Introduction

“It is unthinkable that politicians should be allowed to remove civil servants on grounds of incompetence. Of course some civil servants are incompetent, but not incompetent enough for a politician to notice. And if civil servants could remove politicians on grounds of incompetence it would empty the House of Commons, remove the Cabinet, and be the end of democracy and the beginning of responsible government." (Sir Humphrey Appleby, 1978)

Perhaps the quote above is a bit extreme in content, but it does show the antipathy between politicians and their respective civil servants. Both are needed, and yet both can be the sand causing the clockwork to grind to a halt. That is to say, if it was ever ticking in the first place.

‘Government’ is a word too often misused and abused. It implies an entire structure without making any distinction between the units that make up this mythical monster. It ignores how they operate in conjunction, and is blind to official chains of command and invisible balances of power. Generalizations smudge the nuances that make all the differences in the world, sometimes a blurred vision is worse than none at all. Cyclops may rule the land of the blind, whether he is any good at it is a different story.

This research project started out with a relatively simple task, do a comparative analysis on the performance of the Hungarian ministry of agricultural over a certain period of time. Consequently, the initial hypothesis was phrased as follows:

The ineffectiveness of government policies is partly caused by a combination of economic, political and institutional weaknesses. This has to be unified with the legacy of the (socialist) past on behavior, and the scope of opportunities in the increasingly market oriented present (continuity). 

Economists often overlook the institutional framework and rule of law, whereas legal scholars make the same mistake in reverse. Students of public administration do capture the sociological and institutional elements, but don’t pay enough attention to economic theory and the big picture in general. This way all three professions in their own way seem to lose track of reality, and retreat into their world of convenient theoretical propositions. It is the author’s belief that all factors matter, be it on a varying level, and they should all be taken into account (Knubben, 2002). The mostly explanatory nature of the research question requires to give way of a certain building logic. In other words, a causal chain aX1+bX2+…+…=Y should be established.

Following months of research in Budapest, the approach has somewhat shifted from a focus on specific policies to the strength of civil service systems as a whole. Strength should be perceived as the aggregate capacity of all ministries combined, the ‘political capacity’ and ‘the power of institutions’. The development of a new framework was induced by the apparent inappropriateness of existing theories and unreliability of many commonly cited publications. The most prevailing theories on assessing the strength and nature of a civil service system have been developed by:

Morgan (1996), analyzing fields of change: civil service systems in developing countries, civil service systems in comparative perspective, Bloomington, Indiana University Press

Heady (1996), configuration of civil service systems, service systems in comparative perspective, Bloomington, Indiana University Press

Worldbank, World development report 2003, sustainable development in a dynamic world, Transforming institutions, growth and quality of life

Figure 1:  Worldbank model on relationship between social capital, institutions and organizations

Source: Worldbank, World development report 2003; sustainable development in a dynamic world

To a lesser extent one can also find references to Raadschelder and Rutgers, civil service systems in comparative perspective (1996) and works by Christopher Hood. Most research using these theories does have its strong points, but also incorporates a number of crucial drawbacks that diminish validity. It assesses the functioning of a civil service system as a whole, making no distinction between the separate units of the state apparatus such as ministries. Furthermore, it is usually based on official documents released by the government, or written by ‘recognized experts’ on a country who are often aligned to a political party. Hungary is no exception in this respect. It is what the author would like to call the apparent vs. actual reality dichotomy.

Tackling the problem of unreliable data and reports is not an easy feat to accomplish. The only real solution is to engage in fieldwork, implying many interviews with those who DO know, be it on or off the record. In the case of Hungary, it is quite hard to find a mid or high level bureaucrat who is knowledgeable and acquired his position thanks to his expertise.  Secondly, this person has to be able to speak at least one familiar foreign language. Most importantly however, the official has to be willing to speak out and give his vision without fear of retribution.

Chapter 1 introduces the basic framework that will be used as a guiding wire. It explains its functioning, shows the relationship between the variables and provides ample theoretical grounding to validate their usage. Chapter 2, 3 and 4 explain in depth the model’s 3 main components, being respectively ministerial capacity, political capacity and structural & assessment factors. These will then be applied to the Hungary of the past and the present, showing a clear development over time. Finally, the conclusion will follow in chapter 5.

This thesis has to a large extent been based on interviews with a substantial amount of mid and top level officials at the Hungarian ministry of agriculture & Regional Development (MARD), and the Agricultural intervention center (AIC). The Dutch embassy to Hungary has also provided ample aid, spawning a large expert staff with relation to the topic of research. The EU mission to Hungary and the French embassy, together with a number of professors related to BUESPA have completed the picture as far as local sources are concerned.

External evaluations have been provided by a number of officials at the Dutch ministry of Economics, and a group of professors employed at Maastricht University, Catholic University of Leuven and Brandeis University in Boston. The framework that will be presented is the result of all findings combined, striving to find a middle ground between different opinions. In the end it is the author’s personal interpretation of facts that has created the final shape. It should also be mentioned that most officials used as sources in Hungary, would prefer to remain anonymous. A list of those sources will only be provided to the thesis promoter, and remain strictly confidential.

CH #1, The framework

§1.1 Background

Within the realm of PA many important issues are overlooked, or at least not combined into one comprehensive model. Obviously this can be said about any number of disciplines, nonetheless the practical difficulties encountered were significant. In order to cope with this a new list of factors - whose usage has been validated by the findings of the investigation at the MARD - was created. From there on the model has been extended to assess an entire civil service system, specifically aimed at transition countries in Central and Eastern Europe.

The main premise is that the ability to transform a country in this region depends on political willingness within the government, political willingness within the relevant ministries, the power of the ‘trias juridica’ and the CAPACITY to create, enforce and monitor policy. The trias juridica refers to the symbiotic relationship between the public prosecutor, the judge and the enforcement system (police). In order to give an assessment, one needs to decide what the ‘ideal type’ situation would have to be.

Furthermore, the socialist heritage of the last 50 years cannot be designated as the sole culprit for many of the transition countries’ current problems. The notion that socialism simply provided a different flavor to centuries of authoritarian rule is an interesting one, and often overlooked. As will be shown with agriculture, structural causes of some of the difficulties date back one and a half centuries ago. From a productivity perspective, it can be argued the socialist restructuring even benefited the country, rather than the opposite. Collectivization most certainly did lead to economies of scale. “That it was implemented harshly, with minimal flexibility, and in the context of a command economy is a different question” (Swain, 1999). This benefit of the CMEA days is unfortunately today’s ghost  of the past, a blatant disregard for quality and efficiency in return for overproduction of goods, quite the irony.

Finally, the damage that was done AFTER transition during the nineties as a result of incompetent political leadership and poor policy making, may turn out to be more significant than the last 30 years of socialism.

§1.2 Benchmarks

Since the focus is on Eastern and Central Europe, the ability to meet the Copenhagen criteria should serve as a relatively decent benchmark. Thus, if a country is able to reach the objective within the relatively broad context, which the EU Commission has allowed, it should count as a positive development. In other words, full privatization is not by definition a must if historical heritage or the current political situation would favor a slightly different approach. Results outweigh approach; hence the Washington consensus will not by definition yield the right solution. As far as the civil service is concerned, a Weberian model of a professional independent staff still seems to be the ultimate goal (Weber, 1866), albeit with some adaptations. The civil servants should not merely enforce orders; they should operate as a group of experts. Apart from having operational expertise they should also be able to make policy suggestions, create policy within a given mandate and confront the ‘political officer’ in case of disagreement.

Being far away from debates on e-governance or backlashes of New Public Management, “the crucial issue in the region is not to redesign, but to establish an independent, neutral civil service[…] the difficulties related to the transition coupled with the tasks of institution and market building place extraordinary pressure on the management and workforce in the public sector” (Jenei, 1998). Sharing the author’s view on an adapted Weberian model, Jenei states that CEE needs civil servants who “can be paternalistic or protective as required, but can also work as a partner and efficient manager, and who possesses personal integrity and independence from the political process”.

If the capacity is in place with both the government and the ministries, the ministries themselves should be able to handle the ‘key policies’ within their respective fields. The ministry of agriculture would handle the reform of the agricultural subsidies and issues related to land restitution, finance deals with tax reforms whereas the ministry of justice implements the acquis. The aim is to evaluate the findings for each factor. The aggregate of each ministry would reflect the ability to handle the key policies and ministerial capacity.

The combined grade of all ministries would therefore comprise all governmental functions and duties. The thesis does not specifically mention how all normative evaluations should be quantified, in order to create a statistical model.  Some suggestions are made, but future research is required and it would have been impossible to include a comprehensive set of algorithms at this time.

Since all transition countries in the region are faced with similar problems, each ministry is given equal importance, equal weight. Therefore, if a government would chose to ‘strategically neglect’ the development of a certain ministry, this would result into a lowering of the grade. In reverse, strategic emphasis would increase it. For all other factors a merit based system would work best, probably within a 1 to 4 scale. Eventually the aggregate grade of the ministries is combined with the grade for ‘political capacity’, leading to a final appreciation. In case ministries are called differently when doing analysis between countries, the functional comparison should be used. To reduce complexity, only the most relevant functions are worth looking at. These would be economics, finance, justice, agriculture, education, interior and external affairs. Defense would be of less importance, although NATO membership does require developments in this area as well. Sometimes non ministerial organizations which in effect really perform functions related to the ministry SHOULD be considered to be part of the organization. The AIC and Hungarian agriculture council belong to this class of entities. 

Per year the model would be able to give a single appreciation for the PA capacity of a transition country. Progress of a country can be shown over time, and also a comparative analysis between different countries will be possible. The final grade will be related to a comprehensive set of assessment indicators, ranging from technological development to societal acceptance of policies.

Figure 1.1: The augmented Solow model

Source: MIT, Economics 202a, Fall Lecture 3: Solow Model II Handout, 2003

K = total capital                                k = capital per worker (K/L)

L = total labor                                   s= savings rate

Q = total output                                q = output per worker

n = pop. Growth                                б = depreciation

α = technology coefficient

In order to assess the relationship between technological and economic development the augmented Solow (1956) model is still valid.

Savings equals Investments, which is represented as sq = (n+δ)k. The black striped line in the picture represents the total amount of investments in an economy, which crosses with the savings function sq on the grey line. The red and blue lines denote the output per worker as q = αf(k). An increase in population growth n WILL lead to a higher q, but only on its given function. As the functions will eventually approximate a 0 degree angle, this is not a viable approach for the future. The only way to achieve significant gains in terms of economic development is to change the technology coefficient of the output model, α. This should constitute a jump from the blue  to the red line, leading to a much higher q. When applied to the propositions of this research, the model’s main premise would be that an increase in ‘capacity’ will lead to technology jumps and consequently increase macro economic performance.

At BUESPA Attila Chikán has developed a multi dimensional comprehensive analysis with respect to Hungary’s competitiveness, defining it in both macro and micro economic context (2002).

“We may consider enterprises to be competitive if they are able to transform available resources into a profit flow while complying with the social values of the environment in which they operate, and if they are able to perceive and manage external and internal changes that influence their long-run operation in order to maintain their profitability, entering long-term survival [….] The competitiveness of a national economy is the ability of a nation to create, produce, distribute and provide products and services that meet the requirements of international trade so that in the process the return on its own factors of production increase.”

In the new framework that will be introduced shortly, the outside world can pressure the central government, but also deal with the ministries directly. When this occurs the ‘factors’ have been slotted with ministerial capacity. Clearly this will create a correlation between political and ministerial capacity, as can be seen in figure 3 on the following page. The handling of key policies has its reflection on society as a whole, which can respond by using democratic tools just as general elections. Another important factor however is public scrutiny. Basically it shows the public’s ability to disseminate information on governmental performance, and consequently create pressure by means of a feedback mechanism. Lobby groups are considered to be operating more from within the model.

Finally, a factor of ‘resourcefulness’ has been added. Of a highly controversial nature, true, yet not something easily to be discarded. Over the last 2 centuries, a number of transition countries have been consistently more responsive to changes and shown greater entrepreneurial spirit than others. In comparison, Hungary would easily beat Romania. How to incorporate this into a model is a totally different question , something that will require a great deal of thought.

Figure 1.2: Assessment model

§1.3 Introducing the model

Once again, it should be stressed that the research performed primarily deals with changes related to the MARD and its policies within Hungary. The model was initially designed for this purpose alone, and although the theoretical extension for the ‘overall assessment’ was a logical result, it was created at a later stage. Because of this, the model can only partially be completed since the in depth knowledge that is required for assessing the other ministries is lacking. It would take a knowledgeable research team with access to all sources to paint the picture with all variables involved. Thus it should be perceived as a guideline for future research within the fields of economics, public administration and law.

That being said, some ministries other than agriculture did receive special attention, both through literature sources and interviews with diplomats and government officials. Without this input, it would not have been possible to conclude how very different the political and structural situation with respect to different ministries actually is. The following tables introduce the variables that serve as the basic foundation for the entire research project.

§1.4 Integration

The factors that have been introduced incorporate the four classification parameters that can also be found with Morgan and Perry (1988) and Heady (1996). These are rules (“assigned guides for conduct or constraints that social systems use to structure behavior”), structure (“the organizational arrangements of civil service systems”), roles (“the set of activities expected of a person occupying a particular social position”), and norms (“values internal to the system which ground the rules and roles”). Clearly  the  variables in Heady’s configuration scheme will all be reflected, yet taking a more in depth and structural perspective.

Table 1.2: Main variables of Heady’s configuration scheme

As part of the OECD Sigma project, Les Metcalfe, currently professor at European university in Florence wrote ‘meeting the challenges of accession’ (1998). He stressed that the capacities required to make EU policies work range from operational management capacities to expert knowledge in certain fields (e.g. agriculture), and the ability to make crucial policy choices and enforce them. Furthermore,

“Thinking particularly about the approach of CEECs to accession negotiations, it becomes clear that it is vitally important to keep in mind another type  of capacity that is crucially important and in extremely short supply: capacity building capacities. As well as knowing what kinds of capacities are needed to gear national  administrations up to the task of EU accession[…] it is essential to know how to build and develop those capacities.”

§1.5 Theoretical grounding

The framework itself draws heavily on neo-institutionalist theories. To quote Douglass North, “The institutional approach defines institutions as the indispensable framework within which human interaction takes place--as the "rules of the game," the humanly devised constraints, that determine incentives and shape human interactions in all societies (North, 1990:3-4). Some institutions, such as laws, tax regimes, and the explicit operating rules of organizations, are formal, while others, such as cultural norms and established conventions, are informal. Formal rules are only a small subset of the constraints that govern choices and human interaction, while informal constraints and conventions are so pervasive that one is often misled into underestimating their role and importance. Institutions, both formal and informal, reduce uncertainty, structure incentives, define property rights, limit choices, and ultimately determine transaction costs” (North, 1990). He especially finds that within transition economies, transaction costs are extraordinarily high, and a time/learning curve can be constructed for both the public and private sector. Each country adapts at its own speed, following a different pattern.

Related to this is Elster’s (1994) matrix, which shows how constitutionalism  (power of institutions) can be a stimulus for economic performance.

Table 1.1: Elster’s matrix denoting relationship between institutions and security & economic performance

Source: Elster (1994)

In short, the mechanisms that mediate between constitutional enforcement and economic performance are:

• Accountability: Politicians are held responsible for their actions, this affects both security and efficiency

• Stability: The constitution should serve as a beacon, which is free from political manipulation. Rent seeking is discouraged and basic rights are safeguarded. The relation to accountability is clear.

