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The Competition State

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The Retreat of Liberal Democracy

Part of the book series: Challenges to Democracy in the 21st Century ((CDC))

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Abstract

Starting from the reforms of the late socialist era, this chapter analyses how the growth model based on the extensive accumulation of transnational capital became the dominant, institutionally preferred accumulation strategy in Hungary. Relying on a new dataset exploring the revolving doors between the economic policy elite and the business class in the 1990–2014 period, the chapter shows how economic policy professionals passed in and out through the revolving doors and contributed to the establishment of transnational capital’s hegemony. Finally, based on the analysis of press materials related to the business advocacy organisations of transnational companies, the chapter also highlights the tensions between transnational capitalists’ economic policy preferences and the accumulation strategy of the competition state, showing that the competition state outperformed the expectations of transnational capital.

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Notes

  1. 1.

    As a reminder: left and right are used as positional categories throughout this book. The left refers to the Hungarian Socialist Party and its allies, while the right was represented by the Hungarian Democratic Forum and later Fidesz and its allies. See endnote 15 in Chap. 2 for more details.

  2. 2.

    A number of economic policymakers working for the second Orbán government had also been involved in previous governments. That is, data on successive right-wing governments are not exclusive. That is why the second Orbán government, having the strongest ties to national capital through personal networks, is only slightly above the right-wing average.

  3. 3.

    Companies such as Matáv Telecom, Graphisoft, Cellum, Elender.

  4. 4.

    Companies such as Wallis or Altus.

  5. 5.

    Companies like Nitrokémia, Pannonplast.

  6. 6.

    Aluker—MAL.

  7. 7.

    ‘Savings and Credit Cooperatives’ by their full name, elsewhere also called credit unions, savings and loan associations, building societies or mutual savings banks. Until the early 2010s, 260 Savings and Credit Cooperatives existed and worked in Hungary, the number of its members was about two million (Moizs and Szabó 2016).

  8. 8.

    For example Corvinbank.

  9. 9.

    For example Videoton.

  10. 10.

    Also known as Council for Mutual Economic Assistance (CMEA). Existing between 1949 and 1991, it was an economic organization under the leadership of the Soviet Union that comprised the countries of the Eastern Bloc along with a number of socialist states elsewhere in the world.

  11. 11.

    Beloiannisz Hiradástechnikai Gyár (BHG).

  12. 12.

    The history of China, which adhered to the principle of gradualism all along, is a counter-example. In China, marketisation was preceded by the decentralisation of a centralised planned economy and a considerable strengthening of the economic autonomy of local governments. This was the chief basis of economic growth and poverty reduction. Foreign capital and private capital were gradually allowed to gain ground, while industrial policy planning was never given up. China has been one of the fastest growing economies in the world for the past 30 years, and today it is one of the main hubs of high-tech industries.

  13. 13.

    Such as Lajos Faluvégi, István Hetényi.

  14. 14.

    These reforms led to hiring young economists to work at the Ministry of Finance and its official research institute, the Financial Research Institute (FRI). The Financial Research Institute was established in 1968 to aid economic reforms with policy research. It gradually became the leading policy research organisation of the late-Kádár era. In the 1980s, a group of freshly graduated young people like György Surányi and Lajos Bokros were hired, who infused new liberal economic radicalism and monetarism into the agenda of the research institute. The Financial Research Institute bridged the gap between official reform thinking and opposition movements outside of the ranks of the state and played an important role in the evolution of the economic ideology of the liberal opposition as well as socialist reformers. Péter Medgyessy, the freshly appointed minister of finance, closed the Financial Research Institute in 1987. He hired some liberal monetarists to directly work for the ministry, while others went on to establish the Financial Research Institute Plc. that continued to play a crucial role as a neoliberal think tank throughout the transition. (See Gagyi 2015 for more detail.)

  15. 15.

