Hungary could be used as case study of what does (not) fit into the simplified stereotype portraying transition as a battle between democracy and freedom. The country keeps producing cases that reinforce such simple sentiments. The recent legally unsuccessful referendum on migration,1 as well as the closure of Hungary`s largest opposition daily,2 attracted the attention of Western audiences.

As the voter turnout was too low for it to be considered valid, the referendum suggested that Fidesz` stable grip on the Hungarian political system was not only due to its own popularity, but also to the failure of the opposition.3 Similarly, the daily, Népszabadság, which was first sold by its socialist-connected (opposition) owners, producing serious losses, was then bought by Fidesz-connected businesses. The socialists left their media to the markets, while Fidesz was building its own media utilizing state funds (via loans). The latter could easily be condemned, but nevertheless it is a legal (although far from fair) way.

The impact of the global economic crisis (and decades of neo-liberal policies), along with the rapid and half c(r)ooked transformation from a centrally planned economy to free market capitalism, have contributed to a slight majority of Hungarians rejecting the status quo. According to a recent EBRD paper, only 44% of people have experienced the promised catch-up with western income levels.4 Meanwhile politically, “the Eastern European experience of the left forming a common front with liberals only made the right more powerful”.5

After Brexit and Trump there might be a better understanding that the mostly ignorant (to local realities) Western reactions have been strengthening the challenger in the electorate’s eyes, alienating the middle, and giving way to conspiracy-type claims regarding Western intentions. Similarly to Trump, the Hungarian government knowingly exploited “hidden voters,” a “sense of national pride” and a “dignity denied”.6

While Hungary, and now Poland, has been singled out by a number of Western opinion-makers as “black sheep,” regional data suggest a broader trend. The OECD leader in corruption is actually Slovakia, but Hungary, the Czech Republic, Latvia, Poland and Slovenia are all in the top 10.7 At the same time Hungarians (and others in the regions) strongly embrace democratic values, even though they approve of their government’s handling of the migrant crisis, according to a recent Pew poll.8 This duality offers the EU a way out of its identity crisis: Hungarians have a different opinion when it comes to certain local issues, but they do value the country`s EU membership.

Hungary Today: Democratic Neo-Feudalism?

The re-emergence of the state as the solution, authoritarian tendencies in governance and society’s paternalistic attitudes with the “traditional” lack of trust in institutions,9 can best be described as neofeudalism with some democratic credentials.10

There are a number of factors leading toward such a controversial definition. First, the eroding middle class. Second, the remaining dependence on power: Hungary has a hierarchical power structure, with little freedom for grassroots (political) initiatives, civic involvement or community building. Third, the sectorial rent-seeking and partial capture of the economy that allowed the emergence of a local oligarchy. Fourth, celebration of selected parts of Hungarian history, namely the Horthy regime (between the two world wars) and “gentry Hungary” (Monarchy) re-enforcing paternalistic attitudes. Fifth, an underinvestment in education, healthcare and other social services, ill-functioning redistributive policies and discriminatory tax policies maintaining vast inequalities. Sixth, patrimonial relations particularly in education and healthcare, with strong hierarchic social practices, particularly in the regions. Lastly, a lack of accountability for ruling elites: very few11 high-level corruption cases have resulted in prison sentences.

Nevertheless, Orbán attempts to do with capitalism what former Hungarian leader János Kádár did with communism: adapting it to work for Hungary. Business success in the current “Hungarian outfit”12 is contingent on state support. The government`s selective state support and its “unorthodox economy”13 have further increased inequality. Instead of an inclusive nation building project with modern policies and strong connections to the rest of the world, ruling elites remain exclusive and arrogant, which infuriates Hungarians most of all.14

Under Orbán’s leadership, Hungary has returned to a system of “gentry management”.15 Others have likened it to the dualist monarchy that existed from 1867 to 1918.16 Importantly, the last modernization, carried out under Kádár’s Communist regime, boosted the middle class: private property and small businesses ownership was encouraged to develop, while at the same time, large portions of the country urbanized. In the early 2000s, the middle class got another boost, this time from debt-related reform initiatives. Hungarians lived quite well in the 2000s, until the world financial crisis beleaguered the country.

