Relying on the author’s recent book, this briefing examines the foundations of Hungary’s stable illiberal rule. Two seemingly contradictory tendencies are crucial for the stability of illiberalism in the country. First, Orbán capitalises on the disillusionment of the working class with the liberal transition era after the fall of Communism. Second, Orbán used the momentum presented by the collapse of working-class support for the parties of the Left to gain power and then to renegotiate the class compromise with transnational elites, emancipating the domestic bourgeoisie at the expense of domestic workers. The stability of the regime increasingly depends on authoritarian-populist fixes. However, despite the crass classism of upwards redistribution under Orbán’s business-friendly regime, a significant part of workers still supports the illiberal state because it presents itself as a break with the pre-2010 liberal era. The briefing also shows that the policy logic behind the government’s responses to COVID-19 corresponds to the controversial logic of Orbán’s socioeconomic strategy. Finally, the briefing concludes by pointing out the broader political lessons from Hungary’s descent into illiberalism.
The corona-crisis increased the value of evidence-based policies and revealed the weakness of populists in power. This is most clearly exemplified by Donald Trump in the US. Italy’s Matteo Salvini is also struggling to find his place in the opposition, with Conte’s government performing better than expected. However, other populists seem to be as strong as before. Hungary’s PM Viktor Orbán is a case in point. According to Politico’s poll of polls, the popularity of Orbán’s Fidesz party has been hovering around 50 per cent in 2020. The second wave of the corona-crisis is currently hitting Hungary much harder than the first wave, and the government is currently unable to handle protesting arts students who demand the reversal of the privatisation of their university. Nevertheless, illiberal hegemony is as stable as ever in Hungary.
The problem with most accounts about the stability of illiberal populism in Hungary is that they neglect how well Fidesz is embedded at the bottom and society’s top. Authoritarian fixes—such as gerrymandering, unfair elections, media repression—are crucial parts of the story, but there is more to Orbán’s rule than this. To understand the stability of Orbán’s illiberal rule, we need to understand what happened before the 2010 Fidesz power grab.
In my recent book, ‘The retreat of liberal democracy,’ I analyse two seemingly contradictory tendencies that are crucial for understanding the stability of Orbán’s illiberal regime. First, Orbán capitalises on the disillusionment of the working class with the liberal transition era. Second, Orbán used the momentum presented by the collapse of working-class support for the parties of the Left to gain power and then to renegotiate the class compromise with transnational elites, emancipating the domestic bourgeoisie, often at the expense of domestic workers. Despite the crass classism of upwards redistribution under Orbán’s business-friendly illiberal regime, a significant part of workers still supports the regime because it presents itself as a break with the pre-2010 liberal era.
Postsocialist neoliberalism undermined itself
Hungary’s post-socialist transformation brought new economic and cultural opportunities and coincided with democratisation. However, the overwhelming majority of Hungarians experienced this global economic reintegration as social mayhem. Relying on fieldwork in Hungary’s ‘rustbelt’, I show that de-industrialisation during the 1990s eroded working-class culture and decreased the bargaining power of labour, which in turn stunted wage growth and allowed inequalities to increase. By the end of the 2000s, masses of workers and members of the indebted and weak middle class grew disillusioned. In the lack of a progressive left-wing alternative, they drifted rightward.
De-industrialisation, followed by a long period of jobless growth, and a disappointingly low increase in net wages, pushed the economy towards severe social tensions. 1.5 million Hungarian jobs (out of 4.8 million) were lost during the first years of the regime change, out of which only 0.4 million have been recreated. The employment rate dropped from 71 per cent in 1990 to 52.4 per cent by 1997 and only increased a couple of percentages. In 2009, it stood at 55 per cent, the lowest throughout the European Union (EU).
The share of wages in total national income has decreased from 57.2 per cent to 46.3 per cent during the first 20 years of the transition. The standard of living of a Hungarian with average income corresponds to the bottom ten to 20 per cent of the Western pay scale. A common strategy to extend low wages was consumer credits, buying cars, and apartments financed through foreign currency loans. This strategy was backed and propagated by the Socialist-Liberal government between 2002 and 2010. Low wages and high indebtedness resulted in the financial precarity of Hungarian families. By 2009, a staggering 75 per cent of Hungarians could not face unexpected expenses, the highest level throughout the EU.
The experience of economic vulnerability became profoundly associated with the Socialist-Liberal government, leading to the collapse of the Hungarian Socialist Party’s electoral base. A similar process of working-class demobilisation and right-wing remobilisation took place in other post-socialist countries, most notably in Poland. However, condemning citizens for their alleged populist or anti-democratic turn is misleading. Bringing down democracy not only requires dissatisfied voters; it also needs an active elite that thinks its interest might be best furthered by weakening the system of liberal democracy. Without the support of national capitalists and the transnational economic elites, Orbán’s regime would collapse.
