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  • Writer's picturegaborscheiring

From Democracy to Authoritarian Capitalism

In this op-ed, I explore the latest Freedom House Nations in Transit Report, its implications for Hungary, and how the report only reveals the tip of the iceberg of the democratic backsliding in Hungary.


According to the latest Freedom House Nations in Transit Report, the quality of the remaining democratic institutions in Hungary is poorer than in Albania, Serbia, or Northern Macedonia. Hungary has not been a democracy since 2020, according to Freedom House. However, the report does not reveal what is happening below the surface. Formal rule of law backsliding is just the tip of the iceberg of a system of informal power. Freedom House, and Western democracy-promotion policy identify democracy with a basic institutional infrastructure, with little attention to trade unions, social organizations, or inequalities, which are vital to democratic sustainability.

The picture emerging from the report is all too familiar by now.

Hungary is an increasingly closed, inward-looking authoritarian system. Last year, the quality of democratic institutions deteriorated faster than in any other former state-socialist country except Russia, according to Freedom House experts.

In Albania, for example, former senior officials, such as the ex-Minister of Interior Affairs, are being jailed for corruption, while in Hungary, the trial of the members of the so-called “foreclosure mafia” misses the most critical points. Public authorities protect the most important players, such as Antal Rogán, the powerful Head of the Prime Minister’s Cabinet.

This authoritarianism also manifests in Hungary being the only EU member state conspicuously unwilling to take a clear stand against Russian aggression. Not that US foreign policy is an unconditional friend of democracy. From the disastrous intervention in Afghanistan to the trampling of rights in the name of the “war on terror” to support for coups in Latin America, one could list the instances where US foreign policy has run counter to basic democratic principles. Nevertheless, it would still not be difficult to take a clear stand in favor of the Ukrainian people’s self-determination and right to life against bloody Russian imperialism. Yet the Hungarian state party refuses to do so.

In addition, several countries in the region are past the worst of the authoritarian-populist wave, e.g., the Czech Republic and Slovenia recently voted right-wing populists out of power. In contrast, Hungary’s democratic institutions have completely collapsed, as shown in Figure 1.

Figure 1. The quality of democratic institutions in Central and Eastern Europe.

Source: Freedom House.

There has been no democratic public life in Hungary for a long time; not only has the opposition not been dealt a hand, but no social actors have any meaningful say in exercising power. The state party’s response to social pressure is usually threefold: exhaustion, punishment, and co-optation.

The ignoration of protests illustrates the government’s tactic of exhaustion. This tactic is not new. “Sooner or later, they get bored and go home,” said left-liberal prime minister Ferenc Gyurcsány back in the mid-2000s. What is new is that cynicism is now matched by unparalleled power. The so-called “status law,” which radically rewrites the legal status of teachers, is a prime example of the tactic of punishment: the introduction of disciplinary proceedings, the extension of probationary periods, the institutionalization of extraordinary dismissal, the restriction of teachers’ freedom of expression, to mention only the juiciest. All this is in response to teachers’ demands for higher wages and better working conditions. But it also includes the case of the riot police, batons and tasers used on students protesting the state of education.

Finally, co-optation. The government appoints “acceptable” partners from above, nurturing pro-Fidesz trade unions. These actors, of course, cannot achieve much, but at least they have a nice office. For example, as a sign of a rather peculiar trade unionism, Ágnes Cser, chair of a pro-Fidesz healthcare workers’ union, called on doctors at the beginning of this year to “renounce their 11 percent wage increase this year and not to incite a fight.” So, according to Ms. Cser, a union whose primary purpose of existence is to fight for wages should not fight. In recent years, Ágnes Cser has consistently stood up for the government’s healthcare measures, often to the detriment of health workers. The state party’s message is clear: if you keep quiet, we won’t cut off your head, only one of your hands, and in return, you will get some crumbles from the big guys’ table.

At this point, the limitations of Freedom House and similar reports become apparent. Freedom House identifies democracy with a basic institutional infrastructure. All you need for democracy are elections to guarantee the will of the majority, constitutional rights to ensure the protection of minorities, and courts and the media as independent institutions to limit state power. However, this formal institutional approach obscures the question of the social sustainability of democracy. It is no accident that the Freedom House Report says little about trade unions or social inequalities. These issues go beyond the formal dimension of liberal institutions.

Institutions are crucial to democracy, but democracy cannot be consolidated without social organizations that effectively combat inequalities.

Freedom House fits the formal approach to democracy that dominates Western democracy promotion. This democracy promotion without an inclusive economy and social system leads to severe contradictions. Ukraine is a good example. When the pro-Western liberal elite came to power in Ukraine after the Orange Revolution and then in the post-Maidan era, it pushed the familiar economic liberal measures, with austerity and liberalization, in parallel with strengthening ties with the West. The fear of economic loss generated by these policies played into the hands of Yanukovych’s pro-Russian, anti-Western populist Party of Regions. Yanukovych capitalized on criticism of austerity and trade liberalization, promising to protect workers and domestic industrial capacity.

