4. A NEW VASSALAGE

A country of underlings and the new lords of the land

 

The rejection of the social market economy

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“Let’s return to Europe, all of us!” – this was one of the promises and hopes of the regime change in 1989. Based on the model of European development, Hungary should have used its advantages and its traditions to establish an order in which the efficiency delivered by the market economy could coexist with the need for fairness, freedom and solidarity. This goal appeared first in the preamble to the Hungarian Constitution of 1989 which specified a social market economy as the ideal socio-economic mode. Yet, following the years of transition crisis, the new order was formed at a much slower pace than hoped, bringing widespread disappointment. The economy did start to grow after a couple of years, but so did disparities in income and wealth, while inflation and unemployment became stuck at overly high levels.

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In 2008 Hungary was again in financial trouble. As a result of excessive national debt, irresponsible bank lending, and overspending by households, Hungarian society was particularly affected by the global financial crisis. Thanks to effective crisis management by the government of the time, as well as massive external underwriting of loans, Hungary survived this challenge and began recovering. After 2010, the new Fidesz government energetically continued the reorganisation of the economy and the reduction of the country’s external vulnerabilities. Yet it was becoming ever clearer that the regime was exploiting the widespread weakening of (already less than solid) public trust in the market economy for its own political ends. Using its supermajority in parliament, Fidesz pushed economic competition into the background and used a series of new laws to adjust the power relationship between the state and society. Invariably, the ultimate beneficiaries were groups and interests with close connections to Fidesz. The government promised economic growth without austerity, coupled with unparalleled competitiveness, but the reality proved to be different. Hungary fell behind, even by the standards of its own region, while the values of fairness, freedom and solidarity would repeatedly be trounced.

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The new Basic Law of Hungary does not even refer to the social market economy. Instead, the regime talks endlessly of the “nation” and “national interests”, while in fact it is the interests of a centralised state structure that have become dominant. On the way, the financial space of local authorities has constantly been restricted as part of a more wide-ranging programme of centralisation. Indeed, the government has robbed local authorities of both their activities and their jurisdiction: for example, it has centralised elementary and secondary education, and healthcare institutions (other than those for emergency patients) have been removed from local authorities’ control. The state administration duties formerly delegated to local authorities have been transferred to new district bodies, which are subordinated to the county-level government offices; meanwhile, county authorities have been rendered insignificant.

 

The curtailment of civic society

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Interest groups that reflect the complex layers of society, such as trade unions and employers’ organisations, have been sidelined, and no longer have any genuine influence on legislation, social problems, or everyday affairs. The latest manifestation of this change, driven by political coercion, is the promulgation of the so-called ‘slave law’. This radical change in labour code allows employers to oblige workers to undertake overtime that may only be paid for up to three years in arrears. Both the content of this law and the mode in which it was passed are a violation of the rights of workers and of the organisations that represent them.

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Neither does this regime see a need for the work of non-governmental organisations (NGOs); indeed, it is frequently downright suspicious of them. People working for such organisations have been harassed by the authorities and subject to vicious slur campaigns in pro-government media if their activities do not fit the current needs of the government. This, in a country where civic society is weak and where the many poor and disadvantaged groups are typically under-represented and in desperate need of such support and services. Furthermore, as the outside world gradually learns of the despicable government treatment of “enemy” civic groups, so Hungary’s reputation abroad diminishes.

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The churches too have felt the impact of all-encompassing government legislation. At the end of 2010, not one year after the start of Orbán’s ‘ballot-box revolution’, the 1990 law on the freedom of conscience, religion and churches was scrapped to be superseded by the new ecclesiastical law of 2011. Enacted without any consultation with those it most affected, the new law makes religious communities dependent on the government of the day and limits the variety of religious life. Apart from a select number of ‘recognised’ churches, all other confessions have been obliged to follow new procedures in order to achieve equal status to the ‘historical’ churches, that is, have the same chance of being granted religious privileges by the state. Even if they satisfy all conditions, their official status is now subject to parliamentary vote, and not to a court ruling (as previously). In the light of growing international pressure, the law was last amended significantly in 2019, with the result that the Hungarian state now recognises confessions with four different kinds of legal status. The aim of this discrimination is as obvious as it is unchanged: the distribution of institutional advantages and financial rewards under the control of the establishment party to favoured institutions – a set up strongly reminiscent of the communist era. Thus the law on churches simultaneously displays the centralising policy of the revived ‘party-state’ in Hungary, its rejection of autonomous organisations and independent civic activities, and the use of law as a political tool of repression.

 

The costs of centralisation

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Centralisation by a state can bring short-term advantages, but its disadvantages will make themselves obvious soon enough. We can observe this pattern in Hungary with the expansion and centralisation of the creation of the public works scheme after 2010: this did assist in mobilising inactive social groups that had been stuck in long-term unemployment, but did so by tying the individuals concerned to the government bureaucracy and to the government party. The movement of workers from the scheme to the real labour market – that is to the world of value creation – is still too cumbersome, even though the labour shortage in Hungary is now acute.

