 public functions; 17 mayors of the cities are MPs. [57] When some of the party leaders were interviewed about the reasons for the accumulation of functions, the answer was that the mayors of the cities and municipalities, and the directors of city land bureaus and other institutions want to be MPs for the immunity they enjoy. Another reason for function-accumulation in few hands comes from the oligarchic structures in the parties: it is easier to control a small number of people than a wider group in the case of the dispersion of functions. Some MPs hold all representative roles (cities, provinces) below the National Parliament. Being liberated from the restrictions of the Law on the Conflict of Interests (which is tightly controlled by their parties),  and enjoying a widely-defined immunity, the MPs can provide ‘state capture ’ in a literal sense as the ‘seizure’ of laws to the advantage of corporate business via influential political links in the Parliament.  They have the privilege to be “legally bribed”.

Regulations on conflict of interests serve to set standards for public office performance, build citizen confidence in state institutions, and prevent multiple functions and corruption. In essence, these regulations put limits on the accumulation of functions by public officials, which always leads to the concentration of power in a society and the degradation of public interest. If public officials are acting in many public roles, they can not comply with the requirements of any of the roles, thus damaging public interest. The Law on the Conflict of Interests passed in Serbia has not met public expectations for the following main reasons:

1)     Many public functions were not embraced by this law, including roles most likely to be exposed to corruption, such as positions in the courts, prosecution offices, police, customs,  tax administration, intelligence and security organs, jails, health and social funds and many other important functions;

2)     The law allows  the accumulation of functions;

3)     The Republican Board for Preventing the Conflict of Interests is not professionalized. It does not set criteria for the election of its members (even education requirements do not exist) and their competences are not defined (except for the three members elected by the Supreme Court). Members of the Board have other jobs in the private and public sectors and they make decisions ad hoc (they meet from time to time, the Law does not say how often the Board will meet and according to what procedure). How they are elected is also questionable ( the Supreme Court elects 3 members, the Bar Association 1 and the National Parliament 5 on the proposal of the Serbian Academy of Sciences and Art), giving SASA a de facto majority on the Board;

4)     The Law does not contain sanctions for the conflict of interest. The Board can only give non-public warnings followed by public recommendations for resignation if the non-public warning does not have an effect on violators of the law. The property of the functionaries is a secret not available to the public, etc.

 

IV. Regulatory Institutions, Laws and Anticorruption Policies in Serbia: An Overview with Special Attention Given to the Law on Financing Political Parties

 

From the point of the ’state capture’ problem, we will see what Serbia has been doing to create independent regulatory institutions, and anticorruption policies. We will investigate how far it has proceeded towards controlling the political governing process and the powerful “political class“, and towards reforming the economic process so as to reduce and eliminate monopolies and the special privileges of the business elite (tycoons) based on political influence. 

 

If Serbia wants to join the EU integration process, she must build strong anticorruption institutions whose target must be to improve the performance of the public sector in general, rather than to reduce corruption per se. She must develop a professional and merit-based civil service as an important step in the long-term process of reducing corruption; she must establish the supreme independent auditing institution to control budget expenditure and audit how taxpayer money is spent (this institution should control all public budgets, including the Serbian National Bank and the managing of public money, public companies, political parties etc). She must establish a functioning Ombudsperson position and anticorruption commissions and agencies and build a wide network of regulatory institutions and monitoring boards which can strengthen the capacity of the society to prevent the excessive influence of state organs and political voluntarism. Effective legislative improvements are also needed in the fields of A) free access to public information, B) the elimination of conflict of interests (which I have previously commented on), C) the promotion of free competition, D) the financing of political parties, E) regulations of the One Stop Shop concept, and so on.

 

Serbia has started to form the above-mentioned institutions but its policies have not been decisive, and the results are more than modest. The supposed regulatory institutions that have been formed all have grave deficiencies due to distorted political influence. Due to the almost total political management of the so-called independent agencies, it has even been suggested that it is better to overtly return their functions to the government in order to clarify who is really responsible. Anticorruption actions have been arbitrary and abrupt, using selective arrests[58] and phony publicity; they have been ad hoc, being formed and disbanded from one day to the next.  An indicative story refers to the formation of the specialized Anticorruption Agency, which Serbia has the obligation to create according to international conventions (the UN and the Council of Europe) she signed.  The first outline for the specialist Anticorruption Agency was created in 2002 (with the cooperation of the OECD and the Council of Europe). Drafting of a Law on the Anticorruption Agency was delayed by the present government. Only recently (October, 2006), the public learned that the Government has prepared a proposal about the Agency. It will not go into effect until at least October 1, 2007.  Among the responsibilities of this Agency will be the control of the financing of the political parties.