• Predictability: Long term planning will only really be possible when citizens have faith in the system, and can expect a certain type of reactions from the government. Issues such a retroactive legislation and expropriation are most certainly not helpful from this perspective.

• Protection against time inconsistency: The basic regulatory framework serves as a form of pre-commitment. 

John Elster is an adept of Knut Wicksell, whose seminal 1896 work recognized the importance of the rules within which political agents make choices. Efforts at reform must be directed towards changing the functioning of the decision making process. This runs contrary to the concept of Pareto allocation which neglects the before mentioned issues.

The interplay between the domestic and external world is based on International Political Economy’s theory of Second Image Reversed, a two-level actor games with a Nash equilibrium as starting point. Studies of domestic politics have shown that changes in the international structure do not always lead to changes in the foreign economic behavior of states. Domestic institutional inertia may upset the power balance between domestic actors, and block  policy changes. Second Image Reversed was developed to take precisely this into account, with Robert Putnam (1988) and Helen Milner (1988) as its founders.

Figure 1.3: Two-level actor game

At level one, the world of structural realism, there are interactions between international actors. At level two, the world of domestic politics, negotiators are accountable to a wider internal audience. The logic of the two-level game can be defined in the following way. At the national level, domestic groups pursue their interests by pressuring the government to adopt favorable policies, and politicians seek power by constructing coalitions among those groups. At the international level, national governments seek to maximize their own ability to satisfy domestic pressures while minimizing the adverse consequences of foreign development. The game implies that the possibility of agreement is limited to overlaps of what is acceptable to the winning coalitions (level 2 game) in each of the parties in the negotiation (level 1 game).

Finally, theories that were introduced by Michel Crozier and Erhard Friedberg are extremely helpful to trace social processes and political structures. By looking at how people really act when solving conflicts and problems of public interest, one discovers the power structures that constitute the context for the actors involved. The actors build and uphold social structures that in turn offer a rationale for their behaviour. “Even more important, individuals' short-run responses to economic and political change depend heavily on their societies' inherited, and often entrenched, institutional arrangements. Their responses may be constrained or facilitated by patron-client networks, ethnic and religious solidarities, organized access to government resources, incentives for short-term profit taking rather than long-term investment, and social structures that facilitate the evasion of taxes. Therefore, actual behavior provides crucial information about institutional constraints on the array of possible choices and policies” (Crozier, 1977).

Crozier’s approach can be combined with that of Pierre Bourdieu, who says that “Evaluating the conduct of public agents and the functioning of the state structure in terms of ethics can be carried out according to the following: the ethical vacuum, where decision-makers do not answer for their actions and there is impunity; the ethical duality, where an idea is predicated but at the same time ignored or counteracted in practice, and minimal ethics of a reactive nature, based on convenience” (Bourdieu, 1998).

CH #2, Ministerial capacity

§2.1 (1) Historical development & loyalty

The present is history in the making, thus history is the present of the past. To understand an evolutionary process, it is imperative to find its starting point, the earthquake that defined the amplitude and direction of the tremor. Even though it may appear to be a sign of over-zealousness to go back as far as the Middle Ages, this is exactly where the story commences.  

The ministry of agriculture was created after the 1867 Compromise, hailing the creation of the Dual monarchy. Next to a commonly regulated military and foreign policy it allowed for reasonably independent policies in certain fields. It is one of the oldest ministries in Hungary, created and modeled after the Weberian administrative model, which was dominant in the Austro-Hungarian empire.

The top of the ministry has always aligned itself with the prevailing forces, or rather the prevailing forces have shown the tendency of filling the ranks with their own kind. Up to the inter-bellum period, the middle and upper cadre showed a clear affiliation with the nobility. This ruling elite had guided Hungary’s agricultural development from its early inception onwards. Where in the 15^th and 16^th century most Western European countries were engaged with constitutional changes, Hungary lapsed into the 2^nd serfdom (Swain, 1999). A large agricultural population with the ability to export foodstuffs to the importing Western markets induced this strategy. On the longer term however, it only increased the country’s backwardness. Under Maria-Theresa a regional specialization program was set-up within the empire, designating Hungary for mostly agricultural production. Again, it was the nobility’s influence that solidified this strategy with the Treaty of Szatmar. It arranged the protection of Austrian industry with internal tariff barriers, yet agriculture was left relatively unprotected.

In 1853 serfdom was abolished, though over 60 percent of the land remained in the hands of the nobility. The ministry re-enforced these power structures through the granting of subsidies and encouraging cartelization. As late as 1895, the land division was as follows:

Figure 2.1: land distribution in Hungary 1895

Source: Berend and Ranki (1974)

Up to World War One the large land holdings (Latifundia) increased, whereas the pressure only grew larger on middle sized landowners. The land reforms in the 20’s had a minor effect on the structures in place, as some 250,000 landless peasants were allotted not quite one hectare each. High world agricultural prices combined with capital imports boosted the sector, however this process abruptly ended with the 1929 stock market crash.

In the 30’s Hungary’s economy converged increasingly with that of the German Reich, leading to a 1934 agreement that granted favorable prices for Hungarian agricultural exports. The increased influence of the Third Reich entailed serious consequences, including a very unpleasant reclamation of Jewish lands (Pók, 1996). Suffice it to say that during the socialist period the middle and upper cadres were filled with officials loyal to the party.

This trend has continued during the decade after the transition, involving increased polarization on the political scene. §2.6(6) will deal with this in much greater detail. Political responsiveness and regime loyalty do not necessarily have to be a bad thing, provided the powers that be have the willingness and expertise to create decent policies. In any case, a high degree of loyalty will most likely diminish a ministry’s own input and policy making capabilities (§2.3(3)). If the problem is consistent and structural it will negatively affect the strength of a PA system. Ideally a civil service system would be able to function and perform all of its duties, even during times of political impasse.

§2.2 (2) Organizational structure

Ever since the ministry’s inception the basic operations along functional lines have remained the same, although upper and middle management systems have changed throughout the years. These are the departments related to legal & administrative matters, budget & agricultural development matters, rural development & environmental Management, finance & market regulations and food safety (MARD, 2003). The entire structure was created and essentially still functions as an administrative enforcement mechanism, implementing policies from higher hand.

A system of a political and administrative state secretary was introduced after the transition, copying the UK model. The political state secretary deals with the parliament and other political affairs, whereas the administrative secretary is supposed to control the bureaucratic apparatus. Intended as a non-affiliated longer term technocratic position, Hungarian politics has nonetheless brought it to realm of party politics. Indeed, it does not help a proper functioning of the system.

From reliable government sources it has been made clear that the animosity between the two state secretaries at times prevents any proper decision-making. To add insult to injury, mid and high level department heads are usually unaware of the exact number of sub-departments for which they are responsible. The author has personally experienced a 45 minute long debate between two department heads, regarding which sub departments fell within their respective responsibilities in that particular week. In the end, no conclusive answer could be given to an apparently simple question. The organizational charts of the ministry of agriculture can be found on the next pages. Note the differences between them, with figure 2.2 being an internal document, and figure 2.3 the official scheme intended for external use. Neither of the documents are correct.

At its inception the SAPARD office had been incorporated within MARD (Ministry of Agriculture and Rural Development), as was mandated by the EU. The departments for European integration and ‘preparation for structural funds’ were related to this, though not in a strict hierarchical sense (Commission, 2002). What is more interesting however, is what could NOT be found on the official organization chart.

The Agricultural Intervention Center (AIC) was set up in 1998 and had been designated as the paying agency for the European Agricultural Guidance and Guarantee

Figure 2.2: Organizational chart of the MARD

click to enlarge

Source: Internal MARD document

Figure 2.3: The organizational structure of the MARD

Source: The Hungarian Agriculture and Food Industry in Figures, 2002

Fund (EAGGF). Its function was to disperse the CAP subsidies, and enforce all other related policies such as designating which 10% of the arable lands should not be used for cultivation. It was supposed to be the farmers’ first contact point and source of information. Its functioning will be discussed in detail in the next section.

The Hungarian Agricultural Chamber is a private non-government foundation, which acts as the strongest representative of the agro-industry. Only the largest producers in the country are represented in this group. In an issue of Business Hungary (2000) the deputy secretary of the chamber was quoted, “Meanwhile, farmers are excluded from directly influencing the market… those who should ensure a strong market and guaranteed prices for products do not take the required responsibility in the issue.” These types of complaints can be found in any of their publications, yet what cannot be found in any public resource is the chamber’s involvement with foreign trade policies. For example, the current minister and state secretary both used to hold leading positions within this organization, hence there is a very strong link and possible conflict of interest.

Apart from the core that has existed from the beginning, there is much that doesn’t meet the eye, drastically reducing transparency of structure and procedures. 

§2.3 (3) Effective policy-making

§2.3.1 (3) Background

Effective-policy making has never really been the main focus of the ministry. The situation before the war has already been explained in factor (1), moreover its influence only reduced during the following 50 years. The national planning office would set the prices and subsidies for agricultural produce, which would then have to be approved by the central committee. Subsequently the directives would be sent to the prime minister, who would afterwards refer it down to the ministries. During the last 20 years of socialism the national planning office increasingly relied on the aid of its research agencies. These consisted out of rather A-political highly qualified technocrats, who would obviously consult with all parties involved before issuing new plans (Jenei, 2003). This was a clear signal for ministries such as finance to increase their influence on the economic process, yet this was definitely not the case for agriculture.

The ‘free’ co-operatives simply received the designated subsidies, and the maintenance of the ‘price scissors’ was out of the ministry’s control. This policy introduced under the Kádár regime intentionally put a huge burden on the agricultural sector. Although prices of agricultural products were liberalized somewhat after 1968, they nevertheless were kept artificially low. On the other hand, industrial input prices remained at a much higher level. This way agricultural profits were redistributed from one part of the economy to another. The foreign currency export gains were only partially remitted to the sector, which essentially created a double burden. Why, because the export subsidies did not match the total amount flowing into the state budget. “The net effect of these taxation policies was to starve agriculture of the capital necessary to maintain its performance, and the sector entered a deepening crisis by the late 1980s” (Benedek, 1998)

All of this happened simultaneously with the emergence of a smaller private sector, following the 1968 golden parcel rule. From a technical point of view land was still privately owned by farmers. ‘Voluntarily’ it was pooled together in order to produce for the co-operatives.  During the period ‘67-‘68 the law on land reform ordered that apart from a small private plot which could be sold as well, the co-operatives themselves would own the land. The draining of the agricultural sector had caused many citizens to move to the cities, which conveniently caused the government to declare “that  'outside owners', who were no longer members (because the did not fulfill the minimum work requirements for membership), were obliged to sell” (Swain, 1999).

The ability for former landowners to use this small plot for private production is perceived as one of the big engines behind the sector’s success in the 70’s and early 80’s. Essentially it was an integration of large-scale and small-scale agriculture, where small-scale 'family labor' connected with large-scale wage-labor employing ventures. Part of this success can be attributed to the free use of input materials and machinery from the co-operatives, whilst the profits gained were accounted for as private income. 

The current situation unfortunately has not improved. Hungary’s annual estimated agricultural production value amounts up to about 2000 billion Forint, to which roughly another 240 billion is added in the form of subsidies (Dutch Embassy, 2003). At present that amount is insufficient to even maintain the status quo. Throughout the 90’s the amount of state subsidies have not been kept in correlation with inflation or the increased financial burden facing agriculture.

Extra costs such as land lease and service fees were added after the land reforms, thus increasing the cost structure.  All of this has created a significant widening gap between input and output prices to state subsidies. Udovecz (2003) at the Research and Information Institute for Agricultural Economics in Budapest  states “The large delay in the closing up of the prices was allowed by the simulated "neutrality" of state authorities (market and competition regulation!) and the market actors’ unwillingness to cooperate[….]Consequently, economic policy decisions taken or postponed in this period induced such a loss that the sector has not been able to overcome”. The agricultural chamber whose relation to the government has been explained before, to a large extent makes up these ‘unwilling’ market actors.

§2.3.2 (3) 90’s to the present

That these subsidy structures will change, and issued according to the CAP guidelines is not very well known by the farming population. Of those who DO know, only few realize that for the first year they will only receive at maximum 30% of the direct payments, compared to what would be the support for the EU 15 (Agrafood, 2002).

Source: Agrafood East Europe December 2002

Having said that, the first tranche of guarantee funds is still larger than the 240 billion forints that are presently issued. In reality, most Hungarian farmers simply act as if there would be no change, as if there would be no European Union accession in the pipeline. In all fairness, who should they turn to?

“Hungary could not profit from her foreign market opportunities either. Endogenous and exogenous factors have equally hindered the easement of the income crisis. We must not underestimate our own weaknesses. The insufficient quantity and many times quality of products, slow adaptation, low level of sales promotion and infrastructure insufficiencies have each caused losses of profit in the millions of dollars. The effect of the exogenous factors (world market prices, world economy crises, GATT Agreement, market protection in CEFTA countries) has been cumulatively negative” (Udovecz, 2002)

Average price levels of Hungarian agricultural produce are in general lower than those of the EU 15, though there are at times exceptions such as pork and milk. This can be seen in Figures 2.4 and 2.5.

Figure 2.4: Comparison between average livestock price gaps regarding Hungary and the EU15

Source: European Commission Directorate General for Agriculture (2002), Hungary Agriculture and Enlargement, Agricultural Situation in the Candidate Countries: Country report on Hungary

Figure 2.5: Comparison between average crop price gaps regarding Hungary and the EU-15

Source: European Commission Directorate General for Agriculture (2002), Hungary Agriculture and Enlargement, Agricultural Situation in the Candidate Countries: Country report on Hungary

By simply looking at prices one can put serious question marks next to Hungary receiving the full amount of direct payments. One of the reasons for which the CAP was created was to turn the EC from a net food importer to a net exporter, a system hardly suitable for a country scourged by overproduction. Granted, nowadays this could be just as easily said with regards to the EU 15.

More importantly however, the CMO system was developed to bring the EU member states on par with the external world, and create an internal level playing field. This will be explained in the next section. With the full amount of direct payments it would in fact give Hungary an ‘unwarranted’ bonus. The same reasoning does of course not apply to the guidance funds, due to the enormous difference in structural development.

Unfortunately the bonus cannot be cashed in, for a simple reason plaguing most accession countries. These price statistics are quite misleading, as livestock prices in Hungary represent average prices across all qualities. Representing a significantly lower quality, they are compared to EU prices of the high quality segment (R3 prices, E carcasses). “The comparison should therefore be treated with care, and the price gaps for beef should be significantly lower and price gaps for pork should be consistently at and above EU levels, if adjusted for quality” (Commission, 2002). Apart from the obvious statistical problems, there is simply no demand for these lower quality products within the EU, thus being the biggest problem of all.

Of course Hungary has been hit hard by many of the problems related to transition, worldwide economic downturn and the loss of its former export markets. However, these are issues that should affect performance for only a relatively short amount of time. In reality it will only get worse as long as the structure of the industry has not been reformed to capably handle a new competitive environment. 

Efficiency never was the focal point of the old administration, rather it was production output. Considering that a significant part of the sector has already vanished over the last decade, market theory would suggest the strong and efficient survive. Unfortunately agriculture is likely to face an even bigger blow than it has experienced since the transition. The farmers have continued to depend on subsidy flows, without any serious stimuli to update and streamline operating procedures. Some subsidies have been granted for the purchase of new machinery, yet this is totally insufficient when looking at the bigger picture. Ergo, many farming operations have been kept (barely) alive, but are completely unprepared for what is yet to come.

