I have spared you details of László Sólyom's recent boorish behavior, particularly at the time of the election of Gordon Bajnai as prime minister of Hungary. But since the Hungarian president's recent press conference serves to introduce the theme of the day, let me put it into context. Sólyom asked Bajnai to visit him in his residence; apparently the two men spent at least an hour and a half together. Sólyom was all smiles afterwards. It seems that he likes Bajnai a great deal more than Gyurcsány (whom he most likely loathes). Moreover, he unequivocally announced earlier that Bajnai and his government are legitimate and that he will work with the new prime minister. What he did after the meeting was less acceptable. During a long press conference he pretty well told the whole world what he demanded of the new prime minister. He had a long list of "requirements," among them keeping the current practice of three years of "gyermekgondozási díj," known by the acronym GYED. A woman who just gave birth to a child can quit her job and stay at home with the child for three years. The government will reimburse her at a rate of 70% of her former salary. A really good deal. There is also something called "gyermekgondozási segély" (GYES) that is 28,500 Ft per month per child. Again the woman is eligible to receive GYES for three years. Sólyom's reasoning was that there aren't enough children in Hungary and that the current practice increases the birth rate. Moreover, Sólyom wasn't sure whether it is a good idea for young children to be in nursery schools or in general to be "part of a community."
I'm no child psychologist, but as far as I know the only downside to well-run nursery schools and kindergartens is that kids get sick more often than they would if they stayed at home with mom. (And is this a downside for the children or for the parents who get sick more often than they would if the kids stayed at home with mom?) Anyway, prior to the change of regime Hungary was very well endowed with nursery schools and kindergartens. Unfortunately, most of these institutions have since closed. Moreover, women themselves would rather stay at home on GYES and GYED for years. In one sense this is a no-brainer. Who wouldn't on 70% of her former salary? But easy money comes at a price. In the case of professional women such a long hiatus from the work force puts them at an incredible disadvantage. But women with less demanding jobs also discover that returning to work can be difficult, and when they do get a job it is often at a much lower salary than what they earned prior to the birth of their child or children.
Given the current situation it is clear that something has to be done with GYES and GYED. According to the OECD Family Database Hungary spends three times as much on early child care in the form of assistance and monthly pay as the average of the well developed countries represented by OECD. Only 4% of Hungarian children under the age of three attend nursery schools; the European Union's desideratum is 30%. Hungary is the last among the European Union countries when it comes to employment of women with children under the age of two. The situation is not much better among women with children between the ages of three and five. In this category Hungary is second to last.
Moreover, there have been studies (András Gábos, Róbert Iván Gál and Gábor Kézdi, "Birth order of child-related benefits and pensions," 2009) showing that cash benefits didn't substantially raise the birth rate. According to the authors even if one doubled GYES and GYED the birth rate would climb only from 1.3 to 1.6 children per women. (And one has to ask what kind of women would have additional children to get extra cash.) Klára Dobrev, wife of former Prime Minister Gyurcsány, wrote an article in the December 2008 issue of Mozgó Világ in which she claimed that while thirty years ago the birth rate was higher in countries where mothers stayed at home today the opposite is true. But, she added, men have to assume a larger role in child rearing and more nursery schools and kindergartens are needed.
Yet Hungarians cling to the notion that mothers' long stay at home with the children boosts the birth rate. At least this was what Szonda Ipsos found last year. Twenty-five percent of the population think that mothers should stay home with their children for their first five years. In Hungary, because of the generosity of benefits and the scarcity of nursery schools and kindergartens, on average a Hungarian mother of one stays at home for four years; for a mother of two that period expands to six years.
Now that the government is contemplating a reduction in child rearing benefit coverage from three to two years, feminists (the few who exist in Hungary) and associations fighting for the rights of the family have united in a strange alliance. Almost twenty organizations protested against any change in the current benefit package. The protest can be read on www.babafalva.hu. According to Mária Adamik, a sociologist and director of the Gender Studies Center of ELTE, their "manifesto" is full of contradictions. On the one hand, there are feminist demands such as the right to employment, equal pay, equal responsibilities, more nursery schools and kindergartens, but at the same time there are other statements that point to a certain resignation that these demands will never materialize and therefore GYES and GYED should somehow compensate for the less than equal status of women.
