why nations fail?....and hungary? györgy leitner march 30, 2015

Why nations fail?....and Hungary?

György LeitnerMarch 30, 2015

Content

• 1989 – 2004 – 2014: A revolutionary change for CE Region. Are we happy?

• Four challenges that may undermine longer-term development

• Less opportunities, more challenges?

• Beyond goulash• Hungarian psyche• Why nations fail...and Hungary?• Healthcare or football

Why nations fail....and Hungary? Gyorgy Leitner

The CEE region today: Past opportunities, future challenges

25th anniversary of the fall of Berlin wall

Gyorgy LeitnerWhy nations fail....and Hungary?

Closing the development gap

Poland 51 67%

Estonia 58 71%

Latvia 47 64%

Lithuan. 52 72%

Czech R 78 81%

Slovakia 57 76%

Hungary 63 67%

Romania 34 50%

Slovenia 87 84%

Bulgaria 35 47%

Change of per capita GDP of new member countries vs. EU average (100%) , PPP

2004 2012

Source: Eurostat

Gyorgy LeitnerWhy nations fail....and Hungary?

A favourite destination of shared service centres and processing industry

Bulgaria

Romania

Czech R

Hungary

Slovakia

Poland

Croatia

Greece

Spain

Slovenia

UK

Germany

France

Belgium

Series 1

Source: Eurostat

Monthly minimal wage (Euro)

Gyorgy LeitnerWhy nations fail....and Hungary?

176,5 billion Euro was available for development

Poland

Czech

R

Hungary

Romania

Slova

kia

Lithuan

ia

Bulgaria

Latvi

a

Slove

nia

Estonia

010000200003000040000500006000070000

EU structural funds 2007-2013

M EUROS

70 56 62 52795345 846469 % used

Gyorgy LeitnerWhy nations fail....and Hungary?

Poland - the most popular destination for investment

5

4,5

4

3

3,5

2,5

Rapidly changing popularity:Poland – only the 8th in 2007,Slovenia – fell back from No.2,

Hungary from No.5Source: German Chamber of Commerce survey 2013

Gyorgy LeitnerWhy nations fail....and Hungary?

Hardly closing the life expectancy gap

Poland 70 73

Estonia 66 71

Latvia 66 69

Lithuan. 66 68

Czech R 72 75

Slovakia 70 72

Hungary 69 71

Romania 68 71

Slovenia 73 77

Bulgaria 69 71

Life expectancy of males at birth in new member countries

2004 2012

Source: Eurostat

EU average 7577

Gyorgy LeitnerWhy nations fail....and Hungary?

Has freedom brought hapiness and overall satisfaction?

Gyorgy LeitnerWhy nations fail....and Hungary?

Significant part of CEE citizens feel nostalgia for the communist era

Gyorgy LeitnerWhy nations fail....and Hungary?

Poland

Czech Rep.

Russia

Slovakia

Lithuania

Bulgaria

Ukraine

Hungary

0 10 20 30 40 50 60 70 80 90 100

35

39

45

48

48

62

62

72

WORSE

ABOUT THE SAME

BETTER

Source: Pew Research Centre: The global attitudes project

Are people worse off than under communism?

BulgariaHungary

GreeceEsthoniaSlovakiaCzech R

RomaniaPortugal

CroatiaItaly

SloveniaPoland

EU averageFrance

GermanyUK

IrelandBelgium

SpainAustria

NetherlandsLuxemburg

SwedenFinnland

Denmark

0 1 2 3 4 5 6 7 8 9

Series 1

Factors considered:

Per capita GDPAverage wagesIncome variationsLife expectancyQuality of govermentSchool systemUnemploymentEnvironment issuesSuicide rate

Lagging behind other EU members regarding QoL

Best living conditions in EU

Gyorgy LeitnerWhy nations fail....and Hungary?

Resilient economies

2013 2014 2015 2016 2017 2018-1

0

1

2

3

4

5

6

HungaryPolandCzech RSlovakiaEstoniaLatviaLithuaniaSource: CEB Business Outlook,

2013 October, The Economist

Robust medium-term outlook3.7% annual average growth for CEBPerformance well above western EuropeCurrency weakening will mean tough calls on prices Pol/Cz/HunReceivables remain a headache across the region

Gyorgy LeitnerWhy nations fail....and Hungary?

Four key issues that may undermine positive longer-term outlook

1. LOW SPEND ON EDUCATION

Gyorgy LeitnerWhy nations fail....and Hungary?

Spend on tertial education far lags behind more developed countries

Source: OECD, 2012

Gyorgy LeitnerWhy nations fail....and Hungary?

