Populism, internet freedoms and government spending

It's a critical year for several democracies around the world. President Sarkozy faces an uphill battle in the second round of elections; Dutch Prime Minister Mark Rutte tendered his government's resignation after failing to agree on new budget cuts; President Obama faces off Mitt Romney in the most important elections in the world; Prime Minister Noda will most likely fall victim to the split Diet this year or next; South Koreans will choose their president after the national assembly elections failed to yield a clear popular mandate for any party.

But elections in 2012 stand out from past displays of democratic principles - there appears to be a new wave of populism sweeping over the world, primarily characterized by widespread discourse regarding the role of government in the lives of the multitude.

In particular, defending the rights of individuals online has produced a political movement that will only gain greater following as US and EU policymakers continue to draft draconian measures to limit the freedom of speech. Democratization of public opinion through the medium of social networking sites has been an empowering force and the new Pirate Party seeks to "make sure that the offline civil liberties would carry over into the online world"

They have a five step plan:

1. Create Sweden’s largest youth wing of any party, giving [them] credibility enough to succeed in… 
2. The European Elections, where [they] need to beat 4% (note: [they] got 7.13%), which in turn is a stepping stone to… 
3. Getting entry in the Swedish Parliament, which would start turning things around immediately. But in order to really change European policy, [they] need to… 
4. Take about 5% in 3-4 more key parliaments in Europe, in key countries like Germany, France, or Poland, and use the combined leverage of those heavyweight parliaments to change the view on information policy across the European Union. Once that is done… 
5. The world would have to follow, since no monopolistic repression happens if Europe doesn’t agree to it – since the EU is the world’s largest economy, larger than the US.

Considering the already sizable and growing support for this movement, Pirate Parties will have a place in European Union policymaking in the near future.

Meanwhile, the looming economic crisis has European country on edge and elected officials in a quandary - governments need to pass austerity measures to safeguard the economy, yet the public rejects any budget that would scale back spending on welfare.

Just today, the Dutch government collapsed over a new austerity budget that would have brought deficits below 3% of the GDP as agreed upon in the EU fiscal pact. According to journalist Neil Clark:

The people have had enough of austerity... Holland’s GDP growth in the ten years since it’s had the Euro has just been 1.5 per cent. And they’re now being told that because of this absolutely insane fiscal pact that was agreed upon last year. It will destroy the good life that the Dutch people have been used to over the years. And unsurprisingly the Dutch are saying, it’s enough.

Indeed, decreasing government spending is politically challenging and ruinous for coalitions; however, Sweden provides a clear example of how decreased spending complemented by reduction of taxes could have a positive effect on growth.

According to Sweden's finance minister Anders Borg, Stockholm owes its success to the following policies that were unpopular at start, but proved instrumental in improving services and development

• Substantially reducing income taxes - particularly, through the introduction of earned income tax credits, for low- and middle-income earners - and reforming benefits systems. 
• Reforming the educational system and improving the situation of groups with weak employment prospects. In particular, developing schools and vocational training to better target knowledge and skills for a modern economy. 
• A strong commitment to sound public finances; a fiscal policy framework with an expenditure ceiling and a surplus target
• Pro-growth reforms including the de-regulation of markets, selling of state-owned companies, introducing competition in health care and education, abolishing of wealth and inheritance taxes.

The US Tea Party supported similar positions, but overburdened itself by unnecessarily supporting socially conservative issues and failing to come up with a clear economic plan to resolve the deficit without capsizing the entire economy. In addition, the movement seems to be losing momentum as the Republican Party fields slightly more right than it had in the past.

While policymakers in the US and EU struggle to develop sound fiscal policy for long-term growth, Argentina has fallen wayside (again) - the decision to nationalize the oil firm YPF appears to be driven more by President Kirchner's desire to pander to the public than short or long-term benefits to the country.

Competing domestic forces have always limited the number of policies that elected officials can carry out. The new element in the 21st century is the increasing power of the masses to fuel the momentum of political movements. This will produce a mixed bag of politicians: some like Anders Borg will pursue policy and allow the results to speak for themselves; others like Christina Kirchner will revert to directly appealing to the public through cheap cosmetic measures such as nationalization and bursts of public spending.