The roots of the alliance between Fidesz and the economic elite also go back to the pre-2010 era. In the 1990-2010 period, Hungary spearheaded the competition for foreign capital in Central and Eastern Europe, offering cheap semi-skilled labour, lax labour regulations, and low taxes on capital. However, the misgovernance of dependent development resulted in severe economic dualism. Transnational corporations generate the bulk of export revenue, while domestic companies lack access to high-value-added markets. Both left- and right-wing governments between 1990-2010 preferred foreign investment as the engine of the economy, at the expense of domestic capital formation.
The neoliberal policy consensus favoring transnational corporations led to profound economic anger within the national bourgeoisie. Those national entrepreneurs who did not manage to become junior partners of international capitalists either as service providers or as local suppliers were increasingly pitted against the dominant bloc of liberally-minded politicians and transnational corporations. Using new data on revolving doors between the business class and the political elite, in my book, I show how this economic disintegration led to rising economic nationalism among Hungarian national capitalists. They started to support Fidesz in return for state protection. Orbán deliver on this promise, making more room for domestic businesses, while also strengthening the alliance with key transnational corporations.
Orbán, a business-friendly populist
Orbán’s illiberal socioeconomic strategy has a lot to offer to the business class. Elsewhere, I proposed the term ‘accumulative state’ and mapped the regime’s instruments to boost wealth and capital accumulation. Domestic elites are a significant pillar of Hungary’s illiberalism. A nationally representative survey found that the number of Hungarians supporting authoritarianism has slightly increased, but the number increased by far the most among upper-class respondents. The share of those supporting authoritarianism grew from six per cent to 23 per cent from 2015 to 2018.
Orbán also restructured some sectors of the economy—typically non-tech non-tradable sectors—making space for domestic investors. The case of the restructuring of the tobacco industry illustrates this well. The tobacco industry was dominated by four companies before the transition. These companies were all privatised during the 1990s, and international investors bought the most prominent companies. A smaller, Hungarian owned company, Continental also managed to establish a foothold in the tobacco industry. The law to “curtail smoking among young and regulate tobacco retail trade” was introduced to the Parliament in December 2011. The lead architect of the law was János Lázár, at that time a close ally to Orbán. The main element of the regulation was that the tobacco trade was monopolised by the state to give out concessions at a later point.
A year later, oppositional MPs noticed by checking the file properties that the Word document sent out to Brussels to the European Commission for consultation was not authored by government officials but by János Sánta—the chairman of the Hungarian Tobacco Alliance, the central lobby body of the industry—who also happens to be manager and owner of Continental Tobacco. The owners and high-level employees of Continental Tobacco are among the biggest winners of the bid for concessions, with more than 1000 new retail outlets run by someone closely connected to Continental. János Sánta was publicly encouraging the company members to take part in the tender and stated that it is a “similar historical opportunity as land redistribution in 1945.”
However, Orbán also maintained the alliance with transnational corporations in the tech-intensive export sectors, representing the economy’s most dynamic sector. Thus, foreign investors are also a crucial pillar of the post-2010 regime, benefiting from Orbán’s illiberal socioeconomic strategy. According to the editor of Budapester Zeitung, 90 per cent of German investors in Hungary would vote for Orbán.
The government introduced a flat nine per cent corporate tax in 2016, effectively transforming the country into a tax haven. One of the most important measures to boost the ‘embourgeoisement’ of the upper-middle class was the introduction of a flat 16 per cent personal income tax in 2011, further reduced to 15 per cent in 2015. The government also distributes direct financial subsidies to national and international business elites; these subsidies vastly exceed the pre-2010 level and are, more than before, targeted towards national capitalists.
Austerity is a further crucial tool to redistribute wealth towards the business class. These cuts funded the massive redistribution to the top in the form of tax cuts, subsidised loans, increased public investment, and new pro-natalist policies targeting high-income families. This socialism for the rich and capitalism for the poor allowed the government to keep the budget deficit below three per cent, bringing state debt down from 80.6 per cent of the GDP to 70.2 per cent between 2009-2019.
Given its deep embeddedness in business circles, it is no surprise that neither national nor international capitalists have challenged the anti-democratic attacks on liberal institutions.
From capital accumulation to authoritarian populist fixes
Orbán’s illiberal strategy brought some limited gains for workers. It allowed employment to rise and reduced families’ vulnerability by curbing financialised consumption and wiping out dubious foreign-currency loans. However, the price of these achievements was an extreme rise in inequality and labour market precarity. The Gini coefficient of income inequality jumped from 24.1 in 2010 to 28.7 in 2018. Hungary is now the most unequal country in the Visegrad region.
