Barely eight months have passed since the new parliament was formed – and since then the words and deeds of the party and government new in power have turned the political life and the workings of the state and the economy upside down. We keep being perplexed; we have not even woken up from the astonishment caused by a political step yesterday when shocked by another new announcement or measure today. It is difficult to absorb the whirlwind of events.
Let us stop for a moment, let us take a deep breath, and let us re-consider what has actually happened. Let us try to form a comprehensive picture of the change from the hundreds of fragmentary details. What has happened to our country in this short time?
Another study could overview how the country had ended up in the situation when the new government took over. The questions who, which political figure, which party, which interest group is responsible, and to what degree, about the previous political and economic processes are not discussed here. This paper analyzes only what the party and the new government taking over in spring 2010 has done so far.
I overview eight topics – they may suffice to highlight the most important changes. I am not aiming at new findings; when discussing a topic I join those having examined it, probably in greater detail. My aim is a summary overview.
In the period between 1989-1990 and the summer of 2010 Hungary was a democracy. It is not one any longer – its political formation today is autocracy.
The above statement makes sense only if I outline what I mean by democracy, the more so as the term has several definitions. The East-European version of the socialist system was called a “people’s democracy” in its own official ideology, denouncing at the same time the formal “bourgeois democracy.” Those in power today claim that their rule is the true embodiment of democracy.
However, it is not on claims or wishes (“let the people rule”) that I base my definition of the term, but on the observation of actual practices. Let us take the group of countries usually called democracies, including West-European and North-American countries, Australia, New Zealand and Japan. Which are the common features that in fact manifest themselves in them? The question is not whether those features are codified in a constitution or are based on tradition or historical conventions – what counts is the practical application of those features in a democracy.
The most essential features are the following:
– Powers are strictly separated.
– Certain important governmental tasks are fulfilled by bodies independent of the government.
– A clear line separates the rather small group of political appointees from the large group of civil servants and public sector employees whose job is independent of, and unbreakable by, the political changes.
– The principle of checks and balances is applied. No power branch or organization of the state is allowed to become supreme for a long time, as the other branches and organizations prevent it.
– The enactments of bills by the parliament are preceded by extensive debates and negotiations followed by thorough, and therefore time-consuming, debates about the bills in the parliament. In some countries laws control the process of negotiations, but the democratic political culture is even stronger than the word of law to enforce the preceding discussions and negotiations and the careful and responsible parliamentary debate.
It is almost unbelievable how deep wounds have already been set on the face of democracy, and how many of the fundamental features created in the past twenty years have been ruined, by the Orbán government and their party, Fidesz.
Everything is decided in the “central power field.”
Widespread debates and negotiations preceding legislation have ceased. The parliament has turned into a voting machine producing laws on an assembly line in an incredible speed.
The president of Hungary is not a personality standing above the parties and embodying the unity of the nation, but an obedient party devotee.
The key office of the Chief Prosecutor is filled by a tried supporter of the ruling party.
The National Elections Committee, whose task is to overview the elections, was, before their term expired, replaced by a new committee composed almost exclusively of Fidesz-supporters.
The powers of the Constitutional Court, the chief guard of constitutionalism and fundamental office of judicial independence, were brutally restricted, a step which in itself is a fatal blow on the principle of checks and balances.
When daring to criticize the government plans, the independent Fiscal Council was dissolved. As head of the State Audit Office a faithful member of the ruling political group, and not an independent and distinguished professional expert, was appointed. The right to appoint the president and the two vice-presidents of the Competition Authority at the same time was also successfully achieved.
It is natural if new people are appointed to the leading state offices usually filled by political appointees. But what actually happened was a political cleansing far beyond that limit, and the principles of continuous civil service and relative independence from politics were swept away. Now a new law makes it possible to lay off central or local governmental officials and employees without any explanation. Threateningly sounding statements of leading politicians are forming an atmosphere of fear and subservience among those working for the state apparatus.
