HUG Magazine 2017 EN - Issue 2. (№6) by PAIGEO - Pallas Athene Innovation and Geopolitical Foundation

HUNGARIAN GEOPOLITICS HUNGARIA N G EOPOLITICS

HUG 2017 2017 22

2017/ II.

ISSN 2498-647X

Tech-tonic shift THE GREAT CHANGE OF ERA KNOWLEDGE AND GROWTH SUCCESSFUL ECONOMIC CATCH-UP PROCESSES A HUNGARIAN COMPASS BETWEEN EAST AND WEST IN THE WAKE OF OUR ECONOMIC SUCCESSES FUTURE VISIONS: REGIONS AND COUNTRIES TECHNOLOGY AND EDUCATION EXPONENTIAL EXPLOSION

FOREWORD

Dear Readers, "In our days, we are living in a very fast series of technological shifts, to which we are almost unable to adapt, irrespectively of the number of the great transformations that we regard it to be in the series of industrial revolutions. Obviously, new technologies, new economic principles, new consumption patterns, new employment models, new battlefields, new generations, new myths and new dynamisms have emerged. This era, which we can also call a »Great Change of Era«, will also produce its winners and losers as other eras have done earlier. For Hungary, it is a crucial question how we can be winners of this change of era”, writes Zoltán Cséfalvay in the Introduction to his book, ‘The Great Change of Era’. That is one reason why we regard it important in the new issue of our HUG magazine to present the main characteristics of this new era and the international practices and findings from successful economic catch-up processes that can give us examples. We are looking for the recipe of economic growth, which, according to Ricardo Hausmann, means the growth and expansion of knowledge capital. On the basis of the atlas of economic complexity compiled by him and Harvard researchers, Hungary is included in the top ten countries. In his presentation, Hausmann asks the question, ‘What influences economic growth?’ On the one hand, it is the accumulation of knowledge, the know-how, and on the other, it is the distance between manufacturing technologies in the product space, that is, the relatedness of products that a given country produces. The economic growth of a country is grounded on these. We are presenting the eras of Hungarian economic growth in the past centuries, and with the help of international examples, recipes of Britain, the United States, Japan, Korea and Europe (Switzerland, Bavaria, BadenWürttemberg, Sweden, Finland, Italy, Austria and Poland), as well as Israel. We continue our series of future visions started in our pervious issue, and we are presenting the visions of 2050 of specific countries: what future visions of the USA, China, Japan, India or even Africa in thirty years are suggested by scenarios. In the 21st century, the economic perspectives of the USA are more endangered by global competitors, who have all created their growth and competitiveness strategies for decades, than ever before.

Parag Khanna, a leading geostrategic thinker, global strategist, world traveller, best-selling author, and a Senior Research Fellow in the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy at the National University of Singapore, was invited by us to deliver a lecture in Budapest, in which, with the help of maps, he showed how our world is transforming in the 21st century and, with the help of connecting nodes (lines of infrastructure), how our world is becoming more and more complex. We need to re-draw our maps of this world to understand what is happening around us, with the rise of geography. Therefore, we need three kinds of geographic knowledge: physical geography, political geography and functional geography. Khanna thinks that nowadays the solution to all major problems of the world lies rather with smaller states, and not larger ones. For decades, the idea that smaller states, such as Singapore and Switzerland, can be role models have been rejected. In a world of city-states, it is the experience of large countries that has less relevance than ever. Success matters more than size. In the most important measures of competitiveness, small states hold their weight. They do so because technological advancement has become exponential, making way in places that used to be unconceivable, causing such explosions in terms of connectivity and complexity that are changing the rules of the game. Everything around us proves this. It is reshaping our reality, capabilities and challenges. We are inviting the reader to the waters of this great change of era to discover our world together on the basis of growth and the economic and geopolitical recipes, redrawing the map of exploring the 21st century.

Norbert Csizmadia Pallas Athéné Geopolitical Foundation Chairman of the Board of Trustees HUG Editor-in-Chief

TABLE OF CONTENTS 92

The Golden Age of the Kingdom of Hungary

The Golden Age of Transylvania

Tech-tonic shift

A Country on the Road to Recovery

A Hungarian Compass Between East and West

Happy Peacetime Days

Ricardo Hausmann: The Growth And Diffusion of Knowhow

100

István Bethlen, the Crisis Manager

102

Arduous Rebuilding

Learnings from Successful Economic Catch-Up Processes

Shackled by Communism

Century of The British Empire, 1815–1914

104 106

Lost Decades

USA: In the Vortex of History

Hungarian Way

Italy: Successes Built on Tradition

108 112

Germany: An Economic Miracle Born from Ruins

Bavaria: In the Heart of Europe

Baden-Württemberg: A Forced Marriage with a Happy Ending

USA in 2050

Austria: Crisis-Proof Austrian Rebirth

116

China in 2050

Finland: A Breakout from Crises

120

Russia 2050

Sweden: The Home of Prosperity

124

India 2050

The Polish Economic Outbreak

128

The Vision of Japan and Korea

Israel: Advancement in the Rocky Desert

134

Africa 2050

Japan: A Nation Reborn Twice

142

The Exponential Explosion

Korea: Skyscrapers Replacing Rice Paddies

146

Hybrid Thinking

In the Wake of our Economic Successes

156

Education of the Future “Future Smart”

Saint Stephen, the Builder of The State

170

Parag Khanna: Connectography

Béla IV, the Second Founder of The State

180

How to Run a Country in the 21st Century?

192

Book Recommendations

Tech-tonic shift

Author: Zoltán Cséfalvay

Originally, this book was intended to be a journal of the days spent in the OECD. But as the number of posts was growing, it was becoming increasingly evident that we were living in the years of a change of era. When does a new era begin? When our old notions do not work anymore or we need to twist them so much that they get farther and farther away from reality. We use the notions of the era of globalisation – such as international trade, work productivity or the sector of small- and middle-sized enterprises –, which hardly fit the world of robots, digital giants, new global value chains, platforms, the networks of several hundred million users and dynamic start-ups. Perhaps we will have a better understanding of the transformation around us if we turn the point of view, and we start from what we can see: the most important characteristics of a new era.

AT THE DAWN OF A NEW ERA

There is almost complete agreement about the fact that in our days we are living in a very fast series of technological shifts, to which we are almost unable to adapt. Irrespectively of the number of the great transformations we regard it to be in the series of industrial revolutions, obviously,

– new technologies (e.g. robotics, 3D printing, Big Data, Internet of Things); – new economic principles (e.g. services based on internet platforms); – new consumption patterns (e.g. collective consumption); – new employment models (e.g. self-employment); – new battlefields (e.g. in the automotive and hotel industry); – new generations (e.g. generation Y and generation Z); – new myths (e.g. post-capitalism, the sharing economy, extreme market capitalism) and – new dynamisms (e.g. start-ups, open innovative ecosystems) have emerged. On the other hand, however, data show that the determining economic process of past decades, i.e. globalisation, started in the 1980s, have lost momentum. It indicates that since the turn of the millennium, the growth of economic productivity and international trade, and since the global economic-financial crisis of 2008, the pace of economic growth has been gradually slowing down or stagnating. At the same time, the negative side effects of globalisation have been felt. From the turn of the millennium, income and territorial inequalities have been continuously increasing worldwide, and the gap between the frontrunners – i.e. innovative countries, regions, and occupational groups able to swiftly increase their economic productivity – and the majority unable to do so.

“This book is based on one single principal thesis: while the period from 1980 until the end of the 2000s was the era of globalisation, in the 2010s, we have entered a new era, the era of technology.” The main questions of the book include: – What will this transformation bring about in the economy, in employment, in the operations of companies, in the economic policy of the state, and in our everyday lives? – What does this change of era mean for the different regions of world economy, the developed and catching-up countries, and of course, for Hungary? – How is this transformation interpreted and evaluated by the determining professional workshop of the world, the Organisation for Economic Cooperation and Development, and how is it fed into the daily disputes taking place in Paris, hosting the OECD? This new era will produce its winners and losers as other eras have done earlier. For Hungary, it is a question of crucial importance how we can be among the winners of this change of era. The first step of the way leading there is exploring the main characteristics of the new era. NEW TECTONIC FRACTURES Robotics, automatisation and digitalisation will radically transform the currently known structure of the world economy in the near future. – Although the fears that “robots will come and take our jobs” have come to the forefront of public thinking in developed countries, these changes are likely to dramatically affect developing countries. Jobs where robots can actually replace people were outsourced into developing countries exactly during the era of globalisation. Consequently, for example in Southeast Asia, hundreds of millions of

people have escaped the trap of absolute poverty, many of them have even got to as far as the gate of middle-class prosperity. This trend is likely to be disrupted by robotisation and automatisation, endangering tens of millions of jobs as well as the slowly unfolding economic catch-up process at the same time. Its first sign is that the catch-up model of the era of globalisation, which was built on the import of technologies, and as a pre-requisite, the opening of markets, foreign direct investments and the liberalisation of the economy, seems to be closing. The new era will (or might) start such a wage competition between robots and humans with which developing countries cannot (and do not want to) keep pace. They are left with deindustrialization and the enhancement of the service sector without having got into the top tier of middle income countries by means of industrialization in the era of globalisation. – One advantage of new technologies is that they might make industrial production return to developed countries. It might return to consumer markets, but with automated factories requiring a relatively low number of and highly-skilled workforce. To put it bluntly: jobs that were outsourced from developed countries into developing countries in the era of globalisation will never return. In addition, new jobs can be created in industrial production only if, in terms of training and skills, manpower is competitive with the needs required to operate robotised factories. – Another major challenge that developed countries have to face is that automatisation and digitalisation is gaining more and more ground in services as well, endangering millions of routine work tasks requiring a low level of qualification even today. In the era of globalisation, developed countries compensated the loss of industrial jobs with the service sector. In this sector, however, due to its very nature, the growth pace of productivity is lower than that of the industry. In part, this also accounts for the erosion of the lower layers of the middle class. New technologies are now threatening to eliminate vast numbers of routine-like jobs requiring low qualifications in the service sector in developed countries. Challenges affecting developing and developed countries – as a consequence of the change of era – indicate the two sides of the same coin. Developing countries are facing the problem of too early deindustrialisation, and developed countries are concerned by the troubles of excessive deindustrialization.

