THE BLOG
08/29/2014 02:36 pm ET Updated Oct 29, 2014

The Countryside Strikes Back

Nearly one-third of Hungarians live in rural parts of the country. Surprisingly the rural population in Hungary, as a percentage of the population, is larger than in Bulgaria. But agriculture has declined steadily as a value-added portion of GDP - from over 15 percent in 1989 to 3.5 in 2010.

There are a number of reasons for why the rural economy has declined. Partly it was a function of market liberalization reforms in the early 1990s; partly it was the influx of agricultural products from the West; partly it was joining the European Union. Other countries in East-Central Europe experienced a similar drop in the GDP share of agricultural production. But the decline was particularly sharp in Hungary.

To some extent, the Hungarian countryside has retaliated for the reversal of its economic fortunes at the ballot box. In the last two elections, rural areas strongly supported both the ruling Fidesz party and the far-right Jobbik party. This could be interpreted as a repudiation of the market liberalism embraced by most of the governments that have been in charge of the economy since 1990.

Gabor Harangozo is one of the new young leaders of the Hungarian Socialist Party. He started out, as many of his generation did, working with Fidesz, which in the early 1990 was a liberal youth party. Gradually, however, he grew disenchanted with market liberalism and moved toward social democracy. That led him to the Socialist Party where he served in the European parliament in 2004.

Harangozo grew up in the countryside. His father was an agricultural engineer. His experience growing up in the shadow of a large agricultural cooperative has influenced his views on rural development even today.

"I could see at that time that almost everybody in the village had work," he told me in an interview in his office at the Hungarian parliament in May 2013. "Many Roma people were living there as well. They had jobs and lived in quite decent conditions. Everything was organized. The basis was agricultural production, but they also created a system of side businesses that produced machines. It was not so important for each business to make profit because the agricultural production could finance the whole system. There were also what we call social work jobs. The main aim was to create jobs for everybody. And this profitable system could finance the local education and health care. It created good living conditions for rural people."

When that system was rapidly dismantled after 1990, the land restitution was initially very popular. "Many people who were living in these villages had very bad family stories about when they had to give up their properties to the state and then had to work in their own properties as employees," he told me. "So, emotionally, people wanted to get back their family properties, like their grandparents' fields. I agreed with giving back these properties. But to give everyone a small plot without any cooperation, without any systematic assistance in the form of expertise, market organization, or logistical help? It provides emotional satisfaction but an unsustainable economic system that causes only problems for the families that got back their properties. Many investors bought up the small fields and created larger farming units. They sold the livestock and built industrial plants that make big profits but don't provide jobs."

Joining the EU brought a great deal of investment to Hungary. But the money didn't necessarily trickle down to the village level. "Instead of reducing the differences between the regions with this EU money," Harangozo explained, "we increased the differences. Those cities and areas where investment conditions were good -- where they could create good projects and the financing was in place -- they could use the EU money, make good investments, and create jobs. The economy started to grow there. Miskolc, for instance, grew a lot with EU subsidies. But in the territories surrounding Miskolc there is 50 percent unemployment. It's totally hopeless, with no investments. Some money was available to renovate houses and repaint churches - in order to help mayors get reelected. But it was nothing like local economic development. That's why this EU money created more social problems and more conflicts in society."

Harangozo would like to see the rebuilding of the agricultural cooperative system in the countryside, but one that combines targeted assistance with market incentives. He's not enthusiastic about the Fidesz government. But he's happy that it is at least subsidizing social cooperatives. "I have many problems with the policy, but it's a positive thing," he concluded. "For three years we were fighting for social cooperatives. I was personally pushing for it without success, and now the government is doing it. The problem is that it's not taking place within a system. They are creating isolated social cooperatives that are not sustainable and that can continue only as long as the subsidies are flowing."

We talked about the pervasive problem of corruption, the challenge of being in parliament when the ruling party has such an overwhelming majority, and why people in Hungary today are afraid to be honest about their political views.

The Interview

I want to go back to 1989 when changes took place in this region. Do you remember the fall of the Berlin Wall? Did it have any impact on you at the time?

