Month: February 2012

A Hungarian Catholic archbishop looks at the “modern” world

David Baer, who teaches theology and philosophy at Texas Lutheran University, is interested in the fate of Hungary. He spent two longer periods in Hungary as a Fulbright scholar and is the author of a book entitled The Struggle of Hungarian Lutherans under Communism. He also has family connections that tie him to the country. His wife and two children are Hungarian citizens. He speaks Hungarian well.

On January 17 Baer decided to write an open letter to Hungarian churches in which he expressed his worries about the general state of Hungarian democracy as well as his specific concerns about the new law on churches that makes the recognition of churches as such the prerogative of politicians. He sent his Hungarian-language letter to the Hungarian Lutheran Church, which decided to make it available on the Internet.

It is a thoughtful letter. Baer is convinced that reviving the notion of the “third road” (the idea that Hungary’s future lies somewhere between modern capitalism and Soviet-type socialism) can only lead away from Europe. Baer’s sympathies used to lie with Fidesz, but today he is deeply disappointed in the Orbán government. He thinks very little of the new Hungarian constitution which “perhaps some consider to be the basis of Hungarian democracy, but then these people must realize that this specifically Hungarian democracy is contrary to basic concepts of western democracy.” In the West this “new kind of democracy is called Putinism.”

At the end of his letter Baer asks the people who pin their hopes on Orbán in the name of national interest to reconsider their opinion about Hungary’s true national interest.

The Lutherans made Baer’s letter public “in the hope of substantive and cultured discussion.” As far I could ascertain, Baer’s letter solicited only one answer: from Gyula Márfi, the Catholic archbishop of Veszprém, earlier Bishop of Eger.

Márfi was appointed to his post in 1997 by Pope John Paul II, a post József Mindszenty held in 1944-45 prior to his appointment as prince primate of the Hungarian Catholic Church and archbishop of Esztergom. Márfi spent two years (1976-1978) in Paris where he received his “diplome supérieur d’études oecuméniques.” So, Márfi doesn’t even have the excuse of being totally ignorant of Western Europe. Of course, it is possible that while in France he met only arch-conservative Catholic priests. In any case, a few years back–as Zsófia Mihancsik’s footnote to Márfi’s letter reminded me–he delivered a ringing speech on the thirty-second anniversary of Mindszenty’s death about “Hungary that is suffering from an overdose of freedom,” in fact “is in life threatening danger” because of too much liberty. In the audience was the American ambassador April H. Foley. One can only hope that she didn’t understand one blessed word of Márfi’s sermon, unless, of course, the Archbishopric provided an English translation of the speech ahead of the event. Of course, if this was the case, April Foley shouldn’t have attended.

Gyula Márfi, archbishop of Veszprém (

Márfi’s letter is very long and I will not be able to do justice to it. In keeping with the Hungarian custom of telling one’s adversary that he is ignorant, Márfi writes that, in complaining about taking the right to decide on the status of churches away from the judges, Baer doesn’t understand the Hungarian situation. Because, according to Márfi, the so-called independent Hungarian judiciary is full of judges who served the communist dictatorship and took part in the persecution of Hungarian church leaders. Naturally, this is the figment of Márfi’s imagination. In fact, by the 1970s and 1980s the Catholic Church had a very cozy relationship with the Kádár regime. Most of the church leaders served as informers for the Ministry of Interior.

Márfi also takes exception to Baer’s questioning of the current Hungarian government’s commitment to Europe. Again, he repeated, “as far as I can see, Mr. Professor, your knowledge of Europe is deficient and one-sided.” In Márfi’s opinion there is a “Christian Europe in hiding while there is a much louder, sharply anti-Christian and ultra-liberal Europe.” This Europe still recognizes “the Great Builder” but denies “the God of Jesus Christ and his Ten Commandments.” The leaders of this Europe are the ones who “overprescribe freedom which, similar to an overdose of medicine, doesn’t cure but poisons.” Europe today is a place where abortions are performed; it is the world of free love; a place of lesbians and homosexuals.

Márfi goes further. This left-wing, modern Europe is actually “the Europe of former communists who are now capitalists; the Europe of freedom fighters who were formerly dictators; the Europe of such ‘modern people’ whose morality has proved to be obsolete and incapable of survival in the last two thousand years; the Europe of people who seem to be worried about the freedom of religion when in fact they persecute the churches.”

After this outrageous description of today’s Europe, Márfi moves on to the defense of Viktor Orbán who is being shown as a martyr who was attacked in the European Parliament by “the followers of Mao Zedong” and “a pedophile who is trying to teach morals to a father of five.”

Baer’s third sin is that he ignores the influence of the evil United States “in the Orbán affair.” If Baer thinks that this is a purely European question, he is wrong. Viktor Orbán doesn’t really have problems with the European Union but “with international capital” whose “owners” must be found somewhere around New York’s Wall Street. These “owners of capital” want to make individual states their slaves through their loans. These people try to influence elections and through their loans they make smaller countries their colonies. These capitalists are very angry at Viktor Orbán because “he enacted several laws adversely affecting the international financiers.”

Veszpremi ersekseg

The Veszprém Archbishopric advertising Fidesz and the Orbán government’s New Széchenyi Plan

The leaders of the European Union know full well that international financial circles are endangering Europe yet they are still willing to cooperate with them for financial reasons, out of fear, or perhaps for ideological considerations. “The situation is well known. It was this way two thousand years ago when the Rabbinical Council cooperated with Pontius Pilate. Pilate is still being applauded by all scribblers and pharisees. And naturally there are the false witnesses whose whole life consists only of lies and because they own most of the media … they exclaim ‘Crucify him! Crucify Viktor Orbán.'” And in case we have any doubt whom Márfi has in mind, he mentions Ákos Kertész and Imre Kertész, both of whom happen to be Jewish.

This incredible description of the world by a Hungarian Catholic cleric ends with a quotation from David C. Korten’s 1995 book When Corporations Rule the World. It is a leftist critique of global capitalism, but I have noticed over the years that it is also a favorite book of the far right.

And the Orbán government is passing on school after school to a Catholic Church whose leaders think like Archbishop Gyula Márfi. I’m really worried about the kind of education these children are receiving now and will receive in even greater numbers in the future.

The new Hungarian schools and their products

I’m sure that most of you are familiar with early Soviet history when the regime’s aim was the creation of a superior Soviet man. Viktor Orbán’s regime is embarking on something similar, and naturally it will be the schools that will be responsible for educating this new patriotic, religious, moral Hungarian breed.

Today’s western culture is rotten to the core: secular and immoral. However, a few years of Hungarian schooling will produce an entirely different Hungarian population. These new Hungarians will be the perfect products of the newly introduced school system where children will have to take either religion or ethics classes in addition to classes on the traditional virtues of courtship, family life, rearing children, and learning to be faithful to one’s spouse “till death do us part.” In addition, the whole educational system will be permeated with “patriotism.”

That kind of education was the ideal of the Horthy regime, but it didn’t work then and it will not work now. Perhaps even less so. Today’s teenagers are a far cry from teenagers attending gymnasium in the 1920s or 1930s. In those days most of the high schools were in the hands of religious orders who imbued their charges with religious devotion and morality. Religious education was compulsory even in public schools and girls had to learn to darn socks, knit, crochet, and cook a little. Between the two world wars many boys had to take military training.

All this is coming back. There will be compulsory religion or ethics classes in grade seven and in grade eleven. The original suggestion promoted by Fidesz-KDNP politicians, among then László Kövér, even wanted to introduce ethics or religion in kindergarten. One can never start early enough! However, by high school students will be able to discuss such weighty questions as capital punishment and the difference between good and evil. They will be introduced to Aristotle’s Ethics. Origo reported that among other things pupils will also learn about such political concepts as liberalism and conservatism. Given the philosophical underpinnings of the Orbán regime, it’s pretty easy to imagine how these classes will be skewed.

But that is not all. For example, students will have learn about “courtship,” about the “relationship between man and woman” and apparently about “bringing up baby” including how to put diapers on. I can only hope that boys will be taught the art of diapering and girls “basic military skills,” which will be also compulsory.

The whole curriculum will be imbued with “patriotism.” In plain language, it will be saturated with nationalism. This nationalism can take really bizarre forms in Viktor Orbán’s Hungary. A separate commissioner was appointed by the prime minister whose only job is the spread of “the culture of horses.” Since the early centuries of Hungarian history the horse was an important part of life and warfare. And because Hungarians were known in Europe to be excellent horsemen today’s nationalists are working very hard to make Hungary a “horse nation” again. This commissioner came up with the idea of introducing horsemanship in schools. The kids would learn not only how to ride but also how to take care of horses. As a former undersecretary of the ministry of education jokingly said, “Sure, the kids will be riding along on their horses on the “Nagykörút,” the outer “Ring” in Pest!

As we know, riding is an expensive hobby, but according to the commissioner it is not as expensive as all that. Moreover, European Union money will be spent on the project. The poor EU! Do people in Brussels know what the Hungarian government wants to spend their money on? The whole thing is outrageous especially since far too many Hungarians, for example, don’t know how to swim!

Military training and horsemanship in schools is enthusiastically supported by Csaba Hende, minister of defense. He is reinstating military high schools and according to plans high school students can even matriculate in the subject. As for the horses, he is all for it. Hence here is a cartoon about him and the horses.

My sweetheart is so handsome, not an officer just an infantryman, the soldier of Viktor Orbán

And the frightening thing in all this is that the far right’s harebrained ideas about horses and early Hungarian history coincide with the Fidesz government’s ideas about education. Three men belonging to the Eurasia Solidarity Foundation are setting out on horseback for Kazakhstan, looking for “relatives.” Here are our explorers:

Lovakkal Kazahsztanba

I’m a bit puzzled by that 1848 hussar uniform. What is it doing in Kazakhstan? There are other puzzling aspects of this trip. How will the horses cross the Black and Caspian Seas? Moreover, the three (and horses as well?) will fly from Astana, capital of Kazakhstan, to Tehran. The Iranian destination indicates that these three are linked to Jobbik, a party with close, perhaps even financial, ties to Iran. Here is their route:

Among the patrons and advisors of the Eurasia Solidarity Foundation one can find Sándor Lezsák (Fidesz, earlier MDF), deputy speaker of the house; Mihály Varga (Fidesz), finance minister in the first Orbán government and undersecretary in the prime minister’s office; and Sándor Fazekas (Fidesz), minister of agriculture. Jobbik and Fidesz are tied to each other in hundreds of ways. As I have often said, one never knows when Fidesz ends and Jobbik begins.

Fidesz, the tobacco monopoly, and the tobacco industry’s lobby

As soon as I read that Fidesz wants to make the sale of tobacco products a state monopoly I became suspicious. The legislation, about which naturally Magyar Nemzet learned first, was ostensibly designed to prevent young people under the age of eighteen from purchasing cigarettes. Because, as the story goes, some stores–especially supermarkets and hypermarkets owned by multinationals–are awfully lax. They don’t bother to check the IDs of young people. But, just wait! The new “tobacco shops,” naturally called “national tobacco shops,” will be much more vigilant. Moreover, there will be very few such shops. Towns with a population of fewer than 2,000 will be allowed to have only one such shop. One for every 2,000 inhabitants in larger towns. All told, there will be only 7,000 national tobacco shops in the country. The state will hold a monopoly on the product itself and will establish these national tobacco shops as concessions.

