The Orban Regime: Sails Hungary onto rocks – killing democracy

Why do so many lawyers become politicians? Because they don’t know what to do in the courtroom. Well, the same can be said for why politicians don’t set utility rates, because they don’t know economics. Unfortunately, for the Hungarian populace, Prime Minister Viktor Orban and his Fidesz autocratic government their inability to grasp basic economics is turning Hungary into the failed state of Europe.

The failure of the Orban regimes economic policy were most eloquently on display this past Friday (Dec. 30, 2011) when parliament passed two laws that will allow political commissars (as described the by central bank president) to work in the central bank, and to effectively remove the current head of Hungary’s central bank. The Hungarian forint dropped more than 1% in minutes. A post I saw on Facebook, had a financial trader, saying that was a very expensive lunch for him. The political grab for the central bank – and its foreign currency reserves demonstrates why the money is protected from politicians. The reduction of political influence into core monetary policy is a mark of modern global economics – one born of past economic disasters.

However, for Orban, there is no reason to have the central bank independent from government policy making “It is a European fashion that the central bank must be in a sacred state of independence,” Mr. Orban said. “Every time there is a hint of government influence, the nerve endings jerk, sending a signal all the way to Brussels.” And as we know, European fashions come and go, so certainly these trends shouldn’t be paid too much attention to.

Politicians are more trustworthy than bankers

Unfortunately, for Hungary and the rest of Europe, the man challenging current fashion trends is an autocrat that has now removed Democracy from Hungary and is intent to instill the state into many spheres of economic activity. Currently, I’m writing an article on the decline of the political state and the rise of the regulatory state. The regulatory state represents the increased technocratic nature of policy making. That is, independent government institutions, like the central bank, or energy regulators (the Orban regime took away the powers from the energy regulator in 2010) that are highly professional organizations produce professional decisions based on an in-depth understanding of certain issues. For the central bank, the knowledge and understanding of a particular countries economic situation is balanced with how markets and government policies interact. This is why Orban is so annoyed by Hungary’s central bank, because it has to continuously balance out the horrible economic policies of the government that has caused the currency to fall 15% in the second half of 2011.

The rejection by the Orban autocratic regime, which believes in political control over every aspect of Hungarian economic, social and even educational lives (now political appointees will appoint heads of schools), the relegation of independent regulatory institutions goes against the grain of European (and global) governance. Government – the strong political state taking action in all areas of the economy, is giving way to cooperative relationships between diverse stakeholders and in independent government institutions that act as regulators not just on price, but as a regulator in an engine, that balance the political pressure on economic actors. This creates a long term stable environment where private investment can occur and is buffered from constant shifts in political winds. Orban’s removal of independent institutions opens up the economy to strong political winds that whip the economic actors in the country. The shifting winds unsettle investors and raise the risks of operating in Hungary.

The analogy of a sailboat in high winds works well. If the captain of the ship can’t steer the vessel in a predictable path, but must contend with constantly shifting winds, he will be forced to slow down to deal with unpredictable nature. The Orban regime is worse than political winds – winds you can count on being there, rather the regime is akin to Moby Dick swallowing up the profits, whole businesses and even the passenger’s money in high winds. Over time this ‘strategy’ leads to the destruction of more and more sectors of the Hungarian economy.

Viktor - did you take out the life jackets again?

The passengers of the destroyed boats look to the IMF and EU for a lifeline but Moby Orban (who really is Ahab -I just needed to tie ‘Dick’ and ‘Orban’ together), tells the drowning passengers they should swim faster – they don’t need IMF life jackets – “faster, faster!” he yells. “I will save you, just give me power and the money from the central bank!!” In an attempt to motivate the drowning flock, he proclaims, “The problem is not that you are drowing, it’s you haven’t given me enough money to save you. Your pension wasn’t enough – agree to give me your life savings in your bank accounts, and then swim quickly to me, I promise this will be enough to save you.” Under this scenario, the people still drown, the leader didn’t understand (or did he?) if you are drowning staying calm and remaining still will save you. Moby Orban insist on fighting against the capitalist system in a raging storm, his flock of sheep in parliament obey, while the villagers, out on the water for a days sail, are swindled of their money while drowning.

Autocratic regimes are not pretty.  The destruction of the Hungarian economy and the draining of the pension funds and citizens pockets (Hungary now has 27% VAT), must be constantly justified with louder and louder political rhetoric. Action is taken by the regime to demonstrate where they problem lies. For the Orban regime, the problem lies with the bankers, foreign investors and even tax payers that benefited from private pension fund management. None of the capitalist system that flourished over the last 20 years can survive. For Orban and his regime, the failure of current economic policy is not due to their ignorance of how to navigate a boat, but rather the previous crews course the boat sailed on. Somehow for Orban and crew, Democracy and Capitalism are un-Hungarian. The Hungarian nation – is a self sustaining entity that sails its own course. Unfortunately, as much as Orban yells against the waves, howling wind and makes the IMF into Moby Dick, the boat continues to sink and he purposefully left the life jackets on the dock. The drowning passengers, unknowingly have foregone their lifelines and now must entrust their lives and life savings to a man that sails towards the lighthouse light, rather than away. The lighthouse keeper sees the impending crash, but can do nothing to stop the loss of life.