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Hungarian economist Dora Györffy has an interesting analysis of Central-Eastern Europe’s economic convergence to the EU-average between GFC and today, showing what % of the gap was closed in the past decade, and possible reasons for huge differences.
( http://www.kszemle.hu/tartalom/cikk.php?id=1947)
Hungarian economist Dora Györffy has an interesting analysis of Central-Eastern Europe’s economic convergence to the EU-average between GFC and today, showing what % of the gap was closed in the past decade, and possible reasons for huge differences.
( http://www.kszemle.hu/tartalom/cikk.php?id=1947)
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The data divides the countries into 5 groups (my names):
(i)stars (>=50%): Estonia, Lithuania, Czech Rep
(ii)solid catch-ups (30-50%): Romania, Latvia
(iii)turtles (10-30%): Hungary, Bulgaria, Poland, Croatia, Slovenia, and
(iv)lobster (<0%): Slovakia
The data divides the countries into 5 groups (my names):
(i)stars (>=50%): Estonia, Lithuania, Czech Rep
(ii)solid catch-ups (30-50%): Romania, Latvia
(iii)turtles (10-30%): Hungary, Bulgaria, Poland, Croatia, Slovenia, and
(iv)lobster (<0%): Slovakia
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The study shows a number of possible explanations, of which I’d just highlight one: there's a high correlation between the catch-up % and the rule of law-metrics.
Suffice it to say that the top group there consists of: Estonia, Czech Rep., Slovenia, Lithuania and Latvia.
The study shows a number of possible explanations, of which I’d just highlight one: there's a high correlation between the catch-up % and the rule of law-metrics.
Suffice it to say that the top group there consists of: Estonia, Czech Rep., Slovenia, Lithuania and Latvia.
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Another interesting statistics is one which shows that no other country has received as high EU-transfers relative to its GNI than Hungary (4% per annum). Also, just one country’s currency devalued between 2010-2019 more strongly than Hungary’s.
Another interesting statistics is one which shows that no other country has received as high EU-transfers relative to its GNI than Hungary (4% per annum). Also, just one country’s currency devalued between 2010-2019 more strongly than Hungary’s.
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The study also concludes that there seems to be a strong correlation between the catch-up speed and the countries’ ability to switch their economies into innovative, knowledge-based ones rather than competing for external capital foremost through cost (of labour).
The study also concludes that there seems to be a strong correlation between the catch-up speed and the countries’ ability to switch their economies into innovative, knowledge-based ones rather than competing for external capital foremost through cost (of labour).
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The study sees Czech. Rep, Estonia, Slovenia and Lithuania as most successful in this latter transformation.
There’s a lot more great stuff there – e.g. a detailed comparison between the strategies of Estonia and Hungary – but I stop here to provide some own comments.
The study sees Czech. Rep, Estonia, Slovenia and Lithuania as most successful in this latter transformation.
There’s a lot more great stuff there – e.g. a detailed comparison between the strategies of Estonia and Hungary – but I stop here to provide some own comments.
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Comment one:
Orban’s government is often believed for some inexplicable reason to have been successful in running the economy. They haven’t. Hungary’s economy did grow in absolute terms, but as this study shows, its performance has been far below the average in the peer group
Comment one:
Orban’s government is often believed for some inexplicable reason to have been successful in running the economy. They haven’t. Hungary’s economy did grow in absolute terms, but as this study shows, its performance has been far below the average in the peer group
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- 20,5% of the gap to EU closed, compared with the 28,5% average of 11 countries in the region, meaning a 28% worse performance than the average of peers.
- 20,5% of the gap to EU closed, compared with the 28,5% average of 11 countries in the region, meaning a 28% worse performance than the average of peers.
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And anyone who has ever dipped a toe into institutional economics (or applies common sense) will agree that there inevitably must be a cost in economic growth for a country where rule of law is crushed, property rights are diluted, and the state systematically distorts markets
And anyone who has ever dipped a toe into institutional economics (or applies common sense) will agree that there inevitably must be a cost in economic growth for a country where rule of law is crushed, property rights are diluted, and the state systematically distorts markets
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What *is* true, in contrast, is that Orban brought down Hungary’s various deficits and thereby reduced its vulnerability to external shocks.
However there are important qualifications to that (without questioning the benefits of resilience):
What *is* true, in contrast, is that Orban brought down Hungary’s various deficits and thereby reduced its vulnerability to external shocks.
However there are important qualifications to that (without questioning the benefits of resilience):
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i) this was done out of pure political calculation, NB the only real leverage the EU Commission has over member states is when they breach the Maastricht criteria, and autonomy / insulation from external pressure has always been at the very core of Orban's thinking.
i) this was done out of pure political calculation, NB the only real leverage the EU Commission has over member states is when they breach the Maastricht criteria, and autonomy / insulation from external pressure has always been at the very core of Orban's thinking.
