Country For Sale

As Hungary sinks deeper into the quagmire of neo-liberalist dogma, the outlook for the future has become increasingly bleak

Ever since the palace coup in Hungary which brought the Gyurcsany government to power, Hungary has been in a holding pattern politically pending the spring 2006 elections. As a result, a fine juggling act is being performed in order to keep interest rates, inflation, and the government deficit all in check. With the pressure of higher oil prices threatening to fumble this delicate balance, the next six months will be crucial for Hungary -- both politically and economically.

Already, there are signs of trouble ahead. International monitoring agencies such as the OECD have warned that unless Hungary keeps its budget deficit in check the country will be headed for a major economic crisis. Many have predicted that this crisis could start unfolding as early as October.

Likewise, the European Commission has noted that while Hungary has made strides to put its fiscal house in order, the rising national debt is still a worrying sign. For this reason it had recently forecasted that Hungary probably won't be able to join the eurozone until 2011. Initially, Hungary hoped to join by 2008, subsequently revising this prediction to 2010.

This isn't the first time that an economic crisis threatens to destabilise the country both economically and politically. In late 2003 such a crisis actually occurred, sending interest rates soaring overnight by 3% and the currency dropping in value by almost 10%. The finance minister was promptly sacked; indeed, the fall of the Medgyessy government itself in September 2004 could be attributed to this crisis; with EU accession and EU parliamentary elections only months away, a thorough government overhaul couldn't be exercised immediately when the crisis occurred.

The new government of Ferenc Gyurcsany thus inherited a mess, but with an election looming a year and a half away, little could be done. Instead, an election-friendly budget was passed for Fiscal 2005 and without doubt the same will be done for Fiscal 2006.

While it's no secret that governments the world over pass election friendly budgets and launch massive public works projects (such as road building and repair) prior to an election, the problem for the present government in Hungary is that the unofficial election campaign started too early, more than a year before voters go to the polls. To sustain not one but two election friendly budgets for such a long period of time is a very difficult -- some may say impossible -- task. Hence, the juggling act.

The country's national deficit wouldn't be such a problem if it weren't for the fact that in order to join the eurozone, Hungary also has to have its interest rates in line with the rest of Europe and to show that inflation is in check. Consequently, central bank interest rates have been cut by over 3% so far this year, bringing it to its lowest level since since the fall of communism, at just over 5%. Similarly, inflation forecasts have been aggressively cut back to just around 2% from earlier estimates of over 6%. And while government debt has continued to grow, recent statistics show that this trend has slowed considerably.

While all these statistics look impressive it remains to be seen how this momentum can be sustained given the backdrop of higher oil prices. Moreover, it's questionable whether the statistics are accurate in the first place. Europe already has an example of creative bookkeeping on a national scale, when Greece blatantly lied about its fiscal position in order to join the eurozone. In Hungary, officials admit that its statistical methods aren't perfect, mostly in the area of data collection, and given the fact that EU officials are now wary of new member states vis-a-vis what happened with Greece, these numbers will indubitably come under greater scrutiny.

Privatisation Bonanza

As the year draws slowly to a close, it's quite clear that the government's optimistic outlook for the Hungarian economy is not sustainable. This is further underlined by the government's chief underlying concern: the need for continued privatisation.

As with most countries of Central and Eastern Europe, the bulk of Hungary's privatisation of state-owned enterprises took place in the 1990s. What remains are foremost national services such as the railroads (MAV), the national air carrier MALEV, health care, the postal system, and the national airport at Ferihegy, just outside Budapest. Meanwhile, some key utilities, such as gas and electricity, have already been privatised.

Privatisation is the only card the Hungarian government can now play. As high oil prices threatens to push the cost of goods and services higher, and thereby upset the inflation rate, the government has been forced to take measures to ease the burden by reducing the tax on oil and gas. Of course, the government is careful not to reduce this revenue stream too much because it is, after all, a source of badly needed cash with which to finance an election friendly budget and to keep the national deficit from rising too high. The only alternative would be too borrow more money, but this again would add to the deficit and put upward pressure on interest rates.

