First a few words about the Organisation for Economic Cooperation and Development or OECD. It has been in existence for over forty years and has thirty member countries, including Hungary. According to the OECD's webpage it brings together governments of countries committed to democracy and market economy from around the world. Its aims are to support sustainable economic growth, boost employment, raise living standards, maintain financial stability, assist other countries' economic development, and contribute to growth in world trade.
OECD is one of the world's largest and most reliable sources of comparative statistics, economic and social data. It also analyzes and forecasts economic developments. As of yesterday a new report was released on Hungary. The first chapter details the sad economic situation of the country in the second half of 2006 and after. According to the report Hungary was facing one of the most severe recessions among OECD countries. After outlining the measures taken, including tight macroeconomic policy despite a deep recession, the report states that "the crisis was also a catalyst to implement decisive structural reforms, such as a far-reaching tax reform, a pension reform and the introduction of a fiscal council and fiscal rules." These "ambitious macro and structural policies served to rebuild confidence." Of course, the confidence the OECD is talking about is confidence of investors and the international community. The population doesn't seem to care about all this. Most likely they don't even realize the importance of the changes the Gyurcsány and Bajnai governments introduced.
OECD has a few words of warning for Hungary's next government: it should "avoid major fiscal slippage, especially during the 2010 election year, [and] should help firmly restore confidence and stabilise the economy." Moreover, they recommend more structural reforms "encompassing the labour market, education, entrepreneurship and innovation." The report says that the shift in tax burden from labor to consumption in 2009 was a positive step. It also hails the pension reform that raised the retirement age and the shortening of maternity leave and warns the new government that these reforms "should be sustained." Or in other words, Orbán who vaguely talked about returning to three years of paid maternity leave instead of two should think twice before he returns to the status quo ante.
The second chapter deals with "sustaining the momentum of fiscal reform." In other words, don't even try to loosen the fiscal restraints introduced hitherto. "Efforts during recent years have produced substantial results. The fiscal deficit has been brought down significantly and, despite the recession, fiscal consolidation has continued to help restore foreign investor confidence." However, all that "should not lead to complacency." OECD analysts recommend containment of public expenditure and suggest improvement of the efficiency of public administration. Further, they suggest the reduction of the public "footprint" on the economy. Well, if I were Viktor Orbán with his ideas of nationalization of already privatized companies I might reconsider my plans. After all, Hungary's fate largely depends on the opinion of the world.
The third chapter deals with the need for stricter regulations. According to the OECD there was excessive risk taking by banks and households that was masked by relatively stable exchange rates and unusually lax credit conditions in the international financial markets. But then came "the steep depreciation of the forint that boosted households' debt burden, while banks were hit by the drying up of liquidity, including in swap markets for Swiss francs." They recommend stronger protection for borrowers and tighter regulation of the lenders.
And finally, Hungarian education gets a beating. Hungary spends relative to GDP about as much as the OECD average on education. But while younger children perform above average in internationally comparable assessments "this relatively good performance fades with age. Fifteen-year-olds register only average performance in the PISA assessments, and the proportion of adults with terciary qualifications, though rising, is still low." Even more worrisome, according to the report, is the fact that the school system doesn't adequately prepare young people for the labor market. Raising the standards of vocational training should be an important goal. The quality of teachers is also low. And finally, let me quote verbatim the last sentence: "The co-existence of very high gross wage premia for adults with tertiary qualifications, and the comparatively low numbers graduating, suggest that tertiary education should expand further, and that students in higher education should contribute more to the cost of their studies."
Let's translate that into ordinary English. According to the OECD the number of college graduates is still low in Hungary. Their numbers should be increased. Well, that is a blow to those who blame the current problems of Hungarian education on the large number of students enrolled in colleges and universities. The problem, in my opinion, doesn't have so much to do with numbers as with the low quality of both high school and college education.
Second, the OECD points out that there is a huge difference between the salaries of those with a secondary education and those who finished college. The suggestion is that university students should contribute to their education in the form of tuition. Well, Fidesz will have a difficult time with this suggestion. A substantial majority of college students are Fidesz sympathizers. The love affair with Fidesz goes back to 1998 when one of Fidesz's election promises included the restoration of free higher education which Lajos Bokros had put an end to in 1995. This was one promise Fidesz kept. I find it difficult to see how Fidesz could take this, in my opinion, very important step. Especially since as far as I can see Jobbik also has a strong foothold in colleges and universities.
In any case, OECD's recommendations involve the continuation of the present policies. We have no idea what Fidesz's plans are. They are kept secret and it is unlikely that we will find out more about them before the elections. However, in the last few days Viktor Orbán made some rather irresponsible election promises. Some are costly, others are ridiculous. And we are still only at the beginning of the campaign. I hope that the OECD report is being busily studied by Fidesz economists.