The tenth anniversary: Hungary and the European Union

It was ten years ago that ten new countries were admitted to the family of the European Union: Lithuania, Poland, Slovakia, Latvia, Estonia, Czech Republic, Malta, Hungary, Slovenia, and Cyprus. The Hungarians were somewhat disappointed because they felt that Hungary was better prepared for membership than some of the others and had hoped that the admission would not be wholesale, that Hungary would be handled differently from the rest.

Since then an incredible amount of money has arrived in Hungary from Brussels, but unlike some other countries in the region Hungary has not made good use of this largesse. To make the size of the contribution easier to grasp, 16 Metro4s could have been built from the EU monies. Or, between 2004 and 2013 the money Hungary received amounted to a gift of half a million forints for every citizen of the country. Or, as someone put it, Hungary received 2 billion forints every day for the last ten years from the Union. In forints, Hungary received 6.2 trillion forints that went straight into the budget while another 2.1 trillion came in some other form of financial assistance. In the last four years 90% of all government investment came from the European Union. Yet there is little to show for it.

The results are especially disappointing if we compare Hungary to other countries in the region. In 2004 Hungary’s economic advancement measured in GDP per capita was 63% of the EU average. Today that figure is 67%, only 4% higher. Slovakia, on the other hand, during the same period managed to gain 20% and now stands at 77% of the EU average. The very low Hungarian wages have also been slow to rise. Ten years ago the average wage was 93,000 forints. It is now 151,000. But in terms of real wages that is only a 12% rise. The number of jobs has grown by 38,000–only 1% more jobs than in 2004.

According to The Economist there are four clear winners among the new member states: Lithuania, Latvia, Poland, and Slovakia. One has only to look at the IMF chart below to see how badly the Hungarian economy has done in the last ten years despite EU subsidies that were the highest, given the size of the population, of any country in the region:

10-year EU tagsagThe Bruegel Institute, a European think tank specializing in economics, published a study yesterday entitled “10 years EU enlargement anniversary: Waltzing past Vienna.” According to the study, measured in terms of purchasing power Warsaw, Bratislava and Prague now have a higher GDP per capita than Vienna. Budapest failed to surpass Vienna, although it is not too far behind.

Enikő Győri, the person responsible for Hungary’s dealings with the European Union (I don’t envy the woman), naturally puts a better spin on the state of affairs. She emphasizes that Hungary’s EU membership is “an unqualified success.” I guess she is right if we look at the inflows, but the story is different when we look at the meager results. She claims that in the last ten years Hungary managed to increase its GDP by at least 10% and its economic growth by 1.2% . These figures apparently come from an unnamed Belgian research institute. She had to admit, however, that on the basis of purchasing power Hungary in 2004 was in second place, just behind the Czech Republic, whereas by 2014 both Slovakia and Poland managed to surpass Hungary. The Washington Post described the last ten years in countries such as Poland as a period of “galloping growth.” That was certainly not the case in Hungary.

The tenth anniversary came and went, but there was no commemoration of Hungary’s ten years in the European Union. Magyar Narancs published a very, very short article. It had only a headline and a “picture.” The headline read: “A telling picture of the celebrations of the tenth anniversary.” And underneath was an empty picture frame. ATV collected a list of comments by politicians from both camps. Those from Viktor Orbán’s side were uniformly negative. We must keep in mind, however, that the prime minister said in his victory speech that the election results showed that Hungarians want to stay in the European Union, albeit with a strong national government. There is no alternative to the European Union.

The Orbán faithful try to follow his lead, although it is clear that they find it difficult to be enthusiastic. Gábor Stier in an opinion piece in Magyar Nemzet does write that “we are on the right path,” but he bemoans the lack of “solidarity” in the Union. I don’t know how many more billions of euros would be enough for Stier to feel true solidarity coming from the richer members of the Union. And naturally, he is uncomfortable with the “crisis of values” the Union allegedly suffers from. But in the end, he even risks saying that the “rules of the club are a disciplinary force that keeps Hungary on the straight and narrow.”

Before we get too optimistic about future relations between the Orbán government and the European Union we might want to take a look at a headline in today’s Magyar Nemzet: “The European Union wants to shove dangerous honey down our throat.” Here we go again!


  1. “The European Union wants to shove dangerous honey down our throat.”

    What else?

    The Russians control Orban and Orban controls the Hungarian government.
    Sic transit Hungaricum.

