hungarian economy

Not only democracy but the free market economy is in danger in Hungary

We have often talked about the hundreds and hundreds of new laws and amendments Fidesz politicians “propose.” Naturally, very few of these laws and amendments are genuine in the sense of actually originating with the MPs who turn them in. Individual members’ proposals are just a convenient way of avoiding thorough preparation and discussion. The preparation of these laws and amendments is often farmed out to Fidesz-friendly law firms whose members with great speed throw together something that often turns out to be very poor legislative work.

The purpose of amendments is frequently obscure. It can happen that something that didn’t seem at all significant at the time it was adopted turns out to be of huge importance. It has happened more than once that the “evil” intent of the piece of legislation became clear only months later.

On October 11 László Koszorús, a Fidesz MP, turned in an amendment to the Competition Act of 1996 which entrusted the Hungarian Competition Authority (Gazdasági Versenyhivatal) with surveillance control of all mergers and acquisitions that might be “essential” from the point of view of the national economy. The Authority can scotch a merger or acquisition if it significantly reduces competition. Article 24 of the Competition Act defines the thresholds above which the authorization of a merger has to be approved by the Competition Authority. László Koszorús’s amendment to this article adds a new section which would allow the government to approve a merger without its being scrutinized by the Competition Authority “in case that merger is considered to be significant from the point of view of national strategy, especially in the case of mergers that would save jobs, would strengthen international competitiveness, and would secure basic supplies to the population.”

Hungarian journalists miss a lot of new amendments, which is not surprising given the tsunami of legislative work, but this one was not overlooked. Index immediately picked it up and explained to its readers what the amendment means. Even if a merger of two companies would contravene competitiveness, would negatively influence the price of products, would be harmful to the consumers, the government despite all that could allow the merger to go ahead. With this amendment the government would seriously limit the jurisdiction of the Competition Authority which is, after all, the guardian of competition and which serves the interests of the consumers. Index learned that this latest move of the Orbán government came as a surprise to the Competition Authority itself. But there is nothing unusual in that. This is how things go in today’s Hungary.

Hungarian Competition Authority / Photo István Fazekas, HVG

Hungarian Competition Authority / Photo István Fazekas, HVG

Speculation followed the announcement. What can possibly be afoot? Surely, as is usual in Orbán’s Hungary, the amendment serves a specific purpose. What large merger is in the offing which the Orbán government wants but which the Competition Authority would most likely veto? One thing is sure, concluded Index, Koszorús’s explanation of saving jobs is not the true reason; it has to be something else.

Today HVG picked the topic up and offered several possible reasons for the amendment and for the curtailment of the Authority’s competence. One is the potential nationalization and merger of the utility companies. The paper also pointed out that the merger for which the amendment was most likely designed must involve companies that belong to national competence, i.e. they are not so big that one would need the permission of the European Commission to go ahead with a merger. HVG learned from a Fidesz official in charge of economic matters that the government is currently working on the creation of “non-profit” utility companies. In the case of nationalization the government would have to determine the optimal size of these companies so they could be run on a non-profit basis with the least amount of loss.

Others speculated that this amended law would also be useful if the newly nationalized credit unions were to be sold to a single person or company. Some suggested the merger of Ringier, the Swiss media firm, and Axel Springer, the German newspaper giant. But others think that this is unlikely to be the case. When HVG turned to László Koszorús for an explanation, he sent them to the press department of Fidesz. A rather odd answer from someone who turned in the amendment as a private member proposal. So at the moment this is where we are.

Viktor Orbán’s interview in The Daily Telegraph coupled with recent domestic developments which have turned Hungary into a “laboratory” for an authoritarian nation state and state capitalism have aroused considerable interest in opposition papers.

