Greed might be the undoing of Viktor Orbán and his regime

Today I’m going to look at two corruption cases that might have serious consequences for the Fidesz empire in Hungary. The first is the “seizure” of the profitable retail tobacco market and its redistribution among friends and families of Fidesz politicians. It seems that the government may have gone too far here; there are signs of internal party opposition. We know only about small fry at the moment, but that doesn’t mean that dissatisfaction isn’t present in the highest circles of the Fidesz leadership.

The other scandal is not new at all. For years Közgép, a company owned by Lajos Simicska, a childhood friend of Viktor Orbán, has won practically all government projects financed by European Union subsidies. But it came to light only now that Brussels suspended payments on two very important “operative programs,” one dealing with the environment and energy and the other with transportation.

First, the response of  two party faithfuls to the tobacco shop scandal. On April 26 HVG received a letter from a Fidesz city council member in which he said that in his town the Fidesz members of the council decided who would get the tobacco concessions. At that point the informer didn’t want to reveal his identity, but two days later he was ready to give an interview, name and all. It is a long interview from which I will quote the key sentences.

Ákos Hadházy is a veterinarian in Szekszárd, the county seat of Tolna. He considers himself to be a conservative, but “this tobacconist shop-affair broke something in [him].” The Fidesz members of the council looked at all the applicants and suggested who should get favorable treatment.” Mostly friends and relatives. Hadházy struggled with his conscience. He felt that the way the selection was made was wrong, but at the same time he realized that “many would consider revealing his doubts a betrayal” of his party. Finally he decided that although “perhaps in the short run the party might lose a few percentage points, in the long run these revelations might actually be good for this party.”

In his opinion “the 2010 landslide victory was a fantastic opportunity, but at the same time such a large victory is harmful for a party.” A well functioning opposition is “a basic necessity…. If there is no opposition, sooner or later [the party leadership] will be unable to control [its] own decisions. There will be no reaction when [they] make wrong decisions.” Unfortunately this is what happened in Fidesz’s case.

Hadházy even went further and announced that the problem is that there is no opposition within the party either. The members of parliament are no more than voting machines because after 2014 there will be fewer seats available and naturally everybody would like to keep his job. “One can’t expect negative opinions from them…. If there are no debates within a party … then there are only two possibilities: either [the party] does something fantastically well or something is not right.” Most often decisions are unanimous. Ordinary party members are not consulted. Maybe once a year there is a meeting of the local party members, but that’s all.

Fidesz is indeed a very disciplined party, but he thinks they “went too far.” Such discipline was fine when Fidesz was in opposition. Then “the para-military structure was acceptable, but when in power the party should have moved in a more democratic direction.” Hadházy believes–I think wrongly–that Fidesz has fantastic “intellectual capital” but doesn’t try to use this capacity and doesn’t listen to them. “This in the long run is a suicidal strategy because the members of the intelligentsia  are the ones who can influence public opinion.”

As far as he is concerned there are two possibilities: the party will not take kindly to his going public and then his political career will be over. If, on the other hand, he is spared he “will be very glad to know that Fidesz is full of real democrats, even if this is not always evident given how decisions are made now.”

The other rebel is András Stumpf of the pro-government Heti Válasz.  Don’t think that András Stumpf is a “soft” Fidesz supporter. He is no Bálint Ablonczy, another reporter for the same weekly, who is a moderate right-winger. Stumpf is pretty hard-core. He aggressively defends the government at every opportunity–for instance, when he appears on ATV’s Start. Even in this critical article he expresses his belief that Sándor Laborc of the Office of National Security hired Tamás Portik to spy on the opposition, meaning Fidesz. Yet it seems that the tobacconist concessions and the amendment to the Freedom of Information Act were too much for him. Not even he believes that the quickly amended piece of legislation has nothing to do with the concessions and the government’s attempt to hide the truth from the public. In Stumpf’s opinion, the amendment is most likely unconstitutional and what the government is doing is “frightening.” If they have nothing to hide, make the documents public.

Moving on to the withheld EU payments, a new internet website, 444.hu, published an article entitled “Secret war between Budapest and Brussels” on April 30. According to the article, last summer the European Union suspended payment for cohesion fund projects. The apparent reason was that Brussels discovered that there is discrimination against foreign engineers. Only engineers who belong to the Hungarian Society of Engineers can be hired.

With due respect to the journalist of 444.hu, I can’t believe that this is the real reason for the suspension of billions of euros. Instead, I recall that about a year ago Ferenc Gyurcsány’s Demokratikus Koalíció turned to the European Anti-Fraud Office (OLAF) to call attention to the fact that Közgép, Simicska’s company, had received an incredible number of government contracts, all financed by the European Union. The suspicion is that Közgép through Lajos Simicska is actually owned by Fidesz. Or at least a substantial percentage of  its profits ends up in party coffers. I remember that sometime during the summer of 2012 OLAF’s investigators took possession of Közgép’s computers. I suspect that the suspension of funds has more to do with Fidesz government corruption than with discrimination against foreign engineers.

