Translation of the second of a series of two articles written by Zoltán Farkas entitled “Eight years of crony capitalism: 1.3 million left by the side of the road” appearing in hvg.hu on 9 March 2018.
The Orbán government did not use the last eight years to close the gap in living standards, but rather to strengthen its power. Part II of Zoltán Farkas’ assessment.
In order to thrive, one should “dig, gather and build from cube to cube,” and who “doesn’t do anything in life is worth just that,” stated János Lázár, Minister Overseeing the Office of the Prime Minister, and in that spirit created the government’s income policies. The tax and social policies clearly benefited the upper middle-class. Between 2010 and 2016 the gulf between the poorest and the most able grew. In 2010 the top ten-percent in terms of per capita income made 7.3 times more than the bottom 10 percent. By 2017 this had increased to 8.6 percent. The purchasing power of the income of the poorest one million individuals lost 15 percent of its value in under six years.
By European standards the disparity in income is not especially large. More irritating is the gulf between the top 10 percent, which has been rapidly enriching itself, from the average or those worse off. There are no statistics on this, but one experiences on a daily basis the astonishing tempo of the rise of the political Fidesz class and members of its family.
The “without” camp
“We won’t leave anyone by the side of the road,” said the head of government. But nearly 1.3 million people live in so-called relative income poverty, the threshold value of which in 2016 was HUF 77,000. Despite the economic growth which followed, since 2010 their numbers have only fallen by 70,000. The manner of the improvement was the incremental increase in child supports affecting those under the age of 18. The ratio of those living in relative income poverty of those between the ages of 18 and 64 grew slightly. In the case of older people it nearly doubled, and every ninth pensioner now falls in this category.
While unemployed people are in the most difficult situation – their numbers increased from 6.2 to 10.2 percent – those who have a job and earn money live in relative income poverty. The seriously deprived ratio of the total population jumped during the first two years of the Orbán government, decreasing from its peak of 27.8 percent to 14.5 percent in 2016. This means that even today some 1.4 million people cannot pay off their loans, or have no money set aside for unexpected expenditures, heating, telephone, or to eat meat twice a day, etc. Despite the improvement, only every second household can afford one week’s vacation a year.
The decrease in the number of those materially deprived was due to mandated decreases in household expenses and the spread of public work. The significance of the latter, however, was ameliorated by the fact that for the the past five years public workers have only earned 80 percent of minimum wage, and this year only 60 percent.
At the same time, three-quarters of the Roma population either live in poverty or are threatened by social exclusion.
The boomerang of success
The goal was to create a million new jobs in under ten years. And these constitute a partial result, at least in a mathematical sense. 700,000 jobs in under seven years is a commendable result, even if the means used involved an element of compulsion. The unemployment support was shortened to three months, and a number of those who had taken early retirement due to disability were mercilessly forced to return to the job market. Public work was essentially made obligatory, but their income was uncoupled from the minimum wage. On the other hand, the burdens of employment were progressively decreased by the government.
Overshadowing the whole picture is that, in 2016, there were more than 200,000 registered public workers, and last year 165,000. In this way the unemployment rate decreased to under 4 percent. Without it, it would be around 8 percent. The number of people working abroad has doubled since 2010 to over 200,000—they still count as Hungarian households. The number of Hungarian workers persistently residing abroad is estimated at 350,000. Barely more than one-fifth of the actual number of unemployed receive any unemployment support, and only one-third receive social supports. Nearly one half are left without any support of any kind, according to former Central Statistical Office (KSH) president, Tamás Katona. At the same time, the Hungarian government closed the borders to the migrants, even though Germany, Holland, and Great Britain demonstrated that, even after taking them in, they could achieve nearly full employment.
In summary, after the wave of terminations following the 2008 financial crisis, the increased rate of emigration and the decrease in training has resulted in a serious labor shortage today. The canon of Hungarian company leaders considers this to be the largest obstacle to growth.
A great leap out of great depths
Closing the wage gap: that is the new slogan that nearly all parties have assumed, and not completely without justification. According to the OECD’s calculations, taking the individual purchasing power of currencies into consideration, of the group of developed countries, Hungary’s average wage level in 2016 was slightly higher than Mexico’s and a hair less than Latvia and Lithuania. That of the Czech Republic and Poland exceeded Hungary’s by 10 and 20 percent, respectively.
In comparison to the EU, the picture is slightly better. Taking into consideration the average cost of labor — the social contributions and taxes beyond salaries — Bulgaria, Romania and the two Baltic states are behind Hungary. During the first four years of the Orbán government, purchasing power increased a good 5 percent, then after 2015 wage increases accelerated. There’s a good chance that purchasing power will jump by a quarter during the period of 2016-2018. The last example of this was 2001-2003. Government measures and market interventions are also at work here: the incremental increases in minimum wages, the wage corrections of the public sector, and the labor shortage. All of this increases the gulf between wages and pensions.
The average change in wage levels only progressively follows the increase in consumption. Per capita consumption in Hungary, taking into consideration the purchasing power of the national currency, stood at 62.6 percent of the EU average in 2016 — essentially the same as in 2010. This only exceeds that of quickly improving Romania (60.9 percent), stagnating Croatia (58.9 percent) and the likewise improving Bulgaria (53.5 percent), where in 2010 even Estonia and Lithuania were behind us.