I immediately envisaged 7,000 pro-Fidesz Hungarians as the lucky recipients of these concessions, although some people claim that the profit margin on cigarettes is so low that the owners of the concessions will not make a decent living. But what about a couple, both receiving old-age pensions? Such a shop might be a bonanza for them.

Of course, the idea is not at all new. On the contrary, it is a very old idea. I’m not 100% sure of the date, but it might have been prior to 1950 that the sale of tobacco products was a state monopoly and there were specifically designated shops for that purpose called “trafiks.” They were given out as concessions to older women whose husbands had died in the wars. Naturally, one needed a friend in government service to promote one’s cause. As far as I know, these people made only a very modest living.

Fidesz politicians who concocted this latest brainstorm looked around in Europe to see whether they could find a similar setup, and they came to the conclusion that Austria offered a perfect model. But, reading a bit on the Austrian case, I came to the conclusion that, as usual, the Orbán government is on the wrong track. It is true that until 1998 tobacco was a state monopoly in Austria, but European Union requirements changed “the malign though seemingly cosy participation in government policy of Austria Tabak, the state monopoly that dominated the Austrian tobacco industry.” It was partially privatized. And that is not all. If Fidesz is so worried about the high number of smokers in Hungary, they shouldn’t look to Austria. “If Germany is the bad boy of western Europe, in tobacco control terms, it is high time to meet its little brother. Austria, with just a tenth of Germany’s population, possibly has an even worse record for lack of action to protect its citizens from tobacco.”


An Austrian tobacco shop

So, surely, Fidesz’s eagerness to adopt the so-called Austrian model has mighty little to do with concern over the health of Hungarian youth. Moreover, handing out concessions to 7,000 party sympathizers is not a good enough reason to introduce such a vast change in the retail system. A third possibility, and this is the one I was originally guessing as the driving force, is that the state would like to receive even more money from the sale of tobacco over and above the fairly high excise tax on cigarettes. Well, that’s one of the reasons but there is another one, even more important it seems.Austria’s 8,000 tobacco shop owners are the leading lobbyists against any kind of anti-smoking legislation. The highest number of teenage smokers in all of Europe can be found in Austria. Tobacco shops or not. Worse statistics than in Hungary or Germany.

Although János Lázár, the man behind the proposed legislation, in public seemed to be very sure that the Hungarian law on state monopoly and tobacco shops conforms to European Union guidelines, deep down he must have had doubts because in the last minute the Hungarian government sent the proposal to the European Council asking for final approval. As soon as the text of the proposed law appeared on the European Council”s website, Napi Gazdaság noticed the name of János Sánta, a principal in a Hungarian-owned tobacco company called Continental Dohányipari Zrt. He was the last person who made changes in the proposed law.

It turns out that János Lázár relied heavily on the “advice” of Continental Zrt. all along. A division of Continental Zrt. is actually situated in Hódmezővásárhely where Lázár is the mayor. Apparently Lázár’s relations with the owners of the company are excellent. The piece of legislation was written with a view to giving an advantage to Continental in the Hungarian tobacco market over its competitors. The legislation most likely will result in discrimination against foreign companies like Philip Morris, the British American Tobacco (BAT), and Imperial Tobacco. Currently, these multinational companies account for about 85-90% of the Hungarian cigarette market. Continental’s share is therefore no more than 10-15%. If, however, tobacco became a state monopoly the Hungarian state could decide to which companies it would give purchasing preferences. Continental surely would greatly benefit from such an arrangement.

More and more government edicts and pieces of legislation are aimed at giving an unfair advantage to Hungarian companies over multinational companies, which is illegal under European Union rules. It is therefore unlikely that Brussels will accept this piece of legislation. Apparently, the government has a Plan B for such an eventuality. The government would allow cigarettes to be sold in supermarkets and gas stations, but these outlets would have to buy the cigarettes from the “national tobacco shops.” I don’t think that this modification will comfort the bureaucrats of Brussels.

Fidesz’s attitude toward the communist past

There is a lot of talk in Fidesz circles about the communist past and its sins. Only yesterday there was a day of remembrance for the victims of communism. In the large crowd in front of the House of Terror stood Hungary’s prime minister with his lighted candle which he placed on the sidewalk.

In his reply to Hillary Clinton that Hungarian Spectrum made public yesterday, Viktor Orbán wrote about the “lamentable” fact that “Hungary failed until now to conclude the post-communist era.” In fact, Viktor Orbán and Fidesz in the last twenty years have had plenty of opportunity to reveal some of the secrets of this hated communist past: to make public the list of those who belonged to a vast network of informers. However, Fidesz never had any inclination to do so. In fact, they steadfastly refused the demand by SZDSZ to reveal the identity of the informers. The only country to do so in the whole East European bloc.

There are 32,000 documents still not available, including the names of the agents

One cannot help wondering why these “young democrats” who theoretically shouldn’t have been involved in the spy apparatus of the Kádár regime are so adamant in shielding the former regime’s secrets. Unfortunately, there can be only one answer: too many leading members of Fidesz or the two Orbán governments are implicated.

Only yesterday I watched the video of a Zsolt Bayer program on Echo TV with two invited guests: László Bogár and Imre Boros. Both right-wing economists. László Bogár is a regular contributor to Magyar Hírlap, so it is easy to place him on the political spectrum. In August 2002 he was mentioned as one of the eleven members of the first Orbán government who had been implicated as part of the spy network. His companion on Bayer’s program, Imre Boros, was on the same list. The list of names was published in Magyar Hírlap, then a liberal paper. The article describing the results of the so-called Mécs Committee can still be read on Index.

Naturally, Bogár denied the allegation. Secret service officers tried to sign him up but he valiantly declined their invitation. He was such a fierce anti-communist that at the age of nineteen he joined the party. In 1988 he changed his colors and became one of the founding members of MDF. By 1998 he was undersecretary in the Office of the Prime Minister.

As for Imre Boros, the other participant who served as minister in the first Orbán government, his involvement has been documented in “Szigorúan titkos,”  a partial list of agents who as members of the secret police with military rank received a monthly salary over and above their normal salaries in civilian life. We can find out from the document that Boros didn’t relinquish his service until March 1990. The details of his activities can be found in the archives storing these crucial documents about the activities of the informers. He is described by those who knew him in his youth as a devoted communist party member.

So, what happened? Why was Fidesz called upon again to show the party’s true colors concerning the still secret list of informers? There is no more SZDSZ, the party that was keenest on revealing the secrets of the Kádár regime’s archives of the ministry of the interior, but LMP took up the cause. On December 1 the party demanded that the complete holdings of the still secret documents be made public. It was on Monday, February 20, that a vote took place on the issue. The result is telling. Out of the 386 members of parliament 320 voted: 120 “yes” (37.5%), 172 “no” (53.8%), 28 abstained (8.7%)

Of the 226 Fidesz members of parliament 154 voted against the resolution, including Viktor Orbán. From the Christian Democratic People’s Party seventeen, among them Zsolt Semjén, voted against it. Nobody in the MSZP, LMP, Jobbik and DK delegations voted against the proposal. There were several people who were present but didn’t vote: notably, János Lázár, Tibor Navracsics, and Mihály Varga from Fidesz, Péter Harrach from KDNP, and Attila Mesterházy and István Nyakó from MSZP. Mária Wittner, the fiercely anti-communist heroine of the 1956 revolution, interestingly enough abstained.

From the Fidesz delegation nineteen members voted for the proposal, including Gergely Gulyás. The breakdown of the votes can be seen on the Hungarian parliament’s webpage.

If there is something to be ashamed of, it is not the completely rewritten constitution that bore the date 1949 but that Hungary is the only former communist country that has not been able to deal with its communist past. In large measure because of Fidesz’s active opposition. In this respect Viktor Orbán is quite consistent. On the one hand he incites people against the communists who should all be punishable for criminal behavior while on the other he refuses to make public the secrets of that regime he finds so abhorrent. Just as he says one thing at home and something else abroad, so he verbally attacks the communists while in practice he shields them. How long can this go on? When will people become tired of this two-faced behavior? It seems that most people in the European Union find Orbán’s behavior distasteful. The question is when that will happen on his home turf.

Prime Minister Viktor Orbán’s answer to Secretary of State Hillary Clinton’s letter

You may recall that U.S. Secretary of State Hillary Clinton sent a letter to Hungarian Prime Minister Viktor Orbán in which she expressed her and the Obama administration's worries about the state of democracy in Orbán's Hungary. On December 30 I published a facsimile of this letter. I described Viktor Orbán's policies as being on a collision course with practically the whole world. The signs of crisis may not look as grave as they did in late December, but I still maintain that the course that Viktor Orbán is navigating will lead to a full blown crisis sooner or later.

Below I'm making public Viktor Orbán's answer to Hillary Clinton's letter. But first let me refresh everybody's memory. Although Hillary Clinton wrote her letter to Viktor Orbán on December 23, it was only on December 27 that the Hungarian public learned about it through a report that appeared in Népszabadság. MTI, the official Hungarian news agency, at this point asked Péter Szijjártó, Orbán's personal spokesman, whether the prime minister had indeed received such a letter. Szijjártó said that he had. The only official who was ready to talk about the letter was János Lázár, leader of the Fidesz parliamentary delegation, who announced that the time for old-fashioned American democracy built on consensus is over. Hungary is building a different kind of democracy. The government spokesman, András Giró-Szász, claimed no knowledge of the contents of the letter.

Two weeks went by and there was still no word about a reply. Not surprisingly, reporters were becoming restless and kept asking Giró-Szász when the prime minister would answer. On January 5, Thursday, they were told that the letter will be sent "this week." And indeed, judging from the date on Viktor Orbán's letter, it was sent the very next day.

Snail mail
Snail mail

I suggest that you first read Clinton's letter and then return to Orbán's reply. Here I would like to point out some passages that I found intriguing.

First, I didn't quite know what to do with the passage that described the post-communist era as one "without a truly free, competition based market economy." This from a man who has been doing nothing else but re-nationalizing everything in sight.

Second, I thought that a "dig" like "the word 'change' can win elections…." was truly unnecessary.

Third, claiming that they had been "in constant dialogue and close cooperation with all interested parties, especially the European Commission, religious groups and constituents, while continuously seeking consultations with opposition parties" was a brazen lie that presupposes total ignorance of Hungarian affairs and the current political situation on the part of Clinton's staff.  

Finally, I didn't quite know what to do with the claim that "several of my cabinet members and I myself have met with Ambassador Eleni Tsakopoulos Kounalakis in Budapest, to provide interpretations of our work that may not necessarily reach Washington."

