The two faces of the Hungarian economy

The government of Viktor Orbán has been indulging in the propaganda of success for a long time. Meanwhile, economists are debating whether Hungary's economic growth is a good reason to make optimistic long-term forecasts.
The two faces of the Hungarian economy

Budapest (CC BY 2.0 Moyan Brenn)

The Hungarian Prime Minister Viktor Orbán, who is pursuing what he himself dubbed „unorthodox policies”, has long divided public opinion both in his own country and abroad. It’s hard to find balanced opinions about his proposals, such as the recent ones concerning refugees, because Viktor Orbán is a well-defined, charismatic politician who often breaks the accepted rules.

Hungarians are superior

The feature distinguishing his approach on the domestic stage is an unwavering optimism. One slogan constantly repeated in the official media is „Hungary does it better”. Another recently introduced slogan, placed on large billboards financed by the state budget and distributed throughout the country, reads: „Hungary has the highest growth in the EU”. Entire series of these government-sponsored billboards are also proclaiming that „the reforms in Hungary are working”.

Budapeszt billboard

(©Anita Dangel)

This propaganda is not always and not fully based on reality. For example, in 2014 Ireland had a higher growth rate (4.8%) than Hungary (3.6% in 2014 and 3.2% forecast for 2015). However, that is not the point. The key here is the official optimism, rather than accurate data or being true to the facts.

In almost every political keynote speech, the prime minister puts forth the thesis that Hungary has rejected the previously binding principles imposed by the West, such as neoliberalism or multiculturalism, and is now building a new reality on the foundations of national interest and sovereignty. These are the overreaching goals and sacred tasks.

In addition to the country’s return on the path of growth, the official pronouncements put emphasis – as the Prime Minister did in February during his annual speech on the state of the nation – on the low inflation, the increase in fertility (1.41 children per family – the highest rate since 1997), the decreasing number of divorces and the increasing number of places in nurseries. The government is also boasting an increase in tourism and the number of visitors from abroad, and heavily emphasizing the increase in employment (according to official figures the unemployment rate fell from 7.2 to 6.8 in June 2015 y/y).

Such summaries all lead to the basic thesis: Hungary is about to once again become the leader of Central Europe. In other words, the government’s policies are successful, the country is on the right track and the future is very promising.

Are we therefore seeing a genuine economic miracle, as touted by the authorities in Budapest, and sometimes also by the foreign media, not fully familiar with the realities of the Hungarian economy?

A new breed of oligarchs

One feature distinguishing the government’s statements, in addition to the official optimism, is their selective nature. There is no mention of the progressing centralization and oligarchisation of the state, which is a growing concern of society.

Following Orbán’s loud – and tasteless – „divorce” from the architect of the ruling Fidesz’s economic power base, Lajos Simicska, in February 2015, and the equally loud and still unsolved scandal over the Questor brokerage house in April of this year, the public has finally begun to show a deeper interest in the wealth of the people occupying the topmost positions in the government. Evidence of this is the big success of the book „Szüret” (The Wine Harvest), written by the recently deceased investigative journalist, Krisztina Ferenczi, devoted to the accumulation of assets by Orbán’s closest family, as well as the popularity of Bálint Magyar’s (Minister of Education in the previous, socialist-liberal governments) publication „The Anatomy of the Hungarian Mafia State”, which was prepared on the basis of two extensive volumes of studies of renowned experts opposing Fidesz, bearing a no less significant title „Magyar Polyp” (The Hungarian Octopus), alluding to a once popular TV series on the Italian Mafia.

The Questor case aroused a lot of emotions, because it financially affected thousands of ordinary citizens. The brokerage house turned out to be a great financial pyramid, which involved some of the highest officials in the country, including the Minister of Foreign Affairs and Trade, Péter Szijjártó. Csaba Tarsoly, the founder of that brokerage house, is now behind bars, but the case has stalled in the courts, which led the victims to periodically organize loud anti-government demonstrations.

Public opinion is also interested in the fate of Lajos Simicska, one of the wealthiest people in Hungary (as in the other cases, his fortune is murky), who has suddenly started losing public contracts after his split with the Prime Minister. Until now, his largest company – Közgép – was awarded the largest investment projects, including motorways. It has now lost them and Simicska has been forced to move some of his projects abroad. In turn, some of these public investment projects have been taken over by the barely 30-year-old and already very rich István Tiborcz – so far the only son-in-law of the prime minister, who has a total of five children.

He is not the only subject of constant attention of the opposition media. Once again, everyone is talking about Viktor Orbán’s native village of Felcsút, where a football stadium was opened in Easter 2014. Now a narrow-gauge railway connecting the village with Budapest is being commented on. Meanwhile, journalists had already measured the number of steps between the entrance to the stadium and Orbán’s family home, which was completely renovated in 2005. Lőrincz Mészáros, formerly the village administrator and now Felcsút’s mayor, has also become an oligarch, who is quickly winning subsequent public tenders and getting rich even quicker.

