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Tuesday, February 21, 2012

Town Run by Foreign Bank

The quaint town of Szentendre, 15 km north of Budapest, has made news today. Its municipality elected a new vice mayor, entrusted with the reorganization of the municipal authority, nol.hu reports.

As a creative move, the new vice mayor was proposed by Raiffeisen Bank--an Austrian consumer bank with a significant market share in Hungary--and half of the new vice mayor's salary will be paid for by the bank. According to the town's mayor (representing the party currently on government in Hungary, promoting itself through a fervently nationalist, "anti-bank", "anti-EU" rhetoric), this "partnership" makes sense because Raiffeisen not only handles the town's accounts, but also holds the town's bonds [sic].

Why stop there? This opens up a host of new possibilities. East-central Europe continues to be the source of creative experimentation. So to speak.

Welcome to capitalism without even the surface appearance of democracy.

Wednesday, February 15, 2012

"Crisis Management," European Style

There is a true crisis in Europe--and it has been going on for five hundred years. The five-centuries-old story has to do, of course, with the inability of west European societies to create and sustain units of public authority that would be able to compete successfully in a world controlled by non-European competitors. Today, this longue-durée condition is foregrounded by the inability of the west European supra-state (created for the very purpose of giving western Europe geopolitical power in the world) to maintain its global economic weight. In fact, the EU is losing its economic sway in the world, and has been for most years during its existence. This is an argument I explore in the book to which this blog has been devoted.

The crisis is particularly biting today for two main reasons. One is that, no matter how the EU and its member states twist or turn their economic policy, their regulations and their global strategies, growth is just not happening, even in relative terms (forget shares in the world economy, growth is not noticeable even when we compare the EU to itself over time). The other is that the United States, which has, for the period since the beginning of the Cold War until very recently, played a dynamic cooperative strategy with western Europe, is not only in trouble itself, but it is also betting on other players as well, not just western Europe any more. If these factors together do not give jitters to the decision makers in Brussels, then they are really losing it.

There are many possible alternative scenarios that the EU could pursue. It could open up new, and radical, avenues for innovative, long-term projects creating multilateral cooperation strategies with multiplicities of actors worldwide, including not just the USA, Canada, Australia, Japan and BRICs, but also those states that are--for some reason incomprehensible to me--not looked at as rapidly growing, such as Indonesia or Vietnam. My emphasis is on the long-term, meaning longer-than-a-human-lifespan.

There is absolutely no reason why there are no, generously supported R&D facilities working on the toughest issues for humankind (not just the concerns of white middle-class west-European / north American men), from health to international security, from climate change to malaria eradication, the new Great Transformation to replenishable energy, etc., utilizing world-wide talent. Where are the new, intellectually sound, creative and progressive multiversities for the medical, physical and social sciences as well as the humanities, with Chinese, Indian, South African and EU monies, faculties and students, with generous provisions for the circulation of professors and students, located everywhere? Why not build new multiversities in places that have suffered? Former-Soviet central Asia? Sub-Saharan Africa?

What exactly is the "European" vision for the future?

Instead of innovating in bold and creative ways, the EU has somehow chosen to focus inward. It is nowadays engaged in a complex rhetorical offensive against "misbehavior" on part of its poorer member states. So what if the fiscal balance of the poorer member states is in peril? Weren't such disequilibria among the unspoken expectations at the time of the creation of the common currency? (If nobody had actually expected such problems, that suggests that incompetence was gaining epidemic proportions among the planners of the Euro. If such problems were foreseen, why are we suddenly acting as if we were surprised?) So what if Greece has a budget deficit in excess of 300 bn USD? How much exactly has the EU spent on subsidizing its banking sector? What exactly is the magnitude of the hidden, implicit transfers from the poorer to the wealthier states, especially to Germany, through the vehicle called foreign direct investment or, in a language sprinkled with more righteousness, "the freedom of movement for capital"? Who will ever draw the balance sheet for such accounts?

The two recent scandals--occasioned by the collapse of the Greek government budget and the near-random, passive-aggressive behavior of the Hungarian government (a curious, somewhat raw combination of neoliberal sadism and neocon self-admiration, ingredients that are, btw, plentiful in Brussels)--have given a set of splendid opportunities for Brussels to talk about these phenomena that are, from the perspective of the future of the world, essentially non-issues. This also has allowed the EU to direct its moral attention, again, more toward the inside, and fall back on a default strategy of selective, arbitrary and morose kind of xenophobia and exclusion vis-a-vis the rest of the world. The world is watching the senseless destruction of Greek society, listens to the revived, neo-colonial stereotype of an "eastern totalitarian personality" with respect to Hungarian society. That seems to be the European model of crisis "management."

