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Post-communist predation: modeling reiderstvo practices in contemporary predatory states

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Abstract

While the economics of predatory states has been at the center of an emerging discussion, a rich body of literature on predation already exists in the scholarship on post-communist regimes. This paper offers a glimpse into that literature, developing (1) a typology of coercive corporate raiding (“reiderstvo”) and (2) a model for understanding the logic of contemporary predatory states. The typology starts from the original form of reiderstvo, carried out by criminal groups (“black raiding”), and introduces the concepts of “grey” and “white raiding”. We identify “centrally led corporate raiding” as a form of state predation not considered in public choice models, despite the fact that it exemplifies the functioning of contemporary authoritarian regimes. Expanding the models of Leeson (J Inst Theor Econ (JITE) 163:467–482, 2007) and Vahabi (Public Choice 168:153–175, 2016), we show how centrally led corporate raiding can be incorporated into the discussion of predatory states. We provide illustrations by offering two examples from the predatory state of contemporary Hungary, the case of an outdoor advertising company (ESMA) and the case of the banking sector.

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Notes

  1. Other post-communist member states of the EU are democracies and—as we will argue in the paper—centrally led reiderstvo requires an autocratic level of power concentration. That condition is present in Hungary (see Sect. 3), but not in countries like the Czech Republic, where predatory degeneration can be associated with state capture by competing private groups instead of an uncontested predatory head of the executive branch with de facto patrimonial control over the instruments of state coercion. See Klíma (2019).

  2. While we will assume the discouragement effect away for the sake of simplicity, it must be noted that, in real-world cases, it never is eliminated completely. To take an extreme case, experts estimate that at least half of Russia’s GDP is produced in the shadow economy, at least some of which can be attributed to hiding assets from predation (Yavlinsky 2013, p. 109). However, some other predatory states like Hungary manage to attract large investments by offering various benefits and guarantees to foreign direct investment (Magyar 2016, pp. 172–173; Gagyi and Gerőcs 2019).

  3. Indeed, Vahabi lists four factors that influence appropriability (state accessibility, concentration or dispersal, asset specificity and measurability), but of those, only one—asset specificity—is relevant in the case of modern predation.

  4. True, often it is not the victimized company that is damaged, but its owner (physical abuse). However, asset depreciation is an important factor that needs to be taken into account after predation, or in the long run when the company remains in operation. As a reviewer pointed out, capital depreciates over time and as economic progress proceeds, firms will need entrepreneurial activity to enable them to keep up with the market. In our model, we treat the latter as being included in the Vahabian factor of appropriability, which involves entrepreneurial skills. Indeed, the chief patron engages in predation if he is optimistic about maintaining the value of the plundered asset.

  5. Meaning both roving and stationary bandits, in the Olsonian sense. Also, see Vahabi (2015, pp. 41–89).

  6. Many examples are provided by Magyar (2016) and Magyar and Vásárhelyi (2017). More recent examples from Hungary can be observed in the ongoing case of Lake Balaton, the most popular destination for domestic tourism, where a large number of beaches, hotels and other facilities have been acquired by the adopted political family. For journalists’ reports, see Dunai (2018), Tamásné Szabó (2019), Balla (2019), Fokasz (2018), Nagy (2019) and Keller-Alánt (2018).

  7. The setup is analogous to feudal times in Scandinavia, where agriculture was barely taxed because weather conditions made average crop yields so low that the cost of the tax colleting apparatus would have been higher than the tax revenue itself. Professor Zoltán Balogh in the 1970s called that imbalance—in Marxist language—“uncollectible surplus value”, which was the reason that an independent peasantry could develop in Scandinavia in the first place.

  8. The quotation, as well as others in the following discussion, were translated by us from Hungarian.

  9. The literature also uses the term “’repeated privatization’: nationalization of the already privatized companies followed by the alternative ’fair’ privatization” (Chernykh 2011, p. 1240).

  10. The eight great banks at the time of predation were (in alphabetical order): Budapest Bank, CIB Bank, Erste Bank, K&H Bank, MKB Bank, OTP Bank, Raiffeisen Bank, UniCredit Bank (Király 2015, p. 192).

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    Bálint Madlovics & Bálint Magyar

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Madlovics, B., Magyar, B. Post-communist predation: modeling reiderstvo practices in contemporary predatory states. Public Choice 187, 247–273 (2021). https://doi.org/10.1007/s11127-019-00772-7

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