  2. “The Hungarians were somewhat disappointed because they felt that Hungary was better prepared for membership than some of the others and had hoped that the admission would not be wholesale, that Hungary would be handled differently from the rest.”

    How’s that? It’s the first time I hear about this hope or expectation.

    As far as I know, Orbán knew the EU administration in Brussels quite well, at least during his first premiership (which everybody seems to black out these days), but probably even earlier – when he was still a liberal. Rumor has it that he was involved in preparing Hungary’s accession documentation.

    What is true is that of all the ten new EU members Hungary had a “perceived” good-will bonus in Western countries. Many people knew Budapest as a favourite and sparkling conference venue and liked the experience – even before 1989. The Germans have not forgotten to this day how Gyula Horn helped to open the iron curtain for East Germans, thus beginning the process of German reunification.

    Most people abroad – even Hungarian expats – have no idea how to get unbiased (or at least: multi-sourced) information about today’s Hungary.

    What we know is that since 2010, the Hungarian regime cooked the books, two years later the renowned Central Statistical Office either withheld facts and figures or embellished them or – quite a favourite trick of statisticians – changed the method.

    This is why we are quite safe in assuming that none of the published relevant economic figures about Hungary are anywhere near reality: inflation, sovereign debt, growth, employment, budget deficit, foreign currency reserves, buying power, you name it.

    “The European Union wants to shove dangerous honey down our throat.” This really is an interesting quote at a time when the EU froze all further payments until it is convinced that the previous, very considerable funds where channeled to where they were meant to go – and that that is documented in a reproducible fashion.

    We all know that can’t be done, because EU funds were clearly used in ways not conforming to EU instructions and standards. In other words: The EU was cheated (and so were its other paying members which were less corrupt).

    The interesting question is now if the EU has enough qualified and tough auditors and if the EU is willing to rub in what those auditors must come up with. Abraham Lincoln is said to have said: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” But perhaps the EU grants an exception just for Orbánistan which for them is a “Kanitverstan”, a country whose language neither they, nor their diplomatic services, nor their media reporters understand.

    Anyway: The tenth anniversary of Hungary’s accession to the EU is nothing to write home about.

  3. The Fidesz government of Hungary in deed celebrated the 10th Anniversary with the following posters:
    European Union Elections
    May 25th
    Let send a message to Brussels:
    Respect to Hungarians!

    Yes in fact Orban said “in his victory speech that the election results showed that Hungarians want to stay in the European Union, albeit with a strong national government. There is no alternative to the European Union.” That is part of his peacock dance. He also said at some point “don to listen what I say in order to get elected”. Viktor Orban is no man of his words, but a man of his actions. He welcomed the anti-union march (and likely Fidesz financed it), and he also welcomed the threatening poem of Fidesz’ opposition.

  4. The EU is a fantastic target for hatred. It is not politically incorrect to hate it like the Jews or the Gipsies.

    But most people just need to have their five minutes of daily hatred in Hungary. And the EU is a great and willing target. They don’t care and now anyway many people hate it all over Europe, so is it is nothing strange.

    I wonder how DK’s EU-loving campaign will fare. Most people do not love the EU, despite the investments. There is no obligation to love an entity which lavishes you with money but otherwise does not show up with politicians no EU politicians comes to Hungary to cut the ribbons.

    It’s like we should love the Chinese because they supply us with cheap shoes and that is good for us because we can by more from the same salary. It does not work like that.

    People do not like to love foreigners in exchange for money.

  5. OT
    The Press Office of Fidesz released the following statement regarding the Nazi monument on Szbadsag Ter. “After the the extreme left the extreme right has also marched out to the Szabadsag Ter, in order to stir up trouble”
    Please take a look on the “Hungarian extremist left” Orban needs to protect Hungary from. The photo was taken at one of the occasions when this extremists from the left were stirring up trouble at the location Fidesz is referring to:

    No kidding Orban needs the TEK!

    Second illustration. Extreme leftists chasing Orban.

  6. Mrs Győri’s state secretariat had organised a conference on 28-30 May in the Castle district to analyse the country’s tenth anniversary of EU membership. Political bigwigs, like Guido Westerwelle, Radek Sikorski and Mikulas Dzurinda attended. But as the foreign ministry was careful not to advertise the conference properly, mainly ministry officials attended, without any political message offered subsequently to the general public.

    The central bank goes even further. It celebrates the EU accession by hostng the most famous EU-sceptic politician of Central Europe. The event is co-organised the Hungarian Institute of International Affairs, a think tank of the foreign ministry!!

