Governmental incompetence and the economy in today’s Hungary
It often happens to me–and I assume that I’m not alone–that I have so much news to digest daily that some important item passes me by. Or that I have a kneejerk reaction to a piece of news that is only partially informed because I don’t grasp all of its consequences.
This is what happened when I first heard about LMP’s idea to limit the size of supermarket chains and department stores. I became even more worried when Fidesz discovered that the idea might serve its own nationalistic and political purposes. Parliament within a few weeks passed a law stipulating that the maximum size of a department store or supermarket would be 3,300 square feet. If a company wants to build a bigger store it has to apply for an exemption.
This in itself is nonsense and certainly doesn’t serve the interests of the consumers. Moreover, it gives an opportunity for corruption and discrimination. If the owner has government connections, the Ministry of National Economy–György Matolcsy’s domain–will approve the application. If it is a foreign company, no exemption will be granted.
Well, this is exactly what happened even as the Hungarian construction industry was practically dead. According to Bloomberg, the Ministry’s statistics on granting exemptions are grim. The German discount retailer Lidl applied just this year for 14 exemptions but none was approved. Capital investment that is so badly needed today is drying up, and this limit on new store sizes “symbolizes the uncertain environment in which developers must work.” The dreadful situation that this decision created became obvious only a few months after its adoption.
This is also what happened with the law on the ownership of pharmacies passed a year and a half ago. At the time I listened to all sorts of interviews with people who were for or against the new law. But the real horror of this law didn’t hit me until this morning when I listened to an interview with a man from Pécs who together with his extended family, which includes three pharmacists, owns nine pharmacies. It looks as if he will be forced to sell a 51% stake in these pharmacies to his employee pharmacists, most of whom are not even interested in the deal. What kind of democracy is it where one has only limited economic opportunities? How can anyone think they can do this in a capitalist society? Well, Viktor Orbán and his friends obviously have no such compunctions.
But let’s go back a little on the topic of pharmacies. The privatization of pharmacies began after the change of regime, and by 1994 all pharmacies were in private hands, though the new owners had to be the pharmacists themselves. There was also a restriction on the number of pharmacies based on geography and demographics, a practice that at the time was not unique in Europe. Since then, however, the rules have pretty much been lifted in sixteen countries.
In Hungary the liberalization of the rules and regulations governing pharmacies took place in 2006. You may recall the upheaval. Pharmacy owners, with the political help of Fidesz, objected to any Tom, Dick, or Harry opening a pharmacy in any old place he wanted. They also objected to the sale of over-the-counter medications like Aspirin in supermarkets and gas stations. Certainly losing their monopoly on the sale of Aspirin and other similar medications cut into the existing pharmacies’ profit.
But there was definitely a need for more pharmacies, and once the geographic and demographic restrictions were lifted 600 new pharmacies opened. Also, after 2006 ownership was no longer restricted to pharmacists. Wholesalers and even pharmaceutical companies, including foreign companies, could own pharmacies as long as there was a pharmacist present at all times.
The new law passed on December 20, 2010 included all sorts of amendments to the 2006 CLXXIII Law. One of the most important of these amendments specifies that a company–as opposed to a person–can “own” a pharmacy only if at least 51% of the business is owned by the pharmacist on the spot. The rationale? “The more secure and better service of the patients.” What? Why?
This change of ownership will take place in two stages. By January 1, 2014 the pharmacist or pharmacists will have to own 25% of the business and by January 1, 2017 they will have to own more than 50%. Even those who are behind this madness have to admit that the salaried pharmacists simply don’t have the money to fulfill their “obligation” of owning 25% of the pharmacy they are working for. They would need massive government help to do so.
From here on pharmaceutical companies, wholesalers, and people that already own at least four pharmacies are not allowed to expand and acquire more stores. They are not being forced to get rid of what they currently own, but they still have to sell more than 50% of their business to their employees.
Although the law doesn’t specifically mention the ownership of pharmacies by foreign companies, I have the distinct feeling that this law also aims at restricting their role in the retail sale of drugs. First of all, I learned from an interview from last January with the head of the Association of Pharmacists, who is very happy with this new law, that foreign companies were planning to expand their pharmacy chains, in his opinion a very bad development. By way of explanation he could say only that selling pharmaceuticals is “in the national interest” (nemzetpolitikai érdek). He also had no rational explanation of why service would be better if the pharmacists owned 51% of the business.
One thing, not in the interest of the consumer, is definitely true: the price of drugs will go up due to the small size of the businesses. If someone has 20 pharmacies and can take advantage of bulk orders that pharmacy will be able to sell for less. Moreover, due to all sorts of other government restrictions on the price of drugs, pharmacies that are short on cash are unable to order larger quantities of the same drug. So, it often happens already that the customer is told that he will have to come back because this particular pharmacy doesn’t have the medication in stock.
I’m no constitutional lawyer, but this law must surely be unconstitutional. Even Barnabás Futó, the right-wing lawyer who takes up every case that in one way or another is connected to Fidesz, admitted during an early morning political program on MTV last January that this law was most likely unconstitutional. The pharmacists who are adversely affected asked Pál Schmitt not to sign the law, but they must have known that there would be no chance of Schmitt not signing something put in front of him.
So, here are two new laws, both of which will inflict terrible damage to an already fragile economy. And I didn’t even mention Hungary’s more than fragile, almost fractured democracy. How can all that be undone? It will take a long time, and I am not at all sure whether it can be done at all.