Meanwhile, EU public funds are appropriated for drones to patrol the southern and southeastern perimeters of the EU.

Wow. How sad.

Malév "Hollowing-Out" Plot Thickens

http://atlatszo.hu now offers some additional details about what I see as a recent case (that of the national airline carrier) in the ongoing robbery of public assets in Hungary. I wrote about it here and here.

It appears that there are extensive social network ties between company X--appointed by the government to serve as bankruptcy guardian for Malév--and the one-person microenterprise that had precipitated the bankruptcy proceedings in the first place. And at least some of those links have emerged from cooperation in the bankruptcy-cum-privatization of erstwhile public assets.

There is a, by now very distinguished, literature on corporate social networks. In "interlocking directorates" that literature has coined one of the earliest concepts through which critical work on late-20th-century capitalism and the emerging new technique of social network analysis have gained intellectual traction. By now, this is fairly standard material in, say, third-year Economic Sociology courses.

What is interesting about the Company X link to the one-person micro-firm has to do with size. The corporate networks literature focuses, understandably, on linkages among some of the largest (i.e., most powerful and most complex) economic organizations. Here we have a slight variant, with a tiny spot of a company serving as the mosquito that delivers the Dengue fever virus in the body of the corporation that is to be dismantled.

From public court records on company ownership and board membership, atlatszo.hu also reconstructs some interesting details about techniques whereby previously state-owned companies have been "hollowed out"--still valuable pieces transferred to private owners at steep discounts and with the elimination of open competition or public oversight--through bankruptcy. (I wrote about this about twenty years ago, in a piece entitled "Simulating the Great Transformation: Property Change under Prolonged Informality in Hungary," published in the European Journal of Sociology. Subsequently, I have argued extensively about the significance of informal arrangements in the post-state-socialist transformation.

I often wish I had been wrong.

Tuesday, February 14, 2012

First Clues on Malév Bankruptcy

On the morning of February 14, the investigative journalism site http://atlatszo.hu published a piece about the bankruptcy of Malév, the erstwhile Hungarian Airlines, with a few remarkably interesting points.

When a corporation goes bankrupt in Hungary, an administrative procedure sets in motion, and a computerized, random-selection procedure appoints a bankruptcy commissioner who takes control over the failed business. Obviously, the purpose of this rule is avoiding possible collusion between any combination of sitting management, the state regulator agencies, creditors and the would-be liquidator.

On December 30th, 2011, however, a bundle of three pieces of legislation were passed by the Hungarian Parliament. One regulates some aspects of the liquidation of companies "of strategic significance;" another appoints one particular liquidator company (let's call it company X) as the default bankruptcy commissioner for such firms; and, a third one regulates the procedure of how to declare a particular firm "a company of strategic significance."

- On January 30th Malév was declared such a corporation of strategic significance;

- on February 4th, it went bankrupt (as a result of a bankruptcy procedure initiated by a tiny company, with one /1/ employee);

- on Feburary 5th, Company X--to be more precise, the CEO of Company X--is appointed as liquidator of Malév. According to this CEO has political connections to both political forces involved in the repurchase and subsequent collapse of the airline.

Stay tuned for more, I'm quite sure more is coming.

Monday, February 13, 2012

Greece: Crushed by Common Currency

I am writing this on the morning after the legislation on the austerity pack for Greece has been passed (at a remarkable margin of 199/74/27) by the Greek parliament. The international press is preoccupied with the "looting," arson and general mayhem that followed the vote; some even make an attempt to decipher the details of the deal struck, after months and months of posturing, negotiation and arm-twisting, between the IMF, "Brussels" (i.e., the EU Commission), the European Central Bank, as well as the German and French governments, on the one hand, and the subsequent Greek governments (I am saying this in plural as one government has already been ousted on this issue).

As for the "tragedy" reading of the drama, I am somewhat skeptical. Here is a visual explanation why.



This graph compares two sets of data. The red line is an estimate of the world mean per capita GDP for the period of 1999 to 2008; the blue one is the same for Greece. (Both come from estimates of economic performance provided by economic historian Angus Maddison here.)