The lack of capital has led to the use of inappropriate machinery and equipment. This restricts the efficient use of inputs such as fertilizer, pesticides, high yielding crop varieties, compound feeds and others. From the beginning of transition the major source of gains in efficiency has therefore been a substantial reduction in the labor force (Commission, 2002).

A quick comparison,

Table 2.2: Production efficiency comparison between Hungary and the EU 15

Source: Udovecz 2002

The virtual absence of policy not only damaged the sector through lack of guidance and incentives, it has also created a huge amount of uncertainty within the farming community.  Shortage of information regarding future developments has stalled capital investments, even with those that had the ability to do so. Expectancy of behavior is usually the pre-eminent requirement to create stability within a certain sector (Metcalfe, 1998).

If the sector will stabilize and recover, it will be because of foreign capital input and not so much due to internal factors.

§2.3.3 (3) CMOs

The TEC art. 32 (ex art. 38) deals with the scope of the CAP, art. 33 (ex art. 39) explains the objectives, articles 34-36 (ex articles 40-42) define the subject matter and art. 37 (ex art. 43) determines the powers of institutions. Together, these articles form the backbone for the implementation of the CAP. Since about one third of the community legislation, and about one quarter of all case law of the European Court of Justice (EJC) relates to agriculture, it is no surprise that the ‘special administrative law’ of agriculture has had a major influence on general issues of community law. In fact many important doctrines, institutional issues and principles of law have been dealt with in this manner (Barents, 1994).

Articles 34-37 only provide guidelines on what a common policy might look like, and how it might respond. They do not give a definitive description of 'the' policy or the structure of the common market organization, rather they stress the intended functional nature by referring to the attainment of art. 33 goals. According to art. 34, the institution involved has the choice to either coordinate by means of 'market forces', or 'public interventions'. Ergo, the product regimes can be distinctly different from each other in terms of approach as well as organization, yet all of them strive to achieve the art. 33 goals. Any attempts to go beyond these objectives are considered to be unlawful. Furthermore, discrimination between producers and consumers as imposed by the CMO, must be prevented at all times.

Apart from providing for structural measures, CMOs are also mandated to stabilize prices in the short term at a 'fair' level, as provided for by the guarantee funds. A wide range of possible methods is at their disposal, such as the use of levies, production controls (e.g. set aside policy), structural reforms, imposition quotas or the introduction of co-responsibility schemes. The most commonly used method is that of price intervention. Although a system of target and intervention prices is steadily losing its importance, over 70% of the total EAGGF budget is still used for DPS (direct price support) in possible combined with other measures such as quotas. Regulations do not only affect the first stage of the agro chain, but also the processing industry.

Most common prices are fixed by the council on an annual basis. They indicate the desired level at which the prices should be situated, and below or above which, other support measures should be used. At a certain percentage of this target price [0<Pi<100%], the intervention price is fixed. Below this price, the various mechanisms such as 'intervention buying' are activated.

Intervention can also occur with the aid of NTB measures. One can think of quality requirements, calendar restrictions or payment delays. For EU exporters, the gap between the intervention price and the world market price is closed thanks to export subsidies. Often, export restitutions bring the price received by domestic farmers up to the guaranteed price level. This has a number of rather unpleasant effects. First of all, it stimulates supply increases beyond what is required to satisfy demand. Secondly, it increases the input use of environmentally unfriendly products such as chemicals and fertilizer. Finally technical innovation is slowed down, since there is no pressure from outside competition. It should be noted that this model could be highly constrained. Various international agreements such as the Uruguay rounds have restricted the use of import levies. Figure 2.6 illustrates just how the pricing model operates (Ortalo-Magné, 2001).

In order to effectively use a community wide common price, a system of uniform product standards was called to life. All common prices and amounts are expressed in unity of product, using the metric system. This is linked to a classification scheme of standard qualities, where consequently lower qualities are remunerated with lower amounts of money. Not only quality matters, the marketing stage of the product is also a factor influencing the price. Since for some products harvest cycles differ within the European Union, it is sometimes necessary to set two marketing years out of sync with each other. If this happens, the concept of unity of prices loses its validity (Knubben, 2002).

§2.3.4 (3) Land reforms

Connected to this rather high level of inefficiency is the inadequate land reform process of the early 1990’s. In 1991-1992 about 2.5 million hectares directly owned by the cooperatives (thus not including the plots of active members) was auctioned off to former owners. These could be landowners who were deprived of their assets during the nationalization, or farmers who at some point had decided to leave the cooperative. Whether this process of ‘historical fairness’ was really all that justified is still a matter of debate. For one thing, Hungarians who lost their property before the Second World War were not remunerated at all, the Jewish community was especially upset about this decision measure (Pók, 1996).  The fairness of the actual remuneration can also be called into question.

Those who lost holdings worth about $2000 were fully compensated. Meanwhile, ex-owners who lost farms worth $2000 to $10,000 could only claim 50 percent of their property’s value, and others who lost large estates would often receive no more than 1 percent in compensation.(Benedek, 1998)

The present activa were privatized and divided between the present and former members, making up about 15% of the national wealth (Benedek, 1998). In total about one and a half million Hungarians received just a tiny plot of land. The ‘new owners’ were banned from selling their plots, often making them what is commonly called ‘involuntary owners’. Despite this drastic fragmentation of plots, the collective sector did not disintegrate since many new owners declined to work the land and leased it to those who had worked it before.

In 1993 a deadline was fixed before which all possible beneficiaries had to make their claim known. Shortly after the process was completed, the cooperatives were no longer mandated by law to provide employment. Not unexpectedly this led to rather impressive unemployment levels in the countryside, which even now has not recovered from this shock.

A 1994 law on land ownership dramatically deteriorated the situation for agricultural undertakings. Individual land ownership was capped at 300 hectares, a ban was placed on the purchase of land by Hungarian and foreign legal persons, and the lease of land was allowed for a maximum of 10 years. The ban which is still in place was motivated by fears of foreign investors, who would buy up cheap Hungarian lands and create an iron grip on the industry. Salazar et al (1995) have argued that there is nonetheless a large speculative land market within Hungary, albeit an illegal one.” illegal property transfers disguised as renewable leases—or ‘pocket deals’ as they are known in Hungarian—and massive speculation by investors who recognized the profit potential inherent in a distorted land market.

Table 2.3: Share of Hungarian land in private use in 2000

Source: Hungarian Central Statistical Office, 2000

According to Szelényi (1998) most corporate holdings were formed by the former management of the old cooperatives in the early-mid 1990s. Limited liability companies were created out of the old legal form, in this process the old debt was removed and the capital resources such as machinery and buildings were retained. This trick (ab)used the particularities of the legal system at the time as a weapon, though it reeks ‘unlawful behavior’. Real cooperatives also still exist, and again they are mostly run by the former managers.

To avoid the 300 hectares rule, collective farms can be set up together with other private farming operations, but even with ‘faked’ leases only 2500 hectares can be worked in total. This is why it is in the interest of the large farms to strive for liberalization of the internal market and to keep the foreign competitors at bay. Small farmers on the other hand fear the ‘green barons’ and possible EU competitors alike. Even though their costs have increased, a normalization of land prices would most certainly increase their problems (Papp et al, 1998) and only a very small segment of farmers would actually favor full liberalization of land sales. The EU has indeed allowed a seven-year “derogation from the general requirement to open up land markets to foreign buyers” (Agrafood, 2002). Three additional years can be added, in case ‘serious disturbances’ can be detected in the land market. Suffice it to say this will surely be the case with Hungary. Having said that, it is especially this delay that puts necessary regulatory reforms even more on hold.

§2.3.5 (3) SAPARD & AIC

It was never expected by the European commission that the new entrant countries would be able to cope with transition completely on their own. As early as 1989 PHARE (lighthouse agreement) was established for Poland and Hungary. The 1997 Luxembourg summit saw the complete restructuring of PHARE, followed by the creation of  ISPA and SAPARD in 1999. SAPARD stands for Special Accession Program for Agriculture and Rural Development. It was specifically designed to prepare the Central and Eastern European applicant countries in the pre-accession phase, for participation in the common agricultural policy and the single market (SAPARD plan 2000-2006). Its specific aims are:

· Compliance with EU standards on the processing of agricultural products, including

o       promoting compliance with food safety and hygienic and technical standards of the EU

o       enhancing the conditions for environment and waste management

o       compliance with EU animal welfare requirements.

· Enhancing competitiveness and quality

o       through increasing competitiveness, technological development and improving product quality

· Enable the proper implementation of the acquis, both from a legal as well as a structural and operational perspective

SAPARD is unique in nature since it is a decentralized form of external aid, which co-finances agricultural and rural development programs emanating from the national ministries. For this purpose each government had to set up and accredit its own SAPARD agency responsible for payment and implementation of the measures approved in the program. The primary reason for this approach has been defined by the commission as follows, By decentralizing management of aid, SAPARD will give the future members an opportunity to gain valuable experience in applying the mechanisms for management of agriculture and rural development programmes […] On a broader front, the investment made now will build skills that will be readily transferable to other structural fund activities and for setting up paying agencies. It will help applicant countries as members to rapidly apply the rules applicable under Guarantee1 funded aid and to other areas of Community policy (Official Journal L161, 1999).

The following table gives an example of some of the support functions that are undertaken by the program.

Table 2.4: Rural development measures funded by SAPARD

Source: European Commission Directorate General for Agriculture (2002), Hungary Agriculture and Enlargement, Agricultural Situation in the Candidate Countries: Country report on Hungary

Originally a newly set-up institution related to the ministry of agriculture was designated as the SAPARD office for Hungary. Later on it was decided that this Agricultural Intervention Centre which as late as 1998 had still not been established, would no longer be used for that purpose. SAPARD was shifted to the MARD, whereas the AIC would serve as the paying agency for the EAGGF guarantee section. Twinning project HU02/IB/AG-03 states,

“The AIC has been entrusted by MARD to prepare itself for the function of the Paying Agency for all payments from the EAGGF Guarantee section”

The most frequently cited reason for this sudden split of responsibilities and funds between the MARD and the AIC refers to the difference between the rules of management of Guarantee and Guidance funds. The Guidance sections finances expenditures for rural development measures in regions whose development is lagging behind, as well as for the Community rural development initiative. The yearly amount of money is relatively insignificant compared to the Guarantee section financing to which direct price support belongs. Dispersion to the member states strives to achieve the CAP objectives as set out in TEC art.  33(1). For the budget year 2004 somewhere between 500 and 600 million Euros has been calculated.

A more plausible explanation for the split takes the political infighting between ministries, and the lack of political commitment with respect to creating an accredited SAPARD agency into account. Sources within the ministry have mentioned a grave lack of foresight and understanding of the functions of the SAPARD office on the side of politicians. The goal was only to create an entity that was required by the Commission, but the tasks of the program itself were not sufficiently considered.

This organizational change alone caused a number of delays with preparing for the implementation of the SAPARD program. Originally intended to be operational by October 2000, the European Commission decided to accredit the SAPARD office as late as November 26^th 2002 (Commission press release, 2002).

Table 2.5: SAPARD 2000 budget available for co-financing projects

SAPARD annual indicative budget allocations (millions of Euros at constant prices)

Source: Commission press release IP/02/1737

Under this scheme, Hungary would now be entitled to a maximum of €38.7 million for the year 2000 and €39.4 million for the year 2001, while the indicative amount from 2002 until 2006 will be €40.6 million per annum. However there is a catch, “Payment of the first advance for the year 2000 can now be made (the maximum is 49% of the annual amount).” (Commission press release, 2002) In other words, Hungary will receive a much smaller cash flow designated for co-financing projects than originally intended. It is not going to get all the money it thinks it is entitled to, not by a long shot.

Before July 2003 the SAPARD Agency was a partly independent organizational unit within the Ministry of Agriculture and Regional Development, consisting out of a central unit and several field offices. It was a budgetary organization fully integrated into the internal structure of the MARD, waiting to be co-financed by the EAGGF and FIFG guidance funds. Only due to continuous threats from the commission and the twinning partners (Dutch and French embassies), even the smallest degree of progress has been reached. Despite numerous warnings, SAPARD in Hungary has tragically failed to perform its duties.

§2.3.6 (3) AIC revisited

The Commission has stressed the absolute importance of a well functioning paying agency. The Commission has also stressed the consequences of non accreditation and/or non compliance, which can be found in Council Regulation (EC) No 1287/95, working in conjunction with Council Regulation (EC) No 1663/95.

“The Commission being responsible for implementing the Community budget, must verify the conditions under which payments and checks have been made; whereas the Commission can only finance expenditure where those conditions offer all necessary guarantees regarding compliance with Community rules; whereas in a decentralized system of management of Community expenditure, it is essential that the Commission, as the institution responsible for funding, is entitled and enabled to carry out all checks on the management of expenditure it considers necessary and that there should be full and effective transparency and mutual assistance between the Member States and the Commission;”

In layman’s terms, no money if you don’t play ball. A developed entrant like Austria was deprived of the Guarantee funds for more than two years, thus clearly help is needed. For this reason twinning projects were called to life within the PHARE framework, to get the AIC as well as the SAPARD agency up and running. They involved making the expertise of member states available to the candidate countries through the long-term ‘secondment’ of civil servants and accompanying short-term expert missions and training. For Hungary, of the 23 twinning projects that were designed between 1997-2000, the AIC  project was the only one that has yet to be started and finished (Agenda 2000, 2002 regular report). The main purpose of twinning is defined as “strengthen the administrative and judicial  capacity”, which of course refers directly to the theoretical starting point of this thesis.

            The Dutch government was designated as the partner for the AIC. Project HU2002/IB/AG/01 was scheduled to start mid 2002, which was in reality already far too late. However, the political leadership at the MARD kept delaying the project time after time. The AIC was totally understaffed, not properly funded and without the abilities to even start reforms, let alone function. Its structure can be found in figure 2.7. This situation led to the Dutch ambassador to Hungary sending what can only be described as a ‘bomb’ letter to the Hungarian minister of Agriculture, Imre Németh in January 2003 (Nouhuys). Well-informed sources have confirmed this was orchestrated in conjunction with the Commission delegates at the permanent EU mission to Hungary. The following excerpt clearly shows the severity of the situation, and can also be found on figure 2.6 on the following page: “in order for the twinning to be able to start correctly, it is imperative to clearly define the relevant counterparts for the twinning experts and the staff that has to be trained. This was a risk that was identified in the project fiche and addressed through conditionalities (yet unfulfilled), that have to be met before the project can start. The Hungarian Authorities should also ensure that the required legal and human resources, related conditions and also financial resources will be available for the implementation of the project[….] I hope the Hungarian authorities will take the necessary decisions on their side, so that we can start the twinning project in February 2003, the latest date the project can be carried out before Hungary’s accession to the European Union.”

This most certainly caused a stir at the ministry. Indeed sources have mentioned that for the first time ever since transition, a prime minister called a minister of agriculture to his office to explain the miserable handling of affairs. This is not to say the minister himself is to blame, but this will be covered later on.

Figure 2.6: Letter from the Dutch ambassador to the Hungarian minister of the MARD

Source: undefined

Figure 2.7: Internal document depicting the ‘official’ structure of the AIC

Click to enlarge

Source:undefined
The March 25^th covenant mentions a starting date of July first 2003, again a deadline which will not be reached. The AIC has only a partially approved budget, a budget which is far too small in the first place. A second problem is that a staff of at least 400 people has to be hired and trained. The training alone is expected to take a minimum of 16 months with regards to twinning, and 19 months in total. Even if the twinning would start right this moment, this problem could not be solved since nobody seems to know where to find these extra people, or how to pay them for that matter. The housing of the service is quite peculiar, far too small, difficult to find and not directly next to the ministry. Perhaps there is some symbolism in this.