With little room to maneuver, privatisation provides a perfect band-aid solution for the short term. The government gets a sudden inflow of cash with which it is able to continue financing an election friendly budget and make sure that inflation is kept in check, thereby leaving the national debt alone and making sure that interest rates remain low. The only problem with this scenario is that by selling state property and services, usually at very low prices, the government becomes more vulnerable to speculators and private investors who, in turn, are then able to influence government policy. The ultimate capitalist dream -- a fully privatised country -- is one in which the government merely acts as the enforcer of policy decided not by parliament, which is accountable to the people, but by the corporation, which is accountable to only its shareholders.

Sadly, most of the former communist states of Central and Eastern Europe are already close to the realisation of this capitalist dream. Still, as Argentina had vividly demonstrated, when this dream turns into a nightmare, it becomes a center of instability which can reverberate far and wide. Thanks to globalisation, this reverberation can lead to a domino effect, ultimately leading to a global economic crisis. Indeed, doom and gloom analysts are warning of this impending global catastrophe which will be unleashed should the Chinese economy fail as Japan did 15 years ago. For many, it's not even a question of "if" but "when".

For the Hungarian government, the concern at the moment isn't global but local; it's one of survival in the upcoming elections. Nevertheless, the desperation is apparent. This desperation can be seen in the attempt of the government to privatise the national airline, MALEV.

The privatisation of MALEV created a stir in Hungary when it became known that the price tag for the national airline was set at 160 million forints, about 640,000 euros. For the government, the deal would mean quick cash and the removal of a debt burden (the airline is saddled with a huge debt underwritten by the government). Opponents argue, however, that the price was ridiculously too low for a national airline. Moreover, with the stark rise in air travel recently, they calculate that MALEV will most probably be able to pay off its debt in under a year. In the end, because of the controversial nature of the MALEV privatisation plan, a court injunction was granted pending an investigation into the matter.

Aside from MALEV, the government has also put up for sale the national airport at Ferihegy. This also has drawn criticism, both from the workers and management at the airport. Indeed, workers have already staged a warning strike and are threatening further labour unrest. It remains to be seen, however, how far they will be able to go in preventing the sale of the airport. Unfortunately, since the early 1990s unions have been ineffective and in some ways are corrupted by neo-liberalist ideology; they are more concerned with keeping the peace rather than fighting for the rights of workers.

The present discontent over the government's privatisation plans can be largely attributed to the fear of job losses and a decline in real wages among workers, along with more expensive and less extensive services for consumers. The frustration some people feel was clearly visible recently when residents of a village burned an effigy of a mobile post office vehicle. In order to cut costs, Hungarian Post decided to close its post offices in small towns and villages and replace them with "mobile" post offices, that is, private vehicles which are used to conduct postal services. Many complain that the service is unreliable.

There is no doubt that the political opposition in Hungary is gaining a lot from all this, both in terms of the government's financial woes as well as the people's worry and discontent over privatisation. However, in the defacto two party system which has taken hold in Hungary, it's highly unlikely that the so-called "opposition" would do much better. They are also committed to the notion of privatisation; the only difference between the two major parties is in the way they privatise. For example, on the contentious issue of health care, the opposition openly admitted that it was in favour of privatising health care, but stressed that it wouldn't sell hospitals as the government was planning to do, that is, the actual buildings.

Yet, privatising health care has little to do with selling buildings or other physical assets, but that of putting a public service into private hands. Indeed, selling a hospital building but keeping the service public would be a better option than what the opposition is proposing.

Bitter Truth

Unlike a decade ago, when to even question the concept of privatisation was to be categorised as a far-right or far-left lunatic, people are now openly more critical about the selling of state assets. This is because most have now experienced what privatisation really means: less service at a higher price. Yet it's not only this: the way in which the privatisation process has been conducted in Hungary has been such that the capitalism of today differs little from the "robber baron" capitalism of the late 19th century.

