New infringement procedures: “pálinka” and big box stores

The European Commission most likely waited until the election was over before handing down some bad news to the Hungarian government. The first to reach Budapest was a court ruling on the issue of tax-free “pálinka,” a powerful alcoholic drink made out of various kinds of fruit. The Orbán government’s decision to allow country folk to produce tax-free home brew from fruit grown on their own land came early. It was one of the twenty-two proposals presented by Viktor Orbán to solve the “economic crisis,” and it went into effect on July 1, 2010 despite warnings that it was in contravention of EU law. The announcement that home-distilled pálinka would no longer be taxed was described as the pinnacle of ninety years of struggle for liberation against the backdrop of the tyranny of the state. The “tyranny” referred to was the sensible regulation that owners of orchards who wanted to distill pálinka had to take their fruit to a state distillery and pay tax on the product.

This hasty decision to please Fidesz’s rural voters had all sorts of negative effects. First of all, since these amateur distillers can produce up to 50 liters of pálinka a year without paying taxes, the Hungarian state nowadays receives considerably less revenue from excise taxes on liquor. Second, the professional pálinka producers worried about the hard-won fame of good pálinka, which is considered by the European Union a “hungaricum” and is highly regulated. It must be made from fruits or herbs indigenous to the Carpathian Basin and grown in Hungary. It must be produced and bottled in Hungary, and its alcohol content must be between 37.5% and 86% ABV (alcohol by volume).

To make a long story short, a few days ago the European Court of Justice handed down its ruling: Hungarian home brewers must pay taxes on their products even if they produce no more than 50 liters a year. The reaction? The typical Fidesz one. Instead of telling Brussels’ real objections, they lie and claim that “the bureaucrats in Brussels want to abolish the national heritage of pálinka distillation which is a hungaricum.” Sándor Fazekas, minister of agriculture, called the court’s decision a provocation.

As long as the Hungarian government distorts the rulings of the European Court of Justice we shouldn’t be surprised if the ordinary Hungarian farmer in the countryside accuses the European Union of interfering with the values and traditions of their nation and if he develops a hatred of all those anti-Hungarian foreign bureaucrats. But I guess this is the purpose of the government rhetoric.

The second infringement procedure is about the “plaza stop.”  This particular infringement procedure hasn’t yet ended up at the European Court of Justice and it may never land there because of the extreme slowness of EU bureaucracy. For some background on this particular piece of legislation I suggest reading an old post of mine from November 2011. It started as an LMP draft bill and was then taken up and completely rewritten (and distorted) by the government party. The bill stated that between January 1, 2012 and December 31, 2014 no establishments greater than  300 m2 (3,230 ft2) can be built. Real estate developers protested, not without reason. Moreover, the law inflicted economic pain on the country. Hungary was in the midst of an economic crisis in which unemployment was high and the construction industry had almost collapsed. At that time there were at least five such retail outlets in the planning stages. All work on the construction had to be stopped.

Today the European Commission launched an infringement procedure against Hungary over the country’s ban on the construction of “hypermarkets” as it may be against the competition rule applicable in the territory of the European Union. The reaction? The usual Fidesz demagoguery. “The European Commission once again put the interests of large multinational companies before that of the small Hungarian businesses.”

Hyper market

But who is going to defend the Hungarian consumer from the higher prices which are inevitable in smaller retail stores? And what about the variety of goods that only large establishments can offer?  Small, individually owned stores can never compete with chains on price or availability. I know all the arguments pro and con on this sensitive issue, but the fact is that forcibly stopping economic developments that seem inevitable is not good for anyone, including the consumer.

Retail is always changing. Think, for instance, of the mail order catalogs of businesses like Montgomery Ward and Sears that not only revolutionized nineteenth-century retail but also improved the lives of the rural poor and the segregated blacks in the South. That was in the 1870-1880s. Today online companies like Amazon have disrupted retail yet again.

Yes, big box stores tend to squeeze out small retailers just as mail order catalogs were hard on ma and pa stores in the nineteenth century. But this is how modern economies function. The state’s role is not to forbid the normal flow of goods and services but to regulate their activities.

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75 comments

  1. What is this Walmart thing? Does this mean that Eva is not a committed leftist? How come? 🙂

    It goes like this:

    “Professor Balogh! You are a leftist!”
    “Well, I have no problem shopping in the Walmart …”
    “Aha! You are not only a leftist, but a hypocrite too!”

  2. Interesting timing … A major new movie is about to be released about the last months of WWII in Hungary. Features Oscar-winning Ben Kingsley as Horthy (not played unsympathetically). Anyone know about this?