Re-Capturing the State

Strengthening the state and the corresponding centralized wealth redistribution17 are foremost the tools allowing Fidesz to hold onto power and implement its political idea(l)s. According to investigative journalists, the Hungarian government has essentially divided the economy into sectors where it wants Hungarian capital to lead,18 while also assisting foreign companies gain access to innovations and technology.19 Budapest wants to neither isolate itself from the EU or from the global financial markets,20 but to ensure Hungarian ownership in its own way.

According to Deloitte’s 2015 Central Europe Top 500 report,21 29.4% of the largest companies are controlled domestically in Poland, 23.2% in the Czech Republic, and 3% in Hungary, while the share of foreign capital in Hungarian companies’ ownership structures was 83.2%.22 Toward the end of 2016, Hungarian’s ownership share overtook foreign shares in the media, trade, energy and financial sectors, too.23

Fidesz tries to balance formalities though, in its own, dominant way. State capture is selective24 and legally sanctioned.25 For Hungarians, this reinforces the idea that, although the volume of rent-seeking is now much greater than it previously was, the pattern is not new. The Corruption Research Center’s recent findings echo this sentiment: “the EU funds—besides their positive influence on the development of Hungarian economy—have a special and perverse effect; they foster the practice of political favoritism and fuel crony capitalism.”26 There is a systemic character to this rent-seeking: these corrupt practices are central to Fidesz’ political program, the party claiming them necessary for the recreation and strengthening of national business and the economy.27 Fidesz portrays itself as a representation of the nation, and its political program as strengthening the country as a whole.28

Dominance in Politics

Viktor Orbán has become the most successful product29 of “Hungary`s unsuccessful development trajectory”30 since the collapse of the Communist regime.31 Fidesz until February 201532 was able to significantly weaken checks and balances on executive power through its constitutional majority.33 Politics has become the domain of a dominant clan after the bipartisan system ended with Fidesz’ “electoral revolution”.34

Orbán may not aimed for state capture nor did he introduce clan-based politics. Fidesz` gentry management led toward state capture. Hungary’s overall paternalistic political tradition, which includes a distaste for political competition and a tendency to look for a protective leader, dominated throughout the entire 20th century, has helped enable Orbán`s actions.35

Hungary did not experience a “moral awakening because no one was ever held accountable for the Communist regime’s crimes. The first post-communist government of József Antall was conservative in its worldview, and took important steps to bring down the Communist system. Professionals were selected on the basis of merit for key positions. Yet, two changes implemented by the socialist-liberal government in 1995-96 heralded the emergence of regional clans,36 and political polarization resulted. The government changed the constitution to allow local officials (like mayors) to run for parliament, and did not select a conservative candidate (member of the opposition) for the Constitutional Court.37 Fidesz went much further after 2010, creating new institutions designed to amass state power (a permanent budget committee that can veto any non-Fidesz government budget is one example) or significantly strengthening the chief prosecutor’s mandate. But this pattern of political polarization was born earlier, though.

Civil Society as Source of Legitimacy

“Fidesz does the basics right,” a Hungarian bank executive once told me.38 The party is capable to adapt: after its 1994 defeat in parliamentary elections, Fidesz made a tactical move away from its liberal past, towards the center-right, the historical heart of Hungarian politics. This move catapulted them to power between 1998 and 2002.

Fidesz built partnerships, making deals with Hungarian oligarchs and crafting policies accordingly. The party also has a strong civil society foundation: the ostensibly oppositional “civic circles” (polgári körök) and various movements within government that can be mobilized when needed. Now, there are (alleged) attempts39 to bring radical groups, including football hooligans, closer to the party.40 The consequence of putting loyalty first enables a clan mentality, what is at the core of government centralization, politics, and corruption.41

Opposition: Looking for the West’s protection

One characteristic of Hungarian politics lies in a weak, reactive and compromised opposition. It has hardly produced any public policies, and has articulated no coherent vision since Hungary joined the EU in 2004. Rather, its strategy has been to look to the West for protection. Despite Fidesz’ anti-Western rhetoric, Hungarians are among the biggest supporters of the EU.42 Even supporters of far-right Jobbik party are divided, with no clear majority against Brussels.43

“Anyone can beat Orbán,”44 Gábor Török, a popular independent political scientist, suggested in a recent media interview. But, he then pointed out, the structure of the opposition is more important than the person, who becomes prime minister. Hungarian liberals have always (with the exception of the Socialist Party) lacked a coherent power structure. Fidesz is much better organized, enabling it to dominate Hungarian politics.45

Many are currently speculating that the remnants of the socialist and liberal parties may form a coalition with the far-right in order to challenge Fidesz. Corruption and state capture are likely to play a crucial role in the next electoral campaign; Jobbik has focused on the former, while leftists and liberals have emphasized the latter. The corruption cases have not been a game changer for Hungarians,46 at least as the case of ruling Fidesz shows, political vision would.

