Saturday, September 23, 2006

Hungary's Malaise

by Tibor R. Machan

Shortly after Hungary set off the fall of Soviet-style socialism in
1989, when that country's rulers allowed visitors from what then was
East Germany to leave without any hindrance for West Germany, my
mother, who had lived there for all of her life before being allowed
to leave in 1975, made some interesting predictions. The decision by
the Hungarian rulers was the first step toward the dismantling of the
Soviet Empire. But my mother thought it wouldn't necessarily lead to

Her idea came back to me during the last few days when Prime Minister
Ference Gyurcsany, identified by some as "the golden boy" of
Hungary's Socialist Party, got himself into serious trouble with many
Hungarians for having admitted, in a leaked interview, that during
the election which got him his current job he was lying about the
country's economy "morning, evening and night." Given that this was
said in a recording that captured his own voice, Gyurcsany could not
and never did deny that he made that statement.

What my mother said to me back after the fall of the Soviet-style
socialists was that unless all those who were part of the old,
communist regime were put in jail, the country would eventually be
retaken by the former bosses because there was no group of classical
liberal leaders ready to lead the country away from its dismal
socialist past. She was confident that without such a group of new
leaders, with genuinely new ideas, Hungary would slowly return to its
old socialist ways.

What my mother said seemed to me to echo the more scholarly
reflections of Professor Janos Kornai, in his book Road to the Free
Market Economy: Shifting from a Socialist System the Example of
Hungary (Viking, 1990).

What Kornai focused on, in particular, is the temptation faced by the
newly reconstituted but unreconstructed socialists -- who were
welcomed by the post-Soviet regime to take part in Hungary's
political affairs -- to produce a nominal free market system that is,
in reality, merely a bit different from the old socialist economy. In
short, they would attempt to forge a powerful welfare state,
promising to provide all the impossible perks of the old regime, only
without the accompanying totalitarian politics. Kornai warned that
this is going to be impossible and will simply lead to economic
collapse. As the saying goes, you cannot squeeze blood out of a
turnip. A broken economy like that produced under Soviet-style
socialism simply cannot sustain the burdens of a welfare state. Why?

Because where there is no wealth, one simply cannot steal much. While
Kornai was too polite to put it just this way, the plain fact is that
a welfare state depends on there being enough wealthy people from
whom the government can steal so as to provide the perks the
politicians are always tempted to promise to the voters.

Hungarians are arguably experiencing the consequences of not heeding
Kornai's advice, and of failing to come up with a genuine free market
political leadership. Instead, for more than two decades, the country
has been trying to make do with a hodge-podge post-Soviet regime that
fails to actually give up the socialist dream. While a country such
as the United States of America can get away with such a hodge-podge
system, since its basic infrastructure has for many decades provided
reasonably firm protection to basic classical liberal institutions --
e.g., the right to private property, freedom of contract, civil
liberties, etc. -- in Hungary there is no comparable history to fall
back upon. So once the barrel has been scraped, there is nothing more
left to steal. There are no rich companies, rich individuals, rich
investors and so on who could be conscripted to come up with the
funds to sustain the welfare state.

Given this reality, what else can a socialist do but lie, lie and lie
some more? And once the citizens of the country discover this -- and
that's one benefit of having left the Soviet-style system behind,
namely, great openness about what politicians are doing -- the regime
will meet with considerable opposition. And this is how the PM is
urged to resign. He is refusing to do so but it is difficult to see
where he can go now. The jig is up, as the saying goes.

There is no socialist miracle. Unless the country generates some
solid non-socialist leadership and who persuade the citizenry to have
some patience while the economy recovers, prospects for peace and
prosperity are dim.

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