September 20, 2018

U.S. Ambassador Mark H. Gitenstein’s remarks at the Liderjust project closure

US Ambassador Mark Gitenstein delivered a speech at the Liderjust project closure.

“The Rule of Law, the Role of Lawyers & the Future of Romania”

As prepared for delivery

This is the third time I have met with the members of Liderjust.  It is particularly energizing for me to meet with young Romanian lawyers.  So it is fitting that I should make one of my last major formal speeches as U.S. ambassador to you.

I enjoy our meetings, not simply because you are lawyers like me, but because I view you as young professional Romanians who will shape the future of this country we both love.  But also it reminds me of how I felt over 40 years ago, during my first day of law school, as I sat in a lecture hall just like this one at Georgetown University in Washington.

I can remember almost as if it were yesterday why I became a lawyer.  I was a son of the segregated south, where African Americans such as those in my home state of Alabama were still treated as second class citizens.  I had seen how a power-elite — controlling the government, the businesses and the media — collaborated in repressing African Americans.  I was particularly energized by the notion that lawyers, prosecutors, courageous judges and a young president in Washington, John F. Kennedy, imposed the law of the land on Alabama and ended racial segregation.  I believed that to be a lawyer was to empower our fellow citizens against an entrenched elite.  And now, because of the courage of citizens and the power of the law, I have the privilege of serving the first African-American President of the United States.

As you yourselves have become lawyers, I hope you are motivated by similar ideals.  Your parents’ generation risked their lives to end tyranny in 1989.  Now it’s your turn to shape the future of your country.

The transition of Romania from communism has been difficult.  The transition of Romania from communism  will continue to be difficult.  As the great Czech dissident and eventual president Vaclav Havel reminded us:  “A democratic political culture cannot be created or renewed overnight.  It takes a lot of time … Communism ruled just once in modern times (and, hopefully, for the last time), so the phenomenon of post-Communism was also a novelty.”

I hope to convince you today of two things:  1) that while there is much left to be done here in Romania, you have made remarkable progress in this transition, including this summer of 2012, and  2) that you, as young lawyers, have a unique opportunity, indeed a responsibility, to play a pivotal role in completing this transition.

Let’s begin with a little history of where you have been in Romania in the last 20 years and why the rule of law is so important in this transition.  Like all post-communist central European countries, you have had to shed not simply a repressive undemocratic regime and a command and control economy, but a mentality that was — as Havel reminded us — dominated by fear.  The first ten years here in Romania were difficult.  An elite arose from the ashes of 1989.  It came to dominate large sectors of the economy, the media and the political class.  It was an elite that, in all too many cases, was connected to the old Communist regime and even to the Securitatae.  That is why so many Romanians are still afraid to challenge this elite.

Like in many other countries in the region the markets themselves here did not swiftly democratize.  Income became concentrated at the top.  Indeed, average personal income decreased over that decade of the 1990s and only returned to the 1989 level around the year 2000.

But as Romania prepared for and entered NATO in 2004 and the EU in 2007, fundamental reforms began in the legal regime and in the economy.  Foreign direct investment began to pour into Romania– between 2000-2006 the equivalent of $3000 for every man woman and child in Romania.  GDP per capita more than doubled between 2005 and 2008.  In 2008 Romania was the fastest growing economy in Europe in terms of GDP growth.

But just as fast as the economic roller coaster went up – with over 7% growth in 2008 —it came crashing down in 2009 with the onset of the worldwide recession – a decline of  nearly 7%, erasing the previous gains.  Fortunately, the government in 2009 was wise enough to request assistance from the IMF, the World Bank and the EU.  But with that 20 bn euro loan came IMF conditions and supervision.  That reform regime included slimming down the size of the Romanian government, and privatizing state owned companies that are squandering the energy assets of the country.  At the same time, the innovative supervision program by the EU known as the Cooperation and Verification Mechanism, or CVM, which had been a condition of entry into EU, required Romania to adopt reforms of its legal system, to fight corruption and to improve the administration of justice.

This overall blueprint for reform (the IMF conditions and the CVM) has begun to have a very positive impact.  It is hastening the transition away from communism.

The prior government deserves credit for negotiating and accepting this blueprint.  The current government deserves credit for embracing it.  On top of that, the prior government brought in an outside financial manager, Franklin Templeton, to manage the nearly 4 billion euro Property Fund created to compensate the victims of illegal property seizures during the communist and Holocaust periods.  The Fund, in turn, is both the largest single listing on the Romanian equity market AND a minority shareholder in many of the country’s state owned enterprises.  In that capacity it has played a critical role in building domestic equity markets and in reforming the state owned enterprises.  The Fund forced open the books of these companies.  It highlighted the so-called “smart guy” contracts at Hidroelectrica.  It  helped the former Justice Minister write a  progressive  corporate governance code.  Now, Romanian shareholders are empowered to make company executives act in a professional manner, and protect shareholder interests.