    I doubt there is any central bank in the 28 member states, which would consider to host a lecture wth such a revolting title. Remember, according to Hungary’s accession treaty the country is obliged to introduce the euro…

  7. @Fever – “The EU is a fantastic target for hatred. It is not politically incorrect to hate it like the Jews or the Gipsies.
    But most people just need to have their five minutes of daily hatred in Hungary.”

    Speak for yourself only!
    After reading your post, I’ve come to the realization that in the future I will have a cross in one hand and garlic (just to be sure) in the other to protect myself from “bad” spirits before I read the comments on this blog. Hallelujah! LOVE ALWAYS WINS!

  8. Oneill:

    I only tried to reflect how Fidesz thinks. I know how these guys think, believe me, I have quite substantial relevant knowledge.

    75% is the estimation for the combined Fidesz/Jobbik group. Of course Fidesz did not want to risk that from that amount Jobbik could also utilize votes. Moreover, Fidesz could very efficiently operate its get out the vote machinery in Romania or Serbia in the shadows but that just would have been very difficult in the UK or Germany or Austria or Belgium.

    Politics is very significantly an identity issue, because this is what young people (though as well as older ones) are looking for when they are becoming adults.

    Politics is not about policy issues. Smart people hoped that it will be like that, but this is not so even in Western-Europe, but especially not in Hungary.

    In addition, Fideszniks argue that the very first, often implicit step is to decide whether you are a right wing or a left wing person. Once you decided that you go looking for your party. I am not sure, but this is how they reckon.

    In any case, the left in Hungary has been absolutely unable to provide the younger generations with a lefty identity, which is a huge problem when the other side Fidesz and Jobbik could. If Fidesz or Jobbik had been unsuccessful in this regard, this would not have been an issue. But they were extremely successful.

    And now, on top of that, the left is divided. They will argue and debate until the end of the world, like they did in Italy for 70 years. But this is how the left wing works.

    And this is a viscious circle for the left, as who would come out as a lefty politician, when the brand is so bad and associated with being a hopeless loser? They cannot recruit talented people, those who are their activists, cannot operate effectively and more of then than not just mindless bourgeois kids with no clue whatsoever.

    The EU elections will be a huge issue and then the municipal elections. I don’t really see how the left could improve and change the tide, the trend.

  9. @latefor

    Please try to differentiate the message from the messenger.

    I don’t need the hatred, but I see it every day, I could list all those action gratuite type mini aggressions I encounter on any single day. People apparently need to hate and they need a target, a symbol for such hatred, to vent their frustration.

    Orwell saw it perfectly and people haven’t changed much since 1948, especially when the economy has been languishing in Hungary for some 7-8 years now.

    I too like to be cheerful, but we are not the majority or the median voter. The readers of this blog are a tiny minority who are absolutely not representative of the majority population.

  10. OT:

    Apparently Jobbik receives a lot of money from the Iranians too.

    By the way does anyone know which is the private school network which is financed by Jobbik (ie. by Russians, Iranians and Turkish)?

    Pretty interesting article.

    Of course if Jobbik distributes for example its news letter in 2 millon copies per month, then why does not the Hungarian left do similar things. Or why do not their help the local civilian guards as Jobbik does? It’s not like Jobbik has a patent on campaign methods.

  11. Eva in April posted an essay by Zoltán Pogátsa who is an economist and teaches at the University of West Hungary. I have subsequently read some his work and agree with him that “Twenty years after the transition from communism, the Central and Eastern European (CEE) region is disheartened. The much heralded GDP convergence with Western Europe conceals a bleak picture. For over twenty years employment levels across the region have remained far lower than in Western Europe, while the talented and most dynamic are leaving.”

    It isn’t that things are just so bad in Hungary, it is that they’d are simply not good all over Central Europe. When Pogátsa looks at the entire CEE, a third to a half of citizens live below the subsistence minimum. Middle class incomes in the region are equal to the bottom 10 percent of wages in Western Europe. Regional educational systems underperform. Middle classes can be estimated to constitute less than 10 percent of voters. To point out the relative failure of the Hungarian transition is to ignore how all of Central Europe has been used as a source of surplus lower wage labor for Western Europe and in the case of the Poles cheap skilled trades workers for the USA too.

