Back to school, with some trepidation

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The following editorial is from today's print edition of the Budapest Business Journal. 

As the school year begins, it’s heartening to see officials taking up education policy. Unfortunately, we worry that some of their efforts involve the government overstepping its role, with poor results. Even more disconcerting is the fact that the worst marks would go to the head of the central bank.

We might give a barely passing grade to the August 28 announcement by Economics Minister Mihály Varga that his ministry will be taking over direct administration of vocational schools. As industrial production grows in importance for the Hungarian economy, the government has tried to entice manufacturing. One thing producers have repeatedly said is that they need a workforce that is well-trained, with more practical skills. An effort to improve vocational training helps young school leavers join the work force, and by providing better-equipped workers, it adds a vital incentive to attract producers to Hungary. Still, we question whether increased government involvement will improve schools or simply add a layer of bureaucracy that makes the system less efficient and effective.

Another instance of government involvement in education seems more dubious: This year schools will be required to use the new national textbooks. Because teachers cannot assign any texts aside from the government-subsidized ones, officials say, students will not be forced to buy expensive books. When the law was passed last year, private textbook makers complained that the government monopoly destroys a legitimate business. That's true, but a bigger concern is the way central supply of textbooks gives the government extensive control over the curriculum, a situation that opens the door to potential abuse. With its 2010 media law, the current government has already shown a strong desire to control what people read, and it fought hard to erect a Szabadság tér statue that critics say is an attempt to whitewash past crimes of Hungary’s home-grown fascists. In this situation, it is not unreasonable to expect that the government’s idea of a good textbook might contain some revisionist history. It’s hard to give a passing grade here. Again, the question is whether the government’s involvement will actually make things better.

One man who believes he knows the answer to this question is György Matolcsy, governor of the central bank. He announced on August 28 that the Hungarian National Bank is contributing HUF 200 bln to four foundations established to support instruction in economics and finance, because he sees the need to replace the “obsolete doctrines and mistakes of the neoliberal economics school”. Since then, Matolcsy has explained what doctrines we need to replace them: his own.

Matolcsy frequently boasts that, in his previous job as economics minister, he used “unorthodox” policy – including special taxes on certain sectors of the economy and nationalization of formerly private firms. He seems convinced that these measures are a raging success, though we’re not so sure. In announcing the endowment, which is one-and-a-half times the state’s annual expenditure on higher education, Matolcsy said that it would not cost the taxpayers anything. He explained that the money is taken from the profits the MNB realized while cutting the base-lending rate over the last two years – and also from the central bank’s “money creation”. In recent weeks, the National Bank has reportedly spent HUF 415 mln for the Chateau Borbély in Tiszarof (to be used as a vacation home for bank employees), HUF 12.56 bln for the Eiffel Palace office building downtown and about HUF 450 mln for a building in District V. The bank has justified all these purchases as being good business decisions.

Pardon our neoliberal economic ignorance, but the idea of the central bank producing money without any costs to the state or its citizens seems, well, unorthodox. And the real estate purchases appear to exceed the bank’s remit. Neoliberally speaking, a central bank’s job should be to oversee monetary policy, protect the country’s currency, set interest rates and act as the government’s lender of last resort.

We are ready to be proven wrong, though that seems unlikely. While Matolcsy has been shopping, the country’s currency is hitting new lows. Much of this may be due to the crisis in Ukraine, but widespread concern about the country’s unorthodox economic policy does not help. Now is a time for the central bank’s governor to be worrying more about the forint and less about what he can buy with it. Until his performance improves, it is hard to give the man a passing grade.

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