Seven ways to supervise the political arm of Agrofert



Andrej's kind of supervision

HN this week has provided its readers with a useful summary of the risks deriving from the numerous conflicts of interest of Andrej Babis and his business associates in government and parliament.

HN mistakenly refers to these conflicts as ‘potential’ when it is the risk of abuse that is potential: the conflicts are actual. It is too late to remove the conflicts: the owner of Agrofert will become the finance minister. The challenge now is to remove the risk of abuse. Here are seven ways to keep an eye on the political arm of Agrofert.

Self-supervision

Agrofert’s Jaroslav Faltynek, who also serves as chairman of the agriculture committee in the lower house of parliament, explains his preferred method of supervision: "We shall deal with this ad hoc based upon each case. If there is something that directly concerns Agrofert, then the person involved will declare it in advance, so that it is known, but that is all.” (Budeme to řešit ad hoc podle konkrétní situace. Pokud by to bylo něco, co se přímo týká Agrofertu, tak to ten člověk samozřejmě dopředu řekne, aby se to vědělo, ale to je všechno.)

Such an approach might be appropriate for a municipal golf club or the church council. But ad hoc voluntary disclosure, or more simply said, self-control, is not the way to manage the conflicts of interest of the finance minister of an EU member state.

Cabinet supervision

Bohuslav Sobotka assures us that he will keep an eye on Babis. This is most assuredly NOT reassuring. Is it not just as possible that Babis’s coalition partner will sooner cover up for him than expose him? The last thing Sobotka wants is an early election. Like Petr Necas before him, Sobotka will go a long way to keep his government in power. If this involves hiding the abuses of fellow cabinet ministers, then abuses will be hidden.

It now looks as if the Sobotka government will abandon the practice of surrounding a minister with deputies from another coalition party. At the very least, this habit allowed each party in the government to keep an eye on their coalition partners. Even this supervision may now be removed at the insistence of Babis. The Czech government, it seems, is to resemble an industry association where competitors share only the necessary minimum to accomplish common goals.

Presidential supervision

If we cannot rely upon Sobotka to supervise Babis, and we cannot rely upon Babis to supervise himself, then who can we rely on to exercise the necessary supervision over Babis? The Czech Constitution implies that the head of state, amongst other institutions, should play this role. But Milos Zeman is much more intent on dividing CSSD than on supervising Andrej Babis. The president’s objections to the composition of the new cabinet have all been directed at Sobotka’s political allies, not at Babis’s business associates. Indeed, the president enthusiastically endorses the Babis line that expertise is more important than accountability in the executive branch of government. One ANO ministerial candidate who is clearly not conflicted, Martin Stropnicky, is the one ANO candidate to whom Zeman strongly objects.

Parliamentary supervision

Then there is the opposition in parliament. It will try to hold Babis accountable but it is too weak to do so well. The ODS is in disarray. This leaves Miroslav Kalousek. Be sure that Babis’s first 100 days as finance minister will be spent softening up his ministerial predecessor, who is already a soft target. Come Easter and it is possible that the de facto leader of the opposition will have been tamed -or ruined.

Media supervision

Perhaps the media will keep a watchful eye on Agrofert's political department. But that part of the media which is not now owned by Babis is owned by other local businessmen whose primary interest is profit, not the public interest. Daniel Kretinsky, Zdenek Bakala and Frantisek Savov may all decide that self-censorship is a more profitable commercial strategy in dealing with Babis than public exposure.

Regulatory supervision

Then there is the business community. In my opinion, this is a more promising source of effective supervision than the president, the opposition and the media combined. Agrofert’s competitors have the money and the motivation to try to stop Babis abusing his executive political power. But their ability to do so will depend in large part upon the willingness of the state competition authority to investigate the market behaviour of Agrofert.

This is not as easy as it sounds. Agrofert is a conglomerate made up of some 200 companies trading in a wide range of products. In order to establish whether any part of the Agrofert octopus is abusing its market power, the competition office must determine which companies and products are the real competitors of the particular Agrofert firm or Agrofert product in question –the so-called relevant market. By defining the relevant market, the competition office sets the boundaries within which a company can exercise market influence. Only once the relevant market is defined can the competition office identify market abuse. If the competition authority concludes that parts of the Agrofert conglomerate hold a dominant position in their relevant market, stringent regulation and supervision will follow. And if market abuse is discovered, onerous financial penalties will be imposed.

If Babis is afraid of anything, it is an active and independent competition regulator staffed by qualified competition economists and lawyers. Without it, the supervision of Babis by his business competitors will prove much less effective. I wonder whether Babis's enthusiasm for experts will extend to the Czech competition authority, which today is led by a very inexpert CSSD politician called Petr Rafaj, a graduate of the mining academy in Ostrava. Two years ago, Milan Broucek, the chief economist of UOHS resigned and went to work for the Slovak competition authority after his department was axed by Rafaj. (An explanation of why Rafaj broke up Broucek's team of economists at UOHS can be found here - http://blog.aktualne.centrum.cz/blogy/james-de-candole.php?itemid=16444). Somehow, I do not think we can expect Babis to push for an effective competition authority, led by an economist who understands how conglomerates abuse their competitors.

Civil society supervision

Finally, there is the supervision exercised by you and me -civil society. Babis presents himself as our ally in the struggle with a corrupt political elite. ANO 2011 has formally adopted the legislative reforms of civil society’s most ambitious and focused political project for years, the Rekonstrukce statu initiative. But it is far from obvious that Babis has embraced the spirit of these reforms, all of which are intended to make the exercise of executive political power less concentrated and more accountable. By publicly siding with the Rekonstrukce statu initiative before last October's elections, Babis established his credentials as an ally of anti-corruption campaigners. If it turns out that he was acting in bad faith, I am sure the watchdogs at Rekonstrukce statu will be the first to bark.

It is clear why Babis is keen to surround himself in politics with his business associates. He can rely upon them to do as he tells them. This concentration of political power, combined with an accumulation of media interests, is presented by Babis’s admirers as the justifiable means to sweep aside a rotten political order.

And if his admirers are wrong and Babis sweeps aside the country’s failing institutions together with the rotten party politicians that have hi-jacked them –what then?