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Dependent development and authoritarian state capitalism: Democratic backsliding and the rise of the accumulative state in Hungary

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Democracy is in crisis around the globe. Hungary was long heralded as a champion of political and economic liberalization in postsocialist Eastern Europe. However, the country recently emerged as a striking example of the current wave of autocratization. Starting from the premise that political regimes are the results of class compromises, in this paper, I argue that Hungary’s authoritarian turn is in part rooted in the reconfiguration of the dominant power bloc and the concomitant change in the state’s strategy. The aim of this article is twofold. Firstly, I analyze the socio-economic roots of Hungary’s authoritarian turn and propose a new, theoretically driven causal narrative challenging and extending existing accounts. Relying on macro-statistics and a new dataset on the economic elite, I describe how the collapse of the class compromise that sustained the post-socialist liberal competition state engendered the revolt of the national bourgeoisie and the rise of the new authoritarian regime of accumulation. Secondly, I offer a new conceptualization regarding the political-economic nature of the new regime: the accumulative state. I empirically identify the political instruments through which the accumulative state props up capital accumulation and the ensuing social conflicts. Instead of portraying Hungary as a divergence from liberal capitalist norms based on a textbook view of markets, I situate authoritarian politics in the logic of capital accumulation. However, I stress that the post-2010 accumulative state serves only short-term capital accumulation and fails to enact long-term structural transformation.
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Dependent development and
authoritarian state capitalism:
Democratic backsliding and the rise of the accumulative state in Hungary
Gábor Scheiring, PhD
ISRF Political Economy Research Fellow, Department of Sociology, University of Cambridge, 16
Mill Lane, CB2 1SB, Cambridge, UK. Email: gabor@gaborscheiring.com
© 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
http://creativecommons.org/licenses/by-nc-nd/4.0/
Cite as: Scheiring, Gábor (2019) Dependent development and authoritarian state capitalism:
Democratic backsliding and the rise of the accumulative state in Hungary. Geoforum, Published
online: 5 September 2019. doi: https://doi.org/10.1016/j.geoforum.2019.08.011
Abstract
Democracy is in crisis around the globe. Hungary was long heralded as a champion of political and
economic liberalization in postsocialist Eastern Europe. However, the country recently emerged as
a striking example of the current wave of autocratization. Starting from the premise that political
regimes are the results of class compromises, in this paper, I argue that Hungary’s authoritarian
turn is in part rooted in the reconfiguration of the dominant power bloc and the concomitant
change in the state’s strategy. The aim of this article is twofold. Firstly, I analyze the socio-
economic roots of Hungary’s authoritarian turn and propose a new, theoretically driven causal
narrative challenging and extending existing accounts. Relying on macro-statistics and a new
dataset on the economic elite, I describe how the collapse of the class compromise that sustained
the post-socialist liberal competition state engendered the revolt of the national bourgeoisie and the
rise of the new authoritarian regime of accumulation. Secondly, I offer a new conceptualization
regarding the political-economic nature of the new regime: the accumulative state. I empirically
identify the political instruments through which the accumulative state props up capital
accumulation and the ensuing social conflicts. Instead of portraying Hungary as a divergence from
liberal capitalist norms based on a textbook view of markets, I situate authoritarian politics in the
logic of capital accumulation. However, I stress that the post-2010 accumulative state serves only
short-term capital accumulation and fails to enact long-term structural transformation.
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Highlights
Dependent development led to economic polarisation in Hungary
Hungary’s authoritarian turn is in part rooted in the revolt of the national capital
New class alliance between the national capital, TNCs, and nationalist politicians
The new authoritarian regime is an accumulative state
The accumulative state is a way to manage the tensions of dependent capitalism
Keywords
authoritarianism, state capitalism, political economy, democratic backsliding, dependent
development, accumulative state.
Acknowledgments
I am grateful to the Independent Social Research Foundation (ISRF) for their financial support
that I received as a Political Economy Research Fellow at the Department of Sociology of the
University of Cambridge. It provided an unmatched opportunity to embark on a new research
project after my Ph.D. I am equally grateful for the financial and intellectual support of the Social
Theory Working Group of the Hungarian Institute of Political History. The National Endowment
for Democracy’s fellowship allowed me to spend half a year in Washington D.C., which, among
others, proved to be an excellent opportunity to refine the theoretical framework. Szilárd Gulyás
provided invaluable research assistance in collecting data on the economic elite, while the staff of
the Library of the Hungarian Parliament helped me to compile a unique press database. I am also
indebted to numerous colleagues at the University of Cambridge and in Hungary for their excellent
critical feedback as well as encouragement at various stages of my research. It would be impossible
to list the conferences and workshops where I presented my research. These occasions all helped
me to refine the argument, and convinced me to separate the very first version of this paper into
multiple articles, eventually leading to a book. Finally, I am also grateful for the dedication of three
anonymous reviewers, whose feedback undoubtedly helped me to polish the article.
Funding
This work was supported by the Independent Social Research Foundation (ISRF); the National
Endowment for Democracy (NED); and by the Social Theory Working Group of the Hungarian
Institute of Political History. The sponsors did not have any role in study design; in the collection,
analysis and interpretation of data; in the writing of the report; and in the decision to submit the
article for publication.
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1. Introduction
Democracy is in crisis around the globe. Each year since 2006, the number of transitions to
nondemocratic regimes worldwide has outnumbered the transitions to democratic regimes
(Diamond, 2017). Authoritarian practices are gaining a foothold in countries of the capitalist core
and the periphery alike. The world is facing a new wave of autocratization (Lührmann and
Lindberg, 2019).
For two decades after the fall of actually existing socialism” (Bahro, 1977), Hungary was heralded
as a champion of political and economic liberalization (Linz and Stepan, 1996). The country was
one of the first to liberalize its economy and political system from the second half of the 1980s.
Nationalist mobilization during the 1990s did not reach the political mainstream with centrist
politicians dominating the public sphere until the second half of the 2000s. High levels of foreign
investment (FDI), a technologically sophisticated export structure, a well-institutionalized party
structure, and well-developed independent institutions characterized the country. EBRD ranked
Hungary as the leading post-socialist country based on the Transition Index between 1995 and
2001 consecutively every year (Pogátsa, 2009:600). The development of the party structure also
seemed to point towards consolidation (Tóka, 2004). The two major parties of the early transition
years (the conservative Democratic Forum and the liberal Free Democrats) have shrunken to small
parties and a bipolar party system emerged dominated by the Hungarian Socialist Party (MSZP)
on the Left and Viktor Orbán’s party, the Federation of Young Democrats (Fidesz) on the Right.
However, in 2010, following eight years of the Socialists-Liberal coalition, Viktor Orbán conquered
the parliament with a sweeping electoral success, leading to a new coalition government
comprising Fidesz and the insignificant Hungarian Christian Democrats (KDNP). The new
government immediately embarked on a massive restructuring of the country’s political and
economic institutions, building a regime that Orbán himself infamously labeled the “illiberal state”
(Orbán, 2014). As part of this, the new parliamentarian majority unilaterally passed a new
constitution, and has dismantled the system of checks and balances (Bánkuti et al., 2012; Bozóki,
2011), starting with the constitutional court and most recently attacking the judiciary in general
(The New York Times, 2018b). By now, party-loyalists control all independent institutions
(Sargentini, 2018). The government transformed public broadcasting into a political mouthpiece
(Bajomi-Lázár, 2012), and facilitates the expansion of right-wing media oligarchs (Associated
Press, 2018; Wilkin, 2016). Government communication campaigns directly underpin Fidesz-
propaganda, with a budget outweighing the total budget of the opposition by a factor of ten
(Atlatszo.hu, 2018).