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Orban letter to Clinton-1
Orban letter to Clinton-2
Orban letter Clinton-3
Orban letter to Clinton-4

New attacks on Klubrádió and György Bolgár

And while Magyar Nemzet was at it, the superb journalists working for the pro-government paper decided that they ought to finish off two other people who obviously irritate the Orbán government. So to speak, they wanted to kill three birds with one stone.

Let’s make one thing clear. Magyar Nemzet could never publish articles attacking Neelie Kroes and Hillary Clinton without specific permission from the government and, considering the hierarchical nature of Fidesz, that permission might come from Viktor Orbán himself.

Sure, attacking György Bolgár doesn’t need any permission. Attacks on Bolgár have been going on for years in the right-wing media. But this latest is different. The case of Klubrádió where Bolgár’s program is aired has become a cause célèbre, an international call for media freedom in Orbán’s new regime.

This latest attack began on February 17 when Tamás Pilhál, one of the more objectionable members of the staff of Magyar Nemzet, accused György Bolgár of amiably talking with a caller about “the liquidation” of President Pál Schmitt. I happened to listen to this conversation and I’m afraid that, as usual, Magyar Nemzet is not telling the truth. Anyone who’s interested in the topic should read Zsófia Mihancsik’s detailed analysis of both the article and the conversation that transpired on Bolgár’s program.

Magyar Nemzet immediately moved into high gear and phoned the office of Neelie Kroes in Brussels where they told Ryan Heath, Kroes’s spokesman, about a radio station where “death threats” are being discussed. According to the paper, Heath admitted that such threats are not part of democratic discussions but very prudently refused to comment on something about which he knew nothing, with the exception of Magyar Nemzet‘s dubious information.

But that wasn’t enough. Magyar Nemzet also phoned Ulrike Lunacek’s office and asked her opinion about what happened on the Bolgár program. Lunacek very rightly refused to comment, but the right-wing journalists were not discouraged. They were also curious what Martin Schulz thinks of the affair. They describe the paper’s efforts in an article entitled “To Kroes all that is not important.” In it one can read that “Neelie Kroes, who is so worried about the freedom of the press, not long ago welcomed György Bolgár in her office.” In the end Magyar Nemzet had to be satisfied with reporting Klubrádió and György Bolgár to the Media Authority, asking them to investigate.

Magyar Nemzet‘s staff had to be frustrated after getting nowhere in Brussels, so they decided to discredit the key players. Neelie Kroes was the prime target. And, voilà, yesterday W[underli] L[ászló] gleefully reported that he had found an article in European Voice that appeared sometime in 2010 from which he learned that Bram Peper, the former husband of Neelie Kroes, accused his wife of listening to fortune tellers and astrologists before making decisions. And if that weren’t enough, Kroes, according to Magyar Nemzet, rented office space in the mansion of Jan-Dirk Paarlberg, a wealthy Dutch real estate developer, who had spent four and a half years in jail for money laundering and blackmail. This, WL adds, is the woman who welcomed in her office András Arató and György Bolgár while she wasn’t interested in the opinion of the Hungarian authorities.

The third “bird” is U.S. Secretary of State Hillary Clinton. Today another article appeared by L[óska] M[árton] headlined “Clinton tried to induce [Viktor Orbán] to commit a crime.” According to the journalist, “liberal interpretation of the law is not unknown in American diplomacy.” A recent example of such behavior is Hillary Clinton’s urging that Viktor Orbán interfere in Klubrádió’s frequency dispute. This is just another example of American diplomatic behavior that is manifest in the published documents of WikiLeaks. The article also mentions that the U.S. Embassy practically ordered Gyula Budai, the chief investigator of corruption cases, to report on the investigation of former prime minister Ferenc Gyurcsány. This was Budai’s first version of the encounter, which he has since substantially revised, but such corrections never bothered Magyar Nemzet very much.

Since I have on hand the facsimile of Hillary Clinton’s letter, which I published here earlier, let’s see what kind of criminal activity Hillary Clinton suggested to Viktor Orbán. Clinton had this to say about the whole Media Law issue. “As for the Media Law, we share concerns expressed by the OSCE, Freedom House, and a recent international mission of press experts that the law concentrates too much power in the hands of a politically-appointed Media Council. Also, the recent non-renewal of a popular talk radio station’s license raises concerns about the commitment to ensure diverse voices in the media realm.”


The question is why the Orbán government decided to launch a joint attack against a powerful member of the European Commission and the U.S. Secretary of State. One would think that the Hungarian government is in enough hot water without such ugly assaults on well-known international political figures. I’m sure that government spokesmen if pressed would invoke freedom of the press in Hungary which the government cannot influence. But both the politicians of the European Union and the diplomats of the United States must know full well that Magyar Nemzet is the mouthpiece of the current Hungarian government. If the government has some other domestic agenda, I can assure them that this is a very dangerous way of trying to influence domestic opinion or the court that is handling the case between Klubrádió and the Media Authority.

And finally, Klubrádió’s financial situation is really dire. András Arató, CEO of Klubrádió, will be appreciative of every penny they receive. And yes, Klubrádió uses PayPal.

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To Whom It May Concern:

Klubrádió continues its struggle for staying alive and fight for free press in Hungary. The battle goes on not only against the Hungarian media authority for the licence but against the financial blockade as well. Government offices and state-owned companies have been instructed to exclude Klubrádió from their entire advertising market. In addition a great part of the private participants of the market don’t have the courage to appear in the oppositional media.

These circumstances lead Klubrádió to a very critical financial situation. We have to turn to the citizens of the world for assistance. Even the smallest donation helps us to survive this difficult period.

I ask you to help to pass on our request to friends and acquaintances.

Yours sincerely

András Arató

CEO, Klubrádió

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The information on PayPal is unfortunately well hidden on Klubrádió’s website. So, here is the link:

You will see the following: “Örökbefogadás online fizetéssel” and click on “Donate.”



Immediate government reactions to the European Commission’s recommendation

The Fidesz government is demanding the resignation of László Andor, commissioner for employment, social affairs and inclusion in the Barroso administration. He was nominated to his current post by the Bajnai government and Viktor Orbán’s Fidesz, then in opposition, fiercely opposed him due to his alleged Marxist views. Mind you, Viktor Orbán opposed everything under the sun. If Andor had not been the editor-in-chief of a “leftist” social science quarterly, Eszmélet (Consciousness), he would have found something else wrong with the candidate.

Andor’s sin is that he wasn’t present at the crucial meeting of the European Commission where the decision was made about possibly withholding cohesion funds to Hungary as of January 1, 2013. Andor claims that he submitted his opinions in writing ahead of the meeting and, in any case, he as a Hungarian national couldn’t have voted on an issue related to his home country. This argument, however, didn’t make a dent with the Hungarian government. László Kovács (MSZP), former commissioner in charge of taxation, didn’t help Andor’s case by arguing that Andor could have given a more detailed description of the Hungarian situation than most of the other commissioners and perhaps that could have helped Hungary’s case. Jobbik is demanding an investigation of Andor for treasonous behavior. Andor as of this morning is holding up pretty well. He in fact dared to say that he agrees with the European Commission’s decision.

Otherwise, the Hungarian government simply doesn’t understand the decision. Late last night Gergely Prőhle, undersecretary in the Foreign Ministry, pointed out that the deficit for 2011 will be about 2.4%, which is a great deal better than the results of many countries in the European Union. However, when he was pressed for details, the only “structural” reform he could come up with was reducing the size of the parliament by 50%. Surely, not a serious item in the budget. In addition, he forgot to mention the crucial fact that without the one-time injection of nationalized pension funds, the so-called “structural deficit” would have been close to 7%. As for the strained relations between the Hungarian government and the European Union, Prőhle refused to contemplate the possibility that Viktor Orbán’s behavior may have been an added irritant in Brussels. One can have a debate about “political style,” he said, but “the Hungarian government’s activities in the last year and a half leave no doubt about Hungary’s strong commitment to Europe.” Well, that’s exactly what people not serving the Orbán government very much doubt.

Other government officials who spoke on the condition of anonymity think that the reason for the Commission’s decision is that “they simply detest us” (egész egyszerűen utálnak bennünket). As usual, in such cases one doesn’t quite know who the “us” are. The Hungarian people? The Orbán government? Or perhaps Viktor Orbán himself. Reading on, I am inclined to believe that the gentleman was talking about the Hungarian people. Those officials in Brussels detest the Hungarian people. Doesn’t make much sense, does it?

The government officials who were willing to talk kept emphasizing that the Hungarian government is in constant touch with the appropriate organizations of the European Union concerning the Commission’s objections to the new Hungarian constitution and some of the cardinal laws. The Hungarian media, at least the ones that are not in the service of the government, got the distinct impression that although there might have been talks about some of the details, there is still no agreement concerning the large questions. Nobody in government circles thinks that the tug of war between Brussels and Budapest will come to an end any time soon.

Most of the government officials who talked with journalists are convinced that the Orbán government is the target of some kind of liberal conspiracy. To this end they are even ready to twist the truth. For example, they label Olli Rehn, Neelie Kroes, and Viviane Reding liberal politicians who united against the right-of-center Orbán government. Of course, this is simply not true. All three politicians are actually conservative politicians. Rehn was a member of the Finnish Center Party, Kroes of the People’s Party for Freedom and Democracy (a conservative political group in the Netherlands), and Viviane Reding of the Christian Social People’s Party of Luxembourg. The organizers of the “Peace March,” the far-right representatives of Fidesz, are talking about an outright “Marxist counterrevolution” that is sweeping western Europe.

Some Hungarians think: The specter is of communism is haunting Europe 

According to members of the Orbán government, another reason for the European Union’s dislike of the Orbán government is that it no longer serves the interests of Brussels as the Gyurcsány and Bajnai governments slavishly did. Lajos Kósa this afternoon talked about “brown nosing,” except he used a less delicate description. He made it clear that the Orbán government will not change its stance. After all, the Fidesz government serves the Hungarian people and they are the only ones the government has to please. Not Hillary Clinton or José Manuel Barroso.

Members of the opposition as well as ordinary people with good memories recall the days of October 2006 when, after the street disturbances which most likely received quite a bit of encouragement from Fidesz, Viktor Orbán travelled to Brussels. There he urged the members of the European People’s Party’s parliamentary delegation to vote for the suspension of all union subsidies to Hungary. Not just the cohesion subsidies but everything, including all monies going to regional development, to Hungarian companies, and to municipal governments. This money amounted to one trillion forints. (And at this point one euro was worth about 260 forints.) Orbán accused the Hungarian government of giving false data to Brussels. He proposed withholding all subsidies already allocated for the period between 2007 and 2013. The reaction in Hungary was not exactly favorable to that “treasonous” suggestion. Kinga Gál, a Fidesz EP member, immediately tried to explain the event away. According to her, Orbán’s words were misunderstood, but she refused to elaborate on the details. The story can be read in the October 25, 2006 issue of Figyelőnet.

The Orbán government finds both criticism from abroad and Hungarian nationals saying anything critical in foreign publications galling. For example, in 2001 the first Orbán government put together a blacklist of foreign journalists and hunted Hungarian commentators who dared to utter any criticism of the government to foreigners. This habit has prevailed. Now they are searching for traitors, conspirators, and label all criticism the result of liberal intrigues. I hate to tell them: it won’t work.

