Criticism from the right: The Orbán-Matolcsy economic policy is a failure

Until now relatively few critical words could be heard from economists who are considered to be closer to Fidesz than to the socialists or liberals. László Csaba, who used to be a harsh critic of MSZP-SZDSZ governments' economic policy, was the first to raise his voice. It was in February that in an interview with Heti Válasz he had a few choice words to say about the lack of a coherent economic policy. What the Hungarian government does is a series of improvisations and ad hoc decisions, he claimed. He also criticized the government's partisan politics in which everything is subordinated to the desire to fill every post with party faithfuls. When he was asked whether he would accept a position on the Monetary Council of the Hungarian National Bank, he made it clear that he wouldn't. Those who are interested in László Csaba should take a look at his tasteful English-language website.

Today Csaba went further and expressed his belief that "raising taxes seems unavoidable." This goes against the present position of Viktor Orbán, who only a few days ago made it clear that his government has no intention of abandoning the new tax system based on a 16% flat tax. After all, a reduction in taxes was practically the only promise Fidesz came up with in the election campaign.

According to Csaba there are two simple explanations for the disappointing economic data of late. One is that Hungary depends heavily on exports and thus is at the mercy of the world economy. The other reason for the bad economic news is that the necessary economic structural reforms did not take place in last four or five years. As we know, the Gyurcsány government's attempts at a structural reform of health care came to a screeching halt as a result of a Fidesz-inspired referendum. The Bajnai government didn't even try to introduce structural reforms. Its sole mission was to salvage the sinking Hungarian economy after the 2008 world financial and economic crisis. Viktor Orbán's government shirked away from any structural reforms from the beginning because when Hungarians hear the word "reform" they immediately think of austerity.

By now it is not only László Csaba who speaks up but economists who had high positions in the first Orbán government. One is Attila Chikán, a professor of economics, who was Viktor Orbán's first minister of economics (1998-99) to be replaced by György Matolcsy. Chikán had very close ties to some of the "Fidesz boys," especially those who attended Karl Marx University (today Corvinus University), because he was the founder and director of the László Rajk College where some of the top people in Fidesz and in the current government were his students. For example, Lajos Kósa and Zsolt Németh. After leaving the government, Chikán went back to teach at Corvinus and hasn't been politically active since. He rarely gave interviews, but now he decided to speak up. I guess these people feel that it is their professional and moral duty to express their concern. Perhaps Viktor Orbán will listen to them, even if he doesn't listen to economists who are closer to the opposition.

Chikán is convinced that Matolcsy's policies will fail because they go against the most basic economic principles. It will be "a textbook failure," as Chikán put it. Yet, as these conservative economists unanimously declared, no one from the government ever asked their opinion. Chikán's ideas certainly don't mesh with those of Viktor Orbán, who seems to be a believer in Matolcsy's "unusual economic solutions" as Matolcsy himself called the steps he has taken up to now.

According to Chikán it was a mistake "to promise too much." There were few promises but they were big ones. One million new jobs in ten years or an economic growth rate of at least 3% (and Matolcsy even mentioned the possibility of 6-7%). Chikán, like others, is surprised by how ill-prepared the Orbán team was although they had eight years to ready themselves for the task of governing. He also complained about ad hoc decisions and the lack of consistency. Attila Chikán's impression is that Viktor Orbán has a relatively clear vision of the Hungary he would like to see and perhaps even a final economic goal, but what is missing are the building blocks. As if "the government wouldn't consider the economy a significant part of the whole program." Moreover, "expertise has a very low prestige in this government. Political loyalty seems to be much more important." That reminds me an old bon mot of István Csurka, chairman of MIÉP, that "expertise is a communist trick." 

From the interview it became apparent that Chickán offered his "expertise" but no one was interested in what he had to say about the current situation and his possible solutions to the problems. As far as he knows, there are many right-wing economists both inside and outside of the government who are very unhappy with the current state of affairs. Economists in general, from both the right and the left, feel left out.

Today the third right-wing economist spoke out. Tamás Millár worked for the office of the prime minister during the Antall and Boross governments (1992-1994). Between 1997 and 2003 he was the head of the Central Statistical Office from which the Medgyessy government removed him.