Two things are clear from this. One, Greece is not among the poor countries of the world. It's per capita GPD has been, throughout the period of the existence of the Euro, at least twice the magnitude of the world average.

Second, Euro-membership was hardly an economic disaster for Greece; quite to the contrary. Its per capita GDP grew at a speed faster than the growth of the world average, such that, beginning at just a notch below 200% of the world mean, by 2008, it was around 215%. This is not an economic horror story at all. The problem lies elsewhere.

The heart of the problem is that, even with a per capita GDP that is more than twice the world mean, Greece was still among the relatively less wealthy members of the Eurozone. It is also among the smallest in economic weight in the Eurozone. A globally quite privileged society, that is among the relatively poorer and less significant than many of its main trading partners with which it is locked into a currency union--well, this is a textbook prescription for a serious process of unequal exchange and its main corollary, external dependency.

This situation is extremely similar to the predicament of economically less well-to-do regions within states. There is one crucial difference, however. The institutional and ideological practices of modern European states (on both sides of the erstwhile Iron Curtain, btw) have been, to a large extent, all about providing stable, predictable and sustainable mechanisms for transmitting tools to less wealthy regions for economic growth, in the form of a multiplicity of subsidies of all kinds. To a large extent, that is what modern European statehood is all about: These states are basically mechanisms of enforcing a particular kind of a complex social contract, in which the means of faster economic growth are provided to less wealthy regions in exchange for "national unity," i.e., a willingness to participate in a size- and, by implication, global-weight-making process called modern European statehood.

It is this element of matter-of-fact redistribution that is sorely missing from the project of the EU. In the absence of a pan-Europan supra-state, neither the institutional structures, nor the ideological wherewithal are present that would provide for effective subsidies for regions that perform less intensely than others in an economic sense. Meanwhile, the currency union allows member states, including the relatively less wealthy ones, to adjust their social policy provisions to mimic those of the wealthier states. It is difficult to blame them for this: the mechanism (the currency union) is there, the incentives are enormous, the enforcement has been tenuous. As a result, you have the mind-boggling paradox of a tremendous over-borrowing crisis on part of the government, in spite of commendable economic growth. The funds generated by private capital in the booming tourism and shipping sectors of the Greek economy do not get re-routed to finance the social safety net, infrastructural expenditures, and various other social provisions that the society has expected the state to provide. Domestic capital refuses to finance the Greek state, and within-EU, non-Greek capital also refuses to finance the Greek state.

Voila, the predicament of Greece.

And one final note. I was doing fieldwork on the "eastern enlargement" process in the EU headquarters in the late 1990s--i.e., at the time when the Euro, including Euro-member-state status for Greece, was being established.

There were not one, but two occasions when I was told by pretty high-ranking officials of the European Union, working at the time on "eastern enlargment," that one of the widespread concerns in Brussels about the possible inclusion of a set of east European erstwhile-state-socialist economies was that, and I quote pretty close to literally, "nobody wants more Greeces" in the EU. When I asked what they meant by that, I was told, in no uncertain terms, that there was widespread knowledge that the Greek government takes whatever it gets by way of funding, fails to implement required reforms and provides false data about the economy. That happened before the Eurozone membership of Greece.

I have, thus, a hard time accepting the argument that "everyone in Brussels was surprised" about the lack of honesty on part of the Greek government. No. Greece's admission into the Eurozone was the result of a much more complex process of complacency that occurred on, pretty much, all levels of the EU, not just the Greek state.

Whether that should be an issue or not, is an open question. It need not be: If there were economic growth in Europe, none of this would matter, at least not this much, I suspect. The trouble is that, now that austerity has hit Greece, there will definitely be less economic growth--something that would be desperately needed in a region composed of increasingly frustrated, waning powers.

Good luck with that.

Sunday, February 12, 2012

Flying Low--Very Low

On February 3, Malév, the sixty-six years old Hungarian Airlines—a private company in which the Hungarian government has a 95% (or, according to other sources, 99.5%) stake—went into bankruptcy, forcing it to cease all operations. Mass layoffs and crowd scenes at Budapest Airport were the news of the day. This prospect has been in the news for some time—and yet, travelers kept buying tickets until the night before the collapse. Clearly, whomever the management and politicians will fault for this collapse—the non-existent “Communists” or the very real, but hands-off “EU” are two prime candidates—they cannot possibly blame a lack of faith on part of the Hungarian public.