Four key issues that may undermine positive longer-term outlook

2. LEVEL OF CORRUPTION

Gyorgy LeitnerWhy nations fail....and Hungary?

Extremely high level of corruption and State capture

Four key issues that may undermine positive longer-term outlook

3. LOW INNOVATOR

STATUS

Gyorgy LeitnerWhy nations fail....and Hungary?

The region falls into low innovator category with few signs of change

Out of 25 EIT centres only 5 are in the

region

Regional countries’ public R&D spend vs.

GDP less than EU average

Out of 19 Knowledge and Innovation

Communities (KICs) only 1 is in the region

Out of 527 EU Based co.s with significant

R&D spend only 3 are based in the region

Source: The 2013 EU Industrial R&D Investment ScorebordInnovation Union Scoreboard

Four key issues that may undermine positive longer-term outlook

4. LOW SPEND ON HEALTHCARE

Gyorgy LeitnerWhy nations fail....and Hungary?

Leading the mortality statistics of Europe

Hungary

Slova

k Rep

ublic

Slove

nia

Finlan

d

Estonia

Czech Rep

ublic

Austria

Portuga

l

United Kingd

omIre

land

Greece

Netherl

ands

Norway

Icelan

d0

10

20

30

40

Mortality of chronic liver diseases and chirrosis(2009)

Slova

k Rep

ublic

Hungary

Estonia

Czech Rep

ublic

Greece

Slove

nia

Finlan

d

Austria

Irelan

d

Portuga

l

Icelan

d

United Kingd

om

Norway

Netherl

ands

0

100

200

300

400

Mortality of cardiovascular system diseases (2009)

Hungary

Slove

nia

Czech Rep

ublic

Slova

k Rep

ublic

Netherl

ands

Estonia

Irelan

d

United Kingd

om

Norway

Icelan

d

Austria

Portuga

l

Greece

Finlan

d0

50

100

150

200

250

Malignant neoplasm mortality (2009)

Source: Eurostat

Gyorgy LeitnerWhy nations fail....and Hungary?

25

Life expectancy

x= vásárlóerő paritásra korrigált nemzeti össztermék (PPP) USD-ban;y=születéskor várható átlagos élettartam

GDP in USD on purchasing power parity

Health conditions of CEE countries are poorer than their economic development would suggest

CEE Countries

Gyorgy LeitnerWhy nations fail....and Hungary?

0.02.04.06.08.0

10.012.014.0

Health spend vs. GDP (%) (2011)

Private spendPublic spend

RomaniaFrance

PolandSlovakia

Germany

Hungary

Denmark Czech

RepublicSloveniaAustri

aEU-27

Bulgaria

Public health expenditure at the lower end in Europe

Source: OECD (2012) – Health at a Glance Europe

Gyorgy Leitner

0

20

40

60

80

100

A telj

es

eg

észség

üg

yi

kia

dás %

-os a

rán

ya

Denmark Czech

RepublicRomania

Austria

France

GermanySlovenia

EU-27Poland

Hungary

SlovakiaBulgaria

Co-payment Private insuarance OtherPublic exp

Why nations fail....and Hungary?

Topics

• Beyond goulash• Hungarian psyche• Why nations fail...and Hungary?• Healthcare or football

Gyorgy LeitnerWhy nations fail....and Hungary?

Beyond goulash...

Gyorgy LeitnerWhy nations fail....and Hungary?

Beyond gulash...

Beyond gulash...

Gyorgy LeitnerWhy nations fail....and Hungary?

Gyorgy LeitnerWhy nations fail....and Hungary?

Beyond gulash...

Beyond gulash...

Gyorgy LeitnerWhy nations fail....and Hungary?

Beyond gulash...

Gyorgy LeitnerWhy nations fail....and Hungary?

The Hungarian psyche

Gyorgy LeitnerWhy nations fail....and Hungary?

What determines the Hungarian psyche?

• Hungary became a small country from a previously mid-sized one

• In the buffer zone between West and East (inferiority and superiority complex)

• Restricted sovereignity since 1526• Feeling alone – surrounded by non-related nations• Being in a sacrificial role

Gyorgy LeitnerWhy nations fail....and Hungary?

