Janine Wedel - Shadow Elite - How the World's New Power Brokers Undermine Democracy, Government, and the Free Market

As millions of television viewers witnessed this unprecedented spectacle unfold, Rywingate unmasked the institutionalized nature of informal power relationships ( uklady ) and—as never before—brought the issue into the national conversation. For the first time, what everyone knew to be true but could not be publicly stated was placed before everyone’s eyes. While Rywingate provoked public discussion of “corruption,” the case was not primarily about corruption in the same sense as, say, bribery. It was about the privatization of power: Had Rywin et al. succeeded, they would have effectively privatized the legislative branch with regard to a key issue of media control and conglomerates. Yet, characteristically, no inquiries got to the bottom of the affair, not the parliamentary hearings, not the investigations by the Warsaw prosecutor, not those of Michnik’s own paper. Despite months of legal and parliamentary investigations about who approached and said what to whom, to this day it has not been legally established who was responsible for the manipulation. Many puzzles remain, such as who authorized the intrusion into the legislative process and the activities of prominent individuals. 37

The allegedly proposed deal never quite materialized. Still, somewhere in the neverland of state and private was the elusive, albeit real “group of power holders” whose mechanisms of influence were stronger than the government’s.

Appropriating the State

One way to observe the influence of institutional nomadic groups and less well-organized networks is to examine the state budget. To see a big impact, one need only look at the destination of significant sums of taxpayer money. The record of 1990s Russia and Ukraine—of massive looting of the state and the transfer of national treasures to Western banks and tax havens—is by now well established. But even Poland, a transition “success story,” legislated many opportunities for private players and organizations to not only appropriate public resources to their own purposes, but to do so legally and even to expand the realm of the state in the process. The culprits, organizations known as “agencies” ( agencje ) and “targeted funds” ( fundusze celowe ), at times have consumed as much as a quarter of the state budget, with some of these public funds going it’s-not-clear-where. The defining feature of these entities, as sociologist Antoni Kamiński has explained, is their unclear responsibility and functions. They do not have the same legal status as state bodies, but they use and allocate state resources, rely on the coercive powers of the state administration, and have broad prerogatives supported by administrative sanctions. NIK, Poland’s rough equivalent of the U.S. Government Accountability Office (GAO), reported that, as recently as 2006, these entities continued to result in losses to the state budget. Until the latter 2000s, by which time they had been substantially reined in by government regulation, the entities were subject to limited public accountability. 38

The boom of these entities in postcommunist Poland is steeped in paradox: They are not communist holdovers, for it was the first Solidarity governments that enacted legislation to enable their creation and proliferation. Although these entities fuel under-the-table dealings in the gray zone of state and private, they are legal. At the same time, they aren’t official bodies, but they are vehicles of potential enlargement of the state sphere, despite the privatization of other parts of the same state.

While a few analysts, journalists, and, notably, committed public servants at NIK have tracked these entities, their workings have been largely hidden from public view. I took an interest in them in the mid-1990s, following up information that began coming to light about their existence by talking with people affiliated with them, as well as investigators tracking them. Among my informants was the director of NIK, Lech Kaczyński, whom I interviewed in 1999, with frequent interruptions from his twin, Jarosław. (Six years later Lech Kaczyński took office as president of Poland; his brother became prime minister at the same time.) Lech acknowledged that, with agencje and fundusze celowe , “much taxpayer money flows to private hands on a large scale.” In fact, despite the country’s success-story reputation, the number of these bodies grew through the 1990s. 39

The ability to set up and empower such bodies with one’s own creates a perfect vehicle for institutional nomadic groups and less organized networks to achieve their private agendas and make money for themselves. A 2000 NIK report characterized fundusze celowe as “corruption-causing.” The auditing body substantiated the “lack of current controls” over their activities and concluded that they enjoy “excessive discretion” in their use of public resources—considerably more than that of state organizations. One example is that of PFRON, the Fund for the Rehabilitation of Disabled People, set up to subsidize the employment of handicapped individuals. Considerable discretion was built into every level of decision making, from whether a particular workplace was subsidized and the amount of the subsidy to whether that workplace used the funds to benefit its disabled employees. 40

Agencje also had a lot of leeway. As provided for by law, agencje are set up by state officials, attached to their ministries or state organizations, and funded by the state budget. The minister typically appoints an agencja ’s supervisory board, often basing his choices on political connections, according to a legal analyst and expert on the bodies. Piotr Kownacki, NIK’s deputy director, told me in 1999 that agencje were created in all ministries with control over property, including transportation, economy, agriculture, treasury, and defense, and that they also dominated coal mining and arms. The coal industry, for example, was governed by a group of institutional nomads whose members organized themselves to cover all the bases by holding or having their fingers in as many influential government, business, and political positions relevant to their success in the industry as possible, regardless of which political parties were in power. Agricultural agencje were another case in point. With so much property under their control, including cooperative farms inherited from the communist past, agencje began “to represent [their] own interests, not those of the state,” as Kownacki put it. He observed that “most of the money is taken by intermediaries” and the state has very little control over this process. 41

This “privatization of the functions of the state” signals “areas of the state in which the state is responsible but has no control,” Kownacki said. The discretion afforded these entities has enabled them to maintain a life of their own: At times, the state authorized them to conduct commercial activities (and keep the profits), manage foreign-aid funds, invest in the stock market, start companies, and even spawn new organizations. It is as if the U.S. secretary of commerce were to set up a baseball-promotion “foundation” within the department using taxpayer funds, employ his friends and family in it, invest in the stock market, and then offer the profits to the foundation’s “employees” and to the president who appointed him. Legally. 42

Such unaccountability is self-proliferating. In setting up organizations that are easily appropriated by networks of associates, yet still part of the state sphere, the result may be the state’s enlargement . The players involved not only privatize policy; they also can help expand an unaccountable state. Antoni Kamiński argues that postcommunist legislative initiatives facilitated “an indirect enlargement of the dominion of the ‘state’ through founding of institutions that in appearance are private, but in fact are part of the [appropriated] public domain.” This larger, less accountable state is made up of parts that are run by informal groups and networks that conflate state and private agendas and, in their roles as officials, help distance the state from responsibility and accountability to the public. In theory such a state, however self-enlarging, is responsible for the use of its resources and the well-being of its citizens. Yet in practice, as the state widens, accountability slips ever further away from its citizens. This aspect of the state is not altogether dissimilar from an evolution that can be tracked in the United States, there with contracting out of government work as a key propeller. 43