Mellár wrote an article a couple of days ago which, to his surprise, was accepted by Magyar Nemzet and published today. Mellár didn't mince words. The Orbán government's economic policies have failed. Although the government tried to shift the blame for the sorry microeconomic data to the "euro crisis," Mellár argues that the real culprits are decisions made domestically in the last year and a half. Moreover, recent economic data coming from countries of the region also disprove the government's claim. According to him, the policies of the Ministry of Economics have been wrong from day one. He especially faults the tax policy that was supposed to spur economic growth but didn't.

Mellár suggests "a reconciliation with foreign capital, increase of money spent on research and development, a reform of education" in the long run. In short term he suggest decreasing government expenses. He suggests a return to the former tax rates of 0, 16, and 32% that would help people with average incomes as opposed to the current system that enriches the top 10-20% of the population.

These three people argue the same way as their colleagues on the liberal side. The only thing I can suggest to Viktor Orbán is to listen to some of his old friends. Otherwise he will not be prime minister of Hungary for twenty years as he once predicted.

 

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Paul
Guest

“Otherwise he will not be prime minister of Hungary for twenty years as he once predicted.”
What’s going to stop him?
The voters? They voted him in last year and they’ll vote him back in in 2014. And by 2018 he’ll have the system so rigged that democratic elections will be as meaningful as they are in Putin’s Russia.
And once people can’t vote him out, no matter what he does to Hungary, who else is going to get rid of him?
He’s already got the first 4 of his “20” under his belt, the next 4 is pretty guaranteed – that’s nearly half of his goal. And after that only a revolution or an ‘act of God’ will unseat him.
Seems to me that he’s pretty much on course for at least 20 years.

Ron
Guest
Paul: Seems to me that he’s pretty much on course for at least 20 years. What course? The country and its people will be bankrupt in 2-3 years time. Companies moving their assets out of the country. Already one bank stopped its operation in Hungary and I think more will follow. The APEH is on a control frenzy. In the old days the APEH came by looked at the books and within 2-3 weeks it was over. Nowadays, they come over check the books, then write letters to the creditors and debtors asking a range of 20-40 detailed questions, which there guys need to answer within 15 days, otherwise the APEH is going to penalize them. Then the APEH is processing the questionnaires, and either come back to finish the audit, or invite you to come over to spent a few days at the APEH. Btw this is a real case re. friend of mine who has a Bt with a few million HUF turnover per year. A nothing company. According to his creditors they had similar cases over the last few months, and it cost them lots of extra work. So my friend is now thinking of buying abroad… Read more »
Kirsten
Guest

At least one cannot say that there is no free speech possible currently. That apparently is difficult for Fidesz to curtail but then there will be a possibility to vote him out of power. I do not find this type of protest too little, as far as I understood here the passive resistence type of protest is more likely anyway and these three men seem to think about specific policies that should be changed. This can be of great use should the tide turn.

Eva S. Balogh
Guest

@Ron: “The country and its people will be bankrupt in 2-3 years time. Companies moving their assets out of the country.”
Yes, this can easily happen unless there is immediate change in policy but VO is not the kind of guy who is ready to move away from his pet projects. It would be very difficult to admit that the flat tax of 16% was a very big mistake. Or, that most likely, the huge bank levy was also wrong. That all that anti-foreign propaganda is bad for the country. One could go on and on.
I often think about what’s going on in this man’s head. Does he realize the seriousness of the situation? Or he thinks, just as his spokesman mentioned today, that in the next six months the economic situation will greatly improve? Does he ever has any doubts? I wouldn’t be able to sleep if I were him because of the enormity of the task.

Paul
Guest

My point is not whether OV will run the country well or not, personally I think he will produce an economic disaster.
But this will not remove him from power. For that to happen there has to be two things: someone to take over and a means of doing it. OV has effectively removed both.
Economic collapse alone (or even coupled with a lack of democracy, human rights violations, etc) will not remove him. History is littered with cases of countries being run into the ground by autocratic governments – who still managed to stay in power for a lot longer than 20 years (some still going ‘strong’ even now).
Even if the Hungarian economy crashes and burns, I still ask – who will remove OV, and how?
There is no Fairy Godmother.

