Attila Chikán: Corruption exists at the highest and lowest levels

August 19, 2016

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“One of the most serious consequences of corruption is that people lose their faith in the notion that if they work hard they can succeed. Corruption exists at the highest levels, for example in the use of EU funds. But it also exists at the lowest levels, for example in the public employment scheme. In order to fill this gap, it is necessary for the culture to evolve, but there is very little likelihood of that happening.”

The following op-ed piece was written by Hungarian economist Attila Chikán, and appeared in the August 18h, 2016 edition of the print weekly Figyelő (pg. 20-21). Chikán is a professor of economics at Corvinus University, member of the Hungarian Academy of Sciences, and a former Minister of Economics.

Prospects for Hungary’s long-term economic growth are rather modest. The government estimates growth of 2.5 percent for 2016, and 3 percent for 2017. These estimates are better than the EU average. Considering that economic growth in Hungary in recent years was spurred almost entirely by EU funds, and that budgetary plans for upcoming years show half of the investments coming from EU funding, we cannot be seriously optimistic about the country’s economic development.

In a recent interview with Figyelő, Minister of National Economy Mihály Varga announced what amounts to a shift in the government’s economic policy. The shift would be completely rational because much of the press and many economists have been calling for economic policy to shift in the direction of promoting effective business development.

Personally, that is why I found the minister’s comments to be favorable. At the same time, I am skeptical because Mihály Varga said nothing of what methods would be employed to reach these goals. He highlighted goals, but made no mention of how those goals will be achieved or what kind of economic policies the government plans to utilize. I honestly hope that these are being developed and that the political will to implement these is being gathered.

More dangerous than the low economic growth is the fact that none of the processes behind it can be seen that would grow it. We do not have to invent hot water, but there are numerous areas where we can and must take action.

One method for improving productivity over the long term is increasing knowledge development and its application, an overhaul of education, and incentivizing innovation. Thus far, this government has not only treated these factors as secondary solutions, it has expressly damaged them.

Within education technical training has become especially important. Hardly a day passes when the press does not write about the shortage of skilled labor in Hungary. But instead of focusing on seriously grounded development concepts, the government is trying to fix the problem using dual-education (a combination of higher education and on-the-job training). This has worked well in many places, including Germany, but to use it as a universal solution is extremely harmful. This model is meant to address short-term problems on the labor market by focusing on the current needs of businesses. Aside from the current rate of technological development, this does not take into consideration the kinds of work skills and employment requirements that will be needed by those currently taking part in the dual-education 20 years down the road now. This then leads to the problem of what sort of balance the state’s favored education policy maintains between short- and long-term economic goals. I am afraid this current balance does not look good.

Instead of specialization, those on the labor market would do much better to obtain a strong knowledge of the fundamentals and develop general skills, and especially the skill to continue learning. It may be good for the automotive manufacturers to hire a vocational worker straight off the school bench, but if that worker is unable to adjust to some yet unknown future vocation, the state will eventually be left responsible for re-training that person, and, in worse cases, the state will be responsible for guaranteeing the unemployment benefits of the worker. Hungarian vocational training is focused on the short term, and this will have negative a long-term impact on the whole of society as well as the individual.

There are several long-term labor factors that are tied to economic growth. For example, emigration is one such factor that has come into focus in recent years. It is a fact that wages in Hungary are low compared to those of other European countries. It is also fact that wages cannot be increased enough in Hungary to prevent skilled workers from emigrating to other countries. Some would suggest that the state could force businesses to incrementally increase wages, but that would require courage because the state would then have to ensure the kinds of domestic conditions that would be suitable for businesses. In Hungary, labor productivity is about half (or less) of other EU countries. Without improving efficiency, real increases to wage are not possible. The key to improving productivity is innovation. Bureaucracy can and should be decreased, as should the cost of (that is, taxes associated with) employing workers. These are all important factors, but none of these solve the fundamental problem of improving the efficiency of businesses.

The most pressing problem affecting Hungarian businesses is the shortage of well-educated managers. A number of small- and medium-sized Hungarian businesses grew out of nothing because their founders created and developed productive processes but, above a certain level, these businesses lack skilled managers. There is a need for strong and comprehensive manager training and professional development, especially when it comes to small- and medium-sized businesses. In the economics programs provided in Hungarian higher education, students are being taught how to fit into the operations of large businesses. They are not learning how to lead and manage a small business. And there is also a need for radical improvements to the advanced professional studies.

But let’s return to emigration. I am of the opinion that very little can be done to improve this situation over the short term. Over the long term, and aside from the issue of education, improving on the political and social environment could provide much-needed help. A Hungary with a different mood, despite the low wages, could do much to draw Hungarians working abroad to come back home.

Similarly, another problem is the political communication concerning the importing of labor. The political establishment would have Hungarians believe that the country never imported labor. All the while, it completely forgets the country’s historical experience on this issue. Labor has been imported to Hungary for hundreds of years. The question is not whether this can be stopped, but instead whether the conditions can be provided to ensure that the labor being imported to Hungary can be used to improve the country’s economic situation.

The inability to address our real problems is also evident in the public employment scheme and providing employment to the Roma community. These are fundamentally cultural questions. From this point of view, there is without doubt a gap opening in our country. We need programs that fill these gaps. But this is hardly possible in a cultural environment so permeated with corruption. One of the most serious consequences of corruption is that people lose their faith in the notion that if they work hard they can succeed. Corruption exists at the highest levels, for example in the use of EU funds. But it also exists at the lowest levels, for example in the public employment scheme. In order to fill this gap, it is necessary for the culture to evolve, but there is very little likelihood of that happening.