    The Hungarian Socialist Workers’ Party (Magyar Szocialista Munkáspárt, MSzMP) was the ruling party of the Hungarian People’s Republic between 1956 and 1989, with János Kádár as general secretary.

  16. 16.

    Hungarian economist and politician, who served as Prime Minister of Hungary from 24 November 1988 to 23 May 1990.

  17. 17.

    Explain when this is first mentioned.

  18. 18.

    József Antall (8 April 1932–12 December 1993) served as the first democratically elected Prime Minister of Hungary, holding office from May 1990 until his death in December 1993. He was also the leader of the Hungarian Democratic Forum from 1989.

  19. 19.

    Formerly Budapest University of Economic Sciences, the largest, most prestigious university with a focus on teaching and research in economics. A large segment of the business and economic policy elite attended Corvinus.

  20. 20.

    The second economy in state socialist countries included economic activities that supplemented the centrally planned ‘first’ economy, comprising both legal and illegal activities. In the second economy, the private profit motive played an important role. In late socialist Hungary, the second economy grew in significance, allowing for a slow embourgeoisement of workers and farmers, whilst accentuating inequalities and moral tensions (Hann 1990; Rona-Tas 1990; Sík 1994). Iván Szelényi hypothesised that the new bourgeoisie would grow out of the socialist second economy after the fall of socialism (Szelényi 1990). However, Szelényi’s idea of the ‘post-socialist third way’ never materialised, and the dominant factions of the new bourgeoise emerged from the managers of large socialist companies and most importantly from transnational capitalists.

  21. 21.

    Existence loans were launched in March 1991 specifically to encourage domestic investors. The interest rate on the existence loan was 60–75% of the central bank’s base rate, without a ceiling for the amount of money that could be borrowed. The requirement for own capital to take an existence loan was often only 2%, while the risk to banks was eliminated through state guarantee (Antal-Mokos 1998, p. 58).

  22. 22.

    The compensation note was a security representing a claim to the state at nominal value. The first freely elected postsocialist government rejected in-kind restitution. ‘Instead, owners or their direct heirs whose property had been confiscated by the communist state and those who had suffered injustice for political reasons were given tradable securities called compensation notes. The notes were quoted on the Stock Exchange, bore an annual interest of 17% and could be used to acquire state property, including housing and land, or to obtain fixed life annuity. In cases where stock offered for sale by tender could be paid for in compensation notes, the privatisation agency accepted them at “nominal value” … The number of claims submitted under various Compensation Acts reached more than two million…, thus creating substantial demand for state property’ (Antal-Mokos 1998, pp. 58–59).

  23. 23.

    Of the total privatisation between 1991 and 1994, 21.7% was carried out using the existence loan. It is worth underlining that the Antall government gave up the idea of privatising banks due to its preference to cautious and slow privatisation, a concern about foreign capital appearing in the bank sector and pressure from the sector’s leaders. I will point out later, through the example of Sándor Csányi, that, the MSZP-SZDSZ government, in contrast, went for the privatisation of the bank sector to foreign investors, thus bringing about major conflicts with emerging Hungarian capitalists.

  24. 24.

    She was member of the Hungarian Democratic Forum, an MP and state secretary in the ministry of finance. Between 1992 and 1994 she was the head of the bank supervisory agency. She has been known for her heterodox views and for her economic patriotism.

  25. 25.

    Sándor Csányi is a Hungarian billionaire businessman, banker, specializing in finance, the chairman and chief executive officer of OTP Bank Group, one of the largest financial groups in the CEE Region and the biggest bank of Hungary.

  26. 26.

    The Bokros package, named after finance minister Lajos Bokros, was the first major austerity package in Hungary with severe cuts in education and social policies (see Cook and Orenstein 1999).

  27. 27.

    Sometimes also called Export Processing Zones, Special Economic Zones or maquiladoras in other countries.

  28. 28.

    87.4 billion forints, converted using official World Bank’s Official exchange rate for 1988 (LCU (local currency unit) per US$, period average).

