We are at the verge of a turnaround in competitiveness

English2019. okt 11.BGA

With a recently stabilised economy, Hungary is now more resistant to economic shocks and has become a popular target for international investment. This is the claim of László György, the Secretary of State for Economic Strategy and Regulation of the Ministry of Innovation and Technology. Yet, in this interview with Novekedes.hu, György stresses that if Hungary is to stay competitive, we must continue to make further improvements and transformations.

According to Bloomberg's innovation index, we should not be satisfied. We must improve our competitiveness. How can we do that?

The question is: what do we mean by competitiveness? I like the Organization for Economic Cooperation and Development (OECD) definition: the competitiveness of a national economy means the ability to sustainably increase prosperity. That is, it demonstrates the ability of a country to produce products and services that sell well on the international market, thus enabling the population to increase their real income in a sustained way. The final goal is the high quality of life and well-being of the public.

In this respect, our country has achieved tremendous results over the past ten years. Thanks to the consolidation of the budget and the unorthodox central bank crisis management launched by György Matolcsy, economic growth has now become financially sustainable. As a result, the Hungarian economy is less fragile and more shockproof than it had been before the previous world economic slowdowns, or even crises. If we carefully examine the results since 2010, the numbers reflect the progress that we have made.

How should we move forward?

Innovation, research and development are important elements of competitiveness. Compared to other countries, Hungary is lagging in this area.

How can we catch up with them?

Starting next year, we are increasing spending on innovation by 32 billion forints. It is of crucial importance that this budgetary supplement be spent on more research and more patents. The renewal of our whole research system creates a favourable environment for the creation and marketing of innovations.

How can this be achieved?

We hope the decision-makers of the companies who are thinking of bringing this kind of activity to Hungary will consider us more creative than the world average. We continue to support world-class basic research, but we also need to appreciate that technology is changing rapidly, and that this change is made by the market participants of the 21st century. Thus, we are changing the financing of science, research, development, and innovation in order to inspire our researchers to achieve more results.

Such as?

We are bringing research institutes closer to universities and universities closer to participants of the economy. This helps to focus their work on the real needs of the market and society, using world-class technology and knowledge. If we want to be more competitive, it is necessary to ensure cooperation between actors within the innovation ecosystem. Accordingly, the government is working on encouraging innovation ecosystems to focus on universities. In addition, by developing basic digitalisation infrastructure, this will help ensure our successful adaptation to the 4th industrial revolution.

At the Business and Finance Summit 2019 conference you said our growing productivity was an outstanding result. If so, why does our competitiveness lag behind?

The well-known and popular competitiveness rankings are focused on how a country is perceived by a foreign "annuity hunter", rather than by an enterprise that is making products or services. That’s the truth. Those who make these rankings will ask the opinions of only fifty business leaders out of hundreds of thousands, and then draw their conclusions on so-called “soft factors”. Hungary, however, has stepped forward as measured by hard data, like economic indicators.

What does this ranking show exactly?

The WEF Global Competitiveness Report is one of the most well-known competitiveness assessments worldwide. The method is based predominantly on a corporate management questionnaire, so it does not provide reliable results consistent with similar indicators and factual data. Only about a quarter (30 occurrences) of the 114 sub-index values that were quantified relies on objective, hard indicators. The remaining three quarters rely on subjective, soft indicators.

Further, the comparability of results between countries is limited. This means the worldwide ranking is not considered to be as reliable. Therefore, the index should be used only with caution and some scepticism for any competitiveness analyses.

So, are we looking for more favourable among the more objective rankings?

Instead of subjective rankings, we focus more on real data, which indicates that we are likely to be on the verge of a huge competitive turnaround. Bear in mind that much high-tech investment already exists. Measured in terms of added value to the economy, our high-tech sector makes up close to 70 percent of the entire industrial sector.

Considering this figure, what is our relative ranking among other countries?

Hungary exceeds Germany, the USA, Great Britain, Austria and all of the Nordic countries except Denmark. Add to this a more stable and predictable investment environment, and no wonder that foreign investors in recent years have brought increasingly advanced technologies to our country.

Are you planning to encourage foreign direct investment, rather than focus on the largest export-oriented sectors?

Absolutely not. We have no reason to oppose the investments coming into these sectors. From a strategic economic standpoint, it is primarily about encouraging cutting-edge technology to come here rather than go elsewhere, so we are able to learn from foreign companies and professionals. Before 2010, we made a mistake. We sold many companies to foreign owners that produced products and services for the domestic market. Their profits were acquired here, but almost all of it was taken out of the country’s economy.

There is nothing wrong with the fact that companies producing for external markets can take some of their income from here, since the foreign exchange revenues generated by their exports can mitigate some of the profits that are taken away. I consider it much more problematic if strategic companies, such as utilities, airports, or even most of the banking sector, are under foreign ownership. I think that the government has recognised the importance of keeping this critical infrastructure in domestic hands. I regard this delicate balance as one of the pillars of a patriotic economic policy.

What consequences will Brexit have in Hungary?

Every crisis is also an opportunity. It is obvious that Europe's economy will be weakened if the British leave the EU, as the whole economic community will shrink. This, in turn, may encourage the remaining members to cooperate more closely. You can see how strong the relations are now between the V4 countries (Poland, Czechia, Slovakia, Hungary), or even between Hungary and Germany. On the other hand, if the British leave, new countries will fill in the gap. One study suggests that instead of London, Budapest may be the new start-up centre. This has been confirmed by the Economist magazine, which claimed that the Hungarian capital can become an outstanding target for promising start-ups.

Do they really consider Budapest in particular, and Hungary in general, as having such potential?

The facts speak for themselves. The Hungarian economy is now one of the most dynamically expanding economies in the European Union. The growth in our gross domestic product has exceeded five percent annually, which is almost four times the EU average.