Tech-tonic shift

“For Hungary, it is a question of crucial importance how we can be among the winners of this change of era.” NEW GLOBAL VALUE CHAINS

Internet of Things, augmented reality, and 3D printing, however, it has been revealed that robots are and will be even more able to take over also non-routine physical and intellectual work from humans. The command of this era is simple: everything that can be automated will be sooner or later automated. For people, work processes requiring – creative intelligence (innovative, critical way of thinking and problem-solving) and/or – social intelligence (ability to collaborate and communicate) will remain.

The system of global value chains, i.e. building networks of production and value creation embracing

As a contrast to phantasms, the expansion of robotization and automatization will not necessarily bring

many countries, companies and premises, from planning, procurement and assembly to sales and repair, is the greatest innovation of globalisation. Conversely, in the era of technology: – the centre of gravity of value creation within global value chains is shifting gradually towards digital technology and content (as much the process proceeds, as much value creation drifts away from its concrete geographical location); – technology – with decreasing the complexity of products and with custom-made, low-volume production tailored to consumers’ needs – recreates the possibility to produce close to the consumer market; – global value chains are “democratising”: with digital technology, the opportunity to build and operate one will open up also to smaller enterprises (as an opposition to the era of globalisation, when this was limited almost exclusively to transnational large companies).

about massive losses of jobs and occupations. However, the jobs, occupations and work tasks remaining to people will radically transform in the near future. The real question is how prepared we are for the transformation of occupations in terms of training and capabilities? How can we win the race between technology and training?

To put it bluntly: in the era of technology, intangible assets and services are placed in the centre of value creation, while global value chains will be virtual, shorter and more “democratic”. Today, developing countries are losing in this transformation, but developed countries will not gain automatically a winning position, either. NEW CONSENSUS ON THE FUTURE JOBS AIn the era of globalisation, the idea that robotization, automatization and digitalization would basically concern simple, routine-like physical and intellectual work processes and occupations seemed an almost irrefutable consensus. With technologies, such as artificial intelligence, Big data analysis, the

WAITING FOR NEW ANSWERS Creative and social intelligence is not equally distributed in society, thus in the future vast masses of people are likely to be placed at a disadvantage against technology and robots, in terms of wages. There are several, still mostly experimental policy solutions for its challenges. As always, these have a redistributional version and a free-market one: – robots or their owners should be taxed, making the guaranteed basic income financeable (also for masses of people losing their jobs due to a lack of abilities), which can be either unconditional or conditional; – as many people as possible should become owners of robots, which can be collective – state, co-operative or small community – ownership, but it can also be individually accumulated property; – let’s trust our comparative advantages, that is, let’s develop the skills and abilities – i.e. our creative and social intelligence – with which robots will never be able to compete, which can also mean large-scale state training programmes and educational reforms, but can also mean the independent and on-going learning of individuals. These solutions might seem futuristic today. However, it is more appropriate to prepare for changes in time, before they evolve into an unmanageable stack of social problems.

A NEW GROWTH PARADIGM In the same way as the establishment of global value chains was the great invention of the era of globalisation and the engine of economic growth, a new economic innovation has appeared in the era of technology, and this is digital platforms. The key to growth, with a notion from economics, is a two-sided market, characterized by: – two different products or services being on the two sides of the market, on the demand and supply side (as opposed to a traditional market, where demand and supply meet at the same specific product or service); – different demand and supply being harmonized by a digital platform, by algorithms or managing Big Data bases (e.g. a Google search engine providing information for users about the notions or web pages that they are searching for, while on the other side, providing advertising opportunities); – a digital platform being interested in as great network of users on both sides (demand and supply) as possible, since the growth of the two networks enhance each other, albeit to a different extent; – attracting specific user’s groups by cross-funding (usually preferring a more price-sensitive network, even up to being free of charge);

– maintaining independent market organisation rules and an independent governance system in order to operate and keep users on the market; – being extremely effective, since it handles digital products whose cost of production, storage and distribution is marginal, that is, the amount spent on a new specimen of a specific product is kept to the minimum, is almost zero. The dynamics is characterized by the fact that we have hardly got used to the world of GAFA (Google, Amazon, Facebook, Apple), the new stars of the platform economy have already emerged; using another acronym, they are the NATU giants: Netflix, Airbnb, Tesla and Uber. What is more, Chinese platform giants, such as Baidu, Alibaba, Tencent and Xiaomi, forming another acronym, BATX, are also emerging rapidly. NEW ECONOMIC PRINCIPLES The appearance of digital platforms has initated five radical changes: – u se in lieu of ownership, – services in lieu of industrial products, – increasing the efficiency of the market in lieu of the productivity of production/manufacturing,

Tech-tonic shift

– platforms in lieu of corporations; and – it has brought self-employment to the fore in lieu of employment related to corporations. It is a more or less explicit intention of digital platforms to convert everything, even traditional industrial products into (digital) services. In this competition, they are winning against the traditional economy, owing to, among others, their three big advantages: – fi rst, they render market transactions and the alignment of high-volume demand and supply much more efficient with sophisticated algorithms, Big Data bases and large user’s networks (they do not make production and manufacturing more productive – in the era of technology, it is expected from robotics and automatization); – second, platforms radically reduce the costs of market entry in specific areas by connecting demand and supply quickly and cheaply, making market entry – without traditional companies intervening – possible even for masses of private individuals; – third, digital platforms pull value creation towards themselves by sharply increasing the efficiency of the market and decreasing market entry costs. Again, the command of the economy is ruthless: those who can fulfil a task in the value chain more

efficiently will sooner or later get into a better and a leading position within the chain. Earlier, this position was held by industrial producers or large branding companies. Now, with the platforms being able to operate and organize the market much more efficiently than the companies of the traditional economy, platforms also think that their time has come. Soon, digital platforms are likely to become an economic and social force akin to that of factories during the past industrial revolutions. NEW BATTLEFIELDS Digital platforms convert everything that they put their hands on into services. Nowadays it is the automotive and the lodging and hospitality industry’s turn. For example, adopting the principle of “the car as a service”, we can encounter a whole range of solutions based on platforms: – driver’s service a (e.g. Uber, Lyft), – car-sharing systems (e.g. Zipcar, autolib‚ Äô, Car2Go), – rideshare (e.g. Zimride, BlaBlaCar, Carpooling.com) and – peer-to-peer car rental (e.g. RelayRides, Drivy, Tamyca). Some of them, such as driver’s service platforms, are threatening existing markets and businesses, while others, such as car sharing and rideshare systems, rather open new markets.

NEW GENERATIONS

Another challenge concerning the automotive industry also comes from digital technology: driverless cars. Today – despite the growing weight of installed electronics – most value, some 70 per cent, is added to cars by carmakers. However, in the driverless cars of the future: – traditional carmakers’ share in added value can decrease to 40 per cent, while – 40 per cent of added value is provided by the manufacturers of hardware required for limitless mobility based on digital connections (e.g. Apple, Samsung) and of software indispensable for managing big data bases and geographical locations (e.g. Google, Tesla, telcos)

Perhaps there is not such a clear boundary between the era of globalisation and that of technology as the one indicated by generational cultures: – The classical type of the era of globalisation was the relentlessly performance- and result-oriented, materialistic and a bit hedonistic yuppie, driven by their hunger for profit, usually working in and getting rich from the financial sector. – On the contrary, members of the generation Y (born between 1981 and 1995) and generation Z (born after 1995) are perhaps less materialistic than yuppies were, and much more open to com-

– 20 per cent is added by platforms providing and organizing mobility (e.g. Uber, Zipcar, Car2Go).

munity solutions, and as such, platforms based on community sharing.

However, it is more than merely the changes of proportions. In the case of self-driving cars, the companies providing related digital services and contents and software manufacturers will have the greatest profitability and marginal profits, while traditional car makers might get stuck into the low-profitability segment of the new car making model.

