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The Comandante of Budapest

Hungary and Latin America are closer than you might think.

by Martin Ehl 22 October 2013

Viktor Orban, Hungary’s prime minister, probably wouldn't much like the comparison, but in some ways, his policymaking is reminiscent of a Latin American leftist ruler, managing his country in the spirit of classic textbook populism.

 

Viktor Orban
In its quest for cheap energy for Hungarian households, Orban's government has ordered cuts in the prices of gas, electricity, and central heating by an average of 11.1 percent starting 1 November. Given the 10 percent reduction enacted at the beginning of this year, Hungarian households will enjoy bills this heating season that are about 20 percent lower than last year’s.

 

Orban has said suppliers of energy and other utilities should, in the future, be nonprofit organizations, placing him alongside those left-wing Latin American politicians who, instead of looking at the quality of their own governance, search for substitute problems and scapegoats for anything that goes wrong at home.

 

Since the 1980s, Latin America has experienced a right-wing wave of privatization and debates over which public services can be sold or leased long-term to private companies, mostly from abroad. Put simply, on one hand was long-neglected infrastructure calling for investment from private companies, which then needed to raise prices. On the other hand, these are countries only now bouncing back from the depths of poverty. Many of their people are too poor to pay their bills. The offer of relatively cheap public services has been one of the few things to ease their plight.

 

While in the 1990s, people in Latin America debated how far to take privatization, in newly post-communist Central and Eastern Europe nearly everything was privatized that could be. Then, however, a wave of Latin American leftist rulers came to power and with strong hands took hold of the state. In Argentina, the postal service returned to the government, along with the water supply in Buenos Aires and the gas company Metrogas. Similarly, after the 2006 election of Bolivian President Evo Morales, the electrical operator, the largest and most important hydroelectric plant, the gas industry, and the telecommunications operator all went back into state hands.

 

So "denationalization" or the return of public service companies into state control is not an Orban invention. The rhetoric of Hungarian officials, however, echoes that of the Latin American leftists. In their telling, privatization in the 1990s wasn't carried out in Hungary with complete transparency. In addition, foreign companies have earned enough in Hungary. This argument ignores the investment, the long-term stability of the economy, or the overall framework of the European legal environment.

 

For foreign audiences, Orban and his ministers have tempered their language since their landslide victory in the 2010 elections, but at home they go on about colonialists who have already raked in enough.

 

According to the prime minister, the energy suppliers are lying when they claim that they are operating at a loss. “These companies have joined forces against Hungarian families,” an exasperated Orban said in March after a court dismissed the first government attempt to cut energy prices by 10 percent. “They have turned to the courts and cooperate against those who have a hard time earning a living. These firms live off of us. Since privatization, they have earned billions of forints in profit.

 

“We want to cooperate. But if they do not cooperate with us, so we will put forward by force further tariff reductions under the EU average.”

 

Politically speaking, this approach is understandable. Orban’s Fidesz party is fighting for votes with the extremist Jobbik party, whose economic policy favors a return to the days when everything from pins to locomotives were produced domestically. And everything non-Hungarian is therefore bad, and the economy is − according to Jobbik as well as many members of Fidesz − managed from abroad with the goal of impoverishing Hungary and its inhabitants as much as possible.

 

Never mind that the Hungarian economy − in crisis, with frozen domestic demand and indebted firms and citizens − depends on money from abroad. And that Orban has been concluding "strategic agreements” with various investors, especially in the automotive industry.

 

Still, from the perspective of any ruler of Hungary, stricken by the domestic and European economic crisis, Orban’s approach has its logic, which would culminate in another victory in the spring 2014 elections. To understand this logic, consider the structure of Hungarian household expenses and how they heat their homes.  

 

Hungarians depend much more than other Europeans on gas heating, which is used by 76 percent of the population (in the Czech Republic, for example, the figure is just 34.4 percent). The government therefore focuses on gas prices for households and earlier this year bought back gas storage tanks from Germany’s E.ON. For lack of alternative supply methods, those tanks are the main solution for any interruptions in gas shipments from Russia, the source of a whopping 80 percent of gas consumed in Hungary.

 

According to a January 2012 study by Energia Klub, a nonprofit organization, 37 percent to 40 percent of Hungarian households spend more than 20 percent of their income on energy, compared with 6 percent in Germany. That’s 1.5 million to 1.6 million households living in what is defined as “energy poverty,” not a marginal share of the electorate.

 

That burden is generally eased by government benefits, and there’s no slack in the system to allow for government investments such as the Czech "green savings" program that would, among other things, help jump start the construction sector and other industries to create jobs.

 

But to give people handouts, or order suppliers to reduce prices is simpler and reflects the overall state-directed approach of the Orban government. And those methods sell much better in elections.

 

Hungarians are traditionally suspicious of foreigners and in times of crisis, a foreign company − regardless of its share of investment and profits, and regardless of whether the service works well or badly − can become a prime target of frustration, already roused by the rhetoric of Orban's government. Another similarity with the late 1990s in Latin America.

 

The idea that public services should be provided by nonprofit organizations is then just the logical outcome of the populist economic policies that Orban and his ministers have so well mastered − as if they learned them at the feet of the founders of modern populism in Latin America.
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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