  29. 29.

    55.5 billion forints, converted using official World Bank’s Official exchange rate for 1995 (LCU per US$, period average).

  30. 30.

    Lajos Bokros is a Hungarian economist, who served as minister of finance from 1995 to 1996. He was later also Member of the European Parliament for Hungary in the 2009–2014 session, sitting in the European Conservatives and Reformists group. He is one of the most well-known Hungarian market fundamentalists.

  31. 31.

    Twelve billion forints, converted using official World Bank’s Official exchange rate for 1995 (LCU per US$, period average).

  32. 32.

    Gyula Horn (5 July 1932–19 June 2013) was a Hungarian politician, the last foreign minister during state socialism who later served as the third Prime Minister of Hungary from 1994 to 1998.

  33. 33.

    Named after István Széchenyi, a prominent reform-minded aristocrat in the nineteenth century, was a medium-term economic development programme for the 2001–2006 period. The government intended to frame the programme as a major boost to Hungarian-owned small- and medium-sized enterprises (see (Visy et al. 2006), pp. 124–127).

  34. 34.

    Spearheaded by the quintet of László Urbán, Attila Chikán, János Martonyi, György Surányi, Zsigmond Járai.

  35. 35.

    Péter Medgyessy was the Prime Minister of Hungary from 27 May 2002 until 29 September 2004.

  36. 36.

    Ferenc Gyurcsány is a Hungarian entrepreneur and politician, the Prime Minister of Hungary from 2004 to 2009. Prior to that, he served as minister of youth affairs and sports between 2003 and 2004, and as the president of the central committee of the University chapter of KISZ (Hungarian Young Communist League), a youth movement in state-socialist Hungary, between 1988 and 1989. Prominent members of the last KISZ Central Committee—such as Gyurcsány—came to play an important role in Hungary’s emerging capitalist economy as the first wave of the emerging new bourgeoisie.

  37. 37.

    Although later the second Gyurcsány government increased the corporate tax due to extreme budget shortfall during the economic crisis.

  38. 38.

    Since 1980, corporate tax rates have fallen worldwide, from an average of 47% to 29% in 30 years (GDP-weighted).

  39. 39.

    Lajos Bokros, Tamás Bauer, István Csillag and Péter Mihályi.

  40. 40.

    Gordon Bajnai is a Hungarian entrepreneur and economist, who served as the Prime Minister of Hungary from 2009 to 2010. Prior to that, he was the minister of local government and regional development from 2007 to 2008, and the minister of national development and economy from 2008 to 2009.

  41. 41.

    An amount of 1.5 million forints, converted using official World Bank’s Official exchange rate for 1998 (LCU per US$, period average). Note that housing prices in Hungary in the 1990s were a fraction of the Western average. $7000 dollars could cover around 20% of the purchasing price of a two-room flat in Budapest in the middle of the 1990s.

  42. 42.

    A book analysing OECD’s efforts for capital liberalisation also gives evidence of liberalisation exceeding the demands of international capital and international financial organisations (Abdelal 2007, pp. 70–89). Accession to the OECD started in 1993, but was completed by and large under the MSZP-SZDSZ government, which also removed the last, remaining obstacles to international capital flows. In his excellent book, Ravi Abdelal recounts that during the negotiations with the OECD, Hungary went further with its liberalisation commitments than expected. In fact, OECD officials even sought to slow down the Hungarian capital liberalisation process, but the Hungarian negotiators refused. As FDI flow had been fully liberalised by then, these negotiations represented a further step in terms of the free flow of portfolio and credit money. In my previous research, I found that only very few countries worldwide made commitments similar to those that Hungary made regarding the liberalisation of public services by 1995, at the World Trade Organization (WTO) service liberalisation negotiations (GATS) (Scheiring 2008).

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Scheiring, G. (2020). The Competition State. In: The Retreat of Liberal Democracy. Challenges to Democracy in the 21st Century. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-48752-2_3

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