Naturally, those who expect the death of capitalism everywhere, see the new generations as the grave-diggers of capitalism. However, there is a great difference in technology and the way it is used. Members of generation Y and generation

The platforms that have appeared in the lodging and hospitality industry, including homestays (e.g. Airbnb, HomeAway, 9flat.com) and service-provider platforms related to tourism (e.g. EatWith, ToursByLocal), have radically reduced market entry costs and made it available for private individuals directly, easily and cheaply. Their common feature is that they partially eliminate traditional market operators. These platforms will always be in advantage against traditional corporates (e.g. hotels, travel agencies) because: – private individuals do not make their temporarily unused assets accessible to others according to return of capital expectations of the market, – there are no fixed operating costs payable on providing access (as opposed to companies) and – often these activities are not taxable, either. At the moment, the battle is fought in the field of regulation. Traditional and rigorously protected sectors – such as taxi drivers or lodging service providers – rely on state control and regulation. Digital platforms refer to user’s feedback, its market cleaning and managing role, that is, reputation.

Tech-tonic shift

– d ue to an almost zero marginal cost, the “democratization” of the production of digital assets, and 3D printing technology, we can be producers and consumers at the same time in a growing number of fields, from energy supply to objects of everyday use; finally, – robots and automatization will render production so efficient that social welfare can be provided for everyone without work and jobs in their current sense. The arguments look logical at first sight: if something has an almost zero production, storage and distribution cost, and we can get this product for “ free”, because it has no market price, either, we can hardly talk about commodity-market capitalism. If we can be producers and consumers of several products at once, there is no need for markets or capitalist companies. To put it bluntly: according to ideology-based myths, today we are entering a new world in which the market will not be dominant, and we can bury capitalism, which is a great pleasure for ideologists, since anti-globalisaton movements were unable to do so.

Z are digital natives indeed, growing up with this technology from their early childhood, and for them unlimited global and mobile communication equals with everyday life. Global connection, however, is more than a mere hobby or pastime; it is essential for positions and careers awaiting for them in the age of technology. While the previous generations pursued several occupations – consecutively – during their lifetimes, members of the generations Y and Z simultaneously do several money-earning activities, and will tend to pursue various career paths at once. This – compared to the previous one – more uncertain but at the same time, slasher career lifestyle is not just enabled but forced by technology. NEW MYTHS – THE DEATH OF CAPITALISM During each change of era – including the beginnings of globalisation in the 1990s – new myths are born. As we gradually proceed into the era of technology, there is a growing number of myths. – V isions built on ideology – we can say, almost naturally – are expecting the death of capitalism.

– I llusions woven from sentimental dreams envisage a future relying on sharing and community use. – P essimists project an ever-extreme market version of capitalism. Ideologists think it is a precursor of the death of capitalism that a widening range of assets and services is available for free in the digital economy even today (e.g. Google, Gmail, Chrome, Skype). There are four phenomena behind this: – a lmost zero marginal cost, which means the cost of manufacturing another product that is digitally produced or that has digital content (e.g. music, video, software, e-book) is practically almost zero, after the return of one-off development costs; – t he logic of a long supply curve, referring to the fact that not only the manufacturing cost of a new unit but also the storage and distribution cost will be near zero, ensuring long, almost infinite supply and, at the same time, will also democratize the production of digital assets (e.g. YouTube, e-books);

The slogan of “there is no free lunch” will go down the rabbit hole of the past, defeated by technology. The problem is that nowadays digital platform giants providing their services for “free” are companies listed in stock exchanges with capitals of hundreds of billions of dollars, with an annual profit of tens of billions. Economy seems to operate in a way different from the one anti-capitalist myths would prefer. NEW MYTHS – A SHARING ECONOMY Illusions made of sentimental dreams do not go that far: a new type of economy and society will evolve, based on sharing, community use, and the collaborative and co-operative production of goods and services. Common attributes of these solutions are: – they establish a direct connection between private individuals offering goods or services and seeking them (peer-to-peer economy); – private individuals offer their goods and abilities not used temporarily or fully, and they share them or their use – temporarily – with others (sharing economy, on-demand economy);

– the goods and services offered are often used not only by individuals but a co-operating group of individuals (collaborative consumption); – the mediation between the private individuals’ demand and supply is done by digital platforms, based on Big Data bases and sophisticated algorithms (platform economy); – members of the generations Y and Z are the main users of community solutions, who, the illusion says, are less materialistic than the members of the previous generations. Again, the appealing arguments seem logical at first sight: if digital platforms diminish the conditions of market entries to such an extent that millions of private individuals can directly establish economic relationships with each other, it is not just faster and cheaper than the traditional market solution, but capitalist companies are not needed anymore, either. That is, a community Kanaan will come. One problem of the vision of the community economy is the same as that of the myth about the death of capitalism – again, there are ruthlessly profit-oriented digital platforms in the background. What seems to be the community sharing or use of goods at first sight – such as car share (e.g. Zipcar, Drivy, Car2Go) or accommodation or home share (e.g. Airbnb, HomeAway) – is actually nothing else than short-term rental between private individuals. Basically, community economy is not about the community share of property but the coordination of the knowledge of market operators, now the masses, and the enhancement of market efficiency. Platforms have not replaced capitalism with a new, community economy; to the contrary, they made the market and the market economy more efficient. NEW MYTHS – EXTREME MARKET CAPITALISM Finally, according to pessimistic visions, platform companies simply sell utopian dreams for money, e.g. the hopes lain in the community economy of the future. The argument is that by managing the market much more efficiently than before and radically reducing the conditions of market entries, the platforms, in fact: – market reciprocal human relationships (e.g. instead of a lift as a favour, a payable carpooling system of BlaBlaCar);

a nagy korszakváltás

– guide job-seekers towards self-employment, which is occasional and lacks social protection (e.g. Uber, Amazon Mechanical Turk, TaskRabbit); – are driven by the economic efficiency of networks and therefore establish monopolies and corporate empires larger than ever before (e.g. GAFA, NATU, BATX); – make people vulnerable with the huge data bases collected about users, with which everything is known about them (e.g. Digital dictatorship, "Big data = Big Brother”). The future vision of extreme market capitalism, however, seems to mismatch the scale. Platform economy – although it is a serious challenger – has not defeated the traditional one in any field, but rather completed it in most of them. People belonging to the lowest segment of the labour market, characterized by low qualifications, could find only badly paid, seasonal, occasional work earlier as well, and platforms have made their access to the demand for them at least faster and simpler. Due to network effects platforms do grow quickly, but because of the fast changes in technology, monopolies of the digital economy are more short-lived today than in previous eras. We leave masses of data behind on digital platforms, which, after correlation analyses, can even predict human behavior, but it does not mean that knowledge of cause-and-effect depth is accumulated about us. Finally, we should never forget the fact that technology, including the world of platforms, has been and is created by humans, thus the direction of its development also depends on human society. NEW DYNAMISMS Finally, the era of technology promises to bring new dynamism into the economy and the society, because, among others, this era can make innovation more open, democratic and massive, compared to the current one. When it comes to innovation, we tend to: – overvalue the role and intellectual achievement of researchers and developers, and, simultaneously, undervalue business solutions and the role of launching a new product on the market (although the main point of innovation is the path an idea takes until it gets to the consumer, for which an entrepreneur is indispensable);

“a new type of economy and society will evolve, based on sharing, community use, and the collaborative and co-operative production of goods and services” – overvalue the results of individual innovators or entrepreneurs, and undervalue the performance of teams behind the innovation (although there is usually a small team, with the headcount of a start-up, behind most innovations); – overvalue the role of large corporations and undervalue small start-ups, sometimes merely because they are small, even though we can expect only incremental innovations from large companies, which are the prisoners of their earlier successes, while almost all radical, disruptive innovations are delivered by start-ups. Digital technology and unlimited, global and mobile communication, however, open up the opportunity for innovation to break away from the elitist idea which evolved around it in the mid-20th century. The future lies in an innovation process in which masses participate, and which is based on a bottom-up approach and is open to everyone. The greatest virtue of innovation is – as it has been long known – bringing unmatched dynamism into economy and society. Naturally, in itself it is just an opportunity, the implementation of which requires: – competition (the greater the competition is, the more companies are forced to succeed on the market by way of innovations – and not their monopoly–, and the more room start-ups coming up with radical innovations will have); – a flexible labour market (because with mobility, it is able to handle the dynamism of terminated and newly created jobs, as Joseph Schumpeter has put it, ‘the creative destruction’); – good education (because without it, there is not such human capital which can create internationally competitive innovations, and even the skills

and abilities required to be able to compete with robots and automatization will not evolve). In the era of technology, winners will be the countries that create the conditions necessary for it – competition, a flexible labour market and good education – as soon as possible. Globalisation is accompanied by, among others, the territorial outsourcing of economic activities, often into countries competing with cheap workforce. Thus, it is often a zero-sum game that we can hardly win, unless we want to be cheap outworkers forever. On the contrary, the development and application of technology is a positive-sum game. To put it very simply: while globalisation is about how one person’s work can be substituted with the work of another person living in another region of the Earth, the era of technology promises the chance that technology can be complementary to human

work and a tool to create new values. For Hungary’s catch-up it is crucial to use new technologies and the new era of technology to create new value. According to a quote by Nobel Prize winner economist Paul Krugman, ‘Productivity isn’t everything, but in the long run it is almost everything’. In a longer term, the only path to the growth of welfare leads through economic productivity and the increase of newly created value per employee. And the key to increasing productivity – and with it, the dynamism of the new era – is innovation. The 20th century was the century of the welfare state building upon the earlier industrial revolutions, of welfare re-distribution, and of John Maynard. The 21st century will be the century of innovation, innovative entrepreneurs and Joseph Schumpeter. Paris–Sukoró, 2017

The author, Zoltán Cséfalvay, is a university professor, Minister of State for Economic Strategy at the Ministry for National Economy from 2010 to 2014, the Permanent Representative of Hungary to the OECD and UNESCO since 1 st October, 2014. His book, The Great Change of Era was published in June 2017 by Kairosz Publishing House, with the support of PADA (Pallas Athéné Domus Animae Foundation).