Until a few years before the collapse of state socialism, Malév was considered a reasonably profitable airline in its size category. Its decline and eventual demise today thus stand out as a particularly striking example of the fallout of post-state-socialist transformation in Hungary. Could there have been another outcome? The question points at issues far beyond the concerns of Malév or even Hungary per se.

So far, each of the six post-state-socialist governments of Hungary (not counting the various changes of Prime Minister within a given ruling coalition) has managed to find some public assets to privatize. This was done, primarily, in order to satisfy its specific client capital groups (residing both in- and outside Hungary). The financial windfall from such theft would be used partly to repay the debts for under-the-table financing of the political process, especially the election campaigns, and partly to buy the future good will of those capital groups.

All this was always facilitated by the prevailing post-"Communist" rhetoric that posited private capital ownership, under just about any conditions, as akin to the second coming of Christ, while state ownership was imagined as a form evil to be purged. As Tamás Sárközy, the Minister of Justice of the last state socialist government (no relation to the current French President) put it on the occasion of his submission of the Act on Company Transformation to the Parliament in 1989, "the worst capitalism was better than the best socialism". Given this, let’s just say, somewhat simplified view of the world, assets of the socialist state had to be sold off as fast as possible. It is perhaps only now that some Hungarians are realizing the full implication of what Sárközy may have meant.

On accession to power in May 2010, the leadership of Hungary’s right-wing Fidesz party faced a new problem: There was almost nothing left to pilfer from the public. This was a real structural problem, and the new government acted with the verve and resolve that distinguished them in the post-socialist Hungarian politics. (This dynamism is what Martin Schulz, the current President of the European Parliament presumably referred to a few days ago when he described Viktor Orbán, the current Hungarian Prime Minister, “an efficient man.”)

The new government swiftly created some liquidity, for instance, and most shocking, by forcibly nationalising private retirement pension plans—one of the moves that gave the foreign media the idea of calling their economic policies "unorthodox." In sharp contrast to Nestor Kirchner’s Argentina—from whose script Orbán's economic team seems to have borrowed significant elements—the current government of Hungary made no effort to allay the rapidly escalating social crisis on their hand with those assets. Quite to the contrary, a remarkably consistent feature of its, otherwise quite polyphonic, policy has been insistence on maintaining, and wherever possible, increasing, social inequalities and class friction. This is true even in areas—such as access to higher education—where the current government's hyper-restrictive policies are clearly contrary to its, otherwise not too complicated, nationalist—i.e., within the bounds of “the nation,” universalising—rhetoric.) (My previous post talks a bit more about that, in a different context.)

So, instead of ameliorating the increasing suffering of those who lost out in the post-state-socialist transformation due to no fault of their own, the government used its newly obtained cash to re-purchase some, previously privatised (or, as in the case of Malév, privatised, re-purchased, privatised, re-purchased, etc.) erstwhile state-socialist companies. The argument was: these are key assets in “strategic branches of the economy.” Considering Malév’s putative “strategic” importance as a national carrier, it is somewhat unusual for a nationalist government to allow this state-owned corporation sink into bankruptcy. Surely the explanation must be elsewhere.

What can be a more effective way to steal from the public, but to bring the company to financial ruin and then sell it at a price that is even lower than its market value to carefully chosen client capital groups? It is devastatingly simple.

Whether Hungary's national airline is, or could be made, economically feasible or not, some significant forms of value must still be left in it—e.g., in its well trained labour force, its route system, its access to the EU airspace, its hub airport in within a Schengen state, the system of interstate agreements that have given Malév access to its specific set of destinations, Hungary’s strong tourism industry, etc. All that is being liquidated, as we speak. There is a noticeable crowding in the competition for the most profitable routes. Some blogs and FB comments suggest that the first "takers" appeared within minutes after the announcement of the end of Malév's operations.

Although the takers are many, a clear winner, for now, of Malév’s disappearance is a hitherto small private arline called Wizz Air. It is interesting to note that Wizz Air is not only owned and run by a former CEO of Malév, but it has on its board a recent Minister of Finance of the Republic of Hungary who has been involved, ex officio, in the various deals concerning the relationship between the Hungarian state budget and Malév, until his departure from power a little less than two years ago. The Hungarian press, eager as always to look for evidence of short-term, individual-personal gain on part of politicians, is very preoccupied with this personal link. In doing so, I'm afraid it misses the bigger picture.

