Hungarian Democratic Forum: Lajos Bokros’s campaign speech

More and more people complain about the media's acceptance of Viktor Orbán's calling his yearly speeches that he has given twelve times between 1999 and 2010 "évértékelő beszédek." The term is a recent coinage. One might translate "évértékelő" as "assessment of the year," but Orbán's speeches are not assessments but political orations in front of an adoring audience. This year being an election year, it was a simple campaign speech. According to Orbán's media critics, it was wrong even to accept the term. However, it entered not only the vocabulary but also Hungarian politics, from where I don't think it can be expelled.

Thus, even Lajos Bokros, MDF's candidate to be prime minister of Hungary, resorted to giving  a speech that would "assess" the past. Bokros is an ambitious fellow. If Orbán assesses only one year he will talk about the last ten. But that is not the only difference between the two speeches. Orbán said absolutely nothing about the last year while Bokros put together a very coherent assessment of what went wrong with the Hungarian economy in the last ten years. I highly recommend listening to the speech.

Bokros began by promising his audience that his speech would not only point out the mistakes of the past decade but would also offer "solutions." He has been calling the last ten years "the lost years." In 2001 and 2002 Hungary turned away from the road of economic growth. Today Hungary's economic situation is exactly the same as it was ten years ago. During the first two or three years there was modest growth but soon enough the Hungarian economy stagnated and later, as a result of the world economic crisis, shrank by 7.5%. This all happened because there were people who underestimated the power of basic economic principles and talked about them as "text-book knowledge." This is of course a reference to Viktor Orbán and his economic guru, György Matolcsy, who began this whole downward spiral by emphasizing internal consumption that they kept artificially high. According to Bokros there are people who refuse to recognize that the Hungarian economy is a small, export driven, transitional market. It's worth comparing this description of Hungary to Orbán's. Orbán accuses the socialists and liberals of defeatism when they say that Hungary is a small country and therefore it has certain limitations. No, says Orbán, Hungary is a middle-sized country within the European Union. Well, it is one thing to talk about geographical area and population and another to talk about the size and strength of a country's economy.

In the last ten years the Hungarian economy fell victim to vicious circles that deepened the crisis. Very few people pay very high taxes, and there is a tendency to avoid the tax man altogether. By now, Hungarians aren't even ashamed of the fact that they cheat when it comes to paying taxes. MDF put together a very simple economic primer that the party will give to those who endorse the party's candidates. In it one can read all about the avoidance of taxes and its consequences. Another vicious circle that exists in Hungary is the ever decreasing quality of government services. Better off people visit private doctors because they can afford it. But even people of modest means would rather visit a private dentist because the dentistry provided by the state is horrendous. People are ready to pay for better services and therefore there is less and less inclination to pay for publicly funded healthcare. The third problem is the size and ferocious appetite of the government. The government "gobbles up" half of Hungary's GDP and when that is not enough it has to borrow money. That money is taken away from Hungarian businesses. The cost of money goes up, and thus interest rates are high. The last vicious circle is the Hungarian entitlement system. Everybody is entitled to most social services and, because money is not abundant, everybody gets a little, taking vital assistance away from those who really need the help.

At this point Bokros held up MDF's program and said that the answer can be found in it: more people will have to pay taxes but each taxpayer will thus pay less. The quality of government services must be improved. The government must be trimmed and should refrain from overspending. If this happens, private investment would increase and interest rates would decrease. Again, he made a veiled criticism of Orbán and his voodoo economics when he said that there are some people who think that interest rates can be drastically changed at will. Bokros didn't footnote Orbán here, who a few months ago when the interest rate was about 12% came up with the brilliant idea that the interest rate should immediately be lowered to six percent! Bokros sarcastically asked: why not 3%? Because, as Bokros explained, the exchange rate between the forint and the euro would 350 as opposed to the present 270. What would happen to those who are indebted in foreign curriences? One must have some idea about what is possible and what is not. This is the art of governing. And what he didn't add, Orbán is therefore unfit.

Bokros went on to criticize, again without mentioning names, the notion of "the strong state." One doesn't need a strong state, one needs a clever one. There is the need for a vigorous society, a healthy economy, businesses with strong foundations, and a vibrant democracy. The state should be small but effective. Bokros then gave another economic lesson to Orbán who claimed that the economic crisis was due to simple human greed. Human greed of course exists but the problem was that the American government fell asleep at the switch. He also blamed the Federal Reserve for keeping interest rates artificially too low. The Federal Reserve or the central bank should be the counterweight to bad governance. That is another jab at Orbán who pretty well indicated that the government will "reorganize" the central bank. As Bokros said: "the state is not always right."

Bokros also had a few harsh words about those "eastern winds." Those winds are often cold and mean dictatorship. Surely, he was talking about China that nowadays Orbán deems a model to be copied. He warned Orbán, again without mentioning his name, against "creating 1 million jobs." The government cannot create jobs. If public works jobs are created, they are only a drain on the country's resources.