A HUNGARIAN COMPASS BETWEEN EAST AND WEST

A HUNGARIAN COMPASS BETWEEN EAST AND WEST Author: Sándor Kopátsy

We, Hungarians have got between the East and the West several times throughout our history. We can even say that we have had to manoeuvre in this situation continuously for 1,200 years. In our times, we can witness the EU seeking direction and the East, led by China, accomplishing unprecedented economic success, while greater social and economic changes have occurred in the past 50 years than in the previous five-thousand years. We must find reference points in this transforming world, and be successful by relying upon Hungarian virtues and using a good compass. We have been caught between the East and the West several times throughout our history, when western and eastern major powers declared our region a buffer a zone between them. First, we got into the grip of the East and the West when we conquered the Carpathian Basin. We were the first pastoral people heading for the West who met a settled population using a three-year crop rotation in Transdanubia and along the peripheries of the Great Plain; and the foundation of our state coincided with the European semi-barbarian people’s conversion to Christianity. It was in the 16th century that we became a buffer zone for the second time, because in its war fought against the Hispano-Austrian Empire, it came in handy for the West, conquering the oceans and becoming also religiously independent, that the Turks could threaten Vienna through us. Typically, the Turkish has not yet understood why we talk about a Turkish occupation whereas all they wanted was to put the Habsburgs, the oppressors of Western-European Protestants, under pressure. We played a part in one of the greatest struggles of European history, and protected Christianity against pagan Turks. We were caught between the East and the West in Yalta for the third time. Essentially, the same thing happened in 1944 and in 812: western and eastern major powers declared our region no man’s land. There is an uncanny resemblance, with the difference that it was not the Ottoman Empire but the Soviet Union that could dictate in this no man’s land. Thus, there have been several instances in the last 1,200 years when

we have become participants in a great European play. Let us examine now the current state of Europe and the East, and what their future economic, social and geopolitical prospects are. Let us have a look at what we can expect from the East and the West.

“In the past fifty years only those countries were economically successful where the behaviour of the population was characterised by puritanism in the West, and a Confucian lifestyle in the East.” EAST AND WEST RUNNING ON DIFFERENT TRACKS In the past fifty years, only those countries have been economically successful where the behaviour of the population has been characterised by puritanism in the West, and a Confucian lifestyle in the East. Thus, the last half-century clearly demonstrates that success lies in these two kinds of conduct only; only a

puritan West and the societies of the Confucian Far East have advanced compared to the global average, while all other cultures and behaviours are lagging behind. However, the West and the East are progressing on completely different tracks, as international data and analyses demonstrate. Today, also politicians and economists are beginning to realise that the performance of developed Western societies is just a fracture of what have been achieved in the Far East. We have to come to terms with the fact that even puritan Western societies cannot keep the pace dictated in the Far East. Economics has not even started to looking into the reasons for Far Eastern successes. These reasons, however, are obvious on both sides. •T he employment rate of the working-age population is high in the Far East and low in the West. This difference is especially sharp in the bottom quality quartile of the workforce. Western politicians start to perceive now that they are unable to provide employment for low-quality workers, who are not motivated enough to find work. • I n the far East, savings are very high, while they are very low in the West. No matter how evident it has been for decades, no great importance has been attributed to it. • I n the Far East there is a strong desire to learn, while it is very weak in a considerable proportion of Western population. The advantage of the Far East in the effectiveness of education is even greater, yet it is not addressed. The puritan West wants an ever-improving life, but, at the same time, wants to work increasingly less and enjoy more years after retirement. The poorer the people are in the Far East, the more they work, learn and sacrifice for learning. People work considerably more in four former British colonies, and especially in the United States, than in EU Member States. It is sufficiently evidenced by highlighting some figures. Regarding the number of hours worked annually, Hong-Kong, Singapore and South Korea stand out. In 2010, the number of annual working hours per worker was in the 2,200-2,400 range. It must be added that this figure was as high as almost 2,800 in South-Korea in 1980. Among the leading economies of Europe, this figure has dropped below 1,500 both in Germany and France in the past 15 years. The number of hours worked annually has been declining most rapidly in the Netherlands and France between 1980 and 2010, by an annual average of 0.8 and 0.6 per cent respectively. In 2014, the number of hours

spent at work weekly was 28.9 in the Netherlands, and 36.1 in France, according to OECD data. These figures alone would be sufficient to demonstrate that while Europe wants to succeed with less and less work, the greater the trouble the Far East is in, the more it works.

ABOUT THE AUTHOR The over-half-century long career of one of the most renowned economists of Hungary encompasses the economic reform agendas and the control of the privatisation process during the change of regime to the creation of today’s novel economic approach. He has been involved in all economic reform agendas since 1953. He was President of the National Planning Office and the Revolutionary Committee of Ministries during the revolution of 1956. Due to his role taken in the revolution, he became an ignored black sheep of the Kádár regime. He has published some thirty books, in which he deploys convincing and modern arguments to support the truth that István Széchenyi proclaimed 170 years ago, ‘The quantity of scientific people is the real power of the nation’. According to his creed, in today’s developed societies, it is no longer capital investment or infrastructure that dooms an economy to succeed or fail but the quantity of highly-skilled, talented workforce. And a society having adopted this new approach requires such new economics that takes intellectual capital as well as physical capital into account – even bringing talent, quality training and expertise more and more to the fore. His essay submitted to Polgári Szemle (Hungarian journal of social sciences) and his upcoming book is centred around this subject. If we contrasted the number of years spent in retirement with the number of hours worked rather than with the number of years spent in work, we would have an even more tragic picture. That is because in EU countries the working time has dropped by 10 per cent on average over the past 30 years. It is coupled with a nearly 10 per cent increase in the number of years spent in retirement despite the fact that retirement age has been raised. More typical than anything else is that while in the EU Member States, primarily in the Mediterranean countries, the rate of people retiring before reaching full retirement age steadily grows, in Japan people are happy to work past the

A HUNGARIAN COMPASS BETWEEN EAST AND WEST

Hours worked per employed person by countries 1980-2010

Source: The Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics

retirement age. Let us now look at the difference between the official retirement age and the actual age of retirement by region, based on OECD figures. We can see that in Japan and South Korea people work longer than they are required to; in the USA they work roughly as much as they must; while in Europe they work less. Differences in the field of intellectual property, knowledge and education are even greater than in the activity of those participating in producing the national income. Based on educational achievements, all Far Eastern countries are ranked in the top class: only Finland is competitive with South Korea, Taiwan, Japan, Singapore and Hong Kong. Except for Japan, the countries listed are even farther ahead in terms of the percentage of university students studying at world-famous western universities and their academic achievements there. Moreover, the superiority of Far Eastern countries is even greater in terms of the degree to which families support afterschool learning. In these countries, it is quite common that families spare no effort or money to help their children achieve as good academic results as possible. Admittedly, there is no better predictor of future achievements than the quality of education. The outcome of school-based education is primarily

dependent on parents’ attitude to the effectiveness of learning. The advantage of the Far Eastern culture is the greatest in this respect. EUROPEAN DILEMMAS Today cooperation is more useful than exploitation but the crisis of the Eurozone has made it clear that the European Union is walking the wrong path. Instead of being strong, the European Union wanted to become big at any cost and now fails to realise that it is exactly this intention that makes it increasingly weak. Competent officials of the European Union have not yet realised that where there are tensions in the financial world there society is ill and it is not possible to cure this disease by financial means. I would not entrust my money to those who have introduced a common bank and a shared currency for the Germans, the Greeks and the South-Italians. Essentially, there are three significantly different cultures and, consequently, three different kinds of Christianity in Europe. Of these three, only one, the North-Western one, belongs to the top segment of the world, and this is the way that the French, SouthGermans and Austrians live and behave. In Europe, it is only these peoples that belong to the advanced