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Centralisation is spreading to more and more fields. One of its victims has been public education. Here, the hoped-for increase in efficiency from centralisation did not emerge, while great dangers have accrued. In lowering the school leaving age, the government followed an outdated and unfounded educational ideology, again ignoring arguments from expert groups, and without paying attention to successful European role-models. There is a considerable risk that many young people ejected too early from the public education system will simply be incapable of undertaking work of genuine value in the economy. The educational level of young people in Hungary depends to an exceptional degree on where they live and on their family income and educational background. We should not be willing to accept that such restrictions to social mobility are inevitable.

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Neither has excessive centralisation left the healthcare system untouched. We can learn much about the effectiveness of this system from the fact that the life expectancy at birth of Hungarians is 4.8 years lower (5.6 for men, 3.9 for women) than the EU-28 average. Within the country there are huge regional variations in both life expectancy and healthcare provision. Healthcare expenditure per head in Hungary is only half of the EU average, even though the country is worse than middling in terms of all the most important risk factors (smoking, consumption of alcohol, obesity). The present system of healthcare provision is not sustainable in the long term. Many healthcare institutions are struggling with debt, while the numbers of doctors and healthcare staff are continually declining as a result of employees leaving either the profession or the country in search of better salaries. While Hungary’s population is constantly getting older, the number of those gaining medical qualifications has stagnated. The proportion of licenced doctors and healthcare professionals relative to the population is now lower in Hungary than in the European Union as a whole.

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The Fidesz government that came to power in Hungary in 2010 immediately set about attacking the individually funded compulsory private pension fund system, one pillar of the so-called mixed pension system that had been in operation for about a decade and a half. The official justification of the de facto nationalisation of this pillar was the reduction of the national debt, but the government’s real objective was to expand its financial room for manoeuvre. Almost half of the funds thus nationalised (nearly 3000 billion forints, i.e. more than 10 billion euro) was effectively ‘burned up’ in the process of unverifiable financial transactions, and only the other half served debt reduction. Quite apart from depleting these individual savings, the government thereby also greatly worsened the future structural problems of the state pension system, while undermining trust in pension savings and in the pension system in general.

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The new Fundamental Law then curbed pension rights, in some cases abolishing them altogether. For example, anyone previously awarded a disability pension was obliged to undergo humiliating tests to regain eligibility under a process which undermined their income security. The new system of provisions fell far short of achieving the hoped-for savings; instead, tens of thousands of people were granted new levels of provisions of lower value. The right to social security and to the provisions gained by work and contributions is only referred to in the Fundamental Law as a “government objective” instead of constitutional right; the state as gracious benefactor has come into the foreground. The Fundamental Law might proclaim a state pension system based on the principle of solidarity, but the laws that have followed it have instead weakened the social solidarity between generations; indeed, they have pitted social groups against one another. The system helps set particularly high pensions for some groups and this justifiably annoys society. Meanwhile, the linking of ordinary pensions only to inflation (rather than economic growth or average income level) means that pensioners are excluded from growing wage prosperity.

 

Emigration, social and regional exclusion

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The mass loss of residents to emigration, combined with national demographic trends, is the greatest question mark over Hungary’s future. The motivations for emigration maybe higher wages, family circumstances, housing problems, or a variety of career considerations; the state has only limited means to affect these. Support for house purchases is the preferred area of the present government’s efforts but this is unlikely to correct housing problems, for the lack of mobility in the housing market is as big a problem as housing shortage.

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The key reason for the high level of migration from Hungary to more developed countries is the wage differential, but there are other factors, which include the general mood in the country, the continual cutback of the rights of various minorities and the deteriorating chances for the young to advance based on merit. While wages in Hungary have started to grow recently after being throttled for many years, they still remain below those of the Visegrád region as a whole. Little disposable income remains after the world’s highest level of VAT, after income tax, and after social security and other contributions are deducted. This means that the phenomenon of the ‘working poor’ is not limited to a narrow group. Multinational companies, with their higher productivity, can afford further wage increases, but the largest part of the Hungarian labour force is employed by small and medium-sized companies; and growing problems with productivity are most obvious here. The burdens imposed by state bureaucracy fall most severely on this sector too, while small businesses see the least benefit of large-scale public investment projects.

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Part of Hungarian society is open to the potential changes brought by digitalisation, but these are mostly employees of capital-rich foreign companies, i.e. exactly those people who are most tempted by opportunities to work abroad. The prospects for less educated young people of working age, and those further away from dynamic regions are much poorer. Despite so many EU structural funds being used, deprived regions in the north, east and south of the country, have become destitute regions. There are also serious demographic discrepancies in a number of micro-regions. The everyday experience of a not negligible proportion of society is one of servitude and fear of the future.