Governmental incompetence and the economy in today’s Hungary

It often happens to me–and I assume that I’m not alone–that I have so much news to digest daily that some important item passes me by. Or that I have a kneejerk reaction to a piece of news that is only partially informed because I don’t grasp all of its consequences.

This is what happened when I first heard about LMP’s idea to limit the size of supermarket chains and department stores. I became even more worried when Fidesz discovered that the idea might serve its own nationalistic and political purposes. Parliament within a few weeks passed a law stipulating that the maximum size of a department store or supermarket would be 3,300 square feet. If a company wants to build a bigger store it has to apply for an exemption.

This in itself is nonsense and certainly doesn’t serve the interests of the consumers. Moreover, it gives an opportunity for corruption and discrimination. If the owner has government connections, the Ministry of National Economy–György Matolcsy’s domain–will approve the application. If it is a foreign company, no exemption will be granted.

Well, this is exactly what happened even as the Hungarian construction industry was practically dead.  According to Bloomberg, the Ministry’s statistics on granting exemptions are grim. The German discount retailer Lidl applied just this year for 14 exemptions but none was approved. Capital investment that is so badly needed today is drying up, and this limit on new store sizes “symbolizes the uncertain environment in which developers must work.” The dreadful situation that this decision created became obvious only a few months after its adoption.

This is also what happened with the law on the ownership of pharmacies passed a year and a half ago. At the time I listened to all sorts of interviews with people who were for or against the new law. But the real horror of this law didn’t hit me until this morning when I listened to an interview with a man from Pécs who together with his extended family, which includes three pharmacists, owns nine pharmacies. It looks as if he will be forced to sell a 51% stake in these pharmacies to his employee pharmacists, most of whom are not even interested in the deal. What kind of democracy is it where one has only limited economic opportunities? How can anyone think they can do this  in a capitalist society? Well, Viktor Orbán and his friends obviously have no such compunctions.

But let’s go back a little on the topic of pharmacies. The privatization of pharmacies began after the change of regime, and by 1994 all pharmacies were in private hands, though the new owners had to be the pharmacists themselves. There was also a restriction on the number of pharmacies based on geography and demographics, a practice that at the time was not unique in Europe. Since then, however, the rules have pretty much been lifted in sixteen countries.

In Hungary the liberalization of the rules and regulations governing pharmacies took place in 2006. You may recall the upheaval. Pharmacy owners, with the political help of Fidesz, objected to any Tom, Dick, or Harry opening a pharmacy in any old place he wanted. They also objected to the sale of over-the-counter medications like Aspirin in supermarkets and gas stations. Certainly losing their monopoly on the sale of Aspirin and other similar medications cut into the existing pharmacies’ profit.

But there was definitely a need for more pharmacies, and once the geographic and demographic restrictions were lifted 600 new pharmacies opened. Also, after 2006 ownership was no longer restricted to pharmacists. Wholesalers and even pharmaceutical companies, including foreign companies, could own pharmacies as long as there was a pharmacist present at all times.

Proudly announced:
Pharmacy owned by Hungarian pharmacist

The new law passed on December 20, 2010 included all sorts of amendments to the 2006 CLXXIII Law. One of the most important of these amendments specifies that a company–as opposed to a person–can “own” a pharmacy only if at least 51% of the business is owned by the pharmacist on the spot. The rationale? “The more secure and better service of the patients.” What? Why?

This change of ownership will take place in two stages. By January 1, 2014 the pharmacist or pharmacists will have to own 25% of the business and by January 1, 2017 they will have to own more than 50%. Even those who are behind this madness have to admit that the salaried pharmacists simply don’t have the money to fulfill their “obligation” of owning  25% of the pharmacy they are working for. They would need massive government help to do so.

From here on pharmaceutical companies, wholesalers, and people that already own at least four pharmacies are not allowed to expand and acquire more stores. They are not being forced to get rid of what they currently own, but they still have to sell more than 50% of their business to their employees.

Although the law doesn’t specifically mention the ownership of pharmacies by foreign companies, I have the distinct feeling that this law also aims at restricting their role in the retail sale of drugs. First of all, I learned from an interview from last January with the head of the Association of  Pharmacists, who is very happy with this new law, that foreign companies were planning to expand their pharmacy chains, in his opinion a very bad development. By way of explanation he could say only that selling pharmaceuticals is “in the national interest” (nemzetpolitikai érdek). He also had no rational explanation of why service would be better if the pharmacists owned 51% of the business.

One thing, not in the interest of the consumer, is definitely true: the price of drugs will go up due to the small size of the businesses. If someone has 20 pharmacies and can take advantage of bulk orders that pharmacy will be able to sell for less. Moreover, due to all sorts of other government restrictions on the price of drugs, pharmacies that are short on cash are unable to order larger quantities of the same drug. So, it often happens already that the customer is told that he will have to come back because this particular pharmacy doesn’t have the medication in stock.

I’m no constitutional lawyer, but this law must surely be unconstitutional. Even Barnabás Futó, the right-wing lawyer who takes up every case that in one way or another is connected to Fidesz, admitted during an early morning political program on MTV last January that this law was most likely unconstitutional. The pharmacists who are adversely affected asked Pál Schmitt not to sign the law, but they must have known that there would be no chance of Schmitt not signing something put in front of him.

