Clientelistic capitalism threatens our democracy and prosperity

Index of Crony Capitalism or Crony-Capitalism Index is based on the ranking of the richest residents of individual countries, which has been compiled by an American magazine for a quarter of a century Forbes. The authors of the index focus on the share of GDP that is formed in areas of the economy that are close to the state and where there may be a close connection between business and politics. According to The Economist, these are, for example, banking and casinos, construction, real estate or mining.

According to the authors of the report, income in these economic fields may not only be the result of entrepreneurial diligence, but of clientelistic relationships. In such a case, the wealth is not created by higher added value, but by the “rent security” that the billionaire in question secures through close ties to high-ranking politicians and officials. Thanks to licenses or tailor-made regulation, oligarchs’ firms gain favorable terms over their competitors without having to invest in the development of production, research or innovation.

The consequence is the restriction of competition, the emergence of oligopolies or monopolies, and of course corruption. While a few oligarchs get rich, cronyism stifles economic growth and raises the prices of goods and services for the whole society.

It goes without saying that crony capitalism helps keep authoritarian regimes in power that suppress human rights, use disinformation to undermine democratic institutions anywhere in the world, and unleash bloody and aggressive conflicts and wars.

The (un)surprising second place of the Czech Republic

However, “crony capitalism” does not avoid any type of state. We can meet him in democratic and authoritarian countries, although in the second group his volume is higher. In the first twenty countries of the ranking published by The Economist this year, we can find precisely those democracies such as Switzerland, Great Britain, the USA, Japan or Germany. And in second place also the Czech Republic.

The report includes only about forty states and the Czech Republic is not regularly included in the index. However, we cannot be complacent that this is a mistake or that there are certainly other countries, including those in the European Union, where the situation may be even worse. The result is disturbing, but not surprising. Our country has been on the verge of clientelistic capitalism since its inception.

Privatization in the 1990s laid the foundations for close relations between the established political entities and the new “captains” of Czech industry, who were often recruited from the former cadres of the communist regime. The victory of the ČSSD in the 1998 elections was supposed to at least partially disrupt the existing ties, but in reality it was just the opposite — the opposition agreement between the ODS and the ČSSD only strengthened the clientelistic ties between politics and business even more.

Although rampant godfatherism almost cost ODS its political existence at the beginning of the new millennium, the situation has not improved. On the contrary, a businessman and oligarch came to the scene Andrej Babiš (YES), which became a symbol of the connection between political power and its own business interests. Under the motto “manage the state like a company”, people directly from his companies, i.e. his employees, got into a number of key functions.

A view of better times?

The political weakening, apparently only temporary, of one oligarch is not enough to change the situation in the Czech Republic. Czech society has close ties between politics and business, accompanied by clientelism, deep under its skin. After all, this is shown by a number of corruption affairs, which are not avoided even by the current government Peter Fiala (ODS). So far, unfortunately, it doesn’t seem very likely that the politicians of the current government parties would be able to at least begin to cure this vice of Czech politics. This is also shown by the last result of the Czech Republic within the framework Corruption Perception Index (Corruption Perceptions Index – CPI) za rok 2022 od Transparency International.

Somewhat symbolically, the Czech legislators at the time of the publication of the Index of crony capitalism they dealt with the amendment of the Public Procurement Act. However, the pirate MPs’ attempt to include in the law a ban on orders for companies belonging to a member of the government encountered not only the expected resistance of ANO MPs. This provision was also considered too strict by the government deputies of ODS, STAN and KDU-ČSL.

What symbolizes “crony capitalism”, based on the use of political power for economic gain, better than the risk of awarding government contracts to one’s own companies or to the companies of political colleagues and allies? The amendment to the law was returned by the Senate, but there is little hope that the amendment will pass in the House of Representatives.

It is also about the economy

The current development of the law on the regulation of lobbying or the amendment on the public prosecutor’s office, which are important for the fight against clientelistic ties in Czech politics, do not raise great hopes either.

Unfortunately, it turns out that especially the conservative parties of the current government coalition have the “wild nineties” written into their DNA more deeply than one might think when remembering their pre-election promises. Perhaps even in these parties there will be people who will not tolerate the persistent clientelism and will eventually come out against it. Especially with the strongest opposition party eager to return to power, one hopes these “braves” are found quickly.

If some conservative politicians don’t hear much about arguments about greater transparency, public involvement and the rule of law, they should hear about the economic consequences of “crony capitalism” given the state of public finances.

This not only damages democratic institutions and people’s trust in politics, but also poses a danger to economic prosperity, innovation and development of small and medium-sized companies, and mainly contributes to the impoverishment of society as a whole.