The ultimate test of democracy is the procedure followed when removing the person, group or party in power. The fundamental criterion of a democracy is the lack of violence: no murder of the tyrants, military coup d’etat, secret camarilla-conspiracy, crowd demonstrations forcing those in power away, bloody uprising or revolution are needed. The change in power can be executed in a peaceful and civilized way, through elections by voting for rivaling parties. Like in other tests, in this exam it can be decided only after the event if the examinee has passed. A posteriori we can state that the Hungarian political formation has passed the removability test since 1990, including the spring 2010 elections, when Hungarian voters removed the previous governing power and elected a new one in clean elections.
Please note that the above procedure does not necessarily equal to a clockwork rotation. The question is not whether the change happens at every single election, but whether the removal is possible or not. Has the present political leadership “cemented itself in” to a degree with no likelihood of their removal? This is not the case only in totalitarian regimes, Nazi or communist dictatorship, but also autocracies like the Horthy-system in Hungary between the world wars. In that long historical period the parliament had regular sessions, there were legal opposition parties, several parties entered the elections – but the state and the political sphere were organized in a way to secure the automatic success of the governing political group of the Horthy-period in each and every election. The political order guaranteed the governing power not to be removed.
It would be too early (and too disheartening) to state if this is already the case in present-day Hungary. It would be too early even if Fidesz won again at the next elections. It will only be possible to establish the results of the final procedural test of removability after a long historical period. What we can say today is that Viktor Orbán declared already before the elections that the political situations has to be organized in a way to ensure their power for not less than 15-20 years. Since in power, they have made irreversible steps to realize that plan. They have ruined or severely weakened the institutions ensuring the principle of removability. And let me add, they have not even exhausted all the possibilities in this short period. I would not like to suggest ideas, they know them, anyway: gerrymandering election maps, introducing election laws that decrease the winning potential of rival parties, giving Hungarians living abroad the right to vote, etcetera.
2. Free press
The independent and free press is usually highlighted among the political checks and balances. The press is often called the fourth branch of power in democracies, next to the legislative, executive and judiciary branches. It is indispensable in ensuring that the government should not feel secured possessing unlimited and uncontrollable power. The free press is able to reveal the abuses of those in power and to peek at the political games backstage. If political announcements are misleading or silent on important facts, the free press can reveal the truth.
The new media regulations, i.e., the re-organization of the media authority and the media law, produces a level of centralization in the world of public media and political communication comparable only to the propaganda machine of communist dictatorships. The head of the media authority can issue decrees, and the body can apply financial penalties. They are entitled to control not only the state-owned, but also privately owned media, not only television and radio, but also the printed press, internet portals and blogs. The body exclusively made up of Fidesz delegates regulates the distribution of technical television and radio frequencies, where their rejection of an application equals to the death sentence of the applying television or radio company. Private media owners may shy back from government criticism not only because of the possible rejection of their operating license or a threatening fine, but also because advertisements commissioned by companies close to the “central power field” may dry up.
The war over the free press is far from over, but the first battle has been won by the Orbán government. Even if they have not enforced their new rules, its sheer possibility has a discouraging effect. There will certainly be brave people (there are already some) who take the risk heroically. But we have every reason to fear that several media owners, editors and journalists, even if otherwise ready to criticize the government, will rather speak carefully or remain silent, applying self-censorship. The programs of public television and radio channels have already become one-sided: important (or to the ruling group, awkward) news items are not broadcast or made insignificant, and no fair chance is given to opinions against the government. And this is only the beginning, when the “media-tzar” and her company have not even started applying retaliation openly.
3. The state of law
Fidesz has gained power in a legal and valid way. Since in power, they care to comply by the laws in force in most of their actions. Thus, in this narrow sense their rule is legal.
But we must continue the sentence: if the law in force is in their way, they change the law. If they need an exception for the sake of a favored person or group, they tailor the law to secure their privilege. If the law dictated by them contradicts the constitution, they change the constitution. (In the past few months they have done it ten times!) And if the constitution, with its several impromptu amendments, is in their way, they clear it from their way and force a new constitution on the country. In more than one case they trickily circumvent the law, for example, when a bill is presented by an MP motion so as to avoid compulsory negotiations otherwise prescribed by the law. Moreover, they openly confront Hungarian and EU regulations, the constitution and basic requirements of the state of law in significant matters. In an unprecedented case they again enacted a retroactive law after being nullified by the Constitutional Court.