This is the theme of Róbert Friss’s opinion piece in yesterday’s Népszabadság. He calls attention to the so-called “strategic agreements” certain companies are invited to sign with the government. These companies, foreign and domestic, really have no choice. Those who don’t get into this charmed circle don’t stand a chance of thriving financially in Orbán’s Hungary. Instead of true competitiveness an “informal struggle is developing for loyalty.” Some multinational firms, utility companies, and banks are in trouble because of their refusal to cooperate. These companies are threatened: either comply or receive more “punishment.” For example, for the time being the Bankers’ Association is resisting the pressure to “help the debtors in foreign currencies,” but Mihály Varga, minister of economics, already promised a further government squeeze in November if the CEOs of the banks don’t play ball. With his “strategic agreement” program Orbán is weaving  “a corporative net.”

Removing the threat posed by Viktor Orbán to democracy and the free market will be difficult. As the Baja by-election proved, Fidesz will make sure that one way or the other they will win the next national election. If necessary by fraud. Or, if not outright fraud, by legal maneuvering. In the next by-election in Békéscsaba on November 10 there might not be an opposition candidate at all because the local electoral commission found that the opposition’s candidate, Katalin Kovács, was ineligible because of a technical mistake committed by the Párbeszéd Magyarországért (PM), one of the parties supporting her.

Attila Mesterházy and Gordon Bajnai on the campaign trail

I noted yesterday that the election campaign has begun. I should have added that Fidesz has been campaigning from the very moment its government took office in May 2010. With election comes what Hungarians call “the spreading of the goodies,” at least temporarily making the electorate happy so they will support the government at the next election. This practice, which cuts across parties, has been largely responsible for Hungary’s chronic indebtedness and its large budgets deficits. Very often this largesse was financed with borrowed money.

Prime Minister Viktor Orbán swore that it would never happen under his watch that Hungary would borrow money to pay for social benefits. In fact, he was so serious about national indebtedness, which he considers the source of all the ills of the Hungarian economy, that it was written into the constitution that “the Central Budget … will have to ensure that the level of the state debt does not exceed half of the value of the gross domestic product of the previous calendar year.” Right now the national debt is larger than ever and only yesterday the government announced that Hungary had submitted a registration statement to the SEC for the issuance of up to $5 billion in debt securities. This will be the second such bond issue in US dollars this year. I wonder what Viktor Orbán will do if his government is unable to fulfill its constitutional duty with respect to the level of the national debt? It’s not that I fear for Orbán’s political well-being. This government is very inventive, so I’m sure they would come up with something to avoid the resignation of the government.

While the government has the means to distribute money and other perks, the opposition must be satisfied with promises. As has happened in Hungary time and again, these promises turn out to be empty. The 2010 promises of Fidesz, including one million new jobs in ten years, couldn’t be fulfilled. In fact, it was just announced that fewer people have jobs today than a year ago. The Balatonőszöd speech was partly about putting an end to this practice and stop deceiving the electorate. For a while the opposition parties seemed to have paid heed and refrained from falling back on their bad habits. Their politicians kept emphasizing the difficult economic situation and the long road ahead. But as the election gets closer they seem unable to resist the temptation.

So, let’s see who is promising what. MSZP held a huge meeting in Miskolc, a town that was once an MSZP stronghold. The crowd responded enthusiastically when Attila Mesterházy announced that if the MSZP, hand in hand with Együtt 2014-PM, wins the election “the winners will be the children, the youth, the women, the employees, the small- and medium size entrepreneurs, and the pensioners.” In brief, everybody.

Fair enough. Almost everybody would indeed win if Fidesz were sent back into opposition. But what specifically did Mesterházy promise? From September 2014 on students will receive a free education at Hungarian colleges and universities. A year ago the socialists were talking only about a tuition-free first year, after which tuition would be charged based on academic achievement and social needs. But now, it seems, there is no qualification. We know from past experience that the Hungarian budget cannot possibly afford the luxury of totally free higher education.

The socialists also plan to create a situation in which at least one person in each family is employed with a decent salary. I assume that he does not consider the current salary of workers employed in public works projects, which is not enough to keep body and soul together, decent. According to Mesterházy, the desired level of employment can be achieved by abandoning “this idiotic economic policy.”