This growth of inequality is not an accident by consciously manufactured in the name of Orbán’s illiberal socioeconomic strategy. Between 2009-2017, the social component of individual incomes – e.g., benefits, pensions, allowances – declined dramatically for the bottom income deciles and increased considerably for the top income deciles. The country also saw a highly unequal creation of new wealth. While the value of cash and bank deposits—the only assets that the lower 90 per cent of the population owns—increased by 14 per cent between 2010 and 2015, the value of securities—owned by the top few per cent of income earners—increased by 68 per cent.
Orbán’s labour policy also increased precarity. The government reduced the unemployment benefit to three months, which is the lowest in Europe. In 2012, the government introduced a new neoliberal labour code, disbanded the standing tripartite body, and restricted the opportunity to strike. In 2018, the government increased overtime and allowed companies to postpone payment for overtime to three years. This amendment, labeled as the slave law, led to significant protests throughout the country, but the government did not waver.
Orbán’s socioeconomic strategy is politically costly. Orbán lost a large share of his working-class supporters between 2010-2014. In 2014, Fidesz received fewer votes than in 2006, when they lost the election. As I argued elsewhere, the 2019 local government elections again showed that Orbán’s illiberal hegemony is vulnerable. The opposition was able to take hold of critical large cities. A recent survey conducted before the coronavirus pandemic asking respondents to evaluate the ten years of the Orbán regime reported that 43 per cent of Hungarians think that the country is in a worse state than it was in 2010, and only 30 per cent saw an improvement.
Thus, the stability of the regime increasingly depends on authoritarian-populist fixes. On the one hand, institutional authoritarianism represents the hard, macro-strategy of illiberalism. It aims at pre-empting organised dissent by political parties, trade unions, and NGOs. On the other hand, authoritarian populism represents the soft, micro-strategy of illiberalism. It reframes distributive grievances into cultural hierarchies, thus hinders the emergence of a broad anti-government social coalition.
Authoritarian capitalism meets the pandemic
How is Orbán’s socioeconomic strategy related to how the government handles the corona-crisis? The first wave of the pandemic spared the countries of East-Central Europe, including Hungary. It seemed that the populist governments of the region were well-equipped to manage a significant health crisis. However, the second wave is now entirely out of control, death and infection rates exceeding the first wave by far. It is becoming evident that Orbán’s government did not use the time available to prepare for the second wave. It is also apparent now that the government’s measures during the first wave of the pandemic had little to do with the relative flatness of the curve at that time.
Although the government introduced significant restrictions on 16 March, with a full shelter-in-place order effective from 27 March, the bulk of the government’s measures included non-conventional steps with dubious efficiency. The measures that target the restructuring of hospitals are particularly controversial. On 11 March, the government decided to freeze all non-coronavirus related admissions to hospitals and treatments except for life-saving ones (¾ of hospital treatments were postponed in the only hospital that provided detailed data about the effect of this measure). If the hospital admissions remain restricted in the following months, the government could save around ten billion forints on hospitals during the pandemic. On 9 April, the minister responsible for health ordered publicly funded hospitals to free up 60 per cent of hospital beds by 19 April to treat expected new coronavirus patients. Hospital directors who refused to comply fully are threatened, and two renowned hospital directors were dismissed.
Economic measures have been dedicated to alleviating businesses’ financial burden in sectors where national capitalists loyal to the regime happen to be the most active. The government aimed to keep the budget deficit for 2020 below 2.7 per cent for a long time, though now appears to be willing to accept a more massive deficit. This hardline macroeconomic conservativism diverges from the approach of most other governments and the recommendations of international institutions.
The responses in the fields of social and employment policy are also restrictive. Even conservative governments elsewhere in Europe recognise the need to increase spending on social security in response to the coronavirus health crisis, but Viktor Orbán’s government refuses to do so. The only significant policy response alleviating workers’ financial burden is a limited wage guarantee scheme introduced on 8 April. The government covers up to 70 per cent (later increased to 75 per cent) of the lost salary for workers whose work time was reduced by up to 50 per cent (later increased to 75 per cent). To help companies find ‘flexible solutions,’ on 18 March, the government effectively suspended the labour code. This allows companies to diverge from regulations concerning work time, workplace arrangements, and the minimum wage threshold. 
