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Costs of clientelism for the local administration and state owned enterprises

EFOR ANNUAL REPORT: The bazaar governance

We focused mainly on two important dimensions of the public sector: the transfers of funds for local development, which are the main source of investment in public infrastructure at sub-national level in Romania and all over Europe; and public companies (State Owned Enterprises, SOEs).

The distribution of investment funds in the territory (plus the subsequent procurement process) alongside public, state or municipal companies are the main sources of political patronage and sources of illicit resources for parties. If these two valves could be more transparent and objective, the Romanian policy would remain without 80-90% of the resources for campaigning and the party-building process.

Our 2018 report summarizes the results of several EFOR’s clientele measurement projects in these two crucial areas of government. This is a study of the enormous costs of uncertainty, the lack of stable rules, and permanent negotiation for sharing public resources that have come to be synonymous with politics in Romania and the region. It is, in other words, a study on bazaar governance.

In short:

  • Governance and bazaar budgets increase the costs public goods and services;
  • Money with short-term horizons and affected by allocation uncertainty are used poorly, with low efficiency or ad-hoc priorities;
  • The bazaar budgeting discourages innovation and investment in real, long-term expertise; it is opportunistic and favors spot transactions;
  • As long as the rules of the game encourage bazaar budgets, the public interest in absorbing more bureaucratic and more transparent EU funds will continue to decline, despite official statements that this is a priority;
  • Only stable and transparent rules, which allow realistic prioritization and multi-annual planning, increase the value of consumed public resources ;
  • Good governance and innovation will only emerge if we change the incentives system for local elected representatives and SOEs managers; that is, if we change the rules of the game

Open the Map of Clientelism Map v. 3.0 to see the allocations and transfers for investments between 2004 and 2018

Regarding the economic governance in Romania, we are in a dilemma: we do not know how to balance the democratic control of institutions with the professional management of regulatory and audit authorities, which, according to EU practice, must be separated from everyday politics. In other states, parliaments are a balance factor in the selection and oversight of these regulators.

In Romania, Parliament proves to be the most catastrophic mechanism of appointment and control, favoring imbalance, unscrupulous politicization, and practicing the reduction to the lowest common denominator from a professional point of view. Involving the political factor in democratic governance is, of course, inevitable, but finding a formula through which it can be reconciled with a minimum of promoting real skills remains a future agenda for us.

Unfortunately, on the current global populist and anti-meritocracy wave, perceptible in both Romania and other European countries, it is hard to see how to build support for moderation and competence. Even anti-corruption arguments do not necessarily have a large audience, as has been seen so many times when criminally or convicted people are voted and re-elected in elections.

Conclusions related to allocation for the local government

• The allocation rules for investment and emergency funds (the National Program for Local Development, the Reserve Fund and the Intervention Fund) are vague and are not stable over time
• FR / FI allocations are made through numerous exceptions to the law, making the rules of the game unpredictable
• There are significant differences between FR / FI allocations and payments, and the promise to allocate funds represents a strong incentive for mayors during electoral periods; however, funds distributed for emergencies are not contracted even after 2 years
• There is no vision for investments on long terms and they are planned ad-hoc, without predictability; money with short-term horizons and affected by allocation uncertainty are used poorly, with low efficiency
• Political changes at the center may affect allocations and payments to the local government; projects risk losing the funding
• There are significant difficulties in identifying outcomes and tracking the evolution of projects funded through PNDL and emergency funds; procedures for PNDL 2 (2017-2020) have not become more transparent
• Procurement to political related and corrupt companies destroy fair competition, lower quality and raise prices for works

Read more details in our annual report