He promised more money for education and promised to build gyms instead of football stadiums. They will spend more money on healthcare. Unemployment insurance, which was truncated by the Orbán government, will once again be available for nine months. The socialists will make sure that public transportation for people over the age of 65 will be “truly” free. Mesterházy admitted that to achieve all these things one must have robust economic development, but he added that “yes, we will achieve this too.” MSZP wants to modify the across-the-board lowering of utility prices, which currently threatens the industry with bankruptcy. The socialists suggest lowering prices only for those in need. MSZP would also change the tax system and get rid of the flat tax, which has done a lot of damage to the economy.

As you can see, there are plenty of expensive promises here. The healthcare system is in ruins, and it seems that the same is true of education. Even with higher taxation on the “rich,” as Mesterházy called those whose incomes are above average, healthcare and education cannot be salvaged. As currently configured, healthcare is a bottomless pit. Throwing more money into it is no remedy. It’s time for some fresh thinking.



Együtt 2014-PM also began its campaign, and it looks as if the party is concentrating, at least for the time being, on the under-35 generation. The party’s slogan is “Come home, stay home!” According to E14, the flight of young Hungarians is “one of the most serious problems today.” If they win the election they will open offices in each embassy and consulate where they would offer jobs in Hungary for those currently abroad. They would also assist those Hungarians who just finished their studies abroad and would like to return to Hungary. In addition, he promised that “he would guarantee a job or training that would lead to a decent job for all those under the age of 30 who hadn’t had a job in the last six months.”

Bajnai offered up a few numbers. He would spend at least 1% of the GDP on higher education and would again open the doors of colleges and universities to anyone who has the ability. Bajnai also promised 250,000 new jobs in four years. Well, that number is more modest than Orbán’s one million in ten years, but as we know governments cannot create jobs.

It’s not clear whether people actually believe these promises or whether, after all the unfulfilled and unfulfillable promises, they are jaded. Hungarians say they don’t believe politicians, but perhaps their belief is selective. Perhaps they believe promises from which they themselves will benefit and disregard the rest. Perhaps they believe some of the promises of their favorite candidate and none of the promises of the other candidates. Who knows? I doubt they would be honest with pollsters.

At any event, it’s tough to campaign with the message that people should prepare themselves for more lean years when opponents are promising a host of goodies in a “rising tide” economy. People want hope and change and a “yes we can” attitude.  (And a few more forints in their pockets one way or another.)  Disappointment that the government hasn’t delivered sets in only later.  Just ask Barack Obama.

The zeal of Viktor Orbán: Where will it lead?

In some respects the present political leadership reminds me more of the Rákosi regime than of the Kádár period. Before someone jumps on me, let me emphasize the words “in some respects.” First and foremost, I think of the zeal with which the Orbán-led political elite began to rebuild society. This entailed a radical change of everything known before. The Fidesz leadership seems to be very satisfied with the results. Just the other day László Kövér claimed that under their rule all the nooks and crannies of society that had developed since the regime change of 1989-90 were reshaped. Everything that came before 2010 had to be altered in order to build a new Hungary.

The last time we saw such zeal was in the late 1940s and early 1950s when the communists wanted to turn the whole world upside down or, to use another metaphor, to wipe the slate clean. As one of their songs promised: “we will erase the past.” And they began in earnest. They wanted to build an entirely new political system–immediately.

Such attempts usually fail because such rapid change cannot be achieved without ransacking the economy. If one lets the experts go for political reasons and fills their positions with people who finished at best eight grades, the results are predictable. If you get rid of the former manager of a factory because he is deemed to be reactionary and you hire a worker without any experience in management to run the newly nationalized factory, we know what will happen. And indeed, in no time the Hungarian economy, which had recovered after the war with surprising speed, was in ruins. Food rations had to be reintroduced in 1951 or 1952.