The state of law is a wide and complex concept – it would be difficult to define it in a mathematically precise way, but a democrat will sense the spirit of the state of law. It means respect for the constitution and the laws, even if they were not created by those now in power. The state of law means that legal security applies, that the citizen can be assured about her rights by the state, that those rights are stable and long-lasting, and cannot be curtailed on the impulse and improvisation of political decision-makers.
Using the term “state of law” in this wider sense, I would not like to go to such lengths as to say that Hungary is not a state of law any longer. Important legal guarantees have been ruined in the past few months including, first of all, the rude attack against the Constitutional Court. The new political leadership has publicly tried to instruct prosecutors, or to summon judges into the parliament. Still, we fortunately cannot claim that the independence of judges has been eliminated, or that politically relevant verdicts are actually given by a group of politicians, the judge giving her signature only. The practice of the coming years will tell how far judicial independence will continue, or will be eradicated and becoming an empty formality. We can worry about the future activity of the police and the public prosecutors’ offices as far as their practice of investigating and charging politically related cases are concerned. These worries are justified by several previous bitter experiences: on the one hand, cases may be hushed when awkward to those in government, on the other hand, handled with bias when the suspects are the opponents of those in power. We will see – if only those worries turned out to be unsubstantiated!
Having overviewed the political sphere let us consider the economy.
It is the capitalist system that we have in Hungary – and I am convinced it will remain so all during the Orbán-government, and will survive the present political regime. Capitalism is a particularly robust and tough system.
The historical example of the socialist system proves that, however strong capitalism may be, it can be abolished in a country or in a group of countries, and can be replaced by a viable other system. However, this can only be achieved by eliminating private property with an iron will, and replacing it everywhere (or almost everywhere) by state property; by eliminating market coordination with an iron will (or keeping only fragments of it), and replacing it by bureaucratic coordination in every section of the economy. Those presently in power have not done so, and no sign points in that direction for the future. Even if there are similarities in the style of exercising of power between bolshevik parties and the present-day governing group, Fidesz is obviously not a Marxist-Leninist party. Its program is not to eradicate capitalism.
Illusions about the effectiveness of the capitalist system are frequent. Its sheer existence is often believed to guarantee the efficient allocation and utilization of resources. It is, however, certainly not the case. While some capitalist economies are highly efficient, others keep struggling with a lot of friction.
The Orbán-regime does not aim to eradicate capitalism. Being linked to it by multiple ties it enjoys the support of some big-business oligarchs and many small-business entrepreneurs. It is ready to exchange political and economic support for economic and political support. At the same time, when intervening with the economy, they keep throwing sand into its machinery. While the anti-capitalist slogans of the public rhetoric also damages the economy, more harm is done by their actions. The economic policy of the past eight months have decreased the efficiency, weakened the strength, and spoils the development chances of Hungarian capitalism.
The socialist system is centralized by nature; state property and the dominance of bureaucratic coordination offers room for the realization of a centralized command. But voluntarism, the fallacy of the dictator and his group that they can do anything only by wanting it proved an illusion even in that system. The Orbán-government’s actions indicate similar voluntarism. But even if they widen the sphere of state interference, and intervene into economic processes in a more aggressive way, we still live in a capitalist economy. Market rules are in operation. Economic agents in Hungary and abroad have their own wills. Sellers and service-providers cannot be forced to sell or to provide services, neither can financial investors be forced to buy government bonds, or investors to create real capital. Even the most aggressive government is unable to impose its will on the economy in every aspect for a longer period. And the more unscrupulously it tries, the more awkward the backlash will become, and the more damage will be caused to the development of the economy.
5. Private property
The building of the capitalist system has its foundation in private property. If we consider real historical practice instead of theoretical models, we will observe that private property has never been the exclusive type of property in any capitalist economy, other types having also been present – but private property has been the dominant type. And the respect for private property is integral to it, which must be present both in the regulations and the value judgments of public opinion.
