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State-class reconfigurations in Hungary’s geopolitical integration since the 1970s


Protest gegen die Regierung von Premierminister Viktor Orban am 21. April 2018 in Budapest, Ungarn
Protest against the government of Prime Minister Viktor Orbán on 21 April 21 2018 in Budapest. picture alliance / REUTERS | BERNADETT SZABO

This article contextualizes the understanding of Hungary’s present regime and its international alliances by tracing Hungary’s integration into changing world-economic and geopolitical relations since the 1970s. Besides the crisis of state socialism, this period marks the beginning of what Marxist political economists call the “long downturn” of the post-1945 global capitalist cycle. In the following, we briefly summarize three phases of Hungary’s external integration since the 1970s, and show how changing modes of world-economic integration are based in reconfigurations of internal state-class constellations.

Agnes Gagyi is a sociologist at the Department of Sociology and Work Science at the University of Gothenburg. She is a member of the working group for public sociology “Helyzet” in Budapest. Her research focuses on political and social movements in Eastern Europe with regard to the long-term economic and geopolitical integration of the region.

Tamás Gerőcs is a political economist, currently pursuing his doctorate at the State University of New York in Binghamton. He is a Research Fellow at the Institute of World Economics, Centre of Economic and Regional Studies in Hungary and a member of the working group for public sociology “Helyzet” in Budapest. His main research interests are the semi-peripheral dependent development in Eastern Europe and labor relations in the Hungarian automotive industry.

Late-Socialist Crisis in Hungary: The Fall of the Reform Socialist “Bridge Model”

The reform period that followed the 1956 revolution encouraged marketization and placed economic welfare before ideological control in the politics of legitimacy. In terms of external integration, the reforms crystallized a model that Gerőcs and Pinkasz call the “bridge model”: Hungary imported Western technology, which it resold to the Comecon market in exchange for subsidized Soviet crude oil, which was then re-exported to the West. The balance of trade on which this model rested was overturned by the oil price shocks in the 1970s. Slipping towards a negative balance of payments, Hungary increasingly relied on cheap credits available on international markets. Economic policy-makers hoped that credit-based industrial development would be able to produce goods that could be sold on Western markets and balance import costs. Instead, like many other non-core countries in this era, Hungary slipped into a debt spiral.

Joining the International Monetary Fund in 1981, Hungary launched a programme of austerity and liberalization in line with the general neoliberalizing trend of the era under international organizations’ supervision. Within the country, this line was supported by a fledgling alliance between the reform wing of the ruling Hungarian Socialist Workers’ Party, managers of state companies interested in privatization who cultivated informal relationships with the state bureaucracy, market-oriented monetarist technocrats (who often simultaneously worked on reform programmes in the state and as private advisors to managers seeking paths to privatization), and political dissidents who increasingly turned from critiques of the socialist system to supporting a transition to Western liberalism and the free market.

In late state socialism, the pro-market alliance explicitly referred to social problems, with which they hoped to reinforce their political demands and critiques of state socialism. Besides pointing out examples of poverty as an argument against the system, another such reference point was the broad scope of the informal economy made legal after 1982. This “second economy” involved masses of industrial and agrarian workers working second shifts in private or household enterprises. While these activities meant an objective increase of wealth for the households involved (more rural family homes were built from second economy incomes in the 1980s than ever before during socialism), in broader terms the legalization of the second economy meant outsourcing the maintenance of living standards due to falling real wages in the formal economy.

Despite this bottom-up stabilization through informal work, the second economy was represented by elites supporting marketization as an incipient form of market entrepreneurship—a promise of the free market that the whole population could successfully engage in once the limitations of the state economy were lifted. These narratives did not take into consideration that state jobs, living subsidies, and the infrastructure of state enterprises that workers used in their second economy activities constituted a necessary condition, without which this type of popular mixed economy failed due to its dependence on state-based production and redistribution.

The 1990s and 2000s: Privatization, FDI, and Debt-Based Development

The transition reached Hungary in a state of mounting external debt and urgent need for capital. In this situation, international organizations and Western capital enjoyed an upper hand in the final process of marketization. While foreign capital benefited from untapped domestic markets along with relatively well-preserved infrastructure and a well-qualified labour force made extremely cheap by the collapse of state employment, fractions of domestic capitalist classes forming through privatization struggled to maintain their positions in the private economy. While in the 1990s this integration model brought a significant wave of foreign direct investment into the country (in exchange for decaying work conditions and severe austerity), in the 2000s capital inflow began to slow as privatization was completed and a second wave of debt-fuelled economic development ensued, in which basic state spending became conditional on IMF supervision and EU transfers.