So what does this have to do with you and the law?   Everything.  Everything you learned every day in your law school courses.  The IMF reforms are spurring changes to corporate, securities, labor and administrative law.  New civil and criminal codes recommended by the CVM, new judicial procedures, and the appointment of independent judges and prosecutors — these all relate to your civil and criminal code courses.  These new rules enable you to empower your future clients, Romanian citizens, to complete the transition from communism to full-fledged democracy and free markets.  In that sense you are all revolutionaries.  You are poised to be the change agents.  IF you chose to be.

Strong, independent legal institutions are essential for this transition.  It is not enough just to give people the right to vote.  You have to empower individual citizens with the ability to vindicate their rights:  the Romanian citizens’ human and civil rights, the Romanian citizens’ rights to property and the sanctity of contract.  Without that, real prosperity and real, effective democracy are impossible.

Have you ever wondered why the standards of living in the United States, Norway, Switzerland, Canada, Netherlands  and the United Kingdom are so much higher than elsewhere in the world?  Economists and political scientists have many explanations:  culture, geography, history.

Two economists from the Massachusetts Institute of Technology in a book entitled “Why Nations Fail” make a very convincing case that one key is the development of institutions that empower citizens and protect their rights and interests.  This has everything to do with the law and what you have learned in the last few years in law school.  As one reviewer summarized, “Among the good economic institutions that motivate people to become productive are the protection of their private property rights, predictable enforcement of their contracts, opportunities to invest and retain control of their money, control of inflation, and the open exchange of currency.  For instance, people are motivated to work hard if they have opportunities to invest their earnings profitably, but not if they have few such opportunities, or if their earnings or profits are likely to be confiscated.”

And the biggest enemy of these economic institutions is corruption.  It  undermines the credibility of these institutions.  It creates cynicism.  And it deters investment.  Failure to effectively combat corruption will  chase away the domestic and foreign investment necessary to rebuild Romania.

Here is one example:  Some analysts declare that Romania could once again be the energy hub of Europe, IF the nation could attract the $10 bn necessary to modernize the energy infrastructure and build new power plants.  But these assets are under the control of state owned enterprises,  and (often) managed by individuals chosen more for their political connections than for their professional competence.  State-owned enterprises typically create more debt than profit. And, they are far too often rife with corruption.  No savvy investor will entrust capital to them.

So where does Romania stand today?

Despite significant progress, the Romanian economy is like an inverted pyramid:  1) out of 21 million Romanians, just three million are registered as working in the private sector, paying taxes and paying into the social benefits system for all Romanians; 2) based on data from the National Statistics Institute, an even greater number of Romanians are working in the gray economy and paying no income taxes; 3) the Institute also estimates that the total value of tax evasion in 2010 could be more than 21% of GDP, exceeding the size of the state budget; 4) numbers from the International Labor Organization indicate that 25% of the Romanian work force is still employed by the public sector, including an estimated 400,000 employees working for those state-owned enterprises.

This is the legacy of communism, and it is simply unsustainable.

However there are at least four reasons to be optimistic:

First, you are trying to do in 20 years what it took us in America over 100 years to do.  One hundred years after our constitution was adopted in 1789, in the so-called “gilded age” in the late 1890’s, America was dominated by Robber Barons.  These barons owned  the railroads, steel, energy, food production and controlled 65% of the US economy.  They controlled the media; they controlled the political parties; and they did everything they could to maintain the status quo.  Income seemed hopelessly concentrated at the top and average income stagnated.  Corruption was rampant.  The power elite thwarted change and delayed reform.  This was the United States in the 1890’s.  Have you seen this pattern anywhere else recently?  The scenario is all too familiar.

Along came President Teddy Roosevelt and the American reform movement in the first few decades of the 20th century.  They introduced antitrust laws, political campaign reforms and other good government rules, including the direct election of U.S. Senators.  In 1920, women won the right to vote.  Power began to decentralize.  Average income began to rise.  In short, we created the kind of empowering institutions described in that book I mentioned, “Why Countries Fail”.  And America became the envy of the world.

