Employers call for new social pact to bolster economy

Following the general elections in April 2006, 16 business and employer organisations issued a manifesto entitled ‘Agreement for our future’. The manifesto calls for a tripartite agreement between businesses, the government and political parties on four key issues affecting Hungary’s economic competitiveness. However, there were mixed reactions among the social partners to the document.

Imprudent budgetary policies over the past few years have led to serious imbalances in the Hungarian economy and to a significantly high budget deficit. Against this background, 16 chambers of commerce as well as business and employer organisations have called for increased cooperation between the newly elected government and the political parties concerning Hungary’s future.

Agreement for the future

Leaders of 16 national and sectoral level organisations signed the manifesto Agreement for our future (20.1Kb PDF) which was published on 24 April 2006. According to the media, its main instigator was Sándor Demján, a relatively influential businessman and President of the National Association of Entrepreneurs and Employers (Vállalkozók és Munkáltatók Országos Szövetsége, VOSZ). VOSZ is one of the major employer organisations in Hungary and a member of the tripartite forum. Another member of the tripartite forum, the National Federation of Agricultural Cooperatives and Producers (Mezogazdasági Szövetkezok és Termelok Országos Szövetsége, MOSZ), also joined the manifesto. Further signatories include: economic chambers, such as the Hungarian Chamber of Commerce and Industry (Magyar Kereskedelmi és Iparkamara, MKIK) and the Hungarian Agricultural Chamber (Magyar Agrárkamara); several sectoral employer organisations, such as the Hungarian Road Transport Association (Magyar Közúti Fuvarozók Egyesülete, MKFE) and the National Federation of Hungarian Contractors (Építoipari Vállalkozók Országos Szövetsége, ÉVOSZ); and other associations, including the Hungarian Association of Information Technology Companies (Informatikai Vállalkozások Szövetsége, IVSZ) and the Hungarian Association for Innovation (Magyar Innovációs Szövetség, MISZ). Also among the signatories are some influential business organisations representing the interests of foreign investors in Hungary, like the Joint Venture Association (Joint Venture Szövetség) and the American Chamber of Commerce in Hungary (AMCHAM), along with chambers of commerce representing companies from Canada, France, Germany, Italy, Switzerland and the United Kingdom. Further organisations joined the manifesto after its publication.

According to the President of VOSZ, members of the 16 employer organisations represent 85% to 90% of the Hungarian economy, both in terms of the number of members enrolled and with regard to their contribution to the country’s gross domestic product (GDP). The signatories emphasised that a new social pact between stakeholders of the Hungarian economy is necessary to address the most urgent reform measures required to define a long-term macroeconomic strategy, possibly before the government programme is fully complete. They also underlined that the opportunity to achieve this goal is of historical significance, and that carrying out the reforms in crucial areas may result in Hungary becoming once again a leading economy. Mr Demján warned that the market would not wait and that postponing the reforms would result in Hungary’s financial collapse. The signatory organisations also called for the establishment of a new ‘economic board’, based on political and social consensus, to serve as an institutional framework for cooperation.

President of the Joint Venture Association, György Mosonyi, underlined that business organisations do not intend to propose any necessary measures, but wish to play a catalyst role in the process.

Content of manifesto

The document urges the newly elected government, businesses and political parties to address four key issues affecting Hungary’s economic competitiveness. It calls on all parties involved to implement:

  • a responsible and sustainable economic policy based on a coordinated fiscal and monetary policy in order to achieve the following: allow for the earliest possible introduction of the euro; sustain economic and environmental development; strengthen the prevalence of social values; improve investor confidence; support the development of small and medium-sized enterprises (SMEs); develop domestic research and development (R&D), as well as education, in particular vocational training in line with the needs of the economy;
  • reform of the state budget and improvements in public administration, including the following: the provision of high-quality services; predictable revenues; an efficient central public administration; strong deregulation and decentralisation, encouraging shared responsibilities with the civil sector; a new, substantially smaller and more efficient municipality system; transparent and consistent legislation and enforcement.
  • a service-oriented healthcare sector based on a sustainable health insurance system, which remains under the state’s responsibility but relies on public and private funding; establish a new social perception of health as a basis for improved competitiveness and social security reform; introduce incentives and control systems to ensure the transparent and efficient use of resources;
  • a transparent, simple and competitive tax regime in line with the parameters of the state budget and the country’s strategy, including: the creation of a local business, tax-free environment; a systematic reduction of tax burdens on employment; a competitive corporate income tax combined with strict tax and contribution collection, in order to cut the public sector deficit, distribute evenly the taxation burden, eliminate tax evasion and reduce tax allowances.

