Democracy victorious

Our Moldavian very European democrats are in action. Instead of complying with the current constitution and dissolve parliament after the failure of electing a new president, they decided to create a new one. Not that I had any illusion and I'm sure that for those who thought of them as the champions of democracy it will even be a  reassurance in their blind faith. However, the nasty communist did not attempt this move. Maybe they were so rotten in their souls that they couldn't even think of this  extraordinary democratic solution for a constitutional impasse and went to the polls (to the polls, oh, what a dictatorship!) again instead.

Political economy of the West - updated

I always tried to avoid being boring and repetitive (however the resulting decline of posts can only help in the latter, but unfortunately enhances the former) but one of my permanent assumptions mentioned on this blog is that contrary to the popular - and evidently self-interest driven - portrayal of Eastern politicians their are not different from their Western peers. A very few of these people is the proverbial knight of public interest as opposed to the individual or group interest and unshakable champion of meaningful reforms delivering better results for everyone in the long term. It is quite instructive to take a look at Germany.

Germany is obviously a Western country, where the social democrats were ousted from power last September and their place as junior partner in a coalition besides the christian democrats was taken over by the liberals. For many - among them fro the respective parties - it was the realization of a dream coalition, much awaited for 11 years, since Helmut Kohl lost an election in 1998. Some commentators embedded the events into a grand narrative of overall decline of the left, predicting a loss of power for Great Britain's Labour for this May (once a certainty, now not so sure) and imagined an EU almost without leftist governments. Others (and the same commentators as well) pointed out that the electoral result of the liberals, an all time high, almost 15% is a sign of a strong desire for profound change in Germany. Especially, as the party run on a program with a very market-friendly agenda: tax cuts (self-financing ones, of course through stronger economic activity), health care reform, deregulation were the key points, but at the same time they emphasized a modified approach to the social systems, a more friendly one, in order to erase their stigm being the party of "social coldness" (soziale Kaelte). As the conservatives were always perceived as a market oriented party many awaited rapid changes.

The result: something completely different. After their first 100 and a few days in power the coalition seems to be nothing else then the scene of endless brickering, conflicts, their party leaders - except the chancellor, Angela Merkel - attacking each other at every opportunity despite the efforts to bring peace. Moreover, it turned out that the key proposal of the liberals are not so welcome by their partners as they expected. In some cases on practical grounds: with a huge debt burden taken during the most severe phase of the crisis the conservatives are reluctant to pledge themselves to the requested tax cuts s they are not convinced of the myth of self-financing tax-cuts. In other cases the difference is one of principles: the smaller - Bavarian - conservative party opposes vehemently the idea of the introduction of a single lump-sum fee for health insurance for everyone, independent of their income etc. (The liberals idea is to compensate the obvious social disadvantages - people with lower income paying higher fees in proportion of heir income than people with higher income and/or more property - through the tax or the social system. It is not only contrary to their proposals regarding a simpler tax system, but probably would be mor expensive than the present system of direct state contributions to the individual helth insurance institutes as compensation of their losses. According to some estimates of the Ministry of Finance it would cost about 17 billion euro yearly, while the present system required "only" 8-9 billions last year.) The Bavarians announced that it is for them an issue of life and death, they can't accept any from of a lump sum fee.

Although these are not the only contested issues (for example a huge debate on the so-called Hartz IV system, a social assistance system for long term unemployed broke out recently) maybe even so much is enough to illustrate the depth of the problems. The first reaction was - beyond the inevitable surprise - some commentaries on Merkel, whose sympathy for ideas of social democratic origin was underestimated by her liberal partners - followed the conclusion. However, it was rather a reflection of the popular mood of the Germans, who rapidly withdrew their support from the liberals (they lost a half of their voters during this period) not only because of the above mentioned problems, but because they soon became suspicious of clientelist politics. (In a package of tax cuts they pressed for lower VAT for hotels and restaurants but it was soon revealed that the respective business has no intention to pass it to the costumers - i.e. lower its prices - and informations surfaced on huge donations to the party from hotel owners.) Their reaction was somehow confused: raising the pressure on their partners regarding tax cuts - irrespective of the situation of the budget - and health reform. (The story is very similar to the story of the Hungarian liberals from 2006, the series of similarities extends even to the continuous reference to the sanctity of the coalition agreement - a text with sufficiently opaque and vague formulations in this regard.) Even after opinion pollsters shared the results of their surveys with the public: no one really expected them to deliver the exact promises they made, especially not the tax cuts, thought not too much credible by everyone - rather changes in the relationship of the sate and its citizens, a field where they didn't even had at the end a single idea.