We don’t like Pirezians

Massive xenophobia in the region

Lithuania

Bulgaria

East Germany

Slovakia

Czech

Poland

Hungary

0 10 20 30 40 50 60 70 80 90

NeighbursTurksJewsGipsies

Unfavorable view of key minority groups (%)

Low

High

Power Distance

Individualism vs. collectivism

Masculinity vs. femininity

Uncertainity avoidence

Indulgentvs. restrained

Growing intolerance of unorthodox behaviour

and ideas

Young people ready to leave the country

Loose social framework

Personal relationship still drives

Growing centralization of power

Lots of conflictswith the EU

Hungary on Hofstede dimensions

Intolerance towards civil society

TREN

DS Tendency to pessimism

39

Socio-culturallyLiberal

Strong state re-distributution

(Etatist)

Value map of Hungary

Believes in freemarket

(right wing)

Socio-culturallyConservative

40

40%

Socio-culturallyLiberal

Strong state re-distributution

(Etatist)

Political map of Hungary – three main groups

Believes in freemarket

(right wing)

Socio-culturallyConservative

„Open-etatist” doesn’t stick to traditional family roles, moderately

authoritarian,fairly open to gipsies

37%„Closed-paternalist”extremely authoritarian,

wants strong state, believes in capital

punishment,anti-globalist

Strong feelings against gipsies

23%

„Traditionalist – market centered”

Conservative about family roles but more supportive for EU and globalisation

Unfavaroble position in the most recent EU Barometer

• Strong distrust in the media, national legal system and political parties

• 50% of Hungarians regard globalization (DK – only 18% but Czech R. 54!) and liberalization (DK only 27%) as negative

• 42% of Hungarians are against reforms (DK 27%) –this is one of the highest dislikes in EU

• Index of openness to other EU countries – Hungary among the lowest with Italy, Spain, Bulgaria (Lux/DK/NL/S highest)

• Overall satisfaction with how democracy works - 64% of Hungarians dissatisfied (DK is the highest in Europe – Lowest:Greece/Spain/BG/CRO/Portugal/SVK/Italy)

Source: Standard Eurobarometer 82, Autumn 2014

Why nations fail...and Hungary?

Gyorgy LeitnerWhy nations fail....and Hungary?

Opening towards East

Current government risks long-term development

Other

Economic development

Sports

State buerocracy

-3 -2 -1 0 1 2 3 4 5

Percentage change of main expenditures (2010 vs. 2015)

Percentage

Education

Healthcare

Social Wellfare

Pensions

Interest on debt

- 5,6 billion USD

Football arena or healthcare?

+300 M USD

- 1,5 bill. USD

Gyorgy LeitnerWhy nations fail....and Hungary?

‘No’ to tax on internet

Long way to reach EU 2020 goalsEU 2020

targetHungary in

2012Trend

Favorable/unfavorable

Employment rate – age group 20-64 75% 62%

Gross domestic expenditure on R&D 3% 1.3%

Share of renewable energy in energy consumption

20% 9,6%

Tertiary educational attainment 40% 30%

Decrease poverty :

People living in housholds with very low work intensity

3,2 million

People severely materially deprived 2,6 million

600.000 people

Unusually high proportion of unskilled labor

• Hungary: 36,9%• 25,5 in V4 and 20,7 in EU 12

• Source: Kolosi Tamás/Pósch Krisztián: Osztályok és társadalom kép. Társadalmi Riport 2014.

The high proportion of poor people stands out from Visegrad countries

People severely materially deprived (% of total population)

Source: Eurostat, 2013

26,8

10,2

6,6

11,9

9,6

Hungary Slovakia Czech Rep. Poland EU.28

Easiness of doing business* in Hungary

*World Bank Group

• Continuosly sliding back in rankings

• From overall rank of 47th in 2010 to 54th now• Worst: Protecting investors (128th) and paying

taxes (124th)• Biggest negative change: getting credit (from

30th to 55th)

Hungary chose a doubtful direction

Weakinstitutions

Over-centralization

Myopic elite

State capture by oligarchas

Extractive political and

economic system

Weakining system of checks and balances

Significant gap in remuneration vs OECD average

Spending per capitaDoctors

Nurses

Students

MRIs

ScannersHospital beds

Rem. Nurses

Rem. GPs

Rem. Spec

HC prices

-2

-1

0

1

OECD

Hungary

Cluster of countries*

Prices and physical resources

Gyorgy LeitnerWhy nations fail....and Hungary?

How to turn back the pyramid

Gyorgy LeitnerWhy nations fail....and Hungary?

• Lack of an overarching, long-term strategy• Over-centralization• Private responsibility is missing, overestimating the role of state• Number of doctors• Gratitude money• Waiting lists

Health spend is still regarded as cost and rather than investment

THANK YOU FOR YOUR ATTENTION

BACK UP

How citizens score their healthcare systems

Ipsos research in 15 countries - 2013 June

Gyorgy LeitnerWhy nations fail....and Hungary?