I wrote about George Kopits here and there but never at length. However, I think it is time to honor a man who is–and this is a rare animal in Hungary–a man of integrity. This post may also be timely because after spending almost twenty years in Hungary his career in the country seems to be coming to an end. George Kopits is the head of the Budgetary Council (Költségvetési Tanács) that Fidesz insisted on establishing in the fall of 2008. Then in opposition, Fidesz wanted to have a watchdog over the government. By now, however, it finds the Budgetary Council a pain. The Council's days are numbered because its members dared to criticize the 2011 budget and the economic policy of the new Hungarian government. This in spite of the fact that the members of the Council, including George Kopits, are more sympathetic to the right than to the left.
A few words about George Kopits's career. I guess we'd better start with his parents who in 1945 left Hungary when George was a baby. (He was born in June 1943.) His paternal grandfather and great grandfather were both orthopedic surgeons. On his mother's side his grandfather was undersecretary in the ministry of education under the famous Kunó Klebersberg (1922-1931) who is praised for his innovative reforms of Hungarian education.
George's father Stephen was also a doctor. After the family left Hungary, they spent some time in Austria, France, and Spain until they moved to Argentina. Here Stephen Kopits earned a degree in medicine. In 1964 the family moved to Baltimore where he interned at Union Memorial and did his residency at Johns Hopkins Hospital, where was chief of Pediatric Orthopedics betwen 1969 and 1985.
Son George left Argentina earlier for Switzerland where he received his undergraduate degree in economics at the University of Fribourg but immediately moved to join the rest of the family in the United States. He received a B.S. degree in International Affairs at Georgetown University in 1965 and a Ph.D. in Economics (with distinction) also at Georgetown. He spent a year, 1968, as a research assistant at the Brookings Institution. He began his professional career at the U.S. Treasury Department as a financial economist (1969-1974). It was from the Treasury that he moved on to the IMF where he worked until 2003.
In 1993 the IMF sent Kopits to Hungary to be the senior resident representative of the IMF in Hungary. He was an obvious choice because although he was just a baby when his parents emigrated, the patriotic Kopits family made sure that son George was fluent in Hungarian. He took private lessons in Hungarian literature, history and geography. In 2003 he decided to give up his job at the International Monetary Fund and became one of the members of the Monetary Council of the Hungarian National Bank. He made quite a career for himself in Hungary. Among other things he was elected to be a member of the Hungarian Academy of Sciences. When in late 2008 the Budgetary Council came into being he was chosen to head it. He was politically conservative, he was close to Fidesz, and therefore Fidesz in opposition gladly voted for his appointment. Kopits is still quite proud of the fact that he was elected by a unanimous vote to head the Council.
But things changed. Fidesz won the elections and the budgetary watchdog was actually watching. If Viktor Orbán thought that Kopits is the kind who will conduct business on the basis of political sympathies he was wrong. There are still a few people with professional integrity. Kopits and his staff of about 30 fairly young economists took a look at the 2011 budget and found it wanting.
It was about two weeks ago that one could read reports that the Budgetary Council's opinion of the budget was less than enthusiastic. They dared to be critical and, as we know by now, Fidesz and Viktor Orbán don't tolerate criticism. If the Constitutional Court finds a bill passed by the two-thirds majority unconstitutional, then the Constitutional Court's jurisdiction must be changed so that the judges could never again find any bills similar to the one they rejected unconstitutional. If the Budgetary Council makes critical remarks, then Fidesz discovers that after all there is no longer any need for a Budgetary Council. After all, the Budgetary Council came into being because of the economic crisis (not true!) and since there is no longer any crisis Mr. Kopits and his colleagues can pick up their hats and leave. And in any case, the Council has no veto power and therefore it is only a toothless lion.
