Hungary's place in Eastern Europe

Even in the Kádár period Hungary had a few truly outstanding historians. One of these was György Ránki whose works on modern Hungarian and East European economic history, co-authored with Iván Berend, were groundbreaking. György Ránki is unfortunately no longer with us, but Iván Berend has been teaching history for the last fifteen years or so in California. Ránki himself spent years at Indiana University.

Anyway, Ránki said something that I find very true: "Europe is sloping downward from west to east." This is true in economic terms and consequently influences all facets of life. Whether we like it or not, Hungary is situated in a region that is less developed than the west. No historian has managed to give an adequate explanation for this phenomenon. Some historians tried to explain it by pointing to shifting trade routes, especially after the discovery of the Americas. One doesn't have to be a historian to debunk this hypothesis. Way before the late 15th century the West, including Spain and Italy, had a far more developed economic and cultural life than Eastern Europe. Another outstanding Hungarian historian, Jenő Szücs, a medievalist, divided the area we consider to be Eastern Europe into three regions: its western periphery (Austria, Bohemia, Moravia, Silesia, today's Slovenia), the central region (Hungary, today's Slovakia, and today's Poland), and the least developed eastern part: the Balkans, Romania, Bulgaria, Ukraine, the eastern parts of Poland. The differences among these three have been substantial for at least a millennium. Another historian, Péter Hanák, whose works dealt mainly with the Habsburg Monarchy, pointed out that the western part of Hungary belonged to the Roman Empire (Pannonia) for a fairly long period, and the difference in development along the Danube that was the border is still noticeable. That is, western Hungary is better developed than the eastern parts. Even today, people half jokingly call the territories east of the Danube Hunnia and west of it Pannonia. Although there are some supernationalists in Hungary who think that the Hungarians are related to the Huns (they are not) and consider this alleged relationship a source of pride, let's face it, outside this circle the reputation of Attila and his Huns are not the best.

The differences between the western, central, and eastern regions of Eastern Europe persisted until the 1960s. Hungary, as Pál Tamás mentioned in an interview (Népszava), was somewhere "at the lower echelons of the central region," and even today Hungary is behind the Czech Republic and Slovenia. There was an interlude, the Kádár regime, when Hungary managed to get to the top of the heap mostly because Kádár from the mid-1960s on opened avenues toward the west and loosened the restraints of state socialism. By now, says Tamás, Hungary has simply reoccupied its traditional place in the region.

But if that is the case, why are Hungarians so dissatisfied? The answer is simple enough: the problem is the heritage of the Kádár regime when Hungarians felt that they were the leading country in the region. And in comparison to Czechoslovakia the citizens of Hungary could indeed feel superior. Okay, they were not as well off as the Austrians, but they were certainly better off and freer than the Czechs or the Slovaks. Immediately after the change of regime this relative advantage of Hungary was a great asset. Hungarians were more open to western economic penetration and western businessmen felt more at home in Hungary than elsewhere in the region. But this relative advantage disappeared once the other countries caught on. The Czechs, especially after they separated from the Slovaks, reoccupied their former leading role in the region. And the Hungarians keep comparing themselves to the other Eastern European countries and can't get over the fact that the Czechs and the Slovenes are ahead. What really hurts is that Slovakia, once part of Hungary and not even its most prosperous part, seems to be doing better than Hungary at the moment. However, what Hungarians don't seem to realize, or at least certain people don't want to realize, is that the rapid Slovak development in the last few years was due primarily to the appearance of several foreign auto companies. I was astonished to hear the other day that 25% of the Slovak GDP comes from the auto industry. I don't want to be a Cassandra, but I can pretty well predict what is going to happen in the next few years with the Slovak economy. Slovakia will most likely reoccupy its traditional place in the region.

Can Hungary catch up to Austria, the Czech Republic, and Slovenia? If the past is any indication most likely not, but it can improve its relative standing. This can be done, however, only with more openness toward the outside word and better education, including foreign language study. Hungarians have never been eager to embrace new ways. But let's hope that necessity will force Hungarians to change.

Comments

[Sandor]