The situation could worsen if there is increased polarization and a clash over Orbán’s future, or if the young Fidesz generation’s thirst for corruption,47 and the Orbán family’s48 push to develop their business interests goes unchecked. In this case, Hungarian’s perception of corruption will play an immense role, diverting focus away from how to move the country forward.

At present, there seems no significant opposition to rent-seeking. Democracy remains an important element of the regime’s power, as Fidesz’ ability to adapt is based in part on feedback from the opposition.49 Nevertheless, the insecurity of the ruling party (Fidesz lost elections in 2002 and wants to ensure that it doesn’t lose again), and the potential radicalization of its opponents threatens Hungary`s democracy. The character of the state is to be the main battlefield issue heading into the 2018 elections. As we have seen in neighboring Ukraine, ad hoc coalitions against the incumbent party (including the far-right) are far from a guarantee that a serious reform agenda can or will be enacted.

A Global Pattern?

Without a clear modernization agenda, Hungary’s development trajectory is likely to remain unchanged. For such an agenda, Hungary would need political reconciliation, a stronger intellectual elite “center,” and stronger input from independent thinkers. In the run-up to the 2018 elections, Fidesz will need to pump money into the economy50 and further strengthen the role of the state instead of putting migration front and center. As awareness of corruption and disappointment with politics in general, are at an all-time high, political polarization is likely to remain.51

Instead of investing in human capital and education, strengthening the rule of law, fighting corruption and enhancing Hungarian administration and governance,52 the government will continue building on loyalty, enabling rent-seeking and pushing back against what it sees the (neo) liberal order. Perhaps these sound familiar to Donald Trump`s contract for American voters as well.53 Joe Stiglitz even forecasted that “investing more in public schools is essential if the US is to avoid becoming a neo-feudal country where advantages and disadvantages are passed on from one generation to the next.”54

If the US is pre-occupied with itself, it will unlikely be Russia filling Central Europe’s void, but local, dominant political figures like Orbán, Fico and Kaczynski. As Fukuyama warned “the greatest challenge to liberal democracy comes not so much from overtly authoritarian powers… as from within.”55 Globally, patterns of the neo-feudalist system have been emerging at local levels. Instead of adding to the path of polarization (and looking for external scapegoats) the EU should find its way to re-think its economic policies and help reconcile between (global) liberal and traditional (local) values.

This article was originally published on the Visegrad Revue.

Notes

1. “Referendum in Hungary: Orban has already achieved his goal,” Deutsche Welle, October 2, 2016, http://bit.ly/2eYo6Kz.

2. “Newspaper closes in Hungary, Hungarians seeing government`s hand,” The New York Times, October 11, 2016, http://nyti.ms/2dXxG0r.

3. “Miért lett érvénytelen a népszavazás”, Index, October 2, 2016, http://bit.ly/2flfo6k.

4. “Central Eastern Europe Isn’t Fully Benefitting from Market Economy, EBRD Says,” The Wall Street Journal, November 3, 2016, http://on.wsj.com/2hLlWj3.

5. Maria Tycner, “Brexit lessons for Eastern Europe (and vice versa),” June 28, 2016 http://bit.ly/2cvsOwy.

6. See: Rachel Kleinfeld, “The Fruit of Oligarchy,” The Market News, November 14, 2016, http://bit.ly/2hgukI4.

7. “WEF Corruption Index: The most corrupt countries in OECD,” Business Insider, September 2016, http://read.bi/2ffO9xG.

8. “Hungarians share Europe`s embrace of democratic principles, but are less tolerant of refugees and minorities,” Pew Research Center, September 30, 2016, http://pewrsr.ch/2ffOksN.

9. “Iszonyatosan ramaty állapotban van a magyar társadalom,” 444, November 18, 2016, http://bit.ly/2h5E2Iq.