European Commission proposes suspending funds to Hungary

Well, it happened. For the first time in its history, the European Union has proposed initiating economic sanctions against a member country under the excessive deficit procedure (EDP). What does that mean? Treaty provisions oblige a member state to keep its deficit below 3% of GDP and government debt below or sufficiently declining toward 60% of GDP.

Hungary is not the only country that is currently under this procedure. It shares the honors with five other countries. Then why the threat of economic sanctions only against Hungary? Because never since Hungary’s accession to the Union has its budget deficit been under 3% of GDP and because the European Commission didn’t see in the last two years any serious Hungarian resolve to remedy the situation. Although it is allegedly true that last year’s deficit will be just slightly over 3%, it was achieved by one-time measures: “nationalization” of private pension funds, extra levies on financial institutions and other selected economic sectors including telecommunication companies. Without these revenues the actual deficit would be well over 6 percent. And since no structural changes were introduced, it is unlikely that the Hungarian government will be able to sustain a deficit under the required 3%.

The European Union’s fiscal governance was lax to say the least in the past years. But then came the 2008 financial crisis. In its wake the rules changed drastically. As of December 13, 2011 financial sanctions will be applied to EU members that do not take adequate action against an excessive deficit.

According to these new rules a country that belongs to the euro-zone will be required to make a non-interest-bearing deposit worth 0.2% of its GDP. If it is a country, like Hungary, outside of the euro-zone, it can be deprived of its so-called “cohesion funds” amounting to no more than 0.5% of its GDP or no more than 50% of its cohesion funds.


What are the “cohesion funds”? These are infrastructure-development subsidies that are supposed to assist the less developed members of the EU in bringing their economies closer to the more prosperous western parts of the Union.

Although the Hungarian government tried to convince the population that such a procedure will not be launched against Hungary, apparently they strongly suspected the negative outcome for which they have been trying to prepare the ground. For example, only a few days ago the government introduced new austerity measures: fewer government subsidies on drugs and a cutback in subsidized public transportation travel.

Depending on final approval by the Economic and Financial Affairs Council (commonly known as Ecofin) that consists of the economic affairs and finance ministers of the member states, if Hungary doesn’t make major strides very quickly the suspension of funds will begin on January 1, 2013. According to most analysts of European affairs, it is very unlikely that Ecofin will go against the decision of the European Commission. Moreover, the weighting of Ecofin votes reflects the size of the country’s population, so if the large and prosperous countries that provide most of the subsidies to Hungary go along with the decision, Hungary is unlikely to be able to gather enough support to serve as a counterweight.

The “punishment” is severe: freezing 495 million euros ($656 million) worth of cohesion monies. That is exactly 0.5 percent of GDP–that is, the maximum amount of money that can be withheld according to the new rules. Although the suspension of funds will begin only on January 1, 2013, some projects that have not been approved but are under consideration must now be put on ice.

This is a very sizable chunk of the subsidies Hungary is slated to receive in 2013: 29% of infrastructure investment. The building of highway M43 and M3 or Metro4 in Budapest will not be affected because these projects have already been approved by Brussels. But some important Budapest development as well as the modernization of some railroad lines will not be able to go forward.

Ecofin meets once a month and the next meeting will take place on March 13. It is important to realize that even if Ecofin puts its stamp of approval on the Commission’s decision, Hungary still has until December to mend its ways. As Olli Rehn of the European Commission said, “Today’s proposal should be seen as a strong incentive for Hungary to conduct sound fiscal policies and put in place the right macro-economic and fiscal conditions to ensure an efficient use of Cohesion Fund resources. It is now for the Hungarian government to act before the suspension takes effect.”

And this means more than staying within the magic 3%. Brussels expects serious structural changes. Whether taking in more money by making pensioners pay their fare in the morning hours or taking away subsidies on drugs will be considered “structural changes” I very much doubt.

Not surprisingly, the Hungarian government finds the suspension proposal unfounded, unfair, and legally questionable. Orbán’s government claims that it has already taken prudent steps and therefore the decision is unfounded. An official from György Matolcsy’s ministry even claimed that there was no “practical chance” that the funds would be suspended. Lajos Kósa, one of the deputy chairmen of Fidesz, who likes to use strong words, said that the decision will lead to “bad blood” and that the commission made “an exceptionally bad and irresponsible decision.” Music to Brussels’ ears!

EU officials don’t consider their action a “punishment.” It is only a warning, and “if the country takes effective action in time it will not face this consequence,” Olli Rehn said today.

The markets immediately reacted to the news. Reuters reported that Hungarian assets fell after the EU threatened to suspend some funds to Budapest. The Reuters article also talked about “the disconnect between Brussels and Budapest.”

While we are dissecting the “excessive deficit procedure” we mustn’t forget about the other matters under consideration in Brussels: questions about the media, the judiciary, the new constitution itself and all those complaints coming from the European Parliament concerning the undemocratic spirit that casts a shadow over the Orbán regime’s efforts at establishing a different kind of democracy.

While the government is struggling over the deficit, another 1.5 billion forints was allocated for government communication. Unfortunately communication itself is no remedy for bad governance and an unrealistic economic policy.

Ferenc Gyurcsány’s speech about Hungary, the saddest barrack

The reference here is to the description of the late Kádár regime as “the happiest barrack” in the Soviet bloc. The country was isolated but within that small East European world it was a relatively liveable place, especially in comparison to the other countries in the region. Today, as a result of the Orbán government’s policies Hungary is isolated again, except now its inhabitants are deeply unhappy with their lot.

At least this is what Ferenc Gyurcsány claimed this afternoon in a speech lasting an hour and a half. For those of you who haven’t had the opportunity to watch Gyurcsány, he is an exceptionally fine speaker. His speeches are delivered without notes, except perhaps for a 3×5 card he holds in his hand but never looks at. Yet his speeches are well structured and he is practically never at a loss for words. While most important politicians’ speeches are written by speechwriters, one can be certain here that whatever he says is his own.


Ferenc Gyurcsány with his 3×5 card, Photo: Pályi Zsófia, Origo

It was a good and thoughtful speech. I can’t summarize it adequately because after all it was long and he covered a lot of topics. Therefore I will mention only those points that I thought were especially important.

Perhaps one of the most crucial parts of the speech was spent on Viktor Orbán’s role in recent Hungarian history. It is not enough to remove Orbán’s government at the next election because Orbán is “the expression” of a large part of Hungarian society. Orbán might be gone one day, but those who follow him will remain. And the worldview of these people is injurious to the nation’s interest. After all, Hungary cannot look inward, cannot insist on sovereignty when economically and in every other way it depends on cooperation with others. Orbán is not just the “embodiment” of this part of Hungarian society; in the last twenty years he substantially helped to shape it.

Gyurcsány seems to think that “this old-new idea” of a far-right ideology first began to be propagated in 1992 by the recently deceased István Csurka and that within twenty years it captured the heart of perhaps the majority of Hungarians. József Antall in 1992 knew that one could not come to an understanding with Csurka. Csurka was removed but the problem wasn’t temporary. It persisted and Orbán came to use this sentiment and the people who believe in it to gain power. Orbán’s aim was not governing but establishing a new regime. This new regime, in Gyurcsány’s opinion, is already in place and will be very difficult to change.

Gyurcsány calls this new regime “counter-Hungary,” and this counter-Hungary has considerable political strength. This world doesn’t believe in Europe, and in Brussels it doesn’t see a place of cooperation but a source of assault on the Hungarian nation. This counter-Hungary is a world of power and subservience. Counter-Hungary looks inward and whatever is outside it considers a source of threat.

Sooner or later Orbán will be gone but the question is how the other Hungary, the one that believes in the republic will handle that counter-Hungary. The country will not be able to live constantly under war-like conditions. Peace will have to be found between the two Hungaries, the counter-Hungary and Hungary of the republicans.

Gyurcsány also spent a considerable amount of time on the impoverishment of a very large segment of Hungarian society, including the Roma. He pointed out the cynicism of the leading Fidesz politicians when dealing with the plight of the poor. The most infamous claim was uttered by György Matolcsy who said something to the effect that a family can live on 47,000 forints a month. This is what a man or woman on public works is getting from the government. Since then several other politicians slavishly repeated this nonsense until János Lázár, head of the Fidesz parliamentary delegation, said point blank that there is no way anyone can live on 47,000. But this whole debate shows the callousness of Viktor Orbán and his entourage.

The former prime minister also talked about the radicalization of the Hungarian right and blamed Fidesz for having overly cozy relations with Jobbik, which he called a Nazi party, in the hope of maximing political support.

In addition he talked about changes in Hungarian education. He gave a short history of educational ideas that were introduced after the end of World War II. In the West they opened the doors of education to everybody, but even behind the iron curtain strides were made, especially in primary and secondary education. While in 1950 very few people finished high school, forty years later public education was widely available to both men and women. Higher education in the Kádár regime was still highly restricted but in the last twenty years the number of students attending universities and colleges has been greatly expanded. It is this trend that Orbán, who himself was the beneficiary of the Kádár regime’s policies, is now trying to change.

Gyurcsány had a few harsh things to say about the churches, especially the established churches, that spend mighty little time and effort helping the poor and the downtrodden. They seem to be much more interested in having a cozy relationship with the government.

The former prime minister asked his audience to face the country’s present difficulties squarely. One doesn’t merely have to defeat Viktor Orbán. One must convince the majority of Hungary’s citizens that the country could be a better and a more liveable place if its citizens live in freedom and in a true republic. I am sure that Gyurcsány himself knows that this is a Herculean task. It goes against centuries of Hungarian history.

János Kornai: Centralization and the capitalist market economy

Not long ago, I was shown at a provincial university the quotas for admission that  the faculty of economics had received from the ministry for this academic year, derived from the national admittance threshold points: “Students on basic training 750, students on the masters’ course 120,” and so on. I could hardly believe my eyes. Exactly 120 on the masters’ course? Not 119 or 121? I got in touch with people at other universities, who confirmed that they too had received similar detailed numerical quotas from the higher authorities. None of the university people could tell me quite how the figures had been calculated, but they suspect that someone above had produced aggregate national quotas for the each major field that were broken down to institution level.

Memories flashed before me of 55 years ago. Back in 1956 I was working on my dissertation, having regular discussions with enterprise managers in light industry. They spoke scornfully of the meticulous plan directives they got from the ministry, laying down for the following year, fabric by fabric and width by width, how many square metres of woollen or cotton material they had to weave. How, they exclaimed, did “the powers that be” come by those exact figures, what with all the uncertainties of production and sales? Based on my researches I finished my dissertation, which after some upsets appeared in 1957 as Overcentralization in Economic Administration.

Over half a century has passed since then. Not for decades did it occur to me even in my dreams that the subject of my first book, overcentralization, would ever become opportune again. Yet it has. The subject of this article is the centralizing tendency strongly apparent over the last twenty months.