I started my studies in secondary school in 1990. My parents were very open to political debates. During the Communist period, they always held meetings in our flat for friends who came for political discussions. It was kind of a hidden opposition among intellectuals and academics that were friends of my parents. I knew what was happening in the country, and I was really happy and amazed when we saw on TV that the Berlin Wall was falling. We were full of hopes.

I was in a lucky situation. I had relatives in West Germany and also in Holland. My father traveled a lot to West European countries and also the United States. I had some personal experiences in West Europe, and I heard many stories from my father about how life there was. We wanted to have the same life that we could see and hear about in those countries. We thought that this change would open the way for Hungary to become a modern European democracy where we didn't have to have secret talks with friends about the political situation and where we could give our opinion on the street or on a TV show.

Your father was a professor?

No, he was an agricultural engineer. He had a joint venture company with a Dutch company. Before the changes in Iran, the United States had a project there to create the kind of rural management system that Hungary had before the changes in 1989, a system in which cooperatives and local market organizations created a whole system to provide jobs, education, and health care for rural people. The U.S. government asked my father to go to Iran to create a similar system. They worked for 1.5 years but then the revolution happened there and they couldn't start that project.

Is your interest in rural development related to your father's work?

Yes. When I was a child, we were living in Mezofalva, a village in Fejer country with a large state cooperative. I could see at that time that almost everybody in the village had work. Many Roma people were living there as well. They had jobs and lived in quite decent conditions. Everything was organized. The basis was agricultural production, but they also created a system of side businesses that produced machines. It was not so important for each business to make profit because the agricultural production could finance the whole system. There were also what we call social work jobs. The main aim was to create jobs for everybody. And this profitable system could finance the local education and health care. It created good living conditions for rural people.

After the changes in 1989, because of political decisions made without any economic reason, they destroyed this system and put nothing in its place. There is some profitable agricultural production in the countryside and some successful small businesses in some villages. But there are large areas that lack even the basic conditions to make market-economic type of investments. Because the human capacity is lacking, the resources are just not there for investment. Even if EU funds are available, there still isn't the human capacity to create projects. So, there are no jobs or hope in these rural areas. But we have experience from the past of a system that worked well. I don't say that we should go back to the former regime when human rights were abused. But we can still learn from positive experiences of the past.

Even though you saw this successful structure in the countryside, you early on affiliated with a very economically liberal party, Fidesz, which supported economic reforms that destroyed that system. Were you aware in the early 1990s that there was a conflict between the values of political liberalism and the challenges of economic liberalism for rural life?

There was a lot of pressure not only within Hungarian politics but from the United States and West European countries to stabilize Hungarian democracy. To achieve a stable democracy, as I see now looking back, they destroyed this system. They also wanted to encourage as much international investment as possible.

On the other side, in rural areas, many people who were living in these villages had very bad family stories about when they had to give up their properties to the state and then had to work in their own properties as employees. So, emotionally, people wanted to get back their family properties, like their grandparents' fields. I agreed with giving back these properties. But to give everyone a small plot without any cooperation, without any systematic assistance in the form of expertise, market organization, or logistical help? It provides emotional satisfaction but an unsustainable economic system that causes only problems for the families that got back their properties. Many investors bought up the small fields and created larger farming units. They sold the livestock and built industrial plants that make big profits but don't provide jobs.

When you were making the transition from Fidesz to the Socialist Party, were there other changes in your philosophy that took place? I'm interested in how your political perspective changed.

I believe that I didn't change. Fidesz was the strongest opposition to the Hungarian Democratic Forum (MDF), which was the conservative party. When MDF disappeared, Orban saw the political potential to make a conservative people's party. It was Fidesz that changed, not me.

You could have gone to SzDSz, for instance.

Yes. But I don't believe in market liberalism. I believe in political liberalism. In Hungary there are four million people living below the minimum standard of living. In these circumstances, the state has to invest in the social economy. Classical social democratic policy can improve the country's life. If we would do what the former Socialist government also did -- create good conditions to boost the economy - the economy will grow and the resources for the state will also grow. These resources can help poor people or vulnerable areas. The current policy is simply not working.

Of course the Socialist Party did have eight years in government in the 2000s. What would you say were the achievements during that time?

To read the rest of the interview, click here.