Hungary fell behind Slovakia, now Bulgaria? Country gets ‘Smack Down’

smackdownThe economic rise of Slovakia, surpassing Hungary with better salaries and the adoption of the Euro, was embarrassing for Hungary.  After the fall of Communism the more advanced economic system in Hungary combined with rapid (and successful) privatization of key industries should have meant Hungary would continue to lead economically and politically. With the current path Hungary has chosen, it would seem that Bulgaria will soon surpass Hungary for less corruption, a better investment climate and a more sane political environment. Hungary will then have to try hard to maintain its lead over the non-EU Balkan countries.

This week I was at the Energy Forum, attending by a range of government representatives, energy companies and various energy institutes. I attended a forum with Janos Koka, former Economics Minister and now Parliamentary leader dealing with Nabucco, and I was able to ask him the question of whether these recent events against investors in Hungary were an indication of things to come in the future Fidesz government (Orban didn’t take any questions at this event). His response was very kind and I think represented him wanting to preserve Hungary as a stable country for investment rather than making political points.  He said during the time that Fidesz served from 1998 to 2002 they did not take action against investors, so he wouldn’t expect them to punish investors if they came to power. Rather, the noise (and some action) that is being made is for their voters, rather than an actual policy of investor punishment.

Koka’s words, if true, could continue Hungary’s path of economic development. However, maybe this current anti-investor era is representative of a more systemic problem that must be resolved first. That is maybe it is the very traits that made a ‘free market’ system work within the confines of a Socialist economy that has seen Hungary continue to fall behind regional peers. Evasion of authorities, corruption and the lack of political cooperation in the center have all meant the people of Hungary have been ill served by their leaders. Everyone, including the people, whether due to economic survival or greed, have sought to serve themselves. The result is corruption and economic takings that fail to serve the common good of the country thereby denying the advancement of the common and individual good.

The fact that 2 out of 3 Hungarians believe the transition to democracy is a failure only underscores the failed chances to create substantial reforms and improvements in the country. Now even Hungary’s friends and the companies that did believe in Hungary are worried about maintaining the limited improvements the country has made. Following my lead, the embassies of the US, Belgium, France, Netherlands, Japan, UK, Germany, Norway and Switzerland have issued a joint statement on transparency in Hungary.

It is therefore with great concern that we hear of significant new instances of non-transparent behaviour affecting investors in such areas as public utilities, broadcasting, and elements of the nation’s transport infrastructure. These reports could hinder the investment for which Hungary, like every other country, is competing.

This statement is called a ‘smack down’. That is, ‘Hungary you better wake up and cut out your petty stealing because if you don’t nobody is going to do business with your ass’, or as the diplomats said, “foreign investors will make their own decisions about where they will commit their resources.” And as you can see, over in Bulgaria the new Borisov government is doing pretty well at cleaning the country up. Fidesz can say they will be prosecuting the Socialists when they come into power (like in Bulgaria), but if they are still taking from investors (e.g. Pecs, radio stations, utilities) then even Albania will be looking a better bet.