What can be the conclusion of this familiar story? (Familiar from Hungary, a coalition rapdily loosing the support of the population - according to the last poll more than three fifth of Germans considers this coalition an alliance of parties that do not fit to each other - and politicians misreading the signs sent to them from the public and struggling to keep power in a key province in the country at the elections in May.) Not the too easy prediction of inevitable failure of the government, rather the necessary caution for every politician. First, ideas popular in opinion poll can easily turn out to be unpopular when not only the bright side, but the trade offs has to be faced. Secondly, it is dangerous to be carried away by someone's own zeal and think that the people are enthusiastic about the same points of their program as they themselves. Thirdly, despite the dire situation of the left, these societies didn't make a u-turn and embraced the anglo-saxon type of free-market capitalism. They are rather not only divided in this sense, but clearly looking for solutions to preserve as much from the welfare state as can be. Not very insightful conclusions, but as in ECE politicians instinctively or consciously accepting them are portrayed as villains, maybe not is not completely useless to point them out.

It was a long time ago I posted something and it seems the topic was almost the same as this post. However, this one was written in a bit different genre. Not too much difference, but some justification. ;)

In the Race Again - Notes on exceptionalism VII.

The Hungarian prime minister, Gordon Bajnai visited the United States, more accurately participated at the UN general assembly and used this opportunity for a longer visit, with a lecture given at Columbia University, a talk with Hungarians from New York and not the least fro a meeting with "business circles". He not only expressed his pride over his government's efforts and achievements (making its homework, it was the phrase he used) but stressed his conviction that Hungary will soon become again the front-runner of ECE in the never ending competition of its states.
Those few who followed this blog are already familiar with my opinion on this assumption and won't be astonished if I would again emphasize how dangerous this perception was, how disastrous effects it had on the societies of the transition countries. But - even though I should admit it wouldn't be entirely fair to criticize Bajnai's attempt outside the context of the need of attract foreign investment to Hungary in an environment where almost everybody forecasts a significant reduction of the capital in the world - it is hard to evade further comment of the whole concept of competition. Originally competition is inherent element of a market economy, but not the competition of entities like states, only individual ones, companies and individuals offering their labour or ideas. Competition is easy to perceive at this level and easy to connect to ideas like fairness, freedom etc. But to extend this idea to states is not so simple as the frequent use of this phrase in connection with ECE countries would suggest.
The starting point is already dubious: is competition between countries - in the sense as it is applied to markets - really exist? One can easily imagine the individual level of such competition, companies, farmers, workers acting in the framwork of a single market, consisting more than one countries, something like the European Union. But what is the place and role of the states in this structure? Can they compete similarly? Especially as this competition is never imagined as a substitute for the competition of economic actors, rather a complementary of it. States are usually seen as societies, more than a sum of the economic actors belonging to them. But as societies they are supposed to act in order to achieve a kind of equilibrium between different aims and interests, conceived as common good. While states are perceived as competing each other - in the sense Bajnai referred to this concept - only one element - however important it could be - brought to the fore: the economy. And even within the economy only a part of the actors are in fact in a competitive situation with their peers from other countries. It is easy, too easy without critically reflecting to the concept of competition between states, to elevate or transform partial interests of some economic actors into common good. Competing with other states on he field of economy can result in the neglectment of other sectors of the state's responsibility, the society, as those are not in a direct competition and therefore this concept can not integrate their needs. But as the interests of economic competitors is envisaged as the ultimate interest of the society - it can distort the original concept of common good.
Maybe economic growth in itself is raising and extending public good, welfare etc. But it is not a certainty, especially when the market, where competition is taking place, is broader than a single state and a single society. (And the Pareto-effectivness and equilibrium is hard to apply to such a blurred entity as a market economy that is not a society etc.) Not to speak of the experience of the last two decades, when rapid growth was not Pareto-effective as regional differences were growing not only in relative terms, but in absolute terms as well. A series of regions in ECE are now poorer than they were in 1989 (and they situation didn't improve during periods of steady growth), even if a small number of regions are much wealthier. The latter are usually regions in competition and the former are simply excluded from the market mechanisms. But it suggest that once again entering the race is nothing else than sacrifice these parts of a country for the sake of te prosperous ones. As it is quite consistent with lowering redistribution rates.