 

I will now give a brief overview of some of the anticorruption institutions and laws that exist, giving special attention to the Law on the Financing of Political Parties because of its key role in curbing state capture and the links between political party leadership and the economic elite (tycoons).

 

 

1) Almost nothing has been done to introduce professional requirements for appointed positions. An improvement was made in the state administration, by passing the Law on State Administration (it came into effect starting in July, 2006). According to this Law, deputy ministers will be professionalized and positions will be advertised.  But, as always, the problem is implementation. Contrary to the declared intentions of the Law, the Government has begun organizing an almost total politization of staffing from the top to the lowest positions of the administration. The staffing initiative started when new elections were announced (for January 21, 2007). All of a sudden, in November 2006,[59] a large number of advertisements for “deputy ministers” appeared in the newspapers. The intention is to transform their party cadres into “professional civil servants” and entrench them in the government administration after the elections. Along with this typical “political” implementation, the Law also has other deficiencies because it does not cover public servants in the police, the customs, security, tax administration etc. Experts say that there is no “political will” in our politicians to give up party influence over state administration. Such a change can only happen if Serbia advances towards EU integration and applies the policies and procedures that are required for membership.

 

2)  In 2005, Serbia passed the Law on the Institution for State Audit, but the Institution has not yet been established. Serbia is now the only country in the region that does not have a State Audit Institution. In public, the predominant opinion is that there is no readiness of the Minister of Finance (and the government) to permit auditing control of any of the state institutions, national budget, financial statements of the Government and ministries, local governments, public enterprises, political parties etc. In Serbia there are no well- qualified auditing companies if EU standards are taken as a measure. The best that exist, knowing that a state audit would be highly-exposed to political influence and lobbying, do not want to risk competing for the job.[60]

 

3) The Ombudsperson Law was passed but no one has yet been appointed to that position. In Vojvodina an “Advocate for the Citizens” exists, and a similar position was recently created in the City of Belgrade, but on the national level the situation has remained stagnant from the beginning. As is the case with some other important institutions, the Ombudsperson became a Constitutional category, so that may help it to function in the future.

 

4)  Anticorruption agencies and commissions have not yet been formed although the National Anticorruption Strategy was passed in the Parliament in December, 2005. What still exists is the Anticorruption Council, a body, comprised of civil society representatives, which was formed during the first transitional government, and which will be dismissed since the new Agency just mentioned will take its place. There are a couple of NGO organizations that are dealing with corruption. The most prominent and active is Transparency Serbia;

 

5) Regulatory institutions are being developed in Serbia but they are not independent from the executive or from political, and business influence. Their lack of independence has destroyed their reputations from the outset. Each institution has the same problem: they are purposely designed by law not to function. The most scandalous case of fixing the work of such type of the institutions was Republic Radio-diffusion Agency (RRA) for the “neutral” distribution of the national frequencies to TV and radio stations. A whole book can be written about the scandalous work of the RRA. Other less well-known examples include competition policy and the ’Antimonopoly Commission’.

 

Because of the huge domination of monopolies in Serbia (she has received the lowest grade – 1 for competition policy),[61]  it has been said that Serbia does not have any competition policy. Most of the public companies are monopolies; private firms as well look for privileges in order to avoid market competition (most commonly, protection is purchased by buying laws via connections in the Government).  To curb monopolies, the Law on the Protection of Competition was passed last year. The “Antimonopoly Commission” was established after a long delay. The law will not be effective because of its evident deficiencies: it does not punish domination of a market, but only the “misuse of such a position on the basis of “reasonable discretional estimation“.

