Welcome, everybody, to Budapest. Being currently the Prime Minister here I think I have to speak in the Hungarian language.
Ladies and Gentlemen,
Allow me to welcome you on “the second day” with a quotation: “And God said, ‘Let the water under the sky be gathered to one place, and let dry ground appear.’ And it was so. God called the dry ground ‘land’, and the gathered waters he called ‘seas’”.
We are here on the second day, following a “night of long faces”. To those who do not believe in biblical analogies, and do not use them, I’ll say that it is now two days after the Big Bang. And we are still alive. What a wonderful world! Democracy is creative and innovative, and this is also testimony to that fact.
Ladies and Gentlemen,
I would like to welcome Sir Suma, the President of Bulgaria, and all our guests.
“Black sheep or success story?” This is the question which has shadowed Hungarians over the past six years. Coming to Budapest is always exciting, because Budapest is an exciting city. Budapest is the capital of a country with a language which visitors here do not understand at all – and this in itself is something extremely exciting. But, in addition to the historical excitement the city has to offer, arriving in a country which is the subject of ongoing debates – on whether it should be viewed as good or bad, a black sheep or a success story – always lends itself to some political excitement. Ladies and Gentlemen, I shall now briefly speak about the path Hungary has been pursuing over the past six years; and in the area mentioned by Sir Suma, the EBRD President, I shall give you a brief overview of the future of Hungary.
Dear Guests,
There are economic and political periods when it feels as if we have fully understood the rules according to which the world as we know it operates: we feel we know the rules of operation and the principles of its functioning. In such times, the only thing we have to do is establish what these rules are, and apply them as best we can. All of a sudden, however, we may find that the textbook economic models no longer work; we may find that the knowledge we possess suddenly loses some – or even all – of its validity. This was the situation in Hungary in the second half of the 2000s, but this also was – and today continues to be – the situation in Europe. We have suddenly found that Europe is unable to find the solution to most of the ills which plague it – for example, the stalling of the euro project, the crisis in Ukraine, or the massive modern-day population movement that is the migration crisis.
At times like this, Ladies and Gentlemen, we need leadership. The first part of my speech focuses on the observation that there are periods in which no successful economic policy can be conceived without firm, clear political leadership. At times like this we need charismatic leaders, strong leaders and political stability; and we also need a robust parliamentary majority, in order to have the power to enforce an economic policy based on new approaches. At times like this we need leadership, because we must cross into a new era, and we must have the courage to break away from the old solutions. This is also what has happened in Hungary, as we began to use an economic policy mix which sought to simultaneously achieve growth, fiscal discipline, an increase in employment and a reduction in government debt. According to the textbooks, this is not possible. Practice proves, however, that if we discard old habits and are brave enough to set out on new paths, growth, fiscal discipline, an increase in employment and debt reduction are indeed possible all at once – all at the same time.
Ladies and Gentlemen,
The fourth of November 2016 was an iconic day in our economic history. With the decision made by Moody’s on that day, the entire spectrum of analysts now recognises that the economic policy path we set out on in 2010 has successfully stabilised our economy, and Hungary is now taking part, with the hope of success, in the global competition between national economies. Naturally, politics also has its own rules. In the modern-day battles of political terminology, if you depart from the established dogmas, you could easily be branded as a populist. In the past, the word “populist” was used to label those who made unreasonable promises in order to gain the support of the public and the electorate. But can we brand as populist something – say a policy – which within six years is able to increase the number of taxpayers from just one million eight hundred thousand to four million four hundred thousand? Can we call a policy populist if, in just six years, it is able to reduce sovereign debt from 85 per cent to 75 per cent? Or can we call a policy populist if it succeeds in reducing the budget deficit from over 7 per cent to under 3 per cent? This clearly demonstrates that today’s international political language is unable to express certain phenomena, as with such tough economic political decisions and such achievements it is hardly reasonable to describe the past six years of Hungarian economic policy as “populist”.