What has recently happened to private pensions funds seriously compromises the trust in the government’s respect for private property. That trust could be maintained if, due to a pension reform, accumulated wealth handled as private property shrank, and savings managed by the state grew – provided that those changes were based on the principle of voluntary choice. That would be the case if following conditions are satisfied: (i) the active employees face a genuine choice between different alternatives, including the return from the private to the public pension scheme, (ii) they change on their own free will, based on information evaluating advantages and disadvantages, (iii) they have sufficient time for the consideration. But this is not what is happening. They get vague and fuzzy promises instead of adequate information, hectic hurrying instead of fair consideration time, threats and severe discrimination instead of a free choice. Those remaining with the private pension funds will partly or totally lose their right for a state pension (the lost ratio being dependent on a range of factors). In the midst of self-contradicting official announcements and shallow or downright false information, that is, in such a confused state, members of the private pension funds are forced to make crucial decisions essentially influencing their old-age financial situation.
The whole procedure raises sad memories for the historically experienced elder generations. The agricultural cooperative movement fits well with capitalism when farmers with full control over their private property volunteer to cooperate – even if cooperative ownership is different from private ownership. But the aim of those confiscating the lands of Hungarian farmers’ and forcing them into cooperatives in the 1950s and 1960s was exactly the eradication of capitalism in the countryside. The creators and executives of the present-day pension reform cannot be accused of deliberately wanting to eradicate capitalism. What they have done, however, seriously damages the principle of capitalism, and is not too far from crude confiscation.
6. Growth and development
The announced economic policy of Fidesz and the government is centered on enhancing growth. Hardly any economist would disagree that the key to the well-being and development of a society is lasting growth. But growth paths can be of diverse nature, each with different characteristics, as every economist will admit. And so will the fact that the government can employ varied methods to increase growth, each differing in their main and side-effects. Whether growth should be made the central question of the economic policy is not worth the debate now. The real issue is what type of growth to promote and with what methods.
The analyst would be in an easier position if he clearly saw what the government is really planning to do today, next year, the following years, or in 15-20 years’ time, the planned length of their rule in this country. Their oral announcements are full of empty phrases, wild promises with no deadlines, and self-contradicting ideas. And what is even more dangerous is the first definite, figure-based “statement of intent,” the 2011 state budget – it does not state it clearly, either, what the government is planning to do. Thus, no coherent economic policy is decipherable from the announcements of leading politicians or the 2011 state budget, either. Practical regulations are not introduced after thorough professional debates, a careful consideration of short- and long-term effects, or a comparison of alternative solutions. A sadly low level of professionalism has been spreading in the creation of the economic policy.
Without a coherent plan to be analyzed in a consistent and intellectually rigorous way, I am confined to raise a few questions left vague, and to refute a few misleading statements.
– When the topic is discussed, we keep hearing one single declaration: taxes will be lowered, and that will give an impetus for growth. The several studies trying to clarify the causal connection between tax reduction and growth, however, have certainly not found unambiguous results. We do not know exactly how much GDP increase one million forints tax reduction will produce, when and with how much delay. But those one million forints will certainly be missing from the revenue side of the state budget. And the deficit will have to be balanced either by expenditure reduction (which will result in restrictions, in spite of the recurrent promises to the contrary!) or by loans (but what will then happen to the government debt reduction, another loud promise?), or the overall reduction of taxes imposed on the society is not the real plan, but tax burdens are rather only reallocated. Lacking careful calculations we do not know the answer to the following embarrassing question. Even if certain tax reductions will result in the growth of total demand and that generates additional output – will the loss caused to long-term growth by the reallocation of taxes be not greater? True, the household sector (especially well-to-do households) pay less tax, but business sectors hit by the “crisis tax” pay more. The consequences, however, do not stop at this point, but spill over to other areas. Sectors hit by the crisis tax transfer a considerable part of their burden to their customers, other companies and the household sector. Their profits may truly decrease – but that has a backlash as their profit is a major source of their investments. The disproportionately severe tax burden can be expected to have a deep impact on the short-, mid- and long-term business policy of some key branches of the financial, production and trade sectors. The capitalist economy is unable to operate and develop in the long run without a flexible, pro-active and effective credit system. The unacceptably severe tax burden on the bank sector introduced to spare the individual taxpayer will not hit “rich bankers,” but will rather slow down the active flow of the economy. We should not listen to the banks’ public complaint only, but should also notice what is happening in the day-to-day activity of the financial sector: that they have already started restricting credit supply, although credit would be needed more than ever. All the sectors involved in the crisis tax are restricting their investment activities, and all this will eventually put a brake on lasting growth.
