How to turn a country into a corrupt autocracy – the Orbán way.

Spoiler: Hungary have benefitted enormously by joining the EU. Joining the EU meant that Hungarians were guaranteed civil rights that were unthinkable when Hungary was a communist country. The EU membership also meant that living standards increased to levels far higher than before. Hungary has also received more of EU funding than average of the ten countries that joined the EU in 2010. Despite this, Orbán has since he became prime minister, again 2010, set out on a path violating Hungarians’ civil rights, freedom of the press and rule of law. These are steps towards a more autocratic and corrupt society where elites are free to enrich themselves.

Orbán, who in 1989 received a scholarship from the Soros Foundation to study Political Science in Oxford, was in the beginning of his political career a pro-European liberal. No wonder that he supported the pro-market reforms that were implemented in Central and Eastern European countries that later became members of the EU. The reforms led to higher growth and living standards in those countries, compared to other former communist countries. Hungary was one of the fastest reformers according to the EBRD’s Transition reports. Orbán was prime minister during part of this period.

However, during Orbán’s second run as a prime minister since 2010, the pace of reforms has slowed down and reforms that will make Hungary less integrated with the outside world and even violate the principles of the Single Market, have been introduced. This might explain why the gap has increased to the other nine countries that joined the EU in 2004 have increased since Orbán came back to power, c.f. Figure 1.

Figure 1. GDP per capita developments in Hungary, EU10 and Former Soviet Union republics 1990-2017.

Source: World Bank Database. https://databank.worldbank.org/data/source/world-development-indicators#Note: All series are shown as logs of an index, which equals 1.0 at 1990 so the series start at zero. Since the vertical axis is in log units, the slopes of the series are the rates of growth. An increase of 0.1 is a growth of 100*(exp(0.1)-1). As an example, FSU12 GDP had decreased by some -0.6 in 1998 which corresponds to a 100*exp(-0.6)-1) = -45%. Log changes are approximations.

 

Blaming Orbán and his policies for the full extent of the gap is probably stretching it a bit. But it cannot be blamed on the EU which, next to George Soros, is Orbáns preferred target for attacks. No matter how you calculate, Hungary have received more relative to the average of the other nine countries that joined the EU in 2004. And they began to receive funding already in 2000, c.f. Table 1.

Table 1. Importance of EU funds for countries joining the EU in 2004.

Sources: EU funds Eurostat Balance of payments statistics, https://ec.europa.eu/eurostat/web/main/home Public investments, GDP and Population European Commission AMECO database, https://ec.europa.eu/info/business-economy-euro/indicators-statistics/economic-databases/macro-economic-database-ameco_en

 

So, for Hungary, like for the other NMS10 countries, the inflow of EU funds is especially important. But more so in Hungary, where the funds accounted for 2.6% of GDP between 2010 and 2019, and for around 60% of public investments.

However, if it had not been for the pervasiveness of corruption that plagues Hungary under Orbán, the funds would’ve come to better use. Poor procurement rules and concentration of decision-making authority over disbursement of funds in the prime minister’s office, make it easier for the Orbán regime to enrich himselves, his elite and relatives, such as his son-in-law István Tiborcz.

If you want to put some public money in your pocket, the best way to do this is to aim for large infrastructure project. In countries with weak corruption, the procurement process is transparent and strictly regulated. The Hungarian public procurement process is however rigged in favour of people connected with the regime. Large contracts are given to firms after what is called “negotiated procedures”. These procedures allow the government to strike a deal with any company without going through an open competition. And to make matters worse, most of the open tenders for procurement in Hungary only involves a single bidder.

These opaque practices have raised eyebrows in Brussels. EU’s anti-fraud office, OLAF, have many times recalled funds, from Hungary, due to irregularities and fraud. Irregularities were found in all 35 Hungarian projects that OLAF reviewed between 2011 and 2015, including the construction of the new metro line in Budapest. Due to irregularities, the government was ordered to repay €283 million for that project. And in the DG OLAF 2018 report, Hungary won the league of countries subject to DG OLAF investigations of how EU funds are used, c.f. Figure 2.

Figure 2. And the winner is Hungary!

Source: DG OLAF (2019). The OLAF Report 2018. European Commission. https://ec.europa.eu/anti-fraud/sites/antifraud/files/olaf_report_2018_en.pdf

 

And did I mention that the mayor of Felcsút, Orbán’s home village now is the eighth-richest man in Hungary? And that his wife owns some 121 companies. According to this and many more articles, more than 80% of Mészáros’ family companies’ earnings are believed to come from EU funds. This is one of the reasons why Orbán in this Hungarian article is called a mafia leader.

Turning from qualitative to quantitative information, the World Bank’s indicator of Control of Corruption corroborates the story above. The Hungarian slide towards a more corrupt society has been accompanied, and supported by a deterioration of Rule of Law, c.f. Figure 3.

Figure 3. Control of Corruption and Rule of Law in Hungary relative to the other NMS10 countries.

Source: Rule of Law and Control of Corruptionarefrom World Bank, Worldwide Governance Indicators Database, http://data.worldbank.org/data-catalog/worldwide-governance-indicators. The original indicators were standardised to be in (0,1). Note: The two lines relate the indicator for Hungary relative to the average of the other nine countries that joined the EU in 2004.The increase in the end of the period is mostly due to the deterioration of Rule of Law in Poland.

 

Hungary is not only among the most corrupt EU Members; it is also the least democratic EU country. As I wrote here, Hungary is now regarded as an autocracy in V-DEM’s annual report . Orbán’s policies are therefore in direct violation with Charter of Fundamental Rights of the European Union.

Unfortunately, as I wrote here and here, the EU Treaties do not allow for a country to be expelled from the EU. And an Article 7 process leading to a removal of the country’s voting rights in the European Council can be prevented by a blocking minority. Then what should the EU do to punish, yes punish, Orbán’s authoritarian rule? Since EU funds regularly have been abused by the Orbán regime, conditioning the disbursement of future EU funds to the state of Rule of Law, would be a beginning.  

1 thought on “How to turn a country into a corrupt autocracy – the Orbán way.

  1. Pingback: World Press Freedom Day 2020 | Globalisation, furry animals and anything but fishing

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