East of Europe West of Asia

Csaba Lentner

• Publisher: Harmattan Hongrie
• Year: 2020
• ISBN:
  9782336903316
• Topic: Economia
• Subtopic: Teoria economica

Compared to Western-European countries, the adoption of Christianity, the founding of the state, then the establishment of the inherent western-type state administration has begun in the Hugarian Kingdom several hundred years later, from the 11th Century. From the middle of the 16th Century, this process was wrecked by the losing wars against the Ottoman Empire, followed by the subjection to the Habsburg Empire. Armed, blood-stumbled fighting against oppressive powers, the Revolution and War of Independence in 1848-1849 or the 1956 Revolution against the Soviet Empire have all increased the determination of the nation for implementing a successful economic policy. Hungary, losing in World War I and II, came into the Soviet Union's sphere of influence, but was able to hold the position of the « happiest barrack » and « showcase country » within the Soviet-type planned economy system. Financial aspects of a raw market economy following the disintegration of the socialism, as well as that of an active state operation after 2010 may both provide interesting pieces of information.

Chapter 1: Theme and Purpose of the Book, a Short Historical Arc of its Subject

1.1 THE HISTORICAL-INTERPRETATION FRAMEWORK OF HUNGARIAN PUBLIC FINANCES

Drafting of the historical development of Hungarian public finances assuredly seems to be a shorter, more modest task compared to similar works of Western European countries and nations. But if we take a look at the past one and a half centuries of the evolution of the Hungarian public finances, which is the aim of this work, it is rather a dense, yet swiftly changing series of events of hectic nature, including crises, reforms, renewals, and fallbacks again, together with the connected “cavalcade” of economic theory, that may emerge.

The arrival of the Hungarian tribes into the Carpathian Basin, the Conquest, happened at the end of the 9th century A.D. – in case we ignore the theory of double conquest1. At this time, the nations populating the western part of Europe have already been forming states for centuries, having public administration and an army. What’s more, four hundred years have passed since the fall of the Western Roman Empire with a developed state apparatus.2 In the areas of Egypt, Greece, China and Persia, systems with advanced administration have been operating for thousands of years. After the Hungarian Conquest, the development of the Hungarian tribal alliance as a state organization took place around the first millennium, under the direction of King Stephen. “Our first King, St. Stephen, by taking up Christian faith and building the Christian state, has created the opportunity for the Hungarians to survive for centuries. The state incarnating Christendom, as a protagonist of Western culture and as a will of Europe, has contributed through thousand years to the preservation of the structural identity of the Occident and its undisturbed development being influential until the present.”3

“From the age of the settlement of the Magyars in Hungary up to the beginning of the 18th century the country was almost exclusively a primary producer state, insofar all of its produce, industrial activity, trade, tax system and government budget was based actually on agriculture and related ways of business”4 – wrote Gyula Kautz in the second half of the 19th century. Therefore, he says, “in the Hungarian economy, the Middle Ages lasted until the 18th century. The natural economic character of our national economy, along with all its shortcomings and provincialism, the immobility and stagnation of industrial life, the underdevelopment of capital and credit business, the passivity of trading, the lack of taxability, and so on, until the present century, stayed almost unchanged. For that very reason, compared to other countries, we have to admit that, apart from some glaring but short periods in which national power has been more productive and our economy has stepped up, we can show a few states only in which the progress of the national economy would have been so slow and difficult as it was in Hungary”.5 Our backward conditions occupying peripheral positions beside the major global economic trends and centres have set back the quality of our economic administration and the sciences based on them throughout centuries. However, it is important to divide up this longer, eight century long period of time.

From the founding of the state even up to the second half of the 19th century many changes and contradictions featured our conjuncture. Following a five-and-a-half-century-long de facto existence, the Kingdom of Hungary, which was accounted a determinative secondary power6 in the region, after having almost hundred years of successful fighting against the Ottoman Empire, finally practicably ceased to exist after losing the battle at Mohács in 1526: the country, split into three parts, lacked the features of independent statehood and separate economic administration. The western and northern part of the country came under Habsburg rule, ruled from Vienna and Bratislava, but still retained its own constitutional relations.7 The central part of the country became the occupation and administrative unit of the Ottoman Empire, while under significant Ottoman influence, the Transylvanian principality tried to walk the path of independence with more or less success. The disintegration of the former state organization, the emergence of occupation zones and strong areas of interest set back the Hungarian economic conditions, and made the foundations of the functioning of an independent state impossible.