  12. OT So sorry that I continue with this “conversation” even though we had two previous Blog entries regarding this, but I feel it is important that we keep this theme somehow going. Orban is obviously counting on the who thing slowly dying away, the monument opens and that will be that. THere are still daily protests going on but it is not “news” any more, just like Rogan’s millions, or the tobacco shops, the land deals…..
    Alice Fried is apparently the threat that Fidesz refers to through its communication office as threat to “stir up trouble”. She is from the “extreme left”, one of the protester who was charged by the Prosecutor. She is the sole survivor of the holocaust from her family. In protest of the nazi monument Orban / Fidesz is putting up to commemorate not only the survivors but those who are responsible for Fried’s family’s death, she spray painted on the plastic that covers the site “I survived the Shoah…”
    Look how the extreme left looks like according to the current Hungarian government:

  13. @latefor

    “I will have a cross in one hand and garlic (just to be sure) in the other to protect myself…”

    Ahem. Yes, another true believer in Orban’s “Keresteny Magyarorszag”.

    So then, “Love”…did you say “Love”–only for, and by, and of…Christians, right?

    Try contemplating your navel, latefor, and discover what you’re really about–

  14. Bob34: “Apparently Jobbik receives a lot of money from the Iranians too.
    Of course if Jobbik distributes for example its news letter in 2 millon copies per month, then why does not the Hungarian left do similar things.”

    Maybe the left doesn’t have the financing for aggressive campaigning, like distributing print materials in the millions, pay trolls to spread their ideology on the Internet, plant their people in student organizations, etc.

    Not to mention there is no “left” in the sense as there is Jobbik. The left is a collection of different and competing parties, some are with differing ideologies (left, liberal, green, pro-capitalists, anti-capitalist)

  15. Financing…

    So the setup is this:

    —Orban and Fidesz steal the government blind and therefore have limitless financing;

    –Jobbik gets tons of financing from Russia and Iran;

    –the opposition–if they were to get money from abroad–would be attacked vociferously 14 ways to Sunday about ‘foreigners influencing Hugarian affairs’.

    **Please note that not one word has been shed about the foreign financial support for Jobbik.

  16. In attempting to attain that sparkling, loving attitude (a la latefor) I’m trying to count out the recognizable benefits of four years of Orban rule. I’ve come up with one: I like the new yellow
    covering for taxicabs. I’m all for it. But in discussing this with a driver, I’ve discovered that nothing has been done to control unlicensed cabs or drivers and their outrageous overcharges.
    Whatever city investigators exist, only monitor the licensed cabs because they’re afraid of being assaulted by the illegals.

    Such is the very nature of Fidesz ‘advancement’…

  17. Istvan: “To point out the relative failure of the Hungarian transition is to ignore how all of Central Europe has been used as a source of surplus lower wage labor for Western Europe and in the case of the Poles cheap skilled trades workers for the USA too.”

    The path that was taken in 1990 was not independent from the situation that prevailed in 1989 and the ideas that were around at that time about what should be done.

    Economic policies: At that time, the countries had perhaps some GDP per capita (at that time called net material product and calculated according to other methodology than GDP) that was higher than in the mid-1990s, after the transition crisis. But: what was the composition of this “GDP”, how much were these products asked for (I think that one very pointed example of one professor of mine was the value produced by professors for the history of the Communist party, but that is of course an extreme example). Was that really something that could have continued were it not for the Comecon? Plainly, who would buy all the Ikarus buses? The Communist economies – even if they on paper led to some GDP and income of people – were not functioning and could not have been continued further. Hungary at that time not only relied on external – Western – credit, but also on the quite substantial grey economy. The planned economy, even in semi-planned form, was not seen as able to create growth. The decision was to “liberalise” and to attract foreign – Western – investment as a growth strategy.

    Enters: politics. Quite a number of people who were close to relevant positions in the state and the economy before 1989 seized the opportunity and “privatised” (into their own hands), made use of a weak judiciary or in general weak identification and defence of “public interest”. And that was the case even in countries with more anti-Communist transitions than in Hungary, where MSzMP never fully quit the state bureaucracy and relevant economic positions. This weakness of the “public interest” was perhaps something that the “West” did not fully apprehend when “helping the transition process”, but it is neither the responsibility of the West. It has however shaped the investment climate, the political arena (who is relevant, whose interests are pursued by the government, how much can a government care for the “average voter” – who by the way is not very politically active anyway but waits for “convergence” to arrive), the way how income is created and distributed, and – in some countries more than in others – this oligarchic way of government is what people equate with “democracy”. (But that is very much dependent on the political culture of the respective country and to what extent “traditional national political ideas” are used to “explain” this deviation of the country from the “West”. The more you can find only ideas that are critical of the “rational” and “brutal” capitalism, the easier it is to blame a missing “convergence” in income and in political culture to the “West” and not to your own inability to create or at least to strive for a more level playing field.)

