The Impact of Cohesion Policy on Corruption and
Political Favouritism
Balázs Váradi, Anita Győrfi, Tamás Molnár, Petra
Reszkető
Download our paper:
http://www.budapestinstitute.eu/BI_Green_Cohesi
on_201610_final2.pdf
V4Europe Pieces of Populism, June 8th, 2017
Cohesion Funds
• Cohesion Policy:
• Structural Funds for regions below 75% of EU average
GDP/capita (PPP)
• Cohesion Funds for regions below 90% of EU average
GDP/capita (PPP)
• Targeted at 25% of EU citizens (2014-2020)
• Total transfers: 0.36% of EU GNI in 2012
• Certain countries (e.g. Hungary or Poland) receive more
than 2% of their GNI
• Declared goal: Reduce regional disparities in
development
„Guiding principles”
1. Funds are targeted at the least developed regions
(concentration)
2. Regional and local authorities should be involved in
the planning, implementation and monitoring phases
(partnership)
3. Priorities are fixed for seven-year periods
(programming)
4. Financing through the Structural Funds is intended to
complement national investments in the same fields
(additionality)
The political economy of international aid
• The effects of aid are dependent on the nature of the
institutions and the political regime in the receiving
country (Burnside and Dollar 1997)
• Aid might further compromise institutions, placing a heavy
burden on bureaucracy and creating dependency (Knack
2000, Harford and Klein 2005)
• Receiving aid might limit economic development
(Bräutigam and Knack 2004)
• Removes incentives for reform
• Influences priorities
Empirical findings
• The manner and efficacy of spending CF in the target
MSs are largely affected by
• Institutional quality
• Italy: Administrative capacity matters in implementation (Milio
2007)
• Political processes
• France: Cross regional allocation of infrastructure
developments determined by electoral concerns and
influence activities (Cadot et al 2002)
• EU: Regions politically aligned with the government receive
more (Bouvet and Dall’Erba 2010), less integrationist states
receive more (Carrubba 1997)
• The strength of sub-state actors
Effects on growth
• CP is able to increase income in supported regions, but it
may crowd out private investment (Varga and in’t Veld
2011)
• The positive effect on GDP is stronger in more developed
regions, convergence on the national level (Cappelen et
al 2003)
• CP furthers growth only in open economies (Ederveen et
al 2003)
• The transfers in the 1986 -1996 time period had no
significant effect on the regions’ convergence (Boldrin
and Canova 2001)
Types of corruption
• Diverting stated development goals for private gain
• Influencing project selection for private gain
• Bribery/favouritism in the public procurement
process
• Fraud in the use of funds
Types of corruption
Many other mechanisms, not fully addressed
• The issue of absorption
• Crowding out budgetary resources
• Non-corruption rent-seeking (!)
• Exchange rate
• Mentality and attitude differences - two discourses
• „Project approach+
MIN
INCOME
EP
RESULTS
SIDESTEP
GOV
OTHER
FUNDS
EVALUATI
ON
AWARENE
SS
Types of corruption
SF distribution mechanisms
represent pork-barrel politics
X
X
SF outcomes are dependent on the
nature of the institutions and the
political regime in the receiving MS
X
X
Corruption: Ineffectual control
mechanisms in the recipient MS
X
X
Corruption: Diverting stated
development goals for private gain
X
X
X
X
X
Corruption: Influencing project
selection for private gain and
Bribery/favouritism
X
X
X
X
X
Corruption: Fraud in the use of funds
X
X
Other structural problems: General
rent-seeking, crowding out, attitudes
X
X
X
X
X
X
X
X
X
X
X
X
Suggested improvements
Filtering extant ones
Criteria
• Makes some sense
• Legally and politically at least remotely possible
• Not too technical or narrow
• Not solving one problem but aggravating another
• Ones strengthening each other (synergy)
• Not against Green ideology
Suggested improvements 1
Raising awareness concerning the issue both in
recipient and in developed MSs (AWARENESS)
• a political solution needed for a mostly political
problem!
• the public opinion of net donor MSs should realize how
their contribution is (mis)spent
• the public of the recipient states should learn the sideeffects corruption causes for their societies
• cooperation with civil society watchdogs and NGOs in
monitoring and evaluation of the use of SF is crucial
• use of qualitative and quantitative data
Suggested improvements 2
Improvement of the honest EU-wide evaluation,
feedback and learning mechanisms (EVALUATION)
• OLAF could do more, more openly and could be given
more power to sanction misuse
• establishment of the long-planned European Public
Prosecutor’s Office
• The EC could take a more active role in directly
procuring, judging and publishing state-of-the-art
programme evaluations
• The EC (or even the EP) could support watchdog
organizations and promote civil monitoring initiatives
(investigative journalism)
Suggested improvements 3
Tackling geographical asymmetries in other parts of the
EU budget (OTHER FUNDS)
• E.g. sums earmarked for research and innovation,
education and training, trans-European networks,
social policy, economic integration and accompanying
policies under the title ‘Competitiveness for growth and
employment’
• Unwelcome side-effect of channelling funds to the
most developed areas of Europe
• Could be fine-tuned to also contribute to the goal of
cohesion
Suggested improvements 4
Trying to sidestep, as much as possible, MS
governments and instead directly target local actors:
local governments or NGOs (SIDESTEP GOV)
• Difficult due to resistance of MS governments
• Pre-conditions:
• flexible funding
• participatory grant-making (including participatory
needs assessment, diverse options in terms of
grant size and type; encouraging strategic thinking,
and ensuring liquidity for budget-constrained)
Suggested improvements 5
More result-based conditionality to be built in the ECMS institutional-contractual relationship (RESULTS)
• Make (future) transfers conditional on measurable
social results achieved
• Political constraints
Suggested improvements 6
More frequent and thorough democratic scrutiny of the
implementation of all stated goals of cohesion policy
should be exercised by the European Parliament in its
supervisory capacity (EP)
• More overseeing of the whole process by the
European Parliament (civil servants of the EC and
especially MS governments represented in the Council
being more likely to be a part of the problem)
• This can be done directly by the client…
A major alternative
Spending most or at least a large proportion of the present
Cohesion Funds budget on a Europe-wide social safety net
to the materially most deprived citizens across Europe, e.g.
a uniform low conditional minimum income transfer scheme.
A major alternative
Severely materially deprived
(% of the population, 2012)
30
25
Cohesion countries
Not Cohesion countries
20
15
10
5
0
BG
RO
HU
LV
LT
CY
PL
IT
EL
IE
MT
SK
PT
EE
UK
CZ
SI
BE
FR
ES
AT
DE
FI
DK
NL
LU
SE
A parallel: the US Food Stamp Program
• Example: US Supplemental Nutrition Assistance Program
(Food Stamp Program)
• 1964- (after pilots)
• Food-purchasing assistance for low- and no-income
people living in the U.S
• Federal aid program, administered by the Department
of Agriculture
• Benefits are distributed by states
• Total benefit cost (2014): $74.1 billion (0.43% of GDP)
• Supplied 46.5 million people (average $125.35 per
person per month)
Difficulties and opportunities
• Many issues to be resolved: institutions, costs, incentives,
crowding out, etc.
• A lot of detailed calculations are needed to calibrate this
• Major Europe-wide political shift needed for this to be
accepted (e.g. a new coalition of the anti-poverty left, the
disillusioned right and target MSs anxious not to
completely lose CF)
• But also establishing a direct link between the poorest of
Europe and the EU institutions
Thank you for your attention!
Comments are welcome at
[email protected]
The paper can be downloaded from:
http://www.budapestinstitute.eu/BI_Green_Cohesion_20161
0_final2.pdf