In an attempt to encumber the opposition’s political possibilities, the government rewrote the
electoral law to favor Fidesz (Tóka, 2014), uses state resources for electoral corruption (Mares and
Young, 2019), the State Audit Office hands out arbitrary fines to opposition parties (Freedom
House, 2018b), while seemingly random but well-organized skinheads physically prevent the
opposition from initiating referendums (Freedom House, 2018a:226-227). Showing the
government’s dislike for pluralism, it banned gender programs from Hungarian universities,
stripped Central European University of its right to issue American-accredited diplomas in
Budapest (CEU, 2018), and wrestled control of research institutions from the Hungarian Academy
(Scheiring, 2019a). While state-owned companies graciously fund loyal civil society groups
organized from above (Hungarian Spectrum, 2017), trade unions’ organizational possibilities have
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been severely curtailed (Laki et al., 2013), and independent NGOs face recurrent attacks (The New
York Times, 2018a).
So far neither national nor international capitalists have risen up to challenge these attacks on
liberal institutions. National capitalists are better off than any time before, while major
transnational corporations in the technological sectors, such as German car manufacturers, are also
crucial pillars of Hungary’s capitalism with authoritarian characteristics. Many political scientists
have concluded that Hungary is not a democracy anymore, but a hybrid regime, a competitive
authoritarian system (Bozóki and Hegedűs, 2018). How could we explain Hungary’s puzzling
authoritarian turn? What are its causes, and how could we conceptualize the political-economic
nature of the emerging new regime? These are the research questions that I am contributing to in
this article.
I argue that conceptualizing political regimes as results of class compromises offers a fruitful way
of analyzing democratic backsliding (Korpi, 1983; Przeworski and Wallerstein, 1982;
Rueschemeyer et al., 1992; Therborn, 1977). I employ a non-deterministic class concept, influenced
by Gramscian political economy, power structure analysis and dependency theory, that treats the
state and politics as important actors who are not only constrained by economic structures but are
also capable of reshaping them (Cox, 1983; Domhoff, 2006[1967]; van der Pijl et al., 2011). Forging
and maintaining class compromises is one of the most critical tasks of politics. However,
challenging the arguments that question the role of economics in the authoritarian turn
(e.g.Dawson and Hanley, 2016; Ekiert, 2012), I situate authoritarian politics in the logic of capital
accumulation.
Relying on the theory of dependent development, I demonstrate that Hungary’s international
economic integration led to an internal economic disintegration that polarized the capitalist class
and engendered the revolt of the national capitalists. This led to the collapse of the class
compromise that sustained the post-socialist liberal competition state. Fidesz utilized this crisis to
build a new regime and facilitate a new class coalition comprising the national and transnational
capital and the nationalist faction of the political class. I propose to conceptualize the post-2010
regime as a new accumulative state, which combines authoritarian politics with contradictory tools
of capital accumulation as a possible way to manage the tensions of democratization in the context
of dependent development. I empirically identify the political instruments of the accumulative state
to prop up capital accumulation. Finally, I analyze how Fidesz relies on authoritarian fixes to
neutralize the ensuing social conflicts.
The article contributes to the existing literature in multiple ways. Firstly, it enhances our
understanding of the causes of democratic backsliding in Hungary by drawing attention to the
active role of the national capital. Secondly, it proposes a new concept about the political-economic
nature of the regime, the accumulative state, and identifies its most critical political instruments
used to prop up capital accumulation. Thirdly, the article challenges accounts that see no role for
the economy in democratic backsliding in Hungary and situates authoritarian politics in the logic
of capital accumulation. Fourthly, the article also contributes to the more general literature on the
political economy of democratization and authoritarianism. Although we cannot generalize from
one case, the article demonstrates the usefulness of conceptualizing democratic backsliding in the
context of various stages of industrialization and dependent development. Thus, the lessons of the
article should be relevant for everyone interested in understanding the political-economic
dimension of the contemporary crisis of democracy.
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The article proceeds as follows. In the next section, I identify the main competing accounts in the
research on the causes and the outcomes of Hungary’s authoritarian turn and explore the limits of
the existing knowledge. Next, I present the theoretical framework guiding the analysis and
introduce the concept of the accumulative state drawing on the work of Alan Wolfe, followed by a
concise description of the methodology in section three. In part four, I explore how Hungary’s
international integration resulted in the collapse of the class alliance that sustained the post-socialist
competition state, paying particular attention to the composition and dynamism of the national
capitalist class. In section five, I analyze the key instruments of the post-2010 accumulative state
and their primary beneficiaries. In part six, I present data on the social impact of these instruments
and their relationship to the authoritarian turn. Finally, in section seven I conclude with pointing
out the theoretical implications of the analysis.
2. Theoretical controversies
2.1 The limits of the existing literature
The literature on the causes of the authoritarian turn in Hungary mirrors the broader debates on the
contemporary crisis of democracy. One strand analyses the supply side of authoritarian populism,
arguing that excessive political polarization propelled politicians to violate liberal norms, thus
corrupting democracy from above (Ekiert, 2012; Fukuyama, 2012a, 2012b; Greskovits, 2015;
Herman, 2016; Lendvai, 2017). Political agency is, of course, a crucial factor in regime change that
cannot be explained away by economic determinism. However, we have to look at the structural
environment of politics to understand what strategies are “historically viable” (cf. Cardoso and
Faletto, 1979).
The second strand explains the success of authoritarian politics by reference to voters’ anti-liberal
attitudes, which corrupt democracy from below (Dawson and Hanley, 2016; Pop-Eleches and
Tucker, 2011; Rupnik, 2016). Researchers also identified the historical legacy of nationalism and
conservativism in Hungary (Bartha, 2011; Buzogány and Varga, 2018) as well as the inheritance
of politics in the interwar years (Fekete, 2016; Skidelsky, 2019) as precursors to the current wave
of democratic backsliding. Some proponents of these arguments posit that economics has little to
do with Hungary’s authoritarian turn (e.g.Dawson and Hanley, 2016; Ekiert, 2012). Others argue
that the “noisy politics” of economic nationalism is only rhetorical, and in reality, not much has
changed in the Hungarian economic model, leading to the conclusion that it cannot explain the
institutional change in the sphere of politics (Bohle and Greskovits, 2018).
In contrast, the third strand of the literature on the causes of democratic backsliding emphasizes
the failures of liberalism. They analyze how rising precariousness, inequalities, low wages,
indebtedness, and higher death rates among rural populations and working-class families in
Hungary’s rustbelt undermined the legitimacy of liberal institutions (Appel and Orenstein, 2018;
Fabry, 2019; Hann, 2018; Kalb, 2018; Krastev, 2016; Pogátsa, 2016; Scheiring et al., 2018; Szalai,
2011; Szombati, 2018). These analyses have deepened our understanding of the causes of
democratic backsliding in Hungary. However, scholars have so far paid less attention to the active
role of economic elites in the crisis of democracy and the consolidation of the new authoritarian
regime. Challenging and extending the existing literature, in this paper I argue that we cannot fully
understand Hungary’s case without analyzing the polarization of the economic elite, and how the
members of the national capitalist class came to support Fidesz both before and after the
authoritarian turn.