By now opposition politicians are openly accusing Közgép of being a front for Fidesz. Gábor Scheiring (PM) said that “the essence of Lajos Simicska’s firm … is financing Fidesz from its profits.” Gyurcsány considers “Lajos Simicska  the most notorious and most influential person in Fidesz and the business establishment built around it.” László Varju, the party director of DK, in one of his press conferences talked about the need to investigate the possible “role of [Közgép] in the financing of the government party.” If it could be proven that Közgép and Simicska are just a front for Fidesz, Orbán might find himself and his party a lot poorer.

Hungary’s “national tobacco shops.” Who are the happy recipients of the concessions?

In February 2012 I wrote a post on “Fidesz, the tobacco monopoly, and the tobacco industry’s lobby.” That was when the Hungarian parliament voted to make tobacco a state monopoly. Since then there have been several amendments to the bill, which originally stipulated that the newly established National Tobacco Shops could sell only tobacco products. The changes were necessary because it soon became evident that, since the profit margin on tobacco products is thin, the people who successfully bid to open such a store couldn’t make a living solely from selling cigarettes. Bit by bit other products were added to the list: alcoholic and non-alcoholic beverages, energy drinks, lottery tickets, and newspapers. But even with the added product lines there were not too many takers, especially in smaller villages.

According to the law one tobacco shop is supposed to serve 2,000 inhabitants. Currently around 40,000 stores sell cigarettes, but because of the above restriction there will only be about 7,000 stores where people can buy tobacco products. Last February I wrote that when I first heard about this scheme “I envisaged 7,000 pro-Fidesz Hungarians as the lucky recipients of these concessions.” Well, not quite. Second-tier party members and their families will be able to establish a number of stores in areas where the financial benefits of the concessions are more or less guaranteed. Meanwhile, in 1,400 smaller communities there were no applicants. Come July, there might not be a single tobacco shop in places like Herend (pop. 520).

by ur1336 / Flickr

The original justification for the establishment of these tobacco shops was that they would assist large families, would give young mothers just returning from maternity leave some extra income, and would provide a living for some of the otherwise unemployed. The final list of recipients tells a very different story.

Doctors who are supposed to tell people about the deadly results of smoking are eagerly participating in this new business opportunity. On paper one person can have only five stores, but there are many cases in which members of the same family applied for and won concessions. In Esztergom, out of the possible sixteen tobacco shops, ten went to one family, judging from the family name that is not exactly common, Sóron. Ádám Sóron received four, Tibor Sóron one, Mrs. Tibor György Sóron five! For the time being we don’t know what the connection is between Fidesz and the Sórons, but I think it is only a question of time before all will be clear.

Another alleged reason for establishing these tobacco shops was the government’s desire to decrease the number of smokers in Hungary. The bill that was passed last year stipulates that no tobacco product can be sold to a customer as long as there is an underage (18 years) child  in the shop. (Let’s not go into how stupid that idea is!) But then, what do I read? The nineteen-year-old Bence Hídvégi, son of the Fidesz mayor of Fonyód, received permission to operate three tobacco shops, two in Fonyód and one in Balatonfegyves. One day his presence in a tobacco shop would have brought business to a screeching halt; the next day he can run the show.

And while we are on the topic of teenage smoking and the number of retailers, it seems that there is no direct correlation between the two. Austria is a prime example. The highest number of teenage smokers in all of Europe can be found there, and the owners of Austria’s 8,000 tobacco shops are the leading lobbyists against any kind of anti-smoking legislation. Moreover, Austria’s overall standing in Europe as far as tobacco consumption is concerned doesn’t support the notion that fewer tobacco shops will result in lower figures. In Hungary the percentage of smokers in the population as a whole is 38%;  in Austria, 34%. Not a huge difference. Moreover, in both countries the numbers are growing.

The real reason for making tobacco a state monopoly was to help domestic tobacco companies. János Lázár, who came up with the idea of national tobacco shops, relied heavily on the “advice” of Continental Zrt. Continental has only about a 10-15% share of the very large tobacco market. The legislation was most likely written with a view to giving an advantage to Continental and discriminating against foreign companies like Philip Morris, British American Tobacco, and Imperial Tobacco. With tobacco as a state monopoly the Hungarian state could decide which products it would stock, and presumably the price of these products, in the tobacco shops.

The Orbán government used Austria as its model, but the Austrian model was flawed–not only in terms of public policy but also with respect to the state monopoly issue. Austria had its own troubles when European Union requirements changed in 1998 and Austria was forced to partially privatize Austria Tabak, the state monopoly that had dominated the Austrian tobacco industry until then. Something quite similar could befall Hungary.

And what has happened to the owners of Hungary’s private tobacco specialty shops? I read about a place, “Ági trafik” in Budakalász, whose owner has had his shop since 1972. His grandfather’s tobacco shop was nationalized in 1950, but twenty-two years later he began anew. He has a sister who is paralyzed. Now he is ruined. He put in an application but didn’t receive a concession. According to some estimates, practically all of the private tobacco shop owners were dispossessed. One owner was approached by two different men who asked him to rent his shop to them. You can imagine how he feels.

Fidesz managed to kill two birds with one stone. They are helping the Hungarian-owned Continental Zrt. carve out a larger share of a lucrative market and, by setting up tobacco shops as state concessions, they are spreading government largess among their followers. Multinational companies and Hungarian private enterprise will once again suffer; Orbán will further extend his economic reach.