West. European Mediterranean peoples have received and are still receiving a huge amount of help from Northern peoples through tourism and aid, and would not have achieved on their own even the level where they are now. Concurrently, Orthodox Christians are increasingly dropping behind. Currently, the European Union is uncompetitive against the two other giants, the United States and China. The leaders of the European Union have failed to reckon that an economic community cannot be healthy unless the behavioural culture of its population is more or less identical. If the European Union had only expanded up to a point where it can still preserve its relative homogeneity, it would be considerably smaller but significantly stronger today. There was no point in pushing the boundaries of European integration any further. Ever since I was a student I have had the opinion that the level of social development of every country in Europe can be measured in a coordinate system where the y-axis stretches between Malmö and Athens and the x-axis stretches between Moscow and Seville. To put it more simply: “Tell me how strong the effect of the Gulf Stream is and I will tell you at what stage that country is.” That is the logic on which my book entitled Towards the West has been based. This book introduces how and why the social and economic development that started in Egypt then moved towards

the North-Western region and, at the beginning of the third millennium, culminated in Norway. The crisis of the European Union has been made apparent by the exit of Great Britain. From that moment on, the European Union could not remain what it has been since its creation. Or it will revert to what it initially was: the free movement of goods, services and people, which means a free market of goods and services. It can only be realised if the Member States’ sovereignty is preserved. Economists have not clarified to date the prerequisite to the free movement of goods. The free movement of goods and services essentially can operate effectively between states of all kinds of cultures and levels of development if, and only if, the sovereignty of states to change the value of their currencies is preserved. Only those states which are culturally related and have an almost identical level of economic development can have a shared currency. The European Union should be a customs union of free and sovereign states. The EU was a lame duck with Great Britain but it is even more so without it. This is also true of its role in the world economy but goes even more for its military strength. Europe is not a player in world politics in terms of its military power. NATO essentially means the United States, the other members devote limited resources to this purpose, but even this has no real military significance. Military spending of the

A HUNGARIAN COMPASS BETWEEN EAST AND WEST

United States has been significantly curbed, from 5.3 per cent to 3.7 per cent in the past 8 years. The EU Member States’ expenditure, except for Great Britain, which exited, remains below 2 per cent and its share is decreasing, except for Poland where it has slightly increased. The lack of Europe’s military power is well illustrated by the fact that the European Union is not a military player without the United States. It must also be added that it is not competitive economically, either, and is increasingly lagging behind. THE RISE OF THE EAST If we want to see the future, we have to focus on China. This is true from several aspects. China is currently the engine of global economic growth to the extent where its development has a crucial impact on global demand for raw materials. As a result of China’s amazing development, the world economy’s demand for raw materials has grown at an unprecedented pace and, as a consequence, the amount and percentage of mining royalties have also grown. Such growth in demand for raw materials is unmatched in the history of the world economy. China’s size and speed of growth is unprecedented. The first 200 years of the industrial revolution of the West affected one-tenth of humanity and result in a growth in per capita GDP of hardly 1 per cent. By contrast, China represents one-fifth of the global population and has increased per capita performance by approximately 10 per cent on average in the past 25 years. It is enough to think about the fact that the industrial revolution was predominantly based on coal and iron ore, and Europe, poor in these two products, was able to meet demand for them until the mid-20th century. Today, China produces 10 times as much steel as did Europe at the end of the 19th century. China, however, has walked the classic path of industrialisation in hardly a quarter-century, therefore the level of its demand for raw materials is declining, so in the future the greatest growth in consumption demand will no longer come from mining but from agriculture. Social scientists have been hardly dealing with this shift in demand but biologists have. Thanks to them, the revolution of producing aquatic animals has begun. We are still at the early days of this revolution but its speed is several orders of magnitude faster than that of the revolution of terrestrial livestock because their potential reproduction, and consequently, their selection, is significantly greater. The engagement of water, especially salt sea water,

in production is likely to have a much higher potential than terrestrial areas. The fact that in the foreseeable future the greatest consumer demand will be for food production has, to the best of my knowledge, been so far realised only by the Chinese. This is no surprise because China, an overpopulated country compared to its arable land area, will be the largest consumer of foods. Characterised by slow population growth but rapidly growing wealth, China will increase meat consumption but will be unable to produce the forage which is required. Today, it is reflected by China’s being the largest soybean importer of the world. Its leaders have already formulated the idea whereby feeding the population can primarily be organised in Brazil. China has indicated it with actions, which is shown by the fact that they are looking for opportunities to pursue closer political and economic ties with Brazil. As an example, it has been announced recently that China has undertaken to build the railway connection between the two oceans in Brazil. In other words, they have already realised that effective access to the Pacific coast with goods can only be possible through a modern and high-performing railway. Seeing such developments, I am saddened to see how mundane and narrow-minded the EU leadership is about Europe’s future, compared to China’s leaders. Seeing the pace of China’s development, the West should be both more modest and more patient before it expresses criticism. For example, in relation to the natural environment and water management it can be said that China is the best water manager in world history. It has 7 per cent of water resources in the world and supports 20 per cent of the world’s population with that. Despite its limited opportunities, China has increased per capita income and wealth 5 times of the EU average and 10 times faster last year alone. THE ROLE OF A COMPASS World economy and the power centres therein are undergoing transformation and such transformation always implies conflicts but it also offers opportunities and possibilities. History has proven that ordeals to which a society is subject always lead to greater results if they are endured. What is it that we, Hungarians, can rely on in this changing global economic and geopolitical environment? Hungarian people are exemplary in their diligence. Economic success in our present age depends, and

will depend even more in the foreseeable future, on which people can make best use of its time. In the 1980, we were the best of all peoples at using the opportunity to earn supplementary income by work done in our leisure time. In other words, there has never been a people that has relied on enterprises to such an unprecedented degree. Our entrepreneurial spirit is a great virtue. Hungarians are individualistic and good organisers. We should not just stress the fact that we arrived here as a pastoral people and were able to establish a lasting state in that capacity but we must also see that we are still bearing its consequences. Pastoral people are inherently characterised by total economic atomisation and, as a counter-balancing factor, an organisational capability based on arms. Therefore, in their economic interdependence, shepherds also lived in constant fear of others and it was this duality that determined their character. Shepherds were individualists, made excellent soldiers and their leaders were excellent organisers. That is what both our individualism and our desire for unity derive from. Creativity and the Hungarian genius. As my career led me into the field of economic policy I instinctively turned to the works of Széchenyi, whom I consider a political genius. By my old age I think that his greatest merit was that, ahead of his age by 200 years, he realised that it was not more arable land but more

educated people that was primarily needed. Today we can see that his prophesy has been fulfilled to an increasing degree and the greatest asset is an educated mind. István Széchenyi did not only give crop production areas to the country but also the Academy of Sciences, the Chain Bridge connecting Buda and Pest and, most importantly, a vision of the future. Just as a small horseshoe multiplies the power of horses, so does a compass weighing only a few ounces multiplies the safety of ships at sea in foggy or overcast weather, enabling navigation far from dangerous coastlines. In my life as well, my compass has been a prerequisite to all my unexpected successes. I have never got lost; I have always realised where political boundaries, invisible to many but life-threatening, lied and could remain within my possibilities. I did not want to live long; I am already 35 years older than I was hoping to be. I contribute it to my good luck, as during the war I was brought on the verge of physical and mental demise many times. However, I have never got lost amidst the conditions of the country and the world, and survived everything because I have had a good compass. I feel myself lucky because I have lived long enough in an age where we have enjoyed much more progress during a hundred years than for many thousand years beforehand. Events are accelerating and it is especially important to have the ability to orientate ourselves under rapidly changing circumstances.

RECIPE FOR ECONOMIC GROWTH

RICARDO HAUSMANN: THE GROWTH AND DIFFUSION OF KNOWHOW Author: László Gere

Internationally renowned macro-economist, Ricardo Hausmann spoke about the growth and diffusion of knowledge capital in his keynote speech Growth and Diffusion of Knowhow at the annual conference of the Regional Studies Association in Dublin in 2017. The audience could learn about the recipe for economic growth and what it has to do with monkeys jumping on the trees.