Interesting as today's article is, Eva, I think, I must submit a bit of a rebuttal, longer and perhaps more boring than usual.
I don't see any value in the medieval origins of any long term economical trajectory. If that were applicable, then the spectacular era of King Matthias should be calculated too, but that was wiped out completely by the Turkish occupation.
When Pest was liberated from the Turks, (the fall of 1686) only 14 houses were standing, most of them abandoned.
The following Habsburg restauration, despite all its colonizing intentions, made enormous efforts to introduce a contemporary economic system, but all it could accomplish was the Rakoczi rebellion: the Hungarians were not then, nor are they today interested in modern economy. (Of course, we must recognize that representing Hungarians is a limited number of people, neglecting and exploiting the overwhelming multitude).
Some years later the reforms of Joseph II failed in Hungary just as miserably on the resistance of the nobility.
The staid, sleepy, nonproductive periods were the ones that made the Hungarians happy and satisfied: like the time of the Leopolds.
If you compare these times and their outputs, you will find that in western Europe the enlightenment and the industrial revolution has started already, when in Hungary a few hotheads were still preoccupied with issues of nationalism (Martinovics) and others, like the Guardist poets, with matters of literature. That was all. In this regard the most invaluable work was written by Ignac Acsady, examining the treasury activities of the government (the Kaptalan) in the Hungarian provinces.
At long last, 1848 came and the attempt of a capitalist transformation. We know how that worked out. But we also should know that the entire economic history of the country and its place in the world had to be started from zero again. And it was with the Compromise.
As you well know, the Compromise was a two faced institution. On the one hand it did open up the road for the capitalist transformation and fostered it quite successfully. But on the other hand, it was structured so, as especially Ranki points out, that a large measure of the benefit accrued to Austria, not to Hungary. In fact, the Hungarian product could only be exported to third countries through the Austrian channels. In addition to that, the cost of keeping up the dual monarchy was chiefly born by the Hungarian treasury.
The industrialization was indeed a spectacular success! The industrial output of Budapest in the 1880s alone was more, than the entire GDP of the Czech province! (Which was reputed to be an industrial powerhouse.) Not to mention the proverbially great agricultural sector.
This is why the entire period of Tisza Kalman's premiership was spent in endless, unproductive debates trying to liberate the economy from the Austrian supervision. It remained futile.
We may also consider the WW I as an other watershed. Following that everything had to start from scratch again.And again, just like the Compromise earlier, this time the idea of revenge and the ideological strait jacket of the Horthy system stifled capitalist renewal.
These patterns, occurring repeatedly, should be obvious to everybody. It is not just the circumstances, and even less the works of the "enemy" that constantly prevent the rise of the Hungarian economy, but mostly the inability, or unwillingness of Hungarians to rise to the challenge.
Today, as you are aware, again ideologies are fighting and sucking the country dry. There is an accelerated disintegration of the middle class and the quality of education is declining as well. The society greedily embraced the habits of a consumer society, forgetting that only those who produce, can afford to consume. The country is a mess, because the political class was too feeble to recognize their duty and carry it out.
The pattern is at it again.
I have little patience for the explanations and remedies present day "experts" offer, but nevertheless, must admit that the wholesale reforms have no prospects at all and the only available dribs and drabs of adjustments, even if they succeed, will take an other 20 years to show any effect.
That leaves the last hope, the lifesaver that may be provided by the European Community.
But the time for their use is far too short, and the disposition of Hungarians is quite anti-European. The party, standing to win the next election, is openly opposed to European solutions, not withstanding the fact that they did work well for other countries. So we can see already, two years ahead of time, that again ideology and petty stupidity will scuttle the chance to measure up to the European norm.
I fear, the future of the Hungarian society and economy will almost certainly be shaped by the teachins of the well-known political philosopher, economist and industrialist Mr. Pato Pal.

[Aldamir]

I think both of your analyses underestimate the negative influence of 40 years of communism. Even today there are still vast differences between the former East Germany and the former West Germany, two places that were part of the same country before the socialist experiment devastated the eastern part. Similarly even in the Balkans, never-communist Greece is still more prosperous than Hungary.

Post-communist states all seem to suffer from a range of problems, the worst long term one is the very low birth rate.

[New World Order]

Eva-

You have your causation backward on current events in Slovakia. The country has attracted so much auto investment because starting around 2002 a MINORITY Government undertook substantial reforms that resulted in a far smaller role of the Government/public in the economy. By undertaking these unpopular reforms, the country was able to afford very competitive personal and corporate tax rates. These reforms and lower tax rates accompanied by Bratislava's ideal location on the Austrian border attracted substantial FDI, primarily in the auto sector. This has led to unprecedented growth for the country, albeit at the cost of creating substanital income inequality and huge regional disparaties.

Bottom line is that the development was caused by reforms which in turn attracted FDI. Maybe the over reliance on the auto industry will come back to bite Slovakia, but Hungary would happily trade places with its neighbor and take that risk upon itself. BTW, I cannot remember the percentage off the top of my head, but I am fairly certain that auto related industry (including tires) makes up more than 50% of Hungarian exports as well. It is not as if Hungary is so well diversified itself.

Having said this, I do acknowledge that I think the current recession will impact Slovakia and the Cz Republic more than is currently anticipated. However, because of each of their strong fiscal policies, they can afford to run much more favourable monetary policy than Hungary (from 1/1/09 for Slovakia within the Euro Zone)and cantherefore attempt to mitigate the impact of the recession in a way the Hu Govt will not be able to do.