My article “Taking Stock”, published in Népszabadság on 6 January 2011, reflected on on the events of the Orbán government’s first eight months and the public debates over them.  It tried to explain how a radical change had occurred in the political structure: Hungary was no democracy any more, but an autocracy. In close relation to this, the article viewed the damage done to legal security and human rights, and the detrimental features of the economic policy that was being pursued. Another twelve months have gone by, in which the critics of the Fidesz regime have produced numerous in-depth analyses and vehement political statements. Broad agreement on the situation has emerged amongst thinkers committed to democracy, human rights and the rule of law.

Marabu, kozpontositas

Marabu cartoon appeared in Népszabadság: Centralization

This piece does not call for any changes of emphasis. I am still convinced that the main trouble lies in the replacement of democracy by autocracy. What I set out to do here is to augment the conclusions made already, by reviewing the events of the last twenty months from a different angle: that of the centralizing tendency.


I will begin with examples rather than definitions, not grouped in order of importance, but presented sector by sector of  society and the economy. The examples will make plain what is meant here by a “centralizing tendency”.


The government replaced in 2010 had twelve ministries. The number under the new government is reduced to eight.

National Bank of Hungary

The new act on the central bank was passed by Parliament in a whirlwind of end-year activity. At first sight, this new piece of cardinal legislation prescribes only formal changes, but in actual political practice it allows strategic direction of the National Bank of Hungary to be assumed by the Fidesz regime, whose will prevails equally in the actions of the government, the president of the republic, and through its two-thirds majority, the legislature. The decision-making powers of the Monetary Council increase. The prime minister may recommend a further National Bank deputy president alongside the two existing ones; his recommendation will undoubtedly be accepted by the head of state. Four new members have already joined the Monetary Council under the Orbán government; now two further appointments can be made. This put the members appointed by the Fidesz regime in a numerical majority, which may become stronger still, in a body where decisions are taken by majority vote. The position of the president of the National Bank is insecure. The transition rules associated with the country’s new Basic Law allow the National Bank and the Hungarian Financial Supervisory Authority to be merged. Whether or not such a merger will be useful, it provides a chance for a new united institution to come into being, a “superstructure” to which a new leader can be appointed, thus demoting the president of the National Bank. Nobody knows whether the new legislation on the central bank will be long-lasting or not. The article does not engage in guesswork. Nonetheless, the mere fact that these very important pieces of legislation have been passed, despite protests at home and abroad, shows the force of the centralizing tendency, in other words of the determination of the top leadership to concentrate all powers into its hands.

Supervisory and regulatory bodies

Before the change of government the Budgetary Council had a significant staff working in parallel with the Finance Ministry. They made similar calculations to those of the government machine, but independently of them. The parallelism has ceased; the Budgetary Council will have no staff of analysts of its own in future.

There used to be four ombudsmen (parliamentary commissioners) working in parallel. Under the new regime there will be one. They used to speak as the conscience of citizens – now this activity is to be part of the machine of state.

There was a Health Insurance Inspectorate set up under the previous government, with tasks differentiated from those of the National Public Health and Medical Officer Service and the Health Ministry of the day. The Inspectorate has now been abolished, its tasks passed to other authorities or left unassigned.

Armed forces

The Customs and Finance Guard has been merged with the Taxation and Financial Control Office to form the National Taxation and Customs Office.

A Counter-Terrorism Centre has been established that combines the functions of several hitherto separate organizations. A former chief bodyguard of Prime Minister Viktor Orbán has been appointed to command it.

The Hungarian Corps for the Protection of Order will be established in a curious, semi-state-controlled, “corporatist” form. All members of law and order bodies will be obliged to enter the Corps, which will act as an interest-protecting body. This mission will to some extent squeeze the trade unions out of the representation process.

Local government organizations

The new local government act deprives local government organizations of four main groups of tasks. Let me emphasize here that in future education, the health service and disaster protection will be wholly the responsibility of the central government.

Most local services of state administration have been merged into the county-level government offices. This applies to the land offices, the pension institutions, and the consumer protection authority as well. The county officials to head them are to be appointed by the prime minister.

The judiciary

Hungary’s courts of law were hitherto directed by an independent body with a specific form of self-governance. This has been replaced by a National Judicial Office, whose head is chosen by Parliament (in other words, the leadership of the party in power at the time). At present this function happens to be performed by the wife of one of the most influential men in Fidesz. She decides personally on the appointment and promotion of judges. She determines which cases shall be tried by which court.

The media

The Media Authority (National Media and Telecommunications Authority), as the paramount state body for media matters, resulted from the merger of several organizations. Its province extends from the content of television and radio services to the allocation of frequencies. Alongside, a so-called Media Council exists, whose members are drawn exclusively from political forces in the government.

Previously the state-owned, publicly financed radio and television channels operated separately, as did the state news agency. Now these have been merged into a giant centre called the Media Service Support and Asset Management Fund. This centralizes financing, and no less importantly, has the power to choose, hire and fire staff.

Before the merger, the public radio and television departments could choose their own news sources. Now they are all obliged to use the material disgorged by the central news office.


The reform of the 1990s produced a pension system that rested on three “pillars”, namely compulsory state insurance, compulsory private insurance, and voluntary private insurance. In 2010–2011 most of the second pillar’s assets have been seized and much of them spent by the government, while its obligations to the insured pass in theory to the first pillar, the state pension system.

The commercial banks set up and funded their own insurance body, the National Deposit Protection Fund, to guarantee repayment of deposits in times of disturbance in the banking sector. Government pressure has obliged the banks to hand over the management of these assets to a state body, the Government Debt Management Agency.


Seven hitherto separate companies in Budapest running the medical spas, street cleaning, funerals, etc. have been merged under a holding company, which represents the capital city also on the boards of the private and semi-private utility companies (gas, water, etc.)

Trade in tobacco products is being nationalized. The number of retail outlets will fall from 40,000 to 5000.

It has already been mentioned that the county hospitals will pass from the control of the county self-governance authorities to central government. These changes of ownership can be expected to coincide with mergers and closures that reduce the number of institutions, while providing chances to appoint new chief executives.

Disposal of sewage in parts of Budapest without sewage mains has been done by private sewage-tanker operators. This will be taken over by a firm owned by the capital city. The changeover is speeded by a financial disincentive: those using private operators will pay twice: the full price to the private operator and again the full price to the city-owned company.

Education, the arts, science and scholarship, entertainment

As mentioned earlier, primary and secondary schools in local government ownership are being transferred to central government. Control over gymnasia (academically oriented secondary schools) owned by the capital city has already been centralized under a new Economic Organization for Gymnasia. Previously the appointment of teachers was the principal’s right; now the Economic Organization has to agree to appointments. Hitherto each gymnasium had control over its own funds. Now it may spend nothing over a few thousand forints without the Economic Organization’s say-so. By the time the gymnasia get used to this there will be further centralization, as they pass into central government ownership.

According to the cardinal act on public education, we are hurrying towards a uniform, central curriculum. Teacher independence will largely cease: 90 per cent of what is taught will be compulsory curriculum and only 10 per cent optional. Previously, local government-owned schools had greater freedom to adapt their curricula to local conditions; now they will all be inflexibly the same.

The universities did not have full autonomy before, but now their quasi-autonomy is being strongly curtailed. The appointment of a rector was a two-stage process in which the university senate chose one candidate from several and he or she was then appointed by the government. No rector could be appointed unless recommended by the senate, although the government had a scarcely exercised right to veto a candidate. Now it will be different. The rector will be picked and appointed by the government. University bodies will only have the right to express an opinion, not exercise a veto, even if they disagree. As before, the seal will be placed on the document of appointment by the president of the republic. In other words, the essential aspect in the selection process has passed from the university’s into the central government’s hands.

There is a wave of centralization engulfing the Hungarian Academy of Sciences network of research institutes. Various institutes of natural and social sciences with high reputations working separately and independently for several decades are being herded into groups and subordinated to newly created centres.

Mergers and centralization are occurring in vocational training. Integrated training centres are to emerge.

Up to now the public funding for several arts and science-related activities and social welfare tasks was distributed through public foundations, some of which amassed considerable assets. They embodied a specific form of professional autonomy and self-governance; boards of trustees consisted of representatives of the art or science concerned, or of experts involved in welfare activity, and the subsidies awarded were decided in line with their professional consciences. Most of the public foundations – 24 in number – have been abolished and their assets and decision-making functions transferred to state authorities.

The 1956 Institute, a hitherto independent body, has been annexed to the National Széchenyi Library. The Lukács Archives have similarly lost their independence, by being subsumed into the library of the Hungarian Academy of Sciences.

The Budapest State Opera is being run by a government commissioner appointed not by the minister of culture, but personally by the prime minister.

The Museum of Fine Arts and the Hungarian National Gallery are being merged.

So is the Mikroszkóp, a cabaret theatre, with the Thália, a theatre devoted usually to serious drama.

The Budapest Assembly has resolved to merge Petőfi Hall with the Trafó House of Contemporary Arts.

The Budapest Gallery will merge into the Budapest History Museum.

The state funding for film production is being centralized. Andy Vajna, the government commissioner, is demanding the “right of final cut” on the films mainly funded by the state.

What the examples have in common

There would be no difficulty about adding to the list of thirty-three examples I have given, which purposely ranges from the huge changes involved in winding up the second pillar of the pension system, or the powerful new central office jeopardizing the independence of the judicial system, or the new law on the National Bank, to the slighter ones of amalgamating two galleries or amusement venues, although the second too will bring radical changes for those involved in them. The spread of the examples to include some tiny or even bizarre instances is intended to demonstrate how centralization has turned into a kind of merger mania. Wherever a problem is perceived, the panacea is to centralize and amalgamate. I would like to convey how the accustomed operation of countless organisms in society has been upset by the accelerating waves oftransformations. In fact there is sudden reorganization in so many places at once that it is justified to cite the Hegelian formula: quantitative change has become qualitative; the changes taken together have radically altered the system of control.

Notable ingenuity has gone into this: the legal form of the changes varies from case to case. Sometimes whole institutions are united, sometimes the procedure for appointing heads changes, sometimes executive boards are packed to increase central control, sometimes statutes are altered. So what “pattern” emerges from all thirty-three cases?

All machines of state are necessarily centralized, but the centralization within the machinery of state will strengthen if (i) the superior has fewer subordinates, so that his/her capacity for direction and inspection allows him to control them more firmly. Centralization will strengthen if (ii) there are fewer levels of superiority and subordination. Centralization will strengthen if (iii) the commands become more detailed. It helps if (iv) the top political leadership is able to appoint its own people to all important positions. In terms of society as a whole, centralization grows if (v) hitherto autonomous activities operating outside the machinery of state can be brought, partly or wholly, under state control. Finally, it grows if (vi) state inspection and intervention can be made in processes hitherto occurring without such control.

In each of the examples at least one of the changes (i) to (vi) can be shown to have occurred. There are some in which two or more of the changes appear. This in itself backs my assertion that we are not up against a random collection of changes here. All the changes listed point in a clearly perceptible direction: they reinforce centralization. I term this strong, radical, clearly observable and dizzyingly rapid process of transformation a centralizing tendency.