Groupism in practice

I must apologize in advance for being again narrow-minded and concentrating on issues seemingly of secondary importance, only very superficially connected to the crisis. But the abandonment of the US missile shield project in ECE caused some reactions that are great illustrations of a concept introduced into the nationalism studies recently and not the least can shed light to the thinking of ECE elites or at least a part of them.
The issue is quite simple, the Obama administration announced the abandonment of the plan of a missile shield with a radar station in the Czech Republic and ten missiles in Poland with the aim to intercept IBMs launched from Iran. The plan caused much tension between Russia and the US (and its allies in ECE) because it was perceived as aimed against Russia and - ironically - while the Bush administration never forgot to stress that it is not capable to counterbalance a strategic strike force as large as the Russians have, the Polish and Czech politicians saw in the realization of the project not only a chance to raise their importance in the US system of alliances, but an effective way to deter Russia from aggressive steps against these countries. Not that it would have been really popular, at least in the Czech Republic the plan was widely unpopular.
Anyway, the announcement caused uproar, at least among the elite. Some weeks ago a group of experts, diplomats and politicians, describing themselves as "atlantists" (i.e. personalities with a deep attachment to the idea of a firm alliance between their countries and the US) published a letter supposedly addressed to the Obama administration and warning the consequences of such a possibility, the perceived spread of a feeling among the population that the US surrenders the region to Russia.
Up to this point it is a pretty simple story, one would be justified to ask: what the whole series of events has to do with such unheard concepts as "groupism"? I will spare my readers (however few they are) from a detailed discussion of this concept, invented by Rogers Brubaker. The core of this idea is an observation and critical remark: many categories employed and applied by social scientists implies the very existence of the subjects of their analysis instead of asking for this fact. Social scientists tend to take the existence of such entities as nations, states, societies - all of them as entities acting their uniformly and unanimously on their own behalf - analysing such phenomenons as nations as if they could act as single actors, as their respective elites claim or describe. The idea was a productive one fro the social sciences, but as the reaction to the event mentioned above shows it is far from being universally accepted or applied.
The largest and supposedly best quality newspaper in Hungary (Népszabadság) published a small collection of different articles in order to place the decision of the Obama administration in a broader context. It published an interview with Zbigniew Brzezinski, a small report on a survey carried out by the German Marshall Foundation (Transatlantic Trends 2009) and some auxiliary information on the reactions in Poland and in the Czech Republic.
The whole story is covered as if such entity as Poland, Hungary or any country in ECe would exist and act as a single person. The results of the Transatlantic Trend survey are reported as a sign that contrary to the Western part of the continent Obama's accession to the presidency would have caused disappointment and disillusionment. The paper cites someone responsible for the research stating that the new administration is less popular because of its less confrontational approach to Russia. Surprisingly the survey results show that the Bush administration was less popular even in Poland where anti-Russian sentiment is really a mobilization force. And the other results signal not less, but more enthusiasm towards Obama, although not as strong as in Western Europe.
But this is not groupism, this is simple professional incapacity. Groupism as a basic concept of those whose thoughts are conveyed by the articles is revealed by such phrases like Poland or the Czech Republic is disappointed because of the abandonment of the plan, Eastern and Western Europe is worried by the dependence from Russian natural gas and oil etc. Even though these issues are usually confined to a very narrow group of the respective societies and the missile shield was - especially in the Czech republic - an unpopular issue, only supported by the elites, as long as those elites express their views as if they would represent the public opinion it is accepted s such. And the disappointment of some people in the elite is interpreted as widespread disappointment, sometimes contradicting the evidence. But as long as elites are seen as identical to their respective societies, groupism will prevail. And we will hear that Romania, Hungary, Poland, Slovakia etc. did something or felt somehow, however crazy such an assumption is.

The Markets, oh the Markets!

Last week the Hungarian governemnt achieved a great "victory", the parliament passed a bill on the taxes and tax system in next year, modifying the structure of taxes, with cuts in the personal income taxes and the social security contributions and hikes in VAT, introducing a new property tax etc. It laid the foundations of the next budget and it made the ministers quite proud of their production. Moreover, the government was 75 days old and it gave an opportunity for the prime minister and the finance minister to give interviews on the progress made by this new, brave body fighting the crisis so effectively. (One should ask, why is a prime minister, who is admittedly not seeking political career after his term will expire, so keen on making pr, but I really don't know. Maybe he is afraid of the possibility that his parliamentary majority will collapse, but I would doubt that it is the proper way to fight it. And PR-interviews - especially in the Hungarian case, where the "questions", due to the tragic quality of journalists and journalism, seem as if they would have been prepared by the Prime Minister's press secretary - are not only boring, but unconvincing, without any originality.)