In politics, two main blocs tied into different alliances were formed during the transition. The conservative party MDF promoted a model of protectionist national capitalism, yet despite its electoral victory in the first democratic elections, its programme remained defensive in the face of the real power held by international donors, Western capital, and their local allies. The latter were politically represented by liberal parties (SZDSZ and Fidesz), liberal technocrats, the dominant liberal wing of the Socialist Party, and fractions of domestic capitalist groups allied to the Socialist Party.

The political level of conflict between these two political blocs defined the frameworks of political discourse in the post-socialist period: while conservatives spoke of defending “national” wealth from Western capital and its internal allies, the liberal-socialist bloc promoted Western-type markets and democracy as the objective route of development, while dismissing social or economic criticism as being guilty of nationalism. While the politics of the liberal-socialist bloc remained dominant in Hungary’s world-economic integration model until the late 2000s, the conservative bloc’s nationalist critique of neoliberal globalization became the primarily channel articulating popular grievances in the face of ongoing austerity, the marketization of reproductive functions, and the rolling back of state welfare programmes, as well as the main ideological framework through which the aspiring middle classes expressed their growing disillusionment with the mobility promises of the transition. With any left-wing critique forcefully suppressed by the tandem of conservative and liberal political communication, nationalist anti-globalization—promoted by conservative channels and tapping into existing right-wing subcultures—grew into a broad popular counterculture throughout the 2000s.

A significant early moment of this type of alliance was the two political bloc’s relation to workers’ struggles during the privatization process. While the main liberal and conservative parties at the time, SZDSZ and MDF, made a pact before the first elections in which they agreed to rule out political strikes as well as workers’ ownership as a potential path to privatization, throughout the early 1990s MDF courted the workers’ council movement and promised political help as part of an alliance. For MDF, this alliance served to build leverage against big company managers allied with the Socialists. While its political assistance resulted in minimal results, by 1998 the workers’ council movement declared itself a Christian union, renounced its aim of establishing workers’ property, and has continued to work as a union in alliance with conservative political groups ever since.

Another significant moment that illustrates the alliance between conservative politics and popular struggles is the 2006 protest wave and its aftermath. Sparked by a leaked speech of Socialist prime minister Ferenc Gyurcsány in which he admitted to lying about the public budget in his electoral campaign, the 2006 protests brought to the streets large masses of people disillusioned with the neoliberal path of post-socialist politics. While in terms of party politics, it was the extreme right-wing party Jobbik that had the closest relations to politicized groups active in the protests, in the aftermath of the protest it was Fidesz that managed to use the protests’ legacy as a main point of its campaign of “national liberation” from Western capital’s rule, bringing about its supermajority victory in 2010.

Fidesz’s move to the conservative national capitalist position is the third main moment that is important to stress as part of state-class reconfigurations in Hungary. Fidesz took an ideological turn in the late 1990s, explicitly taking up the role earlier occupied by MDF. This position, ideologically expressed in moderate nationalism and the promise of embourgeoisement, brought it an electoral victory in 1998, but as a programme it was limited by the force of external-internal capitalist alliances still allied with the liberal-socialist bloc. Fidesz responded to this limitation by placing an emphasis on building out its own capitalist background—both through state-backed methods during its governance, and through building new alliances with domestic capital after it lost the elections in 2002. This process was aided by the breakdown of alliances between domestic capital and liberal-socialist politics, as the grip of debt and neoliberal austerity backed by conditions of EU transfers made it impossible for liberal-socialist governments to provide any meaningful benefits in this direction.

Another major step in alliance-building was Fidesz’s decision to build a nationwide political movement called “Civic Circles” after its electoral loss in 2002. While Fidesz’s earlier slogan of embourgeoisement already embraced disillusioned middle-class segments, themed by the slogan “The Nation Cannot Be in Opposition”, Civic Circles also penetrated skilled blue-collar workers disillusioned with post-socialist development and included them in a nationwide infrastructure of political debate and activism that promised direct democratic participation in national politics, but was transformed into a centralized top-down system for the electoral campaign.

The Orbán Regime: Reconfiguring State-Class Relations of External Integration after 2010

By the second half of the 2000s, the liberal model of Hungary’s world-economic integration showed signs of exhaustion both in economic and political terms. The socialist-liberal governments attempted to alleviate political delegitimation through increased public spending and the encouragement of private debt in foreign currency, inviting the scrutiny of international organizations already by 2006. The crisis of 2008 delivered the last blow to this destabilizing model. In 2010, Fidesz entered parliament with a supermajority that allowed it to execute a significant reorganization of internal state-class relations and external alliances, using the room to manoeuvre opened up by the global crisis to renegotiate relations with international capital and open opportunities for the development of a state-backed national bourgeoisie. In order to execute and maintain these reorganizations, Fidesz embarked on a path of increasing centralization of administrative and political power, including the monopolization of media under party control.

