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State Failure, or, Why Orban is No FDR

Central Europe’s populists are winning because other politicians are failing to protect people from the depredations of local elites.

by Martin Ehl 22 August 2012

It looks, at first, like a wonderful historical parallel.


Franklin Delano Roosevelt is elected president for a second term in 1936 and his Democratic Party captures both houses of Congress. Telling the audience for one of his famous radio fireside chats that he has a mandate "to infuse new blood into all our courts,” Roosevelt proposes a radical reorganization of the court system. He asks to be given the power to appoint an additional judge to any federal court, including the Supreme Court, whenever a sitting judge remains on the bench after reaching the age of 70.


Above all, Roosevelt wanted to enlarge the Supreme Court and thus end its conservative majority’s blockade of his anti-crisis program, the New Deal.


Here, though, ends the parallel with Prime Minister Viktor Orban’s campaign to take the reins of the Hungarian court system into his hands. Roosevelt’s bid to stem the power of judges ran head-on into the opposition of his own party. The pluralist system defended itself.


This was one of many thoughts provoked by American economists Daron Acemoglu and James Robinson in their book Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Even though their book makes only glancing references to Central Europe, a number of analogies with the contemporary state of the post-communist countries occurred to me as I read it.


The authors attempt to understand the success or failure of states through the nature of their political and economic institutions. They strongly emphasize the political side. In simplified form, their theory runs like this: extractive political and economic institutions are those that aim to suck the state and its inhabitants dry. It is their nature to freeze the prevalent social structures for as long as possible, because the system benefits the very narrow group of the ruling elite. They defend themselves against innovation because it would undermine their power.


Inclusive political and economic institutions, on the other hand, arise gradually and their aim is to maintain the widest possible range of those participants and opinions that propel society forward. People live with the certainty that the state will not expropriate their property, take their patents, or devalue their savings. They thus have an interest in profit, productivity, and innovation.

And now for Central Europe. The Hungarians can look forward to new consumption taxes next year, for instance on insurance and energy. In July they began paying a tax on telephone calls. The Czechs will be paying more in VAT. The Slovak government is raiding the private pension funds to which people had been allowed to send some of their mandatory retirement contributions. Something similar is going on in Poland, and the Hungarians have abandoned mandatory private pension contributions altogether.


Populists are winning because other parties are not securing basic public services like security and education, and not shielding people from the depredations of local elites. What else can you call the affair at Prague’s municipal transport company, which is being forced to cut services even as millions paid out on the basis of bad contracts for those same services fly away to tax havens?


In the post-communist states, too little emphasis was placed on the rule of law, the establishment of property rights, and the creation of a level playing field at the outset of the economic and political transformations. These, according to Acemoglu and Robinson, are crucial in order to give citizens a reason to invest in themselves and their work and build new values capable of enriching the society. Instead, the masses are fleeing Poland and Slovakia to seek work abroad.


Free media are vital to create the conditions for a functional plurality of opinions, the authors write. Recall the strife over a new media law that Slovak Prime Minister Robert Fico pushed through in 2008, during a previous stint in office, and the international scrutiny on Orban’s government as it passed its own media law.


Pluralistic political institutions founded in the widest possible coalition of social groups – this is the key to national success, Acemoglu and Robinson believe. Meanwhile post-communist politicians, apparently grown attached to the extractive method of government, are showing so much concern for public affairs that public interest in politics is falling. Turnout was 85 percent at the Czech elections in 1992 but just 63 percent in 2010. By coincidence, that last figure was also the turnout at Poland’s first free election in 1989 – the highest voting participation ever achieved at a Polish election.


My point? Sustainable economic growth is not possible under the rule of extractive institutions, because they block innovation. And because the individual units of society foment constant political instability when they see the gigantic profits earned by the ruling elite in the struggle to control the sources of wealth.


Such a state – and nation – simply cannot be successful.

Martin Ehl is the foreign editor of the Czech daily Hospodarske noviny, where this column originally appeared. He tweets at @MartinCZV4EU.
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