Barely nine months have passed since Hungary’s new Parliament met—and since then the words and deeds of the party and new government have turned the political life and the workings of the state and the economy upside down. We are constantly perplexed; we have not even recovered from our astonishment at yesterday’s political measure when today’s new announcement or measure arrives. It is hard to stay upright in the whirlwind of events and absorb their import.Let us stop for a moment, take a deep breath, and reconsider what has actually happened. Let us try to form a comprehensive picture of the change out of the hundreds of fragmentary details. What has happened to this country in so short a time? It would call for a different study to cover how the country had arrived at the situation it was in when the new government took over. The question
- Powers are strictly separated.
- Certain important governmental tasks are fulfilled by bodies independent of the government.
- There is a clear line separating a rather small group of political appointees from a large group of civil servants and public sector employees whose jobs are independent of, and uninterrupted by, the political changes.
- The principle of checks and balances is applied. No branch of power or organization of state is allowed to prevail for a long time, as the other branches and organizations prevent it.
sof bills by Parliament is preceded by extensive prior debate sand negotiations, followed by thorough, and therefore time-consuming ,debate sabout each in Parliament. In some countries the process of prior negotiations is controlled by law, but the democratic political culture is even stronger force than the word of law in applying the requirements of prior discussions and negotiations and careful and responsible parliamentary debate.
It is almost unbelievable what deep wounds have already been inflicted on the face of democracy, and how many of the essential features installed in the past twenty years have been marred by the Orbán government and their party, Fidesz.Everything is decided in the “central field of power.” The practice of widespread debate and negotiation before the introduction of new legislation has ceased. Parliament has been converted into a voting machine that turns out laws on an assembly line at incredible speed. The post of Hungary’s head of state, the President of the Republic, is no longer held by a personality who stands above parties and embodies unity of the nation, but by a willing, obedient party devotee. The key office of Chief Prosecutor has been filled by a tried supporter of the ruling party. The National Elections Commission, whose task is to oversee elections, was replaced before its term expired, by a new committee composed almost exclusively of Fidesz supporters. The powers of the Constitutional Court, the chief guardian of constitutionalism and the fundamental office of judicial independence, were brutally restricted, a step that dealt in itself is a fatal blow on the principle of checks and balances. When the independent Fiscal Council dared to criticize government plans, it was dissolved. It was not an independent and distinguished professional expert who was appointed to head the State Audit Office, but a faithful member of the ruling political group. Also exerted at that time was the right to appoint the President and the two Vice Presidents of the Competition Authority. It is natural with a change of government that new people should be appointed to such leading state offices as are usually filled by political appointees. But what actually happened was a political cleansing far beyond that, so that the principle
—The losers include households affected by the gas price increase. The increase, long overdue, cannot be sensibly opposed by any economist. It is repulsive, however, first to promise the contrary and then to break it without so much as an admission that the promise was irresponsible and unfeasible.
—The losers include producers, small and medium-sized companies among them, which do not export their products, yet use imported materials and components, as their production costs have risen and their sales been hit by the weakening exchange rate.
—The losers include employees laid off without explanation from jobs in state service, during a process of purges and restructuring.
—The losers include employees laid off from industries hit by “crisis taxes.” Those industries are trying to recoup costs by restructuring and rationalization, which means shedding staff and increasing work loads on remaining employees.
—The losers include those unemployed who cannot get another job due to the sluggish investment climate.
—The losers include those who have accumulated savings in the private pension funds. That real wealth is being confiscated now, and contributors herded into the state pension system, against unspecified pension promises for the distant future.
—The losers include those selling their real estate. In an already depressed market situation, their assets continue to lose value as the government sets out to speed up housing construction artificially, using taxpayers’ money, at a time of strikingly conspicuous excess supply. The loss of value intensifies the problems of borrowers of foreign currency-based loans for purchasing or building real estate.
—The losers include consumers, who have shouldered a significant part of the “crisis tax” burden. That burden will be passed on whether the government prohibits it or not, whether it is done by the supplier/seller in an open or a concealed way.
—The losers include a high proportion of employees. Wage negotiations are occurring right now. In several spheres, agreements on nominal wages (shaped in such a way that real wages should freeze) have been settled in line with official inflation predictions. Their real wages will fall if inflation proves faster than that.
—The losers include all consumers hit by the accelerating inflation. More definite statements 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 that appear to be inflationary: the weakening national currency, the rising interest rates on loans used to finance the budget deficit and government debt, and the increase in the tax burden on key branches of the economy. Inflation is a levy that hits everyone, but the effect is felt most by the poorest. The impact of the government’s economic policy points in the direction of an increase, and not a decrease in inflation. Central bank monetary policy to combat that danger has to face recurrent attacks from the government’s side.
Apart from losers, there are winners as well. But the losers are not consoled by the fact that others have won. Losers will rightly deduce that “restrictive austerity measures” have occurred, but the screws of the press are unevenly adjusted.
