Hungary: A Poverty Profile
Alliance of Social Professionals
by Zsuzsa Ferge

Presentation made at –
the ICSW Civil Society Forum on Poverty
February 18, 1999, New York

      Right before and at the time of the collapse of the former system, the majority expected the advent of a market economy based on private ownership and leading to economic revival on the one hand, democratization and the re-emergence of civil society on the other. The seemingly unanimous adherence to “the market and to democracy” harbored a variety of expectations of political values and ideologies. There was undoubtedly mass support for the abolition of the former economic and political system. Still, all opinion polls seem to suggest that pure capitalism, especially in its 19th century form, was not what the majority of citizens expected from the “velvet revolution”. Their expectation corresponded, rather, to a so-called social market economy combining political freedom, a thriving market economy, and strong public commitment to social security. Many expected a rapid improvement of living standards, and very few thought about possible losses.

     Yet at the end of the eighties the process of globalization was in full swing and neoliberalism (often combined with neoconservatism) has become the dominant world ideology. This ideology had many supporters in the post-state socialist countries because the former oppression stifled individual opinions and endeavours. Policies conforming to the new ideology were also strongly encouraged by the monetarist supranational agencies that gave priority to economic restructuring over social or human needs. Meanwhile the European Union and its agencies did very little to encourage the post-totalitarian countries to understand, preserve, revive or implant the European values of social coexistence.

Changes in social policy

      The economic crisis and shortages as well as the political commitment to a “minimal state” affected all social policy arrangements.
Most countries in the region have started to reform their social policy system in order to answer old and new challenges. These reforms are evaluated in different ways depending on the outlook of the evaluator but the main facts and trends are
hard to dispute. The changes can be summarised by using the concepts describing the main instruments of the “social security system” in the European welfare states. From this perspective one can make a distinction between universal, insurance-type and assistance-type benefits.

Universality was seldom embraced under the old system because most benefits were tied to employment. However because employment was almost full, near-universality (e.g. child benefits) or full universality (public health service) existed. Universality based on social rights is considered currently – especially under conditions of increasing income inequalities – too costly from the market perspective: it is seen as wasteful and inefficient to give public funds to those who are not in genuine need (that is what is called leakage). Universal benefits have been changed in three different ways.

(i) Some universal benefits have become means-tested, selectively targeted to those regarded as “truly needy”;

(ii) the universal system has been transformed into insurance; or

(iii) user fees or “co-payments” have been introduced to curb demand or to lower costs.

     To illustrate (ii) one may invoke the transformation of universal access to insurance-based access in case of the health system. The methods belonging to (iii) mean that user fees have become quite important and often prohibitive in case of nurseries, school meals, “extra” school activities (music, language), shelters for the homeless, social homes, etc.

     It may be informative to illustrate in some detail the strategy of ending universality for instance in the case of child benefits. The ideas about the transformation of the system of social security started right after the transition. At this point, the first governments had been reluctant
to act against the manifest wish of people. The most vocal proponents of change were the supranational agencies. By way of international comparison, it was assessed that the provisions for children and families seemed to be much more generous (at least in terms of percentage of GDP) than in most western transfer systems. Therefore the argument was advanced that family allowance was a wage subsidy, and “played the role which in market economies is played by wages”. Interestingly though, while the World Bank (together with the IMF) was instrumental in spreading these ideas right after the transition, subsequently (when becoming more familiar with the conditions?) it had important suggestions beneficial to the system of family allowances. Thus, it always condemned the politically discriminatory elements, such as discrimination against the non-employed. Also most of its recommendations on the reduction of costs of family benefits were about group-targeting and taxation rather than about individual means-testing. Nonetheless, the original idea was listened to: the family benefit system was changed in many transition countries both quantitatively and qualitatively. The value of the benefits has gradually eroded because of no or inadequate indexation, and individual means-testing became widespread.

Social insurance (with the exception of unemployment insurance) existed everywhere in the region for pensions, work accidents and sickness benefits (Voirin 1993). These systems had been assessed (by inside and outside liberals) as giving insufficient benefits to too many people, and to have violated the insurance principle by merging the “equivalence” and the “solidarity” principle. The reforms endeavour to “cleanse” the existing schemes from their solidaristic elements (redistribution within the scheme, relatively easy access for atypical work careers, etc.) and to scale down the coverage and if possible the level of the benefits. Unemployment insurance however has been introduced practically everywhere (albeit its provisions have become significantly less generous since its inception). The pension system is also being reformed.

Social assistance was the most underdeveloped subsystem partly because most situations needing assistance were denied to exist (unemployment, poverty, etc.) and partly because individual distress was never a concern of the totalitarian power. Under the new conditions of more political openness and more need for assistance, new laws and new regulations have been created everywhere. With some exceptions (the Czech Republic with low unemployment, former East Germany with the transfer of the relatively generous German system) the social assistance system has, however, remained largely inadequate. The levels are usually low, the administration defective, access discretionary, and the “safety net” has large holes. The main gain in the field of poverty relief is the institutionalisation of social work all over the region.

     In short, universality is practically disappearing; the risks covered by insurance may have expanded (such as unemployment) or restricted (for instance child benefits or death grants), but conditions of access are usually becoming harsher and standards lower; and targeted social assistance is gaining ground.

