„New investments need positive vision”

At the forum, the researchers discussed how to achieve sustainable economic development in Hungary, what constitutes a really good support policy, and how to identify the key to taking domestic companies to a global level. 

“What do you think about productivity and economic structure?” This was the first question asked from all the participants at the event of the Hungarian Economic Association (MKT) by the moderator István Madár, senior macroeconomic analyst of Portfolio.hu. First, István Kónya, Professor and Dean of the Corvinus Doctoral School of Economics, said that economic development is driven by investment, which he sees as a broad concept, i.e. all the investments we spend on knowledge, health and institutions.

Investment will only be made if the money sacrificed now will be recovered in the future, which means that a positive vision is needed

,Kónya stressed, adding that Hungary is doing well in physical capital investment, but badly in other areas, such as health, education, research and development, and institutional environment. At the same time, Kónya says, Hungary is a developed country, whereas China, which is often viewed as a model country, is not, and is much poorer than Hungary. According to him, Hungary will also become service-driven: the role of industry and agriculture will decline, with services being the key to long-term development. 

Added value is the key 

András Balatoni, the MNB’s Director of Economic Forecasting and Analysis, said that the Hungarian economy has a low level of productivity, with a lot of production but little value creation, which is crucial.

We are producing less and less value by more and more production, due mainly to manufacturing (61 percent). The downward trend in manufacturing has been continuing since 2017, and in this respect we are lagging behind the Visegrad countries. In his experience, the larger the manufacturing company, the lower the added value.

He added:

There are also some positive aspects in the Hungarian economy: the pharmaceutical industry is our strength, which we can be proud of, and the ICT sector and creative industries are also doing well.

He stressed the importance of innovation:

you have to invent your product, and you have to manufacture it – value is created where the innovation is made. 

Zsolt Becsey, Senior Macroeconomic Analyst at UniCredit Bank Hungary Zrt., used an interesting analogy:

while doctors rely not only on their physical experiences but also on X-rays, CT scans or MR scans to make a diagnosis, these tools – the latest data – are rarely available to economists.

In his opinion, added value is also very important, and he believes that it is not always possible to increase it at regional level. 

According to Éva Palócz, CEO of Kopint-Tárki Zrt., economic growth and productivity should be examined from several perspectives: sectoral structure, size and ownership (public or private, foreign or domestic). Services account for 65-70% of today’s economies, and Palócz says that today’s forced re-industrialisation reminds her of someone trying to stop a train on the open track by standing in front of it.

In Hungary, the extra taxes apply, without exception, to the service industry

, she added. Increasing the share of industry is not the right direction. In her view, there are very few Hungarian companies among the numerous online trading platforms established during the Covid-19 pandemic. “An economy grows as companies grow. In Hungary, there are hardly any large companies (that is, companies with more than 250 employees), and even fewer companies with a price-setting role,” she said. Another problem is that medium-sized companies (50 to 249 employees) are extremely vulnerable, with businesses in this category constantly disappearing. 

Have EU funds had a negative impact? 

István Madár asked whether there was any reason to be dissatisfied with the pace at which Hungary has caught up with EU countries in the past decades (69%-76%). István Kónya said that he was not dissatisfied with the past 30 years, but that “the problem is the vision”. 

There is a real danger that we will be stuck at the current level,

said the professor of Corvinus University. 

Éva Palócz immediately explained that she was not so satisfied with the Hungarian economy’s performance in the past decades, as the Baltic countries have outperformed us, Romania has made spectacular progress, and the Polish economy has also excelled. She said that in the past 15 years we have had problems with the so-called government indicators, meaning the efficiency of government and corruption. She is also worried that if there is no EU money, or only half the amount that could be, Hungary’s relative position will be severely weakened. 

Kónya responded that in his view Hungary has done well in the past decades, but the important question is whether we will be able to join the mainstream or remain on the periphery. He agreed that Poland is a good example, and that what really matters is whether we can move from a quantitative to a qualitative growth structure. 

Palócz said that the problem is not that the Baltic countries have caught up, but that they have outperformed us, and that it is disappointing to see that other countries that started from further behind have progressed so much.

The anomalies that characterise Hungarian economic policy will be reflected in everyday life, including the brain drain we are already experiencing,

she said. 

The moderator then asked how the economists present felt about a Hungarian CEO of 25 years failing to start his own company. Why can’t Hungary “make it big” in the regional market? According to András Balatoni, we need to identify our strengths, and what we are really good at. Kónya said that the main task for politics is to create a proper system of economic incentives. In this regard, the EU funds have had a negative impact on the incentive system in Hungary, as the significant inflow of EU funds has led the economy in the wrong direction from a competitive market perspective, he added. 

Education and risk-taking are interrelated 

Balatoni said that the risk appetite of Hungarian companies is incredibly low. There are also very few innovative firms in our country – only 0.3 percent of businesses, although they account for a large share of exports. 

Zsolt Becsey shared his own personal story: he is familiar with education in Belgium, where the emphasis is on soft skills rather than on the frontal teaching method that is typical in Hungary. In his view, this is not conducive to risk-taking, but rather it teaches how to tolerate failure. According to him, mentality is also a very important factor, as

we have only been living in a market economy for 25 years, and before that the idea was just to fish in murky water and get a sharp accountant

, he explained. He believes that much will also depend on generational change. 

The moderator’s final question,

What would benefit the Hungarian economy: attracting foreign capital, identifying the so-called winning sectors, smart SME policy, risk-taking, or human capital development?

gave rise to different answers. According to Balatoni, all of them. Palócz said that the identification of “winning sectors” brings back very old and bad memories, but smart SME policy is definitely good. According to Kónya, state interference has reached a whole new level in Hungary; however, it should stick to its traditional roles in state government. Zsolt Becsey added that in his work he comes in contact with many companies and talks to many managers, all of whom stress the importance of predictability. 

The discussion took so long that there was no time left for questions from the audience. 

The video recording of the forum can be viewed on the MKT Youtube channel in Hungarian. There is more information about the event’s further programmes – which include several participants from Corvinus –  here (in Hungarian), part of them can be viewed retrospectively. 

 Katalin Török