Ladies and Gentlemen,
At the same time, past achievements do not predestine anyone to be successful in the future. This is also true of the Hungarian economy. I have a long list of excellent figures, and perhaps you are familiar with them, but as regards the future of the Hungarian economy we cannot afford to sit back and relax. The Hungarian economy needs to be comprehensively transformed in terms of competitiveness: to be reformed, if you like. I am convinced that the decades ahead will be the era of information technology and creativity, and that success can only be achieved by those economies which are also able to participate in the new developments, and to swiftly integrate the latest technologies deep into the fabric of their economies. Here in Hungary we have learnt that improving competitiveness is a complex task, in which every economic stakeholder must be involved – and this is just what the art of politics is about. It is about convincing every economic stakeholder to take part in the implementation of a complex programme for the improvement of competitiveness: convincing the state, with its bureaucracy; convincing businesses, financial intermediaries and the central bank; and, equally, convincing families and civil society.
Ladies and Gentlemen,
Here in Hungary we must acknowledge that one era of economic development has come to an end: an era based primarily on the fact that our competitiveness stemmed from the cheapness of our labour, and that the drivers of the economy were foreign investments which relied on this advantage. Naturally we need foreign investment, and we must never underrate the jobs which have been created, but we must recognise that they will no longer be the source of competitiveness.
Ladies and Gentlemen,
What follows from this is that Hungary and the other Central European countries must face up to a phenomenon which here, in Central Europe, we recognise as wage pressure. We must face up to the fact that both political reality and economic development in the Central European economies demand higher wages, and that therefore competitiveness is inconceivable without a significant rise in wages. At the same time, we must never yield to wage pressure without consideration for competitiveness. Perhaps you had forgotten this, but in 2002 Hungary carried out the unprecedented experiment of implementing an immediate fifty per cent pay rise, without any additional measure to improve competitiveness. As a result, within a few years the Hungarian economy was wrecked. Consequently, we all appreciate that economic integration calls for a significant increase in wages, both as a political and economic measure, but we must also point out that only businesses which are competitive are able to pay higher wages. Therefore, a precondition of increased wages – a precondition, not a consequence – is that economic actors, businesses, should be competitive in the first place. For the Government and our economic policy it also follows from this that the budget should withdraw less and less in terms of financial resources from the economy through taxation – otherwise the Government will not be able to contribute to the improvement of competitiveness. We Hungarians must also further simplify our corporation tax system: we must reduce the 19 per cent rate – because there is a 10 per cent rate and there is a 19 per cent rate. This will be a fine task for the Minister for National Economy over the next few years. I am convinced that we must further reduce the rate of personal income tax, and if we are to make our businesses competitive we cannot avoid the need to cut payroll taxes further.
At the same time, we must support an increase in R+D spending in the corporate sector, we must improve the environment which implements research and development, and – however inconvenient it may be – we must also admit that we must likewise improve the competitiveness of the state. We must reduce bureaucracy, and we must use its resources in a more rational manner. Neither should we ignore the fact that most modern European societies – including ours in Hungary – are plagued by the problem of poor demographics. We have different answers to this problem. Hungary is a country which does not seek to solve its demographic problems through immigration, but with the aid of its own economic, social and family policy. It follows from this that – in parallel with all the measures which I have mentioned – we should also develop our system of benefits, available through employment, related to the raising of children.
And here we must also point out, Ladies and Gentlemen, that not only must our businesses be competitive, but also our workforce. We cannot simply expect wage rises while the quality of the workforce remains the same. The workforce itself – Hungarian workers and the people of Central Europe – must become more competitive; we need better, higher levels in skills, greater flexibility and more creative thinking both from those who are already working now and from young people and children, who represent the generations to come. We expect this from the school system, and we particularly expect an improvement of standards in higher education.
