At the end of September bne InelliNews, which reports on business news and provides data on emerging markets, published an article comparing Polish and Hungarian competitiveness based on the latest report of the Global Competitiveness Index. According to the Index, Estonia and the Czech Republic top the East-Central European chart. Hungary slumped to the bottom of the heap, the largest slide in the region.
A few days later an article appeared in Magyar Nemzet titled “Bukás az unortodox gazdaságpolitika” (The unorthodox economy policy is a failure). The Orbán government proudly points to the admirably low budget deficit, yet Hungary’s competitiveness has sunk to a historic low. In just one year, Hungary dropped from #63 to #69 while the Czech Republic, Poland, Bulgaria, and Romania all improved their standing. Among the 28 member states of the European Union only Greece, Cyprus, and Croatia are in a worse position than Hungary. The chart below encapsulates what has happened to Hungarian competitiveness of late in comparison to its neighbors.
Why is Hungary doing so badly? In the opinion of the economists of Kopint-Tárki Konjunktúrakutató Intézet, an economic think tank that focuses on competitiveness, the reasons for Hungary’s poor performance are manifold, but among the most important are corruption, too high a tax burden, and the low educational attainment of the workforce. In addition, the volume of investment, foreign as well as domestic, has been falling for years. For example, in the second quarter of this year investment dropped by 20%. Moreover, the government isn’t promoting scientific research or the acquisition of advanced technologies. We may flesh out this list a bit by pointing to the problems of Hungarian education due to the Orbán government’s totally misguided ideas on the needs of the economy. Orbán in the last six or seven years envisioned a work-based economy, which means in essence a statewide factory where blue-collar workers toil day and night.
The first reaction of the ministry of national economy was that the research underlying the Global Competitiveness Index is based on subjective factors and therefore “the whole survey is distorted.” Behind closed doors, however, Economic Minister Mihály Varga and his team began to work on the problem. As usual, the “new course” was devised in great haste without researching the economic consequences of the projected steep rise in salaries in the next couple of years, the lowering of business taxes for large companies to 9%, and a 5% reduction in employers’ social security contributions.
Will these changes have any effect on the competitiveness of the economy or were the measures introduced for political reasons, with an eye to the national election coming in the spring of 2018?
The significant lowering of business taxes should, in theory, attract foreign investment and perhaps boost the competitiveness of larger companies. On the other hand, if corruption cannot be arrested and the unstable economic environment does not improve, foreign investors will not be willing to try their luck in Hungary.
The Hungarian economy is sluggish, hovering around a 2% yearly growth. Yet, according to plans, in 2017 there will be an increase of 15% in the minimum wage for unskilled workers and 25% for skilled workers. In 2018 further raises will take place: 8% for unskilled workers, 12% for skilled workers. People fear that such a steep rise in wages will kill many small and medium-size Hungarian businesses and at the same time will create inflationary pressures affecting all strata of Hungarian society, including pensioners and public workers.
Most commentators are convinced that Viktor Orbán’s decisions have little to do with his concern for the Hungarian economy. He is preparing the ground for the approaching election and, as usual, employers will have to pay for Fidesz’s popularity. What the plan will do to the economy doesn’t seem to concern Viktor Orbán. He now claims that the Hungarian economy is doing so well that these raises, which are long overdue, can easily be introduced.
The Hungarian population disagrees with the prime minister. According to an Ipsos survey, of 25 countries there are only three–Brazil, Mexico, and France–where more people think their country is in dreadfully bad shape. It seems that Hungarians aren’t listening carefully enough to Viktor Orbán, who a couple of days ago gave an interview to Világgazdaság. While talking about the large number of young and not so young people leaving Hungary and finding their fortunes in Great Britain, Germany, and northern European countries, he insisted that these emigrants aren’t leaving the country for economic reasons. Hungary is a better place than the western countries in many ways: here there are no migrants, no GMO-infected foods, public safety is way above average, and investments that promote healthful living are plentiful. “Our country will be one of the countries with the best quality of life.” These things make up for relatively low wages. Competitiveness is important, but “what counts is not only what happens in the workplace. Hungary is a country of culture (kultúrország), which offers great opportunities after working hours.”
It is also evident from this interview that Viktor Orbán discovered that “the education of skilled laborers, which we are currently promoting, within a few years will be useless.” Of course, we could have told him that six years ago when his government began to ruin the Hungarian educational system by restricting the number of academic high schools in favor of trade schools and when the government drastically decreased the number of university students. Now he is finally seeing the light, perhaps thanks to his great friend Günther Oettinger, European commissioner for digital economy and society: “there is a worldwide competition to see which country can find answers fastest to the new economic and societal challenges of the age of digitalization.” How far behind is Hungary? A couple of months ago 444.hu reported that a textbook on information science intended for eighth-grade students was originally published in 2003 and was reprinted in 2016. It is from this textbook that children are supposed to learn something about the digital world.
Under Viktor Orbán’s irrational and unstable leadership Hungary’s ship of state is being tossed about aimlessly. It is painful to watch the degradation of the country and the irresponsibility of its leadership.