The small staff which DOES work at the AIC is highly qualified and willing, but it is not up to them to obtain the required resources. In fact, quite some animosity exists between respectively MARD and SAPARD, and the AIC on the other hand. Dutch and French officials have suggested it could take 2 to 3 years before the first payments will be made, sources within the AIC have mentioned it could take as long as 4 years.

Included with each twinning project is a general risk matrix, to identify what could go wrong during the project. Though it has not even started yet, most fears have already come true.

Table 2.6: Risk matrix

Source: Covenant EU PHARE Twinning Project HU2002/IB/AG/01, final version 1.1 March 25 2003

§2.3.7 (3) European Agricultural Guarantee and Guidance Fund Paying Agency

On May the 12^th legislation was passed that joins the SAPARD office and AIC into a single new paying agency, temporarily dubbed the Agricultural and Rural Development Agency. Its legal creation was scheduled on July 1^st 2003, and the structural scheme can be found in figure 2.8. The organizational structures of the existing offices will not be completely fused, but to some extent co-exist next to each other. What was not operational under the old institutions, such as the CMOs, will fall directly under the responsibility of the new management. Because it is intended to be an independent institution, it has been slated with its own back offices such as internal audit, Human resources and a legal department. At present none of these exist however.

The main difference will then be a unification of leadership, a ‘new’ leadership. Although there is a rationale behind this, at present it is much too late to make such changes which are essentially only part of a power game played by the ministry. This at least is the view reflected by the AIC staff.

In the final covenant version, signed on the 14^th of April, a project office for EU institutions was designated as the leader for this merger operation. “The management of the project office is responsible for creating a new central agricultural authority to be established by July 1^st, 2003 through the amalgation of the Agricultural Intervention Center and the SAPARD agency”. Due to this co-existence rather than fusing, the twinning project has not changed significantly content wise. What HAS changed however is the project beneficiary, which as of April was no longer the AIC but the MARD.

The project office was created in the wake of the last election victory, especially for the purpose of guiding the creation of a single paying agency. In order to work more efficiently, the head of the office reports directly to the administrative state secretary and the office was granted a fair amount of special powers to work across functional lines and departments. Its existence was never put into legislation and to this day it officially does not exist.

Figure 2.8: unofficial structural lay-out of the Agricultural and Rural Development Agency

Click to enlarge

Source: undefined

As easy as it started its work, after September 2002 its rising star began to fade as a result of  a decrease in political commitment towards its task. The usual problems such as understaffing and insufficient resources has led to a staff of only 15, many of which were taken from the AIC staff because of their expertise. After July 1^st the office merged together with the AIC and SAPARD agency to form a new entity, thus becoming the third player. Sources within the office have expressed their belief in the creation of a functioning new entity by May 2004, provided the political leadership is willing to give all the necessary resources and is able to elevate its managerial skills to the next level. When asked how realistic these last assumptions really were, the answer was, - it could go either way.

On May 30^th the rumor was launched that a special commissioner from the prime minister’s office would be appointed as a liaison to once again increase the PO’s capabilities. The minister himself was quoted on saying that inaction on the paying agency could have dire political consequences, such as a loss of the next elections. Still, the incompetent handling of the twinning project shows that this does not necessarily will entail significant improvements.

Not all employed at the SAPARD office, especially the AIC, shared the project office’s view on its duties. Some felt that the notion of an independent agency was somewhat of a farce, as the project office had already been issuing orders to the AIC regarding subsidy payments. A senior official was quoted in June as follows, “We have been stripped from our competencies and responsibilities. Now we are just an understaffed administrative enforcement mechanism”. The fact that neither the AIC president, nor the SAPARD president were ordered to lead the reorganization was perceived as an ominous sign. The fact that both departments were forced to sign over some of their staff caused even more resentment. With a history of being faced with disappointment and unnecessary setbacks, the cynical and unbelieving attitude is only natural. The author has obtained from inside the ministry a classified governmental  decree delineating the relationship between the ‘independent office’ and the MARD. Article 6 in this document confirms the power coup of the MARD. The full decree can be found in the appendix.

Article 6

(1) ARDA is headed by the President appointed for an indefinite term and dismissed by the Minister.

(2) The Vice President of ARDA is appointed and dismissed by the Minister on recommendation from the President of ARDA.

(3) Employer’s rights over the President of ARDA are exercised by the Minister. Employer’s rights over the Vice President of ARDA are exercised by the President of ARDA, save for appointment and dismissal.

Obviously this does not conform to the nature of the twinning, which defines the PO’s responsibilities as follows,

Table 2.7: Responsibilities of the PO

Source: Covenant EU PHARE Twinning Project HU2002/IB/AG/01, final version 1.1 April 14 2003

In short, projects have once again been delayed, top managed has been ‘purged’ and  transparency has been reduced even further. Schedules can be fixed, what is more troubling is the apparent inability of the various agencies to cooperate in a friendly and efficient manner. Each has their own take on affairs, and there seems to be little convergence between opinions. Whether the PO could prove its counterparts wrong really depends on the leeway and resources it would be granted, and what kind of cooperation it would be likely to encounter. As of yet, there is still no financial controlling institution set up with regards to the new agency, and no unified, let alone approved budget. If history is any predictor of the future, it will be a gloomy one. A breakdown of the system, with politics as the main culprit.

§2.3.8 (3) Other departments

The process of continuously changing organizational positions of departments does not help to create a well functioning ministry. In fact, it has become somewhat of a sport to make these changes on an almost weekly basis, leading to no positive consequence whatsoever. The current minister was ordered to draft a completely new organization lay-out for the ministry, however it is unclear who is involved in the process. In any case, even if the task would be completed in a relatively short amount of time, two essential obstacles remain. First of all, to get parliamentary approval. Secondly, the expected life span of the minister. Ministers of agriculture don’t tend to exceed one year of service, and it is rumored the present one will face resignation within the next 6 months.

Finally, there is less than meets the eye. Some of the departments listed on the official organogram only exist on paper, or are so ill equipped they are not able to function. The newly formed food safety agency is a perfect example of this. Being a priority of Community policy, at present yields one single office and a single secretary. Needless to say that does not satisfy operational requirements.

Obviously there is a lack of ‘sense of mission’. It is a result of historical, political and ‘cultural’ factors, and clearly change will be very hard to achieve. Effective policy making capabilities were, are, and at least in the near future WILL be negligible. 

§2.3.9 (3) EMS

The author has managed to acquire an unpublished report of the ‘Evaluation and Monitoring Services of PHARE’, who views “are those of the EMS consortium and do not necessarily reflect those of the European Commission”. Although the report dates back to July 10^th 2002, it still holds its validity on many counts and can be considered as the most accurate depiction of reality from an ‘outside’ institution. The 2003 update is currently in the making and as of yet has not been issued. Because these reports are not published or directly cited by the commission, they are void of political ‘smoothing’ and thus perhaps harsher with critique. The evaluated programs concern:

Table 2.8: EMS program fiches

Evaluation and Monitoring Services of PHARE (2002), interim evaluation of the European Union PHARE Programme, report no. R/HU/AGR/02053, July 10^th

The overall conclusions have been worded in extremely undiplomatic language. They are also a direct validation of the usefulness of the model that has been introduced in this thesis.

“Co-ordination quality has been mixed. The programme environment is unsupportive, with significant Ministerial level weaknesses.[…] Although discrete projects are making progress towards acquis achievement, there are serious concerns over the adoption of the Common Agricultural Policy mechanisms at ministerial level, which tend to invalidate individual programme effectiveness. This lack of action by the government of Hungary places serious doubt on Hungary’s ability to benefit fully from European Union membership, certainly in the first year of the Common Agricultural Policy. The achievement of the objective is rated ‘Unsatisfactory’”.

Most explicit are the ‘verdicts’ in the sectoral overview section. Due to their almost direct applicability to the theoretical model, some remarks will be provided in full. During the 2001 evaluation, major concern was expressed over the sector/government’s capacity to absorb the PHARE assistance. “The main reason was the inability of the MARD to institute new structures consistent with the introduction of the CAP, and CMOs; and to disband old, inappropriate structures and rationalize key services, such as laboratories[…] Transparent and accountable institutions have not been established with proper instruments for the operation of agricultural support and market regimes”. As no significant progress was made, “much of the assistance evaluated in this report is insufficiently underpinned by organization structures, and is at risk of failure”.

“The Government of Hungary has delayed the final arrangement for the establishment of SAPARD, with the result that a number of assistance projects has failed to develop a viable SAPARD Agency.”

With regards to future developments, the EMS stresses that the situation can only be mended if and when the Hungarian government gives its immediate commitment, legislative support and financing to institutional and organizational changes. Sustainability of the PHARE assistance is at risk for the following main reasons,

· Lack of a comprehensive agriculture strategy for accession

· Lack of key decisions on CAP institutions

· Non existent or insufficient Hungarian budget allocation

Yes, there have been relative improvements ever since the EMS started its monitoring project. However, these do not alter the sector’s position as it presently stands. So far, the before mentioned  issues have still not been properly dealt with.

§2.3.10 (3) The Commission’s evaluation

Having seen an internal report funded by the Commission, it is now time to turn to the official publication. In Agenda 2000, the Commission said it would report regularly to the European Council on the  progress made by each of the candidate countries of Central and Eastern Europe with preparations for membership. Each year an updated report is issued on what according to the present jargon should be called ‘new member states’. The regular updates are of the highest importance, considering that “the Commission’s reports will serve as the basis for taking, in  the Council context, the necessary decisions on the conduct of the accession negotiations or their extension to other applicants” (Agenda 2000, report 2002). The latest issue takes all developments up to September 15^th 2002 into account.

            In order to avoid falling into the trappings of the apparent vs. actual reality dichotomy, almost all information for this thesis has been gathered at the source rather than outside reports. Although many references to journals, reports and articles are used, they should be perceived as support measures for the actual fact-finding. Following this reasoning it should not be a surprise that Agenda 2000 was not used as a leading document. Consequently it is interesting to see whether or not some discrepancies with the actual situation can be found. The reader should also keep the findings of the previous paragraph in mind.

“Hungary  has  made  some  progress  on  implementing measures related to the European Agricultural Guidance and Guarantee Fund (EAGG)[…].  In August 2002 it was decided that AIK would be merged from July 2003 with the SAPARD Agency into a single agricultural agency for all EAGGF funds.[…] Hungary should define, too, whether AIK will also be the paying agency for EAGGF Guarantee rural development measures.”

This is a remarkable statement, considering that it is not quite true. Already in September 2002 it was known that the twinning projects for the MARD and the AIC would not be able to start before mid 2003, which will now most likely be at the end of the year. The March 25^th covenant does not mention any kind of merging, in fact the opposite is the case. Part of the process is to restructure the administrations in a way that makes a clearer delineation between the responsibilities of the offices involved. The April 14^th covenant DOES mention a merger, but it omits to mention the exact nature of the relationship between the project office and the new agency.

On the Integrated Administration and Control System (IACS) which is necessary to administer the CAP support schemes it is remarked that “ongoing efforts  need  to  be substantially stepped up”. At present, none of the three main databases that are used by the MARD and related institutes are linked to each other. These are systems provided by the Agricultural research institute, OMMI and cartographic institute FÖMI. Because of this it is not possible to do any cross-references or relate geographical data to production values of farming operations.

Serious efforts are also urged in the field of building a Land Parcel Identification System (LPIS). The Hungarian government refers to the RSCS/CABS (establishment of the Control of Area-based Subsidies using remote sensing) on its website, which involves the use of high resolution satellite imagery. This however has not developed beyond a small-scale pilot project. The language of the commission is highly euphemistic, suggesting that these capabilities exist at least to a minimal degree. In reality none of them are operational and will remain as such until completion of the twinning projects. Even at the issuing of the update it was clear that in the most positive case this would be long after accession (Neszmélyi, 2003).

“As regards to food safety, some progress has been made, particularly regarding the upgrading plans of food establishments and the increase in measures to deal with BSE. A Deputy State Secretary within the Ministry of Agriculture has been appointed to deal with  food  safety  issues,  including  the establishment of a National Food Safety Office, which will become the counterpart of the European Food Safety Authority”

Again, an over-optimistic representation of the real world. It exists on paper, it exists to the extent that a single room has been set-up in the ministry for this purpose, it exists to the extent that a single secretary with a fax and computer is present, but it does not perform any of its mandated functions.

The overall conclusion concerning chapter 7 is as follows, “If the  required administration and control structures are not fully operational, or do not operate correctly upon accession, Hungary will be unable to fully benefit from the support systems under the Common Agricultural Policy, or will be required to reimburse EC funds already received. […] The Commission further  pointed  out  that,  if such progress were accomplished, accession in the medium term should not be accompanied by significant problems  in  applying  the common agricultural policy in an appropriate manner.”

The commission was already aware at the end of 2002 that Hungary would be unable to make the suggested progress, and thus unable to apply the CAP in an ‘appropriate manner’. The quote above should not have started with the word ‘if’, ‘when’ is far more appropriate. The discrepancies are large and on important issues, how did that occur? At least 90% of all the information gathered for this thesis was known at the EU mission to Hungary and PHARE management, which reports directly to Brussels. In turn these reports form the basis for the Agenda 2000 updates. This question will be dealt with later on.

On a more general note, this quick analysis shows that even the most reliable published sources are not always as correct as they claim to be. An off the record remark made by a knowledgeable civil servant can be far more valuable than ten different well credentialed academic studies. As this approach can be equally misleading, both sides of the coin have to be looked at.

§2.4 (4) Tradition & culture

This would be the domain of roles (“the set of activities expected of a person occupying a particular social position”), and norms (“values internal to the system which ground the rules and roles”), as defined by Heady (1996). Although the ministry may lack policy making capabilities, there are certain other characteristics that have developed over time and created a unique atmosphere. In this respect ‘change’ would be the magic word, or rather fighting change. Throughout its history the top bureaucrats have been remarkably efficient in securing their own positions and power base, fighting any kind of restructuring to the last breath. The fight over which ministry would control the paying was one of massive proportions, particularly between agriculture and economics.

In an organization where financial remuneration is low, power becomes the main focus of attention. Downsizing departments or any form of organizational streamlining is perceived with the highest degree of suspicion. When a polarized leadership makes weekly changes that are executed on paper, but totally ignored when it comes to implementation, this can be perceived as an illustration of highly un-cooperative behavior. A similar attitude is held towards outside players, most notably the European Commission. ‘Ministerial culture’ can at least partially explain how the organization managed to keep its structure relatively unscathed, over almost one and a half centuries of existence and dramatic political changes.

§2.5 (5) Prestige, staffing & funding

Within a Weberian model civil servants assume a well regarded position in society, are perceived as qualified experts in their terrain and in general make a decent pay. Considering Hungary’s links to the über-Weber state that Austria was (and still is, though to a lesser extent), reason would dictate to expect a similar situation.  However even from the early days of the dual monarchy, this has never really been the case. Having said that, up to World War One the pay and training was reasonable, combined with a comfortable social position.

If the inter-bellum period already witnessed a deterioration, the socialist post World War Two period manifested a drastic shift in policy, at least until the late 70’s. With the introduction of a ‘worker’s proletariat’, ideology turned hostile on the professional civil servant. The new regime deemed them expendable as representatives of the old oppressive intellectual elite. Many were fired, the ministries were downsized and the pay was lowered. Party affiliation rather than knowledge became the main basis for hiring, leading to what business schools affectionately call a ‘brain drain’.