    As a legacy of Communism, labour has been so cheap, and there is no other way of bridging the gap towards those countries with higher wages than with investment, and preferably in areas that indeed create higher value added (so: football stadiums, money spent on the oligarchs and saved on education probably may fail to deliver). For that, you need some educational level, and a favourable investment climate. With a Communist legacy, the “networks”, inexperienced or outright incompetent judiciary, the investment climate is perhaps not as good as in the countries in the “West”, but the labour costs can make investments in these areas still interesting. That is why “cheap labour”. But: most countries in the region have seen quite substantial improvement, without fully bridging the gap towards the “West”. In most countries, there is substantial improvement in the quality of housing, even in public infrastructure (even if – given the “networks” – often at higher prices than in the “West”), and to some extent also in the wage level in Euros. But of course, given the fact that the technological gap was so wide, and that it is currently difficult to create high income without some higher technology (too many competitors with “cheap labour”), only steady improvement is possible – if you stay on target. To believe that these countries are only “markets” misses the point that as long as the income level is low, no “market” of substance will exist. How many BMWs or Maserati do you believe can be sold in Hungary with an average wage of 1000 euros? (Probably just those that OV and his buddies will like to drive.)

    Hungary has indeed one of the worst records in the vicinity. Until 2010, I would have said that this does not really hold true in terms of government, that was nearly equally problematic as in the other countries. But: the general answer was: we are special, in our case it is something entirely different, no, we can certainly do nothing about it and in particular learn nothing from how other countries have approached such situations. By now it has deteriorated a lot. Currently, it is not corruption where the press and the public could achieve some small improvement and at least stay committed. Improvement cannot be achieved anymore through the “normal” means of an open society. OV has btw said that he believes that “cheap labour” is what he considers to be necessary in these times. As a result, the countries post-Communist countries do share a lot of the difficulties of transition, but Hungary has given up the goal of catching-up altogether. Instead of trying harder and searching for ways how to bridge the gap, the “West” is evil and “subsistence” wages are the norm. But that is primarily the choice of the dear leader. With other ideological equipment, ways how to increase the average wage level would be available.

  18. Hungarian Greed and Self-Promotion was on view immediately during the 1989 regime change.
    If we but think back, the right, public-spirited way was to study the various ways in which to change the government and constitution. To my mind, inviting foreign public policy experts to advise the government would’ve been the right way to go. But the Hungarian politicians–both
    national and local–couldn’t wait to divvy up the wealth.

    I can think of two things that were mandatory. One, the amalgamation of Budapest’s 23 districts into four or five, cutting all the surplus bureaucracy. Along with this, the privatization of apartments should have involved the passing to invididual buildings the storefronts that they possessed (rather than privatizing them, usually to district friends etc.). Second, the national
    government should’ve been no more than 150 members with mandatory probity measures for ministers and top civil servants.

    And of course, the 2/3 provision was putting a bomb in the hands of children–it was and is ridiculous, with the Felcsutian showing exactly how one can cannibalize laws and institutions ‘legally’.

  19. Kristen my reading of Pogatsa is that Hungary and other Central European states are in a low wage dependency trap in relation to the economic engines of the EU. It is clearly not a classic imperial relationship, but it’s unequal to be sure and under the exiting rules of the game Hungary will not catch up in terms of standard of living either. I also highly recommend his book titled The Political Economy of the Greek Crisis (2014) there are lessons to be applied from that situation to the situation of Hungary.

    I think the dynamics of the unequal relationship with the west are a driving force in the rise of the Jobbik and also the collapse of the liberal/left. Things of course could be much worse, Hungary and other Central European states, with the possible exception of the Ukraine, have not descended into the hell like situation of Mexico where thousands die in gang wars each year and the authority of the central state is often in question. Thanks Kristen for your thoughtful comments.