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We can also identify three main strands in the literature on the political-economic outcomes of the
regime change. The first body of the research conceptualizes the post-2010 regime as a captured
state. This argument itself comes in two variants, a sociological version, and a neo-utilitarian
version (see Evans, 1989). The sociological version of state capture theory portrays the interactions
between the state and capital without presupposing the superiority of market forces (Csillag and
Szelényi, 2015; Innes, 2014). In contrast, the neo-utilitarian version treats rent-seeking strictly as a
divergence from liberal capitalist practices. They argue that the post-2010 state implements
“business unfriendly” changes “against the private sector to the benefit of a narrow clan around
Prime Minister (PM) Viktor Orbán” (Sallai and Schnyder, 2018:4), while “members of the out-
group are the most exposed to unpredictable political risks in their economic activities”
(Transparency International, 2017:18). The neo-utilitarian approach is most prominently
exemplified by the concept of the “post-communist mafia state” (Magyar, 2016), which portrays
Orbán as a Godfather, who uses his political office to illegitimately further the economic interests
of his “extended family” against the will of society.
The second strand on the political-economic nature of the new regime portrays the post-2010
Hungarian system as a developmental state aimed to correct the policy mistakes of the neoliberal
transition (Bod, 2018; György, 2017; Wilkin, 2016). The developmental state theory approach
differs from the state capture approach in emphasizing the relative autonomy of the state vis a vis
capital. Finally, a third strand in the literature analyses how the marriage of neoliberalism and
authoritarian governance is a mutually beneficial arrangement for both sides (Antal, 2019; Artner,
2018; Fabry, 2018; Gagyi, 2016; Szalai, 2016). Proponents of this argument follow the more
general stream of recent critical scholarship, which has linked the authoritarian turn to the
contemporary wave of neoliberal capital accumulation (Arsel et al., 2016; Bloom, 2016; Bruff,
2014; Fabry and Sandbeck, 2018; Hendrikse, 2018; Tansel, 2017).
This literature on the political-economic nature of the new regime also has many strengths but also
some limitations. Firstly, the neo-utilitarian version of state capture theory fails to grasp how a
large section of the economic elite going beyond the “inner circle” of the “mafia family”
contributed to and benefits from the authoritarian turn (Scheiring, 2018). It also neglects that the
state has been historically involved in creating markets and facilitating capital accumulation (Block,
2008; Chang, 2002; Mazzucato, 2013; Polanyi, 1957; Roy, 1997). Secondly, we also have to
distinguish between interventionism and developmentalism. The new regime is an example of
authoritarian economic interventionism. However, I will show that it has been unable to chart a
trajectory of long-term industrial upgrading, thus falls short of a developmental state (Evans, 1995;
Wade, 1990). Thirdly, I offer an extension of the neoliberal authoritarianism thesis by going beyond
its inherent structuralist functionalism. Instead of explaining the forms of the state by the “needs of
capital”, I propose to analyze the competing factions of the economic elite and their conflictual
relationship to the new state.
2.2 Authoritarian capitalism and the accumulative state
The first building block of my theoretical approach is a specific understanding of the relationship
between dominant classes and state power. Democracy does not follow automatically from
economic development nor through the institutionalization of liberal culture. Instead, democracy
is a result of historically contingent class conflicts and compromises (Korpi, 1983; Przeworski and
Wallerstein, 1982; Rueschemeyer et al., 1992; Therborn, 1977). In this article, I pay specific
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attention to the relationship between the factions of the capitalist class, politics, and the state.
1
Politicians are central actors who can facilitate the emergence and consolidation of particular class
coalitions through political instruments available to the state. I depart from structuralist Marxism
that treats the structural power of capital as the defining moment in political economy (Jessop,
2008; Poulantzas, 1982), and follow a more empirically oriented approach to the power of capital
2
influenced by neo-Gramscian political economy and power structure theory (Cox, 1983; Domhoff,
2006[1967]; van der Pijl et al., 2011). I treat the state and politicians as relatively autonomous actors
who are not only bound by structural constraints but are also capable of transforming them.
The second theoretical pillar of my approach rests on the assertion that we have to analyze the
dynamism of specific class factions in the context of the phases of industrialization and economic
internationalization (Kurth, 1979). Specifically, in the case of Hungary, we have to contextualize
classes in the late, extensive phase of dependent development (Gagyi, 2016; Gerőcs and Pinkasz,
2018). The presence of a high number of technologically sophisticated transnational corporations
characterizes the late, extensive phase of dependent development, which provide the backbone of
industrial production and export (Cardoso and Faletto, 1979; Evans, 1979; Saad Filho, 2005).
Challenging structuralist determinism and political voluntarism alike, theorists of dependent
development suggest that states can employ policies to break out of the deadlock of semi-peripheral
economic integration by facilitating technological upgrading to allow domestic companies to
capture a higher value-added share of global value chains (Evans, 1995; Wade, 1990). If governing
elites fail to install a developmental state, the domestic sector of the economy remains
underdeveloped, and international integration might lead to an internal structural disintegration of
the economy, and the subsequent polarization of the capitalist class.
Third, following from these considerations, I assert that we have to pay specific attention to the
role of the national bourgeoisie in democratic backsliding. In the spirit of Adam Smith, liberal
economists and structuralist neo-Marxists alike often portray capital as an entity imbued with a
unitary logic, stressing the fundamental commonality between various factions of capital: “the
proprietor of stock is properly a citizen of the world, and is not necessarily attached to any particular
country” (Smith, 2007[1776]:552). Very often, they focus on transnational corporations (TNCs) as
the dominant actors of contemporary capitalism, leading to an emerging transnational capitalist
class that has allegedly subsumed national capital (Sklair, 2001). Both liberal-minded economists
and structuralist Marxists often conclude that the capitalist class is therefore hostile to the nation-
state and propels the de-territorialization of politics. Instead of presupposing a unified capitalist
class, I suggest analyzing competing capitalist factions.
Following Andrew Schrank, I define the national bourgeoisie as the native-born (or naturalized)
members of the capitalist class (Schrank, 2005:92). Core capitalist countries use a series of overt
and covert developmental state instruments, coercive diplomacy, and restrictions on intellectual
property rights to lock in the current international division of labor and their advantage in the most
1
In this article, the state does not refer to the totality of the state but to the specific regime that was installed
with a specific purpose to manage dependent capitalism in Hungary. I do not wish to equate the state with
politics or with the dominant classes.
2
I use capital in a sociological sense. First, as a reference to the people who possess capital. Second, referring
to “wealth in the form of money or other assets owned by a person or organization or available for a purpose
such as starting a company or investing”, as defined in the Oxford English Dictionary. This definition is
broader than the usual economic definition used in national or corporate accounts, and corresponds to
Piketty’s (2014) usage of the term.
