Statism is on the rise in most of Central Europe, with economic liberalism fleeing for cover.by Martin Ehl 24 September 2013
Hungarian Prime Minister Viktor Orban said last week he wanted the government to buy up several utility companies. A few days later, government spokesman Andras Giro-Szasz was explaining what his boss had meant to say: not that nationalization was in the cards but rather that if any of the companies wanted to sell, the government was looking to buy.
Orban’s cabinet has already bought back gas reservoirs from E.ON and decreed a 10 percent cut in energy prices for households from January. And, with an eye to elections eight months away, further price reductions are rumored to be in the works. Orban also said last week that in time utilities could become nonprofit community organizations.
These comments fit into a pre-election period and a time of halting development for the Hungarian economy. But they also fit into a trend across Central Europe that might be the beginning of the dismantling of the economic liberalism that flooded the region after 1989. Although statism – the key role of the state in addressing economic and political problems – is linked in democratic Europe mainly with France, the approach is creeping back into Central Europe without French assistance.
Partly to blame is the economic crisis, which highlighted the role of the state as a defense mechanism, but the real impetus is a combination of memories of socialism, reform fatigue, poor economic development, the emergence of new populist movements, and “post-politics,” the reduction of politics into ad hoc solutions, affairs, and cherry-picking various issues from the political competition without regard to long-held strategies and values. A good example of post-politics is the ascent of German Chancellor Angela Merkel, who, thanks partially to her co-opting some issues from the left, gained a record numbers of votes in this past weekend’s parliamentary elections.
In politics, one after another of the liberal parties have been losing their grip, or former liberals have turned into advocates of a stronger role for the state, as exemplified by Polish Prime Minister Donald Tusk. In Hungary, the once influential Liberal Party has disappeared. In Slovakia and the Czech Republic, the liberals, who held key economic posts during the times of transformation, are only a marginal political force. Only the governments of Latvia and Estonia now wave the liberal banner.
And that is reflected in the economy. Much has been written about Orban’s nationalization of pension funds – similar to the situation now with the de facto abolition of the 15-year-old private pension system in Poland. There privatization has also halted while a debate continues over whether to maintain or create national “champions” in the mining, energy, and defense industries. The Slovak government is buying back the privatized gas trader SPP, although the motivation likely has more to do with corruption than a systemic attempt to strengthen the role of the state.
This year's Index of Economic Freedom – compiled by the Heritage Foundation in the United States and The Wall Street Journal – puts Estonia at the top of the list for Central Europe, ranking it 13th worldwide in the degree of freedom to do business. After the restoration of independence in 1991, liberalism firmly established itself there as a means to break away from the former Soviet empire. Estonia placed well ahead of the much-admired Germany (19), the Czech Republic (29), Slovakia (42), Hungary (48), and Poland (57).
Or consider how early in the year citizens of each country can reach their “tax freedom” day − arrived at by subtracting the annual tax burden from annual income and pinpointing the day a worker begins to earn for him- or herself. In Estonia and Slovakia it comes in mid-May, Poland in early June, the Czech Republic and Germany in mid-June, and Hungary in late June.
Rightly the attention of Europe is fixed on Orban, who will undoubtedly unveil many more interesting ideas before the elections. His economic policy has already been labeled "unorthodox," and Hungarian government officials and ministers say it with a certain pride.
But the shift from a liberal economic order to a stronger role for the state is dangerous for the future of post-communist Central Europe because these countries are truly still post-communist. With weak institutions such as courts and inefficient state administrations, they are – even with their membership in the European Union, NATO, and other Western organizations – prone to tolerate and support even more extreme proposals than Orban’s idea to buy/nationalize six or seven utility companies.