The Fake Conservatism of Centre-Right Fidesz

Financial Times

January 15, 2013

"The fake conservatism of ‘centre-right’ Fidesz"

by Lajos Bokros

Fidesz, the Hungarian ruling party led by prime minister Viktor Orbán, likes to call itself a centre-right, conservative group. It is a label often echoed in western media. ‘Centre-right’ would usually denote a party standing for private enterprise: regulated, yes, but otherwise freed from government interference and bureaucracy, able to channel innovation, effort and funding to create wealth for all in society.

But nothing could be further from the truth.

Founded as an anti-communist group in the 1980s, Fidesz certainly had the potential to establish itself as a centre-right movement, capable of sweeping away the corruption and inefficiencies of communism and helping to build a modern, efficient, Hungarian state.

However, since it came to power in April 2010 Fidesz has implemented a strongly populist, nationalist, anti-market agenda. It has introduced punishing taxes on banks, energy utilities, telecom companies and big retailers.

Since most of these sectors are dominated by foreign strategic investors – many of whom brought in their money and skills when the future of Hungary and central Europe was far from secure – these measures reveal a strong anti-foreign and anti-market bias. The government justified its predatory taxes by claiming that financial firms and public utilities generate no value, but only expropriate and redistribute income earned elsewhere.

Far from being centre-right, this is an obsolete world view reflecting raw Marxist thinking, under which value is created only by agriculture and manufacturing. Services, the main source of growth, revenue and jobs in all developed economies, don’t contribute to social welfare in the Fidesz view. According to the government, the regime is constructing a new society “based on labour”.

Further, while making an all-out effort to gain EU funding to underpin investment, the prime minister has repeatedly claimed that the western model of free markets has failed and that new ideas can only come from the east. By this he clearly means state capitalism and ‘managed democracy’ a la Putin.

Orbán’s government has eliminated most checks and balances and deliberately created a state no longer constrained by the rule of law. In 2011, Fidesz unilaterally drafted and adopted a new constitution which largely abolished the independence of the judiciary, curtailed civil liberties, restricted media freedom and subordinated all non-governmental but state organisations to political control, including the Constitutional Court, the Media Council, the State Audit Office, the Fiscal Council, the Competition Office, the Financial Supervisory Authority, etc.

Is it typical of a classical conservative party in the western European tradition to cherish illiberal democracy, destroy checks and balances, and abolish the rule of law?

Fidesz does not believe in free markets or free trade. On the contrary, it is creating new monopolies everywhere. For example, the retail trade in tobacco will be confined to “trustworthy” small-scale licensed holders.

Another example: last year, the government withdrew all permits given to private retail outlets to operate slot-machines, destroying almost overnight the investment and livelihood of thousands of small entrepreneurs.

The minimum wage has been increased to such a high level that it will push many small firms into the red. To alleviate this burden, the government is offering individual subsidies, but in practice these will go only to “friendly” entrepreneurs.

The rules of public procurement have been distorted in such a way that they allow unlimited discretion to select bidders close to the government. Bankruptcy law offers preferential treatment to state-owned enterprises. There is a clear intention on the part of the government to nationalise private enterprises supposedly considered of national strategic importance – but in practice this is only a smokescreen to foster the creation of state-managed crony capitalism.

Corruption is rampant and has permeated all levels of government.

Can such policies, distorting free-market competition and opening the gates to discretionary government intervention, be labeled as conservative by European standards?

In 2011 – in perhaps the worst example of the state trampling on personal property rights since the forced nationalisation by the Stalinist regime of 1949 – the Fidesz government abolished the mandatory private pension system and expropriated its assets, worth a sum equal to almost 12 per cent of GDP.

This move was based on the idea that financial investment instruments in general, and mandatory private pension funds in particular, represent unethical financial gambling. Owners of these funds were blackmailed into submission by the threat that they would lose all their claims to the pay-as-you-go state pension – despite having paid two-thirds of

their contributions into the public fund for a long time.

Can anybody reasonably claim that a party initiating the expropriation of private property with blackmail constitutes the mainstream conservatism of Europe? Is it not, rather, cynical, populist behaviour by a government determined to get its hands on a pot of money for its own ends?

Moreover, since it came to power, this government has proudly and loudly been conducting a so-called “freedom fight” against the European Union and the International Monetary Fund. Orbán has repeatedly compared Brussels to Vienna – and even Moscow – condemning Brussels as an oppressive power like the Habsburgs and Soviets.

The cause for this absurd characterisation? The European Commission’s insistence that Hungary should, like all EU member states, bring its fiscal deficit below 3 per cent of GDP. (Hungary is the only new member of the EU that has been under the excessive deficit procedure since its accession in 2004!)

This blitzkrieg of rushed, ill-conceived political, legal and economic measures has shattered the confidence of business and totally undermined investor confidence in Hungary, both domestic and foreign. (The Orbán government has made much of recent expansions in the foreign-owned auto industry, conveniently forgetting that the investment decisions were made under earlier, socialist regimes.)

True, in the past year the perceived risk on Hungarian state debt has diminished. But that is due primarily to improving global investment sentiment and the high yields on government bonds. This is not a reflection of the real economy, and such investors can flee as quickly as they appear. Investment levels in the real economy now stand at 16 per cent – far too low to sustain growth.

Hungary is in recession, suffering an estimated 1.5 per cent contraction in GDP last year, and is likely to stagnate this year. Inflation is being kept in check by artificial control of energy prices – again, a mirror of communist strategy.

Unemployment, at 11 per cent, is kept artificially low by enforced public employment schemes that are merely going through the motions – they fail to give participants any real skills and offer no hope of genuine employment once completed.

Meanwhile, local media are full of stories of young Hungarians, seeing no secure economic future in their homeland, taking their skills abroad in search of a secure and predictable future.

Fidesz, once seen as a beacon of hope standing against the decay, corruption and ruination of communism, is now itself a symbol of the very same crimes and follies – only the red star has been replaced by the red, white and green tri-colour of historical Hungary.

Lajos Bokros is a Member of the European Parliament for Hungary and a professor of economics and public policy at CEU, Budapest. He was finance minister of Hungary from 1995 to 1996.