    Trailer has just been released:

  3. Haven’t seen the above-mentioned film, of course. It is released in cinemas today. But here’s a quote from one review: “Academy Award winner Ben Kingsley (Shutter Island) has a couple of shining moments but is mostly wasted in his role as Hungarian government leader Regent Horthy. Shown as a basically good man, Horthy sees all Hungarian citizens as “Hungarians” regardless of race or religion.”

    And another …
    “The larger story concerns the Holocaust in Hungary and the unsuccessful efforts of Horthy, the Hungarian Regent, to prevent it.”

    So expect this new movie to be promoted well in Orbanistan …

  4. re palinka

    If anyone thinks that Orban champions anything for any reason other than to stoke the embers of nationalism and populism…than he hasn’t got the gist of Orban’s Hungary just yet.

  5. I drink only cherry palinka when I do, unfortunately here in the USA I have to pay a lot of tax on it. I think Orban has a political winner here and Eva along with other social democrats need a little bit of political opportunism to beat him. Support the EU on this issue is a real big loser.

  6. Curly: “I think the point is what they do with their workers. WalMart is not exactly the most enlightened place when it comes to dealing with labor “disputes” (i.e., asking for union representation, fair wages, health care, etc.). There is a reason why the place is so cheap.”

    I have yet to see one Walmart worker who was forced to work there…

  7. Istvan, can you name one issue when “Hungarian” preferences are close to those of the “EU”? If there is nothing except for abusing EU funds, there is no point in staying. Lisbon Treaty includes an Article No. 50, which Hungary should very much consider to opt for. Then it might drown in palinka and dream of the turul night and day.

  8. Gardonista: “In my personal opinion, there is a great deal of shame of putting some clothes on your body or food in your mouth that was produced dangerously.”

    I am happy to read that you can shop without shame in shops like CBA. I am sure everything in it meets the highest standards. (As, needless to say, everything that was produced by “traditional” Hungarian approaches. But, wait, are there not currently people forced to work for 2/3 the minimum wage?! So I hope you are not beneficiary of what these people do for the public within their “public works”, you might feel “ashamed”.)

  9. gdfxx: Yup, that’s exactly what the American right wing and Tea partiers usually say. Congrats on who you are aligning with. Why didn’t they get an education and get better jobs hah? Those slackers…

    Guys, just because Fidesz made the plaza stop, you don’t have to become a plaza lovers. You can still be credibly anti-Orbán without that.

  10. Jano, the point is not the plazas as such, these will be built as long as people find shopping there convenient and entertaining. It is the illusory alternative that is presented here. Nobody has forced people not to shop in the small shops in the city centre or at the körut, or did someone? Why have more attractive shops not been opened there? Will it change only because of a “plaza stop”? Could the same effect not have been achieved by other means? Or are these empty sales rooms now intended for those loyal ones, who will most probably care for the wealthy clientele and not for those people paying VAT of 18 or 27 % on daily items. I very much believe An is right on this one, the moment the “plaza business” is firmly in Fidesz’ hands, they will find no fault in it. They speak about some “traditional values” but abide by them only to the point that it serves their purses. What is wrong with plazas and right with oversized football stadiums in small villages. People, hoping for some more cosy shopping experience (or more “stability”, “tradition”, “certainty in these cold capitalist times”) are playing Fidesz’ game. Fidesz will never deliver, even the palinka you have to produce yourself.

  11. Kirsten: I’m not in favor of the plaza stop I just noticed how suddenly plazas became glorified on this thread culminating with an outrageously cynical comment from gdfxx which I almost exclusively hear on Fox news around here. I shop and use plazas, they have their place, but I also think that little local shops are much better for local culture and economy. I think there can be a healthy balance between the two.

    I don’t think plazastop is a good tool (proactively supporting little shops is much better), it’s way to leftish and interventionist for my taste (not being a libertarian at all…), but this is very far from the worst thing Fidesz has ever done and Tesco&similar companies definitely don’t need my tears. Many countries have certain regulations (e.g. you can’t really find hypermarkets in any city center in the Netherlands, as they have an area cap,

  12. @Kirsten: If you want to be snippy, well, I do most of my shopping at a customer-owned establishment.

    But my main point is this: We can disagree about WalMart, but we have to keep the focus on Fidesz. Their government should be offensive to most people in the world, whether you’re a laissez-faire Thatcherite or someone who quotes Rachel Maddow. We’ve got to focus on problems of Fidesz. We only help Orban if we call each other names.

    When Eva said “Nothing shameful about it,” I think she was being oblivious that thems fightin’ words.

    Fidesz is NOT a “right wing” government, as most people around the world would understand it. It’s craven, and will use a bit of whatever ideology is most convenient. Sometimes (almost never) they chose something I like, such as supporting local industry.