10. Fidesz, the ruling party in Hungary was defeated twice in a month, first in the migration referendum (that did not reach the threshold) and then the subsequent draft bill required to have a constitutional majority was voted down in the Hungarian parliament.

11. Among the most famous was János Zuschlag; see: “Hungarian Politician Sentenced for 8.5 Years in Corruption Case,” The Wall Street Journal, April 6, 2010, http://on.wsj.com/2cZ7qnv.

12. See: interview with Péter Tölgyessy, May 9, 2016, http://bit.ly/2cAZXZF.

13. See: an explanation of what the GoH calls the unorthodox economy, “Unorthodox Economic Plan Gets Sentiment, Wake Up Call in Hungary,” Bloomberg, August 21, 2016, http://bloom.bg/2d480ik.

14. See: Tölgyessy, op cit.

15. This was a characteristic of the period between the two world wars under Regent Miklós Horthy. For background see: Gyula Szekfű, “A három nemzedék,” 1934, Budapest, Hungary, http://bit.ly/2d47mSi.

16. Tölgyessy, op. cit.

17. For the most comprehensive research framework on this topic, see: Mihály Fazekas and István János Tóth “From Corruption to State Capture. A New Analytical Framework with Empirical Applications from Hungary,” Political Research Quarterly, 2016 http://bit.ly/2cvuGoZ.

18. Tourism, hospitality, gambling, media, construction, energy, utilities, retail, advertising/marketing, tobacco, consulting, finance, waste treatment, agriculture and food, sport and culture. “Miért lopnak ilyen hihetetlenül sokat?” 444, April 7, 2016, http://bit.ly/2cfose8.

19. Sectors as processing, automotive, mechanical/engineering, pharmaceutical, electronics, shared service centers, chemicals, logistics, information technology. Ibid.

20. Ibid.

21. Deloitte (2016) Central Europe Top 500: An Era of Digital Transformation, http://bit.ly/2c7IFnJ.

22. See: Wojciech Kononczuk, “Ukraine`s Omnipresent Oligarchs,” Carnegie`s Strategic Europe blog, October 13, 2016, http://ceip.org/2erD8I5. To compare: up to 64% of Ukrainian firms are controlled by local private capital, putting the resistance of the local elites toward privatization into local context.

23. “Már régen teljesült Orbán álma,” Index, October 10, 2016, http://bit.ly/2ehYPHt.

24. “Miért lopnak ilyen hihetetlenül sokat?”, 444, April 7, 2016, http://bit.ly/2cfose8.

25. The characterization of Fidesz electoral victory by Kim Lane Scheppelle could be used here as well Legal but not Fair (Hungary), New York Times, April 13, 2014, http://nyti.ms/2j4K9PI.

26. Competitive intensity and corruption risks. Statistical analysis of Hungarian public procurement (2009-2015). Data and descriptive statistics publications, reports, March 3 2016 / May 18 2016, http://bit.ly/1T9l0xq.

27. “Miért lopnak ilyen hihetetlenül sokat?”; Ibid.

28. See: Orbán’s famous speech after losing the 2002 elections, “A haza nem lehet ellenzékben,” (The nation cant be in opposition), http://bit.ly/2h70st0 (in Hungarian).

29. His personal wealth, which the opposition party Együtt recently attacked, is not a terra incognita: http://bit.ly/2crefsO. ES reported on his father’s mining business (http://bit.ly/2fyWKwv ), there was a 2005 parliamentary report on land machinations (http://bit.ly/2eYpKvU ), and a 2006 report on the elites’ engagement with organized crime (http://bit.ly/2cN51f9). One of the key figures in the latter report is Fidesz’s former Interior Minister, Sándor Pinter, while it also hints that the entire elite class participates in “grey” business. Lately, his family members’ rapid accumulation of wealth has attracted popular attention, and comparisons have been made to former Ukrainian President Viktor Yanukovych. A book about the Orbán family’s wealth (Narancsbőr, http://bit.ly/2cshAwU) was published in 2014. A summary of research about the difficulties (and absurdities) of Hungarian politicians’ wealth can be found here http://bit.ly/2cv4Z98 (a joint project of Direkt 36, TIH, and 444).

30. Péter Tölgyessy, “Az Orbán-rendszer válasz Magyarország sikertelenségére,” Inforádio, May 6, 2016 http://bit.ly/2coF1HE.

