“A substantial shift towards higher value-added production and the creation of new jobs based on research, development and innovation would serve the country’s competitiveness.

“Hungary should decide whether it wishes to be a country of cheap manufacturing or also to play a part in the fourth industrial revolution with higher value-created production. The latter cannot be achieved simply by providing foreign companies with a location and infrastructure; well trained manpower and Hungarian suppliers that are adopting the advanced processes and value-added production are pre-requisites as well. Innovation and technological development are the best catalyst of sustainable and inclusive growth; this calls for substantial investments, cooperation with universities and support from economic policy.

“The country strategy we recommend covers the long term, spans political cycles and is based on broad social consensus. It requires a vision and a system of goals that the country wishes to achieve over a period of 15–20 years. It is directed, elaborated and supervised by the highest level of the government. It is concise and comprehensive. Building on Hungary’s strengths, it sets ambitious goals, taking into account the development of competing countries that do not stop developing either. We recommend a multifocal strategy where the economic potential of the manufacturing sectors and the service industry is exploited simultaneously”.

– HEBC 2015 annual report “For a Stronger Hungary in a Stronger Europe”

The adoption by the government of a long-term “tangible country strategy” and the doubling of Hungary’s education budget are among the main proposals set forth by the Hungarian European Business Council (HEBC) in its 2015 annual report published yesterday.

The full text of the report in English and Hungarian can be downloaded here.

Written by top managers from 13 different multinational companies active in Hungary, this year’s report looks at the future “from the angle of the impending new industrial revolution” noting that “(i)f Hungary is able to prepare in time for the expected industrial and technological changes, it could be among those who take advantage of the positive impacts”.

The report observes that the strategic goals of the most developed industrial countries include

• the development of the education systems
• exploitation of international innovation potential
• long-term cooperation based on education and research with partner countries and countries representing a potential market
• responsibility in dealing with global challenges.

The report envisions a future in which “billions of devices are connected in a network” and in which robot technology, smart production and a new level of automation are main drivers of economic development.

However, preparing for the “fourth industrial revolution” requires long-term strategic planning and a commitment to education presently lacking in Hungary.

“Education and innovation are the guarantees of the future”

Observing that “general knowledge is no longer sufficient in the 21st century” the report emphasizes the importance of “specialised training and practical knowledge”.  In order to compete in the 21st century, Hungary’s workforce must be innovative, creative, cooperative, tolerant and flexible, and possess both language skills and problem-solving skills. The report observes innovation requirements more than just training IT specialists:  “The goal should be to give all students competitive knowledge, including familiarity with IT trends and technologies”.

Noting that Hungary’s education budget is “almost equivalent to the budget of a single university in a similar-sized, developed country”, the report calls for a doubling of the public education budget.

If education were to be given impetus, an effective answer could also be given to the most pressing questions for the country’s future: economic development, competitiveness, emigration, language skills and youth employment. . . . Quality education is needed that is open to the world, keeps pace with the latest developments or is even one step ahead. 

“Transparency is an important tool for curbing corruption”

The report calls “welcomed” but “insufficient” government measures to reduce corruption.  It also bemoans the lack of predictability and transparency which it says are necessary if Hungary’s economic growth is to be sustainable in the long run.

The report warns investors to “be prepared for the unexpected government measures that can influence the future of their investments” and points out that “special taxes” tend to undermine the ability of investors to make business decisions regarding investments in Hungary.

Rule of law

The report essentially calls for legislation and enforcement of law to be independent and free of political trends.

Strategic plans that are “public and tangible”

The report stresses the importance of Hungary adopting a “tangible country strategy” which adapts “elements from the best practices of successful and similar-sized European countries” such as Sweden and Finland.

It can be clearly felt and is to be welcomed that the Hungarian Government has strategic plans, but they have not yet been made public and tangible. It is a source of risks if the strategy is built on a single industry sensitive to business cycles, and its other elements depend on decisions of an ad hoc nature influenced by political interests. 

Poverty and social exclusion

The report observes that “social exclusion in Hungary is alarmingly high” and calls “shocking” the fact that 43% of those living in poverty and social exclusion are children.

(O)ne third of the population live in poverty while the poverty rate for Europe as a whole is declining. It is regrettable that the present education system is not able to adequately counterbalance the educational and cultural disadvantages of students from a low status social and economic background.

Public work and the growth of the public sphere

The report questions the efficiency of the expanding public work program.

In our view the public work programme carries a risk, it distorts the functioning of the labour market and it does not help the shift towards an inclusive economy that we consider to be of key importance. Although it is directed primarily at the long-term unemployed and those with a low level of qualifications, it is worth noting that a large proportion of the participants are now people with secondary or higher qualifications. 

It also warns that an expanded public sector does not serve the goal of reducing bureaucracy.

The importance of consultation

The report warns the government against adopting “premature measures that have not been propertly considered”, measures without consulting those directly affected.

Compliance with ad hoc measures imposes heavy burdens on companies, involves a great deal of additional administration and costs, as well as more human resources to perform the tasks. We are convinced that the difficulties could be avoided by prior consultations with those directly affected, giving more careful consideration to the planned measures and taking into account time as a necessary factor.

Need for a competitive environment

In the opinion of the economic players, the current preparedness of public administration is not adequate for the state to be a good owner of the companies it has acquired. A healthy competitive environment creates much better conditions for business efficiency than a monopoly does. If there is no external constraint, the internal motivation to improve the given service or production weakens. In the absence of competition the monopoly withers.

The secret to Germany’s success

The report notes that the efficiency and competitiveness of German industrial companies “comes from higher value-added production using the industrial revolution’s technological achievements as their competitive advantage” which enables them to keep jobs in Germany.

According to the report, Germany devotes great attention to “ensuring that the society understands and perceives that the quality of life in the future is determined by the results of innovation, research and education in the present”.