– Does the government wish the labor productivity to grow as fast as possible and technical development to flourish in this country? Or does it rather want to maintain or restore jobs to be closed down by international or home competition? Is a fast increase of employment the real main aim, or is an increase of production, productivity and competitiveness the real main aim? I am afraid some leading politicians and their propagandists are unaware that these aims are contradictory to a certain degree; one cannot speak believing that “employment,” “growth” and “development” are synonyms for the same term.
– Are small and medium enterprises the group of producers that are aimed to receive an advantage in competition? All right, but then in turn other producers will be disadvantaged. Or is it actually not some Hungarian oligarchs close to them who are to be preferred against their competitors? Is it easier for a company “close” to the governing circles to get a state contract than for a “distant” company? Or should the competition run on strictly equal terms?
– The experience of economic history has repeatedly proved that small countries are incapable of fast and lasting growth if they are “inward-looking”, trying to base growth on the artificially acceleration of domestic demand. Is the present government really ready to give up on the well-tried and sound growth policy of export-driven growth? The economic policy supporting sustainable growth is more advantageous for the nation, and not the one obscuring the thought of advantageous adaptation to the international division of labor while declaring national slogans.
– Some related questions can be raised about the financial resources of growth as well. The economic policy of national isolationism and self-reliance is to be followed also in finding resources – do they wish to achieve fast growth with that policy? Though not advantageous, it could be achieved in a country where the rate of savings is large, and people do not consume a huge fraction of the new value produced by them. But national isolationism is not more than an arrogant, empty slogan if the economy is ultimately dependent on the import of capital. It is easy to observe that these three requirements are in conflict: (i) a low level of savings (i.e., a permanent release from the responsibility for one’s future), (ii) large investment needed for fast growth and technical development, and (iii) the exclusion of international capital. These requirements are contradictory not only empirically, but also logically. Which is the one they really wish, and which is only lip service?
– Should Hungarian commercial chains be given a preference against international chains? Should Hungarian banks given a preference against international banks? Opposition against “multinationals” is being provoked. But should the biggest Hungarian bank and the Hungarian energy sector mega-company be allowed to become multinational themselves, taking abroad and investing a part of their profit achieved in Hungary?
– They wish for growth in a modern capitalist system – how could the expression “gambling on the stock exchange” become a pejorative term at the same time? “Private pension funds have gambled away members’ money at the stock exchange”, says the government spokesperson, as if the investment in stocks and bonds traded at the stock exchange were not the normal, recommended, or moreover, to a certain degree compulsory, activity of every savings institution. As if stock exchange investment resembled a careless father gambling away the family’s money at the racetrack, or the baron gambling away the family estate at the casino. Can capitalism exist without a stock exchange or other organizations of the flexible capital market? If a company cannot raise capital by issuing shares, how else can it obtain capital? Exclusively from bank-loans? Or should it ask for state subsidy?
– Does the government make the most of the huge opportunity of Hungary being a member of the European Union, having the advantage that the structural transformation of the country is also supported by financial resources? Or if it is their aim, why are they delaying the practical utilization of EU-support? Why do they keep getting into conflict with diverse EU organizations, instead of listening to their advice, and learn from the criticism and warnings offered in a reserved diplomatic style?