Paul
Guest

Or maybe this lot will stop him:
http://thecontrarianhungarian.wordpress.com/
Is this the only true alternative to Fidesz?

Paul
Guest

Off topic – Nick Thorpe at it again:
http://www.bbc.co.uk/news/world-europe-14575564
If Thorpe is reporting accurately, then well done to OV for the quick and generous action on this one. Whatever the reasons and politics behind this, the people affected still got new homes in record time.
But the only thing Thorpe doesn’t do in this piece is actually lick OV’s popsi.
I’m quite proud of the BBC, but this leaves me feeling a little queasy.

Eva S. Balogh
Guest

Paul: “I’m quite proud of the BBC, but this leaves me feeling a little queasy.”
What I understand that not everything is that rosy.

Odin's lost eye
Guest
Ever since it first came to light I have wondered just what the New Hungarian Economic model means. Whether you are a nation or a single person the rules are the same. These are, as Mr Wilkins Micawber puts it in the ‘Micawber Principle’, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six pence, result misery.” Both a person and a nation can, for a time, live beyond their means, but retribution in some form always follows. The galloping run-a-way inflation in Germany after the first world war was due to the fact that Germany paid for the war by printing bank notes. These were to be redeemed from the conquests which Germany expected to make. That plan backfired badly. The Great Depression was due to a Romanian bank’s exposure to a local oil company. When that oil company failed, the bank found it had lost all of its depositor’s money. It then also failed. As a result the whole of the word’s credit system unravelled. The financial crisis of 2008 was due to a similar problem people being given credit that they… Read more »
Kirsten
Guest

Odin, in my understanding the new economic model of OV is not that far away from what you suggest: he wants to prevent a further increase in the state debt. The tricky part is how to achieve that and whether the chosen means are likely to yield the expected results. Reduction in wages, pensions and social spending is a way in that direction, less money for education also, forced labour for the minimum wage also (I leave out of consideration whether this is politically acceptable), the invitation to cultivate your own food etc. also. But most likely the same policies will not increase tax returns (neither in the short term nor in the longer term) as for that you need some strong firms that pay taxes and high wages and other income from which people can consume and pay VAT, so whether the intended result will materialise is questionable. I think that the general direction could very broadly be counted as “frugality” (forced on the society through not entirely standard means).

GW
Guest

Odin’s lost eye:
What is the new Hungarian model? Well, inasmuch as it doesn’t conform to any accepted model for running an economy well, I would suggest that using the old and reliable method of “following the money” leads one to the strong suspicion the the plan is really a scam and that some people, well aware of the ultimate costs to Hungary and its people, have been making quite a lot of money indeed. Start with the MOL share purchase, done above market price, paid for with the money Hungarian citizens had placed in private retirement accounts, and transacted without any oversight. The opportunities for profit making on the deal itself, on the market, or on a derivatives deal are so great that a large number of people could have just made themselves very wealthy. That’s just one example. Now watch out for ad placement deals to newspapers and radio stations, road building contracts, restructuring of existing government contracts, and a big gas pipeline deal down the road. When opportunities for such mischief exist with weakened, partisan, or compromised oversight, they will be taken. Follow the money.

Paul
Guest

kirsten – forced labour will not save anything, in fact it will cost money as it is cheaper to build things with machines – even on minimum, or less, wages.
The Contrarian Hungarian speculates that the government can afford so little on this programme, that it will get cut back so severely as to almost not exist – http://thecontrarianhungarian.wordpress.com/2011/08/22/mandatory-public-work-projects-in-hungary/

Member

THe forced labour is a joke! Those people with sickle in their hand at Gyongyospata…. You would give one of them a power tool and they have done the job in 4 hours. It is in-humiliating even to watch the photograph, and if I would be the Prime Minister of a country and some photos like these would of been published about my workforce I would be very embarrassed. Any serious politicians or investor who takes a look on those photos must be crazy to trust a country that tries to solve any of its problems by sending women and man with sickle to do that job. It is a joke, but a very perfect portrayal of how Hungary attacks its problems in 2011.