The second reason to be optimistic is that the blueprint laid out in the IMF conditions, the CVM and other reforms adopted in recent years have begun to reverse this inverted pyramid of the Romanian economy.  To turn things around, Romania must see these reforms through to the end.  And Romania must stay open to new ideas, such as the extensive agenda set out by the American Chamber of Commerce in Bucharest this past week, an agenda designed to make Romania more competitive.  In a speech delivered to Parliament last February, while he was in the opposition, the current Prime Minister laid out 15 points on government reform that  demonstrate multi-party support for critical initiatives like the CVM, the strengthening of the DNA and the National Integrity Agency.  And he made a commitment to go beyond this blueprint.  For example, he proposed the private management of state owned enterprises and challenging the so-called “smart guy” contracts.  Under the Prime Minister, the new government has taken steps to fulfill these commitments.

Third, as the most recent CVM report pointed out, the fight against corruption is making real, measurable progress.  The DNA, the Prosecutor General and ANI are relentlessly investigating charges of corruption;.  The Superior Council of Magistrates is emphasizing responsibility along with judicial independence.  And the courts, starting with the High Court, are increasingly showing the courage to resist political pressure and hold accountable those who steal the wealth of the people.  As a result, in the last two years, the number of sentences for corruption has been higher than the prior five years combined, including convictions of a former Prime Minister, a former minister and a former High Court judge.

Fourth, after all the political and economic instability this past summer, which I recognize brought out deeply-felt emotions on all sides, the rule of law ultimately triumphed.  The fact is that the referendum was conducted in compliance with the Constitutional Court’s rulings, and the government accepted the result even though it was contrary to its political goals.  The real test of a republic is whether those in power comply with the law in hard times as well as in good times, and especially when it doesn’t serve their interest.

This is important: neither the successes cited by the CVM nor the positive conclusion this past summer would have been possible without the courage and tenacity of lawyers, judges and prosecutors, who were all young lawyers and magistrates like you at one time.

The challenges ahead are formidable.  Romania approaches a difficult and possibly divisive election.  I am frankly concerned.  When the political wars are over, will the Romanian polity return to some form of civil stable cohabitation?

The first test will be the appointment of a new General Prosecutor and DNA Prosecutor.  It is critical that the persons appointed to these high offices enjoy the full support of all the major parties; that they be prosecutors who are independent, apolitical and, above all, as competent and courageous as their predecessors.  That will not happen if the “best and brightest” candidates hesitate to apply.  For the United States, this selection process will be a very important criterion that will affect how we judge our strategic relationship with Romania.

I am often asked why this is so important to us.  It is really quite simple.  Romania is our ally.  We have committed to share a common future.  In Iraq and Afghanistan, we have shared common sacrifice.  But until we know that the rule of law is secure; until we know that these empowering institutions are independent, we cannot be confident that you are a stable ally.

It is also of significant importance to American companies, residing here in Romania.  We expect a level playing field.  Our companies are prohibited by U.S. federal law, the Foreign Corrupt Practices Act, from engaging in bribery.  I and my successors will report to our Department of Justice any violations of this law by U.S. companies.  And I feel a deep personal commitment to help you attract more American investment.

To be clear, I am optimistic because I really believe that these blueprints will work.  And I believe that at their base, all major political parties here seek what is best for Romania.  In their hearts they know that this approach really is in the best interest of Romania.

But most of all I feel optimistic about young Romanians like you.

I would like to end with a short story about a program I have spent tremendous time and energy on since becoming ambassador.  It’s called Restart Romania.

Every time I travel around Romania I ask my staff to set up a meeting with young Romanians, especially those working with Western companies or those who aspire to do so.  The one thing I found they all shared was that they were almost all on social networks.  They don’t trust existing political parties or the media, and they are very concerned about Romania’s future.  They were especially concerned about corruption.

So with the help of an innovative tech based NGO called Tech Soup, we decided to design a social networking project directed at these people filled with a desire to change the way Romania thinks.  With the generous support in both time and money from the tech community and with money from the US Government, we created Restart Romania.

It was a really simple concept.  Using crowd sourcing, we engaged on-line communities and asked them how they would fight corruption.  It led to nine creative websites that promote innovative programs to fight corruption in the healthcare system, detect the illegal theft of Romania’s abundant and beautiful forests and meet many more social challenges.  In the past year, the Restart Romania site, media banners, and six project sites have collectively received over 1.5 million views in Romania, representing more than 20% of the online population, either to learn more or to contribute their experiences.

I am confident that there are many more who are willing to speak out for change.  These are not just your fellow citizens but your future clients. So use what you have learned in law school to empower them and yourselves and finish the revolution your parents started.

God bless you!

God bless Romania!

God bless America! Not only what you know but also who you know makes a difference

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