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The Nationalist Paradox

Even the region’s nationalists need foreign investment to make ends meet.

by Martin Ehl 5 March 2013

Viktor Orban, a nationalist? On the contrary. He wouldn't then sign partnership agreements with large foreign investors. And Robert Fico picking up nationalist voters and thus shifting toward nationalism? Hardly, or he wouldn't be dedicating so much energy to saving the country's largest private employer, the U.S. Steel ironworks in Kosice, which the Americans want to leave.


OK, I'll end the irony. The spirit of nationalism has haunted Central Europe since the mid-19th century. Economic nationalism, now packaged in Western Europe as the protection of domestic “champions.” But in Central Europe, only Poland still has such national champions to protect, so the concept of economic nationalism in that region takes the form of job protection under the brand “Made in Poland, Hungary, Slovakia, the Czech Republic.”


That leads us to a paradox of sorts: The current wave of political nationalism, strongest in Orban's Hungary, somehow clashes with efforts by governments – including Orban's – to create jobs mainly through foreign investment. Domestic economic policy, in other words, has helped to neutralize other sources of job creation.

Fico's center-left government in Slovakia has cut public spending while adopting a labor code that is tougher on business and self-employed people, thus freezing the labor market. Companies are afraid to hire new workers, and self-employed and temporary workers are heading for the ranks of the unemployed. Small and medium-sized business should, however, be those creating the most jobs. 

Orban once wanted to build closer political ties to the Bavarian and Austrian conservatives. In economic policy, at least, he has: At a time of general investor skepticism toward Hungary, he has managed, according to Hungarian National Bank figures, to maintain the influx of German and Austrian investments. Orban has attempted to tie down foreign firms by signing strategic partnerships, which guarantee some future cooperation without extracting specific commitments, with automotive and pharmaceutical companies. But he has shown little love to companies in other industries (telecommunications, banking) by imposing on them special taxes.

Last week, the Hungarian government signed a strategic partnership agreement with Audi, which is expanding its factory in Gyor. Similar agreements have been closed with Suzuki, Daimler, the pharmaceutical Gedeon Richter, Coca-Cola, and the aluminum/manufacturing company Alcoa-Kofem. 

Although Orban is a nationalist, he's also a pragmatist. Domestic investment has dropped since 2006, and after Orban's ascendency in 2010 investors became more cautious. With domestic consumption frozen and several programs to support small and medium enterprises foundering mainly on the unpredictability of government policy, entrepreneurs – even those ideologically sympathetic to the conservative government – are insecure.




A concrete example of economic nationalism might be the defense of domestic airlines, which the Hungarians and Slovaks have already surrendered. The Czechs and Poles, on the other hand, seem intent on fighting for them to the last Airbus and Dreamliner.


Perhaps that’s because the Czechs have so few titans left to fight for – the shady coupon privatization and inept management of banks in the 1990s saw to that. Can anyone today, off the top of their head, name any state company besides CEZ and Budvar?


In Poland, the urge to protect national champions was always greater, and some companies started to be privatized only after 2007, during Tusk's government. Every Polish government thus had the chance, thanks to (co-) ownership of several thousand more or less strategic companies, to at least somewhat regulate employment. But these days, with more companies in private hands, that role falls more often to the domestic stock exchange. No wonder the unions in any Polish state-owned firm would rebel when that company's IPO began to take shape, as happened in 2011 with JSW, Europe’s largest producer of coking coal.


Unemployment across Central Europe is now increasing at the fastest clip since the countries joined the European Union. Poland and Slovakia feature high structural unemployment, with many unemployed long-term. Governments of any stripe have not known what to do about it, even during boom times. History is thus actually repeating itself. Jobs are as crucial for policy makers now as they were during the transformation of the 1990s. Except now, instead of that era’s hope – in the form of the “path to Europe,” (not to mention money from Europe) which could help solve everything – European politicians have nothing to offer. 

Martin Ehl
 is the foreign editor of the Czech daily Hospodarske noviny, where this column originally appeared. He tweets at @MartinCZV4EU. He recently won the prestigious Writing for Central Europe journalism prize, awarded by the APA – Austria Press Agency in cooperation with Bank Austria.
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