Hungary: the darker side of capitalist restoration

Hungary put in a GDP growth of 6.8% in the first quarter of the year 2000 and expects a rate of growth of 5-5.5% by the end of the year. These are impressive figures, which any visitor seeing signs of a building boom, lots of new cars on the streets and a well-dressed, well-fed population would quickly confirm. Is the advent of capitalism bringing the horn of plenty to Hungary or is the picture somewhat less straight forward?

Hungary put in a GDP growth of 6.8% in the first quarter of the year 2000 and expects a rate of growth of 5-5.5% by the end of the year. These are impressive figures, which any visitor seeing signs of a building boom, lots of new cars on the streets and a well-dressed, well-fed population would quickly confirm. Is the advent of capitalism bringing the horn of plenty to Hungary or is the picture somewhat less straight forward?

First of all it is interesting to note that the lion's share of the 6.8% figure comes from industry, both manufacturing and assembling. Industry grew by 20.7% in the first quarter. The traditionally strong agricultural sector, however, is struggling. Both meat production and cereals are declining and the number employed in agriculture has dropped below 300,000 for the first time since records began. Prices paid to producers are at an all time low and farmers are now out blocking the main roads protesting about the withdrawal of subsidies, the embezzlement of monies earmarked for them by the Ministry and the slow progress towards cheap loans they were promised.

The dissolution of large scale agriculture in the last 10 years is showing its effects. The drain of people to the towns is accelerated by the loss of traditional markets, indebtedness, bankruptcy and the final closure of the few collectivised farms left.

All the 'gung ho' ministers, including the Prime Minister, should remind themselves that when food goes beyond a certain price or starts becoming scarce, Hungarians start thinking of revolutions. The odd history lesson here might be helpful.

Looking at industry, detailed figures are not yet available as to which sectors are the chief contributors to the 20.7% growth in the first quarter, but it is without doubt fuelled by foreign firms making and assembling goods in Hungary and immediately exporting them. While the boom in Western Europe keeps going, Hungary is producing amazing growth figures. Jurgen D. Hoffmann, Managing Director of Audi Hungary, quoted in 'Nepszabadsag' on 2nd June 2000, praised the conditions in Hungary which made Audi invest 1.6 billion Deutschmarks so far and are contributing to a further investment of 650 millions on a new engine plant and a Research and Development Centre. He quotes good logistics (his plant is near the Austrian border), a skilled labour force, a flexible production structure and low wages as well as good economic indicators and stability as his main reasons for the increase in investment.

The world revolution in IT has also affected Hungary and all IT firms (mainly software) have experienced growths of 20-25%. The OECD, however, has recently warned that there are dangers of overheating in the economy due to a too fast rate of growth, a faster than expected rate of growth in the balance of payments deficit and a slowing down of the decrease in inflation. The captains of Hungarian industry as well as the bourgeois politicians all play this down using some of the most cynical arguments I have ever seen. One argument is, of course, quite true. The real fuel of all this growth is Western demand for goods produced by foreign firms that will leave very little effect on the Hungarian economy, apart from providing employment, as the goods get exported straight away. Extreme short-sightedness is prevalent amongst these gentlemen who seem to think that the boom will go on forever.

Investment is still growing, although the rate is slowing down. If you look at the first quarters of the last 3 years, growth was 12.1% in 1998, 6.4% in 1999 and 7% this year. This should be a warning sign for anyone with eyes to see.

Akar Laszlo, Managing Director of GKI, an economics research firm, quoted in 'Nepszabadsag', 2nd June 2000, feels that all exports and tourism receipts more than adequately finance imports at the moment and that domestic Hungarian consumption is unlikely to fuel inflation as wages are kept low. One could add that this cynical comment is made even more true by pensions also growing very slowly and the increase of the minimum monthly wage to 40,000 forints (100 GBP) being delayed.

This last point highlights the plight of those living in the real economy in Hungary who are either un or underemployed, for whom the figure of 6.8% growth is only a number bandied about by people who drive Mercedes and live on a different social and economic planet from them.

At a recent workers' festival, the MSZP (Hungarian Socialist Party) and the MSZOSZ (Hungarian TUC) announced a plan for closer co-operation to highlight the plight of workers in the country. As the Socialists form the main opposition in Parliament, the MSZOSZ hopes to benefit from this closer co-operation. At a joint press conference a study was presented which established that "Both blue and white collar workers now find themselves in a previously never heard of position of vulnerability in the work place. In order to obtain or keep their employment, many workers accept degrading and very detrimental contracts." According to the report approximately 40% of all employees in today's Hungary fall outside employment legislation. Between 1990 and 1993, 1,665,000 jobs and those who held them "disappeared". These people ultimately fell into 3 groups: 1 Those who tried to make it on their own and became self-employed. 2 Those numbering at least 300,000 who were retired early. 3 And the bulk of this number, who were from the countryside and became victims of the "restructuring" of agriculture.

According to this report, the expected social explosion has not happened partially because of families living on previous savings, but mostly because of explosion of the black market. The latter prevails in all spheres, encroaching even on regular employment where an ever increasing proportion of wages is "cash in hand" so that the employer avoids tax and insurance payments. Personally, I would also add a fourth group, those who descended into crime and have got by it ever since. Crime figures have experienced an explosion in the last 10 years, and it is believed that the true figure exceeds the recorded one 10 fold.

MSZOSZ and several of its constituent unions are putting wage claims on the table at the moment, claiming - quite rightly - that if the economy is growing at 6.8%, workers should see some of that too. Presently the average growth of incomes lags badly behind profits at 1.2% per annum. Teachers and other public service workers are talking to the Government at the moment, while industrial wages are also very low. The glorious fighting traditions of the Hungarian Trade Unions of the past have been lost during 40 years of Stalinism and the new workforce of the 21st century capitalist Hungary is still learning.

The growing and blatantly obvious inequalities grate badly on ordinary people. Schools are being closed, teachers made unemployed, the Health Service is subjected to cash limits, working hours are extended and holidays shortened. The long term prospects for the nouveau riche nascent Hungarian bourgeoisie is not as rosy as they think. Their economy is so dependent on the boom in the West that they might get a few surprises when it ends. As the saying goes: "When the US sneezes, Europe catches cold, but Eastern Europe will likely get pneumonia!" The top, thin veneer of prosperity even today is underlayed by poverty, worsening working conditions and growing frustration. With the end of the boom in the West, the reality of what it is to be a third or fourth rate client state of Germany and the US will dawn on Hungary's new masters.

It is then up to workers, the youth, town and country folk alike to reclaim their economy and their country for themselves and run it for need not profit. The last 10 years may have re-established capitalism in Hungary and other parts of Eastern Europe. However, its gravediggers are still here and their latent power is stronger than ever.