I introduce here a neutral term free of value judgement, in line with a positive, scientific approach. Normative analysis and value judgements will follow later in the article. Even for those who approve of the changes it is not worth denying the existence of such a centralizing tendency.

Some of the new formations, legal stipulations and forms of organization can be found under Western democracies, but there they do not attack the foundations of democracy as such. The specificity of Hungary’s twenty-month transformation is that this government has brought in a great number of concurrent moves towards excessive centralization and the destruction of autonomous mechanisms, and these very varied, mutually reinforcing changes have combined into a tendency.

Arguments for and against

The official initiators and implementers of these changes are wont to claim that the previous form of organization or mechanism was inefficient and wasteful, and led to sluggish handling of affairs. There is no denying that problems of this kind could be found in almost every case. They go on to argue that there is one universal remedy for low efficiency and tardiness: merging units, eliminating overlaps, pruning out excess capacities – in a word, strengthening centralization.

There is an age-old debate over the advantages and drawbacks of centralization and decentralization. Names such as Adam Smith, Marx, Hayek and Lenin spring to mind, with the great figures in mathematical economics, the Nobel Prize winners Arrow and Hurwicz. I thought, naively, that such debates could only recur in Hungary in university seminars on the history of economic theory, as intellectual titbits. Not a bit of it. The debate has become current again. As a warm-up, let me remain on the fine, smooth plane of theoretical analysis. I will try with a poker face to contrast the arguments for and against, as if this were some kind of duel that the one with better arguments could win.

The multiplicity of human activity has to be coordinated, with the assistance of various mechanisms. Let me pick out two of these.

One is the mechanism of vertical coordination. Let us imagine a pyramid. At the top is the Supreme Chief, who gives orders, let us say, to ten Chiefs beneath him. Under them lies a wider level of Deputy Chiefs. Each Chief has several subordinate Deputy Chiefs, while each Deputy Chief is subordinate to only one Chief above him. As we go down the pyramid, past the Deputy-Deputy and Deputy-Deputy-Deputy Chiefs, the levels become wider and wider and the number of participants increases. Finally we reach the base of the pyramid. Here stand all the many people who receive orders from above, yet do not in turn direct anyone beneath them.

This formation is termed in theory a “perfect hierarchy”. (How devotees of centralization must sigh to think of it!) It is perfect because the relations of superiority and subordination are unambiguous: there are no double or multiple lines of dependence.

The other model is the mechanism of horizontal coordination. This operates on a flat plane; nobody is subordinate to anybody from the outset. The participants have to agree amongst each other.

The first model is a pure case of centralization, the second one of decentralization.

In the first model the hands are visible: the chief’s order is a warning, and if need be, a threat. In the second, to use Adam Smith’s apposite phrase, the coordination is effected by an “invisible hand”.

A formation similar to the first model is embodied in the state (although never in such a pure form as the model describes). Two spheres resemble the second. One is the market, where the coordination is motivated by discernible material interest through agreements between buyer and seller. The other horizontally coordinated sphere encompasses non-profit organizations, the various free partnerships and associations, the groupings of “civil society”. Here the motivations are a mixture of material and non-material incentives.

Let us contrast the characteristics of centralization and decentralization.

1. Short-term efficiency. Decentralization is obviously accompanied by wastage. There are parallel organizations whose activities overlap. A marked proportion of the capacities remain unused. So merging several bodies under central control produces instant savings in administrative costs; some personnel can be dismissed straight away. (An example is the administrative costs of decentralized private insurance, which are certainly higher than those of a centralized state insurance system.)

This argument always rings out triumphantly. Yet the beneficial effect cannot always be counted upon, because the centralizing measures are usually pushed through hastily, at a forced pace, without benefit of sound expert advice.

Eliminating overlaps, cutting administrative costs, and a short-term increase in efficiency add up to a weak argument, even though they produce results. For other arguments for and against must be considered carefully.

2. Competition. Centralization involves cutting out competition wherever possible, whereas rivalry is vital to decentralization, though competition involves great costs. Competing sellers have to advertise and convince buyers to purchase their product or service, not another’s. They have to keep free capacity available to meet buyer demand at any time. This ties down huge resources superfluous to a centralized economy. But competition generates a huge driving force. It makes it desirable, indeed essential to bring in new products before competitors do: that is the engine of the innovation process that transforms our lives. All the major innovations in the last century have been made by decentralized, competitive economies.

Competition is necessary not only in the narrow sphere of economic activity, but in education, science and the arts. One very talented economist graduating from Harvard University wanted very much to teach there, but he was turned down. He then applied to the nearby Massachusetts Institute of Technology (MIT), where economics had not been taught before, and offered to set about organizing a teaching programme for it. He was given the chance. (He was lucky not to be dealing with Hungary’s Ministry of National Resources, which knows beforehand precisely how many students it wishes to see in how many departments of how many universities.) The economist’s name was Paul A. Samuelson, who would become the most famous in his country, the first American economist to be awarded a Nobel Prize. Today MIT is one of the best known workshops for teaching economics. Since then, the economics departments of the two neighbouring universities have rivalled each other (“overlapped”), vying to be the one with the best students and the most valuable research results, and frequently poaching each other’s staff. Despite the rivalry there is cooperation between them, for instance in the form of joint seminars.

3. Adaptation and selection. Hungary’s centralizers think it is possible to plan accurately within the four walls of an official building: to lay down in legislation and other inflexible regulations the future structures, freed of overlap and multiple administrative costs. It becomes possible to gauge the huge advantages of decentralization only by observing the movement of society. New organizations are continually appearing, some merge, others split, and still others are wound up. Small, medium-sized and large organizations appear and thrive side by side. Some grow, others shrink. This all resembles in many respects the evolution and natural selection found in the biological world.

The birth and massive growth of Google or Apple did not result from a position taken by some jury assigned to assess tenders. No ministry decided whether or not the Metropolitan and the Guggenheim Museum, situated a couple of hundred metres apart in New York, should amalgamate or remain separate institutions.

Viable products, technologies, management methods, teaching principles, forms of organization, and organizations themselves stay alive. Those incapable of adapting and improving themselves fall away sooner or later. What arrogant self-confidence, what belief in one’s own infallibility it takes to think that an office or a chief should decide on matters of life and death! Decisive, irreversible transformations are decreed, not gradually, experimenting along the way, as evolutionary processes take place, but at breakneck speed, to be accomplished in a matter of days or even hours.

4. Information. One condition for flawless working of centralized coordination is for the decision-maker to predict just how events will develop. In that case a flawless decision can be reached, and all that need happen is for the decision to be vigorously imposed. True, but real life is full of uncertainties and inaccurate information. Nor are they necessarily fortuitous; there may be intentional distortion at work. It may suit subordinates to deny there are problems (or exaggerate them if it serves their interests). They may report there is spare capacity, or contrariwise, complain there is excessively tight utilization of capacity, depending on which is to their advantage. The Chief will be unable to correct faulty decisions because subordinates dare not tell him he has erred.

Here decentralization has a big advantage. Those collecting information are often the same as those who apply it, so that there is a personal interest in making it accurate. (This, in a very brief, rather simplified form, is Friedrich von Hayek’s main argument for decentralization.) Those acting on faulty information pay the price: they drop out of the running, they are deselected. Those who stay in are the ones open to information, criticism, and self-correction.

To sum up the arguments under points 2, 3 and 4, it can be stated that the horizontally coordinated decentralization is much more efficient in the long term than centralized, vertical coordination. If these arguments (presented in much more detail in the vast literature on the subject, of course) are considered objectively, it will be seen that the statement is true on a straight logical basis. But there is more cogent and succinct practical evidence as well. The socialist system in its classic, Stalinist form is the historical structure that moved closest to a “perfect hierarchy”, to the model of utterly vertical coordination. Lenin stated that the Soviet system could be seen as one gigantic factory. The system initially, in the short term, brought spectacular results indeed, but in the end it failed! In its long-term efficiency (in terms of innovation, productivity and continual expansion of production), it fell far short of the performance of the decentralized capitalist system.

The efficiency of the system is essential to the increase in material welfare. But there are other values to be considered as well.

5. The value of independence, self-determination and autonomy. Let me take education and training as an example. It is clearly important for supply and demand for labour to harmonize, and so for the recruits emerging from training to match the structure required by their likely workplaces, in level and type of training, etc. I once heard the following line of argument put forward at a conference in Sweden. Mozart’s father might have learnt from the fact that Salzburg was full of musicians. Nannerl, the elder daughter, had become an accomplished pianist. Perhaps little Wolfgang should be a skilled craftsman instead: there was shortage of those.

What moral grounds are there for setting rigid frames for what young people study? What is happening here to the sovereignty of the individual and the family?

It may be that regional or professional autonomous bodies make many mistakes. It may also be that a super-clever state office can reach better decisions. But there is an immanent value for many in allowing a village, a town, a profession, a branch of art, or other community to decide for itself. István Bibó wrote of the “little circles of freedom” when he argued for self-governance.

6. Paternalism and self-care. The more the centralized state coordination embraces society as a whole, the more the state receives the task of taking care of all its citizens in every respect. Centralization and paternalism are twins, as are decentralization and self-help. This is an argument in favour of centralization in the eyes of those who like to depend on the state. But not everyone does. There are those who distrust the caring state, and many more have become uncertain about it in the light of recent developments. What if the state does not keep its promises? What if it turns out to be a father who does not look after his children well? Furthermore, many of us dislike being treated as children. We want to be responsible for ourselves. We want to provide for ourselves and our families, though it may involve greater expense. It brings to the fore private insurance, credit possibilities for paying education costs, and other decentralized mechanisms. There is no need for an unnecessarily sharp contrast: the demand of solidarity calls for the state to play a big part in assisting the sick and the old, disadvantaged and destitute. Nonetheless, the value of self-help, responsibility for oneself, is a sound argument for a requisite measure of decentralization and against an excessive degree of centralization.

7. Diversity. There was a huge saving for the Chinese economy when it became compulsory for all to wear a “Mao suit”. How light-industrial costs must have jumped when multicoloured garments reappeared! Since then, the Chinese have shown by their purchases that diversity is a luxury for which they are willing to pay extra.

Turning to a broader definition, our diversity is one of the beauties of life. There is no need to shepherd several research stations or several schools into one pen, even if they cost more separately. Each has its own history, its own tradition and its own collective memory. They have been through lean times together and developed a sense of community. These cold-blooded, technocratic reorganizations break such communities up, rob organizations of their past, and place them artificially in new, alien surroundings.

8. The political criterion. So far I have considered criteria of efficiency and of ethics. I have left the political criterion to last. Let us lay aside points 1–7 for a moment and assume there is a well-oiled, smooth-running mechanism in operation. The question is who stands at the top of it? This is a question customarily asked in theoretical literature on the subject, and answered with the assumption that there stands a “benevolent dictator” at the top of the pyramid.

