Nationalism or Economic Freedom

Over the past few years, Hungary has made a name for itself as one of Europe’s most nationalist countries. The nationalism that has been channeled through the Fidesz party has inspired other nationalists in Europe, as well as raised concerns among those who fear the authoritarian flank of the nationalist movement.

I normally do not want to speculate in the relations between economic growth and ideological dynamics – I do, for example, not believe that nationalism can be dismissed as the response of poor, bitter, uneducated rednecks to adverse economic challenges. That narrative is the product of ivory-tower academics suffering from serious real-life comprehension deficiency.

Nationalism is much more complicated than that. It is, on the one hand, a sound patriotic expression of love for your country. I admire American patriotism, which combines a strong belief in the founding values of this great country with a generosity and openness toward everyone willing to respect those values, assimilate and live in peace and harmony with their fellow Americans. British politician Nigel Farage and his UKIP are driven by a similar, British patriotism. Mr. Farage has my full respect and support.

On the other hand, I fear the authoritarian version of nationalism which I see lurking in the shadows behind Marine Le Pen, and which have come out in the open with full force in the Golden Dawn movement in Greece.

I cannot say definitively where Hungary’s Fidesz party stands on the scale between patriotism and authoritarianism, but I think we can get a bit of an idea from looking at what has happened in the Hungarian economy in recent years. But before we get there, let us listen briefly to what the speaker of the Hungarian parliament had to say the other day about his country’s relation to the EU. Euractiv has the story:

If the European Union wants to dictate to Hungary, then the country should consider slowly backing out of the union, Parliamentary Speaker and Fidesz MP László Kövér said on 24 October, as quoted by the Hungarian press. … Kövér said that if Brussels wants to tell a country how it should be governed, then it resembles Moscow before the change of regime in 1989. The speaker reportedly said that if this is the direction the EU takes, then Hungary should consider leaving the union. He added however that this was only “a nightmare” scenario, and that he doubted it would come to that.

There are two, somewhat disparate reasons why Mr. Kövér would say something like this. The first reason is that the EU is indeed a super-state organization that merrily gets involved in every aspect of national politics. Nigel Farage often says that 75 percent of all new laws that apply in Britain are made in Brussels. Regardless of where the exact number is, there is no doubt that the EU continuously expands its powers at the cost of national sovereignty; the EU’s disastrous mishandling of the Great Recession and the debt crises in southern EU states brought out in full force the arrogance, even borderline totalitarian, power grabbing desires that Brussels is home to. From this viewpoint it is entirely understandable that the Hungarians are frustrated with the EU.

The second reason for the speaker’s lashing out is not quite as easily understood. The Hungarian economy has taken a bad beating during the Great Recession and is still struggling to get moving again. Let us take a look at the most critical GDP component, namely private consumption:

LB Hungary

Figure 1 reports two angles of private consumption in the Hungarian economy and the EU. The solid lines, which refer to the left vertical axis, represent the consumption share of GDP in the EU (green) and Hungary (purple). The share has been stable in the EU but declined in Hungary.

If GDP has grown strongly in Hungary, then the decline in the consumption share is not much of a problem. However, from 2007 through 2013 annual inflation-adjusted GDP growth in Hungary was -0.53 percent, on average. That us worse than crisis-ridden Ireland, Spain and Cyprus, and only a hair better than Portugal and Italy. With this in mind, it is hardly a surprise that private consumption in Hungary has exhibited such a deplorable growth record as reported by the purple dashed line (reference the right vertical axis). Average for 2007-2013 is -1.45 percent, worse than all the aforementioned crisis-plagued countries.

Herein lies part of the explanation to why the Hungarian parliamentary speaker is so vocal with his EU criticism. The nationalist government has not been very strong on promoting economic freedom. According to the Heritage Foundation Index of Economic Freedom, Hungary scores poorly in key categories such as government spending, monetary freedom, property rights protection and corruption. Although Fidesz may not be pursuing an open, deliberate statist strategy, the combined effects of their policies is in fact an advancement of government at the expense of the private sector.

It is very likely that statist nationalism is now taking such a toll on the Hungarian economy that voters, taxpayers and even business men are beginning to complain, loudly. In situations like this, it is a well established strategy in politics to turn people’s attention somewhere else. What better object of popular frustration than the EU?

Hungary is a country with a long, rich and fascinating history. Budapest is one of the most beautiful cities in Europe. I wish the Hungarian people all the best, but I do believe it is time for them to take another look at where their nationalist leaders are taking them, politically as well as economically.