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lucrative high-tech sectors (Block, 2008; Chang, 2002). The semi-peripheral national bourgeoisie
also often lacks access to global networks, which makes it harder to relocate production, and is
therefore characterized by more place-specific investments into “land, physical capital, and human
relationships” (Schrank, 2005:94). All of this makes penetrating the most valuable international
markets difficult for semi-peripheral economies’ national bourgeoisie. Therefore, the national
capital of peripheral states is structurally prone to rely directly on big business diplomacy to compete
with transnational companies and nurture the rise of national champions (Evans, 1979; Nölke,
2014; Schrank, 2008). I will demonstrate that the exclusion of the national capitalists from the high-
tech sectors of the economy in Hungary led to a polarization of the capitalist class, and the
concomitant revolt of the national bourgeoisie against transnational capital and technocratic
politicians.
Finally, I also offer a conceptual clarification about the nature of the post-2010 Hungarian regime.
I posit that the post-2010 state is an accumulative state that has replaced the competition state
(Drahokoupil, 2008a; Hay, 2004). The accumulative state is an authoritarian political solution to
manage the internal contradictions of dependent development, institutionalized as a compromise
between transnational capital, national capital and the nationalist faction of the political class,
designed to help each wing of the power bloc to accumulate capital. Alan Wolfe (1977) coined the
concept of the accumulative state. For Wolfe, the accumulative state represented the compromise
between the landed aristocracy and the nascent commercial and industrial bourgeoisie in the 18th
and 19th centuries in Western Europe and North America. Both the landed aristocracy and the
bourgeoisie had an interest in an active state to repress agricultural labor and the growing urban
proletariat to ensure inexpensive inputs for production. The repressive regime combined elements
such as the limited suffrage, limits on trade unionism, as well as the institutionalization of the slave
trade, slave work, and prison work (see also Staples, 1991). The state also protected the economic
interests of the dominant classes at home and abroad through tariffs, diplomacy, securing exclusive
rights to trade, and offering military protection for risky commercial ventures. Without these
authoritarian fixes, the primitive accumulation of capital in core capitalist countries would have
been impossible.
I propose to update the theory of the accumulative state to contemporary realities of semi-
peripheral countries. In the case of Hungary, the nascent national bourgeoisie plays the role of the
landed aristocracy, while transnational corporations replace the commercial and industrial
bourgeoisie of the early version of the accumulative state. Since nationalist politicians and the
national bourgeoisie are not able to overthrow the rule of TNCs, they make a compromise with
them. The new consensus that emerges between transnational capitalists, the national bourgeoisie
and nationalist politicians leads to the institutionalization of short-term capitalist needs in the form
of reduced welfare spending, repression of labor unions, and various types of increased direct and
indirect support to capital. These policies result in a series of new social conflicts, prompting a turn
to authoritarian solutions against the victims of capital accumulation, leading to the birth of
authoritarian capitalism and the accumulative state. Thus, the authoritarian nature of the new
regime is in part a corollary to the accumulative compromise among the factions of the new power
bloc.
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3. Methods
This article aims to provide a deep understanding of causal mechanisms and to propose a new
theoretical framework for future research. Methodologically, the paper follows the tradition of
historical political economy. I treat the 2010 collapse of democracy in Hungary as a critical juncture
that can be unpacked to reveal deeper fundamental processes behind the surface (Capoccia and
Kelemen, 2007). In other words, I present "an analysis of agency and experience that is fully
grounded in the relational vehicles of power in space and time" (Kalb and Tak, 2004:vii).
I use multiple empirical approaches to underpin the analysis. First, in section 4, I describe how
international economic integration led to internal disintegration and the polarization of the
economic elite utilizing various statistics from international and domestic agencies and the
literature.
Second, to provide evidence for the revolt of the national bourgeoisie, I created a new dataset on
the top 100 billionaires in Hungary. The dataset relies on the reports published annually since 2002
by the Hungarian newspaper Economic Daily (Napi Gazdaság). With the help of a research assistant,
I recorded every billionaire who entered any of the top 100 reports since 2002, altogether 222
people. With the help of the Library of the Hungarian National Assembly I collected every
interview made with them as well as reports on their activities covering the 2000-2018 period. The
advantage of the parliamentary library is that I could obtain a broad set of articles not available
online. I compiled information on 163 billionaires from the 222, encompassing 3659 pages in total.
I further extended this dataset with online desk research.
Based on this press dataset, I recorded the wealth, the investment profile, and the political affiliation
of the billionaires. I followed a conservative approach, and only coded political affiliations if there
was indisputable evidence for this in the articles I collected. When referring to political affiliations,
I use the categories Left and Right as political positions specific to the Hungarian political scene:
the left refers to the political camp dominated by the Hungarian Socialists, the right denotes the
political field dominated by Fidesz. These terms do not imply ideological positions, as very often
the Left implemented economically more liberal reforms than the Right (see Fabry, 2019).
Journalists’ perceptions of billionaires admittedly bias this methodology. Also, it only covers the
top of the economic elite. These are limitations that we have to consider when evaluating the
results. However, the top billionaires have the best chance to influence political outcomes, and their
public activities are better documented than less wealthy investors. Thus, this dataset is currently
the best available information and is suitable to analyze macro-trends.
Finally, to demonstrate the functioning of the accumulate state as a result of the new class collation,
I analyze the political tools used to prop up capital accumulation in section 5. Based on a close
reading of the literature and news coverage on economic policymaking in Hungary, I identified the
most significant policy decisions and political tools during the 2010-2018 period that have a
substantial effect on the institutional foundations and the structure of the economy. I grouped these
into 11 broader categories and identified their impact on the various segments of the economic
elite.
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4. The exhaustion of the competition state and the revolt of the
national capital
With the exhaustion of socialist import substitution industrialization in the 1980s, policymakers
saw domestic and foreign economic liberalization as the way ahead (Amsden et al., 1994).
Advocates of liberal modernization were aware that this would lead to deindustrialization but
thought that by rapidly creating the conditions for private markets to function, primarily through
the liberalization of investment, new and more efficient enterprises would quickly emerge (Sachs,
1994). Inspired by this agenda, Central and Eastern European countries competed fiercely for
foreign investment (Bandelj, 2009; Bohle and Greskovits, 2012; Böröcz, 1999; King, 2007; Nölke
and Vliegenthart, 2009). The resulting state structure was described as the competition state,
institutionalized by the dominant power block of transnational corporations and technocratic
politicians (Drahokoupil, 2008a; Hay, 2004).
These technocratic politicians dominated economic policymaking in every Hungarian government
before 2010. Though their approach to privatization differed, there was a consensus among them
about the need to compete for foreign investment (Bandelj, 2008; King and Váradi, 2002; Szalai,
1999). The policy instruments of the liberal competition state included generous tax incentives,
direct subsidies, deregulation, flexible labor standards, and low wages for a relatively well-educated
labor force (Szanyi, 2004). The tax incentives and the continuously decreasing corporate tax
positively discriminated TNCs at the expense of the national bourgeoisie. Almost 90% of all tax
reductions went to foreign-owned companies in 2000 (Pitti, 2010:55).