And what is going to happen, if this benevolent person is fallible, often making mistakes? If his or her intentions are not so good, and he or she tyrannizes, welcomes flattery, rejects criticism, shows obstinacy, and proves incapable of requisite adaptation?

That may be the worst problem with the centralized model. The more efficiently it works, the greater the danger of it becoming the tool of a tyrant. Mechanisms based on decentralization, on the other hand, contain “checks and balances” against such an all-powerful centre. The more decentralized mechanisms there are and the livelier their activity is, the more firmly they offset the centralized peak of the pyramid. May the politicians and pundits who aim for a strong state for the sake of fairer distribution and redistribution in favour of those in need think about this! Beware: leadership of a strong state can get into the wrong hands!

Power and centralization

Evaluating arguments for and against based on the eight criteria mentioned belongs to the field of normative analysis. We have weighed in various contexts whether the centralizing tendency is “good” or “bad”. Let us now turn to a positive approach of considering the observable phenomena of reality and their causes and consequences.

The main ambition of the government led by Viktor Orbán has been to grasp power as firmly as possible, and having done so, keep hold of it as long as possible. Power is the end and all means are subordinate to it. If we have understood this Machiavellian relation of end and means aright, this is most important causal explanation of the centralizing tendency. The power motive provides sufficient cause for making the Orbánite pyramid as comprehensive and effective as possible. The true motive for the changes is to bring about the following conditions as much as possible:

● Let the chain of command from the top downwards be as short as possible.

● Let every Chief, Deputy Chief and Deputy-Deputy Chief be one of our trusty people. It is sufficient reason for reorganizing all organizations that it provides a chance to appoint our people to head the new Centres or Sub-Centres. Nor need we stop at posts traditionally reserved in the practice of democracies for “political appointees”. The further down the pyramid we insert our trusties, the better.

● The main appointment criterion is loyalty to the top of the pyramid. Of course expertise is useful as well, but unconditional loyalty and obedience are paramount.

● Whatever level of superiority/subordination pair it is, let the dependence be strong. The orders must be obeyed without question. In fact subordinates need not wait for orders. They will know from the party line what superiors expect and do it on their own initiative.

● Bosses need not discuss much with subordinates. As in the military, the pattern for vertical coordination, the essence lies in the downward flow of information, the orders, not in the upward flow of suggestions or advice, let alone criticism.

● The condition for the operation of centralized vertical coordination is discipline. This must be imposed by administrative means. The disobedient must be dismissed. Nor is there any harm in clean-outs of workplaces where nobody was considering disobedience. (Examples are the mass dismissals from the public media and from the ombudsmen’s offices.) I have even heard of cases where the regime has followed up by preventing dismissed officials from finding new jobs. Fear of dismissal leads many to humiliate themselves, preferring to smother their protests to risking their jobs.

● Naturally, vertical coordination rewards its people as well as punishing and threatening them. Loyal service brings high pay, end-year bonuses, and special non-monetary concessions.

The power motive does not simply apply at the top. Going down the pyramid, the new nomenclature of “our people” reaches to deeper and deeper levels. Its members – Chiefs, Deputy Chiefs, Deputy-Deputy Chiefs – have themselves attained power. They must comply with those above them but can command those below. And having attained that power, they stick to it. The Supreme Chief at the top of the pyramid is not alone: he has shared interests with the high, medium and low-level powers beneath him, in maintaining and retaining power.

Life for the new nomenclature on the upper levels of the Orbánite pyramid is eased because they do not have to philosophise or rethink complex dilemmas repeatedly. They have to do their part as the party and government orders and expects. If there is trouble, the medium and low-level bosses have a ready excuse: “We can’t help it, the decision taken higher up was faulty.” (How familiar is the line, “I was carrying out orders”!) Also at hand is the reassuring technocratic ideology (see criterion 1 in the previous section): “We are building and strengthening centralization for the sake of efficiency, and not for power’s sake.” Vertical coordination – the hierarchical system of command – has never worked satisfactorily anywhere. It is a squeaky machine. If troubles arise, the inner logic of the mechanism calls for more centralization. If detailed instructions are evaded, the numbers are broken down further. “Hand-piloting” is not exceptional, so that each boss himself decides instead of giving general guidelines to his underlings.

According to the logic of a centralized system, the thicker the troubles, the more administrative measures must be applied. Once upon a time it was termed “sabotage” for an enterprise to miss its plan target and the penalty in the Soviet Union could be death or merciless forced labour. The byword now is “fraudulent misuse of funds”, and in rare cases where this has been proved conclusively in the courts, the sentence, so far as I can judge, has stayed within the bounds of a civilized judicial system. But there is no guarantee that repressive measures will stop there. Further curbs on the legal rights of witnesses or suspects reinforce the concerns on that score. Arbitrary accusations and false charges are becoming more common. It must be feared that public officials and business figures will be enveloped by an atmosphere of threat. Where we must place our hopes is in the legal sense and professional honesty of the judges. Punishment must come to those who break the law, but only to those who really do so. Pressure is being applied to the judiciary; judges face a great test. But conscientious judges will not pass falsified or prejudiced sentences and judgements.

All I have said here about the attributes and inner logic of centralized vertical coordination will be known to those familiar with the socialist system. The problem is that the Fidesz regime has mistaken its period. Strong centralization could, for better or for worse, operate and survive in the Soviet Union for seventy years and in Eastern Europe for forty, but only because in the region there was a thoroughgoing socialist system in power. Private property scarcely existed, the market mechanism was all but excluded, and the socialist world cut off from the capitalist. Now there is a different situation. How can the Fidesz regime coexist with the clear fact that the centralizing tendency has strengthened, but there is no socialist system surrounding it? How can the system of state commands coincide with the capitalist economy?

Coexistence that undermines trust

There is no sign of the Orbán regime preparing for mass nationalization or collectivization – not even its angriest critics would suspect that. The regime has accepted that private ownership is Hungary’s dominant form. (Even so, its significance is not emphasized in the new constitution and the state’s acknowledged obligation to protect it has been left out. Indeed the expression “private ownership” does not appear – perhaps a Freudian omission.)

There is no capitalist country in the world where a centralized state and a decentralized market do not coexist in some form. Nor does the latter operate uncontrolled, as the so-called neo-liberals are alleged to demand. (In fact no sane economist has ever described anything of the kind.) The state everywhere exerts some supervision over the economy, intervenes in the economy to some extent, provides some free services, performs a measure of redistribution, and influences demand through its procurements. And everywhere there are frictions, indeed conflicts in the coexistence of state and market, around the points of contact between them. The worldwide financial crisis has brought to the surface some dangerous phenomena. For instance, some developed countries went too far in deregulating their financial sectors; reimposing regulation and making it more effective have joined the agenda.

Coexistence between the state and the capitalist market economy is in at least tolerable condition in most countries. In fact the relation is positively fruitful in some, despite some frictions. On the one hand, state intervention cushions the market’s failures and makes income distribution fairer. On the other, the market flexibly and effectively corrects the government’s mistakes. But these fortunate cases do not refute the general observation that state and market are two different kinds of organism alien to each other: their coexistence is not easy.

It is a mistake to think the various elements of state activity and the various elements of market activity can be combined in any desired proportion. The governmental measures of the last twenty months have whimsically alternated between elements of socialism and capitalism, centralization and decentralization, and state and market activity. Parliament has hastily adopted more than one proposal in which one measure has a “socialist” feel to it and the next a “capitalist” one. The resulting system is no unique “Hungarian model” of which we can be proud or to which we can draw the attention of a benighted world. The socio-economic structure under which we are living is incoherent and replete with inconsistencies. Nor has it sought to reconcile the advantageous traits of socialism and capitalism; it assumes in the main the least attractive traits of both.

In the light of this, let us look one by one at the features of the processes taking place over the last twenty months.

Strong words are used against bankers, speculators and adventurers – formulae borrowed from the current worldwide wave of antipathy to capitalism – mainly when a wider domestic public is being addressed. The twilight of the West is nigh. Yet there are cases where the head of government or a minister meeting with Hungarian and foreign business people, investors or leading bankers addresses them in objective tones. If we only had words to go by, it would be hard to say whether the regime was a friend or an enemy to capitalism.

Words might be tolerated, but there have also been deeds unacceptable to sincere believers in the capitalism system. It has been cited a hundred times, but it remains the gravest iniquity in this respect that the government confiscated the private savings that had built up in the pensions funds. The defenceless citizens sought protection and a remedy for their grievances from the Constitutional Court, but it let them down. That grave injury cannot be healed; this above all has undermined citizens’ trust in the legislature, executive and judiciary, from which they had expected protection of their property, not an attack upon it.

There has luckily not been mass nationalization, but there is nonetheless a slow, surreptitious expansion of the state sector occurring. The first episode, small but alarming, occurred in Pécs, when a new Fidesz mayor, still in the time of the last government, used his security men to chase out the staff of the French-owned waterworks and took charge of it. Later, by legal means but for economically nonsensical reasons, the government repurchased most of the shares of the oil giant MOL, i. e. it began to play the stock market, in this case making an inordinate loss by it. Later it obtained ownership rights of the vehicle company Rába. Economists remain puzzled to know what could have induced these moves.

It is well known that legally, economically and ethically dubious transactions took place in all the post-socialist countries during the huge process of privatization that followed the change of system. If it should emerge only now that some deal or other was illegal, an investigation might still be launched. But confidence in the sanctity of private property will be seriously shaken if there begins a wave of generalized suspicion, two decades after the change of system, and full, methodical criminal investigation of the whole privatization process. What is the purpose of this upheaval in property rights? “Shake in your shoes, we’re after you all!” Is that the kind of anxiety the government wants to spread in everyone who has acquired property in the last twenty years?

It is incompatible with smooth working of the capitalist system for the state as buyer (the biggest buyer, excessively big, many say) to discriminate among potential sellers, not over business conditions, but on political grounds and in view of personal connections. There are generally known to be firms “close to Fidesz” (just as there were those “close to the Socialist Party” or “close to the Alliance of Free Democrats”). Sometimes the discrimination can be detected even in the legislation, as with the exemption from “crisis taxes” given to some domestically owned chains of stores. In existence, but harder to detect, is the bias in adjudicating between tenders for state procurement orders. Furthermore, investigative journalists report the existence of “shadow empires” in the economic background of Fidesz, receiving assistance from the political sphere and giving aid to politicians in return.

One foundation of the capitalist economic system is respect for private contract. The government, Parliament and the courts have an obligation to enforce contracts. But how can respect for private contracts be expected if the government itself, as a partner in many important agreements, sets the worst example? When the “crisis taxes” began to be levied, government promise after promise was heard during the negotiations, only to be broken at the next stage of talks. The banks are being trifled with, having a kind of three-card trick played on them. Even after tempers cool and the government side announces that this was the final move, the game resumes. This happened in several stages with the ostensibly “final settlement” for individuals who had taken out bank loans in foreign currency.

The question of loans raised in foreign currency is hideously complicated and cannot be reviewed in this article. I would like here only to pick one aspect of it. To shed light on what I have to say it is necessary to analyse only two pure cases, although in practice there is a broad medium band with mixed features of the two extremes.