Anyway, the finance minister and his boss pointed out that their success is signalled by the markets as well. The strengthening of the forint is a sign of the returning trust. I understand, that sometimes those who are in political positions, feel the necessity (and sometimes they are even compelled) to make stupid statements, in order to gain popularity, portray themselves as capable individuals etc. But this government is supposedly an expert one, the finance minister arrived from Deloitte. I don't really think that he has no idea of the current situation: there is no credible sign of an individual assessing of the forint and its movements against the dollar and euro were and are driven by fears regarding the state of affairs in other countries (most notably in the USA and in the eurozone) and by mere speculation, the so-called carry-trade. Or, with other words: the current movements are the result of a very high interest rate of the Hungarian National Bank and the willingnes of the so-called investors to see green shoots everywhere. Nothing specifically Hungarian, as everyone can see, who compares the movements of the currencies from Poland, Hungary, the Czech Republic, the first one and the latter being considered as more stable economies than Hungary.

But the really frightening probability is, that the minister can be convinced of his truth. Not necessarily because in this case he and his government tries to please actors, who do not really care about its activity, but because sometimes it shows a quite simplistic obsession with the idea of the efficient markets. Well, it is a viable econimic theory, that was capable to make tolerable predictions for decades, but in the light of the recent events even those, who were not aware of its problems are ready to admit that at least some refining would be needed. And as a perspective of the human society, it is rather frightening, as it tries to reduce its complexity in one single indicator: market price.

Moreover, as in the last few weeks I had an opportunity to glance at many products (analyses etc.) from market actors (due to some kind people dealing with economics or the economy, with quite different views) and as a result I'm increasingly convinced that those are less complex than it would be necessary in times of economic turbulances. Not that they would be useless, but they use only a limited range of indicators and data and sometimes too obsessed with the mathematical models, instead of leaving some room for the good old intutition. Although predictions based on the mathematics and market conventions turned out be very risky nowadays.

But this is not the only problem with the Hungarian government's actions. As they are keen to please "markets" and consider as the sign of the success of this efforts the strengtheing of the forint, they are slowly giving up the advantages brought by the rapid depreciation of the national currency and its relative stability in the last two months. The competivity (what they are seeking with tax cuts in a dire budgetary situation, therefore compensating it with budget cuts, equally hurting consumption as the tax cuts are inspiring it) gained suddenly and unintentionally (the eternal comparison, Slovakia was behind Hungary in terms of labor costs at the beginning of the year, although the "experts", among them the minister himself, always complained that Hungary lost its competivity regarding cheap labor to Slovakia, and it was a reason behind tax cuts and social spending cut proposals) are now trickling away. Even though there is some reason behind it - reducing the debt burden of those, who are indebted in foreign currency -, it is at the same time simply the mirror image of the much despised politics of pleasing inactive voters with financial transfers through the social security system. It is very much an attempt to satisfy middle-class rent-seeking, placing the complete burden of adjustment on the shoulders of those, who are living from sthe social security systems. and even though there are many inactive people, who would be capable to work, the lion's share of this group is composed by pensioners and by those, whoe are really living on a subsistance level, without any hope for a decent work. This politics is not seeking the just distribution of the burdens of the crisis, it tries to privilege a group, that bear some responsibility for the situation of the country, as they were ready to take a huge debt burden, many times with repayment rates higher than the half of their otherwise not too large income. And as it is clearly hurting the long term perspectives of the country (Hungary abandoned even the moderate room it acquired through this strengthening of the forint in terms of monetary policy, as the HNB is focusing on the debt level and not on the exchange rate yielding advantages, therefore it is not ready to lower interest rates), either as an economy, or as a society, it is equally problematic, as the rent-seeking of the inactive groups.

The other privileged group will be the entrepreneurs. The tax cuts are aimed to ensure they lasting competivity through making labor cheaper. Although personally I don't think that eternally lowering labor costs through abandoning every public service is a viable strategy of growing welfare and standards of living, this time I would only point out that - as I argued some posts earlier - without a growth of the capital in the economy it is clearly a hidden state subsidy for non-competitive companies (the state subsidizing even negative marginal products of the newly employed labor with renouncing some state incomes), and as usual in those cases it will probably bring only more private profit from public money. It is possible, that in the long run it will really bring some raise in employment rates, but I'm doubtful regarding its effectivity, at least its effectivity imagined by the minister. But it is another story...

(Oh, and meanhwile flagellant exceptionalism surfaced in Romania. A well known blogger counted 13 factors of Romania being affacted worst by the crisis. :) Maybe my next post will cover this funny topic.)