 

6) The latest draft law on foreign investments included the concept of One Stop Shop and it is another example of grave distortion of a good idea. The World Bank gave very serious remarks on how the law will open wide the door to corruption because of its deficiencies.  In the law, the One Stop Shop will be virtual; it will not be an actual office. Each municipality (there are almost 160 in all) will be a One Stop Shop. The actual shop will simply be the discretional judgment of the mayor, and, for larger investment – the Minister of Economy.  The One Stop Shop can be at the service of an investor, or he can be deprived of it, depending on the discretional decision of the mayor or the Minister, independently of what the law says. Discretional decision-making provides an open invitation to pay-off requests.

 

The Law on the Financing of Political Parties

The Law was passed in 2003 but it did not meet the expectations to prevent secret, under the table, party financing, which has become a tradition in Serbia, since the introduction of the multi party system in Serbia in 1990. The government and the parties are supported by big capital contributions and it is a well-known public ‘secret’ that the tycoons finance all the major parties.  Individual donations are officially limited for the regular functioning of a political party to 10 average salaries for persons (per calendar year this amounts to 2,600 euros), and 100 average salaries for organizations (amounting to 25,000 euros). For election campaigns, the limit to donations is determined in relation to the funds provided from the budget (it is around 350.000 dinars, and 1.4 million dinars for an ongoing campaign). Each contribution must be recorded in the accounting books of the party and anonymous donations are forbidden. In practice, however, the Law is not adhered to and the names of the donors are not disclosed, although by law each donation over 100 dollars must be reported along with the name of the donor.

What is needed is a transparent model for financing the parties and an efficient control mechanism. Serbia must pass such a law; there are many good practices that can easily be adopted and implemented.  But the ‘financing law’ will be useful only if Serbia passes a law on political-party organization which is currently lacking. The law presently in effect is the old socialist law about ‘social-political organization’.  This law is urgent because there are more than 400 parties in Serbia. Any serous control must start by clarifying what constitutes a political party and what the procedures for its creation and activities should be.

The main problem of the existing Law is that it does not provide for the establishment of a separate institution to monitor the funding of parties nor a separate body charged with supervision. There now exist two control bodies which should not be connected with each other: the Republic Electoral Commission for the campaigns; and the Parliament Board of Finance for controlling regular party activities and financing. This supposed control body is composed of party members who submit the financial report. This means that the parties control themselves. Although these organs can employ professional reviewers, they abstain from doing it for two reasons: first, they lack the political will to really control the party financing; second, these two bodies (the REC and PBF) do not have a budget to pay reviewers. Furthermore, these two bodies do not have the legal authority to start procedures against a party that violates the law; they can only initiate a process that must be carried out by other organs. This practically renders inexistent the control of the parties by the law.[62] The law suffers from other deficiencies, such as the stipulation that 20 percent of the money from the budget set aside for party financing should be distributed to the parties at the beginning of the campaign, and 80 percent at the end of the campaign (according to success in elections). This means that parties have to find money from other sources, because they need money at the beginning of the campaign. Uncertainties in the Law and especially its weak control, have paved the way for the undisciplined behavior of the parties. The majority do not respect the law, and do not submit complete financial reports in due time. No parties have published their financial reports and made them available to the public, although it is required by law.

Despite the parties having avoided transparent financial operations by taking advantage of the weak control mechanisms of the law; they have nevertheless been able to receive between 5 and 7 million euros a year provided by law 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 that money.[63] Under the same political influence the supposedly independent, regulatory institutions (commercial courts, enterprise registries, the stock market and the media) have compromised their ability to control corruption.

The delay of the government to form a specialized Anticorruption Agency which would effectively control party financing (together with the Institution for State Audit), means that the coming elections will be carried out under the existing highly-deficient control mechanisms.[64]  

The preceding analysis confirms that Serbian anticorruption policies are weak, and as such, contribute to state capture and corruption. It also confirms that if there is no political will to curb the corrupt state, no law is good enough. The law can be perfect but it will still not function if there is no will for it to be implemented and enforced.