Neither the manifesto of women's organizations nor President Sólyom's desire to pay to have more little Hungarians will likely deter the Hungarian government from reducing the expenses of an expensive program devised in the mid 1980s. Hungary couldn't afford it then and it cannot afford it now. Especially since it doesn't seem to make any substantial difference in the birth rate.
to repeat myself: “maternity benefits are not so straightforward or so generous as you suggest.
Employers are obliged to keep a new mother on their payrolls for up to 3 years after the birth of a child, which is very generous. But:
the 75% of salary is only payable for the first 6 months of maternity leave, and is capped at 105,000 Ft per month net. This represented 40% of my wife’s salary: she had an administrative post at an multinational company.
Between 6-24 months she again received the maximum payment of 69,000 Ft a month.”
Then she received the maximum payment of 27,000 Ft a month until she returned to the workforce.
Sophist: “to repeat myself: “maternity benefits are not so straightforward or so generous as you suggest.”
Please read the information available on the Internet. But, let’s assume, there are exceptions and limitations. It seems that it is still too generous. The country cannot afford even that much. If the benefits in Hungary are three times as great as the average in the EU then there is something very wrong.
Ėva: “It seems that it is still too generous”
I did a quick comparison of the entitlements available through the equivalent – the statutory maternity pay scheme in the UK. Statutory maternity pay is paid for 39 weeks in total (and this reflects considerable extensions of the scheme under the Blair government in the 1990s). In 2008, statutory maternity pay was payable with no upper limit at 90% of average weekly earnings for only the first six weeks! For the remaining 33 weeks the upper weekly limit was capped at GBP 117.18 (HUF 39,324).
When one considers the difference in average earnings between Hungary and the UK, and the difference in the level of GDP per capita between the two countries (which determines the ability of the state to support the payment of such benefits), it is difficult to argue that the Hungarian scheme relative to the means of the country is not generous. Whether this is a good thing or not is a separate question.
“Hungary is the last among the European Union countries when it comes to employment of women with children under the age of two.”
Clearly this was one of the motivations for the introduction of the current system was to make motherhood a vocation, and thus to depress labour market participation among women – particularly in relatively low skilled, low paid jobs. While raising the birth rate is often cited as a motivating factor, it is perhaps no accident that GYES was introduced in 1967 on the eve of the economic reform. Prior to that date enterprises had been responsible for covering the costs of maternity leave schemes from their own budgets – GYES centralized its administration. Furthermore there was a fear – unfounded as it proved – that giving enterprises more autonomy and forcing them to concentrate on profitability (key planks of the 1968 reforms) a problem of unemployment would emerge. Thus, it was always about mitigating male manual unemployment through reducing female labour market participation.
It is very clear that the situation has changed, and given Hungary’s low labour market participation figures the goverment would be better advised to spend money on fulfilling “feminist demands such as the right to employment, equal pay, equal responsibilities, more nursery schools and kindergartens”, rather than continuing to promote motherhood. Clearly there isn’t any evidence that GYES (or GYED) have done anything to raise the birth rate in any sustainable way, and it is clear that is scope for a new approach.
Mark: “it is difficult to argue that the Hungarian scheme relative to the means of the country is not generous. Whether this is a good thing or not is a separate question.”
Of course, it isn’t if the country can’t afford it and the very generous assistance could be provided only by taking out foreign loans. On top of that, it doesn’t seem to matter as far as the birth rate is concerned. On the other hand, it adds to underemployment in a country that already has a very low employment rate.
“if the country can’t afford it”
I agree that the deficit implies Hungary can’t afford it’s current public expenditure. But there are other ways of saving money. My wife now has a job with the Allam Kincstar, she was pleasantly surprised to discover that she receives a 25,000 Ft monthly premium for holding an intermediate langauge exam in English – an language she doesn’t use in her work.