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(The strength of this reflex was revealed once more when in spring 2020 Orban, for a long time, refused to take any budgetary measures in response to Covid19, even though the economic devastation was obvious and other EU-states had long announced their support measures)
(The strength of this reflex was revealed once more when in spring 2020 Orban, for a long time, refused to take any budgetary measures in response to Covid19, even though the economic devastation was obvious and other EU-states had long announced their support measures)
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ii) the reduction of deficits was implemented by way of brutal cuts in social spending and the health and education systems, which did lasting damages to society and, I’m convinced, itself put Hungary on a materially lower longer term growth path.
ii) the reduction of deficits was implemented by way of brutal cuts in social spending and the health and education systems, which did lasting damages to society and, I’m convinced, itself put Hungary on a materially lower longer term growth path.
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Comment two: this study is in fact a subtle reflection of Orban’s grand strategy for the country in the last decade.
See, Orban's key concern was always with political power, and the economy only relevant insofar as not getting in the way of that.
Comment two: this study is in fact a subtle reflection of Orban’s grand strategy for the country in the last decade.
See, Orban's key concern was always with political power, and the economy only relevant insofar as not getting in the way of that.
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Orban’s goal was to reshape vast parts of the country's ways of working into a single chain of political command, while keeping some minimum economic growth alive to fend off revolts; and get away with all of it somehow in the EU.
Orban’s goal was to reshape vast parts of the country's ways of working into a single chain of political command, while keeping some minimum economic growth alive to fend off revolts; and get away with all of it somehow in the EU.
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Orban’s response to this challenge has been in essense to make the country into a limited value-added assembly line for Western multinationals (mostly cars) - i.e. a conscious glueing of the country into the middle income trap and abandonment of the knowledge-based route.
Orban’s response to this challenge has been in essense to make the country into a limited value-added assembly line for Western multinationals (mostly cars) - i.e. a conscious glueing of the country into the middle income trap and abandonment of the knowledge-based route.
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This had a lot of Machiavellian rationality.
First, if you want to build an autocracy, you don’t want a vibrant, dynamic, self-aware society and economy; you do not want a large cohort of successful, innovative, politically independent companies that flourish and
This had a lot of Machiavellian rationality.
First, if you want to build an autocracy, you don’t want a vibrant, dynamic, self-aware society and economy; you do not want a large cohort of successful, innovative, politically independent companies that flourish and
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are in a position to make demands towards you, finance independent media, or even challenge your absolute rule.
What you want is: a general dependency on the state (=yourself); motionlessness, still life - a frozen-in society with as little social mobility as possible.
are in a position to make demands towards you, finance independent media, or even challenge your absolute rule.
What you want is: a general dependency on the state (=yourself); motionlessness, still life - a frozen-in society with as little social mobility as possible.
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The level of control Orban sought is simply not compatible with a knowledge-based economy.
Second, having large parts of GDP produced by a handful of multinationals limits the damage of crushing the foundations of a functioning market economy, since it doesn’t affect them -
The level of control Orban sought is simply not compatible with a knowledge-based economy.
Second, having large parts of GDP produced by a handful of multinationals limits the damage of crushing the foundations of a functioning market economy, since it doesn’t affect them -
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– the co-existence with them works on a most courteous, bespoke, bilateral basis whereby they get tons of state funding and can even ask for changes in laws - as a result they are in fact in a better, more privileged situation compared to a classical rule of law-situation.
– the co-existence with them works on a most courteous, bespoke, bilateral basis whereby they get tons of state funding and can even ask for changes in laws - as a result they are in fact in a better, more privileged situation compared to a classical rule of law-situation.
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Third, when aiming for a dumb economy, you don’t need smart people anymore. This allows you to take out massive amounts of the higher education system (AND decrease the % of state-funded university places, which brings us back to deficits & limited social mobility).
Third, when aiming for a dumb economy, you don’t need smart people anymore. This allows you to take out massive amounts of the higher education system (AND decrease the % of state-funded university places, which brings us back to deficits & limited social mobility).
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Fourth – and this shows Orban’s Machiavellian wit – he realized this strategy can be used to further his insulation from the EU, i.e. purchase protection against the EU’s immune-reactions from certain Western elites in exchange for being nice to key multinationals.
Fourth – and this shows Orban’s Machiavellian wit – he realized this strategy can be used to further his insulation from the EU, i.e. purchase protection against the EU’s immune-reactions from certain Western elites in exchange for being nice to key multinationals.
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This highlights btw, that it takes two to dance; the Orban-phenomenon is not interpretable in isolation, only in combination with its counterpart at the political core - the protective power that shields it and thus keeps the funds flowing in both directions.
This highlights btw, that it takes two to dance; the Orban-phenomenon is not interpretable in isolation, only in combination with its counterpart at the political core - the protective power that shields it and thus keeps the funds flowing in both directions.
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Besides the moral aspects of this strategy, i.e. consciously putting your nation onto an inferior economic path for political gain, another weakness is becoming more and more apparent these days, with all the challenges before the global automotive industry.
Besides the moral aspects of this strategy, i.e. consciously putting your nation onto an inferior economic path for political gain, another weakness is becoming more and more apparent these days, with all the challenges before the global automotive industry.