Planning of Venezuela and as a member of the Board of the Central Bank of Venezuela. Between 1994 and 2000, he worked as Chief Economist at the Inter-American Development Bank, where he created the Research Department. In addition, he was Chair of the IMF-World Bank Development Committee. At present, Hausmann is director of the Center for International Development (CID) at Harvard University and Professor of the Practice of Economic Development at the Harvard Kennedy School of Government. Ricardo Hausmann He is an economist of Venezuelan origins, born in 1956. His research primarily includes theories of economic growth, issues of macro-economic stability, international finance, structural transformation, macro-economic volatility, gender differences, coordination of financial aids and social dimensions of development. He holds a PhD in economics from Cornell University. He was a Professor of Economics at the Instituto de Estudios Superiores de Administracion (IESA) in Caracas, Venezuela between 1985-1991, where he also established the Center for Public Policy. From 1992 to 1993, he served as Minister of

As director of the Center for International Development, his area of research focusses on solving global challenges with breakthrough research on economic growth, institutional capability and policy design. He pays special attention to how regions and countries can accelerate growth. He leads CID’s Growth Lab where he works on theories of growth and structural transformation, developing practical tools to apply these theories and use them in selected country studies. He has advised governments in over 40 developing countries on creating effective growth strategies and development policies – sometimes directly and at other times through major multilateral

banks (such as the International Monetary Fund and the World Bank), as well as regional development banks (that focus on Latin America, Africa, Asia and Eastern Europe). His academic work has been published in leading journals (Science, the Journal of Development Economics, the Journal of International Economics, Proceedings of the National Academy of Sciences, the Journal of International Money and Finance, Economic Policy and the Journal of Economic Growth) as well as in other media outlets such as The New York Times, The Financial Times, The Economist, The Wall Street Journal, The Washington Post, and Forbes Magazine. Regional Studies Association Annual Conference, Dublin, 2017 Hausmann spoke about the growth and diffusion of knowledge capital in his keynote speech Growth and Diffusion of Knowhow at the annual conference of the Regional Studies Association in Dublin in 2017. For several decades, Hausmann’s research has been focusing on modelling the development of the world economy, describing the economic The Regional Studies Association was founded 52 years ago (in 1955), and it welcomed more than 600 participants from nearly 50 countries of the world (four-fifth of the participants came from the Member countries of the European Union) at its annual conference in 2017. During the four-day long event, some 472 papers were presented over 150 workshop sessions.

characteristics of specific countries and predicting their development paths. Within the framework of a research launched in 2006, he and his research team primarily considered export data to identify macro-trends; these were arranged into a matrix, using the results of network research, and eventually published with César Hidalgo in their study The Atlas of Economic Complexity.

“In our modern world, it is not only prosperity that has increased but also the income differences between countries have done so.” In the preface to the Atlas of Economic Complexity, the authors start with thoughts similar to the ones presented in Hausmann’s keynote speech. Over the past two centuries, mankind has undergone tremendous development, we accomplished significant results, such as our conquest of the skies and the moon. Our lives have been made easier by a large number of more modest, yet crucially important innovations, continuously contributing to the increase of our general prosperity. These feats transforming our lives include electric bulbs, telephones, cars, personal computers, antibiotics, TVs, refrigerators, water heaters and a range of other gadgets. We live in a world of such innovations that benefit us despite our minimal awareness of them, such as advances in electric power distribution, agrochemicals and water purification. This progress was possible because, among others, our productivity has grown significantly. This was not, however, accomplished individually: as individuals, we are not much more capable than our ancestors. But collectively, as societies, we can achieve much greater results. In our modern world, it is not only prosperity that has increased but also the income differences between countries have done so. As far as Hausmann can see, it is productivity that accounts for income gaps. And productivity is primarily influenced by existing knowledge. Our tools are not different,

RICARDO HAUSMANN: THE GROWTH AND DIFFUSION OF KNOWHOW

and are available for anyone in todayâ&#x20AC;&#x2122;s interconnected world. Difference lies in knowledge and knowhow. Embedding knowledge is not as simple as, for instance, the replacement of tools, it is a time- and resource-intensive task; and the quality of knowhow, and the specialised knowledge that different countries hold, that is, their degree of specialisation, have an increasing role in enhancing the economic output. Our most prosperous modern societies are wiser, not because their citizens are individually brilliant, but because these societies hold a diversity of knowhow and because they are able to recombine it to create a larger variety of smarter and better products. For example, several

The social accumulation of productive knowledge has not been a universal phenomenon. It has taken place in some parts of the world, but not in others. Where it has happened, it has underpinned an incredible increase in living standards. Where it has not, living standards resemble those of centuries past. The enormous income gaps between rich and poor nations are an expression of the vast differences in productive knowledge amassed by different nations. These differences are expressed in the diversity and sophistication of the things that each of them makes.

teams are involved in constructing an aeroplane, and they can carry out only particular stages of the whole process, but their knowledge sums up (and the sum of the parts does make an aeroplane).

knowledge they hold, so do products. The amount of knowledge that is required to make a product can vary enormously. Most modern products require more knowledge than what a single person

Just as nations differ in the amount of productive

Japan Switzerland Germany South Korea Austria Sweden Czech Republic Hungary Singapore United States Finland United Kingdom Slovakia Slovenia Ireland Italy France Poland Belgium Israel

RICARDO HAUSMANN: THE GROWTH AND DIFFUSION OF KNOWHOW

can hold. Nobody in this world knows how to make a computer down to the last detail; it requires the combination of many different fields. That is why firms in a rich country are much more connected to other firms than firms in poor countries. For a society to operate at a high level of total productive knowledge, individuals must know different things. Diversity of productive knowledge, however, is not enough. In order to put knowledge into productive use, societies need to reassemble these distributed bits through teams, organizations and markets. Accumulating productive knowledge is difficult. For the most part, it is not available in books or on the Internet. It is embedded in brains and human networks. It is hard to acquire; it comes from years of experience. Productive knowledge requires structural changes. Hausmann compares it to learning a language: just as learning a new language requires changes in the structure of the brain and our mindset, so too developing a new industry requires changes in the patterns of interaction inside an organization or society. In respect of economic growth, he calls attention to an important notion, the so-called “product space”. Product space is a term that is used to

describe the network of relatedness between products. Relatedness is associated with the similarity in the inputs required by a certain activity including everything from particular skills, institutional and infrastructural requirements to technological similarity and the like. He cites an example from two relatively successful countries, Malaysia and Chile. Malaysia exports microwave ovens and Chile exports salmon. Salmon is a farm animal. It requires a lot of knowledge of biology and animal health. A microwave oven is

“In respect of economic growth, he calls attention to an important notion, the so-called “product space”. Product space is a term that is used to describe the network of relatedness between products.”

a technological product, an electronic product. It’s difficult to say which one is more advanced or sophisticated, which one will lead to greater economic advancements. But, the central point that he is making is that if for some reason the microwave oven market got into trouble or if the country simply wanted to advance to other product lines, it is relatively easy to redeploy the capabilities from microwave ovens into many other electronic products, while it is much more difficult to redeploy the capabilities utilized in salmon farming to many other products. It is not impossible, but it is much more difficult because there are fewer closely related product lines. It is a metaphor of how this process of moving from one product to another product works in the real world.

would not really matter onto which tree the monkeys jump in this forest because every leap would require the same effort. But if this forest is irregular, with dense patches of trees in some

Hausmann gives another example: let us think of each product as a tree in the forest. Trees are similar and they are at a certain distance from each other. Now think of countries (or firms even) as monkeys living on the tree. In order for monkeys (countries) to progress, they have to move from poorer trees to richer, more fruitful trees, and they do so by jumping to nearby trees. If we are in a forest with all trees five yards apart, it

parts and barren patches in others, then a country that is poorly placed in the forest will have trouble moving ahead economically, it requires much more energy to jump from one tree to the other. This is where the salmon and microwave oven cases serve as illustrative examples. In his speech, Hasumann also emphasises the importance of what kind of product we produce and how many other countries are able to produce it. The graphs made from data lines demonstrate that rich countries share the feature of producing a lot of products that are produced in a small number of countries; by contrast, the poor countries have the common feature not to produce a lot of products in total, and these products are also produced in many other countries.

Another example is used by the professor to illustrate this. Producing products is like a game of scrabble. In scrabble, values are designated to single letters, based on their rarity. More frequently occurring and more easily used letters have less value, while rare and less easily used letters have higher values. Production possibilities exponentially increase in proportion with the size of the existing set of letters. The same analogy applies to products: products that are more easily produced, exported by many or occur in high volumes (such as raw materials) represent a lower value, while special, complex products with high added value and produced by few have greater value.

â&#x20AC;&#x153;In his closing remarks, Hausmann asks the question again: what influences growth? In his answer, he mentions two factors: one is the accumulation of knowledge, i.e. knowhow. The other is the proximity of production techniques in products space, i.e. how related the products a country produces are. If a country has proper, diversified knowledge, and its product mix is adequately related and transferable, the economic growth of the country is wellestablished, based on these two factors.â&#x20AC;?