Privatisation within Central and Eastern Europe was regarded by all countries within the region as necessary because their infrastructures were well behind that of western Europe. Also, many were struggling with the burden of huge national deficits.

In 1998 Hungary was still among the leading economies of the former communist states of Central and Eastern Europe. As the other economies of the region embarked upon their own privatisation programmes, however, this lead was reduced and ultimately disappeared, with Hungary now in last place.

Earlier this year, the Hungarian State Audit Office released a report which showed that from the change in regime in 1990 to the present, one-third of state assets simply vanished. Approximately 10-15% of this was because of losses incurred due to under-valuations and the improper handling of assets.

The privatisation process in Hungary was one of merely selling state assets, without regard for social or cultural concerns. The vast majority of the sales were conducted from a political perspective, hence most of the deals were to satisfy short-term objectives only. As one observer put it, everything was for sale -- if there was a buyer for it.

Among the positive aspects of privatisation often trumpeted is that it enabled Hungary to establish itself as a market economy, join the exclusive clubs of the west such as the OECD and the EU, increase the country's competitiveness, and solidify its foreign trade connections. Yet little mention was made of the negative aspects: the Hungarian economy fragmented into sectors often dominated by foreign monopolies, a drastic reduction in local research and technological development (from 2% of GDP in 1989 to 0.67% in 1996, its lowest point, to just over 1% at present), a steady rise in unemployment (especially among the young), an overall decline in the number of skilled workers, a steep drop in the quality of education, and environmental degradation.

Meanwhile, many of the promises attached to the notion of privatisation remained unfulfilled. For example, it's often argued that multinational corporations that buy themselves into the local market bring with them new technology which, in turn, helps to overcome old and dilapidated infrastructure left over from the past. Sadly, this has not always been the case. Often old and inefficient technology from the west was dumped in Hungary and elsewhere in Central and Eastern Europe by western corporations as a means to extract full profits from depreciated -- and sometimes worthless -- equipment.

Some believed that membership in the EU would help contain the corruption of late 20th century capitalism in Central and Eastern Europe. Yet far from preventing the exploitation, the EU actually encouraged it -- even making it a requisite for EU membership. For instance, the former communist countries in Central and Eastern Europe were required the "open" their gas and electricity markets to "competition" (a euphemism for the privatisation of national infrastructure) whereas in other, predominantly western EU member states (i.e., Germany and France), governments are still defiantly holding on to them. In fact, some of the new owners of these privatised utilities in Hungary are none other than the national governments of western EU member states. It is questionable whether the privatised energy sector in Hungary actually serves the country's interests.

From Communism to Corporatism

It is perhaps one of the major ironies of history that after decades of dictatorship countries like Hungary would shift so thoroughly and quickly to the other extreme -- from to communism, a political and economic system dominated by a dictatorship, to corporatism, a political and economic system dominated by massive corporations.

Although the term corporatism has different meanings in different contexts, the underlying principle is nevertheless the same: a political system in which legislative power is given to corporations that represent economic, industrial, and professional groups. Unlike pluralism, in which many groups compete for control of the state, under a corporatist system un-elected bodies take a critical role, if not the lead role, in the decision-making process. Subsequently, a corporatist state is one in which society is run by decisions made by these corporate groups.

The theoretical underpinnings to corporatism come from the medieval traditions of guilds and craft-based economics. In essence, it's a modern version of feudalism in where corporate interests are merged with those of the state. This, in turn, adheres to the feudalist and aristocratic tradition of giving state privileges to the wealthy and powerful.

In many ways, most "western" societies can already be best described as corporatist states, run by a small elite of professional and interest groups. The general public is excluded from political participation through a mixture of apathy and privilege. Indeed, critics of capitalism often argue that any form of capitalism would eventually devolve into corporatism, due to the concentration of wealth in fewer and fewer hands.

Government decisions, therefore, are often influenced by which sorts of policies will lead to greater profits for favored companies. As a result, huge multinational corporations are able to freely move operations around the world in response to corporate, rather than public, needs. This is what is known as corporate globalism, the engine to what is commonly referred to as globalisation.