As the US presidential election approaches, it remains to be seen how each of the candidates will field their positions - and unhappy America may see both candidates buckle

"The concept of a dog does not bark"

We cannot recreate the past. After all, it would be impossible to maintain authenticity while being fully aware of the consequences of certain decisions. Nonetheless, toying with counter-factual scenarios and obsessively rereading the recent past are crucially important habits for attending to current social needs. By applying our current world view to our critical reading of history, we may gain valuable insight on presumptions and fallacies that may have been lost on us before.

In light of the mass public demonstrations in the United States and Europe, we must ask ourselves why so many of us have become so disenchanted with the dominant socio-economic paradigm that was so welcomed at the fall of Berlin Wall: the merger of liberal democracy and free market capitalism.

Since the phenomenon needs a starting point, one can start with the triumph of the "West" against its adversaries - and it may be useful to assess what and who the victory was against.

In the 2000s, when resurgent Moscow's foreign policy became increasingly confrontational towards the "West," many forwarded the notion that the Cold War did not end in 1989/91, it had simply gone into remission during the reconstitution of the Russian Federation. This view suggests that the Cold War was a conflict between the Soviet Union and the United States. Add China into the narrative and one creates an interpretation of the Cold War that is largely great powers-oriented.

However, this perspective fails to account for civil conflicts around the world where domestic forces co-opted major powers to achieve political objectives. The Korean War is a great example of this: the North Koreans dragged the unwilling Soviet Union and China into a bloody conflict that very quickly involved the United States, but was initially only against South Korea.

Without accounting for other nuances of Cold War history, the nature of the post-WWII period is already very complex; nonetheless, a simplified model that continues to find itself into political rhetoric is the idea that the United States and Western Europe had championed the cause of democracy/capitalism against Soviet totalitarianism/communism.

German-American social psychologist Erich Fromm took offense to this notion and stated in his afterward to Orwell's 1984 that the use of "doublespeak" and the distortion of reality were prevalent in the West as they were in the dystopic novel and behind the Iron Curtain (obviously in varying degrees, but present nonetheless).

Just as the Inquisitors who tortured their prisoners believed that they acted in the name of Christian love, the Party "rejects and vilifies every principle for which the socialist movement originally stood, and it chooses to do this in the name of socialism." Its content is reversed into its opposite, and yet people believe that the ideology means what it says. In this respect Orwell. quite obviously refers to the falsification of socialism by Russian communism, but it must be added that the West is also guilty of a similar falsification. We present our society as being one of free initiative, individualism and idealism, when in reality these are mostly words.

One needs not go far back in history to find prominent examples to support Fromm's position; the overthrow of Iran’s democratically-elected Mossadeq government through CIA support, the praise for Pinochet's Chile as a key member of the "free world" and President Reagan's assertion that Grenada posed a threat to the security of the United States are only few of the examples among many disturbing contortions of reality during the Cold War that few in the general public questioned.

At the same time there is an important truism in narrowing the conflict to one between democracy and communism. It is not possible to maintain a pluralistic society and impose an economic system based on the denial of private property because such an economic model implies involuntary expropriation. Though some will argue that the forced march to industrialization helped the Russian people defeat the Nazis (again it's hard to create a counter-factual here), there is (or rather ought to be) little opposition to the notion that the Soviet Union was a supremely flawed experiment that produced neither prosperity nor equality. On the other hand, despite all its shortcomings, the handful of non-communist countries with its imperfect democratic institutions have undoubtedly nurtured the most tolerant and progressive societies in history. While there is a long road ahead, the progress made by the "West" must also be appreciated.

Reorienting our analysis to the era of globalization, the question now becomes the extent upon which democracy and capitalism are compatible, the limits and thresholds of their cohesion in the modern community of nations.

The friction between pluralism and capitalism is more nuanced within established liberal democracies because the system more or less provides avenues for redress and maintains a system of due process. However, as politics cannot be divorced from the appropriation of public funds and ensuring the general (economic) welfare of the constituents, there is ample room for principles to be trampled for (perceived) practical solutions.

The recent financial crisis in Europe revealed many contentious areas where the democratic system was in open confrontation with economic rationality.