As a result, foreign investment penetration in Hungary was unprecedentedly fast-paced by
international standards (Böröcz, 2001). There were 15,205 foreign affiliates located in Hungary in
1994, representing 6% of the total number of foreign affiliates all over the world, and 28% of foreign
affiliates in entire East-Central Europe (UNCTAD, 1995:9). Fifteen years later, the total stock of
foreign direct investment (FDI) reached 76.2% of GDP by 2009. Also, the domination of TNCs in
the financial sector affected other sectors of the economy. Foreign-owned banks favored lending to
TNCs and households in the form of mortgage credits instead of domestic enterprises (Weller,
2000). The years between 1990 and 2006 were the years of externally funded growth: the arrival of
TNCs increased the capital stock significantly, which in itself boosted growth. It also led to
significant technological upgrading of Hungary’s industrial base (Greskovits, 2003).
Even though a large segment of TNCs was engaged in high-tech production, they still used
imported technology and focused on assembly activities. There is little sign that they would relocate
research and development, branding, marketing, distribution, or consumer services to Hungary
(Szalavetz, 2014). There is even less sign that the technological superiority of TNCs would spill
over to Hungarian-owned companies. The Audi plant in Győr, a significant town close to the
Austrian border, is a flagship TNC investment in Hungary. However, the local value-added of
Audi’s production was a meager 1-2% in the 1990s and reached only 10% by the second half of the
2000s (Keune et al., 2009:102-105). As empirical research has demonstrated, the contribution of
TNCs to national economic development and technological upgrading was minimal (Iwasaki and
Tokunaga, 2014; Rugraff, 2008).
The high level of investment internationalization led to an internal economic disintegration. The
highly productive and profitable transnational sector and the less productive and less profitable
labor-intensive national sector of the economy are not integrated, that is forward, and backward
11
linkages are weak. In 2004, the employee of a foreign company produced 3.5 times as much added
value as the employee of a Hungarian company (Grell, 2007). This ratio is higher than in other
countries of the region. Deloitte’s report on the 500 largest Central and Eastern European
companies contains 67 Hungarian firms, out of which 53 are foreign-owned multinational
companies, the state owned nine, and domestic private investors owned only two (Deloitte,
2016:20). The new economic structure thus was characterized by a weak national capitalist class
and a dominant international capital (Eyal et al., 1998).
Economic disintegration polarized the capitalist class. Transnational corporations, the very few
successful technological companies owned by Hungarian investors, and the domestic service class
that directly profited from TNCs were satisfied with the liberal competition state (see the notion of
the “comprador service sector” by Drahokoupil, 2008b). However, the overwhelming majority of
the national bourgeoisie grew dissatisfied during the 2000s, as the elite-interviews by Kolosi and
Szelényi demonstrate (Kolosi and Szelényi, 2010). Even though between 1998 and 2002, the
technocratic wing of Fidesz dominated economic governance, Fidesz changed its economic policy
strategy following its defeat in 2002 (Naczyk, 2014). The party has begun to put much more
emphasis on economic nationalism and has started to voice criticism against the dominance of
TNCs. Fidesz has actively infiltrated the associations of national capitalists as well. By the end of
the 2000s, several heads of these business associations were ready to publicly declare their support
for Fidesz, such as Laszlo Parragh, head of Organization of the Hungarian Chamber of Commerce.
Figure 1. The revolt of the national bourgeoisie
Figure 1 presents the changing political affiliation of the top billionaires in Hungary. Confirming
the existing literature (Stark and Vedres, 2012), I found that the majority of the national bourgeoisie
was leaning towards the Left-Liberal coalition at the beginning of the 2000s. However, even though
they were in government, they lost support among billionaires, and the support for Right-wing
parties (mostly Fidesz) grew significantly. The national bourgeoisie was dominantly leaning
12
towards the Right by 2005. Some of them dropped out of the top 100 during the financial crisis.
However, already before the 2010 elections, Right-leaning billionaires outweighed Left-leaning
billionaires by 28 to 11. Altogether, between 2002 and 2017 the number of Left-leaning billionaires
declined from 22 to 6, whereas the number of Right-leaning billionaires grew from 16 to 37.
It would be misleading to characterize all of these investors as creations of Orbán, or members of
the inner circle of friends and family, as neo-utilitarian theorists do. A broad segment of the national
capitalist class has started to support Fidesz at the end of the 2000s, going well beyond the inner
circle. Based on the role of political connections in their capital accumulation, I identified the
following major groups within the national capitalist class:
(1) Political capitalists: Their capital accumulation largely depends on public procurement and
other state-created markets by Fidesz. This group corresponds to neo-utilitarian theory, and
their activities are widely reported on both in the national and international press.
(2) Emerging capitalists: Their capital accumulation is not directly related to the state as in the
case of political capitalists, they accumulated their wealth on the market. The key reason
for their loyalty to Fidesz is their belief that Fidesz is more capable of tackling internal
economic disintegration and nurturing the rise of the national capital.
(3) Co-opted capitalists: This group comprises capitalists who maintained good connections with
Left-wing politicians, but changed their allegiance later, in part because of the high costs of
dissenting and in part for the same reason as emerging capitalists: they hoped to receive
more help from Fidesz. The accumulation of their original wealth was unrelated to Fidesz.
(4) Passive capitalists: They are investors who do not support Fidesz actively, but accept the
post-2010 regime in part because of the perceived lack of alternatives, in part because of the
high costs of dissenting, and partly because the government also treats them favorably.
Their capital accumulation is also directly not connected to Fidesz.
The list of the members of the national bourgeoisie trying to compete with TNCs and actively
complaining about the policies of the competition state is extensive. The wealthiest person in
Hungary in 2019, Sándor Csányi, head of Hungary’s largest bank (OTP) and a massive agricultural
empire, actively supported Orbán already in 2009 (Figyelő, 2009), and has been doing so ever since.
One of Hungary’s most prominent investors in the plastics industry, Béla Karsai, was complaining
about the negative discrimination that Hungarian companies were facing before 2010 (Kolosi and
Szelényi, 2010:101-102). He later entered politics as a mayoral candidate with the support of
Fidesz. Levente Balogh, the head of the largest nationally owned mineral water company
(Szentkirályi), summed up the sentiment among the national bourgeoisie: transnational
corporations can only mistreat Hungarian companies this way because they see how the political
leadership is treating Hungarian companies (Magyar Demokrata, 2011).
At the same time, Orbán, both as a leader of the opposition and later as PM, paid frequent visits to
the national bourgeoisie. Visiting a plant supported by the government in 2011, he said the
following: While Europe is becoming a unified economic area, and while the world is
transforming into a global economy, there is still a role for national industry, for national capital.
This very fact that a Hungarian employs a Hungarian, a German employs a German [] is the
basis of national economies in Europe (Heti Válasz, 2011). Thus, building on their growing
disillusionment and revolt against the competition state, Orbán actively facilitated the emergence
of a new class alliance incorporating the national bourgeoisie.
13
5. The instruments of the accumulative state
The revolt of the national capitalist class against the power structure that sustained the liberal
competition state was an essential structural condition that allowed Viktor Orbán back to power.
In this section, I demonstrate that the active role of the national bourgeoisie and their new
compromise with transnational capital is not only a significant causal factor behind Hungary’s
authoritarian turn but also key to understand the nature and stability of the emerging new regime.
Table 1 presents an overview of the impact of the accumulative state’s principal political
instruments on the factions of capital. The sign (+) indicates that the particular instrument is
favorable to the group, (-) indicates the opposite, whereas (0) suggests that the measure is neutral
to the group. As we can see, except the new public procurement system, none of the instruments is
solely dedicated to political capitalists but target a much broader segment of the economic elite.