It is no wonder therefore that some 500 meters from the Prime Minister’s house in Felcsút – although not from the side of the motorway on which he arrives from Budapest – one of the governemtn sposnsored billboards was put up. The inscription reads: „A space station will be built here soon”. Meanwhile, a similar billboard in the neighboring Alcsút announces in English: „Felcsút, We Have A Problem”.

Independent reports are spoiling the celebrations

And so we have the official image of a victorious Hungary, a country of success and self- satisfaction, and on the other hand we have the image of a state increasingly resembling Russian rather than Western standards, where in a society that isn’t very affluent, people involved with the authorities are quickly getting rich in mysterious circumstances.

These two narratives should be supplemented by a third one, aiming at a deeper and fairly objective analysis of the current Hungarian reality. From this perspective, there is a lot to think about.

In its latest annual report of April 2015, the German-Hungarian Chamber of Industry and Commerce, which is the strongest organization of this kind, rejected the claims of the alleged economic miracle in Hungary. Among other things, it pointed out the limited depth of Hungary’s foreign trade, effectively based on large car manufacturing plants (Mercedes, Audi, Suzuki, Opel) and dwindling investments.

The German Bertelsmann group, which over the years provided perhaps the most thorough and multidimensional (democracy, market, rule of law) analysis of the post-communist countries, has also been constantly lowering Hungary’s ranking in its Sustainable Governance Indicators survey prepared for the 41 Member States of the OECD. In the last report (2015) Hungary was ranked only 38th in terms of the economy and economic policy, 34th in terms of the budget and the labor market and in the last place in terms of the tax system, which is several spots lower than in 2010, when Orbán came to power.

The official propaganda of success is also questioned by the World Bank, which – like the IMF – has its own matters to settle with Hungary and its current administration, and may therefore be somewhat biased towards the policies of the government in Budapest. In its current Doing Business Hungary was ranked 54th among the 189 evaluated states (which is also lower than a few years ago), but only 128th in terms of investment opportunities, which should make us think.

The reputable Swiss think-tank, the World Economic Forum, also challenges Hungary’s official optimism. In its regularly published Competitiveness Report, which is very well regarded among investors and businessmen, Hungary was ranked 60th, between Romania and Mexico, and behind not only Estonia (29), the Czech Republic (37), Lithuania, Latvia and Poland (41-43), but also Kazakhstan (50) and Bulgaria (54). In the same report from 2005, the Czech Republic was the leader in our region (ranked 29th) ahead of Hungary (35), followed by Slovakia (36) and Poland (43). In other words, in recent years the country’s competitiveness has declined, not risen.

The same is true for the Economic Prosperity Index that has brought international renown to the London-based Legatum Institute. In its latest report Hungary was ranked 39th, trailing behind such countries of the region as Slovenia (24), the Czech Republic (29), Poland (31), Estonia (32) and Slovakia (35). Thus, there is no reason for excessive optimism.

To make matters worse, similar data also comes from the Eurobarometer, which is perhaps the most popular source of statistics in the EU. All of its surveys point to a stagnation or decline, instead of stable growth.

Indeed, Hungary has entered a growth path again, but its GDP is still lower than in 2007, when the country suffered a deep slump even before the global crisis began. From the same data it follows that in the last decade the highest growth in the Visegrad Group was recorded in Poland and Slovakia. Hungary, on the other hand, should at the very most be glad about the stagnation, because, until recently, it struggled with recession. Whereas the Polish GDP per capita amounted to only 51% of the EU average in 2005 and exceeded 65% as early as 2012, Hungary’s GDP ratio was 63% back in 2005 but is currently lower than Poland’s (65% and 67% of the EU average, respectively).

The East didn’t pan out

In the last few years, Hungary’s growth has slowed down heavily, and the most prominent experts are debating whether the recently recorded growth, which no one is disputing, could be a basis for optimistic long-term predictions. Again, as in the case of the whole „unorthodox” policy of that state, opinions are strongly divided, but it is probably worth noting that the data published in the West unequivocally point to a deterioration of Hungarian investment opportunities. Additionally, the policy of „opening to the East” (Keleti Nyitás), to Russia, China, Kazakhstan or Azerbaijan, promoted by the government in Budapest, is yet to bring the expected results. This was even officially conceded recently, in a major diversion from the strong propaganda of success. What will the future bring? Will the fierce defence of national interests and sovereignty be sufficient in a country accounting for only 0.15% of the world GDP (according to World Bank data) in the age of globalization?

Budapest (CC BY 2.0 Moyan Brenn)
Budapeszt billboard

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