Finally, the political responses to the health crisis also include several highly controversial measures. Although the centralisation of executive power is a common approach in crisis management, the Hungarian government went further than most other democratic governments. In a widely discussed move, the National Assembly, relying on the qualified majority of Orbán’s Fidesz party, passed an act that made the previously introduced state of emergency indefinite and allowed Orbán to rule by decree, postponing by-elections and national and local referendums, and curtailing public scrutiny by making the spreading of ‘misleading information’ about the government’s pandemic response punishable by up to five years in prison. Although the special powers to rule by decree were phased out in June, some emergency regulations remain in place.
A few days after introducing rule by decree, the government cut the funding of political parties by half, under the pretext of reallocating money to the coronavirus responses. The 1.2 billion forints (€3.42 million) reallocated is little compared to the budget of the crisis funds, but it effectively hinders the operation of opposition parties that overwhelmingly rely on state funding as a source of revenue. Bolstered by their oligarchs and the political use of governmental resources, this cut does not affect Fidesz. The central government also reduced the local governments’ budget by centralising road tax revenues, with further selective punitive financial measurers targeting communities controlled by the opposition (e.g., Göd, Budapest District IX).
How can we interpret the characteristic steps of the Hungarian government to tackle the pandemic? Although it might appear so, the government’s most controversial policies in response to the coronavirus are not merely the product of irrational populist whims or the desire to exclude cultural outgroups. Except for a restrictive wage guarantee scheme and the freezing of loan payments, Orbán’s government has not proposed any new benefits that would go beyond existing ‘workfarist’ social policy.
The mandatory reduction of hospital beds exemplifies the illiberal state’s health policy, which has already reduced health spending significantly since 2010. Public health care spending declined from 5.2 per cent of GDP in 2009, a level already low in international comparison, to 4.7 per cent in 2018. The number of hospital beds has also been reduced by 3000 after 2010. At a recent press conference, the head of the Prime Minister’s Office said, ‘as the coronavirus crisis also highlighted, we have to rethink the health finance … it is unnecessary to maintain hospital capacities that are not justified by the number of patients.’ The health crisis represents a unique opportunity to ‘free up’ further beds that will not be utilised even as the country slowly returns to normal functioning. Such a drastic cut to hospital infrastructure would be otherwise very difficult to push through under normal democratic circumstances.
The policy logic behind the government’s responses to COVID-19 corresponds to the logic of Orbán’s socioeconomic strategy: workfare, social divestment, labour flexibilisation, and redistribution towards the upper-middle class and the national bourgeoisie. Democracy and political competition must be restricted to prevent a backlash from the victims of Viktor Orbán’s illiberal populism. The introduction of ‘military leadership’ in hospitals helped to quell hospital directors’ dissent against the drastic cuts to hospital beds. The curtailment of media freedom and party competition during the health crisis served to pre-empt the politicisation of diffused anger with the government’s unpopular measures.
What are the takeaways of Hungary’s descent into illiberalism? Internationalist neoliberalism, with its focus on human rights and multilateralism, is on the decline globally. However, its alternative is not a post-WW2-type social democratic arrangement. Instead, a new, national-populist neoliberalism is on the rise. Neoliberalism is bifurcating. The rise of national-populists such as Bolsonaro, Trump, or ‘Brexit-Boris’ befits this new wave of national-populist neoliberalism, aptly captured by Reijer Hendrikse’s term neo-illiberalism.
Hungary signifies this tendency, combining neoliberalism with an authoritarian state and nationalism. The decline of democracy and Orbán’s economic strategy are two sides of the same coin. Although an Orbán-style illiberal might not be their first choice, European and transnational economic elites display remarkable flexibility in coming to terms with Hungary’s illiberalism.
The classic internationalist-liberal strategy of naming and shaming populists will not suffice to prevent the rise of this Orbán-type neo-illiberalism. There is nothing inherently anti-illiberal in business elites – some of them support Orbán because he can pose as the sole political voice of domestic business elites while also ensuring transnational investors’ loyalty. There is a role for more liberally minded investors, who have been so far mostly quiet about Hungary’s regime.
However, to fracture the alliance of domestic and global elites and illiberals, progressives also have to change. Instead of embracing the failed model of internationalist neoliberalism, they need to embrace the state as an economic agent. In parallel to reviving rule-based multilateralism, progressives need to embrace economic patriotism and deploy the state as a developmental agent promoting domestic value chains.
However, most importantly, progressives need to earn back the trust of disgruntled workers at the same time. Breaking with internationalist neoliberalism, progressives have to embrace the state as the champion of social cohesion, convincing businesses along the way that inclusive development is their long-term interest also. Only the organised power of the masses can curtail the power of the elites. The solution for nationalist populism is not more neoliberalism. The solution is reinventing the left, a new progressive politics.
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