And, Ladies and Gentlemen, this is where we come to the mission of the organiser of today’s conference: namely that a competitive economy cannot exist without an adequately competitive banking sector and system of financial intermediaries. This is the area where we have worked together with the EBRD and the Honourable President for many long years, and we can say with due modesty that we have done so successfully. We shall continue to rely on this cooperation, Sir Suma, in the future. The truth is that at this point in time our banking system is in good shape, the difficult shadow of former years is gradually disappearing, and this sector has become a profitable one. It offers healthy prospects to those who are involved in its operation, but at the same time we must admit that the Hungarian banking sector is still behind the international vanguard in terms of efficiency and the use of new technologies; what’s more, I believe that we are even behind some of our regional competitors. We need an actively competing banking sector which is able to provide sophisticated, modern services.
Ladies and Gentlemen,
We wish to thank the EBRD for the assistance they have provided in this respect, and in the future we shall continue to rely on the intellectual and consulting capacity which the EBRD is able to place at our disposal. I fully agree with the EBRD President’s statement that it will be difficult to create competitive economies in the region without the development of stock exchanges. We have enormous potential in this department, as the stock exchanges of our region are still underdeveloped. Here is another potential area of cooperation: finding ways for our stock exchanges to be developed and move closer to the world’s more effective exchanges. If we find a way to cooperate, we will take an important step towards enhancing the Hungarian economy’s competitiveness.
Ladies and Gentlemen,
Taken as a whole, Hungary has developed an original economic policy mix. Of course, this departs from the European mainstream’s approach to economic policy. Recently we have battled through some very difficult disputes on this score. Undeniably the approach I’ve just described means that Hungary does not subscribe to European Union mainstream economics. In fact I would prefer to describe our position on the European scene as one of opposition – a reform opposition position, if you like. As part of Brussels’ future policy package we would also like to see as many elements as possible of this approach – which has proved to be successful here. We talk about this openly, and sincerely hope that in the future this open speech and debate will be embodied in reforms and continue in later events.
So we have a Hungarian model, and this Hungarian model is viable. It is not just an economic model, but also a social one. In Hungarian we sum it up as a work-based economy, a workfare society. We do not claim that this is the only possible answer to the challenges of the modern European economy – we would never say that. But we do say that this is a possible answer which is worth studying, and since this economic policy has helped us emerge from a crisis which was deeper than that of Greece, we believe that this Hungarian model deserves some serious consideration. It is not an ideology, and thus it does not demand that people see it as the only possible path to success – it is merely a possible path.
Returning to my opening comments, for us to succeed in reforming Europe in the direction of greater competitiveness we do, however, need frank and open speech. This is why I began my speech by welcoming you on “the second day”. But of what is this the second day?
Ladies and Gentlemen,
This is the second day after a historic event in which Western civilisation seems to have successfully released itself from the captivity of an ideology. I am convinced that Western culture – and the economy of the West – has always benefited whenever it has managed to free itself from an ideology, and return to reality. I believe that this is what we are experiencing right now. What we call “liberal non-democracy” – in which we have lived our lives over the past twenty years – has come to an end. We can finally return to true democracy. We can return to straightforward and frank speech, freed from the paralysing constraints of political correctness; we can return to reality, we can honestly say what the problems of reality are. And we should not look for the answers to these problems through ideology, but through pragmatic and rational creative thinking which is based on the foundations of common sense. I am therefore convinced that we are living through great days and great times. We also see Brexit in this context: Brexit is not a tragedy at all, it is not a defeat, but an attempt by a great nation to secure its success in a way which is different from the approach to success once adopted by everyone. I am also convinced that in recent months the entire European and Western world has taken some important steps towards an intellectual transformation. This is not something which we should be afraid of, but we should instead see the opportunities inherent in it. Our approach should be like Hungary’s in 2010, when it saw the financial crisis not as some sort of problem, but as an opportunity; and by using that opportunity it has transformed itself into an economy which is worth talking about today in this wider community.
Thank you for your attention.