Take George Papandreou's socialist government in Greece. When he came into office, he pursued a more transparent and honest economic policy than his predecessors and revealed that the Greek public debt was nearly two-folds higher than previously announced. This announcement panicked creditors and loans to Greece ceased, launching a major financial crisis. Papandreou was forced to devise austerity measures to qualify for a bail-out from the European Union, an absolute necessity for the economic survival of the Greek state; yet when these essential measures were introduced to the public, discontent boiled over and bloody riots reigned over the streets of Athens.

Naturally the markets reacted badly when the Greek government initially announced that it will place the conditions imposed by the European community on a national referendum. Under pressure to accept the conditions and curtail the market devastation, the government retracted the plans for a referendum and pushed forward without public consent. Ultimately, Papandreou resigned and a new coalition government is slugging along with the massively unpopular measures.

The question is: should the Greek government NOT have sought a popular mandate for the bail-out preconditions? The European Union clearly didn't think it was necessary, but is it so outrageous to seek the approval of the very people who will be most severely affected by the new policies? In fact, to act without a popular mandate on such a major issue seems abusive.

Many Greeks legitimately have redress against slashing public welfare funds - despite portrayals of Greeks lavishing in a Mediterranean paradise with generous pensions and retirement benefits that far exceed those received by Germans, this only applies to a portion of the population. Poverty rate in Greece is very high and in particular, poverty rate among the elderly rank highest in the European Union. Indeed, the cold front blowing across Eastern Europe and the Balkans appears to be a cruel twist by nature to further degrade the well-being of those Greeks whose safety nets have only recently been slashed open.

As evident in the Greek case, loss of faith in today's economic environment could spell disaster for a whole country. Most countries are drowning in debt and require a continuous line of credit to stay afloat - that's why the slow downgrading of the credit ratings constitute a serious threat to economic stability.

So the country's first line of order is to keep risk low and ensure the creditors that its macroeconomic policies are stable - but what happens when the wishes of the people are contrary to economic rationale? Or if the people's shortsightedness and the natural inclination of politicians to hold on to power turn into a vicious cycle?

In the case of Hungary, the economic performance of the entire country pivots around the electoral cycle - politicians promising economic/market reforms, incumbent government raising public expenditure, wild policies being proposed with even wilder expectations, etc. These are all legacies of Hungary's Goulash populism, instituted in the 1960s to appease the population that was still upset about the military occupation and repression following the 1956 Revolution. Under the communist regime, this populist policy manifested itself as small openings to the West. After the collapse of the Iron Curtain, it has turned into Clientelism by various political parties. Now, Hungary under the Fidesz government has finally maxed out the patience of its creditors.

What is happening in Hungary is not the people's fault. It's a moral hazard that political players waded into and then subsequently became stuck in. Nonetheless, it's hard to break from the vicious cycle when the general public reacts so wonderfully to increased government expenditure on welfare and wages.

The public often acts irrationally - fully knowing the consequences of their collective actions, societies still jump overboard, a la the Rapa Nui of Easter Island.

If this is the case, should the governments suppress public demands and forward plans that it sees will be for the welfare of the entire country? One is reminded of Bertolt Brecht's famous quote:

...would it not be be simpler,
If the government simply dissolved the people
And elected another?

Indeed the reduction of the government's power to influence the market has been a key element of the intra-state agreements on free trade. The European Union demands that the central banks of all member states be independent and the United States forwards standardized labor regulations that many think will eventually render minimum wage laws obsolete. But are these regulations inhibiting the people's right to collectively decide how to live their lives? More importantly, what is the impact of these new socio-economic model on the essence of democracy.

These are definitely issues that require greater public attention and detail. After all, the concept of a dog does not bark; we cannot simply call our society a democratic one without exploring what that means and then applying our ideals into practice.

Hungarian Rhapsody... in blue

An atrocious article appeared on Real Clear World the other day that took me by complete surprise. I was shocked and appalled that a site which almost always maintains a compendium of insightful pieces on global issues had the audacity to carry what can only be called a testimony to shortsightedness. This particular piece by Alex Berezow sought to find the roots of Budapest's current troubles in the unfriendly disposition of the Hungarian people towards the outside world.