 

V. Survey on public opinion on corruption and state capture

 

I have analyzed objective data on state capture as a ’framework’ to show that there is ongoing large-scale corruption. But for anticorruption policies it is essential to  know what the citizens, as the principle stakeholders,  think about the mechanisms of state capture, how much  they trust state institutions, how they  judge  “party“  job allocation in the public sector, what they think of the multi functions held by the politicians and how they think corruption should be fought. I have divided  the survey data  on the public opinion of the citizens of Serbia into three sections: (1) concerns of the public about corruption and public confidence in the main state institutions and party leaderships; (2) judgment about the existing criteria for job allocation for the leading positions in public offices and what the criteria should be, including the approval/disapproval on holding multi functions by the politicians;  (3) tolerance to and awareness about corruption in public offices, and what citizens think the most efficient strategy to fight corruption in Serbia should be.

 

Concerns about corruption and confidence in institutions

 

The citizens of Serbia think that corruption is one of the four most important problems of the country. When citizens were asked to spontaneously choose the main problems Serbia is facing, the responses were the following: unemployment (55 %), low standard of living ((37 %), Kosovo (23 %) and corruption (28 %).[65]  High awareness about corruption has a direct impact on their trust of the main state institutions. Mistrust in the institutions and the perception of them as being almost totally alienated from the interests of the citizens is alarming. Their answers to the question “which public institutions” work for the interests of the citizens and for the general public good, show extremely low confidence in the institutions: only 6% of the citizens think that political leaderships work for the public good; Parliament gets only 8 percent positive votes,  ministers -  9%, government  11%, courts 12%, local governments 15%, public companies 20% and so on. All the institutions have a dramatically more negative trust vote than positive (see Chart 3 bellow).

For whose interests are these institutions and organizations working?  Using a scale from 1- 5, for each selected state office, the results are extremely worrying. A great majority of the people, 71%, think that state offices work in their own interests, 70% say that they work for their parties, 69% say they work for their relatives and friends, and the same amount think that they work for “powerful people and businessmen”. Only 13% said that state offices work in the interests of the citizens!

 

In response to direct questions about the public organization or office in which corruption is the most widespread (using a scale of 1-5 for each institution), 77% think that the political parties are the most corrupted, tied for second with 75% were doctors and MPs, and so on (see  Chart 4).

Job appointments for public offices

Citizens have a realistic perception about how positions in public offices are filled, confirming my research data. When asked about how appointments should be made, the response was almost totally opposite to the practice in reality.  The citizens indicated that merit-based appointments should be the most important criteria used. More than 90% said that it should be the first criteria taken into account (Chart 6). A dramatically different picture was given about how they view the practice to be in reality. Citizen responses estimated that party membership and family/ friendship ties are the most used criteria (77% and 76%, Chart 5), while merit and qualifications play a much lesser role in the selection process.

Perceptions about the procedures for recruiting for jobs in public offices show that 49% of the citizens think that advertisements for public office positions do not exist, and that the parties independently allocate these positions to their own people within party coalition agreements. A total of 40% think that when positions are advertised, the competition is fixed in advance. Only 8% percent of the interviewed citizens think that public advertisements of positions and the opportunity to apply are accessible to everyone.

 

The general public perceives the holding of multiple functions by politicians to be a negative practice and a problem. Over 90% of the total sample of citizens had this point of view. Among responses regarding multiple functions, 27% said that this phenomenon was caused by greed for money (to have many sources of income); 24% said that it is a problem because it is not possible to exercise so many functions and to perform them properly and in the interest of citizens; 20% estimated that multiple functions mean a concentration of power in fewer hands and that it is not democratic; 19% estimated that multiple functions give too much power to the parties. Only 9% said that having multiple functions is not a problem if someone is sufficiently capable to fulfill them all in a proper way.

 

Citizens, as well, disapprove of the practice that highly-positioned statesmen/women are simultaneously playing active, high-level roles in their respective parties.  Fifty-four percent of the sample disapproved of the practice, 29% expressed their disapproval only for the highest positions (Prime Minster, President of Serbia and ministers) and 15% think that having both an active party function and a state duty or duties does not influence the effectiveness of their performances of both roles.

 

 

Tolerance to corruption in public offices and the efficient anticorruption strategy

 

 

The citizens of Serbia are very sensitive and intolerant to corruption. They said that if they knew that a politician from the party s/he usually votes for was corrupted, s/he would go to the party to denounce him (34% of the answers), 33% would not vote (would abstain), 22% would vote for some other party and 4% said that in spite of the corruption they would vote for their parties because the others are not any better.