Table 1. Political instruments of the accumulative state and their beneficiaries
National capital
Transnational capital
Emerging
& co-opted
capitalists
Passives
Non-tech
sectors
Tech
sectors
1) Public procurement
0
0
0
0
2) Property rights actions
+
-
-
0
3) Surtaxes/crisis taxes
0
0
-
0
4) Revolving doors and
partnerships
+
0
+
+
5) Financial subsidies
+
0
0
+
6) Cheap credits
+
+
+
+
7) Low taxes
+
+
+
+
8) Tax allowances
+
0
+
+
9) Austerity
+
+
+
+
10) Low-skilled labor supply
+
+
+
+/-
11) Flexible labor supply
+
+
+
+
The instrument best fitting neo-utilitarian theory is (1) public procurement. Corruption related to
public procurement has significantly increased after 2010 (Fazekas and Tóth, 2016). Journalists
have extensively documented the scandals involving close political allies and the members of
Orbán’s family. However, public procurement not only benefits political capitalists but also serves
as a tool to prop up dwindling private investment, primarily the reduction in foreign investments.
FDI as percentage of gross fixed capital formation was 22.4% on average between 1991 and 2010,
dropping to 6.6% on average between 2011 and 2017, amounting to a 71% decline, by far exceeding
the reduction in Poland (10%) or the Czech Republic (41%) (UNCTAD, 2018). In parallel to the
declining share of FDI, the role of EU transfers has increased. Transfers from the EU account for
around 50% of public investments, with a significant increase in the effective use of EU cohesion
and structural funds following 2010 (Fazekas and King, 2018). As a result, the state’s expenses on
economic functions has increased from 11.3% to 18.2% of the total central government budget
between 2009 and 2015 (Eurostat, 2018b). Between 2011 and 2015, the economy grew by 6.8%,
out of which public investments explain 3.9 percentage points, with public investment accounting
for more than 30% of total investment (portfolio.hu, 2016). We thus cannot consider investors
outside the inner circle of political capitalists as apparent victims of public procurement.
14
(2) Property rights actions are “state activities that define and enforce property rights” (Campbell and
Lindberg, 1990:635). These activities include administrative tools that influence property structure,
such as competition laws; punitive regulation intended to change the property structure of a sector;
and nationalization and privatization, which could involve management rights, concessions or
sometimes the assets themselves. The value of state assets grew 2.5 times between 2010 and 2015
(Voszka, 2018:1282).
The forced integration of regional savings and loans into a national bank (Takarékbank) is a good
example (Király, 2016). A key national capitalist, Zoltán Spéder, initiated the process. The
government threatened local savings and loans, that were not willing to hand over management
and marketing rights to the new nationwide bank, with the suspension of their license. The
Parliament passed the bill itself within three days after its introduction to minimize the potential
for resistance. This way, the state crafted a large bank for private investors, which has become the
second most influential financial service provider in Hungary, controlling almost 10% of the market
(Király, 2016). For further cases involving a broad segment of national capitalists see Gonda
(2019), Ángyán (2014) or Scheiring (2018). The victims of these property rights actions are either
non-technological transnational investors (in the case of media, energy or advertising), or small-
scale Hungarian investors (as in the case of savings and loans).
The government also introduced (3) various surtaxes on financial institutions, advertising activity,
telecommunication services, and energy companies. These surtaxes mostly though not
exclusively hit transnational investors in the non-technological sectors. For example, the
surcharge on financial institutions was 0.53% levied on the assets (not on profits or income),
reduced to 0.24% after 2016 for banks with assets exceeding 50 billion forints ($175 million
3
).
Smaller mostly Hungarian owned financial institutions had to pay a significantly lower
percentage (0.15%). The secondary, unofficial aim of these taxes is to aid the property rights actions
of the government. Punitive taxes on advertising or the announcement of a media tax contributed
to the withdrawal of international investors, making space for national capitalists. In the case of
media and advertising, these are close political allies; in the case of the financial sector, co-opted
national capitalists play an essential role, while passive capitalists and non-tech TNCs are the
apparent victims.
A next significant tool serving capital accumulation is (4) revolving doors and partnerships. Oligarchs
closely allied to Fidesz land their personnel in the ministries responsible for the distribution of EU
funds. However, the government also invites less politicized capitalists to occupy official posts.
One of Hungary’s wealthiest entrepreneurs, György Wáberer, founder of Hungary’s most
prominent road transportation companies, Waberer’s International, took up the position of the
special governmental commissioner on logistical issues. István Krankovics, the owner of a major
bus manufacturing company, is working as a special advisor to the minister of finance, who also
launched a program to regenerate bus manufacturing capacities in Hungary (Fidesz.hu, 2016). The
government has also signed Strategic Partnership Agreements with the largest, mostly
transnational corporations in the country (Bartha, 2015), altogether 79 until the end of 2018. These
agreements helped to pacify tech-intensive producers. According to the editor of Budapester Zeitung,
a leading German-language newspaper in Hungary, 90% of German investors in Hungary would
vote for Orbán (WirtschaftsWoche, 2018).
3
1 USD = 285 HUF as of 5 December 2018
15
The accumulative state also (5) distributes direct financial subsidies both to national and international
capital. These exceed the pre-2010 level and are more targeted towards national capitalists than
before. Since the launch of the scheme after Hungary’s accession to the EU, there were 238
subsidized investment projects (Hungarian Government, 2018). Between 2004 and 2010, the total
value of subsidies was 130 billion forints ($456 million), between 2011 and 2018, this has grown to
347 billion forints ($1.22 billion). Between 2004 and 2010, national capitalists carried out only 7%
of the subsidized projects, between 2011 and 2018 this has grown to 21%. The Orbán-regime has
significantly increased the subsidies to large corporations in addition to increasing the share of
Hungarian capital. The clear winners of this increase are emerging, and co-opted capitalists, as well
as TNCs in the tech sector. Interestingly, these subsidies do not directly fund political capitalists,
who can gain more through public procurement.
An essential new instrument that was incompatible with the liberal competition state is (6) the
increased availability of cheap loans. After Orbán’s close ally, the heterodox economist György
Matolcsy was appointed as the President of the Hungarian National Bank, he began to aggressively
reduce the central bank interest rate. Also, the National Bank launched a new lending for growth
program in 2013. The program allowed banks to borrow from the central bank at a 0% interest rate
if they lent the money forward to Hungarian-owned enterprises with a maximum 2.5% interest
rate. According to the central bank, the lending for growth program injected 1,700 billion forints
($5.95 billion) into the Hungarian economy and boosted growth by 2-2.5 percentage points between
2013 and 2017 (MNB, 2017b).
Another tool supporting the creation of private wealth and the accumulation of capital is (7)
reducing taxes. In 2011, the government introduced a flat 16% personal income tax. The new flat tax
is estimated to cost ca. 500 billion forints ($1.75 billion) annually compared to the previous tax
regime, equal to a 40% decline in personal income tax revenue (Bartha, 2014). In parallel to
reducing the top tax rate, the government increased the taxation at the bottom of the income scale
by eliminating the tax exemption for low-income workers. The winners of the new personal income
tax system are concentrated at the top 20% of income earners, whereas the majority of the bottom
80% is worse off (Tóth and Virovácz, 2013). The government also eliminated the second tier of the
corporate tax (previously 19%) and introduced a flat 9% tax in 2016.