Kirsten
Guest

Paul, some1, I see the point, my expectations were that these people would replace some (earlier) state employees for whom you then can save the money. That it could be entirely useless “work”, I could not imagine. Then the new economic mechanism is frugality forced on people to such an extent that a better use of their abilities and knowledge is directly barred. The inspiration must come from the traditionalist systems that opposed modernisation “to defend rural and traditional values” (also that state money is then distributed among the followers and the “inner circle”). These systems also disliked “complexity” but as authoritarian states they were at least “organised” (of which I am still not convinced in Hungary). The sickle is a bit communist for my taste but could count as rural, too.

Eva S. Balogh
Guest

Kirsten: “That it could be entirely useless “work”, I could not imagine.”
I’m afraid Some1 is right. These jobs are artificially created and indeed the pictures show about 20-30 Gypsies with hand tools trying to prepare the ground for establishing a forest. It is incredible.

Paul
Guest
Talking of artificially created work – the over manning of shops, etc in Hungary is weird enough (my favourite example is with Debrecen Zoo, where one person issues your ticket and then another, sitting just a metre away, checks it!), but the over manning of street sweeping out here in Kósa’s model city has reached lunatic proportions. It is not at all uncommon to see bands of a dozen or more ‘street sweepers’ all ‘sweeping’ the same bit of the street. I once counted over 20 in one gang! I use single quotes because most of the people in these gangs don’t actually do any sweeping (there are usually only three or four brooms, for a start), in fact often at least half the gang appear to be doing nothing at all. I witnessed a truly baffling episode with one of these gangs a few weeks ago. Whilst waiting for my wife to buy our travel passes at the main tram stop, I watched a lone DKV employee carefully sweep the immediate area. Not a difficult job given that Hungarians don’t litter, so he was only really sweeping up dog ends, but he did it methodically and very efficiently. By… Read more »
Paul
Guest

Another related observation:
I’ve commented before on the sudden appearance of police on the streets of Debrecen in the last two years – once you never saw any, now you can’t walk down the main street without coming across two or three couples (they never seem to patrol on their own). I’ve also seen more patrol cars in the last five weeks (3) than I’ve seen in the previous 10 years (1!).
One of our neighbours is a policeman (awaiting, in true Hungarian style, early retirement (not yet 40) on medical grounds) and I queried him about where all these new coppers were coming from. But he claims that no extra police have been recruited at all, they have just been “reallocated”. Well, there are dozens of these ‘new’ police, and most of them them look very young – so just what were they doing before being “reallocated”?

Ron
Guest

Paul: About the reallocation of policemen.
These policemen were always their, but patrolling areas which were considered to be a hot spot of trouble.
Now they are redirected to main areas to be visible. It is just a way of making people feel safer without spending extra money.

Ron
Guest

Paul Thank you for pointing out the documentary on Hans Litten. I just watched it.
Jobbik also may want to look at it, as it mentioned as a note what happen to the radical part of the Nazi Party later on. I refer to the SA and its leaders.

Wondercat
Guest

In the late spring two or three years ago, looking out the bus window during the trip up to Kobanya from Ferihegy (when it was still Ferihegy…), I was surprised and moved to see that the wayside grass had not just been mowed… but raked into windrows. Hay, not waste.
But of course this testifies that it was worth at least one Budapesti’s while to keep a goat, or rabbits; and that the hay was more valuable than his or her time. Perhaps someone from the countryside, retired now, a labour of nostalgic love and not of impoverishment. Perhaps. Or…
What could the Roma given sickles and sent out to the Gyongospata road-verges have done with their time that would have earned them more?
Better full employment than a full kocsma. Even if it is make-work employment. Perhaps.

Member

@Wondercat “What could the Roma given sickles and sent out to the Gyongospata road-verges”
Ths reminds me (again) on Geza Hofi (the greates ever Hungarian stand-up comedian): “We cannot give all of them a fiddle …”
A dark skinned army of “lendscaping specialists” will not solve the social and economical problems of Planet Hungary. Also make sure there is enough sickles for the non-Roma unemployed poor …

