István Tanács

On the Border

 

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East Europe through Investors' Eyes

Since the collapse of Communism capital has typically flowed from West to East, but labour from East to West. Investors seek to drive down production costs, and labour is the biggest component of those costs. The main attraction of the former Eastern bloc is a skilled, non-unionised, compliant labour pool that has been habituated to monotonous jobs-all at just 15-20 per cent of West European wage levels. There are other motivating factors too. Before entry into the European Union, there were no limits to the tax incentives that could be offered foreign investors. Furthermore, national governments might dip into their budgetary resources, and local governments place land and buildings at their disposal. In many of the Eastern economies there was a division between foreign-owned, capital-rich, competitive firms with a small labour force, and small and middle-sized domestically owned enterprises. The most widely cherished illusion was that multinational companies would choose as their suppliers local firms that employed many workers, thereby enabling them to become well-capitalised and acquire advanced technology. The reality, however, is different. Multinational companies tend to use their existing suppliers, because in their view local entrepreneurs will be unable to meet their quality standards. The local enterprises in turn complain that they are not granted credit facilities or training opportunities, or a genuine chance.
The truth is that investors take many factors into consideration. The strength and impartiality of the legal system, the security of investments and the right to repatriate profits are all major concerns; so too are language or intergovernmental relations. Thus, in western Romania, for example, the main factor driving the present-day rapid development is the fact that the owners of the supplier companies are former middle managers of Italian and German companies who have the required know-how, are good credit risks back home, and are willing to move to a foreign country. National boundaries are also boundaries of opportunities. It is invariably the case that the western region of a country will develop more rapidly simply because it lies closer to Western Europe. With a shorter delivery chain, top managers may be able to live in Vienna if their wives are unwilling to move to some back-of-beyond place.
The geopolitical climate also sets a limit to the eastward flow of investment capital. To this day, it is far riskier to put money into Ukraine as compared with Romania which, despite long being a byword for corruption, has adopted EU legal norms. Moldova is likewise seen as a high risk; Belarus and Russia are perceived as having too autocratic or over-mighty governments to permit multinationals to protect their own interests.
Foreign investors tended to establish themselves in Hungary first and foremost in the capital or in the corridor around the Vienna-Budapest motorway. Thus, cities such as Győr, Tatabánya and Székesfehérvár nowadays count as advanced industrial centres. More recently big towns lying to the east of the Danube, such as Nyíregyháza, Debrecen and Jászberény, have been acting as islands of development to pull in investment. A lot has depended on the international political situation and also on the infrastructure that earlier years have bequeathed. As one example, Kecskemét, a city of 100,000 inhabitants lying to the south-east of Budapest and tied to the capital by a motorway since 1995, has been able to shake off its former image as a sleepy agricultural town and pull in a substantial machine industry. By contrast, Pécs in the south-west and Szeged in the south-east of Hungary both lay close to what, during the Nineties, was the disintegrating and war-torn former state of Yugoslavia; on top of this neither place had a motorway connection, and so neither city has been able to lure major industrial investment. Having distinguished universities in their backyards, both cities had been hopeful of persuading high-tech industry to move there, but to date neither has been able to tip the balance decisively so that private investors see a chance for winning a genuine return on their capital.

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I met Péter Czirka on a building site. A qualified agricultural mechanic, he worked for 24 years in various sections of one of Battonya's co-operative farms. He has built his own house, reared a variety of domestic animals and brought up his daughters. What happened to him after 1990 is fairly typical of many in eastern Hungary. Almost, but not quite, because Péter Czirka never gave up, he did not take to drink, and he accepted any job that was going. Those opportunities never really came to anything, which is why he is now hoping for a job in Romania. As Czirka recounts, "I have worked in various metallurgical shops. I am qualified as an agricultural mechanic, I have also been employed as a welder and as a fitter in a knitwear factory. I am formally qualified to do some of the jobs, but not all. I would just pick up the know-how whenever it was necessary." Czirka was self-employed for a while in the early Nineties, when the talk was that capitalism had arrived and that enterpreneurs were going to inherit the world: "I didn't dare set up as a contractor in the metallurgical business. For that you need to have a workshop and machines but I didn't have the money for that, I would have had to borrow. But that would have meant mortgaging the roof over my family's head. I didn't dare take the risk, I knew of cases where metal-working businesses already in operation had gone bust. In the end, I set up as an insurance agent, selling mostly life insurance. The only trouble was that right then many people were losing their jobs. They weren't worried about what would happen twenty years from now but what would happen tomorrow.

In other words, they couldn't afford substantial monthly premiums, and if someone breaks that sort of policy early on in the term, the insurance company does not return the money paid in. But then if I didn't manage to persuade people to take the plunge, even though it wasn't in their interest to do so, I wouldn't earn a penny. On the other hand, if I managed to persuade them, I would have it on my conscience because I was well aware of their situation and knew it was something that they couldn't afford." Later, he worked in a plant in Battonya, which extracted industrial fat from animal bones. When that closed, he was told that he ought to look for work in western Hungary, because jobs were going there. "I called at a plant in the same industry there, but that didn't offer any great prospects, because they were having to lay off staff," Czirka recollects. "What I found was that the wages I would get in western Hungary would not be enough to pay for lodgings during the week plus the costs of travel home regularly at the weekends. At that point I still owned a bit of land and we had been rearing livestock to supplement our income. But then if I wasn't at home, I couldn't feed the animals and my wife would be saddled with all the work. I returned to Battonya and took whatever work I could get. Meanwhile the price for pork dropped so low that it was no longer worth rearing pigs. We sold the land while we were at it and used the proceeds to help my daughter buy a home of her own."

 

István Tanács
is a correspondent of the daily Népszabadság. His main interest is regional and social inequalities.