  20. Istvan, I believe that such interpretation of the situation is already making the identification of strategies to raise wages difficult. Greece is for me more an example for a government and state bureaucracy that is preventing a country from growing. Western investment was not too large, the country has not even been very industrialised (certainly not in comparison with Hungary in terms of the importance of industry for GDP). It has borrowed money in the West, to pay for social peace and transfer money to the many beneficiaries including “networks” without being able to collect sufficient taxes (including because of tax breaks for some “strategic” businesses), and when it became impossible to further raise money and devalue the currency because of euro membership (which Greece pushed for, not the other member states), it got into trouble. I do not want to suggest that the crisis strategies were the most smart conceivable but an interpretation that rests only on some “cheap labour” and a “dependency trap” in Greece and that does not see how ineffective Greek government is in view of the many vested interests quite a convenient short-cut. (It is certainly not some “dependency strategy” that led to the outcome that the richest Greeks are exempt from taxes, or that some state employees can retire at the age of 55 with a pension three times the average income. It is too many people benefiting from a government that is working for those closest allied with it, and too many of those people actually paying for this through their obedience who prefer to believe some dependency trap theories instead of the more practical: “I demand some transparent, quality public services in return for my taxes, and will not blame dark outside forces if they are not delivered but exactly those fellow-citizens who are sitting in the bureaucracy and who are not delivering.” And it has already been identified that it is more often incompetence and ignorance than “criminal energy” that prevents better outcomes.)

    Civil society is very weak, and people with some self-esteem would not like to enter politics. In that respect, quite similar to Hungary. In what it also resembles Hungary is in fact – even after 150 years of independence from the Ottomans – the taste for these “colony” theories and the search for all evil outside its own responsibility. Even the taste for borrowing in foreign currency for consumption and then wondering that it creates “dependencies” and not growth. In Hungary also, there is some fundamental doubt about the acceptability of profits from business. Why must some investment from the West be automatically “colonising” and creating dependencies? Why could it not be part of a development strategy? The investor is indeed making some profits, but people acquire skills and income that can be used for further investment later. This dependency theory is too close to an eternal victim perspective, it entirely denies an “yes we can” approach.

    But in that respect, actually, I would find it interesting whether you as an Hungarian American would see differences in the approach when seen from an American and when seen from an Hungarian perspective. I would be truly interested.

  21. @Petofi- “So then, “Love”…did you say “Love”–only for, and by, and of…Christians, right?
    Try contemplating your navel, latefor, and discover what you’re really about–”

    LOVE is for everybody!
    As far as my self discovery is concerned, it’s all in my recently released book available on, titled: Arty, Crafty, Nasty

  22. Istvan & Kirsten

    very informative and enjoyable discussion, thank you!

    (with some answers to Wolfgang’s questions yesterday, too)

  23. Kirsten

    “… the post-Communist countries do share a lot of the difficulties of transition, but Hungary has given up the goal of catching-up altogether. Instead of trying harder and searching for ways how to bridge the gap, the “West” is evil and “subsistence” wages are the norm.”

    how very true!

  24. Kristen from the perspective of US investment some of it can be developmental for the long run and other investment is what can be called predatory. China has in the last 20 years tried to force investments to be developmental, effectively generating a small Chinese middle class. and a significant wealthy class whose children are now running around all over Chicago in sports cars while attending the University of Chicago and other institutions.Their model is a form of state capitalism, South Korea to be honest has a similar policy but with less state intervention.

    Mexico has no ability to contain predatory US investments because of the North American free trade agreement and their internal development has been deeply impacted. A great number of supposedly US made autos are assembled with parts made in Mexico including engines. These factories are very high tech but the engineers and computer programers are all in Detroit. The Mexican workers are relatively well paid drones as are their Mexican factory foremen who live in a society under siege near the Us border. There is free trade and then there is beneficial trade, In some respects the EU prohibits Hungary from leveraging its labor pool like China has.

    I agree that there is a huge civil society issue in Hungary and it is driven by the small size of what could be called a middle class. One of our great fears here in the USA is the fact that wealth is becoming more concentrated and what can be called the middle class is contracting. This is leading to a polarization of politics in the United States that has in the last few years led to government shut downs because no compromise could be reached on a national budget. Similar things have happened on the state level, we have even had state governments elected that have outlawed public sector unions right to bargain for wages and hours of work as in Wisconsin.

    American investors are not bad people but their role is to make money not give money away to develop other nations. That needs to be kept in mind.

  25. Istvan: “American investors are not bad people but their role is to make money not give money away to develop other nations.”

    What are the possibilities then of countries that wish to “develop” from a post-Communist level? You inherit: some level of education (quite good in technical subjects, underdeveloped in areas related to government and society, so how to manage society in the absence of directives and pressures), some capital stock (most often quite run-down, except perhaps in some prestige objects, public infrastructure in run-down shape, housing if not privately repaired also in dire need of renovation, in industry depending on branch but most often well below the level in Western industrial peers), agriculture either organised in large, more or less ineffective industrial units, or in small family subsistence farms such as in Poland, a quite substantial amount of economic activity running beyond the official economy, in some cases governments that still relied on Western credit to finance the state, and a society that feels that it should now receive some reward for the years with undeservedly small income from official activities.