Ideology aside, it soon became clear to the communists that a certain degree of expertise would still be required to keep affairs running. For this reason qualified personnel was retained and in some cases rehired, especially at the mid level of the organization.

During the 70’s a relaxation of socialist doctrine led to an increase in qualified staff, and political involvement was reduced in importance with regards to the middle and lower tiers. It should be mentioned that especially the national planning office and its related research institutes experienced a remarkable professionalization and quality improvement. As a matter a fact it was not uncommon for employees to have studied outside the iron curtain or even in the United States.

Under the communist system, no special legal arrangements were made for civil servants, their rights and obligations were equal to those of all other employees. The same can be said for the selection process, which of course was totally unfit to stay in use during and after the transition. For this reason, a new law was enacted concerning the legal status of civil servants (Act No.XXIII of 1992), which came into force on 1April1992. “The political aim of this act was to establish a neutral, impartial civil service with up-to-date professional skills to support the work of the public administration” (SIGMA, 1999).

At present each ministry is responsible for its own staffing policies, there is no central organ engaged in the hiring and firing of all servants. Within this decentralized system the administrative state secretaries at the ministries are the heads of the institutions, and thus regarded as the highest authority with regards to the staffing procedure.

In principle the employment system is career based, though civil servants can enter the hierarchy  at the entry level of their respective career group The law on civil service relates certain  grades to corresponding wages, the grades are based on individual qualifications and seniority of service (Jenei, 1999). Following a pre-determined ‘service period’, an employee can be promoted to a higher grade provided his work evaluation lives up to a minimal standard. In the case of extra-ordinary performance, promotion   can be triggered before the end of the service period. Career mobility between government institutions is possible on paper, but in reality very uncommon. The largest transfer in recent history was a result of the  merging of the  Ministry of Environment and Regional Development with what is now the Ministry of Agriculture and Rural Development.

            A variable pay element has been introduced to act as a performance incentive, but it is not substantial enough to achieve the desired results. “The Hungarian employment system is career based only in principle, because there is a lack of institutionalized mechanisms for the implementation of performance incentives” (Jenei, 1999). Another issue related to wages is the magnitude of salaries. With the approval of the government, ministries and central offices can deviate from the standard salary schemes.  In the case of the ministry of agriculture this is significantly lower than at the ministry of economics and transportation (SIGMA, 1999).

Officially the entry requirements are well formulated and restrictive. Apart from the obvious age and nationality specifications, a whole range of demands regarding prior education is made. These can also involve extra language requirements and confidentiality clauses. Likewise, after entry continuous training is encouraged and initiated. “Target groups are top and medium-level civil servants dealing with EU accession. Training programs on general issues have already started. The plan is ready for the part of the program focusing on special issues and will be implemented in 1999-2000” (Jenei, 1999).

It is now time to return to the increasingly notorious dichotomy, from a legal point of view the story as portrayed above is 100% correct. Unfortunately the situation at the MARD is quite different from the letters of the law. Based on reliable sources at the ministry, it can be stated that the annual wage is ridiculously low, to the extent that in general no well-qualified graduate would consider taking up a position. The wages in the private sector can be ten times higher, thus it is not a difficult choice to make (Meyer-Sahling, 2002). The current demographic make-up is somewhat of an hour-glass, a high degree of male employees over 45 combined with a disproportionate amount of female employees under 25. The level just below the department heads can still be characterized by career civil servants who entered in the 60’s or 70’s, whereas the layers above are mostly political appointments. At the same the hiring policy for the lower tiers comes down to a ‘whoever wants to’ policy. The shortage of a well-qualified offering has led the ministry to let go of the legally required selection procedure, but even this rather drastic measure has still not fixed the current understaffing at several departments.

The bottom line; The staff is poorly paid, ill trained, ill equipped, too few in number and held in low social regard. Suffice to say human resource management can do with a boost. The problem is not so much getting rid of the ‘old guard’, as many US and Western European studies have suggested. It is precisely this old guard that is still the most knowledgeable and well trained to run affairs. Yes, it would be preferable to replace them if the replacements were well trained and superior in abilities. However, the replacements themselves have led to a downgrading in capabilities, capabilities which weren’t all that impressive  to start with.

To put things in perspective, the changing economic outlook has led to a situation where more graduates might be willing to work for the ministry. The estimated waiting period from graduation to employment for an average BUESPA graduate has lengthened from three months to nine months (Högye, 2003). Reason dictates that a badly paid job is still better than no job at all. 

§2.6 (6) Degree of polarization

Obviously there is not much point in reviewing the degree of polarization before the end of the socialist period, hence this period will not be discussed in the following paragraph. The law on civil service, enacted in 1992, declares that civil servants should perform their duties in a politically neutral and impartial way. All actions should be taken to the benefit of the public interest, in accordance with the prevailing rules and regulations of the legal framework (Jenei, 1999) The  Act on State Secretaries specifies the governance of the top two positions of the ministerial hierarchy,  being the Administrative and Deputy State Secretary. The system with an administrative state secretary was introduced in order to increase the continuity of policy and reduce the level of politicization of the civil  service apparatus.

Though civil servants may not be actively engaged within a political party, “both the appointment/assignment and the dismissal/withdrawal of assignment of managing civil servants that together make up 15-20% of the ministerial staff or the top five positions of the ministerial hierarchy have been under the decision-making authority of either the Minister or the Prime Minister” (Meyer-Sahling, 2002)

The process works as follows, administrative and political state secretaries are selected by the prime minister. In principle the appointments are made for an indefinite period, however they can be withdrawn at any moment without an official reason. A similar rationale is used one step down the ladder. Here senior civil servants can be dismissed at any time by the administrative state secretary and the minister without a given reason.

It can be argued that this German type of chancellery with a strong prime minister can provide a stable backbone in transition countries, facing uncertain internal and external conditions. At the same time it is very dangerous to give so much power to so few, in what is clearly still a highly politicized and polarized governance system. In Hungary’s case it would seem the second argument can claim most validity.

Apart from direct appointments and dismissals, ministers are also allowed to dismiss civil servants in case of reorganizations. Whenever a department is dissolved without a regally defined successor, no protection whatsoever is provided to those who lost their jobs. The trick of course is to simply rename a department, and shift it around a bit within the ministerial hierarchy in a way that its functions are still the same. The bonus however is that a new ‘friendlier’ staff can be hired. This practice has been extremely common at the MARD.

The so-called political independence which is clearly not maintained, shares a similar fate to the ‘independence from the private sector’. Although a managing function within businesses is outlawed, positions to be taken up in supervisory boards of private and state owned companies ARE allowed. Usually these types ‘board memberships’ can be highly lucrative in terms of financial gains as well as influence, which is precisely why the EU 15 in general do not condone this practice.

In 2001 formalized open competition recruitment procedures were introduced for department heads, where the final decision-making authority remains with the ministers. In other words, “Hungary moved from a personnel policy regime allowing over-politicisation to a personnel policy regime allowing hidden politicization” (Meyer-Sahling, 2002) After the 1998 elections the new  government replaced many civil servants in managerial positions. Among them  11 of the 13 administrative state secretaries, precisely the people that were to provide continuity by not being influenced by politics. “New senior civil servants were appointed on the basis of political loyalty. Most of them had neither professional skills nor experience in public administration. Fear is widespread among the senior civil servants. These positions were changed not only shortly after the Orban government came to power, but in recent times as well. They are often unsure of why they have been removed: if they are distrusted by the political leaders, or if someone would like their positions.” (Bordas, 2001)

The 2002 OSI report identifies three negative trends under the 1998-2002 Fidesz-Hungarian Civic Party (Fidesz-MPP)-led Government of Viktor Orbán:

· Diminishing accountability and openness,

· Increasing politicization of appointments to key institutions

· A tendency to violate the spirit (if not the letter) of public procurement regulations.

“Candidates with strong connections to Fidesz-MPP were increasingly appointed as heads of various governmental bodies, state-owned companies and quasi-governmental organizations. Conflict of interest provisions forbid civil servants from holding executive positions in private companies, but not from being employed by them” (Business Hungary, 2003)

As early as the first free elections in 1990, the ruling government parties have engaged in what  can only be described as a tit for tat  between the agricultural lobby and the Smallholders party. Read, support for the major reform programs in return for the status quo in the field of agriculture. “The Smallholders party is a re-creation of the party of the same name that was popular in the immediate post-war period. During the HDF-led government, the party focused predominantly on the restitution of land to its former owners. Its strong influence on this single issue resulted in a complicated land compensation program that worked to maintain peasant small land-holdings. The party largely appealed to elderly people living in villages” (Economist Intelligence Unit, 2002)   

As of 1998 the situation drastically worsened with a Smallholders party minister at the helm of the MARD, going beyond maintaining the status quo but rather destroying what little there was left. However, a series of corruption scandals including allegations made against Mr. Torgyan, caused his resignation as agriculture minister and probably his demise as a significant political player. “Tórgyan spent more time on fact-finding missions to Asia and Latin America than on trips to Brussels to discuss with the European Commission on steps to be taken to make Hungary fit into the EU's Common Agricultural Policy”  (Radio Netherlands, 2001).  Within his party there was increasing unhappiness over the ministers' frequent overseas trips and his autocratic manner of running his party, where personal loyalty is of the highest importance. The various corruption charges against him varied from building a  grand villa using government funds to diverting payments worth over ten thousand US dollars to his son. Criminal charges were also brought against the state secretary and a number of top aids.

§2.7 (7) Corruption externalities

§2.7.1 (7) Background

The most widely accepted definition of corruption was first coined by the Joseph Nye (1967), as behavior which deviates from the formal rules of conduct governing the actions of someone in a position of public authority because of private-regarding motives such as wealth, power or status”. As much as there is disagreement on what the exact wording should be within the world of economics and politics, the eventual consequences of corrupt practices and their position within societies cause an exponential amount of problems.

In Perspectives on the perception of corruption, Heidenheimer (1970) distinguishes between 4 types of ‘political obligation relationships’, of which the patronage relationships would be most prevalent in the CEE transition countries. The tolerance of society for a certain type of corruption ranging from petty to aggravated, is quite different depending on its characterization according to the typology mentioned above. It floats somewhere between total acceptance (white) and total condemnation (black).

This is especially relevant since numerous sources, among which Business Hungary and the OSI  have classified Hungary as a country where “favor banks” or mutual favor mechanisms – the local term used for the informal channels of parentage similar to the system of the “old-boy network” (2001) are much stronger than in other regions of the world, due to the widespread use of these channels under the communist system in the past.

Corruption during the early days of the transition period was widespread and staggering in scale. The Hungarian  bureaucratic system lacked not so much the basic institutions, but rather the regulatory framework and enforcement capabilities to tackle the main problems. Civil society was to some extent excluded from public life under the socialist regime, and thus today is less likely to play a part in fighting corruption by means of public scrutiny. Especially the privatization process in the early 90’s bore witness to large-scale tunneling and unlawful collusion between public officials and ‘entrepreneurs’, similar to what happened in the Czech republic. (Gulyash, 2003).

§2.7.2 (7) At present

Currently Hungary has been perceived as the least corrupt of the new candidate countries behind Slovenia, following the ranking of various internationally recognized institutes. According to the Transparency International 2002 Corruption Index Hungary holds a  33^rd place, in the middle range of the international ranking of 92 countries. At the same time the anti-corruption legislation in Hungary is advanced, and the country has ratified all major international conventions on corruption (with the exception of the Council of Europe Civil Law Convention on Corruption). “Hungary has made significant progress toward establishing an integrated system of state financial control, although further progress is necessary in a number of areas” (OSI, 2002).

Petty corruption is mostly present in public services related to healthcare and the allocation of licenses and permits, the main cause being the extremely low pay of the actors involved. Bribing doctors and nurses has become a socially acceptable form of corruption, as the average doctor earns 2 times less compared to what a recent economics graduate student will make at his first job. In the most extreme cases there can even be a factor 5 difference (Högye, 2003).

Having said that, there are other areas where corruption can interfere with the government, which are not that easily captured in surveys nor transformed into numerical data. These are the areas referred to in the previous paragraph (Agence France-Presse, 2003).

An EBRD report on corruption and the PriceWaterHouseCoopers Opacity index confirm that the strength of prevailing parentage ties is virtually unbreakable, and according to some even getting stronger. Clearly the increasing business opportunities nourish the mutual interest to keep the ‘system’  up and running.  A dual fold problem can be identified.

First of all ”the lack of a consistent set of laws and regulations, as well as the necessary system for revision and monitoring of their function” (Business Hungary, 2001) simply allows for many to avoid getting caught and prosecuted. More pressing however seems the focus of the anti-corruption laws in place. Many of the acts that could be defined as bribes, both from a moral as well as  economic perspective, are often perfectly legal within the regulatory framework. By all means this is not just a problem faced by countries in Central and Eastern Europe, simply consider presidential campaign finance contributions in the US by industrial lobby groups.

As far as the MARD and AIC are concerned, the influence of the green barons and the agricultural chamber seems to be the main problem. Though no official numbers exist on the ministry itself, reliable sources have mentioned significant irregularities in terms of subsidy transfers, land appropriations and resistance against legislation that might affect certain farming operations. Eventual remuneration could come in the form of a board position or a country house ‘gift’. The reign of the smallholders party obviously did not help either, even after the minister himself was forced to resign on corruption charges. A tragic story indeed.

§2.7.3 (7) Cost benefit analysis

The author recognizes parentage networks do not always have to be a bad thing. They can be perceived as components of social capital, and as such contribute to the economic and political performance of ‘the state’. Naturally the long-standing connections serve as substitutes and complements in corrupt transactions. Favoritism is preferred over the extortion type of corruption, whereas the connections reduce transaction costs of searching a ‘partner’ and often enhance the process of governance. (Gehlbach, 2001)

Cartier-Bresson (1997) takes it one step further, arguing that at a certain point frequent exchanges between parties (either private or governmental) become institutionalized within the governmental, economic and value structure of a country. This rather systematic form of corruption, also called ‘normalized illegality’ reduces the

risk of sanctions and un-honored contracts, whilst at the same time significantly reducing the transaction costs involved with economic transactions.

Nas et. al (1986) have provided a useful model for assessing whether corruption is either beneficial or detrimental to society as a whole. It is less induced by moralistic values, rather a Rawlsian (1971) perspective combined with the basics of welfare economics. Cutting passed most of the publication (this is after all not a thesis on welfare economics) the authors provide a neat, little and most of all understandable set of equations.

Basically, as long as the costs of prosecution and conviction F’+R1 are larger than the net social costs plus the cost of resources used to conceal corruption S+R2, it is rather pointless to fight the corrupt practice. Where this boundary lies is dependent on CP(ρ, f, Yi/Yl, δ, π, γ). In some areas of the Hungarian civil service this is most certainly the case, however the corruption within the MARD has almost exclusively created negative externalities for the agricultural sector. Furthermore the already low regard for the public office is tarnished even more. This is especially sensitive in a country where the civil society has to be rebuilt and trust in the government apparatus restored.

According to the theory three main policy approaches can be discerned. Maintaining the status quo would be dangerous and highly inefficient, thus it can easily be discarded. Increasing detection and conviction is also not very feasible, considering that many of the ‘bribes’ make use of the mazes in the law and aren’t even banned by the legal system. The only real solution is “improving bureaucratic effectiveness, legal changes clarifying property rights or increasing the congruence between social demands and political outcomes, and efforts aimed at increasing political participation.” (Nas et al, 1986).

§2.8 (8)  External influence factors

This paragraph was not created to once again give a detailed account on all of the outside actors, their impact on the ministry and government has been made abundantly clear. From inside the country the agricultural chamber (and product boards) together with the green barons are the dominant players, whereas on a continental scale it is mainly the EU commission and its related institutions. Instead of asking ‘how’, the ‘why’ question is equally interesting.