Organizers of present-day Hungarian economic policy like to call themselves Keynesian, but what they are doing can be rather called a kind of “vulgar-Keynesianism”. They seem to have just partly digested the theory of the great English economist, and ignore the profound debate of decades among the different schools of macro-economics. Economic policy inspired by Keynes certainly includes the recommendation that economic growth should be given an impetus, greatly needed in times of recession and depression by increasing fiscal expenditure. The train of thought also includes the idea, repeatedly emphasized by the critics of Keynes based on several painful historical experiences, that long-lasting fiscal overspending carries the danger of inflation. Unlashing inflation is too high a price not to be paid for the sake of production growth!
Keynes, however, does not only emphasize the increase of demand by fiscal methods, but also the optimism, investing spirit and the expansion drive of entrepreneurs as the engine of recovery, followed by lasting growth – in Keynes’s often cited words, the animal spirits, motivating the investors. But this optimistic atmosphere and investing spirit is not stimulated, on the contrary, it is damped by the unpredictability when and how the principle of private property is damaged, when and how much tax is imposed on it, when and why it is discriminated against.
Let me add that I am not talking only about the mood of foreign but also Hungarian investors. A wealthy taxpayer who has more to spend after the introduction of the single-rate income tax will think twice before investing that capital in the Hungarian capital market (for example, by “gambling on the stock exchange” with it), buying Hungarian state bonds and probably thus supporting state-financed investments, instead of buying foreign securities, depositing it in a foreign bank, or spending it on domestic consumption. Every Hungarian company will worriedly consider it how much to spend on self-financed investment and how much to earmark for dividends. The less predictable the country’s economic policy is and the more damage is done to private property, the slower domestic investment mood can be expected.
The economic profession has extensively discussed the relationship between monetary stability, budgetary balance, the balance of in- and outflow of foreign resources, the stability of the purchasing power, the amount of admissible government debt, the level of satisfactory foreign currency reserves, on the one hand, and the rate of growth, on the other. Nowadays the debate has become more emphatic, as every country is looking for methods to overcome the recession. But a broad consensus has been achieved on the following idea: sustainable growth is gravely endangered if there were serious troubles with the financial equilibrium of the economy. Those facing this topic in a responsible way cannot be reassured by the repeated declaration of the government that the budget deficit will not exceed the upper limit determined for 2010 and 2011. It is a necessary but not sufficient condition for financial stability, especially not sufficient for a vulnerable economy like ours. The promise of lasting growth will be credible only if the government makes it clear what economic policy it wishes to employ to keep the financial equilibrium in the wider sense after 2011. Unfortunately, the methods the government is planning to use to achieve the target deficit this year and next year threaten to open a much wider gap between state revenues and expenditure in later years, and other types of troubles will show in other aspects of financial equilibrium.
In its election campaign Fidesz promised to avoid restrictions. Since then the official propaganda machinery has tried to make the impression that the promise is being kept, as if no restrictions have been done and are to be done in the future.
But this is only a game with words, cleverly using the conceptual vagueness of the term “restriction.” Let us make it simple: the previous decisions and already announced plans of the government actually cause concrete losses in the present and future real consumption for a part of the people, and will decrease the value of their wealth and savings and increase their debt. The redistribution is continuous, causing a continuous rearrangement of the groups of winners and losers, and a change in the size and composition of their gains and losses. Those having suffered losses, or to suffer losses in the future have really been “restricted” (and many, many people belong to that group).
Who are those having suffered the losses, after all? Let me mention those only whose losses are certain – others may also have suffered losses. And of course, there may be individuals or families with multiple losses, belonging to several groups listed below at the same time.
– Losers are those with low or medium income (or more precisely having salary income exclusively, earning above the minimum wage but below 293,450 forints [cca. 1,100 EUR/1,400 USD], and no children) because their net nominal income will decrease due to the changes in the taxation and income policy.
– Losers are those with a foreign currency loan, as their debt is increasing due to the weakening exchange rate. As it has been proved, there is unambiguous causal relationship between, on the one hand, the irresponsible statements of leading politicians, the announced economic policy of the government, the uncertainties in the 2011 (and the more so the following years’) budget, and on the other hand, the weakening of the forint.
– Losers are the households struck by the gas price increase. The increase, which was long overdue much earlier, cannot be opposed by economists with a common sense. It is repulsive, however, that first a promise was made to the contrary, and the promise was then broken without their admittance that it was irresponsible and unfeasible.