Surely, Bokros could have talked for at least another hour, but he had to respect the time limit. I for one could have listened to him for another hour. He is an experienced speaker who is capable of explaining complex economic ideas to those with no background in economics. It's too bad that Bokros will have no chance to help reshape Hungary's economy. If he had a free hand, I have no doubt that within a few years Hungary would again be on the road to economic growth.

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Mark
Guest
“The government must be trimmed and should refrain from overspending. If this happens, private investment would increase and interest rates would decrease.” This kind of statement is revealing of Bokros’s free market extremism. The theory this rests on is that of “crowding out” – basically if the state borrows money it will raise the general level of interest rates to a level where private borrowers – businesses and households – are priced out of the market. Therefore, so the theory goes, if state expenditure falls then the ammount of credit available to the private sector will grow. This theory is simply not supported by evidence; even, I would maintain, by the evidence of Hungary in the last ten years. After all, during the period in which state debt grew households and some businesses also became indebted – if increasing state debt did “crowd out” investment then all of those hard currency loans, and the threefold increase in private household debt since 2000 would simply not have been possible. Obviously specific circumstances were at work, which public debt did have a bearing on, but this is precisely the point – “crowding out” only occurrs when government debt increases in certain circumstances,… Read more »
John T
Guest

Mark
I certainly think there is room to reorganise the role of the state substantially. To me it appears there are too many layers of government, with some jobs existing only to provide a wage for the incumbent. But saying that, the reorganisation needs to be done properly – I certainly don’t think that the private sector = good and public sector = bad. I work in the UK public sector and providing we are given the proper tools to do the job, we can do just as good a job as the equivalent private sector providers.
But there must be significant scope to rationalise the provision of services to the public and to make productivity gains. The tax payer is always going to be willing (not happy)to fund good public services and public administration. But in many areas, they are currently getting poor value for money.

John T
Guest
A big barrier to progress is going to be the lack of talented entrepreneurs in the country. There are very few really good, homegrown business people. What really strikes me in particular is the lack of imagination of small business owners. I normally visit Hungary at least twice a year and end up in Szombathely, which hopefully is a typical example of a Hungarian city. I keep a keen eye out for changes and progress. One thing I take note of are the new shops. And the following is typical – I’ll see a new shop or business open up, with a healthy flow of customers. The owner must be pleased! On the next visit, two further shops or business providing the same goods or services will have opened in the vicinity (say within 5 – 10 minutes walk from one another). All three have much fewer customers. On the next visit, there is yet another business doing the same. Customers spread thinner and often, the shop / business is empty apart from the employees. By my next visit, two or possibly three have closed – all down to the herd mentality of the small business people. There is a… Read more »
Mark
Guest

John T: “But there must be significant scope to rationalise the provision of services to the public and to make productivity gains.”
If this were Bokros’s point, I wouldn’t be criticizing him. But, it isn’t. What he is saying is that a “smaller state” in-and-of-itself will lead to improved economic performance. Furthermore, he doesn’t appear to believe that any state action is beneficial – hence the astonishing statement quoted above that “The government cannot create jobs. If public works jobs are created, they are only a drain on the country’s resources.” Even if we leave aside all of those people who work in the public sector whose jobs are created by government, hasn’t Bokros something called the multiplier? Isn’t he supposed to be an economist?

Viktor
Guest

Mark, it is exactly this multiplier approach what consecutive Hungarian governments have been trying to build on, figures of the economy are telling us at what level of success: consumption was growing much faster than economic output. Why? Because people were buying imported goods, keeping automobile merchants and financing banks happy.
And when it comes to financing: no, the increased private sector debt levels do not contradict the statements given by Bokros. Fact is, interest rates have consistently been so high that customers selected loans denominated in foreign currencies, saving considerable amounts on the interest rate differences even in times of currency devaluations.
Lower government debt would decrease the risk of lending to Hungary, which, in turn, would decrease interest rates, decreasing the interest rate gap and motivating Hungarians to choose the less risky Forint-denominated financing options.

Mark
Guest
Viktor: “it is exactly this multiplier approach what consecutive Hungarian governments have been trying to build on, figures of the economy are telling us at what level of success: consumption was growing much faster than economic output. Why?” Absolutely, we know that a multiplier does not deliver the kinds of results it needs to in all circumstances (though growth was c.4% pa until it was withdrawn, and after it fell to 1.7% in 2007, so though insufficient to cover its costs it was present). I think actually what you’ve failed to do is to put another “why?” after your statement “Because people were buying imported goods”. And basically the issues here are twofold (1) the HUF was way too strong against the Euro leading to a mounting competitiveness problem. Unfortunately the MNB raised interest rates to sharply, and failed to allow HUF to fall to a level that would have allowed domestic producers to compete – such a policy would also have had the benefit of curbing lending in foreign currency, (2) Unfortunately the structure of consumption was such that the disproportionate increases were experienced higher up the income range; these people are those who tend to buy the foreign… Read more »