The motives of the local players are obvious, induce the state apparatus to act in a favorable way. For the European Union the aim should be to prepare Hungary in the best way possible for accession, and in due time achieve convergence. The overly ‘optimistic’ picture painted in Agenda 2000 can be contributed to political ‘smoothing’, emphasize the benefits and downplay the problems. This way the acceptance for the 4^th waive of enlargement is increased with both the  political community and general public opinion. What is harder to explain is the lack of real political pressure, a ‘stick’ if you will.

From the early 90’s onwards the commission has been fully aware of the dire state of Hungarian agriculture. Indeed it has issued many warning to engage in suggested reforms, but almost never connected them to any real form of punishment. No funds were drastically cut, and program deadlines were simply extended. The active aid has also  been far from optimal. To quote a senior Hungarian government official, ‘we were sporadically  sent 3^rd level bureaucrats from Brussels, who lacked the expert skills we required’. This does not include the twinning projects. Engaged in similar activities, PUMA and certain EBRD projects have been plagued with a rather equal ineffectiveness. Obviously one cannot expect to find the miracle cure during a three week stay in a target country.

Aid was insufficient, but what is enough? There is always more to be done, and it is dangerous to make claims of intentional neglect. Some diplomats from two EU member states have issued the following thought.

The main agricultural producers such as France or Germany (and thus the commission) would have no immediate problem with Hungary’s inability to cope with the CAP. It took Austria two years to get an accredited paying agency, and it was never fully remunerated for the funds it missed out on. Without the Guarantee funds Hungary would probably turn into a net contributor rather than benefactor, which has positive consequences for the EU budget. At the same time, the markets will be opened for foreign agricultural products that could assume a dominating position. Unable to withstand competitive pressures, the last remaining restrictions (e.g. concerning land) would be removed earlier and the Hungarian agriculture would be reborn thanks to Foreign capital and control.

   This highly cynical view does not reflect that of the author, though it is an intriguing thought. Whether it’s true is beside the point, the fact that it is even considered weakens much needed faith in the Commission and the existing member states. Reality probably lies somewhere in the middle, but without forceful pressure from the EU Hungary will never be able to fix its problems related to agriculture.

CH #3, Political capacity

§3.1 (1) Degree of polarization

In March 1990 Hungary held its first multiparty elections after months of complicated negotiations. It was then that Hungarian Communist Party and opposition groups laid the foundation for the country’s new political framework. This included a new constitution, election procedures, the legalization of new political parties and the break down of the old security apparatus. The speed and nature of the political transition led to a number of structural problems which are still haunting Hungary to this day. “The rapid and successful emergence of political parties was achieved at the expense of other organizations representing society. Despite their short life and shallow roots, the political parties [were] remarkably successful in filling the entire political space. But the almost totalizing supremacy of party politics found society unorganized and still lacking intermediary forms of political organization such as trade unions, corporatist institutions, and broad social movements. As a result of this abrupt transition to entrenched parliamentarism, no organized extra-parliamentary forces could challenge the dominance of the parties.” (Stark, Bruszt, 1998).  Attila Ágh (1994) has called this process the creation of partitocratic elite democracy, in which a ruling political elite has  excluded social groups from the institutional design of the new democratic system. By doing this, the emergence and functioning of an active civil society was significantly hampered. Likewise the newly created, or transformed political parties lacked the basic ties to their prospective electorate.

Without the level of public scrutiny that could normally be expected in a democracy, successful attempts were made to impose minimal constitutional and institutional limitations on executive authority. Although Germany served as the example, its situation was incomparable since it DID have an active civil society functioning  as a safeguard against abusive power.

The electoral system with a majoritarian and proportional representation would in most cases lead to strong coalition governments, with usually 1 large party. In the Hungarian situation the prime minister’s office has become extremely powerful, where the PM counts on the majority vote of his party to pass the required proposals.  However “in the first ten years of the new democracy, junior coalition members have repeatedly shown their ability and resolve to blackmail their senior partners into compromise by threatening to disrupt the unity of government majorities” (Comisso, 1997) The successes of the smallholders party in the 1990-1994 government, especially concerning land reforms, are probably the best illustration of this statement.

Agriculture has suffered significantly from quid pro quo deals, no action in return for a favorable vote in other areas. The increased polarization between left and right leaning parties which was jumpstarted during the last government term, has at present rendered the passing of even the most neutral kind of proposals very difficult.

Legislation concerning the creation of a SAPARD office was delayed by years; budget approval took even longer. The decision to designate the AIC as paying agency was also long overdue, whereas up until this very day its budget has still not been completely approved. The latest law to join SAPARD and IAC is perhaps even more stunning. In short, proposals from the left are shot down by the right, and vise versa. At this moment no real solution seems to be at hand, apart from increased EU pressure to get the affairs on track.

To give an insight in just how serious the schism in Hungarian politics is, the 2002 elections are worth looking into. The major left wing party was represented by the Hungarian Socialist Party (MSZP) and current prime minister Peter Medgyessy, whereas  incumbent Prime Minister Viktor Orban represented the ‘right’ with his Fidesz party.  Fidesz was formed in 1988 by students in the law faculty at Budapest's Eotvos University. During the conservative government of 1990-94, it followed a rather liberal ideology, almost neo conservative one could say. From its founding onwards the party painted the socialists and the left as the advocates of a failed philosophy of the past by reminding voters that Hungary had more than four decades of experience with centralized government and planning under the communists.

However, its more centrist leaders left in 1994. When the HSP-AFD government coalition was formed in 1994, Fidesz remained in opposition and began to court conservative opinion, combined with increasingly populist tendencies (Economist Intelligence Unit, 2003). Completely built around the personality of Victor Orban, the party’s drop in popularity was akin to its rise a few years earlier. Hailed as the new refreshing academic savior of the state, at present many affectionately refer to Orban as mini-Putin. Apparently the sharp swing to the right, at times coming dangerously close to the ‘extreme’ zone was enough to lose the elections.

   The Hungarian Socialist Party (HSP) was created in October 1989 and is essentially the transformed former Hungarian communist party. After having lost the 1998 elections, Peter Medgyessy who is a trained financial expert and banker was put forward as the new leader. The emphasis on his expertise and training was part of the overall image campaign to counter attacks from the right, as if the party was still stuck in its communist past.

Ironically the 2002 campaign was probably the most American induced campaign ever to be seen on the European continent. In March, for example, Mr. Orban used the familiar words from the movie "Star Wars," saying, "The force is with us" in his campaign. Two weeks later the Free Democrats, a party of the left, responded to the prime minister by picturing him on the Internet as the black-clad Darth Vader surrounded by equally sinister guards. This time the quotation read, "The force may be with them, but it is the dark side of the force." (Washington times, 2002)

   The opening of the house of terror at the beginning of the year was interpreted by many inside and outside the country as a government financed attack on its political opponents. The museum shows the ‘terror’ and crimes committed by the socialist regime, making an effort to lake the modern day party to its predecessor. In the end it failed, which was probably induced by Orban’s radicalization to the right. Even the news that Medgyessy had served as a spy for the secret service in the 70’s could not change the election outcome, despite a rather weak and uninspired defense.

Hungary’s current political landscape to a large extent paralyzes the legislative process. Because of this, much needed laws on crucial issues such as agriculture are weakened or delayed. Even if the MARD would function up to the best of its abilities, the political capacity is such that any progress remains problematic.

§3.2 (2) Strong leadership

Rosenau and Graham Allison were the first political scientist to take the role of strong leaders in politics into account. One man’s character can make dramatic changes in the course of history, provided he has the organizational/legal and power base to go ahead with his ideas. It would be interesting to see to what extent the political leadership in Hungary is able to make its mark, whilst staying within the ‘legally’ created framework of governance.

In order to get the complete picture, the political hierarchical structure will quickly be summarized.

Table 3.1: Hungarian cabinet appointments

Perhaps the reader has already noticed the rather frequent reoccurrence of the prime minister in the appointment process. In an democracy that is already characterized  by a lack of active public involvement in the political process, this may not be the most desirable situation after all. What is most interesting however, is the wide latitude given to the prime minister and the chancellery when it comes to making legislation.

The current legislative process stems from Act XI of 1997. The government meeting (cabinet and all those mentioned in table 2.9) prepares a program that will have to be executed during the election term. Obviously the majority party in the coalition will have the largest voice in setting the agenda. The Superior Court, Chief Prosecutor, local governments and representatives of interest groups all have to issue an opinion that is non-binding. Finally it will have to be ratified by the parliament.

Specific acts have to be prepared by the relevant ministers, depending on the subject with or without an expert panel of scientist to aid him. Again, opinions are asked before the parliament will vote on the issue. The catch however is a 1998 amendment, “The prime minister keeps the right to make all the decisions instead of government meeting, the ministries and other central public authorities.[…] Important political decisions are made at an informal meeting of the six members of the strongest political party: the prime minister, the president and vice president of the party, the minister of the Chancellery, the president of the Parliament and the leader of the parliamentary faction. These decisions are in fact implemented by the public administration.” (Bordas, 2001).

Ministers are advised not to rebel against decisions taken following this procedure, this goes the same for those belonging to the minority parties within the coalition. The chancellery continuously keeps tight control on the political loyalty of cabinet members, somehow that just doesn’t seem to be very democratic. Naturally the parliament will still have to ratify proposals in the end.

The framework clearly shows that massive political power has been granted to the prime minister’s office, power easily abused. Thus in retrospect, has the ‘great leader’ Victor Orban used his new power wisely?  In previous paragraphs it was already mentioned that the last four years have led to,

· Diminishing accountability and openness,

· Increasing politicization of appointments to key institutions

· A tendency to violate the spirit (if not the letter) of public procurement regulations

Centralization of power led to a few other consequences ,

• Radical reduction of parliamentary meetings, the appointment of political supporters to the leading positions of the police, the prosecution, the judiciary, ombudsman and advisory board of media

• Pressuring of policemen, prosecutors and judges to make political decisions in legal cases initiated by the strongest party against its political enemies

• The state budget is more and more withdrawn by the central government both from parliamentary and public control. Citizens are unsure how public money, i.e. their taxes, will be used by the central governments

The following example clearly shows the centralized grip the government can hold on public life, and just how arbitrary and polarized state influence can be. In 2002  the Orban government expropriated the Danzkai family as owners of the a newly built  terminal at Ferihegy international airport, which they had been operating for a number of years. This happened without any early notice or legal justification, yet the courts decided in favor of the government.

Under the new government the Danzkai family lawyers were notified that the state was sympathetic to their problems, and a new legal procedure was started up in the beginning of May 2003. Any definitive outcome could be delayed for a number of years.. Not a single Hungarian newspaper has reported on this issue, before or after the elections. In fact, the information was gathered firsthand from an interview with Mrs. Danzkai, comments from the justice department were declined.

            What does this incident have to do with agriculture? Considering the acquired wide latitude of the prime minister since 1998, it is clear that he could have a significant impact on reforming agricultural policies. In fact he DID, just not in the desired direction.   “Health care and agriculture are the fields where reforms should be performed very urgently. Both are in fact “bankrupt”[…] During the last 4 years, no reforms have been implemented in these fields. More political scandals took place, initiated by the stakeholders in health care and agriculture […]The Ministry of Agriculture did not make any proposal for an act which could serve as a basis for the reform.” (Bordas, 2001)

Where the previous administration simply left agriculture to its fate with the non-reformist smallholders at the helm, the current government can be considered as more reform oriented. Unfortunately, the divide in parliament will make it very hard to pass decent legislation.

§3.3 (3) Nat. identity & cultural awareness

§3.3.1 (3) Theory

Nationalism is not by definition a bad thing, depending on its scope and eventual goals. It is often defined as an ally of ethnic exclusivity and xenophobia, and yet civic nationalism is an occasional friend rather than an eternal foe of civil society (Kuznik, 2001).

For the CEE transition countries ‘double transition’ has been the key word for quite some time, focusing on democratization and marketization. This was after all the main recipe for South America and the 2^nd wave of enlargement.

Unfortunately issues such as ‘stateness’ and ‘nationality have been overlooked in this process. The greater the degree of religious and cultural diversity in a state with weak institutions, the more difficult the transition process will become.  Hungary in fact is not a mono-ethnic country, spawning a rather large diversity of peoples. At the same time there are large Hungarian communities just across the borders with its neighbors, such as Romania, Slovakia and the Ukraine.

   Margaret Canovan (1996) has argued that nationhood is a necessary condition of a liberal democratic welfare state. A sense of national belonging will spur the citizens to take part in the political process and make sacrifices for the political community that is based on historical and ethno-cultural factors. Most importantly however, Rustow (1970) argues that “ a consensus is needed on certain values and beliefs through which the community is united, boundaries are fixed and the composition of ‘citizenship’ is made continuous.”

In an area of Europe where so many different people live together, a shared national identity is a precondition to achieve joint political aims and social justice. The role of ‘civic nationalism’ (Kuzio, 2001) is extremely important because a weak national identity is more likely to lead to a weaker civil society, and thus negatively impact the transition process. “A robust civil society will create a sense of national solidarity within the political unit while taming and marginalizing ethnic nationalism”.

Where does this leave Hungary, does Hungary even fit within these theories? That is a highly debatable issue, however Hungary’s changing borders during the last century have most certainly created a number of problems. In effect the ghost of the Trianon treaty is still haunting the region to this very day, when the country lost almost two thirds of its territories. The Hungarian national identity is perhaps the strongest across all nations in the region, it is not based on ethnic background but a sense of belonging to the ‘Hungarian nation’. The common denominator is the ability to speak the Magyar, when able; one can consider himself to be a Hungarian regardless of official nationality. At the same time it has caused diplomatic turmoil between Hungary and its direct neighbors, most notably the issue of the ‘status law’.

Table 3.2: Hungarian minority groups abroad

Source: BBC News, 2003

Enactment of this controversial piece of legislation consisted out of providing a number of benefits to ‘ethnic Hungarians’ living abroad, where ‘ethnic’ is defined as those who speak Magyar. The package entailed the offering of  scholarship and temporary jobs in Hungary, as well as assistance in the places where they live to experience their ethnic and cultural identity again through lectures, courses, even dancing lessons. There is a defendable argument for this support, since especially in Romania but also in Slovakia during the last few decades the Hungarian minorities have been heavily discriminated against. "It offers preferential treatment inside Hungary as well as assistance to Hungarians living in neighboring countries with a view to preserving their identity and to prevent them from assimilating, and immigrating into the country. Because we would like to see these Hungarian communities, existing in large numbers in Romania, in Slovakia, in other neighboring countries to flourish." (Németh, 2003)

The point where nationalism started to become a problem was when the Hungarian government started to issue a form of identity card to ethnic Hungarians abroad. It was akin to an actual passport, but with virtually no legal rights attached to it. It antagonized Slovakia and Romania and amassed warning from the European Commission and the international media. As it allowed all ‘ethnic Hungarians’ to work in their ‘mother’ country, locally they would pay taxes and make national insurance contributions Evidently, foreign governments feared loss of national income.

In the end the whole affair blew over, after the law was altered to a watered down version. Agreements were signed with the Slovak and Romanian governments over rights for workers to cross the border. First of all there are no issues left with fellow future EU member states, as long as there is no direct financial support or violation of EU minority legislation. Secondly the treaty signed with Romania will lose its validity come 2004. The EU already withdrew its strongest objections after Austria was dropped from the list of possible beneficiaries (BBC, 2001). The entire affair has tarnished the country’s image, cost a large amount of money, damaged trade relations and amounts to what  can only be described as weak symbolic piece of legislation.