The government has a further tool to allow the largest corporations to pay much less tax (8) using
various tax allowances. The government calculated with an effective corporate tax rate of 5% for the
2019 tax year (Menedzsment Fórum, 2018). The largest companies can reduce even this level
further with intra-company transfer pricing and other mechanisms. The actual corporate tax paid
by the 30 largest companies in Hungary on their income before taxes is only 3.6% (G7.hu, 2018).
National capitalists are also able to reduce their corporate tax base, through financially supporting
sports clubs, mostly headed by Fidesz-politicians. Corporate money has been pouring into
professional sport clubs over the last years, which represents an essential informal mechanism
linking private capitalists to the state. This type of instrument benefits every capitalist faction.
(9) Austerity is a further crucial tool to redistribute wealth towards capital. To begin with, the new
constitution passed in 2011, abolished the constitutional protection of social rights (Szikra, 2014).
It also includes a mandatory debt brake at 50% of the GDP, which implies that public debt has to
decrease each year until it is below the ceiling. Public services and social benefits are the most
important targets of austerity. Public health care spending declined from an internationally already
low 5.2% of GDP in 2009 to 4.8% in 2016. Spending on social protection was reduced from 18.2%
16
of the GDP in 2009 to 14.3% in 2016 (Eurostat, 2018b). Austerity and macroeconomic
conservativism are again beneficial for every capitalist faction.
An essential instrument of the accumulative state is (10) increasing the supply of low-skilled labor.
Altogether, the government slashed education spending from 5.4% of GDP to 4.9% between 2009
and 2016 (Eurostat, 2018b). The government reduced the compulsory education age from 18 to 16,
curtailed state-funded higher education, which led to a 15% decline in tertiary school enrolment
from 2010 to 2016 (World Bank, 2018). These reforms are openly directed to serve the interests of
capital, especially national capital. While some TNCs with a large share of low-skilled workers also
benefit, others are complaining about the lack of skilled labor. Hungarian national capital is
overwhelmingly located in low-skill, non-tech sectors of the economy and needs low-payed
workers with low education. szló Parragh, chair of the Organization of the Hungarian Chamber
of Commerce and Industry, one of the central lobby groups of Hungarian national capital, was a
key figure behind the government’s educational reforms. Although he thinks that as a matter of
economic rationality the compulsory education age should have been reduced to 15 (168ora.hu,
2017). The economy’s declining innovation-potential led to a decrease in the share of high-tech
goods in the export following 2010, with a continuous decline in MIT’s economic complexity index
for Hungary, which measures the relative knowledge intensity of an economy (MIT, 2018).
Finally, the government (11) significantly increased the flexibility of labor and decreased its protection
(Szabó, 2013; Tóth, 2012). Parallel to introducing a new Labor Code in 2012, the government
disbanded the standing tripartite body and changed the strike law-making strikes for public service
workers almost impossible. Lobby groups connected to the national capitalist class hailed the new
labor code. Ferenc Dávid, the secretary-general of the National Association of Entrepreneurs and
Employers, approved of the new regulation by pointing out that the previous law “tied the hands
of employers and employees too much” (MGYOSZ, 2010).
Massive emigration from the country and the concomitant labor shortage prompted the
government to amend the Labor Code again in December 2018 upon the request of corporations,
as a member of the government admitted in an interview (Világgazdaság, 2018). This time they
increased the maximum overtime per person per year from 250 hours to 400 hours, i.e., 20% of the
basic labor time. At the same time, companies can postpone payment for overtime to three years,
an increase from one year in the previous Labor Code. This amendment, labeled as “slave law” by
trade unions, led to fierce protests both within and outside the parliament (Gagyi and Gerőcs, 2019;
Scheiring and Szombati, 2019).
6. From accumulation to authoritarianism
To conclude mapping how the accumulative state functions, in this section, I point out the social
tensions emanating from the political tools listed in Table 1, and their relationship to the
governments authoritarian practices.
Figure 2 plots the accumulation of total financial wealth against the declining ratio of the income
of the bottom 20% compared to the income of the top 20%. We cannot directly compare the two
17
processes, as one indicator shows the total stock of wealth
4
and the other the ratio of incomes.
However, the graph shows two significant trends that adequately summarize the broader social
implications of the accumulative state. The net financial assets of Hungarian families fluctuated
around 65% of the GDP between 2002 and 2010. This trend changed dramatically following 2010,
with a massive creation of new wealth, with the new financial assets of households exceeding 100%
of the GDP by 2016, the most significant jump in private wealth in Eastern Europe measured by
gross domestic savings (World Bank, 2018).
Figure 2. The accumulation of wealth and the concentration of incomes
However, it would be misleading to think that this wealth is distributed equally across society. The
instruments of the accumulative state favor the wealthiest groups and the highest income segments.
According to data from the central bank of Hungary, the overwhelming majority of Hungarians
only owns cash and bank deposits (40% of which is owned by the top 10%); whereas the 88% of
securities (shares, bonds, derivatives) was owned by the top 10% of income earners in 2015 (MNB,
2017a:68). The value of cash holdings and bank deposits grew only by 14% between 2010 and 2015,
the value of securities owned by Hungarians grew by 68% (MNB, 2017a:95), revealing a
disproportionately large increase in the wealth of the wealthiest. This increase in wealth inequality
was in part driven by the rise in income inequality, as the other line in Figure 2 shows. The income of
the bottom 20% declined from 29% of the income of the top 20% in 2010 to 23% in 2017. The
political instruments listed above directly and intentionally contributed to this. For example, the
social income (i.e., income that individuals receive from the state in addition to their wage) of the
bottom 40% has been reduced by 6.45%-12.06% between 2009 and 2016, while the social income
support of the top ninth decile has increased by 26.1%, and that of the top 10% by 42.05% (HCSO,
2018).
4
Unfortunately, there is no reliable time series information available that directly measures the share of the
wealthiest in the total wealth of Hungarians over the recent years.
18
The increased demand for precarious work combined with the massive outmigration and the public
works program has significantly reduced unemployment. At the same time, the capacity of the
Hungarian economy to create high-quality jobs has also decreased. Following 2016, the favorable
international economic environment, the high level of EU subsidies, and chronic shortages in the
labor supply led to a moderate increase in wages, amounting to a 4.3% increase in the average real
wage between 2010 and 2017 (OECD, 2018). However, the real income of the bottom 10% has
remained unchanged until 2016, whereas the income of the top 10% skyrocketed (HCSO, 2018).
The share of working poor (those who earn below the 60% of the median wage) has increased by
6.8% between 2010 and 2017, which is one of the worst increases in the whole EU (Eurostat,
2018a).
In sum, the instruments employed by the governing elite to prop up the capital accumulation, hurt
the majority of society, from members of the working class, through small and medium-sized
entrepreneurs to urban liberal middle classes. Orbán won in 2010 with the support of the working
middle class. His neoconservative policies favor the economic elite and alienate a large segment of
the working class and the poor. In 2014, Fidesz received fewer votes than in 2006, when they lost
the election. Orbán is popular in a significant segment of Hungarian society; however, the stability
of the regime depends in part on the authoritarian solutions it employs. To protect themselves
against a possible political backlash emanating from the losers of capital accumulation, Fidesz
curtailed the institutions of liberal democracy. In other words, Orbán’s authoritarianism is, in part,
a corollary to the acceleration of capital accumulation in reaction to the exhaustion of the extensive
phase of dependent development.
