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Wednesday, March 11, 2015

Informality Meets Deregulation: The Toxic Brew of Post-State-Socialism


  • as much as 62 billion HUF, i.e., about two-thirds of the funds missing from the accounts of the recently shut-down Buda-Cash consortium (at today's rate, just over 200 million EUR) were "transferred," by one of the deputy CEOs of the brokerage, to a single fictitious account "owned" by a non-existing person. In other words, the media info (how accurate it is, I don't know of course) is that the missing amounts were expunged from the books through major fraud, not simply careless "mismanagement" (the question is still open about the extent to which anybody personally profited from this or these were just techniques to make losses that had already happened because of bad management disappear--I'm not sure which is worse), and that
  • the wrongdoing began as early as 1997, ergo the fraud has been going on for 17 years, almost a generation, without the intervention of the financial regulatory authority agency. Whether the authority's agents had actually noticed it and ignored it, or the agency "simply" remained clueless is also an interesting question. There are conflicting reports about this. Again, I'm not sure which is worse. It seems we are witnessing a structural feature of post-state-socialist east (central) European capitalism, not to be attributed to any of the two political "sides" (both "sides" in the Hungarian political system had been in power at various points during the 17 years elapsed since 1997). What is in common among the two, when all the dust settles, is their fundamental belief in neoliberal market deregulation. Both "sides" have worshipped the market, Margaret Thatcher as its prophet, and subscribed to her TINA approach to policy. Makes things simpler in the short run, perhaps--but also dead wrong. How wrong--I'm afraid we'll see that in Hungary soon.

BTW, when MT made the horrific claim that there was "no such thing as society," she was formulating an argument against the (British) welfare state (i.e., her point was that individuals and families "should be responsible" for their well-being). That, in itself, is a monstrous thing to say in a modern society, characterized, as basically everyone not afflicted by symptoms of antisocial behavior disorder knows, by the breakdown of familial ties and the loneliness / helplessness / resourcelessness of vast crowds of people, on a scale previously unprecedented.

However, MT's east European epigons--again, remember, that's the entire political spectrum since 1990, at least until the last year or two--took it one step farther, and "un-did," or failed to develop, the regulatory power of the state, invented for the single purpose of protecting society at large from fraud. And they did that in a post-state-socialist society where the stability of capital markets is very questionable to start with, and the entire system, so far as the smaller, domestic portion of their market was concerned, hinged on the unwaivering trust of the small investor (and, as in the Buda-Cash case, by the run-of-the-mill holder of bank accounts) that her money will be handled safely and in a trustworthy manner by the financial institution to which she hands it over.

So, to state the obvious, the two clues above signal that the deregulatory-neoliberal political consensus systematically neglected the state's fiscal responsibilities vis-a-vis society. The crisis is structural, not a matter of "a few bad apples." The studied carelessness of the political system enacting a neoliberal ideology was exacerbated, of course, by a very strong culture and social practice of informality--something I have been talking about for decades (see, for instance, hereherehere and here, not counting my various studies on managerial elite selection in the post-state-socialist context and the numerous Magyar versions of the same studies). Considering those structural features, the appearance of a few crooks super-eager to make a quick buck in the cracks and crevices of the lax regulatory environment, and assuming, for 17 years accurately, that they can get away with it, is, frankly, quite predictable. The question is "when," not "whether."

Strong contextual institutions of informality resist regulation and control anyway; coupled with the neoliberal delusions concerning "the market" that would, by itself, introduce "automatisms" that will prevent, find and eliminate such wrongdoing, it's a toxic brew. In this regard, of course Hungary is not particularly different from some other central European societies, Austria, Italy, even Greece come to mind: In all of them, we have generations of scholarly and other literatures highlighting the historic power of informality in economic, political, cultural and social life. The question is how it was possible for political forces, in the post-state-socialist context, to design fiscal rules and procedures that so woefully neglected that power of informality, i.e., how the white-gowned technicians of supreme market rationality unlearned their own histories, and acted as if they were from the moon. For that, we have to turn to another discussion altogether, the picture of east central Europe as a neoliberal experimental laboratory, with virtually no concern for the fate of the lab animals (a.k.a. local societies). The experiment succeeded, the animals are dying.

That this should happen in the society in which the social sciences, and specifically the discipline of sociology, were developed, among others, by none other than Karl Polányi, the author of both the social embeddedness argument that allows us to see how social relations are "always already there" in economic action, and The Great Transformation, a classic devoted to diagnosing the ills of a socially and politically un-checked, run-amok market, is just one of the vicious ironies of our time.

Tuesday, March 3, 2015

Recent Destruction of Hungarian Airline Becoming a Point of Discussion Again

Thanks to a partly successful Freedom-of-Information request on part of TASZ, the Budapest-based Society for Liberal Rights, the collapse / gross mismanagement / (my hunch: systematic destruction in preparation for a takeover on the cheap by domestic capital groups) of Malév, the erstwhile Hungarian Airlines, is now subject to sporadic media reports in Hungary (e.g., here, here or here--thus far, only in Magyar 8(). For the benefit of those reading Magyar, TASZ has even published the entire batch of documents on the internet. Kudos!

Given the government's precipitous drops in the polls over the last few months, its loss of an recent by-election, not to mention a host of un-answered accusations of widespread corruption in Hungary made a few months ago by the then head of the US Embassy in Budapest, it is feasible that some meaningful, interpretable facts might come out in the open about the scandal of the disappearance of Malév, the airline that was, a little over one generation ago, one of the world's most profitable businesses in its size category.

Malév's case is remarkable for a number of reasons. First of all, tourism has been a major revenue source for the Hungarian economy for a long time, (even during much of the state socialist period, Hungary was right "up there" with Austria in turning incoming foreign tourism into major--in the case of Hungary, mainly informal-sector--revenues, if viewed as % of the GDP), and the existence of a "national" airline, with a hub in Budapest, is generally regarded as an excellent producer of revenue multiplier effects (see, e.g., here). A few years before Malév's bankruptcy, Budapest Airport was sold to foreign corporations under requirements that they invest majorly into a 21st-century infrastructure, which they did. The collapse of the national airline with a Budapest hub affected Budapest Airport's business in a very negative way.  It also forced the airport's owners to shut down Terminal 1, an architectural landmark building. Thanks to a jump in discount flights, last year's arrivals seem to have been up to pre-Malév-bankruptcy levels, suggesting that, conceivably, had the collapse of the moderately-priced national airline been averted, Hungary's tourism sector would have benefited much more than today. A case in lost profits, in the immensely competitive tourism business.

More broadly, the case is iconic of the immense, ugly and very chaotic post-state-socialist struggles concerning the property of the erstwhile-state-socialist-state that reflect just about any and every interest in society except for the interests of the owner, society as a whole. All this happened in the context of the resounding failure of the post-state-socialist project of "catching up" with western Europe . The end result is, of course, what we see today as the embarrassing geopolitical marginalization of east European states and other actors alike. To make this even more profound, political meddling around the socialist-state-owned, privatized (to KLM), returned, privatized (to Alitalia), returned, partly transformed (with the--within China, relatively small--Hainan Airlines), repurchased, partly transformed (with a Russian investor), bought back, and finally bankrupted airline involved political parties on both "sides" of the political aisle.

If you are interested in some background to the case, I wrote bits and pieces about the de-development-bankruptcy-cum-takeover scenario here and tried to follow the subsequent, grim and absurd saga here, here, here and here.

cover page of the book

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