Archives for April 2014

Viktor Orban, Hungary, and the World

Last weekend’s victory of Viktor Orban’s Fidesz (Fiatal Demokraták Szövetsége– Alliance of Young Democrats) party in Hungary’s elections casts a long and ominous shadow on European, and even in the world’s, liberal democratic tradition and practice. Orban won his re-election at the polls for a second four-year term as Prime Minister. He had already been PM from 1998 to 2002.

How can anyone be so sure that Orban’s current policies and political practices are doomed to failure?

The cause/effect relationships between good governance, effective government policies  (cause), and population prosperity (effect), do not have a substitute. The world has repeatedly witnessed this through history, but more particularly during recent decades. Nations of all sizes, and most corners on Earth that have truly embraced higher standards of governance have prospered; countries that have done otherwise have failed. There are numerous examples of both cases (more detail on this in my book, Globalization).

To provide an objective perspective to this line of reasoning, let’s take a look at the table below, where relevant comparative economic data related to Hungary, Poland and the Czech Republic is contrasted.

Czech Republic, Poland, and Hungary

As it can be seen, there is a remarkable similarity between Hungary and the Czech Republic, sizewise. Both nations have a population size that is fairly alike, the Czech Republic surpassing Hungary’s by only 7% in this indicator. In territorial extension Hungary has the upper hand, with an 18% superiority. By combining both previous elements, if anything, at first sight Hungary seems to have a marginal comparative advantage, by having a less densely populated country than the Czech  Republic.

Very significantly though, Czech Republic’s GDP per capita is substantially higher than Hungary’s, almost by a third (US $26,300 Vs $19,800). Unsurprisingly, exports per capita in the Czech Republic are higher (by a whooping 62%) than in Hungary (US $15,187 Vs $9,373), a testimony of the more viable and hospitable environment for foreign investments in the Czech Republic in comparison to Hungary. Poland is also lagging in this last economic indicator, although its general status is more favorable than Hungary’s, with a GDP per capita slightly superior, 6.5% (US $21,100 Vs $19,800).

The previous analysis is not necessarily conclusive, yet it provides a strong support to our line of reasoning. A more conclusive evidence will be at hand 2 or 3 years down the road, if comparative economic policies in the three mentioned nations prevail.     

What has Hungary’s government done differently than Poland and the Czech Republic? The three of them being former communist countries under the USSR’s umbrella (until the beginning of the 90s).

To put it in simple and direct terms, Orban’s government has characterized itself with increasing and excessive centralized power, with multiple manifestations of authoritarianism which, inevitably, have been undermining freedom and democratic standards, not to mention investments and economic well-being among the Hungarian population. On top of that, Orban’s government has provided abundant manifestations of xenophobia.

The apparent transformation of Viktor Orban from a relatively staunch anti-Communist and free liberal—during a great deal of his first term in office; now the sincerity of his former political posture seems doubtful—to an aspiring dictator has been a rather recurring phenomena in the worldwide political arena throughout mankind’s history. Hopefully, this occurrence in Hungary  could be one of the last episodes of such an outrageous behavior within the EU.

How can this happen? It seems to me that there are three factors at play here:

  • Very weak political structures, where appropriate checks and balances are insufficient or non existent. In Hungary’s case, for example, Orban’s government has implemented constitutional changes debilitating—and eliminating whenever possible—the checks and balances established by the legislative power to supervise the executive branch. Previously, the government had nationalized the private pension plan system.

  • Greedy personalities at work, with very low moral standards (Orban’s case).

  • History provides numerous examples of this ruinous behavior. Unfortunately, those shameful examples aren’t always repudiated, but replicated, as is currently the case in Hungary.

Cronyism, corruption, and an excessive presence of the state in all social spheres is the common denominator in these cases. The corresponding pattern of behavior is well established: once power is seized (nowadays mostly through conventional elections), the leader in command rapidly begins to implement electoral and political changes (like tight controls of the media, with repressive and oppressive harsh policies towards opponents) aimed at debilitating to the extreme any organized opposition. The offending government leader (and his/her party) will resort to any conceivable trick to enhance their political control, aiming to perpetuate themselves at the top spot while alive, extending their costly way of thinking forward through their political parties.

Orban is the near-perfect personification of an anachronic expansionist ethnic nationalist, very similar to Putin’s. Thus, Orban’s sympathy for Putin and their relative closeness.

For a few years during the late 90s and early in the last decade, Hungary was one of the most promising former communist nations. A significant amount of foreign investment was pouring in. Most regrettably, nowadays Hungary has been increasingly becoming one of the best examples of how-not-to-do-things, for the reasons previously cited.

Although Hungary lacks the critical mass —economically, territorially, and population wise—  to become a more onerous problem for Europe and for the world, nonetheless it has both, a significant historical importance (particularly by having been a part of the then powerful Austro-Hungarian Empire, from 1867 to 1918) and a rather relevant strategic location not far from the heart of Europe. Moreover, Hungary is a formal member of the EU, and of the Euro system, and part of NATO, which it joined in 1999 along with Poland and the Czech Republic.