Public reactions to manifesto

The manifesto received widespread media attention, and a conference was organised to discuss the reforms required to put the suggestions into practice. The Minister of Economy and Transport, János Kóka, a member of the liberal Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ) which is part of the ruling coalition with the Socialist Party (Magyar Szocialista Párt, MSZP), welcomed the manifesto and declared that he was prepared to start negotiations with its signatories to open the way for major reforms. Mr Kóka emphasised the important role that economic actors play by supporting the modernisation of the state and in dismantling outdated, inefficient structures in the healthcare sector. The minister suggested establishing a National Economic Policy Commission within 30 days, which would include representatives of parliamentary parties. To date, neither the Hungarian Prime Minister, Ferenc Gyurcsány, nor any MSZP politicians commented on the manifesto.

In relation to the positions of the social partners, the majority of national employer organisations that are members of the national-level tripartite forum did not join the manifesto. The Confederation of Hungarian Employers and Industrialists (Magyar Gyáriparosok és Munkáltatók Szövetsége, MGYOSZ), the biggest employer confederation in the private sector, not only refrained from joining the manifesto, but also criticised its content. MGYOSZ argued that it is inappropriate to call for tax reductions in the context of a budget crisis. MGYOSZ President, Gábor Széles, pointed out that the national tripartite forum is the appropriate forum for social dialogue concerning the new government’s programme; he also called for a discussion of the programme by the National Interest Reconciliation Council (Országos Érdekegyezteto Tanács, OÉT) before its submission to parliament.

The trade unions did not welcome the ‘Agreement for our future’. Leaders of the national union confederations unanimously agreed that OÉT and the Economic and Social Council (Gazdasági és Szociális Tanács, GSZT) provide a suitable forum for negotiating a social pact. ‘An agreement without employee representation is not acceptable’, stated Tamás Wittich, President of the National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ), which represents the largest union confederation in the private sector. He emphasised that employees would support a social pact for a knowledge-based economy and for facilitating competitiveness, but exclusively within the framework of OÉT and GSZT. The Democratic League of Independent Trade Unions (Független Szakszervezetek Demokratikus Ligája, LIGA) declared that it would be willing to join the manifesto, but needed to study its contents thoroughly first.

Commentary

Following the elections, the major issue is the government reform programme. The ‘Agreement for our future’ is one important initiative arising from a series of calls and proposals for reform. The manifesto’s claims are not surprising, since it covers issues that employer organisations have been demanding for a long time (HU0512103F). The idea of a ‘social pact’ is not a new phenomenon in Hungary either, since in 1994 the left-wing government already suggested such a pact; however, negotiations for the so-called ‘Social economic agreement’ failed at the time. More recently, in 2003, the Minister of Finance made a half-hearted proposal to conclude a ‘social pact’ as part of the ‘convergence programme’ to enter the euro zone. The underlying idea was to achieve social support for a series of necessary economic policy measures in order to meet the Maastricht convergence criteria for entry into the European Monetary System and to introduce the euro as a national currency. However, back in 2003, negotiations for a social pact were not even put on the agenda of the national tripartite forum (see Eiro 2004 comparative study on National tripartism and EMU in the new EU Member States and candidate countries – the case of Hungary (Word document)).

It remains to be seen how the ‘Agreement for our future’ will affect the institutional system of tripartite social dialogue. Drawing up the manifesto was the initiative of a coalition of business circles outside the current tripartite forum, although some of the signatory organisations are also members of OÉT, or member organisations of employer associations participating in OÉT. Nonetheless, the rejection of the manifesto by MGYOSZ may undermine its political importance to a large extent. The exclusion of unions will certainly weaken the ability of the signatory organisations in their attempt to build up a broad coalition to increase pressure on the government.

Dávid Jancsics, László Neumann, András Tóth, Institute of Political Science, Hungarian Academy of Sciences

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