 

Other indicators on the same issue once again demonstrated a high sensitivity and intolerance for corruption. Citizens claimed that they would immediately denounce someone who would ask for a bribe, but my opinion is that this is an overestimated expression of action that would not really be carried out when faced with bribery. In response to a question about the relative corruption of political bodies (saying that political corruption is the same in developed countries but did not prevent them from developing), 45% strongly disagreed with such a statement, while only 13% agreed (the others did not express an opinion).

 

Concerning why corruption is not being eradicated, 46% of the respondents expressed the view that the state is doing little to curb corruption because corruption is located in the state organs, while 21% felt that the institutions such as the courts, inspections and budget controlling mechanisms are not working and a lesser number that said that there was no money to fight corruption, that political parties are not giving enough support and citizens are not supportive.

 

What do citizens think would be the most efficient policy to fight corruption?  They gave three main and mostly supported answers. First, special and independent bodies must be created to fight corruption as the only focus; second, the rule of law and independent courts must be strengthened, and third, internal and external controls must be established for all public institutions together with sanctions for those who violate the rules and standards in the public sector.  A small amount, about 5% each, mentioned the need to increase the involvement of all citizens, the need to prohibit multiple functions, the need to introduce obligatory standards of behavior for all public servants, and the need to develop investigative journalism.

 

 

Conclusions and Policy Recommendations

 

General Conclusions

 

 

The complex transition process in Serbia remains overloaded with the specific problems of the past decades. Among these problems is the large-scale corruption which has survived during the six years since Milosevic was ousted from power. In the post-Milosevic period, Serbia has passed many laws and new institutions have been established to fight corruption. But the result is unsatisfactory, mainly because the laws are deficient (or improperly implemented), institutions are weak, and controlling mechanisms are almost non-existent. During the post-Milosevic period, there has been a tendency to install state capture as the corruptive and non-transparent norm of public sector governance in Serbia. This trend is due to the growing stabilization of an oligarchic social structure and the loss of a strong pro-European and reformist policy orientation in government. Serbia has not yet established differentiating lines to separate political and economic sectors. The high convertibility of influences between them has created a non-transparent and unaccountable government, undermining the main state institutions including the Judiciary Branch, the Parliament and the principal regulatory and controlling institutions. This politically dominated system, created a framework for systemic corruption.

 

Accompanying these typical  “transitional” problems are the specific difficulties that Serbia has as complying with her international obligations to extradite Ratko Mladic and other accused Serbs to the ICTY for war crimes. The postponing of this obligation has held up the negotiations with the EU about the S&A agreement with Serbia, curtailing, at least temporarily, the EU influence on institution building in Serbia. The lack of “political will” for serious institution building in the area of judiciary independence, professionalism, good governance and accountable executive organs has been clearly demonstrated.  Unrestrained political leadership in Serbia has converted, to a great extent, the multy party system into a rigid, party-feudal, governance over public institutions and citizen interests. This conversion was identified as the phenomenon of state capture, which works on a two-way track: it seizes state influence and all public institutions for political elite interests, and trades them for the illegitimate needs of privileged business (tycoons) in return for secret financing.  

 

In summary, the results of my research on state capture and my survey of public opinion have demonstrated the following practical problems relevant for policy options:

 

1)     Tycoons have become part of the system (government) by buying political influence  to ensure their monopolies (which keep prices higher[66]), getting  favorable laws and various privileges;

2)     There has been an increase in discretional decision-making of the ministers and government;

3)     The administration of tax, customs, police, services and utilities etc. has become highly politicized;

4)     Multiple functions, exaggerated immunity, throwing out MPs from the Parliament,  mingling of the highest party and state functions, ownership of the mandates by the parties all indicate the formation of an oligarchic political structure;

5)     Political/party influence over the new regulatory institutions has been expanded by corrupting their control mechanisms, their selection processes, or simply, by delaying their establishment;

6)     Power has been concentrated in the executive branch enabling it to subjugate the Parliament and the judiciary system to such a degree that there is no effective control mechanism over government[67];

7)     Citizens have lost their confidence in all public institutions and in politicians because of state capture mechanisms i.e. their imposing their own interests over public interests.

