The Political Economy of Illiberal Democracy

Contrary to widespread belief, Viktor Orbán is not in power in Hungary because he is popular. He enjoys the support of no more than one in four voters. Back in 2006, some 2.6 million voters out of some 8m eligible voters had voted for his party and its allies, and he lost the election. The Left and the Liberals together received more votes. By 2014, less than 2.2m voted for Orbán’s Fidesz party, a gradual erosion of his base, but he won massively because the Left and Liberal forces saw their support effectively halved from 2.6 to 1.3m. They continue to be rejected.

Thus, Orbán’s illiberal rule relies above all on the inadequacy of this opposition. They still profess an unreconstructed neoliberal worldview that Hungarians reject. They are tainted by sleaze. Their governance under Prime Minister Ferenc Gyurcsány (2004-2009) had led to record budget deficits, a massive increase in indebtedness, rapidly widening inequalities, as well as an economic collapse that pushed Hungary into an IMF program. The Socialist and Liberal forces are still displayed today in the media by the same faces that had created this mess a decade ago. The de facto leader of this opposition is still Gyurcsány, who is the most unpopular national politician according to polls. Thus, the incompetent opposition explains most of why Orbán wins one election after another. Voters are simply not prepared to support the tainted, divided and ineffective lot that call themselves his opposition.

There is, however, another strong basis for Orbán’s durability: the economy. Hungary has enjoyed solid economic growth, increased employment and a steady rise in real wages in recent years. In the eyes of voters Orbán’s economic record – a fundamental yardstick for them – is unmistakably superb in comparison with the dismal record of his familiar and discredited opponents. In fact, many admirers of Orbán in neighboring countries have even taken to advocate the ‘successful economic model’ of his illiberal Hungary.

Yet this ‘model’, if we can speak of one (we cannot), relies predominantly on the very entity that Orbán criticizes and campaigns against: the European Union.

Unable to absorb EU development transfers under the Socialists pre-2010, Hungary had enormous EU cohesion funds sums left over for Orbán’s period. The country has received as much as 6-7% of its GDP as inflows from the various cohesion and structural funds of the Union year after year in recent times. This has generated an average GDP growth hovering around 3%, not a glorious achievement by any standard. In fact, a KPMG study commissioned by none other than the Prime Minister’s Office (yes, Hungary is not a dictatorship, the study was released!) estimates that there would have been zero economic growth in Hungary without the EU’s transfers. Add to this an amount equal to 3.5% of GDP that flows into the country in the form of remittances from Hungarians working in Western Europe, and you will understand that Orbán’s so-called model relies entirely on the EU for its success.

Similar conclusions can be drawn about employment. There has been an increase in the number of jobs of about 600,000 since the bottom reached during Socialist rule. About 230,000 of this is accounted for by Hungarians who have taken up jobs in Western Europe, thereby improving the employment statistics of Hungary. Another 175,000 jobs are estimated by the above-mentioned KPMG study to have been created by the demand effect of the massive EU transfers to Hungary. Finally, a further 200-220,000 hidden in gigantic public works programs run by the Ministry of the Interior (!) at any one point in time. These public works programs are costly, generate no tax revenues, and lead from unemployment to unemployment for most participants.

Without the EU, Hungary would have no cohesion/structural fund transfers, no jobs in Western Europe or at home, no remittances, no autonomous economic growth, and a continued economic crisis. The ‘Orbán model’ is a mirage, an exceptionally lucky state of grace that is unsustainable. Hungary’s average productivity has not increased for a decade in spite of the enormous amounts of EU development money poured into the economy, meant to achieve modernization and structural change. Once the rain of gold disappears, it will become clear that the political economy of illiberal democracy has been a bluff dependent upon its opponent, the EU.