The government knows that direct repression in the 21st century is very costly and inefficient and
seeks a limited electoral legitimacy by the majority, therefore it combines institutional
authoritarianism with authoritarian populism, that is political instruments aimed at constructing
consent among the victims of accumulation (we discuss this two-pronged authoritarian strategy in
more detail elsewhere, see Scheiring and Szombati, 2019). The migration crisis that unfolded after
2015 provided a new opportunity for the regime to do so. The redirection of class cleavages and
distributional conflicts along cultural lines targeting the ‘undeserving poor,’ minorities, as well as
migrants, helps to construct consent. Targeting the figure of George Soros in the most recent
parliamentary election was a strategic move to connect the enemy images of the “reckless global
investor” and the “fearful migrant,” portraying both as threats to the vulnerable working-class, and
allowing Orbán to pose in the role of the protector. The strategic use of the nation as a community
of solidarity is a significant source of legitimacy for the governing elite (Fabry, 2018; Scheiring,
2019b; Szombati, 2018).
7. Conclusions
In this article, I demonstrated that dependent development led to the disintegration of the
Hungarian economy. The postsocialist competition state failed to correct the inherent structural
imbalances of the foreign-investment-led model. This process of structural disintegration
(sometimes called disarticulation) has been well analyzed in the literature of dependent
development (De Janvry and Sadoulet, 1983; Hirschman, 1978; Stokes and Anderson, 1990). This
also underscores my argument about the relevance of analyzing democracy against the backdrop
of the stages of industrialization (Cardoso and Faletto, 1979; Kurth, 1979). This internal
19
disintegration led to a polarization of the capitalist class. Utilizing insights from international
political economy (Evans, 1979; Nölke, 2014; Schrank, 2005, 2008), I showed that we could not
treat the capitalist class as a unified global class as Sklair (2001) for example argues, and cannot
posit that it would be equally interested in a weak state.
I showed that in alliance with nationalist politicians, the national capitalist class revolted against
the dominant power bloc of TNCs and technocratic politicians. I demonstrated that the stability of
the new regime in part rests the support of a broad segment of the national capitalist class, going
beyond political capitalists, including emerging co-opted and passive capitalists as well. Unable to
challenge the dominance of transnational capital, the national bourgeoisie and nationalist
politicians entered into a new class compromise with TNCs. Foreign capital in the technological
sectors is also an important pillar underpinning the stability of the regime. Therefore, instruments
of the accumulative state cannot be characterized as “business unfriendly” (Sallai and Schnyder,
2018) or as an illegitimate “mafia state” (Magyar, 2016).
Modernization theory maintained that the capitalist class has a natural tendency to support liberal
democracy. Several experts, followers of shock therapy economics, suggested during the early
transition years to proceed with economic reforms rapidly before political reforms to produce a
strong bourgeoisie that would support further democratization (Blanchard et al., 1993). The case
of Hungary shows that the dynamics of global economic integration at the semi-periphery of the
world economy might lead to opposite outcomes. It illustrates what happens when governing elites
neglect the promotion of national economic interests entirely and fail to prevent the polarization
of the economic elite. In contrast to the proposition of liberal theories of democracy, the national
bourgeoisie did not engage in any form of systematic fight to protect liberal rights, to battle against
recursive legislation or discriminatory, anti-market and anti-competition policy measures that
violate the rights of investors. However, the Hungarian case also demonstrated that international
capital also does not necessarily always support liberal institutions, as many theorists believed.
Foreign capitalists in the tech sectors are among the most important beneficiaries of Hungary’s
authoritarian regime and are willing to contribute to its stability.
I showed how the incorporation of the national bourgeoisie into the dominant power bloc and the
resulting new class compromise resulted in a tighter fusion of economic power and state power
than previously. This led to the emergence of a series of new political tools intended to prop up
capital accumulation. I argued that this new state regime is a reinvention of the historical model of
the accumulative state (Staples, 1991; Wolfe, 1977). I have also shown that the accumulative state
prioritizes short-term accumulation, as evidenced by the declining education spending, the drop in
the enrolment rate, and the declining technological complexity of the economy. The compromise
between the nationalist politicians, the national bourgeoisie, and the transnational capital
subsumes the developmental capacities of the state. Thus, the post-2010 state is not a
developmental state, as some argue (György, 2017; Wilkin, 2016).
Finally, I demonstrated that the accumulative state not only locks in the economy into a low-value-
added precarious mode of production, it also intensifies structural tensions between capital
accumulation and democratic legitimacy. A two-pronged authoritarian strategy comprising
institutional authoritarianism and authoritarian populism so far helped to stabilize the regime. In
addition to institutionally pre-empting organized dissent, authoritarian populism utilizes inherited
nationalist frames, but the success of the nationalist framing is also tightly related to the
disillusionment with economic change (Scheiring, 2019b). Thus, the cultural dimension of
20
authoritarianism cannot be interpreted in opposition to political-economic processes, as some
scholars maintain (e.g. Skidelsky, 2019).
The long-term stability of the regime in part depends on its continued ability to maintain support
across broad sections of the capitalist class. A tightening of the EU budget and a worsening of the
global economic climate could potentially destabilize this alliance. Another challenge could
possibly come from an oppositional movement that organizes the victims of accumulation.
However, the authoritarian measures employed by the state to suppress dissent has so far
successfully hindered the emergence of a capable opposition. Institutional authoritarianism is
aimed at pre-empting organized dissent by political parties, trade unions, and NGOs. Fidesz
combines institutional authoritarianism with authoritarian populism to reframe distributive
grievances as cultural and to generate conflicts in fields where it can prevail. Thus, in short to
medium term, the accumulative state in Hungary appears to be a contradictory but solid strategy
to manage dependent capitalism.
Future comparative research could investigate the role of economic elite polarization and changes
in dominant class coalitions to analyze the dynamism of autocratization in other countries. For
example, one could hypothesize that the relative weakness of the Polish authoritarian populist
government compared to the Hungarian is related to its weaker embeddedness in the economic
elite. The main oppositional party in Poland, the Civic Platform (PO), has excellent connections
to national capitalists and used state apparatuses to facilitate the growth of domestic businesses
(Naczyk, 2014). Polish governments were more inclined to utilize developmental state policies
throughout the transition years (Bruszt and Karas, 2019; Bruszt and Langbein, 2019). Therefore,
the Polish economic elite was less polarized, and there was less room for Kaczynski’s party to
organize disillusioned capitalists. The polarization of the economic elite might take place in the
capitalist core as well. The US economy is polarized between the new economy / old economy
elite, as well as between domestically oriented and internationally oriented segments, with the two
partially overlapping. Future research could analyze Trump’s ability to attract the support of locally
oriented economic elites outside the new economy.
The theoretical framework developed in the article is relevant nut just for specialists concentrating
on Hungary, but for everyone analyzing the political-economic dimension of the contemporary
crisis of democracy.
21
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