“Capitalism Hungarian Style”: an interview with the head of CEU’s Political Science department, Dorothee Bohle

Dear prof. Bohle, thank you very much for accepting this exclusive interview with the CEU Weekly.

The CEU Weekly (TCW): Professor, you are co-authoring with professor Béla Greskovits a book to be published by Cornell University Press about “Capitalist Diversity on Europe’s Periphery”, could you tell us a more about it? What are the major claims, or the questions you ask?

Dorothee Bohle (DB): Our book is interested in the development success, fragility and diversity of the 10 east European member states of the European Union, and Croatia, which will join the EU soon.

Success, because out of all 20 some former communist countries, it is only these who managed to transform themselves into fully fledged capitalist and democratic societies. And even in these countries success cannot be taken for granted – over the last two decades countries have been backsliding in economic or political reforms repeatedly, Hungary being the most recent example. We think that fragility of the new democratic and capitalist institutions is deeply ingrained in East Central Europe’s new order. This is so partly because these countries had to master a plethora of challenges – coping with the legacies of incomplete state and nation building, Soviet industrialization, and mature welfare states among many others. Inevitably, policy makers faced difficult trade-offs, which would haunt them later on.

The initial choices they made, and whether they perceived socialist legacies as threats or assets for their transformation project resulted in capitalist diversity. Thus, for instance Baltic elites saw national independence as their highest priority. They were united in considering Russia’s economic and political influence as the biggest threat to their national sovereignty and security. Their transformation strategies aimed at a radical departure from the past. As a consequence, these countries adopted the most market radical approach to economic reforms. Their capitalist system became a pure neoliberal one. In contrast, Slovenian policy makers had a much more favorable view of the socialist legacies, and consciously built on them. Their system, characterized by a high level of labor inclusion, became neo-corporatist. The four Visegrad states are between these two polar types. We call their regimes embedded neoliberal. Each of these regimes faces its own challenges, and it is these challenges that make their regimes overall fragile.

2. TCW: Very interesting Prof. Thanks. And, for example, how would you characterize Hungarian capitalism? Who are the actors? Which are the settings through which these actors agree or negotiate? Is there any hegemonic player, whether labor capital or the state?

DB: As just mentioned, Hungary has adopted an embedded neoliberal capitalism. What this means is that it tries hard to attract transnational companies in complex sectors (car, electronics, etc.) to revive its industrial output and exports. To do so, Hungary has adopted generous incentive packages, and has launched expensive infrastructure development programs. At the same time, Hungary has also kept in place a relatively generous system of social protection. This system is particularly geared towards the pensioners – both those in early retirement and above retirement age. “Embedding” transnational corporations, and social welfare programs are costly. Having only a handful of taxpayers and social security contributors has made the coordination of fiscal and monetary policies exceedingly difficult. This is one reason for Hungary’s contested and ineffective fiscal and monetary institutions. Finally, in Hungary forces of labor have atrophied. As a result, it has remained solely the democratic system’s task to pursue the embedded neoliberal agenda, cope with the conflicts among varied policy issue areas, and bear the political consequences.

3. TCW: Now, professor, on the other hand, and with regard to the recent devaluation of the forint and the default of many Swiss denominated loans, voices were critical of the unorthodox policies of the government, including allowing debtors to repay at lower exchange rates from before the plunge of the Forint.

But on the other hand, we have David Harvey’s literature on accumulation by dispossession, where he suggests or shows how devaluations –for instance the Asian crisis from the nineties- allowed foreign capital to take over ownership and control. What do you believe, is devaluation a way of dispossession? Was the recent move of the Hungarian government regarding foreign loans a way of protecting Hungarian capital?

DB: To some degree, I have some sympathy with the current government’s fight against “debt slavery”. Hungarian banks – both foreign and the domestic player – have in the past lent irresponsibly in Swiss Franc to consumers and, as I learned recently from one of my students, to municipalities as well. It is remarkable that there was little awareness that such a lending is associated with huge risks for consumers. Initially, the government and regulator thought that Hungary’s switch over to the euro would eliminate the exchange rate risk. When it became clear that Hungary was not going to join the eurozone any time soon, the embattled Gyurscany government shied away from adopting unpopular measures to rein in the foreign currency lending. The recent appreciation of the Swiss franc has therefore left consumers and municipalities in distress.

There are however a number of problems with Orban’s fight against “debt slavery”. On the one hand, the mortgage repayment scheme at preferential exchange rate has a strong upper middle class bias, as poorer borrowers were unlikely to have access to the resources to pay back their FX mortgages. Thus the scheme offers little relief for the majority of Hungary’s indebted households, especially the poorer strata. At the same time, it does not seem to be the smartest move to alienate banks in the middle of a global crisis. The Hungarian society is paying a high price for Orban’s attempt to appease the upper middle classes. While foreign banks are probably not moving out of from the country, many of them retrench their activities in the country and are very reluctant to issue credits.

4. TCW: well, that is very insightful prof. Dohle. And on a similar line, in one of your articles you spoke about a move towards illiberalism… Is that what we are witnessing in Hungary? And if yes, how legitimate is that?

DB: I think it is quite obvious that this is exactly what is happening, and I don’t need to reiterate here the numerous steps taken by the Orban government that have weakened the checks and balances of a democratic system. I consider none of this legitimate – Orban simply did not have a popular mandate for changing the constitution.

5. TCW: Finally, professor, the Political Science Department is hosting the series “Hungary in the spotlight”… without a doubt these lectures are not only very popular but also touching upon some of the most pressing issues (Constitutional and electoral reform, for example). We are truly impressed and grateful for this effort, and as head of the department we would like to ask you about the work behind: how does PolSci manages to put this together? What have been the major challenges of it?

DB: This is a truly departmental effort. Many of my colleagues have drawn on their professional networks to invite experts on the constitution, electoral law, economic policies, and the state of democracy in Hungary. The biggest challenge certainly was to bring together panelists who stand for a lively, critical and competent discussion of the very serious issues at stake. I think overall we have been quite successful with this, and we are very pleased that the series has drawn a lot of attention inside and outside of CEU. I am also happy to announce that we plan a continuation of the series in the fall term.

6. TCW: Thank you so much professor, it has really been a pleasure to talk to you.