This is the same kind of zeal that one sees with the Orbán government. Only yesterday Tibor Navracsics proudly announced that in three years they managed to pass 600 new laws. He added–because Orbán and company can certainly compete with Rákosi and his gang when it comes to bragging–that these laws are of the highest quality. In fact, legal scholars are horrified at the poor quality of the legislative bills pushed through in a great hurry with last-minute amendments.

By contrast János Kádár, who became the first secretary of the Hungarian Communist Party (at that point called Magyar Szocialista Munkáspárt), moved slowly, hoping to gain acceptance after the failed uprising. In fact, the whole Kádár period was known for its cautious, deliberate move toward a less oppressive regime. It was still a dictatorship but it was based on an understanding with the citizens who were ready to make some political compromises in exchange for a better life. By the 1980s, although there were some taboo topics,  intellectual freedom was greater than in any of the other satellite countries.

Intellectual freedom. Unfortunately the present political elite’s attitude toward literature and art greatly resembles that of the Rákosi era when there was a long list of forbidden books and when, as far as art and literature were concerned, socialist realism was the only accepted form. The situation today is not very different. The government supports art and literature that is “national.” Modernity is out and the nineteenth-century classical style is favored. Fidesz politicians on both the local and the national level make sure that only theater directors who cater to their taste are appointed. The very successful director Róbert Alföldi lost out in his bid to continue with his work at the National Theater to a man who talks about the National Theater as a sacred place that he plans to have blessed by a Catholic priest. The plays he is going to stage are mostly written by Hungarian authors. The emphasis is on Hungarian, not on quality.

I could easily be charged with overstating the similarities between the two leaders and their governments. For instance, one could retort, don’t compare the poverty of the Rákosi regime to that of today. But don’t forget that in the late 1940s and early 1950s Hungary was still paying war reparations to Russia while today Hungary is getting handsome subsidies from the European Union. Believe me, without that money Hungary would not be able to meet its financial obligations. Another difference is that today there are still large foreign companies in Hungary which by the way are practically the only source of Hungarian exports. Without them the country would be in even greater economic trouble than it is now. However, Viktor Orbán is working hard to take over some of the foreign companies and banks. And if he continues with his onerous tax policy, the owners of these businesses will most likely be glad to sell to a state that seems more than eager to take them over and that, so far at least, has not balked at overpaying.

Viktor Orbán as some blogger sees him /

Viktor Orbán as a blogger sees him /

As for the clientele of the two regimes. The Hungarian communists in 1948 and afterwards wanted to obliterate the old upper and even lower middle classes and give power to the working class. The better-off peasantry was also considered to be an enemy of the people. They made  no secret of the fact that they wanted a complete change: those who were on the top would be at the bottom and the poor peasants and workers would be on top. They didn’t even try to hide their intentions. Orbán is undertaking the same kind of social restructuring, albeit with different winners and losers. His goal is a complete change of not only the business but also the intellectual elite. Those who sympathize with the liberals or the socialists will be squeezed out and politically reliable Fidesz supporters will take their place.

People I know and whose opinion I trust tell me that Magyar Televízió and Magyar Rádió had more balanced reporting in the second half of the 1980s than they do today. This is where Hungary has ended up after three years of frantic Fidesz efforts to remake the country.

András Bruck in a brilliant essay that appeared a few days ago in Élet és Irodalom insists that despite appearances Hungary today is a dictatorship because what else can one call a system in which every decision is made and put into practice by one man? And what is really depressing, says Bruck, is that the dictatorship prior to 1989 was forced upon Hungary by Soviet power. Today there is no such outside pressure. Hungarians themselves gave Fidesz practically unlimited power and for the time being show no signs of wanting to get rid of Viktor Orbán and Fidesz. In fact, 1.5 million people are devoted to him and in a nationalist frenzy are ready to fight against the colonizers of the European Union. A shameful situation.