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Chikán: this is how Hungary could be turned around

Hungary’s economy has become one of the least competitive economies in the Central Eastern European region in the last 10 years. Attila Chikán, minister of the former Fidesz-government, respected professor of Corvinus University gives his view of how this happened as well as his recipe for success.

The Hungarian economy’s current plight is due three causes: a bad heritage which includes a hundred-year old predisposition for corruption, years of bad economic policy, and the global economic crisis. These three causes are very different in nature and merit very different treatment. Traditions change slowly and require patience, Hungary’s policymakers can’t do too much about the state of the global economy, but economic policy could obviously take a better, more strategic and less ad hoc direction, Attila Chikán said at an event organized by the Joint Venture Association and several chambers of commerce.

“The politicians’ viewpoint was dominant (in economic policy) even after the transition to a market economy, with short-term political goals being more important than long-term economic factors. We did not want to initiate any reforms because of this. But imagine how much could have been done in the past 20 years,” he pointed out. In his view, this is partly because of a bad tradition of mistrust between politicians and economists. “Economists need to realize that politicians’ way of thinking is just as legitimate as theirs, while politicians need to recognize that economists are not just for telling them that their plans cannot be realized.”

As regards economic policy, he urges the government to align its long- and short-term goals. There is an urgent need for a comprehensive economic strategy which defines what exactly we as a country want to be competitive in, he said. One workable mix could in his opinion be a stronger focus on making the country attractive to investment in general, while choosing a select number of industries where we want to become innovators on a world scale.

He agrees with the government that employment should be a key goal, but finds significant details lacking about how the government pictures reaching this goal. He also agrees with paying more attention to stimulating small and medium-sized enterprises, which should be encouraged to enter multinationals’ supply chain, learn a strong business culture, then strike out on their own. “However, it is also very important to pay attention to productivity, especially in the more technical industries. But raising productivity and employment is usually not possible at the same company, at the same time.”

Chikán also considers networking Hungarian companies important: both clusters and supply-chains should take a more important role, which is difficult because Hungarian companies are often distrustful of each other.

Policymakers should also pay more attention to trade diplomacy and to compile a strategy for forging international business links. He sees the scrapping of foreign trade offices as a big mistake. “We should not be so naive as to think that a physical presence is not important,” he said about Hungary’s lack of a trade office in the Silicon Valley, for example.

He also criticized Hungary’s relationship with international institutions. “Hungary’s relationship with the EU is not as harmonious as it could be, not to mention other institutions such as the IMF. Not that I don’t agree that we do not need the IMF’s credit. We don’t need it. But still, we should not kick into them.”

He sees Hungary’s deficit problem as rooted in several decades of history, beginning in the sixties and seventies with János Kádár’s rule. He applauded the government for vowing to keep to a GDP-based 3.8% deficit, but added that doing so while lowering taxes and stimulating the economy “requires a magic trick”. In his view, it is not possible to further economize on spending in the public sphere. The only way to decrease the deficit is to increase taxation. It is impossible to predict whether the planned lowering of tax rates to 16% will result in a broadening of the tax base or whether it will just lead to less tax income, he said, as there are examples to support both outcomes.

The event was jointly organized by the British, the American, the German, the French, the Italian and the Swiss Chambers of Commerce and the trade department of the Austrian Embassy as well as the Hungarian Association of Managers. (BBJ)