So holding an irrelevant qualification is priced as almost the same as being the mother of three children. I know where I would make the first cuts.
Sophist: “she was pleasantly surprised to discover that she receives a 25,000 Ft monthly premium for holding an intermediate langauge exam in English – an language she doesn’t use in her work.”
I know about this stupid leftover from the Kádár regime. I even agree with you that it could be abolished. But, these expenses are nothing in comparison to GYES and GYED or the thirteenth month pension or pay.
Ėva: “Of course, it isn’t if the country can’t afford it and the very generous assistance could be provided only by taking out foreign loans.”
It isn’t this simple. Hungary isn’t in difficulty financially because it has been spending too much – since 2006 it has implemented a fiscal correction of quite considerable severity that bore substantial results. It is in difficulty because an international credit crunch has starved it of the funds to finance itself, exacerbated by a crisis of confidence caused by a long-term debt trap (that has existed since 1985 – produced by an illegitimate regime seeking to buy off popular discontent), household debt denominated in foreign currencies (a product as much of EU imposed financial deregulation and the greed of foreign owned banks, as irresponsible borrowing), and collapsing growth (exacerbated by the cumulative effect of a series of policy mistakes made since 1989 – that are being continued by Bajnai). And there is no cut in public expenditure large enough that will do anything other than make this situation worse.
The real issue of whether it is a good thing is whether it is an investment in the future that the country needs to make to ensure the supply of labour necessary to grow in the long-term. I’d make the case for reform of the system on grounds that there are better ways of doing it – conservatives who focus more on the birth rate, and the partiachal family will disagree.
I do think that you are falling into the trap that Károly Attila Soós warned us some weeks back in the context of the discussion surrounding the Reform Alliance where “reform” is always conflated with “spending cuts”. The political risks of doing this are that this association will make any “reform” politically impossible – and when the political backlash against Bajnai sets in, just as it did against Bokros a decade ago – that is a significant danger.
Mark: “I do think that you are falling into the trap that Károly Attila Soós warned us some weeks back in the context of the discussion surrounding the Reform Alliance where “reform” is always conflated with “spending cuts”.
At the moment I can’t see any other way. Hungary will not get more loans and even if it did it would create such a debt load that it would be impossible handle it.
Moreover, I don’t really believe in a system where the population’s demands on state assistance is as great as it is in Hungary. It doesn’t do much for initiative and economic growth
Ėva: “Hungary will not get more loans and even if it did it would create such a debt load that it would be impossible handle it.”
But, let’s face it – the debt load is already impossible to handle, and handling it is out of the control, to all intents and purposes of the Hungarian government. The ratio of debt to GDP in both the private and public sectors is dependent on the extent of the fall of in GDP and the exchange of HUF. The public debt will be exacerbated by the impact of the government’s bank guarantee scheme if the future extent of non-performing loans is as bad as bodies like HSBC estimate it will be. In this situation you could abolish the police or close down the education system, and it wouldn’t help.
Hungary needs proper debt restructuring. I can see why people who have lots of their money offshore wouldn’t want to take the steps to get it, but there will be a disaster if this isn’t done. It is very interesting – whenever I ask people expert in international economic relations they tell me the IMF is dead in the water; that it is a discredited organization; that internationally it is widely recognized that “structural adjustment” doesn’t work. You wouldn’t know this from a focus on Hungary though; clearly more could be done to exploit this discrepancy.
On your second point, I agree – but, to misquote an old joke, if I wanted to get there, I wouldn’t start from here. You really have to ask the question, fourteen years ago Bokros attempted to cut back the size of the state. If this were the route to reducing “the population’s demands on state assistance” we wouldn’t be having this discussion now. If this recipe is no different now, the cake that will be baked will be the same cake.
Nothing wrong in people looking to govt for help. They (should) pay their taxes and in return look for support. What kind of help – it’s a good question. But the principle is the only thing that keeps a modern economy afloat. Eva and friends I suspect would deny that the obligation actually exists. Quite offensive to people, given the crookedness on offer from the MSZP-Fidesz cartel.