SUCCESSFUL INTERNATIONAL ECONOMIC CATCH-UP PROCESSES

LEARNINGS FROM SUCCESSFUL ECONOMIC CATCH-UP PROCESSES

Hungary’s fresh start

Author: György Matolcsy – Governor of the Hungarian National Bank

Hungary arrived at the free elections of 1990 and the moment of a fresh start as one of the European nations that have – or as the European nation that has – lost the most over the last five hundred years. In the last twenty-five years, however, we could not rise among the developed countries of Europe. Our real geographical and historical mirror, i.e. the comparison between the Hungarian and the Austrian level of development, reflects an unprecedented failure. Throughout our history, we have never been lagging so much behind the Austrian level of development, quality of life and standard of living as we were at the end of the first quarter-century of freedom and market economy. From 1990 to 2015, Hungary’s economy was catching up with the average of the European Union by 0.5 per cent annually, getting closer to its seventy per cent, while Austria has reached one hundred and thirty per cent of the average level of development of the EU28 countries. In the first five years of the last twenty-five years, the Hungarian economy and society underwent two shock therapies: the shock therapy of market transition in 1991-92, and the shock of the Bokros-austerity package in 1995-96. Then, from 2002 to 2008 indebtedness was rampant. These three events resulted in an annual average pace of catch-up of half per cent. If we take a look at the twenty years following the shock therapies, our approximation to the average level of development in the EU is one per cent annually. If we kept the first one, we would catch up with the average level of development of the EU in some eighty years; if we kept the second one, we would do it in thirty to forty years – neither of them can be accepted as a historic success. The Hungarian history of the last five-hundred years is characterized by similar although different kinds of

failures: the national attempts to rise, at times offering prospects to succeed, were concluded by series of losses of the county’s territory, population, wealth and independence/freedom. In addition to the national failures of the last five hundred years, however, we have some very good news: after tremendous losses, the nation has always been able to make a fresh start. Albeit weakened, the nation and the country could always emerge from dark times with the ability to restart. It was almost a miracle for at least two times. The losses of the 1500s and the 1600s, and the losses of the three world wars of the 20th century – the first and the second world war, and the Cold War – could have been fatal, according to current scientific knowledge – but we made a fresh start. Compared to these two historic epochs, the losses of the quarter-century between 1990-2015 are minor quantitatively, but major qualitatively. The two shock therapies and the repeated indebtedness of the country entailed permanent structural distortions both in society and economy, therefore a fresh start is at least as difficult now as it was earlier. Although there was no fracture in the territory or the population of the country, but there was one in national wealth, national market, corporate structure, as well as the capital and credit system. Singapore, Hong Kong, the Scandinavian economies, Iceland, Dubai, Slovakia, the Baltic states, Catalonia

have made great accomplishments with a small territory and a sparse population. So have Bavaria, BadenWürttemberg, Austria, South Korea and Poland, but with a middle-sized territory and population, while the United Kingdom, the USA, Japan, France and Germany have done so with a large territory and population. Success has always depended on quality and not quantity. If there was a wealth of natural resources behind growth, it proved to be rather a disadvantage in terms of catch-up. The successful catch-up stories – as our series will demonstrate – share a surprising similarity regarding their major causes. These are not, without exception, quantitative but qualitative factors. It was not the economy inherited that was not decisive but the degree of development created was; not the existence of natural resources but the knowledge of the population/nation; not earlier losses but new victories; not lost opportunities but grabbing new chances. The great majority of success stories stem from failures. England lost the new, independent United States of America in 1812, Germany destructs itself twice within a half-century, Japan suffered a historic defeat, the Irish emigrate, the Finnish drop behind other Scandinavian nations, the Austrian lose their empire: but with a new vision, failure turns into victory. The decisive source of successes is political stability. Short-lived good governance has not brought about historic success in any country. It has taken long decades: a long post-war re-construction period, a long period of peace, lasting consensus-based multi-party democracy or a long period of threat, which created internal political unity. Stability over time is an essential element of success. Each market has needed effective governance, public services increasing competitiveness, and the smart participation of the state, as well as spatial and social homogeneity. Balancing geographical inequalities, closing gaps between developed and undeveloped economic sectors, balancing the productivity between enterprises of different features and strengthening social homogeneity is the sine qua non to success. Adopting successful international catch-up patterns and incorporating them into our vision, strategy and governance is an important factor of success. The closer in space a good example is, the more its pattern could have been used. In Austria and Germany, the most underdeveloped provinces achieved the greatest success because they were pulled along by an adjacent developed area. Education has been a crucial factor in all successes. The competitiveness of academic education seems to

be the most important from the market’s perspective, but the high-quality services of all levels of education operating below and beside have been required for the economic catch-up. Culture, and the value system behind, was a hidden but crucial factor of success. Work ethics and work culture, the culture of politics, the civilizational level of lifestyle, sophistication, motivation, diligence, the thirst for knowledge, the culture of human interactions and civic life have proven to be crucial resources in all successful western and eastern catch-up processes. The good news is that despite the past half-millennium and the wasted near past, we have a chance again to rise as a nation, because the opportunity of economic catch-up has opened up again for Hungary. In 2010 we started to turn around the crucial factors of the failure between 1990 to 2010, and by 2015 we made the path to economic catch-up, which had closed earlier, open up again. It opened up, but it turned out that the shadow of the crimes and mistakes of the past is significantly more lasting than it was at previous re-starts. The nature of our century accounts for this. This is not the time of Europe’s success but its relative decline, and, despite all our efforts to build bridges, we will remain a European economy. We are competing with emerging, dynamic nations in global space, while Europe’s relative loss of ground is pulling us back. We are living in an accelerating and expanding globality, where earlier mistakes, unachieved successes or weak structures that evolved cause a disproportionate disadvantage in competition. We had inherited significant weaknesses from previous centuries, but the series of errors after 1990 – due to the acceleration and expansion of the world – have accumulated even greater weaknesses. We have been placed at a disadvantage at factors that are crucial for success. After 1990, we have become a country that is instable over time and inhomogeneous in space: the stability of politics, the economic policy of the government, the development policy and the monetary policy over time have been lost, and spatial, social and economic gaps have widened. The period of failed attempts lasting from 1990 to 2010 cannot be closed simply and quickly. The negative consequences of the two shock therapies and the repeated indebtedness will linger for long decades, even up to the mid-century, because distortions, traps and mines have been incorporated in the operation of the economy, a crucial area of the competition between nations There is no more time to lose, and no more room for weakness.

CENTURY OF THE BRITISH EMPIRE, 1815–1914 Author: Bálint Somkuti

With the naval victory of Trafalgar in 1805, Great Britain undisputedly became the ruler of the Seven Seas. The enormous costs and losses of World War I, however, ended the rise of the island state. In our article presenting global success stories, we are looking for the answer to the question: what factors contributed to Great Britain’s becoming the workshop of the world for a century? The reign of William III (of Orange), starting from the Netherlands in 1688, brought about even greater changes than that of his namesake, William I (the Conqueror). The constitutional monarchy, marked by his name, and the sizzling social, scientific and economic life springing from it, the independent Anglican Church established by Henry VIII, or the fleet ruling the seas after the defeat on the Dutch after a long struggle formed an excellent background to an amazing development. There was a period in this era when one-third of the world’s commercial vessels sailed under the British flag. This advantage, however, had to be topped up with the defeat on the main rival, France. The victory at Trafalgar in 1805, won over the joined French-Spanish fleet by Nelson, had a psychological effect lasting for a century. The system created by the Vienna Congress, closing the era, ensured that for a hundred years no other power attempted to take control over entire Europe. The primary factor enabling the rise of Great Britain was the financial revolution, culminating in an abundance of credit. The British invested immense amounts overseas. It was not only through investment that the empire increased its share in the world economy. It concluded a series of free trade treaties with emerging states or states belonging to the sphere of interest of other countries, such as Japan or Morocco. On the brink of World War I, trade with extra-European partners accounted for almost two-thirds of British trade. By investing earnings from such rarely mentioned, invisible sectors – such

as insurance or shipping – the British gained influence also in such geographical areas that were not directly under their control. Finished products made from imported cheap raw materials reached endusers through the shipping and trade chains owned by the British. Simultaneously, Great Britain also set the standard for an international monetary market. In the mid19thcentury, Great Britain and some of its economic dependencies, including Portugal, Egypt and Chile, were on the gold standard. It fixed the value of a country's paper money in terms of gold and obliged its central bank to convert notes into gold on demand, creating the gold standard existing up to the 20th century. A more liberal social and political background encouraged intellectual development, innovation, and widely available credit promoted the diffusion of inventions. The industrial revolution first manifested in the textile industry, since it required less capital investment. In addition, fashion created a huge market, since trade provided a new material, which was cheaper than wool: cotton. Many people could afford the cotton cloth and copy the attires of the more aristocratic ones. The diffusion of metal spinning machines and shuttles, and the increasing need for metal in other areas of the industry increased the need for iron ore as well. Mining deep ore bodies required pumps, otherwise water shocks made mining impossible. Steam-driven pumps became more and more widespread, and the steam engine, which

USA: IN THE VORTEX OF HISTORY

was perfected in this sector, could be used anywhere to produce power. By using steam engines, locomotives running on iron tracks appeared, revolutionizing land transport. By 1850, ten thousand kilometres of railways had been built in Great Britain; the same as the length of railways on the rest of the continent put together. The advantage of British makes persisted until the industrialization of other European countries, or even longer.

Author: judit Urbán

The United States of America is still regarded a unique power by many, in spite of the fact that international politics is heading towards the formation of a multi-polar system. The “gendarme of the world” is facing difficult challenges, the future holds several dubious factors.