With the rapid advancement of globalisation over the past decade and a half, the activities of multinational corporations have been facilitated by international legislation and treaties which drastically reduces the abilities of individual nations to delimit corporate activity (i.e., the World Trade Organisation, or WTO). Consequently, corporations are now able to to sue nations over "restrictive" policies, such as a nation's environmental regulations that would restrict corporate activities.

One of the hallmarks of the corporatist state, which can be clearly seen in the former communist states of Central and Eastern Europe such as Hungary, is the profusion of lobby groups. Nowadays, the influence of government legislation is often achieved through lobbying activities. Thus, while a corporation may have no official membership in any legislative body, it can still wield considerable power over law-makers.

While the term "corporation" technically doesn't limit itself to what is commonly understood as a business corporation, the influence of other types of corporations within the corporatist state, such as labour unions, is relatively minor. This is because business corporations have the resources (namely capital) to launch extensive and prolonged lobbying campaigns to ensure that its needs and policies in one way or another prevails. Furthermore, many of these entities often operate under the same theoretical framework as that of a business corporation, and are thus compromised in one way or another.

Labour unions are a case in point. Corporatist influence over labour has been made possible through the consolidation of various labour unions into a hierarchically organized, single labour federation. In theory, such encompassing unions bargain on behalf of all workers, and have a strong incentive to balance the employment cost of high wages against the real income consequences of small wage gains. In reality, however, these federations end up running themselves like a business corporation and are often corrupted by the influence neo-liberalist ideology.

A prime example of this in Europe are the social arrangements dominated by tri-partite bargaining between unions, the private sector (i.e., capital), and government. Such bargaining is supposedly oriented toward dividing the productivity gains created in the economy "fairly" among the "social" partners and gaining wage restraint in recessionary or inflationary periods. Ever since the tech wreck of 2000, however, the European economy seems to be perpetually within, or at least near, a recessionary or inflationary period. Hence, the need for constant restraint on the part of labour. Meanwhile, capital is still able to reap record profits -- even during such negative periods.

Aside from ensuring corporations a relatively peaceful and "competitive" labour market, the importance in Europe of such tri-partite bargaining systems is to further the illusion of democracy in action. Yet if unions themselves are part of the corporatist state, as in places like Hungary, these so-called "social arrangements" are, in effect, nothing more than predetermined dictates. Meanwhile, in those places where unions are a little less influenced by the corporatist state and dare to stand up and fight for the rights of workers, they are still outnumbered two to one, and thus made to appear as the side unwilling to co-operate.

Back to the Future?

Given the country's negative experience with privatisation, it should come as little surprise that many in Hungary no longer view privatisation so favourably. Likewise, corporatist control of the country has also come under increased criticism and scrutiny. A recent wave of food scandals in Hungary has served to highlight the dangers inherent in a globalised economy where profits are put before people.

Despite this, Hungary looks set to further become entrenched within a corporatist system, thanks in large part to its membership in such organisations as the EU and the WTO. In many ways, Hungary is a prime example of the corporatist state: privatisation has left key aspects of the economy in private hands and thus under the influence of corporate entities; lobbying has become a key aspect in determining government decisions and policy; and the political system itself has gradually evolved from a pluralistic, multi-party democracy after the fall of communism to that of a two-party dictatorship akin to what exists in the US. In fact, there is no longer a left and a right in Hungarian politics, only a business left and a business right.

In order for progressive change to come about, therefore, things will have to get worse -- much worse -- before they get better. Only with a total failure of the corporatist system (i.e., a deep and prolonged global economic recession) can a corporatist society start to rebuild itself.

Yet for many this isn't much of an option. As the population gets older, its more unwilling to take the risks necessary, preferring to the live the remainder of its years in relative peace and quiet, even if this means putting up with the hardships of a corporatist state; the pain is less, and there is less uncertainty.

This, of course, doesn't bode well for future generations. Then again, as with the environment, the future appears to be not much of a priority. The main concern for the present is the here and now; it seems many are content to let the future worry for itself about what tomorrow may bring.

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