The “late founding of the state”, the delay in the development of the state organization have fundamentally left their marks on our administrative conditions. Although as we may know it from the memorials of Leo VI, the Wise, the Hungarian tribes, living among tribal circumstances and marching (“spanning”) constantly towards the Carpathian Basin, in addition to “valuing conquest gifts, noble ores very high, they possessed an excellent military organization supported already by a kind of financial and administrative system”. Contemporary sources verify that “finances were managed by a separate officer in chief and the national treasury had a specific income. Military taxes and indemnities as well as princes’ and state revenues and possessions were distinguished sharply […]. This allows us to conclude that they were convinced of the separate financial necessities and interests of an orderly state”.8

Following the founding of the state, in the conjuncture of a five-and-ahalf-century-long period9 of independent statehood, the implementation of an economic administration at contemporary level has led to a relatively effective functioning of the state, resulting in a strengthened defence of the country as well as economic development. Subsequently, the independent Hungarian statehood was not favoured by either the disruption of the country into three parts, nor the Habsburg dependence that came along after this one-and-a-half-century-long period with the eradication of the Ottoman subjection and what especially intensified after 1686 (extended by then to the whole of the country). The failure of Rákóczi’s War of Independence between 1703 and 1711, then the boom of reforms featuring the first decades of the 19th century, the “intellectual drive” for trading and lending and industrial development, and then the Revolution and War of Independence of 1848–1849 aimed at changing the Habsburg dependence, targeting also economic reforms, as well as the decades following its counterinsurgency have finally led to the Compromise with the House of Habsburg. This, ultimately, advanced the country’s economic development and public finances.

The relative economic success in the age of dualism was cut short by World War I. Afterwards, the intention of compensating the military, economic, territorial and social losses became the most significant political feature of the Horty Era. The results of the similarly relatively successful economic stabilization have sunk definitively after World War II. Then, after a two-year transition period, it was the forced political and economic integration into the Soviet sphere of influence and the planned economy that determined the economic administration and policy in Hungary.

Planned economy, having been sustained, though with an ever decreasing efficiency, for four decades, as well as the inherent state and party control was not a homogenous era either, as a wide range of instruments of economic policy was applied. The intent on changing constraints was embodied in the events of 1955–56, and later in the New Economic Mechanism beginning in 1967–68. The endeavour to release the voluntarist approach – represented mostly in the industry – to forced armament following the Second World War characterized all the time our domestic relations. As a result of this, the Hungarian planned economic system was more“market-oriented” than that of other socialist countries. It is especially true if we take into account the early entrepreneurial forms used in agriculture (backyard farm, allowance plot). The miscarriage of reforms, the gradual depletion of the system’s internal resources, the indebtedness of the country and the inherent economic vulnerability has led partly to the dependence on western loans and partly to the “licensing” of domestic entrepreneurship prevailing under market conditions.

As a result, instead of developing a transition based on internal (endogenous) factors, the contours of a rough, neoliberal market economy system evolved in Hungary. The “intensifying” course since the late 1980s was characterized by the suppression of state regulation and control, and the creation of private property by means of legal instruments replacing state and cooperative property in the production and service sectors. A market economy has developed in Hungary, but not through the expansion of internal resources that have been gathering momentum on the market based intention to do business and looking for breakout points for decades, but with the effect of western capital on dynamic development.

Weaknesses of the transition to a market economy, its ineffective implementation, the overspending state budget, the asymmetric taxing structure led to a further deterioration of the path of public debt that has resulted in its unsustainability by the time of the crisis in 2007–2008. The state’s economic influence, the marginalization of regulation to an extent more than justified, and the intensification of the deficit of the central budget and the municipal public finance subsystem, the over-indebtedness of family households predetermined the inability of the state to operate.

In a new political and economic course reinforced by the new social empowerment and legal provisions launched in 2010, Hungary implements an active model of the state’s economic influence. Budgetary discipline, tax discipline, and the regulation of the operation of financial institutions have been strengthened. As a result of the above listed and the new type of tax regulation, the problems of the state budget have eased, the public debt to GDP ratio has decreased and the conditions of economic growth have been created. Furthermore, following a “self-consolidation” of the state budget, municipal governments, social security and households indebted in foreign currency have gone through a procedure of financial consolidation and task centralization coordinated by the state. State administration, and within that economic administration, are characterized by centralization and the dismantling of parallel public service capacities, as well as the pursuit of efficiency, to which the monetary policy of the central bank support...

Table of contents

• Cover
• 4th of cover
• Title
• Copyright
• Table of Contents
• Chapter 1: Theme and Purpose of the Book, a Short Historical Arc of its Subject
• Chapter 2: State-controlled economy in the era of dualism (1867–1918)
• Chapter 3: Economic Administration of the Period between the two World Wars, with Particular Regard to István Bethlen’s Politics of Consolidation
• Chapter 4: The Main Features of Public Finance and Economic Administration in the Planned Economy
• Chapter 5: Economic Conditions of the Transition to a Market Economy
• Chapter 6: The Economic Administration and Constituents of the Active State Operations after 2010
• Chapter 7: Theoretical, Systematic “Summary”
• Appendix
• REFERENCES TO THE APPENDIX
• A Short Summary of the Book
• The Author’s Brief Curriculum Vitae