 

 

Policy options and recommendations

 

The main policy problem is: How can legal limits and effective control be established over the currently-unrestrained party leaderships in managing the public sector and public interests?  The policy should constructively lead to the creation of good governance institutions and a supportive legal environment rather than focus entirely on the negative consequences of the system’s illness.  To investigate these opportunities, I will mention the positive elements of the changes that have occurred in the post-Milosevic era and point out public actors who could implement new policies to curb state capture. These positive elements for policy changes are:

 

-          Economic reforms have not been discontinued during these 6 years (a short break was visible during 2004, especially in privatization), which leaves the door open to the development of liberal, competitive markets and the completion of the privatization process. Progress in this area will reduce the extensive state interference in the economy, diminish the power of monopolies and the seeking of “favors” for business, and will augment the shift towards a  new style of entrepreneurship and corporate business based on law and markets;  

 

-          Political competitiveness has not been completely eliminated; there is still room for new political alternatives. There are important differences in the main political orientations of existing parties, giving citizens the opportunity to vote for those which are reformist and EU oriented;[68]

 

 

-          Despite some negative actions of the government against the NGOs, they are growing stronger, raising their leadership capacities and strengthening their potential for influence by forming coalitions, engaging in joint actions, and cooperating with the new control institutions such as the Ombudsman for Information.[69] Investigative journalism is at its beginning, but it has already produced some positive results[70];

 

-          Institution-building and the development of a legal framework in the area of good governance is under way, it needs to be continued, improved, implemented and monitored;

 

-          Citizen awareness about corruption and state capture mechanisms is growing. They are the most important stakeholders and they need to establish alliances for combating extreme party/government power so that more- accountable and transparent governance can be established in Serbia.

 

 

Based on the findings of the research and the positive tendencies that now exist for combating state capture, it is evident that if policy strategy is to be effective, it must be simultaneously carried out on three different policy levels. The first refers to the international level. In the context of Serbia’s ambition to join the EU integration, the focal point must be to renew the suspended S&A negotiations with the EU. The condition for lifting the suspension should be Serbia’s full commitment to its international obligations by extraditing Mladic and others accused of war crimes to the ICTY. Without opening up and making firm progress on the road to EU integration, it is highly-unlikely that significant results can be produced on the second and the third levels of policies for combating state capture and systemic corruption. EU support for wider political, economic and institution building reforms is essential. The second policy cluster refers to the institutional and legal improvements that must be introduced in the area of fighting corruption in order to achieve the goal of reaching the benchmark of corruption reduction to grade 5 measured by the TI CPI index (which signifies bearable corruption). The third level of policy measures requires activating the society, civic organizations, professional associations, media and NGOs to a sufficient degree so that they can exert effective, systematic external pressure on the government so as to bring about its accountability, transparency and responsiveness to the citizen’s needs and interests.

 

On the first level policy, to break through the political stalemate of Serbia’s international obligations, the following EU policies are recommended:

 

1.      Actively support the  pro-European democratic forces and the civil sector,  aiming at marginalizing the old nationalistic forces, which are the anchor of the state capture system and anti-European values and institutions;

2.      Urgently demand that the new Serbian Government, which will be formed after the upcoming elections (January 2007), extradite Ratko Mladic and other accused Serbs to the ICTY, in order to continue the negotiation process with the EU. The fulfillment of the obligation to the ITCY would give enormous potential to Serbia  to eradicate the secretive state bodies of the old regime in the police and military, which are the true stakeholders of state capture, nationalistic manipulation and anti-European policies;

3.      Strongly support Serbia’s EU integration process, irrespective of the present ambivalence about future EU enlargement. The integration process in itself, with its insistence on political and economic reforms, free trade, and institution building, is more important than the final goal of becoming a full member of the EU, although the goal has to remain tangible because of its motivational effects for sustainable reforms and changes.