An example of ways in which agriculture was hurt, was a sudden reduction of the import quota for wheat and several vegetables of Hungarian produce, destined for the Romanian market. As retaliation was instigated  the incident needlessly damaged farmers on both sides. Furthermore, joint farming projects such as the creation of the Pannon wheat fields in which Romania was originally scheduled to participate, were delayed or cancelled.

§3.3.2 (3) The Baltics

During the last Hungarian elections the increasingly populist incumbent government party was defeated, hence currently there is no immediate danger of rampant nationalism that could harm the functioning of the state. The situation in the Baltics however is the perfect warning of what could happen in case this danger would return.

Due to the ‘Russification’ process of the Baltic ‘provinces’ within the Soviet empire, large numbers of native Russians were relocated to Latvia, Estonia and Lithuania. Lithuania with a population of 3.8 million has been the least affected in that it has remained relatively homogenous (81% Lithuanian, 9% Russian, 7% Polish). In contrast, Latvian ethnics make up only 54% of Latvia's 2.7 million population while Russians account for 33%. Similarly, Russians represent about 30% in the Estonian population of 1.6 million (Raadschelder, 1996)

Whereas Lithuania has granted citizenship to all permanent residents at the moment of passing the law on Citizenship, Estonia and Latvia have established proficiency in the local languages as a prerequisite for citizenship, regardless of whether or not a person was born in the country. Proficiency can in this case be translated as fluency, not merely basic knowledge. As a result, a large part of the predominantly Russian minorities have become the non-citizens of these countries. They have been frozen out of the economic and political process as a result of one piece of legislation. One way to receive citizenship is to go through the naturalization procedure, which requires applicants to pass a language and history examination as well as to be loyal to the state. In the Latvian passport a nationality entry exists, which gives an additional reason for the discrimination of the minorities. Many Russian speakers consider themselves entitled to citizenship and thus view the imposition of naturalization requirements as a violation of their human rights. The social and reinforced historical tensions created between the language communities are by definition harmful, moreover from a bureaucratic perspective a very real and practical problem has been created (OSI, 1997).

Since language proficiency is a requirement for citizenship, it is similarly a criteria for employment in the civil service.  Various extremely tough language tests have to be successfully completed before employment is considered, and even then top positions are out of the question. A language requirement as such is far from abnormal, considering most Western democracies have similar demands. The problem with the Baltic countries is that for the last couple of decades the top administrators and most knowledgeable civil servants were Russians.

In the countries’ eagerness to rid themselves of the past, virtually all Russians in important positions were forced to leave. Whether or not this was morally correct is not the question, the very real consequence has been a serious brain drain and partial incapacitation of the state apparatus. In the Baltic countries new well-educated replacements are even less likely to be found in the short run than in Hungary, thus an acute problem arises. Clearly these language laws are in direct violation of article 6 and 7 of TEU, and a substantial collection of case law. Still, the required changes do not appear to be in the pipeline before accession in May 2004. This will provide ammunition for some heated future debates and disagreements.

§3.3.3 (3) In conclusion

Hungarians have a very strong national identity. Cultural aware and civic nationalism have not caused any serious problems, although e.g. the status law dispute was unnecessary and a waste of resources. Agricultural trade has been hurt to some extent, and some future projects were cancelled.

Despite this strong identity, the creation of a well functioning and active civil society is still lagging behind. This phenomenon which deviates from standard political theory has been explained in before, by means of looking into the development of the legal framework of the new political system. In general it can be said that Hungarians do not particularly like Romanians or Slovaks, and the feelings are to a great extent  reciprocal. Much distrust is still based on the domination of the Austro-Hungarian Empire on the one hand, and the loss of the territories on the other. It is likely this animosity will decrease in due time, with the EU accession as an accelerator. As for now, the relatively low amount of trade between the candidate countries could be seen as an indication that there is still a large amount of work to be done.

CH #4, Structural & Assessment factors

§4.1 (1) Power of judiciary

The functional separation of powers among the trias juridica is well established in Hungarian jurisprudence, where the National Council of Justice acts as an autonomous and independently operating administrative organ. Its duties range from payroll matters to the appointment of lower court judges, a system used by many European Union member states (Open Society Institute, 2002). In 1997 a range of institutional reforms related to organizational structures and remuneration procedures were introduced to reinforce the separation from the executive even further.

            Unfortunately, many of the reforms passed were only partially implemented, and some even reversed under the Órban government. Judges only receive tenure after a 3-year probation phase, during which they can be vulnerable to political influences. Their remuneration package consists out of a fixed and a ‘performance’ related element. Just how performance is evaluated remains however unclear, opening a window to unlawful practices. A more pressing matter is the severe shortage of judges nation wide, all handling a workload way beyond their intended capacity. Combined with what is still a relatively low pay, it works demoralizing and can affect the quality of the final judgment.

According to the Open Society Institute Report the following problems were added during the 1998-2002 period:

• There was a delay in the establishment of appeals courts known as ‘boards of justice’, which are required by the Constitution and were to be established as part of the 1997 reforms.

• The lustration law was moved into the realm the judiciary, thus potentially undermining long-serving judges.

• Executive control was established over the judiciary budget, “and notably the Government’s repeated curtailments of the National Council of Justice’s budget proposals (in contrast to improved financing for the Public Prosecutor’s service)”.

The resignation and replacement of the Prosecutor-General in 2000 raised concerns about the independence of the institutions responsible for investigating corruption, and there have been indications that some court and prosecutorial decisions have been politically influenced. In fact, Professor András Sajó of CEU has noted that in “recent years Supreme Court decisions frequently have deviated significantly from the decisions of lower courts. For example, in a case concerning the construction of a proposed fourth metro line in Budapest, the first four judicial decisions ruled in favor of the Municipality of Budapest, headed by an opposition mayor, whilst the Supreme Court, owing to a “change of legal conception,” ruled in favor of the Government (HVG, 2002). The Danzkai ruling mentioned before confirms this view.

            CEE countries and Russia all seem to face the thorny issue of weakened, or in Russia’s case a completely incapacitated judiciary. Although contrary to some of its neighbors Hungary can boast a well-trained team of judges, it is overworked and increasingly susceptible to political influence. It is a situation as this one that can strongly influence government policy on a wide range of issues, among which lies agriculture. Having said that,  the problems are not structural to the extent that they won’t be solvable during the next 10 years, especially once accession has materialized. Thus far dubious decisions have only harmed the country, ranging from a partial pull back of ABN AMRO’s Budapest operations, to complaints from various diplomatic representatives.

There has been no major change in agricultural policy under the influence of a ‘politicized’ judiciary, and as such, it cannot be seen as a major problem for the assessment of this research project. Still, the author would like to take the opportunity once more to stress the importance of a strong legislature, judiciary and enforcement mechanism. Without this even the best operating civil service system can be rendered impotent, all wheels within the clockwork have to be kept running, gridlock will always lead to a waste of precious resources.  

§4.2 (2) Public scrutiny

Press freedom is usually categorized as having three basic criteria:

• The plurality of supply

• The lack of interference with journalistic work

• Unrestricted access to information

Without fulfilling these basic requirements, there can be no independent press. This in turn seriously hampers its ability to act as the ‘public watchdog’, and thus weakens public control over the democratic state.

§4.2.1 (2) Historical background

Before the 1956 revolution the Hungarian press followed the Stalinist model, where the party exercised absolutist control over all information flows coming to and from the state. The earliest ‘loosening’ could be witnessed after 1958, following an important decision by the Central Committee. According to its views the contemporary press was no longer ‘poisoned’ with contra revolutionary ideas, rather it had “the great duty to educate the people, to convince them of the appropriateness of the Party’s policy, to shape and reform public opinion, to organize and mobilize the masses, and to nurse and enhance the Party’s relationship to the masses” (Kenedi, 1999)

The National Press Agency was established to supply all news agents with the same pre-approved information flow. Furthermore the chief editors were required to have regular ‘informal’ meetings with the political leadership, to discuss the direction of their papers. As a final gatekeeper, the information office had to approve all newspapers in their entirety before printing (Bajomi-Lázár, 1999).

In the beginning of the 70’s this rigorous system of review was replaced by concept of ‘manual control’. In each publishing house one representative was chosen to be factually and morally responsible for the correctness and ‘attitude’ of the publication; who in general was the editor in chief. This practice was continued until 1986 which heralded the Press act. The official press policy became more transparent, and prescribed that the official organizations must provide the journalists with information when needed and thus set a legal background for prospective investigative journalism (Seregélyesi 1998). Paradoxically, the Press Act reinforced party control of the press, and yet it also set limits to the influence of the Party.

By 1988 journalists enjoyed a great deal of independence, which enabled them to become one of the key actors of the political transformation. Due to an incapacitated and partially dismantled press review/enforcement mechanism, the highest number of new newspapers and weekly’s in Hungarian history was launched. Table 4.1 gives a short overview of some of the most important newcomers.

Table 4.1: newspapers and magazines launched in 1998

Source: (selection, based on Farkas 1988)

§4.2.2 (2) 90’s up to the present

After the first democratic elections, the center right-wing government tried to regain a certain degree of control over the newly founded or privatized information channels, TV, radio and newspapers. The founding of new government sponsored newspapers failed, and a real change in ownership did not occur until ’94. This was primarily caused by an ‘overcrowding’ of the market. A more significant change however was the attitude of the press towards the government and itself.

The conceptual debate over whether the media should be loyal to the democratically elected government or should be critical of any government, divided Hungarian society into two camps along ideological and political principles. It also revealed some latent division lines within the Hungarian journalist community. A process of polarization began between ‘liberal’ and ‘conservative’ journalists, ending with the creation of a second, conservative journalist association. It needn’t be a surprise that the ‘liberal’ journalists favored a left leaning government, and vice versa (Bajomi-Lázár, 1999).

            The 1996 Broadcasting Act was clearly an ill-fated compromise between two highly polarized camps fighting each other. “journalistic and editorial autonomy has been reduced professional considerations have been subordinated to political ones” (Molnar, 1998). Its almost mind-boggling complexity is illustrated by the following excerpt:

“The public service broadcasters are shareholding companies managed by a president. The president is supervised by a Supervisory Board and is appointed by the boards of trustees. These are led by executive committees and supervised by a controlling body.68 The whole of the broadcast media is supervised by the National Radio and Television Board (ORTT), the authority which issues the broadcasting licenses. Contestable contents, and in particular the alleged violations of the principle of unbiased information, are supervised by the Complaints Committee whose members are delegated by the ORTT. The members of ORTT are delegated by Parliament and various social organizations” (Bajomi-Lázár, 1999)

In 1999, the Fidesz-dominated Parliament elected a special board to supervise Hungarian television, which contained only pro-government nominees. By law, the board was supposed to have an equal number of candidates nominated by the government and the opposition. Officials contended that the opposition was incapable of putting forward consensus candidates, as required. The board chose the president of the Hungarian television, who in turn dismissed almost the entire leadership and replaced it by government sympathizers (Langenkamp, 2000).

            The following table is a good illustration of the degree to which a writing press can be government influenced. Taking into account the numerous political scandals that occurred during the 1998-2000 period, the figures can only be interpreted in one way; the press is incapable of providing the Hungarian constituency with information in a manner becoming of a trustworthy news agency. The lower degree of polarization on the radio and TV is not so much the product of a different code of conduct but rather the result of a shortage of serious news programs.

Table 4.2

Source: Corruption Perceptions Index 2002, table 4

The lack of an adequate reaction to investigative efforts hampers the democratic process and prevents Hungary from becoming a ‘full’ member of the European Union. “The ethical rules maintaining the power of the public sphere are inefficient because they are not supported by strict (external) legal sanctions and because the members of the community do not interiorize these rules Unlike written rules, unwritten rules are not respected. The members of the political élite do not assume any responsibility for their deeds so long as they are not literally forced to do so” (Terestyéni, 1999).

The press is the primary information channel for the electorate, the guide on which it bases decisions that can alter the course of a country. This applies to all policies, internal and external, ranging from agriculture to finance. Not taking into account its full effect on policy making could lead to unwanted consequences in the future. Not doing anything about it, even more so.

§4.3 (3) Resourcefulness

Up until now the institutional, political and legal situation has been thoroughly assessed and discussed. However there is another factor of interest, which has not yet been captured. If one looks at history, the Hungarians have always been faster in adapting to changing conditions than those living in their neighboring countries. In fact under Franz-Joseph the 2^nd’s reign during the second part of the 19^th century, Budapest was the fastest growing city in the world behind Chicago. It is thus not surprising that of all the CEE countries Hungary was the furthest in reforming its economic structure after 1968,  and even before that. Symbolic expressions such as ‘gulash economy’ or ‘the happiest nation behind the iron curtain’ are well known in the West.

   Is it in any way possible to measure creativeness/resourcefulness and make comparisons? How should it be defined? Magyari-Beck (1999) perceives the ability to create as to go beyond merely personal creativity, rather it is “the explicit and hidden structure of a culture, its traditions, the formal and informal patterns of an organization, and the various types of groups can all be interpreted in terms of ability “.

The method employed by Magyari-Beck was interviewing a sample of undergraduate and postgraduate students at Budapest University of Economic Sciences and Public Administration, using the ‘Jones Inventory’ (1990) and Ekvall’s (1983) creative climate questionnaire. Ekvall’s questionnaire was designed to assess ten climate dimensions, using the following variables,

Table 4.3: Ekvall classification scheme

Combined with the Jones inventory which was created to assess ‘blocks’ to creativity, the main finding of the research was put forward as follows: “As the Hungarian people now are mostly blocked in terms of their strategic ability and self-confidence, and are more open in values and perceptions, the Hungarian creativity today is perhaps first of all a passive and a receptive one[…] Hungarians are largely unprejudiced, broad minded, perceptive and open. The readiness to follow different models outside of the culture is always a starting point of a new cultural flourishing”           

Perhaps the most  famous scheme that can be used to classify cultural traits is that of Geert Hofstede, who has argued that national identity is part of national population's mental programming. Four cultural dimensions can be identified:

Table 4.4: Hofstede’s classification scheme

Using this framework, Hussman (2003) argues that Hungary is a relatively well-to-do Eastern European country and “a certain measure of capitalism has the best chances, but it should be capitalism European style, say, German style not American or British style”. This would indicate that Hungary is on the threshold from a collectivistic to individualistic society.

As a result of Hungary’s history, the country still lacks self-confidence and shows a rather large uncertainty avoidance and low power distance. This is part of the reason for its search for Western solutions.  There is an underlying fear of lagging behind which causes Hungary to strive for modernity and results in very progressive, well informed and up-to-date processes and people. Not surprisingly due to the old empire links, Hungary is classified together with the other German speaking countries as Austria, Switzerland and Germany (Kiriakos, 2000). Rounding up some other research worth mentioning, the table on the following page depicts several differences between Hungary and its group members according to the cultural dimensions.

Why has this paragraph been included? Most surely the methods used to classify cultural traits have many defects, not the least the famous Hofstede approach. Yes, the Hungarian nation culturally and historically belongs to Western Europe, however psychologically most Hungarians will tell you they feel more akin to people living near Kazakhstan or even Persia.  While Magyar officially belongs to the Ugro-Finnish language group, it contains more words resembling Farsi or Sanskrit than Finnish.