31. One of the indicators of the failure of Hungary’s elites to create a middle class is the unsuccessful Roma integration; no Hungarian government has been able to craft effective policies towards the Roma people.

32. In February 2015, the governing Hungarian party lost its two-thirds majority in parliament after a by-election in one district.

33. The OSCE/ODIHR report lists all the irregularities and manipulations of the electoral system that finally granted a two-thirds majority again. See in detail: http://bit.ly/1V8KkYY

34. Kim Lane Scheppelle, “Hungary`s Constitutional Revolution,” The New York Times, December 19, 2011, http://nyti.ms/2cSu38E.

35. Kim Lane Scheppelle, op. cit.

36. On the different socializations of rural Hungarians and their impact on politics, see: an interview with Daniel Deák, HVG, April 27, 2016, “Jószerével nincs olyan, akinek van valamilye, és törvényes úton érte el,” http://bit.ly/2cYWUs8.

37. Ibid.

38. Interview made within the research work made for Open Society Think Tank Fund between May and August 2016.

39. “Football hooligans as Fideszí police force,” Hungarian Spectrum, March 10, 2013, http://bit.ly/2hdrD8P.

40. The far-right paramilitary (Magyar Gárda) threat has weakened in Hungary, while the far-right political party, Jobbik, is becoming more politically mainstream. Other countries in the region (Slovakia, Poland, the Czech Republic and the Baltic countries) have seen the appeal of far-right paramilitaries strengthen since the Ukraine crisis and increasing Russian aggression. Interview with a Hungarian national security analyst, July 6, 2016, Budapest.

41. Interview with István János Tóth, Index, April 5, 2016, http://bit.ly/2coal3J.

42. See: “Global Survey: Euroskepticism Beyond Brexit,” Pew Research Center, June 2016, http://pewrsr.ch/1ZvrKcY/.

43. Fresh surveys about Hungarian attitudes towards the EU from June 2016, http://bit.ly/2cbIWkC.

44. “Az a vicc, hogy Orbánt bárki megverheti,” July 17, 2016, http://bit.ly/2csfxZS. []
45. Author`s interview with a liberal academic, on June 28, 2016, in Budapest, within the framework of research for the Open Society Think Tank Fund between May and August 2016. The social-liberal side did not create reserves and did not cherish loyalty due to their horizontal power structure. Western donors are their key source for domestic survival. They have elevated the fight against Fidesz to the international arena, and due to the insensitivity and cruelty of the Fidesz regime as well as the solidarity instinct of the West, they have garnered international support for Hungary. Yet, this effort actually made them weaker at home due to Fidesz’ rhetoric, as well as a lack of actual work at home (particularly in the regions), and the absence of a new political vision.

46. “Nem ütötte ki a biztositékot Rogán helikopterezése”, Index, October 28, 2016, change the meaning here.l in tons, Fidesz will need to http://bit.ly/2i5oOEZ.

47. See: “Mire telik a fideszes ifjú titánoknak,” Origo, February 10, 2014, http://bit.ly/2cse5GP.

48. See: “Orbán Ráchel energiaügyekről tárgyalt Behreinben,” Mandiner, August 30, 2016, http://bit.ly/2d2b9N0.

49. Tölgyessy, op. cit.

50. Helikopterről szórtuk a pénzt a győgyfürdőkre, Index, November 3, 2016, http://bit.ly/2i5u6R5.

51. According to recent poll results: 54% of Hungarians between 18 and 29 consider all politicians corrupt. Meanwhile, far right Jobbik is the most popular party among university students. See: Andrea Szabó, “Az egyetemisták és főiskolások Magyarországon 2015,” Aktív Fiatalok Magyarországon Kutatócsoport, http://bit.ly/2cB02fE.

52. See: the list of these and other policy measures at “Orbán Viktor félreértett rendszere,” Index, October 26, 2016, http://bit.ly/2eRpWLl.

53. Donald J. Trump delivers groundbreaking contract for the American voter in Gettysburg, October 22, 2016, http://bit.ly/2dYfmAT.

54. Joseph Stieglitz, “What America`s Economy Needs from Trump,” Project Syndicate, November 13, 2016, http://bit.ly/2h5JJWU.

55. Fukuyama, op. cit.