 

 

Second level polices, refer to the institution building of good governance, derived from the analysis of state capture mechanisms and consequences. The following policies are recommended:

 

4.   Establish without delay control mechanisms in all areas of public and private sectors where they are missing. This includes the implementation of already-existing laws. The State Audit Institution must be established and given real authority to audit all public budgets. The Agency for Fighting Corruption, the Ombudsperson, and the Civil Service Agency must also be implemented. The latter is provisioned by the Law on State Administration. It will promote professionalism and the complete de-politization of state administration on all levels and sectors, requiring that all appointments be advertised and presented to the public;

5. Introduce an Ethics Code in all public institutions, especially giving weight to  the ethical behavior of MPs, government officials, judges, prosecutors, presidents of controlling boards of the regulatory institutions etc. The purpose is to raise the consciousness of ethical standards and increase the effectiveness of the public sector. It is needed to introduce the permanent education of public functionaries and civil servants in the domain of good governance. Themes covered should include the prevention of conflict of interests and the obligation to inform the public about topics of public interest, and about the need for citizens and professionals to participate in the drafting of new legislation;

6.  Eliminate the possibility of lobbying the government regarding customs taxes, petroleum excise taxes, transfers to municipalities, credits etc.  Eliminate the discretional decision-making of ministries and governments and base them on law;

7.   Improve the already-existing laws and their regulatory bodies and adapt them to EU standards so that they may be more effective in their control of executive/political influences and may prevent their collusion with private business. In particular, the new Law on Financing Political Parties should be drawn up and submitted to the Parliament and an effective control body should be set up for its implementation;

8.   Advocate improvements in the Law on Conflict of Interests which was passed with many defects. It must cover all functionaries, it must prohibit multiple public functions for the MPs and other government officials and it has to professionalize the Board for the Prevention of the Conflict of Interests;

9.   Improve  competition policy and eliminate monopolies and privileges in the Serbian economy  by introducing more effective  “anti monopoly” control bodies, by expediting privatization procedures, by legislating free trade policies and by signing free-trade agreements;

10. Develop effective strategies for selling the shares of public companies (which do not deal with natural recourses), in order to introduce responsible, efficient, and merit-based management instead of present party cronyism and nepotism.    

 

The third level policies emanate from the survey data I have presented showing the dissatisfaction of citizens with public-sector ineffectiveness and wide spread corruption. They include:

 

11. Build up civil society’s capacities and promote NGOs alliances to organize public debates about party-conditioned distributions of leading positions in the public sector and discrimination on the basis of political convictions;

12. Organize campaigns against multiple functions. Advocate eliminating the mingling of state and party functions at the highest levels. Prohibit the “feudal division” of the executive power in the new government which will be formed after elections;

13. Initiate public dialogues with the more open-minded political parties about changes in election laws, in order to strengthen the role of the Parliament, increase the responsibility and professionalization of the MPs, reduce the scope of their immunity, and enhance citizen-MP relations in proposing, implementing and monitoring the laws in the area of good governance and corruption prevention;

14. Enhance investigative journalism and public dialogues about state capture and good governance topics, as well as about corruption. Support the journalist profession in defense of the freedom of expression. Advocate real independence of the news media, TV and radio public services. Do not allow them to be an extended hand of the government;

15. Make alliances between the independent regulatory bodies (agencies) and NGOs. Facilitate their joint role as strategic partners in fulfilling their social roles including their providing education and training and their monitoring of the effectiveness of the new institutions.  

 

     Our research and survey data will hopefully serve to convince politicians and government officials to take into account public opinion and the almost total distrust that citizens have towards political institutions and political leaderships that is leading to an alarming alienation of the citizens from the political system. The systematic and sustainable external influence of the civic organizations and NGOs can bring about the changes that are needed in the leadership style in Serbia.

 

 

 

ANNEX I

 

METHODOLOGY

 

      Realization: research was conducted during the period of July 20-24 2006. 

 

      Population: Serbia (excluding Kosovo) 18+      

 

      Sample size:  1027

 

      Sample type: Three stage random representative stratified sample

       Primary stage units: Polling stations territories

Secondary stage units: Households (SRSWoR –  random walk)

            Tertiary stage units: Respondents within the household (Kish tables)

           

      Research sites: 67 municipalities in Serbia, 127 local communities, urban, peripheral and rural neighborhoods

     

      Stratification: gender, age  and region

 

      Sampling error:

±1.23% for incidence 5%

±2.45% for incidence 25%

±2.82% for incidence 50%  (marginal error)

 

FOOTNOTES: