Tag Archives: economy

Shrinking population, shrinking labor force, sluggish economy

Given the Hungarian government’s fierce opposition to accepting any refugees, I decided to take a look at the latest Hungarian population statistics.

Since Viktor Orbán became prime minister in 2010, the population of Hungary has shrunk from 10,014,324 to 9,830,485 (as of 2016). It has lost 183,939 persons, roughly the population of the second largest Hungarian city, Debrecen. If we break these figures down by age group, the situation is even more dire. Today there are fewer children between the ages of 1 and 14 (-62,408) and fewer adults between the ages of 15 and 64 (-264,527) than in 2010. What is more alarming is that the number of those over the age of 65 has grown substantially. To be precise, by 164,517, which is about the population of Szeged, Hungary’s third largest city.

Ever since the second half of the 1980s, the natural decrease of the population was around -3.5 per 1,000 annually. Last year was one of the worst, at -4.1. The Demographic Research Institute of the Central Statistical Office predicts that if the trend of the last 30 years continues, Hungary’s population will be under 8 million by 2060.

Current population statistics most likely overestimate the number of inhabitants residing in the country since many of those who moved abroad in the last few years never bothered to announce their departure to the authorities. Their number might be as high as 600,000, according to figures provided by Eurostat and assorted national statistical offices. Under these circumstances, a labor shortage in practically every sector of the economy is unavoidable.

Last summer I wrote two posts about the severe labor shortage in Hungary caused by the low birthrate and the massive exodus of Hungarians. I expressed my belief that without an infusion of foreign labor the situation cannot be remedied. A few days later the National Association of Employers and Manufacturers (MGYOSZ) suggested that Hungary would immediately need about 250,000 foreign workers, who should be enticed to come to Hungary from abroad. Mihály Varga, minister of national economy, agreed with MGYOSZ’s estimate of the situation, but in no time Fidesz published a statement saying that the Hungarian government provides work opportunities for Hungarians, not for immigrants. Both MGYOSZ and Varga got the message, but it turned out that the government “secretly” began the importation of foreign workers from so-called third countries, i.e., countries lying outside the European Union.

Hungary can hope for immigration only from countries with lower living standards than its own. Thus the government gave Samsung Magyarország, located in Jászfényszaru, a town of 5,000 in the northern portion of the Great Plain region of Central Hungary, permission to recruit workers from war-torn Ukraine. Of course, for Ukrainian speakers Poland or the Czech Republic might be more attractive given the easier linguistic communication there, so Samsung had to make its job offer especially enticing. By November of last year Samsung employed about 150 Ukrainians, and apparently their numbers are growing. In addition to their monthly pay of about 125,000 forints, they receive housing, some food, and travel expenses to return home once a month. About 100 of them live in nearby Jászberény in apartment houses; others are still in temporary housing on a camp site. The 125,000 forint salary isn’t much, but in comparison to what they would make in Ukraine it is considered to be quite good. Index interviewed a couple who are all set and ready to settle in Hungary. In a few years they will be able to save enough money to buy a house in one of the nearby villages. Another man with a Hungarian wife is learning Hungarian in order to become a Hungarian citizen.

The Ukrainians working on the Samsung assembly line were given on-the-job training. The same is most likely true of the six Indian guest workers who milk cows on a dairy farm in Sarud, close to Eger. Locals were either not interested in the job or, once hired, didn’t work out. The owner of the dairy farm heard about Indian workers at another farm who were highly praised. So he decided to follow suit. The first six have arrived. They are so hard working and reliable that the Hungarian dairy farmer has nothing but praise for them.

Sándor Csányi, head of Hungary’s largest bank, established a slaughterhouse in Mohács. He had a terrible time finding butchers because experienced Hungarian butchers had left for Germany a long time ago. Supermarkets also have a very hard time finding workers, and their management teams have been thinking of ways to fill these positions–one strategy is to retrain public workers. The few migrants who received permission to stay in Hungary quickly gain employment–mind you, mostly by foreign-owned firms.

The government is now trying to remedy the serious labor shortage by allowing retirees to accept tax-free part-time jobs. It was only a few years ago that the Orbán government insisted on a mandatory retirement age of 65. Now the government is trying to entice retirees to return to work.

Hungary, of course, is not alone in facing this problem. Germany’s labor shortage won’t easily be remedied with often unskilled migrants who don’t speak the language. But immigrants learn fast. With a well thought out plan, within a few years Germany might solve its labor shortfall. Great Britain, on the other hand, will be in trouble if Theresa May’s government succeeds in putting an end to or severely restricting immigration to the British Isles. For example, Brits show little interest in working in hotels and restaurants. In one chain, Pret a Manger, 65% of the employers are from countries outside the European Union. The hospitality industry would probably collapse without a steady flow of immigrants. Only recently Global Future, an employer-backed think tank, reported that the British economy needs an inward migration flow of 200,000 people a year “to avoid the catastrophic economic consequences” of Brexit. They warned that if the UK refuses to be flexible about labor inflow, the country could face decades of slow growth similar to that experienced by Japan. Just today The Guardian published an article that recounts the possible plight of Hall Hunter Partnership, a business that grows 10% of the UK’s strawberries, 19% of its raspberries, and 42% of its blueberries on thousands of acres. The company needs 3,000 pickers, who come from Bulgaria, Romania, and other East European countries. The opponents of EU membership talked about sovereignty and control, railed against the free movement of labor, but “what they didn’t mention is the way the British food supply chain has, over the past 30 years, become increasingly reliant on workers from elsewhere, both permanent residents and seasonal labor.” Around 20% of all employees in British agriculture come from abroad, mostly from Romania and Bulgaria, while 63% of the employees of members of the British Meat Processors Association come from outside the UK.

Indeed, the example of Japan might be a good illustration of what could happen to Great Britain if it closes its doors to immigrants vital to maintaining its economy. Japan’s birth rate has been dropping since the 1970s. “One percent shrinkage in population will slow Japan’s economic growth by about half a percentage point each year. So 0.5 percent of GDP is about 2.5 trillion yen ($2.95 billion) every year that’s potentially lost economic revenue,” according to an economic expert on Japan. He thinks that Japanese society will finally have to decide that they must embrace the idea of immigration. This is not going to be easy in insular, quasi-racist Japan.

The same holds true in Hungary, given Viktor Orbán’s insistence on “cultural purity.” It is impossible to maintain a robust economy with a shrinking workforce and an aging population. Something must be done.

May 21, 2017

Regional competitive index: Hungary is at the bottom of the heap

A few days ago Hungarians heard from several politicians that their country is witnessing the best economic growth in living memory. Unfortunately, at about the same time the European Union released its regional competitiveness statistics, published every three years. There is a jarring dissonance between the empty words uttered by Prime Minister Viktor Orbán, National Bank Chairman György Matolcsy, and Economic Minister Mihály Varga and reality. The EU’s statistics reveal the true state of the Hungarian economy and the living standards of its inhabitants.

Hungary’s standing in comparison to other countries dropped between 2013 and 2016, and the overall economic well-being of the country is depressingly sub-par. The very first thing that struck me when I took a look at the “European Regional Competitive Index” was that all the talk about the poor quality of Hungarian healthcare and basic education is right on target. Government propaganda can try to make excuses for the dismal results of the PISA test, but those figures are now supported by the statistics of the competitive index. I’m sure that we will hear government sources doubting the validity of this survey, but evidence is piling up that there is something very wrong with the Hungarian educational system and healthcare.

As a first step I used the handy “region benchmarker” and compared Hungary to the three other V4 countries and Slovenia in eleven categories–institutions, macroeconomic stability, infrastructure, health, basic education, higher education and lifelong learning, labor market efficiency, market size, technological readiness, business sophistication, and innovation–all measured on a scale of 0 to 100. Overall, Slovakia and Hungary got the same score: 33. They ranked lowest of the five countries, trailing Poland (55), Slovenia (54), and the Czech Republic (49). When it comes to health, the situation is indescribably bad: Hungary (38), Poland (76), Slovenia (84), Czech Republic (67), and Slovakia (55). As far as basic education is concerned, Hungary fares better than Slovakia (44 as compared to 33), but if we compare its score to those of Poland (64), Slovenia (83), and the Czech Republic (62), Hungary should hang its head in shame. The situation is even worse in higher education and lifelong learning. In the latter case even Slovakia beats Hungary.

Let’s move on to the regional comparisons. There are 263 regions in the European Union and seven in Hungary: Central Hungary, Central Transdanubia, Western Transdanubia, South Transdanubia, Northern Hungary, Northern Great Plains, and Southern Great Plains. Since 2013 the standing of all seven regions has worsened. Index published a handy table showing the decline throughout the country.

Northern Hungary, which was one of the poorest regions of the Union already in 2013, has declined further. Just to give an idea of the situation in that northeastern corner of the country, here are some figures. As far as GDP per capita is concerned, the region ranks 256th out of the 263 regions. Or, put another way, if the EU-28 average is 100, Northern Hungary’s score is 40. (Luxembourg clocks in at 269.) Even more shocking is the state of health in the region. It ended up being 262nd out of 263.

Northern Hungary might be the worst off region in the country overall, but it is not all that much worse than the Northern Great Plains region, Southern Transdanubia, and the Southern Great Plains. The Northern Great Plains region, which is adjacent to Northern Hungary, is also extremely poor. Overall, it ended up being in 232nd place with an extremely low GDP per capita: 42% of the European average (or 256/263). The Southern Great Plains region is a tad better off. Its GDP per capita is 46% of the EU average (252/263), its overall rank 224/263. And let’s not forget about the Southern Transdanubia region where the GDP per capita is 44% of the EU average (253/263). Thus, large parts of the country are exceedingly poor.

But let’s move on to the “rich” areas of the country. The best off is Central Hungary, an area that includes Budapest. As far as its GDP per capita is concerned, the region is reasonably well off (84/263). However, when it comes to competitiveness, the region is only in 152nd place, which foreshadows slower growth in the future.

Since Viktor Orbán only a few days ago talked about the “complicated ethnic relations” of Hungary, I should point out that in both the Northern Hungarian and the Southern Transdanubian regions large Roma communities live in extreme poverty. So far very little has been done to improve the lot of these Gypsy communities.

Three sociologists put together an excellent study examining the situation in the Sellye-Siklós region of Baranya County and the sub-region around Encs in Borsod-Abaúj-Zemplén County. The country desperately needs a program that might help these regions offer a half decent existence to their inhabitants. And the country must revive Hungarian education and reform healthcare nationwide. Instead, Viktor Orbán had dreams of hosting the Olympic Games and builds one football stadium after the other. All this while “the country is rotting,” as one headline announced the publication of the European Regional Competitive Index.

March 3, 2017

The past seven years: Hungary in numbers, 2010-2016

Máté Veres, research associate of Gazdaságkutató Zrt., published this study in Új Egyenlőség at the beginning of the year. The article was translated by “Observer,” who added the following notes:

This article offers a set of indicators to reveal the state of the Hungarian economy and society. We think, however, that the situation is somewhat worse than Veres’s assessment because there are additional detrimental factors not discussed here, e.g.:

  • The very low investment rate as a percentage of GDP
  • The budget deficit hidden in subsystems down to individual units like hospitals or schools districts
  • The consumption boost by the remitted earnings from abroad, which are to decline in time
  • The poor ratings of the Hungarian places of higher education, the outdated, retrograde education model and policies, the very low number of people with IT or foreign language knowledge, etc.  

Analyses of these points will eventually be presented in another article. I’m grateful for the work and care “Observer” took in translating this important article for us.

♦ ♦ ♦

Analyzing the results of the second Orbán government [and third as from 2014] after seven years of freedom fight and other kinds of struggle and hundreds of millions of euros from the EU spent, it’s time to draw a picture of how the Hungarian economy and society are doing compared to 2010 in the light of the latest figures available.

After [the election victory in] 2010 the government benches have been widely using the already well known “past eight years” phrase. It was used by Fidesz and the Christian Democratic politicians as their favored counter-argument when the opposition tried to challenge government actions. The performance of the governments between 2002 and 2010 in many areas could have been criticized (as we did in our analyses), but in general the “last eight years” argument has always been a simplistic communication tool, often used to bypass substantive discussions. In our evaluation of the Fidesz government performance we now follow a different path and instead of summary political statements we shall stay with the facts and figures to show what the “past seven years” were like.

Seven years are already a sufficient horizon for an evaluation of the government’s achievements. For this purpose, however, in addition to showing the changes in numbers, we need to find explanations for the results, and therefore – where possible – to compare the results with those of our regional competitors as well. So now we’ll consider some areas of key importance to the future of the country.

UNEMPLOYMENT

It was 10.3% in 2010 and only 5% in 2016, according to the KHS (Central Statistics Office-CSO), or 6.8%, according to Eurostat.

Apparently the situation has improved, but it is worth adding that the [2008 world financial] crisis played a major role in the exceptionally weak 2010 numbers, while the much better 2016 numbers include both those working abroad and those fostered workers vegetating on subsistence wages (USD 180/month).

The same factors underlay the Eurostat numbers showing a miraculous growth of employment in Hungary (59.9% in 2010 and 68.9% in 2015). According to official figures we caught up with the EU average, but without those working abroad and the fostered workers we just caught up with the eastern [EU] member states. In any case, there is an improvement, primarily due to the EU-funded, labor-intensive construction projects.

HUMAN DEVELOPMENT

2010 – 36th place, in 2016 – 44th

Human development is an indicator introduced by the UNO, a concept of human well-being wider than the GDP indicator. It is generated by averaging three numerical indicators: life expectancy, education and standard of living (GDP Purchasing Power Parity per capita). In this area we not only managed to fall significantly behind, but all our V4 [Poland, Czech Republic, Slovakia and Hungary] regional competitors overtook us, while Poland was still behind us in 2010.

HOUSEHOLD DEBT

EUR 7,844 mil in 2010, 5,683 mil in 2016

A clear success can be booked in this area. The composition of the debt is just as important as its size, as the crisis taught a large part of the Hungarian middle class. Until 2010 the household debt of the Hungarian population grew at a rate remarkable even by regional standards, and in foreign currency, which was mainly due to the bad interest rate policy of the Hungarian Central Bank (HCB) and to the lack of regulation. The central bank’s interest rate policy between 2001 and 2007 encouraged the population to borrow in foreign currency.

PUBLIC DEBT

In 2010 the PD was HUF 20,420 billion or 78.8% of GDP. Seven years later, in 2016 it was 25,393 billion or 75.5% of GDP.

This figure has fluctuated during the second Orbán government. It had been over 80% GDP too, but at the end of the year ‘with hundreds of tricks’ – the best known being the seizure of the pension finds – they always managed a decrease from the previous year [the government publishes and uses only a single figure – that of Dec. 30th). There is a lot of uncertainty as to whether the government can sustain the downward trend, given the scale of the debt, but if it manages to keep the balance of payments at zero, the government can eventually claim a clear victory on this front.

TAXES ON LABOR

In 2010 the total was 54.1%; in 2016, 49.0% There is a sizable literature on the issue. The differentiated and on average higher taxes on labor and/or profit are not at all problematic, if they are used by the state to provide high-quality, accessible to all, health, education and other services. This is evidenced year after year by the results of the economic systems of Sweden, Norway, Denmark and Finland, known as the “Nordic model”, since the above-mentioned countries have figured at the top of the lists in competitiveness, innovation and the environment for decades. However, in Hungary things are developing in a direction exactly opposite to the Nordic Model. This question is also interesting because the Fidesz government proclaimed itself to be the government of tax cuts.

Social security expenses in the European Union, 2014

It is clear that if we look at the overall situation, the taxes on labor have decreased. Although it’s worth adding that in international comparison while in 2010 we had the second largest burden rate in the OECD, by now we managed to move up only by two places, occupying fourth place from the bottom. This small success is mainly due to the introduction of a flat personal income tax and its rate reduction to 16%.

However, it’s worth mentioning that the replacement of the progressive tax system used until then by a flat tax rate opened a HUF 444 billion hole in the yearly budget and benefited only the richest. In addition, never has labor in Hungary been burdened by such a wide variety of taxes as today. Actually the situation here is the worst in the region. Meanwhile the government promised a massive tax burden reduction in the medium term and a single-digit company tax. There has been a long-standing debate about the need for a significant reduction of the tax burden with regard to the competitiveness of the economy.

In any case, despite the 2010 promise, we surely didn’t get any closer to the “beer mat-sized tax return” [as V. Orbán half-jokingly promised in opposition]. However, with the new flat and extremely low 9% company tax rate, another 2010 slogan – “we shall fight the offshore knights” – now seems to have morphed into “join the offshore knights’ race.” Similar to the effect of the flat-rate personal income tax, now once again the richest (and the big companies) will do really well as not the Hungarians, but the multinationals, such as General Electric (GE), already did under a special agreement with the government.

GDP GROWTH

Between 2004 and 2010 the growth amounted to 9.9% or in absolute terms USD 114.2 billion to 129.4 billion (a 15.2 billion difference). Between 2010 and 2015, in the same length of time, the Orbán government boosted the GDP from USD 129.4 billion to 138.8 billion (a 9.4 billion difference). The right side of politics clearly underperformed. These numbers, however, may be deceptive because much depends on external factors. But if you just look at our competitors in the region, save for the Czechs and Bulgarians almost all Eastern European member states, even Romania, performed better.

PUBLIC TRANSPORT

The [public transport] ticket price in Budapest in 2010 was 320 Ft., in 2016 – 350. The ticket prices in the region were as follows in 2016. Sofia – 158 Ft., Bucharest – 90 Ft., Warsaw – 240 Ft., Prague – 275 Ft. So the situation remains unchanged, we are the most expensive.

FREEWAY CONSTRUCTION COST

During the Gyurcsány government overpricing [in public projects] gained notoriety, but there are still no authoritative studies regarding its extent. Interestingly, according to Zsuzsanna Németh, Minister of Development 2010-2014, the Hungarian freeway construction cost per kilometer had decreased steadily during the Gyurcsány government, and in 2010 was 1.8 billion Ft. on average. Compared to this, according to the same Ministry led by Zsuzsanna Németh, the freeway construction unit cost had increased to 2.3 billion per kilometers in 2013. But there were also sections where the costs reached almost 4 billion forints.

BIG MAC INDEX

[Or how many minutes you have to work for a Big Mac]

Crisis or not, the change here is clearly positive: in 2009 – 59 min., in 2015 only 44 min. That said, we still haven’t overtaken anyone in the region, we are on par with Bucharest. It is also important to point out that the Big Mac index focuses on cities, and while Budapest is clearly catching up, the country is dropping behind compared to the other EU Member States. And this worsening trend continued during the past seven years just as before.

BUDAPEST (CENTRAL HUNGARY) GDP PPP / CAPITA compared to EU average

In 2010 144%, in 2014 143% where 100% means the EU average

Only Budapest is above the EU average, the second best county – Győr-Moson-Sopron stands at only 77%. In the light of the foregoing it is worthwhile showing also how the best performing Hungarian regions – where the situation in this area has worsened since 2010 – compare to our V4 competitors. In 2014 in the same category Prague was stood at 173%, Bratislava 187%, Warsaw 197%. Notably in the case of Budapest, Pest County is also part of the region.

GDP per capita by purchasing power parity, 2015

IMPORTED FOODS SHARE

In 2010 24.5%, in 2015 22%

The more food is produced by local, domestic producers the better, both environmentally and economically. According to a relatively recent Corvinus University study, positive, if modest changes have taken place in this area.

THE REAL VALUE OF PENSIONS
It is so far growing in the second Orbán government period, due in part to last year’s persistently low inflation, the third year in a row, and, on the other hand, partially due to the inflation-indexation of pensions introduced by the Gyurcsány government and which during the Fidesz government was often surpassed through the use of small tricks.

MATERNITY LEAVE

In 2008 the gross benefit was HUF 28,500, in 2016 just as much. In international comparison, this is dramatically low.

PRIMARY SCHOOL TEACHER GROSS ANNUAL WAGES

In 2009 it was USD 9,500, in 2015 – 9,149.

The biggest change in the area of earnings in the past period, as mentioned before, was the flat personal income tax, which benefitted primarily the affluent. At first glance the above seems even a decrease, but due to the significantly weakened forint exchange rate in the period the balance is rather a positive one. This fact doesn’t make for any exuberant joy because according to the OECD data, admittedly in need of updating, the approx. USD 9,500 earnings (just as a few years ago) was sufficient only for the last place among the EU member countries.

PEOPLE LIVING IN EXTREME POVERTY

In 2010 – 3 million, in 2016 – 3.6-3.8 million

In addition to this terribly high number, perhaps it is most important to note that after nearly a quarter of a century, in 2011 the CSO stopped publishing any figures about exactly how many people live below the poverty line. (The Policy Agenda think tank, however, has calculated that by 2015 the number has grown to 41.5%. See our article on all of this.)

Actual Individual Consumption in the European Union, 2014

Furthermore, the CSO had calculated that at least 87,351 Ft. monthly net earnings were required (in 2014) for living at a subsistence level. In comparison the net minimum wage in 2016 was still 73,815 Ft. In the first case it seems there was finally a move forward. Thanks to the tenacious struggle of the trade unions in 2018 the minimum wage will reach the subsistence level of around 90,000 Ft. However, thanks to the far higher 35% tax burden, in net terms the minimum wage is still light years behind that of our competitors in the region regarding the increases carried out between 2008 and 2016. In addition, Hungary has the highest proportion (72.2%) across the EU of households that wouldn’t be able to pay any unexpected expense.

HOSPITAL BEDS NUMBER

In 2009 – 70,971, in 2014 – 66,000

The population has been declining steadily since 2010, but we surely aren’t so many fewer. Actually there are more elderly. Therefore we need more, not fewer beds.

HEALTHCARE

Not only compared to 2010, but in fact never has any government since 1990 spent so little on healthcare, as a percentage of GDP, as in the past several years. And this is not only a basic requirement for a more successful functioning of the economy but also a factor that could have improved significantly the overall mood of the whole country. Recent research has shown that the overall satisfaction level in a country is not best raised by increasing the earnings of the inhabitants but by spending relatively larger amounts on problems of well-being. There is also a demand for it. According to the 2016 European Social Survey the Hungarian society is in a terrible state compared to the other European countries: in Hungary people consume the smallest quantities of fruits and vegetables, Hungarian women are moving the least, compared to the Hungarian men only Lithuanians smoke more, compared to the Hungarian men only more Czechs are overweight, Hungarian women are the most overweight, we have the largest proportion of men in poor or a very poor state of health, compared to the Hungarian women only the Spanish women are in a worse state of health, among the Hungarian men are the most showing signs of depression, and the Hungarian population, both men and women, is most affected by cancer. After that, perhaps it’s not surprising that we visit doctors most frequently among OECD countries.

EDUCATION

Similar to the health care case, counting from 1990 we have never spent so little of the GDP in this sector as during the Orbán government. Yet the word education could safely be replaced by “future,” since it is basically influenced by the country’s medium and long-term competitiveness. We are rank penultimate in Europe [in spending], so such investment here would bring the biggest return among the OECD countries. The results are visible: we are sixth from the bottom in the OECD in the number of researchers employed in the country; there haven’t been so few studying in higher education in the last seventeen years. We spent the least for developing computer skills, and our students have the largest number of school hours for non-essential knowledge (e.g., ethics [compulsory alternative to religion], etc.) as opposed to essential ones (e.g. reading, writing, literature, mathematics, natural sciences, second or other language). In view of the above, the recently published PISA results, which understandably caused an outrage, probably represent only the tip of the iceberg.

One of the few positive steps in the past few years is that those who cannot find work are, finally, offered free training, but the training offered by the National [Vocational] Training Register (Országos képzési jegyzék) is unlikely to boost the highest added value production areas. In addition, the participants’ livelihood is not guaranteed during the course; hence the training can only be used by jobseekers with a better financial cushion or those enjoying a patronage. Improving job qualifications is needed to raise our incredibly low average salary, which already inhibits economic growth.

CORRUPTION PERCEPTIONS INDEX

In 2009 – 46th place, in 2015 – 50th place

Even the people in Saudi Arabia, Botswana, Qatar and four-fifths of our region feel their governments are less corrupt.

ENVIRONMENTAL PROTECTION

No previous government has shown less interest in this area. The Orbán government’s response to the day-by-day worsening problem of global warming was to abolish the Environment Ministry and to do nothing about the few concrete promises it made before the election – including the creation of a green bank. In the meantime, they managed to earn the glory of the “tree-felling government” title, since probably no one has cut down so many trees as they have done in the last seven years in Budapest, and they have plans for more. Moreover, we are perhaps the only country in the world to impose taxes on solar panels while indebting Hungary by a loan equal to at least 10% of GDPif not more – for the sake of a twentieth-century technology for [Russian nuclear reactor blocks] Paks 2, which, in the bargain, will surely never produce a return.

Meanwhile, despite all the flag waving and freedom fighting the external exposure of the Hungarian economy has not been reduced at all. And here it is not primarily the foreign currency denominated debt segment that counts most, nor the export-import volume, which reached 200% of GDP, but the fact that less than half of the exported added value is created in Hungary. In other words, more than 50% of the added value produced in Hungary is by foreign-owned companies, which is unique in the European Union. It is no surprise that of the EU money arriving here for business development – after the government has carved off its significant slice – almost 70% is awarded to multinationals.

Such a level of foreign investor influence is extraordinary even by regional standards, although in Eastern Europe we are all rowing in the same boat, i.e. in what the literature calls a dependent market economy. That is, our economies are wholly dependent on Western investments. This is particularly true for the car manufacturing brought to Hungary, because it accounts for more than 20% of Hungarian exports, and this situation hasn’t changed since the year 2000. Meanwhile a leading Fidesz politician says that nothing can be done because “Hungary is a determined country, where it’s impossible to pursue other economic policies.” But it was precisely the Orbán regime which showed that it is. Over the last fifty years countries such as South Korea, Taiwan and Singapore went through economic development with substantial state assistance, which took them to where we are heading today. Big companies like Samsung, LG and Hyundai were heavily subsidized by the state, which in return set certain export expectations, so these companies were forced to continue spending on innovation. While it is a widespread view that the international rules made impossible this type of government intervention, we can see that the Orbán regime can support their oligarchs without any sanctions. The problem is that instead of innovation the regime expects only political loyalty. Despite its references to them as a model, none of the East Asian models’ components has been employed.

In light of the above it is not surprising that there have never been so many who wanted to emigrate from the country. Meanwhile the middle class is eroding and the differences in wealth between the richest and the poorest are increasing.

There is money available though, since up to now the government has spent HUF 300 billion on state companies and a further HUF 100 billion on its own (i.e. our) soccer pet. Overall, we spend four times more on this prime minister’s mania than on road maintenance, while the number of spectators is steadily declining. There are other outlays that went wrong too – the György Matolcsy-led National Bank has had HUF 250 billion pumped into dubious foundations or spent for the purchase of art objects. In addition, another HUF 850 million was sunk into the Felcsút narrow gauge railway, never to produce any return, and HUF 6.7 billion credit was extended to Andy Vajna for the purchase of TV2. Speaking of Andy Vajna, it is worth highlighting the greatest of all items, in regard to which the government didn’t do anything, namely the offshore [knights racket]. Moreover, Hungary is actually moving in this direction. Even in the face of the couple of years old study finding that the almost unfathomable amount of USD 247 billion of untaxed income has left the country in past decades. In the course of this offshore racket we have suffered the second largest losses in Europe.

WHAT FOLLOWS FROM ALL THIS?

Looking at the numbers the government could demonstrate quite serious achievements compared to 2010, primarily in the area of balancing the ​​budget and public debt. The GDP growth rate could have been included but for the fact that this growth was due mainly to the accelerated EU investments and not to a better performance of the domestic economy. In fact our productivity has been stagnant since 2008.

On the other hand, the social inequalities have increased dramatically during these seven years. It is unlikely that these short-term favorable macro-economic data can be sustained in the long term, mainly because the Hungarian society’s human capital indicators have significantly deteriorated as a result of the dramatic underfunding of the public subsystems (healthcare, education, social policy, public transport). That is, the economic growth is due to a great extent to the EU investment funds and the short-term budgetary balance to huge austerity measures. Both are unsustainable.

February 19, 2017

Viktor Orbán’s latest economic experimentation

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.

versenykepesseg1

Competitiveness of select East-Central European countries

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.

November 26, 2016

“OBSERVER”: THE HUNGARIAN ECONOMY: HOW MUCH SMOKE AND MIRRORS? PART II

Here we continue with the critical look at the various doubtful elements and figures of the Hungarian economy in the last several years.

5. The budget deficit reduction to 3% has been a top goal of the Orbán government, because EU cohesion funds disbursements depended on it and these funds represented 95% of all public investments, which in turn financed the projects invariably awarded to supporters and clients.

And reduced it was, all economists agree, by increased taxation, mainly by way of special/ additional taxes on multinationals like banks, telecommunication and retail companies. “At the same time the tax burden on some groups of low-income earners remains among the highest in the EU.” Country Report. The reversed Robin Hood principle practiced by the Orbán regime is an interesting subject, but outside our scope here.

Nominally the budget deficit went from the very high average 7.1% GDP of the 2003-2007 period before the crisis (high, even if considered against the avr. growth of 3.5% for the same period), spiking to whopping 9.3% in 2006, then stabilizing at 5.1% in 2007 and gradually easing to 2.6% in 2015.

“The budget deficit has been contained, keeping the public debt ratio on a gradually declining path..” says the Country Report.

But again, what is the real deficit considering the many doubtful elements in the equation?

6. Various figures indicate that the main budget items of health and education carry massive debts (from HUF 200 to 450 billion) hidden at lower levels or by the lack or the delay of consolidated data.

While the unpaid bills are easy to add up, it is much more difficult to quantify the systematically decreased or deferred capital expenditure or the reduced workers income in these systems.

smoke and mirrorThe Orbán regime boasts with its “unprecedented investment in medical facilities”, but in fact the upward trend, e.g. an increase of +6.9% in the period 2009-2011, was reversed in 2011-13 downward to reduction by -3.4%. Now the government spends just over 4% of GDP on health services, one of the five lowest in the OECD 34 countries where the average is 7% of GDP.

Both systems have been starved to the point of collapse, which has started to show, e.g. the meek teachers are protesting and preparing to strike, medical staff had been departing in droves for years leaving many hospitals without the legally required minimal staff.

Another way to keep the deficit low is the government’s almost complete withdrawal from infrastructure development: 95% of the finance in all government projects comes from the EU cohesion funds.

Finally, there is notable factor not often discussed – after the appropriation of the PPF monies, the Orban regime stopped contributing to such funds, this way “saving” approx. HUF 350 billion per year according to Mária Z. Pecsnik in her interview Klub Radio March 7th, 2015. (Notably, the government contribution in the crisis year 2009 was HUF 354 billion.)

This item alone represents 2.4% of the government budget or 1.2% or GDP, so in the old set up the budget deficit would have been 3.9% GDP and probably more than 5% after adding some of the other items above. One way or the other the prospects are grim.

7. Employment is another area of government boasting and of serious doubts caused by inconsistent or contradicting data.

Orbán personally vowed to create 1 million new jobs and full employment (!). Silly as these were, in the absence of substantial progress and, above all, to cover for this nonsense the administration resorted to the habitual chicanery. It offers a mishmash of probably false claims, which are hard to reconcile, e.g. how does one create 200 000 new jobs in a year with stagnant 16% of GDP investment, or where is the increase of private spending which would result from such hike in employment?

To improve the figures the government decided to include the Hungarians working/living as tax residents abroad in the domestic employment statistics. I don’t even want to elaborate on this point.

The government claimed to have created 172 000 new jobs in 2014 alone, an increase of 14%.
This would have required HUF 750-770 billion new investments and KSZH (Central Statistical Office) shows that HUF 5 216 billion were invested altogether in 2014 Q4, which is HUF 730 billion or 14% more than in 2013. Seems an almost perfect fit.

However, with HUF 32 180 billion GDP for 2014 the above investment of 5 216 billion is still only 16.2% of GDP. Such a low rate covers just the amortization requirements and leaves nothing for new capacities. Don’t ask me how they reconcile this contradiction.

The reality is closer to an estimate by Mr. Romhanyi, head of the Institute for Responsible Budget, of only 3 000 real new jobs and to the figures of the EU report Employment and Social Developments in Europe 2015 – Statistical Annex according to which the total employment was 3.9 mil in 2005 vs 4.1 mil. in 2014 or 0.5% p.a. increase over the period, a far cry from the regime’s claims.

The unemployment figures in the EU’s Statistical Annex don’t look better even as embellished to some extent by the Hungarian KSZH row data: 302 000 out of work in 2005 and 343 000 in 2014. Please note that the standard pitiful benefits paid for three months dampen the number of applications too.

After the worst figure in a decade – 441k appeared in 2013, the government quickly applied a magic trick and reduced the unemployment by 22% in a year, believed it or not.

8. The Orban chicanery continues with another dark area that is the ever changing Public Works Scheme, which was introduced in 2011. In effect it replaced the unemployment and some social benefits, where many unemployed were given often meaningless menial work to improve the statistics. The figures were inflated by various tricks like counting a person working 4 or 6 h days for longer than three months as fully employed for the whole year.

A pretty alarming trend, according to the Country Report, is the fact that:

“The … cost of the scheme has quadrupled over the last four years, to 0.8 % of GDP, ..and is expected to double again [by] 2018” diverting resources away from real improvements, training and other assistance to facilitate participation in the labour market, but “does not seem to sufficiently improve the employability of the participants.” – or not at all, since I remember something like 4% of participants turning properly employed. To emphasize the inefficiency of the scheme one has to consider that the monthly income of those involved is around HUF 50-75 000 or € 160-225 per month, below the legal minimum net wage of €225.

9. The political risk may sound as an abstract issue to many, but it’s a center point of reference which influences all aspects of the economy. The issues below all reflect on the quality of decisions, legislation and executive action, as well as on the predictability of policies, all issues correlating with the well-being of the economy.

The budget, an important tool of government, is being prepared and submitted ever earlier in the year, e.g. April/May, for the Orbán regime considers this a prestige point. Working with 10 month old data instead of two months old obviously increases the risks in planning.

At the same time budgets are being modified at the drop of a hat, up to seven times.

The process of government decision making is always obscure, often a black box, e.g. no records are kept of the cabinet meetings, no consultations are conducted, even when required by law, and consensus seeking is alien concept for the Orbán regime. The process has been highly centralized and subjected to authority rather than expertise. The public service has been flooded with political appointees with low, if any, expertise and experience resulting in dramatic deterioration of both legislation and government.

There is no point in discussing the appalling process of legislation, because the current Hungarian parliament has become a rubber stamp body of no resemblance to proper legislation or control.

The unpredictable and shifting policies and the authoritative interference of the Orbán regime into the free market processes have been decried by all analysts, e.g. mentioned as an crucial issue in the Moody’s repot, as detrimental to investment and growth.

The so called “opening to the East” proved to be an costly dud and in tandem with the antagonistic attitude toward multi nationals, foreign capital and the Western free economies probably meant many missed opportunities.

The lack of innovation and development policies, the withdrawal of funds and the sinking quality of all levels of education reduce the prospects of economic growth and development, while the exodus of the most skilled and enterprising youth guarantees its deterioration in the medium term.

Corruption has become endemic to the point of significantly affecting the economy in financial terms. It is also a distorting factor which skews policies and specific decision in favor of various private interests often contrary to the public policies and interest. The quality of services provided under corrupt contracts is often sub-standard.

Finally the economic risk should be mentioned, for if the Hungarian economy, even with the its embellished indicators, is not performing very well in the period of good recovery and satisfactory growth in the OECD world, what awaits the country if things turn sour worldwide.

The above-mentioned important elements and indicators give raise to grave doubts regarding the official Hungarian data and regarding the real status of the economy. The problem with all hardened liars is that at the end even they don’t know how much truth is there and how much is smoke and mirrors.

March 24, 2016

 

“Observer”: The Hungarian Economy: How much smoke and mirrors? Part I

The following post on the Hungarian economy is the first part of an article written by “one of us.” Those who follow the discussions on Hungarian Spectrum are familiar with “Observer.” I am pleased to publish his study because I’m a history and politics buff who knows little about economics, although we all know James Carville’s quip, “It’s the economy, stupid.”

♦ ♦ ♦

This is the time when a flurry of financial data, analysis and reports sum up the economic performance of the year past.  The Eurostat figures and the “all-great” propaganda of the Hungarian government are all available to the readers.

However, knowing that the Hungarian quasi-dictator has been proven to lie, distort and manipulate on a regular basis, and that his regime has put together and then more than doubled the budget of a huge propaganda machine to do the same, I wonder why would the economic data be an exception from manipulation, distortion and cheating; memento Greece.

The frequent changes in the ways of reporting already indicate manipulation; see the abolishment of poverty data reporting or of weekly figures on national debt, etc.  Seeing many doubtful elements or even bald faced lies, I have attempted some critical analyses of the official data.

I’ll pass over the recent Moody’s and Standard & Poor’s reports since they focus on the sovereign debt position, while the subject here is the Hungarian real economy.

1. More relevant documents are the EU Council Recommendation on the 2015 National Reform Programme of Hungary and the European Commission Country Report Hungary 2016, parts of which will be critically discussed.

Some of the above mentioned doubtful elements or obscure factors have been noted in the  Council Recommendation as “risks” in the areas of: public finances; financial sector; taxation; labour market; education:

To improve its economic performance the Government was urged to take measures to restore normal lending to the real economy and remove obstacles to market-based portfolio cleaning; considerably reduce the contingent liability risks linked to increased state ownership in the banking sector. … Reduce distortive sector-specific taxes; remove the unjustified entry barriers in the service sector, including in the retail sector; reduce the tax wedge for low-income earners, including by shifting taxation to areas less distortive to growth; continue to fight tax evasion, reduce compliance costs and improve the efficiency of tax collection. Strengthen structures in public procurement that promote competition and transparency and further improve the anti-corruption framework. … Reorient the budget resources allocated to the public work scheme to active labour market measures to foster integration in to the primary labour market; and improve the adequacy and coverage of social assistance and unemployment benefits

Quite a handful of “risks” blotting the bright picture painted by the government propaganda.

Looking back at the year 2015 the overall lukewarm positive (or polite) the Country Report finds things haven’t changed very much because:

the Council is [still] of the opinion that there is a risk that Hungary will not comply with the provisions of the Stability and Growth Pact. Over the last year, Hungary has repeatedly extended its direct ownership in the banking sector [contrary to the EU recommendation]. State intervention in the banking sector, carried out via increased direct ownership, may entail significant fiscal risks.

The Commission’s Annual Growth Survey of November  2015 notes that although “Hungary is on a balanced, albeit still relatively moderate growth path, … Hungary’s rate of potential growth remains a full percentage point lower than before the crisis, which was already comparatively low.”

2. The 2.9% GDP growth for 2015 looks moderately good until we take into consideration the turbo charged absorption of EU Cohesion funds, included in this growth figure.

In his presentation in February Mr. István Csillag, former Minister for the Economy, showed that the 2.9%  growth was achieved with 6-6.5% of GDP additional outlays (többlet kiadás), the 2014’s 3.7% growth with 8%.   The net results are very negative:  -3.3% for 2015 and a whopping – 4.3% for 2014, both well above the 2004 record difference of  -2.2%.

So what is the real growth figure?

Contrary to the “performing better” propaganda his figure doesn’t compare well either: the Hungarian GDP growth – bottom red line, is well below the V4 + Romania in the 2010-2014 period, as Mr. Csillag showed.

teljesitmenyDisputed is the government’s bluff regarding their “achievement of putting the economy on the path of sustained growth”, because the structural weaknesses of the Hungarian economy remain, e.g. its heavily reliance on the German automakers, as confirmed by the Country Report.

The 2014-15 decent growth figures were the results of the high demand for German cars, the EU cohesion funds and a good year for the agriculture. Nothing else grew or developed, to my knowledge, leaving the Hungarian economy vulnerable and pretty off the path of sustained growth. A glaring indicator of the above is the January 2016 20% y/y drop in construction as the respective cohesion funds abated.

3. All economists have been warning about the low rate of investment, which limits the growth opportunities. Hungary’s rate sank to the critical 16-17% of GDP, which is at about or below replacement rate, and which became the worst V4 one in 2014.

The considerable investment growth experienced in 2013-2014 came to a halt last year [2015] and is projected to turn into a slight decline this year as EU-funded investment temporarily subsides. Corporate lending continued to decline despite several policy initiatives of the central bank to promote SME lending and the trend of private investment recently turned negative again. Private investment is hampered by a still cautious credit environment, a relatively high country risk premium that keeps funding costs high, and an unstable regulatory and tax environment. These factors particularly hinder foreign direct investment

somewhat gloomily notes the  Country Report Hungary 2016.

This chart confirms the above:

bruttoI abstain from commenting on the conversion of the household foreign currency denominated loans which eliminated one of the largest systemic risks, as it involved HNBank operations and reserves which I don’t understand well.

However, the problem of low private lending persisted after the conversion and the reduction of this debt “from its peak of 117% of GDP in 2009 to 91% by 2014” and despite two lending stimuli programs initiated  by the HNB.  While in 2015 ”lending to households showed signs of recovery, … a similar turnaround in corporate lending has yet to take place,” concluded the Country Report.

4. PM Orban personally declared war on the public/government gross debt (GGD) in 2011 as “enemy #1”, spoke about reducing it to under 50% and started publicizing “success” figures.

The accompanying vilification of the Gyurcsány/Bajnai governments for “indebting the country” was grossly misleading – the GGD in the last pre-crisis year 2007 was 65.6% GDP, peaking at 80.8 in 2011, the second year of Orban’s government.

First of all one has to consider the reality of substantially reducing the GGD with 1% GDP average growth in an already heavily taxed and not very wealthy country.

To come closer to this utterly unrealistic goal, the Orbán regime appropriated accumulated private pension funds (PPF) worth HUF 3 000 billion at the end of 2011. Since the promised carrying over of the individual pension accounts never materialized, the funds ended in the budget. Arguably half of these funds or HUF 1 500 billion were spent on budget items in 2011-12. The move amounted to another loan, which practically increased the existing HUF 22 – 23 000 billion GGD by 6.5% in one hit.

The appropriation was carried out with some appalling hypocrisy about “protecting people’s savings” against speculators and threatening the victims with government pension exclusion, which was obviously illegal, which points to the absolutely offhand attitude of the regime even to its own commitments.

With the “protected peoples’ savings” the government acquired HUF 500 bil. worth of MOL (Hungarian Oil Co) shares at HUF 23 000 trading at 13-14 000 at present. Another scandalous example of bald faced lies turned government policies.

The confiscation of the pension funds helped bring the GGD figure down only to 78.3% GDP in 2012, in September 2013 it was still HUF 23 088 bil. or 80.2%, just as in 2010.

Facing embarrassment over the feeble results, the regime resorted to favorite weapons – cheating & deceit – the only official figure of the GGD issued and used by the government is the “as of December 30”, e.g.  this way the GGD was reduced from 77.5% in the beginning of December 2015 to 76% two weeks later.  And weekly reporting was abolished, for good measure.

To be continued

March 22, 2016

Corruption and the Hungarian economy

Frigyes Solymosi, a professor of chemistry and member of the Hungarian Academy of Sciences, has been a longstanding conservative critic of Viktor Orbán’s undemocratic regime. For years he has been writing op/ed pieces in Népszabadság because Magyar Nemzet, when it was still a government mouthpiece, refused to publish his articles. His latest is titled “Where is the hot spot?” The current behavior of Hungarian society reminds him of something that happened in his lab years ago. They were studying some explosives that for a long time remained dormant. At some point, however, a “hot spot” developed within the explosive tablet, and boom! It made quite a mess of their lab.

Solymosi’s article lists some troubling signs in the Hungarian economy, the lack of technological advancement, the neglect of education and healthcare, and the growing exodus of the best and the brightest. They all point to a further deterioration of conditions in the country.

Along these lines today I’m focusing on a conference organized by Világgazdaság to deal with the question: “Is this sustained growth?” The Hungarian financial paper invited several finance or economic ministers from earlier years. Two of the participants served in the Antall government (1990-1993). Antall changed finance ministers three times. The first one lasted only a few months (May 24-December 19, 1990). Kupa lasted longer (December 20, 1990-February 11, 1993). I always enjoy listening to him when he is invited for an interview. He strikes me as knowledgeable and level-headed, and he has a wonderful sense of humor. The other participant from the Antall era was Péter Ákos Bod, who served as minister in charge of industry and trade for a short time, after which he became the chairman of the Hungarian National Bank. Attila Chikán represented the first Orbán government, in which he served as minister in charge of the economy (July 8, 1998-December 31, 1999). He was replaced by György Matolcsy, who has since become Viktor Orbán’s right hand. The only “liberal” economist present was István Csillag. He was minister in charge of the economy and transportation during the Medgyessy government.

From left to right: Mihály Kupa, Péter Ákos Bod, István Csillag, and Attila Chickán

From left to right: Mihály Kupa, Péter Ákos Bod, István Csillag, and Attila Chickán

All of the participants agreed that the government propaganda about the robust economy that will not only be sustained but steadily grow is just that. Propaganda. Whatever growth there is is due only to the subsidies received from the European Union. The growth the Hungarian economy is capable of producing on its own is about 1% per year.

The Orbán government likes to compare Hungarian economic growth to the EU average and boast, as he did recently in Mongolia, that Hungary, along with other East European countries, is the engine of the Union’s economic growth. But this is not really relevant. What one has to concentrate on is Hungary’s standing within the region. It should be compared to the neighboring countries: Poland, Slovakia, the Czech Republic, all of whose economies are growing faster than Hungary’s. Romania’s economic development still lags behind her western neighbor, but it is catching up.

According to István Csillag, “Hungary exists only as long as there is the European Union. If the EU ceases to exist, there will be no Hungary.” Of course, this statement is overly dramatic, but we know what Csillag has in mind. He said that even 2014, which was hailed as an unusually successful year with a 3.7% economic growth, still pales in comparison to 2004 when the Hungarian economy grew by 5% with a 7% additional expenditure compared to 2014’s 3.7% growth with an 8% additional expenditure.

György Matolcsy’s efforts at stimulating the economy met with general disapproval by all participants. Such stimulants look promising initially, but their end is usually “painful,” creating economic bubbles.

I left Attila Chickán’s contribution to last because his field of expertise is “competitiveness” and “productivity.” Hungarian productivity is half that of the European average, due primarily to the inefficiency of the institutional structure. For sustained growth a country needs stable institutions, investment in human capital, and a competitive market without corruption. The problem with the present Hungarian economy is that none of these conditions exists at the moment, and there are no signs that the government is making any attempt to remedy the situation.

And that leads us to Transparency International’s “Corruption Perceptions Index 2015,” published yesterday. While a number of countries in the region have improved significantly in the last few years–for example, Austria, the Czech Republic, and Slovakia, in 2015 Hungary’s standing dropped to 50th place out of 168 countries. In 2014 Hungary stood in 47th place among 175 countries, which means that corruption in the country has increased relative to the other countries studied.

The Hungarian government makes no effort to combat corruption, which ensures the further deterioration of the Hungarian economy. Fidesz and the government blithely ignore the problem and accuse Transparency International of bias because—hard to believe but true—George Soros has been supporting this global anti-corruption non-governmental body. The terse reaction of Fidesz to the news of Hungary’s poor performance was: “Transparency International, which is financed from Soros’s money, serves the immigration policy of George Soros. Transparency International’s goal is to exert political pressure on Hungary.”

Alas, that’s not the end of the bad news. More will come tomorrow.

January 28, 2016