    In the more developed Western economies in the meantime, technological progress made their products in some way always “more valued” than own socialist products (add the attraction of some “brands” even if the actual value for the consumer may have not been too different). And I forgot, the Communist societies also produced a distinct inequality based on actual practices, so those who somehow became close to the “troughs” were far better off than those who received these “social benefits” that were low but still sufficed to be beyond the countries’ capacities. That is the starting point, not some countries with motivated people who would have known exactly the paths to prosperity, where only some Soviet tanks prevented people from reaping the full benefits from hard work. I believe that when one thinks about possible avenues out of this misery, it is necessary to accept this highly unfair starting point for the countries as a whole and many people living in those countries, coupled with the very peculiar zeal that some of those earlier “economic captains” had to prove that they are in fact the “better businessmen” than those in the West even if they knew mainly how to survive in a Communist jungle economy and how to exploit a weak state.

    Without an improvement of the infrastructure, machines, equipment, such economies will not turn into high-wage countries. And this improvement in turn is impossible without investment. Szechenyi knew that at other times with “hitel”, even if perhaps his answer was not too practicable either. So you need to think about how to finance these investments. You can do it with foreign money as Hungary did, you can try with domestic credit as the Czech Republic did. Czechs call this period now “wild years of banking socialism” because the state owned banks extended credit based on fantasy growth projects to their buddies, and most of these domestic “jewels” that could be kept in “Czech” hands (of some former “captains” turned “businessmen”) in the 1990s have then been ruined in the process because of either incompetent strategies or outright criminal activity, the money then transferred to the Cayman islands still to “Czech hands” etc. (The debt created by the bank failures was paid by the tax payer after a currency crisis in the late 1990s.) Skoda being privatised early on to foreign hands somehow is still considered quite successful, even with a better reputation abroad than before. Example Hungary: The foreign investments in the early transition were a success in terms of overall growth and employment for some, but society as a whole was highly disappointed with the too slow progress, and – unrelated to Western money – government was under pressure because of an inability to raise taxes in line with the needs of the state, and periodic austerity followed by increases in social spending to maintain “social peace”. I do not doubt that there are foreign investors who exploit low wages, but whether a society/government is able to collect taxes, make productive use of these and create some generally shared idea that both the taxes and the benefits are very broadly acceptable to most people is unrelated to these investors or predatory practices. Perhaps it is then even more likely that those that follow the most predatory practices within the country (such as OV currently with public work schemes paying below the minimum wage) are diverting attention to “foreign predators”, but that is “politics” and “choice of the explanatory model” including the search for potential harmful practices within the own society, not only in “colonising countries”.

  26. And some more numbers: GDP per capita in euro 1995 and 2013:

    euro area of 12 countries (the founding members plus Greece) 18.400 – 29.200 (+59 %)

    Bulgaria 1.200 – 5.500 (+358 %)
    Czech R 4.300 – 14.200 (+231 %)
    Estonia 2.000 – 13.800 (+590 %)
    Latvia 1.500 – 11.600 (+673 %)
    Lithuania 1.400 – 11.700 (+735 %)
    Hungary 3.400 – 9.900 (+191 %)
    Poland 2.800 – 10.100 (+261 %)
    Slovenia 8.100 – 17.100 (+111 %)
    Slovakia 2.800 – 13.300 (+375 %).

  27. Kristen: the numbers are average, obviously. The numbers cannot reflect – among others – the regional disparities. The problem is not necessarily Hungary’s lagging behind its peers, but that – given for example the lowest work force participation among these countries – a huge number of people live from a fraction of the amount the GDP figures would indicate and these people have zero hope that their situation will change and, what is worse, they know that.

  28. Kristen there are different models of development and levels of autonomy exhibited by former command economies. But at this time the model of state capitalism as exhibited in China and countries like Vietnam has been most successful in parlaying the low wage advantage into economic development. The development of national infrastructure in China and the early stages of it in Vietnam really did not precede development, it has evolved along with development.

    China only now with its vast levels of stored capital is attempting to develop the interior of the country. It has not yet attempted to address its vast air and water pollution problems, but it is clear that China realizes it has to.

