Hungary's Turbulent Transformation to Capitalism: Corruption, Mismanagement Exemplify "New" Europe's Challenges

Article excerpt

Hungary is a country of 10 million mostly frustrated and pessimistic people, who no longer believe that the post-communism transformation begun in 1990 has brought genuine change. They are equally skeptical about the possibilities of any positive developments from Hungary's membership in the European Union. These feelings are fostered by their everyday experiences. A general sentiment is that the system change only means that those who once had been devoted followers of Karl Marx have transformed themselves into neoliberal capitalists and kept all the capital for themselves.

In Hungary's transformation to capitalism, changes have been imposed on the people, who pay the price in job losses, high unemployment, lack of opportunities to live a decent life, poverty, and a growing gap between the new rich and the many poor. Hungarians are very cynical about the argument that, in spite of all the problems, they at least have democracy and a functioning market economy. The average citizen feels otherwise, thanks to the ways the "transformation" has been managed.

Hungarians who dare to voice opinions different from those of the "rulers" are still silenced, threatened, or economically ruined. The majority of the media speaks with one voice, which is the voice of the government leaders. No questions are allowed to be asked. Hungary's election into the European Union is a typical example. Those who opposed or merely questioned Hungary's proposed membership were excluded from the campaign, silenced; they received neither money nor media time to express their doubts. This should have been a warning sign about the status of democracy in Hungary. The result of the referendum was that actually fewer than 40% of the potential voters were in favor; the others rejected EU membership or simply did not vote.

Corruption vs. Democracy

Corruption is alive and growing. Hungary ranked just 33rd on Transparency International's 2002 Corruption Perception index, tied with Malaysia and Trinidad and Tobago. (Finland was "least corrupt"; Bangladesh placed at the bottom of the list.) In 2003, Hungary slipped back to the 40th position. Now, Kuwait, Estonia, Bahrain, Oman, and Botswana are considered less corrupt than Hungary is. Corruption and democracy do not go hand in hand, and corruption is a poor vehicle for developing a functioning market economy.

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The economy in Hungary has shifted from a few large socialist enterprises subsidized by the government at the expense of the population to a few huge global companies subsidized by the government at the expense of the population. These subsidies include tax holidays, cheap (sometimes free) land offered to foreign businesses, and wages that are kept low so new enterprises can be established in a low-cost location. Companies also typically force the government to devalue the national currency by arguing that it will help increase economic competitiveness. But an undervalued national currency has never made an economy more competitive; rather, it only helps exporters make more money. About 80% of Hungary's exports are produced by a few large foreign companies. Hungary cannot be described as a functioning market economy when the big players receive significant subsidies while the rest get none. This distorted market situation is unfair and uncompetitive.

Another defect of Hungary's "new" economy is that foreign investment is largely in low value-added "screwdriver" operations--plants requiring diligent, disciplined line workers rather than creative, original thinkers. More than half of Hungary's working population works in these screwdriver operations and have no opportunity to become independent entrepreneurs and new-idea creators. This is one major reason why the knowledge base of the society is rapidly deteriorating.

Hungary has relatively few young graduates in science and engineering compared with the rest of the European Union. …