Wondercat
Guest
@Mutt Damon: Just musing here, no answers. And any answers can come only one at a time, not in a grand unified theory. Step by step climbs the hill. Surely Roma and non-Roma unemployed poor should be treated the same in makework employment programmes? No idea, truly, about how to fit into a society that accords value to work those persons whose labour has no value, who can not trade it for money. With no access to money they, or their family members, steal or beg. Through benefits programmes society can pay them not to steal or to beg. When that persists we have modern Britain, in which generations of the same families collect benefits, year in, year out. Britain can not afford this. Hungary can afford it even less. Surplus labour was once consumed through conscription. Armies consisted of the temporarily enslaved, taken out from beneath the protection of the law. No doubt conscription removed rowdies from the streets as well. Soviet-led socialism’s version of full employment combined conscription with makework… and close supervision was the rule in either. Conscription into work programmes is another route toward the same goals — giving something to do to those who can… Read more »
Member

Wondercat; “What could the Roma given sickles and sent out to the Gyongospata road-verges have done with their time that would have earned them more?” The problem is not wit the work that is provided to them. THe problem is with the humiliation. THere are better tools then sickles to attack the countryside with, but it more seems, that they try to stretch out the work what they are providing them with. WIt the right tools, forbid, they would actually enjoy what they doing. Maybe they could become landscapers, whatever. It is like giving an out of work APEH employee a typewriter and an abacus. How useful that is?
Also, this is just the first step in the forced labour camps as we know. The second step is to separate families, so the “work” can be completed at the other end of Hungary if needed.

Paul
Guest

“When that persists we have modern Britain, in which generations of the same families collect benefits, year in, year out.”
You sound like a Daily Mail leader!
Things are very obviosly not that simple. And nor are the solutions.
And what is the alternative? Let them starve?

Member

“And what is the alternative? Let them starve?”
Let’s give them sickles!
I will open a sickle factory and outsource all the production to China and get filthy rich and vote for the extra right! Life is good!

Odin's lost eye
Guest

GW as you write ** “Follow the Money” **
Yes indeed. But I think that the ‘Mighty One’ (OV) is too besotted by power to take full advantage of the situation, but the rest will make hay whilst the sun shines (and then slink away to the flesh pots of ‘safer havens’). This may be one of the reasons why the Forint is artificially high against the Euro/Pound etc. I have noticed that the price of gold in Hungary is below the world price. I have also noticed the re-appearance of the local Mafia some of whom I remember canvassed actively for either Fidesz or Jobbik.
From what you say the ‘Inner Circle’ will be given the right to put their hands directly into the pockets and purses of the poor, foreign companies etc and help themselves. One of their problems may well be the E.U. funds. Peculation may well be curtailed by the EU ‘Court of Auditors’ who have to oversee the way in which EU money is used. This was done because of the peculation which was going on in Romania and Bulgaria.

GW
Guest

Odin’s lost eye:
I actually believe that the government has got itself covered regarding any possible abuse of EU funds, simply because they’ve done such a poor job of applying for them. If I were a Hungarian citizen, I would be very angry at this incompetence, in not doing enough to draw these funds to Hungary.

Paul
Guest

If you WERE a Hungarian citizen you wouldn’t be angry, you’d be completely indifferent. That’s the overwhelming feeling I’m getting over here.
People don’t even seen to be disillusioned or disappointed, just not involved. There’s some minor annoyance over the tax situation, and even a few threatening to quit Fidesz and switch to Jobbik, but mostly it’s as if OV and Fidesz are operating on another planet altogether.
People don’t seem to have the faintest idea what’s going on (much of what’s discussed on here, for instance, would be a complete surprise to them), and they don’t seem bothered. I used to be impressed by the amount of political discussion that went on over here (especially compared to the UK), but now there is none.
Hungary is sleep-walking to dictatorship and disaster.

Eva S. Balogh
Guest

Mutt: “Ths reminds me (again) on Geza Hofi (the greatest ever Hungarian stand-up comedian)”
Of course, I couldn’t enjoy him at the time he performed but an internet friend of mine sent me a DVD of his most famous performances. The laughter sometimes is so loud that one cannot even hear the end of his monologues.

An
Guest

@Paul: “People don’t even seen to be disillusioned or disappointed, just not involved.”
Unfortunately I have to second Paul on this one, and I am not even in Debrecen :-)I spent a couple of weeks in Budapest and I got the same feeling; people don’t seem to care. Sleepwalking, yes, exactly.

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