    As to the increase in GDP of Central European states it has to be examined relative to the increased costs to citizens of these states for basic survival. This relates to what is called the real wage in Central Europe and the increased consumer expectations of the population. This is not happened in China where the buying power of wages has increased, but consumer expectations have increased too.

    The reason China and the USA are heading more and more towards conflict has to do with trade rules China has created to promote internal development including ignoring intellectual property rights of western nations. The Central European nations are going to have to become much less open markets if they want to internally develop. Orban to a degree is currently talking that game in relation to the EU, and the Jobbik even more so. Meanwhile, the liberal/left sticks with a development model driven by European integration.

  29. Istvan: “The Central European nations are going to have to become much less open markets if they want to internally develop.”

    Nobody will prevent Hungarians from following this strategy if they so wish. All that is needed is to withdraw from the EU and to rely on Hungarian internal resources, not on EU money either through transfers or through exports. But I very much ask that you speak for Hungary only in this respect. As a citizen of the Czech Republic, I have not yet given up the objective of convergence with the West in terms of political and economic living standards, and do not wish to reinvent the wheel “our way”.

  30. @Kirsten

    I cannot but agree. The day Hungary leaves the EU, the whole economy and the state budget will collapse as will the nice export surplus. Add to that the loss of income tax of those approx. 750 000 people employed directly or indirectly by foreign-owned companies (which actually down syphon-off their profits but reinvest in Hungary – until now), and the economic desaster is perfect because these companies will leave.

    If you look at Poland and Slovakia you can see that catching up in terms of development is not only possible but accelerated by EU membership. Of course, when you have one arm tied behind your back because of a stubborn Friedman-fan and eurosceptic like Vaclav Klaus the country stagnates. But your Prime Minister said as much and said he is about to open up to the EU, contribute more politically and benefit more economically in the future.

  31. Minusio: I learned in the excellent book by Nora Berend and co-authors about this area in the Middle Ages that the ambivalence (Hungary) or not (Bohemia) about the general orientation of the societies to the “West” is really long-standing, even if that obviously does not apply to all people in both cases.

  32. Is there anybody still on this thread?

    I, like Kirsten, am also disappointed that Hungarians don’t observe and analyse their fellow “ex-Eastern-bloc”* countries, to see how they cope with similar problems.

    There is a saying that whatever happens in Poland’s political and social arena, it will arrive in Hungary some 5-10 years later. If we consider their Kaczynski regime the Polish version of Orban, then the way out is to have a moderate, modern, Western oriented, RIGHT wing party that is committed to democracy, like PM Tusk’s. If the majority of Hungarians, like Poles tend to lean to the right, that partly expains the failure of the opposition this time. The only alternative to Fidesz on the right is Jobbik at the moment, and in my mind, there is a vacuum for a new conservative party. Orban probably knows this very well, so has successfully focused on destroying every other conservative alternative in the past 10 years.

    * I hate the expressions “ex-Eastern-bloc” or “ex-Soviet-bloc”, it’s like calling Germany “ex-Nazi”. I (admittedly biased) prefer “Central-Eastern Europe” – which is why I respect Olli Rehn, he ALWAYS says that!

  33. Cheshire cat: “There is a saying that whatever happens in Poland’s political and social arena, it will arrive in Hungary some 5-10 years later.”

    Poland had this amazingly large pool of people who were active in the opposition and had already in the 1980s created parallel structures in many areas. So they were prepared. (But the Kaczynskis were also in the opposition. And they could not avoid the very “typical” problems such as “networks” aka corruption either.) I would not bet on the 5-10 years (Donald Tusk has been in office since 2007…).

    But in general, people who currently believe that Hungarian national aspirations end with a king in a palace and the servants in national uniform drunken from home made palinka or tokaji bor might be surprised how quickly things will change the moment that this experiment will eventually break down – as it must. For me the elections showed just that, not overwhelming support for OV. But people with other ideas should not despair, should not rely on some “dark forces” theories and instead look what other countries (including Spain) did in similar circumstances, and be prepared for the day (or the time) when it starts to shift. No passive waiting for the day to arrive, it will reward the “prepared” – which would be Jobbik in current circumstances.

  34. Kirsten, I hope you are right. Many Hungarians are not so optimistic, they are grieving that they have failed at the elections. Many people I know have shut their ears and eyes, stopped reading and watching the news, at least for now.

    Have you seen this?

    I think many Hungarians still think being a member of the EU is a good thing, but many Orban supporters wish the EU gave him more space to maneuvre.

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