These economic conflicts contributed to the escalation of the armed violence in Ukraine in the mid-2010s, which can be seen as a precursor to today’s war. The Donbas, the Donetsk and Luhansk regions, is a highly industrialized part of Ukraine, with nearly 50 percent of the country’s engineering capacity concentrated there before the war. The Donbas is home to several industrial towns specializing in machinery production for Russian export. These settlements have been adversely affected by austerity, the free trade agreement with the EU, the disruption of trade with Russia, and the escalating trade war between the EU, Ukraine and Russia. Yuri Zhukov, a professor at the University of Michigan, analyzed data at the municipal level and showed that separatist rebels in eastern Ukraine were most active in municipalities that had suffered a significant economic shock in 2014-15. The data cover 10,567 unique violent events in 3037 municipalities of the Donbas, recorded between President Viktor Yanukovych’s departure in February 2014 and the second Minsk ceasefire agreement of February 2015. The uniquely fine-grained violent event data are based on human-assisted machine coding of news reports, press releases and blog posts.

Using Bayesian model averaging, Zhukov shows that settlements in the Donbas that were more exposed to economic shocks had higher rebel intensity, fell under rebel control sooner and remained under rebel control longer than those settlements where the labor force experienced smaller shocks, regardless of the number of Russians living there. On any given day in the period Zhukov analyzed, a municipality with higher-than-average employment in the beleaguered machine-building industry (26%) was about twice as likely to fall under rebel control as a municipality with below-average employment in the industry (4%). In contrast, ethnicity and language had no significant effect on rebel violence.

In other words, it is not simply the Russian minority in eastern Ukraine that rebelled against the Ukrainian leadership; economic shocks explain the pro-Russian rebellion more than ethnicity.

Putin took advantage of this opportunity and escalated the pro-Russian revolt first into a low-burning civil-military conflict and later an imperialist war. Of course, the contradictions of the democratic-liberal elite’s economic policies do not change the fact that Putin and the Russian leadership are responsible for the war in Ukraine. However, this case also shows that formal institutions alone cannot consolidate democracy when economic policy is causing society to disintegrate.

The strength of social and economic tensions is also linked to the decline of Hungarian democracy. As I argued in my book, The Retreat of Liberal Democracy, Hungary is an authoritarian capitalist country aimed at boosting the economic elites’ wealth and capital, paid for by the masses. Just think of how battery plants are being set up at a forced pace, bypassing local opinion and simply rewriting laws to smoothen the process. The country’s economic model does not aim for a skilled and healthy workforce producing high added value. The goal is to assemble something with easily exploitable, replaceable laborers. Yesterday, Western cars. Tomorrow, Eastern batteries. This model is not sustainable in the long term within a democratic framework. For Viktor Orbán to redistribute wealth and income from the bottom up, democracy had to be abolished.

Two trends perfectly illustrate the functioning of authoritarian capitalism.

On the one hand, according to Knight Frank’s 2023 Wealth Report, Hungary will have the fastest growth in the number of billionaires in the world between 2022-27.

By 2027, there will be 66,690 dollar-millionaires in Hungary, according to the study, a 109% increase from 2022.

Meanwhile, Hungary is the only country in Central Europe where the share of labor in national income has fallen in favor of capital over the past decade, as Figure 2 shows. The workers’ slice of the economic pie has never been huge, but under Viktor Orbán, it has shrunk to a minuscule portion. While 60% of the income generated in the German economy goes to workers and 40% to capital, in Hungary, the ratio is reversed, with labor’s share around 45% and falling. The economy is growing, but more and more of the income goes to the economic elite and less and less to wage and salary earners. This shows not the current system’s failure but its success. This income is being extracted from society to fatten the elite and will double the number of billionaires in the next five years.

Figure 2: Wage share trends in Central and Eastern Europe.

Source: European Commission AMECO Database.

As an illustration of authoritarian capitalism, we can take the case of teachers again. There is a teacher shortage in Hungary because teachers’ salaries are worthless. What is the state party’s response? Pay raise? Let’s not joke; that would be contrary to the authoritarian capitalist model of the assembly plant. Instead, there are other “solutions,” such as increasing the working week to 48 hours, making it possible for teachers to be transferred to other municipalities, introducing Sunday working, or de facto abolishing the right of teachers’ unions to exist, all in one stroke, in the so-called status law. Again, this labor policy would be unworkable in a democratic framework.

But we must also realize that this is not a Hungarian curiosity. Hungary is not exceptional. Unfortunately, this is a world trend, and Hungary is one of the representatives of the decline of democracy and the rise of authoritarian capitalism, but not the only one.

In 2023, democracy deteriorated in 11 out of 29 former state-socialist countries according to the Freedom House Report. The V-Dem Institute (Varieties of Democracy) is currently the largest democracy research institute, based at the University of Gothenburg in Sweden. V-Dem’s latest report was also recently released, which shows that the third wave of autocratisation has reached a new peak: in 2022, 42 countries moved closer towards autocracy, while only 14 countries have experienced democratization.

As the appetite of the economic and political elites grows, the space for democracy around the world shrinks. Bolsonaro’s Brazil is a case in point. The elites got fed up with all the redistribution, so they looked for a strongman to stop the profit rate from falling, discipline the poor and shift the focus of political debate from economic redistribution to the culture war. Same as in Hungary. The only difference is that the Brazilian left has found itself, and the voters have shunned the right-wing populist Bolsonaro. The same dynamic was behind the political success of Duterte, elected in the Philippines, on the other side of the world.

The situation in Hungary is horrific. And it can easily get worse.

But democracy’s case is never totally hopeless. Brazil managed to oust its homebred Orbán. True, it took strong trade unions and a strong left. Hungary is light-years away from that.

But the direction is clear. Democracy is not sustainable without social cohesion and without social organizations that can successfully fight for equality.

Publihsed on Review of Democracy, June 16, 2023.


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