– Losers are the producers, small and medium companies among them, not exporting their products, but rather using imported materials and components, as their production is becoming more expensive and their sales more difficult due to the weakening exchange rate.
– Losers are the employees laid off from the state service in the process of purges and re-structuring without any explanation of the firing.
– Losers are the employees laid off from industries hit by the “crisis taxes”. Those industries try to lower costs by re-structuring and rationalization, and as a result staff numbers are lowered and the work burden of employees and work intensity become higher.
– Losers are the unemployed who cannot get a job due to a less than vigorous investment atmosphere.
– Losers are those having savings in the private pension funds. That real wealth is being confiscated right now, while payers are being herded into the state pension system, paid with elusive promises for the distant future.
– Losers are those selling their real estate. In the already depressed market situation their wealth keep losing its value as the government wants to speed up home-building artificially, financed by taxpayer money, at a time of strikingly visible excess supply. The loss of value intensifies the problems of borrowers of foreign currency-based loans for purchasing or building real estate.
– Losers are the consumers taking a significant part of the “crisis tax’s” burden. That burden will be passed on whether the government prohibits it or not, whether done by the supplier/seller in an open or concealed way.
– Losers can be a large part of the employees. Wage negotiations are going on right now. In several spheres the agreement on nominal wages – in order to freeze real wages – was settled according to official inflation predictions. If, however, inflation increases above the official prediction, the real wages of those employees’ will decrease.
– Losers are all the customers hit by the accelerating inflation. A more definite statement about the influence of the Orbán-government’s economic policy on consumer prices can only be made at the end of 2011. Now we can consider only effects pointing towards a growing inflation: the weakening national currency, the growing interest rate of loans used to finance the budget deficit and government debts, and the increase in the tax burden of key economic branches. Inflation is a tax hitting everyone, but the loss is felt most by the poorest. The impact of the government’s economic policy points in the direction of the increase, and not the decrease, of inflation. And a monetary policy trying to fight that danger has to face the recurrent attack from the government’s side.
Apart from losers there are winners as well. But the loser is not consoled by the fact that other have won. Losers will rightfully think that a “restriction” happened, but the screws of the press were unevenly adjusted.
When in opposition Fidesz made populist statements happily, and attacked economically useful but unpopular measures as the protector of the poor. They often tried to make the impression as if they wanted to combine principles of right-wing ideology with a neo-Kádárist economic policy. What remained of this after grasping the power? Only a few spectacular acts: early retirement for a certain group of women (in contrast to the effort to delay retirement as accepted Europe-wide), re-opening a few railway feeder lines, instead of efforts to increase the profitability of the railway. And what is undoubtedly important, they have not yet started to change the governmental financing of the health care and education sectors. Nobody knows whether future changes, labeled “structural reform,” will really change the present practice, or not. Let me emphasize that in those spheres it is still the structure created in the Kádár-system that is functioning today.
Thus, while traces of Kádárism are still around, at the same time a redistribution of income, tax burdens and privileges favoring the wealthy are showing more sharply. A “rightwing-conservative” orientation of redistribution is going on through the steps of the tax reform.
The uniform single-rate tax system definitely points in that direction: the higher the taxed income, the larger is the gain for the taxpayer. Diverse family benefits have a similar effect.
It is especially worth observing that a significant part of the state support is provided through tax deductions, excluding just those in the direst situation, i.e. those without an income.
Redistribution includes distribution of gains and losses, advantages and disadvantages between present and future generations. Those with naive hopes were expecting that the new leadership getting into power, and wishing to keep that power for 15 to 20 years, will perhaps take temporary unpopularity for the sake of future generations and sustainable growth. But they can see no sign of that. The old routine is going on: momentary problems are being solved. “We must think of ways to cross the bridge when we reach it.” Do we have to fill the holes in the 2011 budget now? Let’s impose taxes of an astonishing size on the anyway hateful banks and multinational companies, without thinking about the effect it will have on their investment disposition, that is, the future economic situation. Let’s take the wealth of the private pension funds, and let’s take over the pension of future old-age generations, at a highest possible degree on state costs. Let’s not worry what will happen to the state pension fund in the far future, when life expectancy is longer, the active population becomes even smaller, and the proportion of those entitled to a pension grows.