Never mind the fact that Europe as a whole has tilted increasingly right-wing since the financial crises, ignore the fact that Hungary's economic woes have been particularly hard on its people, forget historical lessons on how the public reacts to economic difficulties and place yourself in a vacuum - this is where Berezow begins his search for the origins of the Hungarian crisis.

Of course, I must admit that I have a soft spot for Hungary and its people - I visited the country as a child and went back to study abroad in Budapest and enjoyed my experiences there. I am certainly carrying a bias; however, Berezow's commentary blatantly ignores visible roots of the problem and dismisses the current conflict between Brussels and Budapest as a particularly Hungarian problem.

But why should people outside of Hungary and Europe care about this issue? For starters, it's an important case study of state driven economic nationalism that parallels increasing nationalist sentiments of the public - to categorize the current issue in Hungary as a unique case ignores how societies in general are susceptible to irrational behavior in times of economic hardship. It's not enough to point out these trends without delving deeper into the causes. If we gloss over these important issues when pertaining to others, how can we ever be critical of ourselves when similar problems arise in our society?

And if Hungary ends up seceding from (or thrown out of) the union, it will be a precedence for the future of the European project and a possible precursor to its dissolution, which will most definitely impact the international economy.

First the crisis itself:

The ongoing controversy surrounds Prime Minister Viktor Orban and his center-right Fidesz Party, which won two-thirds majority in the 2010 elections and thereby gained the mandate to amend the constitution without consent from the opposition. Fidesz received this overwhelming popular mandate because it promised to fix the economy, blaming much of the economic woes on the previous government under the Hungarian Socialist Party (MSZP). But promises are always easier made than carried through.

Claiming to be paving the path for economic recovery, Viktor Orban asserted the need to increase government control over Hungary's fiscal and monetary policies. Despite the fact that maintaining an independent central bank was a rule established by the European Union to ensure macroeconomic stability, Viktor Orban amended the structure of the Hungarian Central Bank to accommodate an additional vice governor who would be directly appointed by the government (recommended by the PM to the president, but a Fidesz president will never challenge a Fidesz PMs' recommendations).

In addition to the central bank, Fidesz has used its position in the parliament to increase government control over other previously autonomous institutions such as the media and the judiciary. Deterioration of the checks and balances, be it economic, political or judicial, establishes the ground works for extreme abuses of power. This is particularly disturbing because the far-right wing party Jobbik is lurking in the shadows and I shudder to think what would happen if its members were ever to join the ruling government as part of a coalition.

As the legislation on the central bank was brought before the Fidesz-controlled parliament to be rubber-stamped, the European Union Commission fiercely criticized the legislation as irresponsible and contrary to Hungary's treaty commitments with the European Union. As a serious breach of trust, it became a real possibility that Hungary may be chucked out the union. Budapest remained obstinate... meanwhile, the concerned IMF pulled the plug on the preliminary negotiations for financial assistance and forced Prime Minister Orban's hand.

Hungary chose a bad time to revolt. Orban's Thatcher moment was not to be. The Economist observed on November 26, 2011 that

When Hungary hit the rocks in 2008, the outside world was quick to help with a $20 billion package, fearing contagion to other wobbly ex-communist countries. Now the picture is different. With most ex-communist members of the European Union in better shape than old members in the south, the east European label is looking meaningless. Two of Hungary’s neighbours—Slovenia and Slovakia—are in the euro. Poland is the unquestioned diplomatic and economic heavyweight. Mr Orban looks like an oddball, and his country is now a lower priority, at a time when lenders have more urgent calls on their time and money.

Without assistance from abroad, the Hungarian economy faces downfall - and the world will hold out on assistance until Budapest repeals its recent laws. The Hungarian leadership has finally come to grips with the consequences of joining the European community: in return for increased economic contact with the continent, its political and financial decisions will be subject to review and scrutiny by other members of the community.

With its credit rating meandering in junk status, Hungary returned to the negotiating table where the IMF recommended not only reestablishing an independent central bank, but also repealing the draconian measure that forced judges into early retirement. The Hungarian side has agreed to reconsider the central bank issue, but rejected the suggestion of changing its judicial rules to satisfy the IMF and the European Union.

