w 109 long-run economic aspects of the european union's eastern ...

LONG-RUN ECONOMIC ASPECTS OF THE EUROPEAN UNION’S EASTERN ENLARGEMENTNowhere in the CEECs and Turkey does the judiciary receive good scores. Otherstudies have dealt with this problem 7 , but it is clear that it takes many years andsustained efforts before mindset, skills, procedures, laws and resources will havebeen adjusted so as to ‘complete’ transition and serve the credibility of the internalmarket. Corruption is another worrying phenomenon which is reported to bepresent, and often increasingly so, in all CEECs and Turkey. This report does notpretend to provide new data or insights about corruption in Central Europe. But itis useful to be mindful of the following considerations.Firstly, corruption can take many forms. One should be careful not to mix themup; what matters for the proper functioning of the IM is that regulation and supervision,correcting or preventing market failures, lead to the desired impact onactual or potential conduct of economic agents, and that market participantscontinue to find the (actual working of the) internal market credible. Thus, laxbanking supervision because of bribes or political patronage or neglect of cartelsbecause of privileged networks should be seen as problematic. By contrast, paymentto a police officer so as to prevent a traffic fine (a pure redistribution, with asimilar deterrence effect) or a hidden present for a tax official to avoid a hefty billfor an individual tax payer, might be regarded as the ‘lubrication’ of a society withlarge income differentials and badly-paid civil servants.34Nevertheless, corruption is like cancer. The example of East Asia has long beentrivialised by the ‘lubrication’ theory. The problem is that petty corruption revealsopportunities for big corruption and the cancer then spreads to leading bureaucratsand politicians in power and to business executives, if not cronies, whospecialise in rent seeking and perverse incentives. Sometimes, criminal actorsenter this game as well. Indeed, for some Central European countries, the Commissionand other sources report that business ethics are undermined by organisedcrime and corruption, as if the two are indistinguishable. This phenomenoncan damage transition in several ways. Also, comparing corruption with cancer ishelpful in suggesting that the actual functioning of the internal market does notmerely depend on formal adoption receiving high scores. Invisibly, other forcesmay well undermine the benefits of market integration. It is also helpful insuggesting radical measures which require strong political and administrativeresolve as well as an independent and accessible system of justice. But preciselythese conditions do not fully apply in Central Europe, be it in different degrees.Secondly, by definition, data on corruption are unreliable. It is true that highdegrees of liberalisation and simplification of procedures (e.g. licenses) stronglyreduce the opportunities for corruption. Thus, whereas Poland stands out as anexample of immediate ‘shock’ liberalisation, bribes and other corruptive favoursare endemic in Poland because widespread licensing prevents economic freedomsfrom being enjoyed automatically. But beyond such fundamentals, data must relyon anecdotal evidence from individuals, without ever being capable of measuringdirectly the extent of the problem. It is also exceedingly hard to define precisely