by Zoltán Kész, Free Market Foundation, and Attila Juhasz, Political Capital
After eight years of controversial socialist rule, the people of Hungary had great hopes three years ago when a self-proclaimed conservative, or limited-government, party came to power with a two-thirds majority. It turns out, however, that the ruling party, Fidesz, and its leader, Viktor Orban, favor bigger government than did their predecessors.
Fidesz is the only party that has managed to build an agenda on the people’s contradictory expectations. Since the transition of 1990, Hungarians have increasingly demanded paternalist policies. A majority are dissatisfied with the market economy, seeing only its disadvantages, such as the lack of a guarantee of personal success. People dislike competition and wish for government-provided security. In short, they want strong state presence in the market even if they do distrust state institutions.
The collectivism of Fidesz is populist and nationalist. The party glorifies the nation and the state. It calls for a radical transformation of society through strong interference with the market process. This has been so since the elections of 2010, beginning with the nationalization of pension funds. Soon after the new government came to power, it announced that to reduce the public deficit and debt, the state would take control of privately owned pension assets.
Since then the government has pursued policies against multinational companies, an important source of foreign investment, it levied selective extra, punitive taxes (telecom tax, transaction tax) and ordered privately owned companies to reduce utility costs.
Fidesz is also filling the pockets of the new middle class with public money usually from European Union-funded projects. It talks about building a “national middle class” beholden to itself, suggesting it has already launched its campaign for next year’s elections.
The government’s rhetoric proclaims the interests of the “nation” and its “people” as superior to the rule of law or individual liberty—a false dichotomy. Thus all criticism by the opposition and the international community are condemned as a conspiracy against the nation.
While many elements of the governing party come from the extreme right, which favors state ownership of much of the economy, Fidesz’s policies would transfer ownership to the party leadership’s business cronies (“national capital”). The prime minister openly says that expanding state ownership and favoring certain big companies are part of an all-out government strategy. This reflects the nationalist political rhetoric that criticizes foreign investors while promising to protect the everyday interests of “Hungarian people.” Public property and state monopoly, it is said, serve the people better than market competition.
This program is popular. People are happy with the state bailing out companies, and with recent mandated price reductions.
The prime minister has also made clear that he intends to increase state ownership of banks to over 50 per cent. The government has already increased its influence with the savings banks, distorting the market by imposing extra taxes on international banks. Hungarians will find these policies appealing because they blame big banks for raising interest rates, their indebtedness, and the mortgage crisis.
In other sectors we see similar intervention. Pharmacies, for example, must now be owned by chemists, forcing many owners without degrees in chemistry to sell their shares in their business.
The government has given retail tobacco concessions mostly to people with political connections to the ruling party at the local level. Gambling activities such as slot machines have been banned, while others (including online gambling) have been licensed to cronies.
In the energy sector the government has resorted to price controls in a misguided attempt to reduce utility costs. This is a popular policy, but since price controls endanger the viability of energy companies, it would not be surprising if government took them over sooner or later.
Even taxi fares are now regulated. Like all price controls, this will harm, not serve, the interests of the consumers.
These collectivist “innovations” have been introduced by a party that once was the most radically anti-communist and liberal of parties. But that was 25 years ago. It cannot be said what the next 25 years will hold unless the Hungarian people discover the case for freedom.