[Eva Balogh]

Sandor: "If that were applicable, then the spectacular era of King Matthias should be calculated too, but that was wiped out completely by the Turkish occupation."

Let's stop right here. King Matthias's reign, especially after his marriage to Beatrix of Aragon was indeed a high point in Hungarian history. But.... in comparison to other more developed parts of Europe it was nowhere close to western standards. And yes, there were all sorts of terrible things: Tartars, Turks, Rákóczi-rebellion, etc. but these calamities just added to the original problem that is centuries old. Someone mentioned the forty years of socialism as a cause. Yes, that also added to comparative underdevelopment but it doesn't explain it. The same commenter mentioned the example of West and East Germany. Yes, but Germany even before 1945 sloped downward from west to east. Think of the Prussian junkers and the area of the Ruhr.

I'm afraid Ránki's observation is valid and most historians the world over would agree.

[Eva Balogh]

NWO: "Eva- You have your causation backward on current events in Slovakia.

Yes, this is the common wisdom but it may not be true. I will check the data but if my recollection is right the Slovak reforms didn't bring that much more revenue to the central budget. The Slovaks were willing to give deals to foreign automakers that Hungary wasn't. Then it might have looked foolish. Today, I'm not so sure. These bubbles usually are not very good for a country's economy. See lately the Baltic states and now Slovakia.

[Odin's lost eye]

Professor thank you very much for a very interesting piece. I was unaware of the destruction caused of the Hungarian economy and various intervals in history. The last destruction came about at the end of the unpleasantness with a certain wicked little Austrian house painter (the late and very un-lamented Mr. Hitler). It was exasperated by the activities of the communists and blind obedience to the rules of communist industrial theory. One of the biggest problems with state ownership of any industry is inertia. The second major problem is caused by the unwillingness on the part of the government to reinvest in that industry. Governments only want money from industry to spend on other things, the do not wish ploughed back any capital. The industry concerned therefore becomes a cash starved dinosaur. To survive a dinosaur has to learn to dance (the reinvent itself) as one Indian economist (Prof Yunus I think) puts it. In the Kador days the west was only too happy to invest in Hungary. What is little known by anyone is that the west was paying the communist ‘Dane gelt’ for fear of a Russian avalanche attack on the west. It took the combined efforts of Thatcher and Reagan to put a stop to this.
The problem for Hungary is partially the legacy of the communist era, partially due to the mindset of the Hungarian people and partially by ‘All Highest’ in Fidesz who refuses any form of co-operation with the Government and still seems to believe that Hungary is in a separate universe to the rest of the world.
The legacy of the communist era stems from early communist anti-capitalist propaganda later adopted by the workers in the communist era. It is “they pretend to pay us so we pretend to work”.
The mindset of the Hungarian people can best be illustrated by the fact that opposite my house is a tract of land which in my country this would have been part of a little market garden however the owner of it used to plant a small quantity of Rye. Judging from the yield I believe he got less than ¼ tonne from that land. There are a huge number of these highly inefficient semi marginal farmers. The size of their holdings was determined by the communist anti-Kulak laws. They are in the main very under capitalised. During my wife visits to England she often remarked "that you never saw a tractor standing still on a farm". She also remarked on the large investment in mechanisation on the farms that we visited and the size of those farms. At one farm we used to visite, which was owned by an old friend my father, she was amazed when she was told that only two people worked on the land, and a part time Secretary looked after the paperwork two mornings a week.
Finally there is the problem when dealing with many Hungarian small and medium sized businesses. That is not, will they try to swindle their customers, but when will they try it!
If this is not bad enough, It is made worse by Victor Orban’s attitude. All he wants is power! I always knew there was something ‘unreal’ about many of the denizens Oxford University and something very odd about those from Pembroke Collage in particular.

[Op]

Odie,
"little Austrian house painter"

Hitler was not a house painter. He was a talented amateur artist. Unfortunately he wasn't accepted by the snobs of his time, so he gave up painting and ended up in the dictator business. Now you know.

[Odin's lost eye]

Mr. Op. you say that the late and very unlamented Mr. Hitler was a talented amateur artist. He made his paintings from photographs and postcards. We know this because of some bits and pieces which were found at the Berghof at Berchtesgaden, by the Americans and from amateur film shot by Eva Braun. His great enemy (Churchill) painted from life and was a very good bricklayer. Churchill was also a fully paid up member of the National Builders Union.
By the way Herr ‘Dolfie also had a half brother Alois who had a son called William Patrick who died in the US about 1983.

[Op]

Odie,

Mr. Hitler was no Van Gogh, but his paintings were a lot prettier than his politics...
I'd rather see his "works" in an art gallery than in Oswiecim and similar places.

And Churchill was an overrated goofball.