What really sealed the Council's and Kopits's fate was his speech to the members of parliament on November 15, right after Viktor Orbán and György Matolcsy described in glorious terms the revolutionary budget they had concocted. Mr. Kopits's assessment was devastating. He began his half-hour speech by reminding his audience that currently there is an exhibition of the pictures of Gustav Klimt, the great Austrian symbolist painter, in the Museum of Fine Arts in Budapest. The title of the exhibition is "Nuda Veritas," Naked Truth. The message at the very beginning was that he will tell the naked truth. He is not going to hide anything. In the Council's opinion the budget "narrowly defined" satisfies the rules currently in place. That is, it is likely that the deficit will be 2.9% or maybe even less. The problem is that on the expense side of the ledger there is no change from earlier years. The difference is made up by expropriating the private savings of about three million people and by levying extraordinary taxes on banks and selected businesses.
The alleged aim of the budget is to widen the size of the work force and to achieve greater productivity. According to plans, to achieve these goals there must be a 3% economic growth year after year. The government's goal is a 78% rate of employment. Just to show how unrealistic this goal is, Kopits brought up Sweden where employment is very high but still less than 78%. Moreover, in Sweden 20% of the women work only part time, which makes the final figure even lower. As for the 3% growth, Kopits has grave doubts about that figure as well. The example of China is not really applicable because in China there is a still huge untapped segment of the population, the villagers, who are moving steadily into the cities to work in factories. In Hungary that development occurred already in the 1950s and 1960s. Kopits claims that in China, if one calculates in the ever-growing work force, the real economic growth is about 3 percent. So, surely, Hungary is incapable of such a performance in the near future.
As for widening the number of active workers, the budget is calculated on the basis of 100,000 new jobs year after year. So, by the end of the Orbán government's tenure 400,000 new jobs would be created. This seems unlikely. Hungary would be happy to have 100,000 new jobs in four years. Even for such a gain one would have to initiate programs that would help train the chronically unemployed, but there is no sign of any such thing in the budget. New jobs can be created only as a result of investments, but investments might be postponed as a result of the very high extra taxes on businesses.
The tax cuts would add considerably to the deficit, and that's why the government simply expropriated fourteen months' worth of the savings of ordinary citizens currently in private pension funds. The government is also hoping that by hook or by crook the owners of the savings will listen to the siren call of the government and will abandon the private funds and move over to the state-sponsored social security system voluntarily. My feeling is that if not enough do, the switch will no longer be voluntary. The state needs the money to plug the holes in the budget.
Kopits asked the members of parliament to think before passing this budget which he considers to be risky and which can end up as a colossal failure. It can easily happen that by 2013 some 500 billion forints will be missing from the budget and the pensions by then will be gone, spent on current expenses.
Finally, Kopits complained about the right-wing press, specifically Magyar Nemzet, which is practically the mouthpiece of the party. Although he didn't mention the paper by name, everybody knew which one he had in mind. Magyar Nemzet had launched a fierce attack against him and compared him to Stalin of all people. Kopits gave a brief description of his family origins and his patriotic upbringing. He expressed his total amazement that "in some of the dailies critical, at times vehement, articles appear" about him. At this point János Lázár, head of the Fidesz parliamentary delegation, yelled: "That's life." Kopits's references to a plaque commemorating the work of his illustrious ancestors in one of the Budapest hospitals prompted István Pálffy (KDNP), who was at one point a well known television personality, to yell: "Sorry, I lost the thread!" Kopits ended his speech with "Hajrá Magyarország, hajrá hitelesség!" Viktor Orbán usually finishes his speeches with this soccer slogan borrowed from the Italian "Forza!" Except he adds, "hajrá magyarok!" Kopits urged the government to restore credibility (hitelesség).
Since he delivered this speech Kopits gave an interview which appeared in Origo today. In it he said that "there is only one country where the government put an end to the activities of a budgetary council: in Venezuela." I guess Kopits knows that he can no longer lose anything. A couple of days ago a Fidesz member of parliament submitted a proposal to take away practically the entire budget of the Council. This independent organization until now received 825.5 million forints a year. The MP suggested taking away 815.5 million and leaving it with 10 million (less than $50,000). János Lázár said that the Fidesz caucus will approve of it. The money taken from the Council will be given to the Public Foundation for the Roma living in Hungary. A devilish idea. Most people will say: "Why do we need another office doing nothing? It will be better to give it to the poor Gypsies." This is how Fidesz operates. Clever guys.