The political entity in power seems split on what it envisions for Hungary's future - a European Hungary or a sovereign nation that does not answer to an extra-national body.

So what is the cause of this crisis?

Only a lazy observer will trivialize the problem by merely citing attitude as the key problem.

And yet for our commentator, Alex Berezow, the heart of the problem is the Hungarian people themselves, their supposed unfriendliness and pervasive xenophobia. Berezow cites three personal examples to support this assertion - a girl's refusal to take a picture of him and his wife in front of the Hungarian parliament, a story he heard from an Irish woman about a Hungarian telling her wrong directions on purpose and a child singing what he thought to be an anti-American song. After providing these wildly random examples, he points to the rise of the ultra-nationalist party Jobbik with its racist policy proposals as a wider symptom of the same problem his fragile self experienced while visiting Budapest. He is apparently bent on trying to justify his experience in a wider context beyond a mere misunderstanding and a series of bad experiences.

He does bring attention to important issues such as the attack on the freedom of the press and abuses on the Hungarian Roma population. He even goes as far to note that the problems became more acute when Fidesz took power in 2010, but does not delve into the socio-economic conditions behind Viktor Orban's landslide victory. How did a party gain such an overwhelming level of support in a democratic society? Why was there a sudden show of support for Jobbik by a sizeable portion of the public? Have Magyars suddenly become less friendly since the 2006 elections?

Economic difficulties tend to produce mass social dissatisfaction - Note that support for the ultra-nationalist Jobbik party during the 2010 elections came largely from eastern Hungary, a historically poorer part of the country where the recent economic crises have impacted people the hardest. Hungary is not alone here, the worsening economic conditions have given ultra-nationalists throughout Europe an opportunity to promote themselves by blaming the country's problems on outsiders. "If only foreigners left, there would be more jobs and less crime..." it's a rhetoric heard often enough around the world.

We have seen the public turn towards radical choices throughout history - the most extreme example being the meteoric rise of the Nazis in Germany during the Great Depression. In fact, it is the experience of hyperinflation during the Weimar Republic (1918-1933) that has led the Federal Republic of Germany to be extremely cautious about letting other members of the European Union ride the dragon of inflationary policies because Berlin sees it as a precursor to populist demagoguery and fascism (This American Life had a really good podcast episode on the rise and fall of the Euro and the role Germany plays in the currency).

But the neo-fascists are not in power (yet) - in 2010, the Jobbik party did not manage to control a single constituency. It entered parliament for the first time based on Hungary's political system which allows proportional representation. And it's hard to imagine the people of Budapest turn to Jobbik for guidance on economic issues - but if the issue comes to asserting Hungary's political status, who knows where the votes will go.

For now, Viktor Orban's targets are internal as much as they are external - placing Fidesz loyalists or those with personal connections to the ruling party in key positions ensure long term influence in state policymaking, even if Orban leads the party to defeat in 2014.

It's too soon to really believe that Hungary has gone down the path of extremism and will be soon ruled by Jobbik. However, I forward the notion that as long as systemic economic problems plague the European Union (and therefore Hungary), Hungarians will be increasingly tempted by radical establishments. To assert that it's only Hungarians who needs to learn to "play nicely" ignores the inherent pressures facing Budapest - Europe, and in particular Germany, needs to appreciate the needs of smaller and weaker member states.

Berlin has forgotten that it was not hyperinflation that pushed people towards Nazism during the Weimar period, but rather it was the resulting economic instability and shame of defeat that made Hitler so attractive to the disgruntled and dissatisfied German public.

Yes, there is the flip side of the coin - Greeks appear unwilling to make real reforms, Italy is hopelessly in debt and Hungarians are blatantly disregarding its political obligations; however, if Europe cannot resolve these matters together without coercion and through multilateralism, then the grand vision of a united Europe was not to be.

Of course, I am not on the ground in Hungary and cannot comment with certainty on how the Hungarian people perceive themselves. So why did I write so much on this? Probably because it pissed me off that some dude got paid to run a shitty article where he complains about a bad travel experience and turns it into a wider political commentary. What a jerk.

I should have left Bugs Bunny to explain the interrelations between the member state of the European Union...