In contrast to some lines of its political communication, the new regime was not entirely hostile to international capital given the country’s persistent dependence on external financing, mostly from the European Union’s Structural and Cohesion Funds as well as from foreign direct investment in export sectors dominated by Western manufacturers. In terms of the latter, the role of the German automotive industry outsourcing capacities to Central Europe after 2008 played the most significant part. In domestic services (particularly utilities, energy, construction, and retail), the government initiated relatively hostile takeovers and influenced competition in favour of state-backed national companies. In banking, reorganizations in response to the financial crisis, like the restabilization of the sector hit hard by debtors’ bankruptcies (involving hundreds of thousands of households affected by exploding rates of foreign currency debt) were used to make space for national finance capital while generously bailing out foreign banks.

Fidesz’s treatment of the foreign currency debt problem is illustrative of its successive phases of alliance-making: while Fidesz’s election slogan was to save Hungarian families bankrupted by foreign banks and was widely communicated as a successful effort during its first cycle, after 2014 its actual measures boiled down to stabilizing and reorganizing the banking system to the benefit of national capital while not hurting foreign capital’s interests, saving rich and upper-middle class debtors through state subsidies, and blocking paths of advocacy for debtors who were not helped by these measures.

While aspects of power centralization like government influence on media, the judiciary, or attacks on civil society organizations were widely discussed internationally, one main function of authoritarian measures barely surfaced in debates dominated by liberal agendas. This is the control of labour, where domestic capital’s interests coalesce with those of international capital. In this field, successive pro-capital reforms of the labour code were directly related to the needs of foreign investors. German export manufacturers helped draft the new labour code in 2012 that took away major union rights. Upon their request, amendments to the labour code were added in 2018 which trade unions dubbed the “Slave Law”, citing the extent to which it restricted labour’s negotiating power vis-á-vis companies.

In 2020, the government used the COVID-19 pandemic to rule by decree. While this was revoked after the first wave, measures introduced to support foreign investment and further subordinate labour (the second “Slave Law”) during that period were kept. In terms of the unemployed, a strong means of control was the transition to the workfare model, whereby public work is necessary to access unemployment benefits, but participation in public work is left to local government officials “inviting” people into the programme. Locking poverty into a direct dependence on Fidesz-dominated local governments, public work proved a highly efficient measure of political control, with the poorest localities producing the highest percentages of electoral results for Fidesz.

Besides policies serving foreign direct investment and domestic capital and subordinating local labour to both, a third main aspect in which Fidesz reorganizes Hungary’s external integration is its effort to diversify financing away from a unilateral dependence on transatlantic lenders. The global reorganization of hegemonic relations within the world economy and the regionalization of the international system made this effort a viable strategy to include Chinese and Russian finance capital. As a result, Hungary is one of the most active partners in China’s regional infrastructural investments, part of the multilateral Belt and Road Initiative (BRI). For the current Hungarian regime, the main benefit of the partnership is that it helps to set up a large investment fund independent of European financial compliance, meaning it can be mobilized for government-affiliated oligarchic groups.

One notable example is the Belgrade-Budapest speed-cargo railway, which will connect Chinese harbour logistics to the European mainland as part of BRI. The main Hungarian partner in realizing the project is a company owned by Lőrinc Mészáros, Hungary’s top state-backed oligarch, widely understood as a placeholder for Viktor Orbán. The Hungarian government has signed several bilateral agreements with Russia, including gas-transportation contracts and the expansion of the country’s nuclear capacity by Russia’s Rosatom. For both China as well Russia, Hungary performs a geostrategic function of entering the European Union. Russia has set up the new regional headquarters of its International Investment Bank (IBB) in Budapest, triggering quarrels with the European Union over IBB staff’s immunity in the EU. Parallel to Central European University’s relocation from Budapest to Vienna, the government invited China’s Fudan University to build its first overseas campus in Budapest. Beyond these geopolitical gestures, both Russian and Chinese projects include debt-based financing, locking the next generation of Hungarian citizens into a debt relation with new international donors.

In terms of its politics of legitimation, the Fidesz regime has been shifting from the pre-2010 mobilization of social grievances and post-2010 co-optation “gifts” (like state subsidies on utility costs, or distributing tobacco shop licences to politically loyal small entrepreneurs) to a later phase in which openly pro-capitalist expressions of power (e.g. the Minister of the Exterior saying in an interview that whoever experiments with the “union game” within the apparatus will be fired) are mixed with extreme-right ideological messages (like the anti-migration or anti-gender campaigns). While Jobbik initially successfully capitalized on grievances against Fidesz’s policies expressed in nationalist terms, Fidesz’s move to the far right and its operative destruction of Jobbik resulted in a situation where a parliamentary opposition mostly consisting of pro-Western, pro-liberal elements is matched by a politically unarticulated and unorganized political dissatisfaction, expressed primarily in the language of nationalism.


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