One pure case is where the household was compelled to take out such a loan to improve its housing conditions: its members were not well enough informed to see their way through the web of conditions surrounding the loan. They have been trying to repay it but they cannot, because their finances have deteriorated, for instance because the main wage-earner has lost his job. In such a case, the principle of solidarity warrants society giving assistance to the family.

The other pure case is where the borrower was hoping to make a profit out of buying a piece of real estate. He or she knew that raising a loan in any currency involved a risk. It is unacceptable to brand such a person as a “speculator”, for such transactions are part of the normal course of a capitalist market economy; the housing sector would never develop without them. If the transaction pays well, the borrower pockets the profit. If it does not, that is the borrower’s problem. No pity is due and still less is he or she entitled to retrospective help of some kind. Yet the final version of the “final settlement” has assisted just such cases of business investment. The state forced banks to amend earlier private contracts retroactively, at their own expense, to the benefit of the borrowers. This procedure and similar retroactive contract amendments made under state pressure have caused perilous legal uncertainties. This is a classic example of what I termed in my earlier work a “soft budget constraint”. If there are now mass bail-outs of those in financial trouble, who got into it in the hope of fat profits, there will appear in the minds of entrepreneurs, investors, local government organizations or ordinary citizens the expectation that they need not hesitate about risks. They can safely take out loans for as much as they wish, because they will be bailed out if they are in trouble. Even if they signed a contract, what matters a little signature?

Respect for private contract and the security of the law were also damaged by legally inadmissible legislation that retrospectively expropriated many severance payments to employees.

Owners hold sway over their firms’ affairs. They must abide by the valid laws of the state, but having done so they are sovereign decision-makers. Yet this government repeatedly breaches the basic market rules of capitalism. Fidesz’s people announced that private firms would have to compensate employees who lost by the introduction of single-rate flat income tax. “Wage commandos” are being sent out to firms to check whether this was done. There is even an open threat attached: firms that do not meet the requirement will not qualify for state procurement orders. The authorities are meddling in what can or cannot be sold at a filling station, in how many chemist’s shops and how many tobacco outlets a town may have. The state intervenes with the force of law in whether shopping malls may be built.

“Profit” is a word with a pejorative ring for Marxist propagandists, but those who have studied economics know profit and investment are closely tied on the macro level. On the micro level, most firms (including banks) cover a large part of their capital investments out of their own profits. Only part of those profits reach the owners, as money they are free to spend. If they want they can use them for consumption or for personal capital investment. But if the state clamps down on corporate profits, it deals a heavy blow to the investment process. Loss-making firms will try for a time to ride out the storm, usually by trimming their activities, and many of them become insolvent sooner or later. Brutally high “crisis taxes” cannot qualify as praiseworthy “unorthodox” methods of relieving citizens, that do credit to the administration’s ingenuity. When the profit motive for firms and banks is seriously imperilled, the ultimate hope of finding funds for lasting growth is lessened. It is useless for propagandists to proclaim that the government’s main aim is to produce growth, if its deeds drastically reduce the possibility of investment funded out of profits.

Here peaceful coexistence between state and market becomes almost impossible. The government seeks to bring the private economy under its sway, notably its life-blood, the financial sector. The centralized state pyramid sees itself as all-powerful and tries to dictate through its available means, while the decentralized market around it is incapable of  collective action to defend itself by similar means. Yet it too reacts. The next section sets out to say how.

Arbitrary state action and market reactions

It would be a poor comparison to think of an American football game at this point: of two teams rushing at each other, one trying to crush the other’s players mercilessly and grab the ball. One side in the battle between the Orbán government and the capitalist market economy is lined up ready for battle, with a team of leaders from the ruling political party. But what about the other side? Hungarian capitalism has no united party, no Politburo, no chiefs of staff. Indeed the world’s capitalists are not united either. There is no global united capitalist political party. There is no world government, no central planning office like Gosplan. So there is no other “team” to crush the opponents and grab the ball.

It is time to lay aside the sports comparison. One trouble with the government is its penchant for seeing the situation as a football game or a boxing match. So let us talk instead in the language of economics and social theory. One of the important features of capitalism is that it consists of millions or tens of millions of atomized players, each rivalling each other, often in greater or lesser conflicts with each other. This Marx saw pejoratively as the “anarchy” of the market, as ungoverned administration, and that is what it is.

The market has its own parlance and sign-language, which has been well explored by science. Some information consists of price indicators, other of quantitative indicators of production, investment and capital flows. Let us look briefly at a few market indicators.

A sizeable proportion of Hungary’s state debt consists of state bonds. When an issue of bonds matures, the state must pay it back with interest (its yield, in business parlance). Then new bonds must be issued to cover the repayment. If a state cannot make the repayment it becomes insolvent, the state goes bust and the investors’ money is lost. Thus buying Hungarian bonds entails a risk. What do the buyers of Hungarian state bonds think of that risk? It is superfluous to ask them in words. The answer appears in various indicators, of which two will be taken as examples here.

One is the risk premium. Investors can insure themselves against the risk of default. The bigger the risk of trouble, the higher the premium. The country risk premium for Hungarian state bonds has been climbing. Before the Fidesz government took power, in May 2010, it was around 250 basis points. In October it rose several times above 550 basis points. In January 2012 it exceeded 700 basis points.

Another significant indicator concerns the yield on ten-year state bonds. Before the 2010 elections the expectation was 6–7 per cent per annum. These days investors are only prepared to buy such bonds if the Hungarian state offers an annual rate of interest of 9–10 per cent. This is an unprecedented cost. It is unpayable by any economy presently stagnating or possibly shrinking, with a prospect of growth one day, but likely to be slow for some time. If Hungary’s financial policy-makers accept it by floating more bonds, the country will find itself in a debt spiral, or worse still, an accelerating whirlwind of debt.

It is unclear to the government, judging by official statements, that the investment experts at home and abroad are not usually “speculating” with their own money. Most are handling the money of insurance institutions, pension funds, and investment banks that marshal the savings of private individuals. They attend to the views and advice of analysts and credit-rating institutions. Some investors – to safeguard their depositors, insurance clients and pension beneficiaries – are obliged to refrain from investing in junk bonds. It is a waste of breath to engage in polemics with them or analysts or credit-rating agencies. Even if they err occasionally, what they do and decide is an economic reality.

There is a strong economic correlation between market movements for sovereign paper and exchange rates. Foreigners who sell bonds bought for forints hasten to exchange those forints into euros or dollars or another currency. Amidst the sharp fluctuations, the trend is clear: the forint has weakened perceptibly against all other currencies.

Albert Hirschman, in his splendid book Exit, Voice and Loyalty, stressed a wonderful thing about the market: there is no need to say anything, no need to protest or threaten or shout. It is enough to exit.

When the centre handling Hungary’s state debt announces an auction of new state paper and no buyers appear (as has happened several times), it shows that investors who would have gladly bought Hungarian state bonds earlier have silently left.

Government spokesmen are scaring citizens by saying they will detect who is giving the forint a bad name and punish the rumour-mongers. But that will not stop the flow of deposits from Hungarian banks into foreign ones, which is reducing the funds available for real investments in Hungary.

Still clearer signals of exit are emitted by the figures for the decline in lending and in the propensity to invest. The threat here is not just to the financing of Hungary’s budget deficit – the short-term financial balance – but to the country’ long-term prospects of growth.

There are many factors affecting the supply of credit. Certainly the mounting tax burden on the banking sector is one contributor. The fall in lending to firms is conspicuous.

For a long time, one driving force behind growth in the Hungarian economy was the inflow of operating capital (foreign direct investment). This moved for many years within a band of  an annual 3–10 per cent of GDP. There is no figure yet for the whole of 2011, but the one for the first three quarters was saddening: for the first time it was negative, in other words more capital was taken out of the country than brought in. This was an alarming signal indeed of silent withdrawal.

Another important figure: investment in the competitive sphere stagnated. The volume in the first three quarters of 2011 was equal to the same period of the previous year.

The chain of cause and effect, impulse and reaction, is clear. The confidence of the business world has been undermined by the whimsicality and unpredictability of Hungarian economic policy, legal uncertainty, and repeated breaches of the rules of a capitalist market economy – more than one of them grave and crude breaches of fundamental principles. The destruction of trust leads to a worsening of the financial conditions for normal operation of the Hungarian economy, and so to the prospects for long-term, lasting growth.

This brings me to my final conclusion. The Orbán regime has attained its real goal: it has harshly seized power; by strengthening centralization and extending the power of the state it has gained the means of exerting unlimited power. But autocratic rule, unbridled centralization and excessive expansion of state activity are incompatible with healthy running of a modern capitalist market economy. Following this road it will be impossible to raise the Hungarian economy out of the trap, out of stagnation and onto a path of sustainable growth. And we will all be the sufferers by that, present and future generations.

My expectations of this article    

Much of my message remains unsaid. It would be good to discuss the bad kind of coexistence between state and market that has arisen in Hungary, how it fails to draw all possible good out of the capitalist system: the propensity for innovation, dynamism, initiative and a spirit of enterprise. But sadly it brings out all the bad innate in capitalism as a genetic attribute. The government and the market work together to make the income distribution still more unjust; they operate side by side to produce and sustain mass unemployment. Unfortunately there is no space to explore these ideas here as my article is already too long.

I have addressed primarily readers who are themselves critical of the Fidesz regime. Already there is a wide circle who agree on the fundamental question: this country is under autocracy instead of democracy; the state of law has weakened; human rights are being infringed. I would like to augment this common recognition with my analysis here. I hope this will assist people in understanding the situation and formulating their own position on it.

I do not think fanatics can be convinced by analyses or by economic or moral arguments. I do not imagine that admirers of Viktor Orbán will read my piece, strike their foreheads and say the author is right and their opinion of capitalism, centralization and decentralization will be different in future.

But what if the ranks of Fidesz and the administrative apparatus include some who are not fanatics? People who, if they are not close to the top of the pyramid, find it important to retain their autonomy? What if they are capable of breaking out of a short-term, technocratic outlook of being impressed only by state discipline and a possible swift growth in efficiency and not concerning themselves enough with long-term interests? What if they are capable emotionally of appreciating the strong moral dilemmas mentioned in this article?

And I would add that many are uncertain: they like some things the government is doing but not all. Many people have become disillusioned with politics, backed away from public affairs and turned in on themselves, their families and their immediate environment. It may be that some of those who have become uncertain will be prepared to rethink their own experience in the light of the ideas in this article.

When I write or lecture, I normally have specific people before my eyes. It is as if I am addressing and seeking to convince them. This time I have been thinking of some former students of mine as I write. Perhaps there were not so few of them who once read my Overcentralization or Economics of Shortage or Socialist System, or studied from them in college and university. They know that as an author I dealt much with issues of centralization and decentralization, the state and the market, and socialism and capitalism. If they listened to my messages then, perhaps they will find it worth dwelling on my present words as well.

We shall see. Perhaps I will live to see some essential change in this country’s favour.