Fidesz in opposition happily made populist statements and attacked economically useful but unpopular measures, as champions of the poor. They often sought to give the impression that they wanted to combine the principles of right-wing ideology with a neo-Kádárite economic policy. What has remained of this now that Fidesz is in power? Only a few conspicuous gestures: early retirement for a certain category of women (a move in the opposite direction to the Europe-wide efforts to delay retirement,) re-opening a few railway feeder lines, instead of efforts to reduce the operating losses of the railways. Meanwhile two undoubtedly important moves have yet to begin: change in the government
al financing of the health care and education sectors. Nobody knows whether future changes in these, labeled “structural reform,” will really change present practice or not. Let me emphasize that their present structures created under the Kádár regime are still being maintained.
So while traces of Kádárism remain in Fidesz policy, moves that redistribute income, tax burdens and privileges favoring the wealthy are becoming conspicuous. A “right-wing/conservative” orientation of redistribution is appearing in the measures of the tax reform.
That direction clearly appears in the uniform single-rate tax system: the higher the taxed income, the larger the gain to the taxpayer. Diverse family benefits have a similar effect. It is especially worth observing that a significant part of the state social security support is provided through tax concessions, so that those in the weakest situation, with no taxable income are excluded.
Redistribution includes distribution of gains and losses, advantages and disadvantages between present and future generations. Some people had naive hopes that the new leadership, on taking power and wishing to keep it for 15-20 years, apparently, might risk temporary unpopularity for the sake of future generations and sustainable growth. But there is no sign of that. The old routine continues: immediate problems are being solved, but otherwise there is an attitude of “crossing that bridge when we come to it.” Do the holes in the 2011 budget really have to be filled now? Let us impose some taxes of astonishing magnitude on those loathsome banks and multinational corporations, without thinking of what effect they will have on the payers’ propensity to invest or the future economic situation. Let us seize the assets of the private pension funds, and take over the pension entitlements, regardless of future costs to the state. Let us not worry what will happen to the state pension fund in the far future, when life expectancy is longer, the active population even smaller, and the proportion of the population entitled to a pension has grown.
I could bring up some other examples—for instance, in connection with infrastructural or environmental issues, where the state economic policy is choosing to postpone measures due to be taken today and passing them on to future generations, instead of seeking to spread the burdens proportionately among the generations.
It makes no sense to make sweeping statements about trust, which is a complex social phenomenon requiring detailed analysis.
So far, no dramatic change can be seen in the distribution of voters’ political trust. Few have left the segment of about one-third of voters who gave Fidesz its present two-thirds majority in Parliament, although the latest surveys have shown some wavering. My task here is not one of political prediction. Historical experience shows things going sometimes one way, sometimes another. Sometimes a party’s support shrinks over years, and sometimes it plummets abruptly. But a party may sometimes remain politically popular for a long time.
It is of great significance (though it has to be separated from voters’ political trust) how much the business community trusts the state. To be honest, this type of trust may be independent of whether the governing form of the state in question is a democracy or an extreme dictatorship, or some at intermediate level of autocracy. Capitalism is a system that can function amidst a dictatorship that flouts human rights. Indeed it may prefer
s stable, strong-handed dictatorship to unstable, weak-handed democracy, provided the former clearly supports private property, enforces contracts, and guarantees security of rights. Capital welcomes an iron-handed regime like Singapore’s or communist China’s.
What shakes the trust of the business world are ambiguities in government statements; if gaps in the budget are filled by methods unviable even in the medium term. However emphatically the government may deny the significance of unfavorable credit ratings from respectable credit-rating institutions, repeated downgradings reflect a collective judgment from the business world. And they are not simply a passive reflectio of an assessment, for they influence it in a negative future direction.
In the short run Hungary cannot exist without selling its state bonds regularly. The downgrading of its reliability as a debtor causes immediate losses in the hundreds of billion forints, as the government is forced to pay a higher yield if it wants to sell its bonds, whether to Hungarian or international investors. Let me add, the hundred-billion-forint losses are manageable, however difficult. The real threat is that trust may not just weaken, but collapse. The government should not rage at those who warn them of this grave danger, but reconsider what causes it.
In the long run the weakening trust of the business community will slow growth, as I have emphasized from another aspect earlier. That process cannot be easily quantified, but the phenomenon can be perceived. The investment climate of functioning enterprises is deteriorating. There are fewer entrepreneurs than would be in a more favorable business climate. Foreign and domestic firms 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 democracy have been destroyed. Hungary has become an autocracy. The Hungarian political regime is threatening to resemble Putin’s. The direction of the changes is clear: they are profound enough to be irreversible (or more optimistically, almost irreversible) and guarantee (or more optimistically, almost guarantee) the long-lasting rule of the group that has gained power.
What has been going on in the economic sphere is less easy to describe briefly, because it is full of mutually contradictory actions, regulations impossible to implement, and tendencies impossible to follow. There is no clear direction in the new rules. Let us hope that capitalism is a strong enough system to survive bad economic policy. It is indeed, but it charges a high price for weaknesses.
In the political sphere, the Machiavellian aim (grasping power and retaining it for a long time) has been attained in a masterful way. The plan was clear and definite. Obstacles encountered have been removed without delay or hesitation.
As far as the economy is concerned, I have not really been able to discern what the aim is. It seems as if there may not have been any detailed plans to implement. According to government pronouncements, we may in a few months’ time be informed of the plans for “structural reforms,” and then be in a position to understand the aims of the economic policy. But whatever the aims may be, they have been bungled in their implementation.
We have every reason to be worried about the future of this country.