Bad for business and democracy

History

The following editorial is from July 18 print edition of the Budapest Business Journal. 

Twenty-five years ago, Viktor Orbán and his young associates in the then newly formed Fidesz Party were dancing on the grave of state ownership: Communism was dead and Hungary was entering a bold new era of democracy with a free market. The government began divesting itself of property and private owners began to take control of most of the country’s capital.

Now it is Orbán and Fidesz who are telling us that the Hungarian government needs to maintain control over “strategic sectors”. It’s ironic that Fidesz, the enemies of communism, have become the champions of state ownership. But, more than ironic, it is also disconcerting, because these efforts appear to be bad for business – and democracy.

On July 15, Economy Minister Mihály Varga sent Parliament an amendment to raise the state budget by HUF 152 billion – to finance renationalization of firms like gas delivery company Magyar Gáz Tranzit, waste management company AVE Magyarország, Budapest gas distributor Főgáz and Antenna Hungária, which owns the country’s broadcast infrastructure. Meanwhile, the government has been talking a lot this month about more acquisitions. The state has already started buying out foreign shares of Bombardier MÁV, a firm that maintains the country’s trains, and the Budapest public maintenance company (FKF) and its sewer company (FCSM) are said to be next on the renationalization list.

Renationalization can be bad for business for some obvious reasons: A private, for-profit company will generally be leaner, more competitive and more efficient than a state-run concern. While Ronald Reagan, Mikhail Gorbachev and dissident writers may all deserve some credit for hastening the end of Soviet-style communism, the majority of the credit should probably go to the market. Big, bloated government companies were wasteful, ineffective and unable to compete, and the old system died a natural death.

Although they may be wasteful, companies with government aid can squeeze out private competition that could be supporting the economy. When the recently renationalized truck-axle manufacturer Rába signed a deal with the private Volvo Bus Corporation last year, the Association of Hungarian Bus Manufacturers cried foul. The association rejected the government’s assertion that propping up this socialist-era relic would create more jobs than the private sector could. On July 15, we learned from the official gazette that Rába won a HUF 2.3 bln contract as the only bidder in a tender to build 32 buses for the South Alföld transport center. Private competitors were not even allowed to try for the job.

That is part of why renationalization is bad for democracy – especially when you have leadership like the Fidesz government, which is able to pass laws in a matter of weeks and steamroll any opposition. Even the best-meaning officials can hurt private enterprise and hinder free markets by enforcing their will.

During negotiations to increase government ownership in Főgáz, the company that the state was buying from felt that they were being strong-armed into handing over their assets. RWE East Chairman Martin Herrmann reportedly complained that the Hungarian government was acting inappropriately and engaging in “expropriation”.

Other foreign-owned companies, from banks to broadcaster RTL Klub, have said that special taxes levied against them felt like part of a campaign to force them to sell locally – if not to the state, then to ownership that is friendlier to the government. In these, and other cases, the renationalization seems more politically driven than economically motivated.

On July 15, we heard concerns from Hungary’s Fiscal Council that the extra funds Varga is seeking for privatization will mean that Hungary makes no progress on paying down its public debt this year. That’s bad for business.

And until we are shown that every renationalization is being undertaken for economic reasons, we can assume that there’s also some politics involved. That’s bad for democracy.

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