Petőcz Kálmán (szerk.): National Populism and Slovak - Hungarian Relations in Slovakia 2006-2009 (Somorja, 2009)
Zsolt Gál: Argentina on the Danube - Populist Economic Policy as the Biggest Enemy of Sustainable Economic Growth
Zsolt Gál The cases of Hungary and Slovakia justify a conclusion that in small and open economies of CEE countries, even massive fiscal expansion is unable to bring about a perceptible boost in GDP growth or employment; at best, it is able to sustain them temporarily at their original levels for a dear price of economic imbalance and indebtedness. This kind of policy proves very destructive already in the mid-term horizon as it brings economy to the verge of collapse; in the best case scenario, the government may react by adopting a restrictive stabilization package with painful social effects such as drops in GDP growth, employment and real wages. At the same time, Slovakia’s own experience during the period of 1999-2007 provides a very successful alternative to the populist economic policy. Following the period of stabilization and thorough structural reforms introduced particularly by the second Mikuláš Dzurinda administration between 2002 and 2006 (e.g. taxation and pension reforms, public administration reform, health service, labour market and social security system reforms), the country’s economy got on track toward rapid but balanced and sustainable growth. Another area in CEE countries where populist economic policy causes immense economic losses is the government sector, particularly large staterun enterprises. Inefficiency, kleptocracy and corruption of the ruling elite and their party and business cronies along with constant political pressures cause costs to increase and profits to decline; this is another case in point of precious resources’ inefficient allocation that is eventually paid for by all taxpayers. The causes and symptoms of the government sector’s failure were described in detail by American economists, Andrei Schleifer and Robert W. Vyshny. In their book titled The Grabbing Hand: Government Pathologies and Their Cures, the authors argue that "state enterprises are extremely inefficient and their inefficiency is the result of pressures on the part of politicians who control them ", or, in simpler terms, that "state enterprises pursue political goals" (Shleifer - Vishny, 2000, pp. 200-202). This inefficiency is a ubiquitous system malfunction; the only variable is its degree. The reason why state enterprises are so attractive to politicians (despite their obvious economic inefficiency) is that they offer a whole range of potential political benefits. Government meddling with state enterprises provides politicians with a diapason of means to influence the public opinion, gain or maintain their voters and reward their supporters and ‘friendly’ entrepreneurs. On the flipside of the same coin, these advantages for politicians are simultaneously disadvantages for the entire society:- Excessive employment. “Most state enterprises submit to pressures from politicians (who solicit for voters' votes) and employ too many people" (Shleifer - Vishny, 2000, p. 200). The result is that their ope196
