Wednesday, October 29, 2008

Hungary's bailout

Sorry for the absence - I was in Berlin for the weekend and flu-ridden for the last two days, thus completely unable to think, let alone write.

Rather than talk about the US presidential election, which is really a thoroughly beaten dead horse at the moment, I'm going to shift gears and return to the topic of the global economy.

As a Hungarian American, I have a particular interest in how Hungary fares economically. And recently the prognosis has not been good. Hungary has received a $25.5 billion bailout from the IMF and the EU to help rescue its floundering economy, the largest bailout in Europe thus far. Amidst discussions of salary freezes and pension cuts, the question is why is Hungary in such a bad position? Why is its budget deficit the largest in eastern Europe? While I'm not informed enough to provide a comprehensive answer, I think the crisis can be in large part attributed to long-standing economic policies implemented in the early transition period.

In particular, eastern Europe in the early 1990s found its socialist systems being radically restructured to conform with the model of capitalism promoted by the Washington Consensus. This shock therapy, implemented throughout the eastern bloc, is the very model of unregulated, unfettered capitalism that is causing the foundations of the post-Reagan US economy to crumble, and that caused crisis after crisis in Latin American countries during the 1990s.

Whereas western Europe built its economy on a capitalist model tempered with social programs to ensure the health and survival of all members of society, social services in eastern Europe were systematically dismantled, privatized, and sold to corrupt entities interested only in profit. Sound familiar? It should. This is what the US, together with the IMF, has been selling to developing and transition countries around the world. Sure, it looked enticing when everything was peachy in the US, but it doesn't look so great now. And eastern European countries, already viewed as riskier investment areas than western Europe, are seeing a flight of capital that is causing the markets to plummet and undermining a system based on market strength rather than actual assets.

The model of capitalism promulgated by the US in the last few decades is an unsustainable one, working through speculation and lacking in underlying assets. And when the market hiccups, the national economy vomits, particularly in smaller countries without the market power of the US. As long as the markets were functioning in their happy magical land of unicorns, rainbows, puppies, and Greenspan, all was well. Now, seeing that this model doesn't even work for its creator, it's time to attempt to reintroduce the concept of actual rather than speculative value, although it may be too late.

As for Hungary, the economic crisis is surely due to more factors than its post-transition economic choices, including corruption of politicians, poor public policy choices, and the ripple effect of economic shocks undergone in the process of acceding to the EU. (Let's not forget, the EU is as bad of an offender as the US in many ways, forcing adherence to the acquis by accession countries that was never and is still not required of older member states.)

Nevertheless, the underlying message is clear: corporatism, i.e. US capitalism, is not in the interest of human beings. It has never been in the interest of human beings. And if we want to weather this financial crisis, we need to give the economy back to the people, not in the sense of allowing them to invest their pension funds willy-nilly in volatile markets, but in the sense of ensuring for their future and their wellbeing rather than the future and wellbeing of corporations.


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