As the evidence stubbornly shows, contemporary political systems are a relatively easy prey for populist characters which, in a relatively short period can take almost any country in a downward spiral (see Contemporary Political Systems and their Multiple Limitations).

To different degrees, what is happening in Hungary is not radically different to the nightmarish situation in Argentina and Venezuela. It is the same malaisse, in different degrees, and with only negligible differences: nations in a clear pathway to deterioration, quite often at an accelerated pace. In many respects, even Italy (under prior PM Berlusconi) elicited a great resemblance to Argentina and Venezuela nowadays (see Venezuela and Italy: A Tale of  Two Horrors).

Even in the most developed nations, like Switzerland, occasionally there are rare instances where harmful results materialize at the polls (see The Limitations of Democracy). More so, in aspiring democracies like Turkey, where PM Recep Tayyip Erdogan has recently resorted to absurd and self-inflicting harmful policies and measures, like (unsuccessfully) trying to block Twitter in Turkey, as a presumable way to stop or mitigate the great political damage brought about by a corruption scandal among his family, where personal economic benefit was allegedly achieved at the expense of government finances.

The rather frequent dysfunctionalities of contemporary political systems should be a cause for a profound rethinking (and redesign, where applicable) in how to truly improve effective governance in our world. It’s the only way to achieve consistent, self-sustainable, long-term prosperity, in harmony and peace.

 

 

Sir John James Cowperthwaite and Hong Kong’s Domino Effect

Sir John Cowperthwaite

The world is indebted to some remarkable human beings that, from time to time, have made such momentous contributions that have virtuously impacted the entire world, changing the way it interacts. Such is the case of Sir John Cowperthwaite (1915–2006).

The Scottish born economist and statesman was the chief architect behind Hong Kong’s spectacular rise from poverty to prosperity. He was Hong Kong’s Financial Secretary between 1961 and 1971, and a worthy disciple of Adam Smith (coincidently, also a fellow  Scot—read our post The Scottish Connection).

By using a laissez-faire approach, refusing to impose trade tariffs, banning state subsidies, keeping taxes down, and reducing red tape to the extent that a new company could be registered with a one-page form, Cowperthwaite’s free-market and positive-non-intervention economic policies turned post-war Hong Kong into the thriving financial center it is today.

Sir Jonh was in terra incognita. An economic experiment of this sort had never been executed in this magnitude. Hong Kong, a British colony with a population of only 600,000 at the end of World War II, was suddenly flooded by Chinese refugees in the following years. By the 1960s, around Cowperthwaite’s time, Hong Kong had a population of over 3 million people, and still rapidly growing.

But how was it possible that a Financial Secretary could have such a profound and decisive influence in Hong Kong’s economic policy? With the benefit of hindsight, a very solid case can be made that Gandhi and his peaceful resistance paved the way for this to be possible. It was because of Gandhi that the British Empire was compelled to agree on India’s independence, and shortly thereafter, started retreating from its different colonies around the world. In Hong Kong’s case, in most likelihood, this implied a consistent and increasing detachment attitude from London, as long as things went well. This detachment allowed Cowperthwaite an incredible freedom to handle and even implement revolutionary and untested policies, like laissez faire, coupled with a minimum intervention from the state in business and society.

He took full advantage of a one-of-a-kind governance structure. The high respect he commanded was also crucial, particularly among both Hong Kong’s Chief Secretary, as well as Hong Kong’s Governor. Cowperthwaite’s influence in Hong Kong can be compared to General Douglas MacArthur’s in post-war Japan, a few decades earlier. In his first budget speech Cowperthwaite said:

“In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government, and certainly the harm is likely to be counteracted faster.”

Cowperthwaite didn’t stop there, Sir John believed so strongly that government should not interfere in business that, when asked by Milton Friedman in 1963 about the scarcity of economic statistics in Hong Kong, Cowperthwaite answered: “If I let them compute those statistics, they’ll want to use them for planning”.

He was an incomparable economic practitioner, a visionary, and a great leader. In most likelihood, the Hong Kong miracle would not have existed without him.

It can be conjectured that Hong Kong’s success was vital in the rise of the other three asian tigers, and also served as a point of comparison for China, which Deng Xiaoping masterfully used. Cowperthwaite was without a doubt the father of the economic model behind the four Asian Tigers’ success. In just three decades, these exemplary countries managed to turn their very poor economies into some of the most affluent in the world. To be able to consistently and dramatically improve the living standards of a nation in just a few decades is a doable feat that all nations on earth should emulate. Unfortunately, multiple and often insuperable (in the short-term) obstacles stand in the way of it. Those obstacles have been so pervasive and powerful that very few nations have been able to capitalize on the four Asian tigers’ incredible road to success—China is a remarkable exception, though still a work in progress.

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