The problem of post-state-socialist corruption is not "just" a matter of the sitting management and politicians entrusted with their oversight taking personal bribes and other unfair advantages out of an ability to block otherwise acceptable business deals. A much bigger issue—both in terms of the magnitude of the financial loss, and the political and moral damage involved—emerges if / when the common interests of the society in whose name the government is acting—in the case of state-owned assets, in a direct ownership role—is summarily ignored, if not trampled underfoot.

And what is the collective owner of Malév, the Hungarian public, doing? It is, for now at least, mourning the loss of a high-modernist symbol of the "national" air carrier. What nobody is talking about is protection of the collective interests of the society, the moral and legal issues surrounding management of collective assets, and the implications of the, by now, more than two-decades-long history of assets robbery.

Saturday, February 11, 2012

What A Sad, Repressed Joke Reveals

Viktor Orbán, the current Prime Minister of Hungary, grew up in Alcsútdoboz, Vértesacsa and Felcsút, villages vaguely in the agglomeration of the industrial town of Székesfehérvár in west-central Hungary. His paternal grandfather had moved to Alcsútdoboz as a farmer after World War II. His father has a college degree as an agricultural engineer and held mid-level managerial positions in the nearby, state-owned mining company; his mother has been a special education teacher, specializing in speech therapy. The family moved to Székesfehérvár in 1977, when Orbán was 14, and he completed his secondary education in a fairly well known high school, in a class focused on English, in 1981. (Here is a a link to Orbán's official Vitae, adorned with a photograph that appears to have been taken before high school graduation.) He attained a law degree in 1987 at the Eötvös Lóránd University in Budapest, and held a number of research scholarships before becoming a full time politician, including the prestigeous Soros Foundation fellowship to spend a semester at Pembroke College in Oxford. His wife is also a lawyer. Given that all this occurred in state socialist Hungary, of course there was no payment of tuition of any kind involved in this story.

The little we know about the mobility path of the Orbán family is of course hardly exceptional: The state socialist system's cracks, inefficiencies and various other contradictions notwithstanding, a fairly large proportion of today's educated strata exist in a one, maximum two-generation removal from the working-class. This is all not only fine; arguably, the legacy of this massive collective mobility is among the greatest contributions of state socialist history to social reality in Hungary (as well as in most other erstwhile state-socialist societies).

What is amazing, then, is that Orbán was able to crack the following joke in a meeting with party activists in the town of Eger last week, in response to a request for an explanation for the rationale behind decreasing the number of tuition-free slots for admissions to law school at state universities from 800 to 100:

"Indeed, it was a mistake to decrease the number of seats in law schools to 100. They should have been cut to zero."

I find this punchline, coming from somebody who is the product of a free educational system, from which he benefited because of his constitutionally guaranteed right as a citizen of Hungary, first and foremost unbelievably distasteful. It is actually quite impossible to imagine in today's Hungary that the son of a mid-level mine employee, the grandson of a farmer, could afford law school tuition.

Be that as it may, if this is how dr. Orbán (in Hungary, law school degrees are doctorates) feels, I'm sure the state Treasury will accept a lump sum repayment of the real costs of his education, from first year elementary to law school, with appropriate interest, of course. And the same goes for his spouse and five school-age children, all of whom have of course benefited from the constitutionally guaranteed citizenship right to a free education thus far.

Second, this hardly appears to be--as his liberal critics tend to put it--a "conservative" man. Nor is he a "populist moderate right wing" politician, as he described himself in an interview with a French newspaper recently. Nor is there much by way of particularly Christian or, for that matter, democratic, content to this idea.

IMHO this remark reveals a rather crude, neolib hack, with a really strong streak of repression, who sells himself to large segments of the public yearning for simple and obvious, small bits of what Colbert calls "truthiness," with a lot of nationalist posturing.

In short, I do very much agree with a recent diagnosis by social psychologist János Rudas: probably the most striking feature of all this gibberish is its inconsistency. That it is not dismissed for lack of coherence, is the interesting fact.

There you have it: the habits of the heart of a self-loathing, repressed post-socialist subject. Not a pretty sight.

cover page of the book

cover page of the book
image used for the cover design by Anannya Dasgupta