Educated as if for corruption

It is true that in recent years people have dared to do business, the shootouts in the center of Sofia have long been forgotten, and shady deals seem to be disappearing (or are simply being more skillfully concealed). However, is corruption in Bulgaria a fading phenomenon? Although such a development has been a long-standing dream, its implementation still seems more like a mirage than something feasible in the foreseeable future. Scandals such as "Misho Beer", the cases with FIB and CORP, the accusation of "foreign barbaric" ERPs for the short circuit in the energy sector, as well as the constant personnel changes in the state sector continue to remind us that corruption is far from being eliminated and even continues to run at full speed.

Corruption around the world and in our country

Corruption is far from being a “native” phenomenon, invented and nurtured in Bulgaria. We are neither the first nor will we be the last, where a handful of people manage to benefit at the expense of others. The European Commission (EC) recently emphasized that corrupt practices within the entire EU bring losses worth about 120 billion euros per year. A significant amount, considering that it is about three times larger than the economy of Bulgaria. The latest study by Transparency International – an agency that makes annual assessments of corruption around the world – showed that low levels of corruption are the exception rather than the rule and are observed only in the most developed economies and ... Chile.

However, this should not serve as an excuse, because in terms of corruption, Bulgaria is right next to countries such as Mongolia, Senegal, China and Jamaica. In fact, within the EU, only Greece registered higher corruption activity in 2013, and Bulgaria's result is more than twice as bad as that of the leader Denmark.

The ultimate effect of the presence of corrupt practices is the deterioration of the business environment. Something that in recent years has led to an outflow of investors from the country. According to the latest Global Competitiveness Index, Bulgaria occupies a seemingly acceptable 57th position, but this is mainly due to macroeconomic stability, as well as technological readiness and the high percentage of the population with primary education. In terms of the key institutional environment for business, the country remains in the unenviable 107th position out of a total of 148 countries. A particularly bad indication is that Bulgaria does not report any improvement in this regard, and the reason is the usual high levels of distrust of the political elite, the poor judicial system and many other well-known woes. With the passage of lobbying laws, the appointment of figures close to the political elite in the judicial system and opaque government spending, the problems will not only remain, but will also deepen.

A major problem remains the high incidence of bribery. This trend not only increases the costs for business, but also undermines its trust in the environment. According to the aforementioned EC report, about 13% of respondents in Bulgaria stated that they had been asked or expected to pay a bribe in the past year. For comparison, this is more than four times higher than the EU average. Moreover, nearly 82% of respondents stated that cases of corruption are not punished and prosecuted effectively, which sharply increases the possibility for it to flourish.

Corruption schemes necessarily involve placing key figures in key positions in state departments. In other words, it is not entirely coincidental that with the coming of each new government, ministers, heads of state enterprises and agencies are replaced. Personnel changes started as early as the coming of the BSP and MRF to power. First, the management of BEH was changed, and a week later, leading figures in the NEK companies were laid off. The personnel turnover at customs was not long in coming, and the five regional heads were appointed to other positions in the system as early as early August. Of course, the arguments for the decisions are standard – optimization, policy changes, personal reasons for the dismissed managers, and sometimes there is even no explanation at all. The question is how these structures operate smoothly and effectively for years, and when a new government comes into power, a bunch of irregularities are discovered, a goal is set for a comprehensive structural reform, managers are changed and everything blossoms within the next four years (on paper). Every term we supposedly take a new path, but the visible effect is zero - no progress is being made in terms of corruption.

Educated as if for corruption?

And while most of the negative consequences of the “under the table game” are visible, there are also problems that remain invisible to the general public. Every corrupt deal requires maintaining a certain level of discretion. This need for secrecy, in turn, redirects investments to less productive, but significantly less transparent sectors such as infrastructure and national defense at the expense of education and healthcare, where the likelihood of corrupt practices coming to light is dramatically higher. In other words, the need to maintain secrecy inevitably restructures the public sector in a way that reduces the risk of corrupt practices being revealed. You have probably already guessed that it is in the government’s interest to artificially maintain monopolies, since in this way, statesmen control external interference in the sector, limit public information, and more easily plan the bribes they can take from the monopolist company.

In this regard, it is no coincidence that in Bulgaria the monopoly in the energy sector seems completely unbreakable, given that there have long been energy models around the world that prove that an absolute monopoly in this sector is unnecessary and extremely inefficient. It is also no coincidence that the Ministry of Interior and the Ministry of Defense will occupy 34% of the total budget of all ministries in 2014, while the budget of the Ministry of Education is planned to reach only 7%.

In fact, this redirection of state funds from the education sector to less productive activities (such as building highways or completely unnecessary nuclear reactors) in order to ensure corrupt practices is not only visible in Bulgaria, but also occurs all over the world. However, the negative consequences are significant. The International Monetary Fund (IMF) estimates that a reduction in the corruption index by about 2 points (out of a total of 10) leads to an increase in education spending as a share of GDP by 0.5 percentage points. [1] In relation to Bulgaria, this means that if we were to catch up with the results of Slovenia and Lithuania in terms of corruption, education spending would have to increase by 400 million leva per year. It doesn’t sound bad at all, especially when we note that with such a reduction in corruption, investments would have to increase by over 4 billion leva, according to IMF calculations. In short, too many highways and policing is not good, as it leads to aggregate impoverishment (or at best, stagnation).

Of course, here lies the big problem with any type of state activity, which is no less valid for education. The moment it becomes clear that large cash flows are directed to a certain area (say, as will happen with the European funds for education and as happened with those for science), corruption models inevitably appear to take advantage of the funds. That is, a simple increase in money for education will not lead to less corruption, but will displace it elsewhere - namely in education. Where it exists anyway, but at a more modest level, purely for financial reasons.

Central and Eastern Europe is growing, but we are not.

The political elite in Bulgaria often makes the excuse that when the economy is small, reforms and progress are slow because we are dependent on large countries. Yes, but no! A number of economies around the world refute this statement. For example, Estonia, which has a population of 1.5 million people and an economy about 7 times smaller than Bulgaria's, began its transition in 1991 - two years after us. However, as early as 2002, Estonia registered the best result in the Global Competitiveness Index among developing countries, and today it is 25 places ahead of Bulgaria.

In other words, being small and dependent is not an insurmountable obstacle to economic prosperity. However, it requires strong political will – something that the transition has proven to be an extremely scarce resource in Bulgaria. It is now more than clear that we have taken the wrong course. The appointment of individuals such as D.P. and V.S. at the head of key institutions in the country and the drowning of regulatory bodies in a clearly expressed dependence on political interests (meaning the State Energy and Water Resources Commission) will almost irreversibly cement the country at the bottom of the EU rankings for a long period of time. The question is, will we continue to be “educated for corruption” or are we ready to take a new course?

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