The point was not to note specific cultural differences, rather to show that in general the Hungarian ‘culture’ has not formed a barrier to ‘performance’. Faced with the implementation of the acquis and countless of new procedures ‘receptive creativity’  is a blessing. In the case of the ministry of agriculture, the political and organizational forces dominate and suppress potential present within the civil servants. Disturbing as this assessment may be, it increases the likelihood of future success provided a number of structural reforms can be executed. All is not well, yet the patient is far from dead.

§4.4 (x) Assessment indicators

§4.4.1 (x) Introduction

This chapter was not created to give a definite answer on which indicators should or should not be used. As of yet there are too many uncertainties concerning transition economies, and there may never be such a thing as a ‘smoking gun’. At the same time it is still worth looking into some of the possibilities, and discuss the possible merits and drawbacks. In any case the following paragraphs will show that the most commonly used set of indicators are insufficient to give a comprehensive and accurate representation of the state of a nation.

§4.4.2 (x) Economic  indicators

“Progress of a country can be shown over time, and also a comparative analysis between different countries will be possible. The final grade will be related to a comprehensive set of assessment indicators, ranging from technological development to societal acceptance of policies”.

This quote was taken from chapter 1, in which progress has already been related to the Solow model and Attila Chikán’s multi dimensional approach with respect to ‘competitiveness’. Although the benchmark in this thesis was set as ‘the ability to meet the Copenhagen criteria’, each country has used a different approach to attain that aim.

The shock therapy that was prescribed for Poland by the IMF may give an insight in which other macro and micro economic factors can be considered. The aim of this rigorous set was to eliminate market disequilibria and create monetary stability through the simultaneous application of price liberalization, income restraints and import liberalization (Palankai, 2003). Of course the Polish case was especially dire, as it was plagued with hyper-inflation and a total disintegration of existing economic structures and thus cannot be considered representative. Nor does the following list necessarily converge with the main premises of this thesis, however depending on local conditions the following points all bear a certain degree of relevance,

• Drastic price liberalization up to 80-90%

• Cutting of budgetary deficits (both expenditures and subsidies)

• Strict monetary policy through tight control of money supply and high interest rates

• Eliminate shortages by breaking up monopolistic structures

• Strict wage controls

• Radical import and export liberalization

• ‘Devaluation’ of company and personal savings to wipe out latent and delayed demands

• Convertibility of national currencies

• Immediate and large scale privatization of state services and SOEs

To focus solely on these issues however would be a failure, since this policy package itself creates a number of serious problems. The persistence of strict monetary policies to fight inflation even on the short run, could wipe out viable production capacity that otherwise would have stimulated growth further down the road. Furthermore, they only target monetary inflation but neglect the issue of cost based inflation. This is especially relevant to the agricultural sector, both in transition economies as well as in the European Union.

A severe shock therapy can yield positive macro and micro economic indicators, however it fails to capture the tremendous economic and social costs in the long run. The drop in production and real incomes, and more importantly the possibility of staggering unemployment numbers could completely obliterate public support. It is especially public support that is much needed in a young and fragile democracy.  In short, it is really difficult to relate increased ‘handling of key policies’ (capacity) to these numbers, since it is unclear what they really represent.

The emphasis on budgetary controls can also be deceiving. Hungary is expected to meet the convergence criteria, thus it should try to maintain a budget deficit no larger than 3% of its GDP. Unfortunately the restructuring costs of programs which the country is required to execute in order to join the EU, have been estimated somewhere between 1,6-2.15 % of GDP. If the 3% boundary is maintained at all costs, other social programs will have to be cut consequently diminishing public support for the reformist government in the future. This could occur up to the extent that a future election may stop the process altogether. On the other hand, if the 3% boundary is crossed the EU itself will threaten with punitive actions to ensure compliance. One would be inclined to call this a classic catch-22 situation.

§4.4.3 (x) Non economic indicators

When economic indicators are unable to provide the required data, what else is there to look at?  Corruption perception or credibility indexes only deal with a single aspect of institutions, thus they are inappropriate for the task at hand. It is the author’s opinion that what matters most is what will be dubbed ‘societal acceptance’. Ergo, to what extent is the public willing to accept painful reforms and changes that affect every day life.

By using this concept, the perception of both the management as well as political guidance of certain policies is captured. Policies that are less than Pareto-optimal will only be accepted when there is a belief that things will get better in the short or medium run. Even within a weak civil society a consensus can be formed, based on the information provided by the government and external actors. Perhaps the hardship which was voluntarily accepted during the ‘transition crunch’ between 1991-1994, harnessing painful but necessary reforms is the best illustration of this phenomenon. Naturally the information flow itself should not be hampered, but this is usually secured as long as it is in the government’s interest to convince the general public of the soundness of its policies.

In order to quantify the public’s reaction, election results as such are not the best indicators, as they reflect the opinion based on an undefined package of issues. Furthermore during election times the information provided to the constituency is biased towards political parties, and it will be very difficult for the voter to decide what to base his opinion on. The best would be to ask specific questions regarding policies away from the election spectacle, when there is a relative easing of polarization. One could think of a Gallup poll type of research in certain cities to gather the required information. If this is performed on a regular basis, it should be possible to discern a trend line over time.

What also comes to mind is the standard and/or special Eurobarometer. Research has been performed starting as early as 1973, and each survey consists in approximately 1000 face-to-face interviews per Member State. Based on these results the Commission also issues qualitative studies, which “investigate in-depth the motivations, the feelings, the reactions of selected social groups towards a given subject or concept, by listening and analysing their way of expressing themselves in discussion groups or with non-directive interviews” (EU Commission, public opinion analysis). The universities of Cologne and Mannheim are the leading institutions on trend analysis and time series. Below is an example of a trend analysis on public satisfaction with the way democracy works,

Figure 4.1: Eurobarometer

Source: University of Cologne, EB trend archive, 2003

Of course it is very easy to slam the explanation above as highly unscientific, or (un)educated guesswork. The response is affirmative, combined with the challenge to find something more suitable. As always the best available has to be used, and at present the barometer type of survey combined with all of the before mentioned indicator seems to be just that.   

CH#5, Conclusion

‘Rome wasn’t built in a day’, such is a commonly used and accepted phrase. Evidently it is obvious to most that complex structures are the result of a wide array of variables, interacting over an extended period of time. Unfortunately this simple yet effective people’s wisdom is too often forgotten by scholars in their respective fields.

            Hungary’s poorly designed (agricultural) policies are indeed a result of economic, political and institutional weaknesses. In part these fallacies have been caused by the socialist era, but that is only half of the answer. The origin of many problems can be traced back to the ministry’s inception in the 19^th century, or even earlier.

The continued existence of feudal structures in CEE, even during the beginning of enlightenment in the rest of Europe led Maria-Theresia to designate the area for agricultural production. In turn, within the dual monarchy the lack of democratic developments made it possible for large aristocratic landowners to maintain and even reinforce their power. The ministry’s original structure and loyalty is nothing more than a logical result of this process, as is the current structure a result of a decade of transition combined with all that came before.

It is impossible to have sound policy development and execution without political backing. It is also impossible to have a decent political debate without a serving civil service, nor will both be kept in line without ‘guardians of the state’. These Platonic knights are the national and international press, but also the judiciary, the EU and NGOs. As much as one can positively influence the other, the adverse effect multiplier tends to be even larger.

            Chapter two has shown that Ministerial Capacity lacks sufficient policy making capabilities, for which both history as well as contemporary politics bare responsibility.

Chapter three has dealt with Political Capacity itself. It is in deadlock; running around in self imposed circles that can only be broken by outside forces, or severe electoral discontent. The unfortunate phenomenon of voting along ‘ideological’ lines of left and right makes this less likely.

Finally, in chapter four it has been explained how the judiciary and national press have been kept on a leash, thus failing to adequately perform their duties. With regards to  assessment factors, a lance has been broken for non economic indicators. What matters most is what will be dubbed ‘societal acceptance’. Ergo, to what extent is the public willing to accept painful reforms and changes that affect every day life.

The blame however does not only fall on those within, but also on those that supposedly know better. Academic tunnel vision has led experts to focus only on their area of expertise, without considering the bigger picture. Developing a comprehensive strategy without knowing those vital particularities could be just as useful as firing an artillery shell without knowing the target. The proverbial collateral damage is so often unaccounted for, but so very real.

            It is the author’s believe that the model that has been introduced enables a better understanding of the situation, and could serve as a basis for future policy recommendations.

In evolution there are no definitive answer, no dogmas, no final truths. The beginning is known, but the end goals are always morphing into the future as they should be. This however is not an acquittal from the duty to guide this process to the best of knowledge, ALL the knowledge.

"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.

Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new." (Machiavelli, 1513)

Reference List

Agence France-Press, via Clarinet, www.clari.net

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            Papers on Democratic Transition, No. 75:1994, p. 8

Agrafood, (2002), East Europe special EU enlargement news update, Agra Europe

(London) Ltd.

Bajomi-Lázár, Peter (1999), Press Freedom in Hungary, 1988-1998, OSI working paper

Barents, R. (1994), The Agricultural Law of the EC; an inquiry into the administrative field of the European community in the field of agriculture, (Deventer, Kluwer law and taxation publishers)

BBC News (2001), Hungary 'Status Law' irks neighbours, June 19, http://www.BBC.co.uk

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APPENDIX

Government Decree …/2003 (…) on the

Agricultural and Rural Development Agency

The Government hereby resolves the following with respect to the responsibilities, authority, organisation and operation of the Agricultural and Rural Development Agency (hereinafter referred to as ARDA):

Article 1

(1) ARDA is a central agency with national competence funded from the state budget, which manages its own finances autonomously, which has separate legal personality, and is supervised by the Minister of Agriculture and Rural Development (hereinafter referred to as the Minister).

(2) The Agricultural and Rural Development Agency (hereinafter referred to as ARDA) is the general legal successor of the SAPARD Agency and the Agricultural Intervention Centre (hereinafter referred to as AIC).

(3) The Minister, as competent authority, is responsible for the accreditation of ARDA in line with the acquis communautaire. In this role, the Minister is entitled to grant or, if necessary, withdraw accreditation in accordance with separate legislation.

(4) ARDA is enumerated within the budgetary chapter of the Ministry of Agriculture and Rural Development (hereinafter referred to as the Ministry) as an independent entry.

Article 2

(1) ARDA fulfils the tasks related to the operation of tools of regulation within each Common Market Organisation.

(2) With respect to the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (hereinafter referred to as EAGGF), ARDA fulfils the tasks related to

a) management of internal market supports of the European Union (hereinafter referred to as the EU);

b) management of external market supports of the EU;

c) operation of the intervention system;

d) administration of direct payments and in connection with this, the operation of the Integrated Administration and Control System (hereinafter referred to as IACS); and

e) administration of rural development (accompanying) measures.

The Minister will set forth procedures related to management, consideration and administration in a separate decree in line with Community legislation.

(3) With respect to the Guidance Section of EAGGF, ARDA fulfils the tasks related to the administration of rural development measures. The fulfilment of these tasks will be governed by the agreement concluded with the Ministry, as Managing Authority.

(4) ARDA fulfils the tasks related to the implementation of aid schemes funded from the Financial Instrument for Fisheries Guidance (hereinafter referred to as FIFG). The fulfilment of these tasks will be governed by the agreement concluded with the Managing Authority.

(5) ARDA fulfils the implementation and payment tasks related to organisation of the fulfilment of the SAPARD pre-accession programme, and to the operation and implementation of the SAPARD support system.

(6) ARDA fulfils the tasks implemented by AIC as part of its national competence until the entry of this Decree into force, and the tasks related to the utilisation and implementation of certain national aid schemes within the scope and in the manner set forth by the Minister in a decree.

Article 3

The operation of IACS falls within the scope of responsibilities of ARDA, including in particular the operation by ARDA of

a) the farmer and client register set forth in separate legislation;

b) the Agricultural Parcel Identification System (MePar), which is the sole basis of reference for EAGGF area-based payments.

Article 4

(1) ARDA fulfils its tasks through its central agency (hereinafter referred to as the Central Agency) and its regional offices without independent legal personality.

(2) The responsibilities, breakdown and detailed organisational structure of the Central Agency and the regional offices of ARDA will be set forth in the Organisational and Operational Regulations approved by the Minister.

(3) The regional offices of ARDA are the county offices and the Metropolitan and Pest County Office (hereinafter collectively referred to as Offices).

(4) With respect to the implementation of tasks identified in Paragraphs (1), (2) and (6) of Article 2 and in Article 3, the Offices will act within the territory of the county (capital). In the implementation of tasks identified in Paragraphs (3), (4) and (5) of Article 2, the regional jurisdiction of the Offices are specified in the Appendix to this Decree.

Article 5

(1) The Central Agency is made up of Directorates. A separate Directorate of ARDA will fulfil the tasks pursuant to Paragraph (6) of Article 2.

(2) ARDA offices or the ARDA Central Agency will act in official proceedings as authority of the first instance, as stipulated in separate legislation. If an office acted as authority of the first instance then the Central Agency, if the Central Agency acted as authority of the first instance then the President of the Central Agency will act as authority of the second instance.

Article 6

(1) ARDA is headed by the President appointed for an indefinite term and dismissed by the Minister.

(2) The Vice President of ARDA is appointed and dismissed by the Minister on recommendation from the President of ARDA.

(3) Employer’s rights over the President of ARDA are exercised by the Minister. Employer’s rights over the Vice President of ARDA are exercised by the President of ARDA, save for appointment and dismissal.

Article 7

(1) This Decree shall enter into force on July 1^st, 2003, and Paragraph (5) shall become ineffective upon entry into force of the Act announcing the international treaty on the accession of the Republic of Hungary to the European Union.

(2) Upon entry into force of the this Decree, MA Decree 108/1997 (XII. 29.) on Establishment of the Agricultural Intervention Centre, MARD Decree 4/2003 (I. 30.) amending it, and MARD Decree 12/2001 (II. 15.) on Establishment of the SAPARD Agency and MARD Decree 54/2001 (VIII. 17.) amending it shall become ineffective.

(3) The Minister is hereby authorised to regulate, in a decree,

a) the provisions governing the identification system (MePar) pursuant to Section b) of Paragraph (1) of Article 3;

b) the tasks pursuant to Paragraph (6) of Article 2, the terms and conditions and rules of filing support claims funded from EAGGF and FIFG pursuant to the Community legal regulations with effect until the entry into force of the Act announcing the international treaty on the accession of the Republic of Hungary to the European Union.

(4) The Minister shall issue the deed of establishment of ARDA on the day of this Decree entering into force. The President of ARDA shall forward the Organisational and Operational Regulations of ARDA for approval by the Minister within 30 days from the entry of this Decree into force.

(5) The Managing Authority will be in charge of collecting data on the results of aid, the effective and efficient financial implementation, the organisation of evaluations, and the fulfilment of obligations related to public relations.

Appendix to Government Decree …/2003 (…)

Regional jurisdiction of each county office with respect to aid schemes funded from EAGGF Guidance Section and FIFG:

1. ARDA Office in Borsod-Abaúj-Zemplén County:
Borsod-Abaúj-Zemplén County
Heves County
Nógrád County

2. ARDA Office in Szabolcs-Szatmár-Bereg County:
Szabolcs-Szatmár-Bereg County
Hajdú-Bihar County
Jász-Nagykun-Szolnok County

3. ARDA Office in Csongrád County:
Békés County
Csongrád County
Bács-Kiskun County

4. ARDA Office in the Capital and in Pest County:
Budapest
Pest County

5. ARDA Office in Veszprém County:
Veszprém County
Komárom-Esztergom County
Fejér County

6. ARDA Office in Somogy County:
Baranya County
Tolna County
Somogy County

7. ARDA Office in Zala County:
Győr-Sopron County
Vas County
Zala County