     From a societal perspective these changes amount to the “pluralisation” of the welfare state: some are gaining, others are losing ground.

• The role of the (central) state in social policy is deliberately reduced in all its former functions, as owner, service-provider and funder;
  
  
• The wide-ranging welfare activities of the firms – whether state or newly emerging private enterprises – are disappearing, often with valid reasons;
  
  
• The local authorities have gained back their relative independence, and they have become responsible for the well-being of their citizens. This is a major gain of democratisation albeit some new problems will have to be solved;
  
  
• The re-emergence of the voluntary and NGO sector is also a major gain even if its role is not always clear and funding remains a problem;
  
  
• Many functions performed beforehand by collective (central or local) arrangements fall back on the family or on the community. While theoretically this may improve the quality of the service, in reality it may overburden the new actors.
  
  
• When solvent, demand exists for needs covered previously by collective arrangements, market or pseudo-market solutions (user fees, for instance) are gaining ground.

     It is too early to assess the impact of these changes. Also, there are great variations in the practices of different countries depending on the orientation of their governments, the strength or weakness of civil movements, economic pressures, and so forth. The pluralisation of social functions is an important development but an ongoing assessment of its positive and negative impacts would be necessary to avoid serious failings in the satisfaction of basic needs.

The increase of poverty

The end of socialist dictatorship was followed everywhere by a very necessary economic restructuring (privatisation, shut-down of unprofitable enterprises, correction of a distorted price system with the abolition of price subsidies, etc.) entailing significant drops in production. The main social consequences were inflation, unemployment, decreasing wages and social benefits, rapidly growing inequalities in income and wealth, and of course increasing poverty. All these processes set in with great speed, either by intentional shock therapies, or just because there was no political will to stop spontaneous processes motivated by “egoistic” motives, and using more or less legal ways to acquire wealth (one often uses the expression “wild-east capitalism” to capture this trend).

     One of the basic problems is the huge decrease of the activity rate that is only partly reflected in the figures of registered unemployment. The official unemployment rate increased from zero to about 14%, and seems to stabilize now around 10%. (The number of registered unemployed was 100,000 in 1992, 600,000 in 1994, and about 400,000 at present.) In reality the job loss is much greater. The number of active earners was close to 5 million in 1989, and is 3.6 million in 1998. A large number of those withdrew from the labour market due to disabilities or early retirement pensions, and a significant other group, mainly women, withdrew definitively from the labour market without any provisions. The former prevalent model of “two-earner families” became a minority. Because of job losses, Hungary has now one of the lowest activity rates in the world, 51% of registered earners between the ages of 15 and 74.

     We have no data about wealth inequalities, but income inequalities grew rapidly. Of course, statistics cannot map the full range – the homeless, the poorest and the richest are never well captured. Still, the multiplier between 10% of the population with the lowest and the highest income went up from about 4.6% in 1987 to 6.7% in 1992, and to 8% in 1997.

     The groups hit the most – the main losers of the transition – are, obviously those groups that were less prepared to face new challenges, or those who were most affected by the decrease of public benefits. They were probably never among the best off, but in the former system most of them had gained existential security and some sort of, perhaps token, self-esteem. This is to some extent true even for the Roma population. More concretely, among the losers we find the unemployed, especially the long-term unemployed, whose number is increasing; many of the unskilled or semi-skilled workers, and often village-dwellers (peasants) who did not get enough private land and lost their jobs in former cooperatives; inhabitants of depressed areas most exposed to factory closures. In demographic terms, the worst-hit group is formed by families with young or several children, and single-parent families.

     The extraordinary increase in cost of household energy and water, and the increase of the interests on public loans on housing were not compensated, and the social assistance foreseen for these cases is utterly inadequate. As a consequence, in 1997 there were about 40,000 families in instant danger of eviction because of housing debt, and another 128,000 with arrear payments on housing. As for household energy, it was estimated that between 700-800,000 families had arrear payments (source: former Ministry of Social Welfare). The total number of households is 3.8 million.

     Poverty – whatever data we use – also shows a significant increase. The percentage of the “relatively poor”, living under half of the median income, was 10% in 1992 and 14% in 1997. Absolute poverty, the ratio of those living under a very modest subsistence level grew more significantly, from 10-31% in the same period. (The difference is due to the decrease of real incomes and real wages by about 15-20% from 1989 until 1997).

     Increased poverty may be considered an inevitable outcome of the collapse of the economy during the transition. The question is whether it will become a lasting and deepening phenomenon with increasingly visible social divides and social exclusion, or whether governments policies will act in the opposite direction. Unfortunately, the current trends point towards the “banalisation” of poverty, and there is no short or long term government strategy in sight to tackle these problems. Self-help in cases of dire deprivation has to be underpinned by public measures. In absence of these, many people in poverty or threatened by it, give up hope and the will to help themselves.

Zsuzsa Ferge is President of the Hungarian Social Policy Association and President of the Alliance of Social Professionals, a newly formed National Committee of ICSW. She is also a Professor of Sociology at Eotvos University in Budapest and has published several books and papers.