So, here are two new laws, both of which will inflict terrible damage to an already fragile economy. And I didn’t even mention Hungary’s more than fragile, almost fractured democracy. How can all that be undone? It will take a long time, and I am not at all sure whether it can be done at all.

40 comments

  1. “..in order to exclude non-Hungarians from the sector..”

    This is a more worrisome aspect than the health – or business side of the question.
    Just look at the sign above.
    Having a definitive emphasis on the nationality of the owner of a shop brings in some very ugly streak into the everyday life. If we accept this, should we expect later other distinguishing signs as well?

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  2. The whole thing seems to me to be another attempt against those “bloody foreigners” – which is an illegal discrimination under EU laws. Reminds me of 200 years ago when Bavarians had to pay to get there wares to us Schwabs and vice versa …

    Don’t those idiots ever get it ? Either you have a united Europe and profit from it – or you stay outside …

    PS: Last week I got my ration of pills for the next three months in my German hometown – and there were at least five pharmacists (all with several years of university and a diploma) there selling everything from shampoo to ASS (Acetyl Salicyl Säure – that’s the generic name for Aspirin) …

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  3. spectator :

    “..in order to exclude non-Hungarians from the sector..”

    This is a more worrisome aspect than the health – or business side of the question.
    Just look at the sign above.
    Having a definitive emphasis on the nationality of the owner of a shop brings in some very ugly streak into the everyday life. If we accept this, should we expect later other distinguishing signs as well?

    This is a very important observation and I was glad to find that such poster exists in order to illustrate the the danger of such a development. But I also saw the Hungarian tricolor flying in the shop window. And of course we all know about the time when there were signs announcing that this or that store was Christian-owned. Bad, bad!

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  4. Dr Balogh: ” And of course we all know about the time when there were signs announcing that this or that store was Christian-owned. Bad, bad!”

    I also remember when the Schwabian butcher had a sign in his window in the fall of 1944 in Hungary “Magyarnak kutyanak nincs hus” (To dogs and Hungarians there is no meat.”

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  5. wolfi :
    PS: Last week I got my ration of pills for the next three months in my German hometown – and there were at least five pharmacists (all with several years of university and a diploma) there selling everything from shampoo to ASS (Acetyl Salicyl Säure – that’s the generic name for Aspirin) …

    I live in a suburb, every supermarket has a pharmacy, in addition there are severel drugstores (Walgreens, Rite Aid) that have pharmacies, several Costco superstores that have pharmacies and there also are some small pharmacies (each of these establishments have at least on pharmacist on staff when they are open). When I googeled pharmacies within 10 miles, I got over one hundred of them. By the way, I take some medication regularly, that I buy on-line from a pharmacy that supplies my needs for 90 days at a time.

    What’s prescription based is decided by the Food and Drug Administration, based on their specialized advisory committee. Aspirin is not, and many others are not.

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  6. To the pharmacy issue especially to gdxx’s comments. I also have to take two kinds of medications regularly. I get them via mail through my insurance provider. Very handy. The doctor’s prescription goes via e-mail and a week later it is in the mailbox.

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  7. Louis Kovach :

    Dr Balogh: ” And of course we all know about the time when there were signs announcing that this or that store was Christian-owned. Bad, bad!”

    I also remember when the Schwabian butcher had a sign in his window in the fall of 1944 in Hungary “Magyarnak kutyanak nincs hus” (To dogs and Hungarians there is no meat.”

    Sure thing. At every street corner. If those German butcher did what you claim they would have been bankrupt in no time. After all, the Hungarians were in majority.

    But you know what! I don’t rely on my fuzzy memory. I will quote you an ad from a 1933 publication called Bercsényi Futár of the Turul Association in Pécs. Here it is: “Ne légy fukar, ha a bajtársi sajtóról van szó! Vásárolj hirdetőinktől, mert: 1. Jó árut kapsz, 2. Olcsón, 3. Keresztény cégnél vásárolsz.”Don’t be cheap when it comes to the press of the brothers-in-arms! Buy from our advertisers because 1. you get good merchandise; 2. it is inexpensive; and 3. you are shopping from a Christian firm.”

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  8. Dr Balogh: “Sure thing. At every street corner. If those German butcher did what you claim they would have been bankrupt in no time. After all, the Hungarians were in majority”

    in the Fall of 1944, in that locality, they had plenty of non-Hungarian customers. Marketing never was or is based on nationwide population fractions.

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  9. CharlieH :
    London Calling!
    ‘Quality of Service’ and ‘Pharmacists’ are mutually exclusive in Hungary.
    There are too many small ‘shops’ with too little stock to be able to offer any degree of a decent ‘service’.

    But isn’t it so quaint?

    How can anyone survive being ill in Hungary?

    Mother-in-law just went to the hospital with very low heart rate which I believe was partly related to heat exhaustion. I’m thinking best to get her out of there quick. The hospitals are so poorly ventilated and they are hotter then you could imagine!!! I’d be surprised if survival rates where any where near what they are in western Europe.

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