I could bring other examples, e.g., about the development of the infrastructure or environmental issues, where the state economic policy chooses to postpone the measures to be made today, passing them on to future generations, instead of trying to allocate the burdens proportionately among the generations.
It makes no sense to make summary statements about trust, a complex social phenomenon requiring a more detailed analysis.
So far no dramatic change can be seen in the distribution of voters’ political trust. Few have left the about one-third of voters giving Fidesz a two-third majority in the parliament, although latest surveys have shown some wavering. I do not take political prediction to be my task. We have historical experience about everything, just like everything to the contrary. Sometimes a party’s support is shrinking in years, and sometimes it abruptly plummets. But a party may remain politically popular for a long time.
It is of great significance (though it has to be separated from voters’ political trust) how much business life trusts the state. Honestly, this type of trust may be independent of the fact whether the governing form of the state in question is a democracy or an extreme dictatorship, or some intermediate level autocracy. Capitalism is a system that can function amidst a dictatorship damaging human rights. Moreover, it prefers a stable and strong-handed dictatorship to an unstable and weak-handed democracy, provided that the former clearly supports private property, enforces contracts to be kept, and guarantees the security of rights. Capital welcomes an iron-handed regime like Singapore or communist China.
What shakes the trust of the business world is the ambiguities of the government’s words; if gaps in the budget are filled by methods unviable even in the medium range. However emphatically the government wants to show the insignificance of the unfavorable description given by respectable credit-rating institutions, their repeated downgrading reflects the collective judgment of the business world. And they are not simply a passive reflection, as they also affect the assessment and influence it in the negative direction.
In the short run Hungary cannot exist without selling its bonds once and again. The downgrading of the state debt reliability causes immediate hundred-billion forint losses, as the government is forced to pay a higher yield to be able to sell the bonds, whether to a Hungarian or an international investor. Let me add, the hundred-billion forint losses are manageable, however difficult it is – but the real threat is that the trust does not only weaken, but may also collapse. The government should not feel anger for those warning them about the grave danger, but should rather re-consider what causes the dangerous situation.
In the long run the weakening trust of the business life will slow down growth, as I have emphasized from another aspect above. That process cannot be easily quantified, but the phenomenon is perceivable. The investment climate of already functioning enterprises is deteriorating. There are fewer entrepreneurs than would be in a more favorable business climate. International and home enterprises are pushing less hard, the expansion drive is weaker, and there is a stronger temptation to invest their capital somewhere else.
What has been happening in the political sphere is easy to summarize. Several important basic institutions of the democracy have been ruined; Hungary has become an autocracy. The Hungarian political regime is threatening to become similar to Putin’s rule. The direction of the changes is unambiguous: the changes are so profound enough to be irreversible (or more optimistically, almost irreversible) and guarantee (or more optimistically, almost guarantee) the long-lasting rule of the group having grasped the power.
What has been going on in the economic sphere is not so easy to characterize in a summary form, because it is full of contradicting actions, regulations impossible to follow, tendencies impossible to continue. New rules do not follow a clear tendency. We can hope that capitalism is a strong enough system to survive even a bad economic policy. It is true, but the price to be paid for its weaknesses is rather high.
In the political sphere, given the Machiavellian aim (grasping the power and keeping it for a long time), the realization was done in a masterful way.. The plan was clear and definite. When obstacles occurred, they were cleared without delay or hesitation.
As far as the economy is concerned, I could not really reconstruct what their aim was, as if there had not even been detailed plans to realize. Probably in a few months’ time, when according to the government’s plans we can finally get acquainted with the plans of the “structural reforms,” we will understand the aims of the economic policy. But whatever the aim was, the realization is being done in a bungling way.
We have every reason to worry about the future of this country.
The original of this article appeared in the Hungarian daily Népszabadság on 6. January 2011.