Mark: “Hungary needs proper debt restructuring.”
Mark, every economist I respect says that such a restructuring would mean real disaster for Hungary! I don’t think that it is the right answer. One has to survive this crisis and debt load somehow.
Ėva: “every economist I respect says that such a restructuring would mean real disaster for Hungary!”
Of course they say this. The reason is that the economic establishment is committed to neo-liberal economic models, and do not believe that it is possible for a market to fail. Therefore, they argue that what is best for Hungary is what they believe at any given time will maintain the confidence of the international financial markets. I’d make several obvious points about this.
First, unlike in other countries like the USA there is very little debate within the economics profession in Hungary. You don’t have the representatives of other economic schools – Keynesians for example – in key positions in academia, the press, or financial institutions that you have in the USA and the UK. Therefore the “debate” about economic issues – in so far as it exists in Hungary – reflects a much narrower range of viewpoints – often only variants of what would be characterized in most other states as a single viewpoint – than in other states.
Secondly, they think that a debt restructuring would reduce trust in Hungary, and have long-term negative consequences. The problem with this analysis is that in the early 1990s Poland did restructure its debts, and Hungary didn’t. If your economists are right, I think you need to explain why it is Hungary, and not Poland that is in financial difficulties because of a lack of market confidence. The economic establishment in Hungary have been asked this question many times in the face of credit ratings scores that showed that Poland either(for most of the time) performed equally as well, or better than Hungary, but I’ve yet to hear any of them give a convincing answer.
Thirdly, and lastly, in every year since 1985 except for three years 1997-9, Hungary has required new loans to service its existing debt. This is a debt trap. Fundamentally, the ratio of debt to GDP will rise because of factors beyond its control, as its ability to pay, and political tensions increase. The experience of other countries suggests that this is a recipe for recurring dependence on the IMF if Hungary is lucky (indeed it seems to need IMF support now as often as Mexico). And if it is unlucky the downward spiral will create a situation where Hungary is forced to default (like Argentina) – now that would be a catastrophe.
Mark, maybe among economists there are no keynesian, but that fact is balanced by the fact the among politicians, we only have keynesians. This was kind of half-joke. But still, Hungary pursued a pro-cyclical policy, and in period of extremely upbeat development of the world economy had managed to build up considerable debt burden despite having export oriented industrial model.
As far as credit writedowns in the early nineties, probably you have right. It was a mistake not to request. Actually, Jarai Zsigmond also has the same argument.
Whether in 2009 Hungary has the chance to do so – I dont know. It seems to me that the historic moment has gone for such a request. Not to speak about the no creditors are in good shape and probably they could not afford to write down credits for one country without putting danger all their credits given to emerging nations across the world. But IMF and EU loans could be seen as a kind of credit restructuring, which allows Hungary time to restructure its internal policy towards a more sustainable model.
András: “maybe among economists there are no keynesian, but that fact is balanced by the fact the among politicians, we only have keynesians …. still, Hungary pursued a pro-cyclical policy, and in period of extremely upbeat development of the world economy had managed to build up considerable debt burden despite having export oriented industrial model.”
Those who have examined the economic histories of the Reagan administration in the US, the later Thatcher government in the UK, the Bush administration and the Blair government in the same two countries will have noticed that in practice the application of neo-liberal policies tends to have a side effect an enormous and ultimately unsustainable build-up in debt in a combination of the public and private sectors. This is due to a number of factors including the political pressures such policies create and the impact of deregulation on credit markets. Hungary’s experience fits within this paradigm, and one shouldn’t suggests because things didn’t go quite as the ideology of free market economics predicts that economic policy abandoned that paradigm.
Incidentally, I don’t think that the political circumstances are as unfavourable as you suggest, and in this connection this article is rather interesting:
The managing director of the IMF is telling everyone that economic stimulus is necessary. This – as we know – is contradicted by Hungary’s experience. The government and Hungary’s financial elite (and economists) predict dire sanctions from the IMF if Hungary abandons its current course. Someone is not telling the truth here, and I’m not sure that it is the IMF!
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