    Simply opposing Fidesz on every issue is stupid politics. It lets them set the agenda. We should not oppose everything they support, but more importantly, let’s work together to fight them effectively. And I prefer to do that with some hazipalinka.

  13. To Jano: I have no idea what the Tea Party or Fox News says about Walmart or their employees or their employment practices. All I know is that when a Walmart opened in the town I live in, there were long lines of those who were seeking employment there. The company employs 1.4 million workers and it is not uncommon for 10,000 people to apply for 300 jobs when a new store opens. It cannot be that bad.

    Disclaimer: I have no Walmart stock and do not work for the company, and have no affiliation whatsoever with it.

  14. Curly: “I think the point is what they do with their workers. WalMart is not exactly the most enlightened place when it comes to dealing with labor “disputes” (i.e., asking for union representation, fair wages, health care, etc.). There is a reason why the place is so cheap.”

    I have yet to see one Walmart worker who was forced to work there…

    To gdfxx: Forced at gunpoint, no. Forced by circumstances, you can’t really know. What I personally know from some labor lawyers is that any employee at WalMart who so much as dares to mention the word “union” is fired. They have a very bad reputation as an employer. As a reminder, a couple of years back they were taken to court for locking employees INTO one store overnight so that they would work.

    But some of the others are right: this is not about WalMart or about anyone’s “leftist credentials.” Anyway, bad employers can be found everywhere, in Hungary too.

  15. gdfxx:

    or the economic situation which forces that 10,000 to apply to these (almost) minimal wage jobs with no health benefit is much more desperate than what you would think from the US media.

  16. Thomas: actually Walmart does provide health benefits to its employees. The economy is in shambles. But that is a whole different story and has nothing to do with Walmart..

  17. @gdfxx: Walmart only provides health benefits to full time workers, not to part-timers. It has been long criticized by intentionally keeping its workers’ hours low, so that they don’t reach full time status, and they won’t qualify for health benefits.. so walmart would rather hire more part-timers than give more hours to work to those who already worked for them.
    Walmart is not the only company playing this game in the US, but definitely one with the most part time employees.
    Some activists started to go after Walmart for these practices, and now the company seems to become more mindful about the issue and tries to salvage its public image. It recently announced that it will convert some part time jobs into full time positions.

  18. http://www.forbes.com/sites/rickungar/2013/09/25/wal-mart-returning-to-full-time-workers-obamacare-not-such-a-job-killer-after-all/

    “In fact, Wal-Mart’s unwillingness to pay most of their workers a livable wage, while avoiding enough full-time employees to properly run a retail outlet, has led to the company placing dead last among department and discount stores in the most recent American Customer Satisfaction Index—a position that should now be all too familiar to the nation’s largest retailer given that Wal-Mart has either held or shared the bottom spot on the index for six years running.”

  19. It’s a bit strange to have a discussion like this on a Hungarian site – but I remember a similar discussion which we just had on a forum for Germans (visitors and expats) to the USA about Aldi in the USA and there someone wrote that Aldi not only paid well but also provides health care for most workers which is another reason why it seems to be really successful …

  20. An: “http://www.forbes.com/sites/rickungar/2013/09/25/wal-mart-returning-to-full-time-workers-obamacare-not-such-a-job-killer-after-all/

    “In fact, Wal-Mart’s unwillingness to pay most of their workers a livable wage, while avoiding enough full-time employees to properly run a retail outlet, has led to the company placing dead last among department and discount stores in the most recent American Customer Satisfaction Index—a position that should now be all too familiar to the nation’s largest retailer given that Wal-Mart has either held or shared the bottom spot on the index for six years running.””

    The cited article, from September of 2013, is presenting Home Depot as a good example. In the meantime Home Depot is telling all their non-management employees that they need to go part time or they are out. This is a result of the affordable care act, aka Obamacare.

    By the way, part time employees never received health care benefits from the vast majority of US employers.

  21. @gdfxx:”By the way, part time employees never received health care benefits from the vast majority of US employers.”

    Of course, that’s not the point… the point is Walmart unwillingness to employ people full time to keep costs low. Of course, buyers enjoy the low prices, but it does come with a “cost.”

    You can argue, of course, if employers should be offering health insurance at all. It’s an American phenomenon… in Europe, there is state health insurance, in Asia… I don’t even know how people survive there.

  22. I just want to make it clear: I’m for general, compulsary health insureance. I think that the legislation just past is flawed. It doesn’t go far enough.

  23. That’s one of those things I never could understand about the USA – to a European it seems trivial that everybody has health insurance!

    I think that was how Bismarck (which I don’t really agree with – but he was a successful politician with his “revolution fromthe top”) kept the German workers from revolting …

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