By the mid-19th century, the first steam-powered warships had also appeared. In the fleet competition that was launched by the French, the British quickly regained the initiative. Ships of the line, installed with a two-pipe tower in front and another in the rear, were considered the main weapons until 1906, the launch of the British Dreadnought. This new ship, using all the scientific feats of the era, immediately made all previous ships of the line obsolete. Despite the expectations of its designer, it did not finish the naval arms race but took it to the next level. Sciences also flourished. The era witnesses profound, or, in some cases, revolutionary changes. Suffice to think of Charles Darwin’s evolution theory or John Stuart Mill’s work in politics and economics. The advancement of medicine brought about enormous changes in society. The eradication of famine resulted in a dramatic increase of the population, and, related to this, urbanisation. Changes caused a spectacular transformation within a single lifetime. The spectacular decomposition of feudalism had begun, and the middle-class was continually gaining strength. Social development entailed the transformation of the political system. One of the two significant British political groups, the Tories and the Whigs, the Whig party, which had had a decisive role earlier, had slowly become insignificant by the 1850s, and was replaced by the Liberal party, and following the dissolution of the Tories, the Conservative Party, still existing today, was formed. These organisations were modern parties from most viewpoints. Despite these changes, the British political life of the era was characterized by stability, since the major issues of the era, inflicting continuous crises on the continent, had been already resolved in the island state. Stability was further enhanced by the Labour Party, appearing at the end of the 19th century and representing urban Proletariats.

Scene of the Battle of Trafalgar by Louis-Philippe Crépin, 1807 (Date of the battle: 21st October, 1805) Unsurprisingly, the people of the era deduced the distinguished grace of divine providence from this fast-paced development. Although Lord Curzon believed that "the British Empire is under Providence the greatest instrument for good that the world has seen"; or, as General Smuts claimed, it was "the widest system of organised human freedom which has ever existed in human history", these statements do not reflect the truth accurately. The Empire was never so altruistic as some claim. The British were as zealous in the acquisition and exploitation of slaves as they were subsequently zealous in trying to stamp slavery out, in which they also had interest. When imperial authority was challenged – in India in 1857, in Jamaica in 1831, in South Africa in 1899 –the British response was so brutal that it surprised even their contemporaries. When famine struck in Ireland in the 1840 and in India in the 1870s, the response of the central government was completely negligent. But rigour was not demonstrated in colonies only. Physical punishment was abolished at the Royal Navy only in 1881. Similarly, it was only in 1908 when capital punishments imposed on underage youngsters and children were annulled. Still, generations of navy officers grew up in the knowledge that the Royal Navy was responsible to preserve world order. The general degree of legal certainty, the safety of property and freedom significantly exceeded that of the other states of the era, thus it is not an exaggeration to claim: it was nice to live within the boundaries of the empire.

The United States of America were established by thirteen former British colonies entering into alliance in 1776. In 1783, the new federation of states got successfully rid of the British colonizers – by winning the War of Independence – and soon started to develop spectacularly. European immigrants obtained vast arable lands primarily by removing indigenous people, and established a series of new states. The opportunities offered by the industrial revolution were mainly exploited in the North, while the South was characterised by plantation agriculture using slave labour. The tenure between North and South was growing, and slavery was not the most important root cause at all. The conflict led to a bloody Civil War lasting for four years, in which more American citizens perished than later in the two world wars and the Korean war put together. The armed conflicts ended with the victory of the North in 1865. The development of the USA progressed at an accelerating pace after the Civil War. Agricultural production was extensively modernized. Reaping and threshing machines became widespread, which resulted in a decrease in the need for workforce, and crop yields spectacularly increased. Railway building schemes, disrupted by the Civil War, continued, and by 1910 the USA had had 320,000 kilometres of railway lines. Railway brought people closer, connected remote areas and és introduce them into the bloodstream of the American economy. The country had all the prerequisites for becoming a major power. A considerable part of the vast land area was suitable for agricultural production and was also abundant in mineral resources

essential for industrial development. Continuous immigration, which was unlimited until the second decade of the 20th century, ensured the necessary workforce. The need for workers, however, was perpetual, which resulted in a remuneration that on average was two or three times higher than European wages. Higher wages and the diffusion of retail lending enabled a wide circle of Americans to obtain durable goods, such as automobiles manufactured on assembly lines revolutionising the economy, much sooner than Europeans. This rapid industrialisation and enrichment affected the international policy of the country as well. The bitter experiences of British colonisation and the intrigues of the European major powers made the United States opt for the policy of isolation several times, but it did not mean an overall renunciation of superpower ambitions. In 1825, U.S. President James Monroe laid down the doctrine named after him, according to which “America belongs to Americans”, rejecting the ideas of European superpowers about the Western half of the continent, and, at the same time, implicitly asserting U.S. claims for these areas. In 1846, the war fought against the Mexicans was the first step of realizing global power ambitions, but the USA entered the scene of international politics in the Spanish-American War in 1898. World War I created a new situation, as the supporters of isolation once again gained the upper hand. By 1917, however, it had become inevitable to enter the world war. The leaders of the country had understood if the USA had really wanted to become a leader of world politics, it could have not stayed

away from European battles and post-war division of territories. The 14 points of President Wilson, however, were not implemented, thus between the two world wars the United States once again left the scene of international diplomatic battles, and primarily concentrated on overcoming the world economic crisis, which hit the world in 1929. World War II turned the situation around again: it was increasingly obvious that European hegemony might fall into the hands of Germany under Hitler if Roosevelt and his government did not intervene in the war on the allies’ side.

The United States assumed its clear role as the leader of international politics during and after World War II, at that time together with the Soviet Union. The hostility between the two major powers and their allies, which had strikingly different ideologies and social-economic systems, determined the fate of the world for more than four decades. Military and space technology development consumed immense amounts, therefore it was the Soviet Union that lost in this superpower rivalry, resulting in the fall of the Communist system.

the world hegemony of the USA. In spite of this, the process of the unipolar world’s becoming multipolar has slowly begun in our days. It does not mean, however, that the United States will cease to be a dominant superpower on global level; it just means that it has to share this with others. In the coming years and decades, the United States will have to face several challenges, which will occur in foreign affairs as well as internal economic and social aspects. Such major issues include illegal immigration, the persistent problems of healthcare and education systems. In addition, the shrinking of the American middle-class, the decades-long stagnation of the real value of wages or economic inequalities, which even exceed the income and wealth gaps of several Latin American countries, cause serious problems and lead to increasingly grave social conflicts. The country still reaps large profit from arms export, which accounts for some eighty per cent of the world’s total arms export. Similarly, the Unites States earns huge profit from the developments of IT companies. Still, the U.S. trade deficit has started to rise again in recent years.

Thus, the United States remained the only global major power on the scene of international politics. The bipolar world order became unipolar. U.S. national security advisors – including Henry Kissinger and Zbigniew Brzezinski – dedicated several volumes to the long-term strategy of maintaining

The future holds several dubious factors, which will hinder Washington from retaining its position of a single global superpower. At the moment, we are witnessing the international balance of power becoming multipolar, which will obviously result in changing the USA-centred world.

ITALY: SUCCESSES BUILT ON TRADITION

Scene of Garibaldi arriving in Naples on 17th March, 1861 Contemporaneous coloured woodcut

Author: Tamás Kovács

Of the twenty regions of Italy, it was Lombardy that generated a GDP of a value of 358 million euros last year, which accounts for twenty-five per cent of the national GDP. The region has considerably more similarities to its northern neighbours than to the southern parts of Italy.

This similarity is mostly explained by its diverse history. As a frontier, with the adjacent Alps and its numerous mountain passes, it had been an easy target for looting of foreign peoples. But later, the same mountain passes contributed to its rise, when it became part of important trade routes, with Milan, the region’s centre, in the crossroads. Lombardy attracted significant attention as early as in the late antiquity, when Emperor Diocletian moved the capital of the Western Roman Empire into the city of Milan in 286. At the beginning of the 5th century, however, the Romans were forced to move the capital again, as the city was looted first by the Goths, and then by the Hun troops of Attila in 452. The frequent changes of sovereignty over the area did not change centuries later, either. In the 18th century, after the War of the Spanish Succession, the Austrian Habsburgs took over the area, later followed by the French, led by Napoleon. After the fall of Napoleon, the Congress of Vienna (1814) recognised the sovereignty of the Austrian Empire over Lombardy. Huge Austrian taxes, however, ruined the economy of the region. In addition, Milan’s citizens continued to support the ideas of French liberalism, which were irreconcilable with the absolutist aspirations of the Viennese court. The dissatisfaction of the citizens materialized in the form of the Italian national movement called risorgimento (re-organisation). After the most part of Italy had been liberated from foreign rule, in 1861 the Kingdom of Italy was united under Victor Emmanuel II, Duke of Savoy and King of Sardinia-Piedmont.

The capital was Rome, and Milano received a central role in the economy. A common currency, the lira, was introduced to consolidate the Italian unity. The educational system was standardised to eliminate linguistic differences. The situation of young Italy, however, was unstable, since it had to assume the debts of its predecessor states. It started such a debt cycle that determined the fate of Italy in the next decades.

The justly famous Italian craft industry

„It was not until the end of World War II and the late 20th century that really dynamic changes took place.” It was not until the end of World War II and the late 20th century that really dynamic changes took place. The Cold War presented Italy the opportunity to benefit from its location, and serve as a link between Western Europe and the Mediterranean. After World War II, Christian Democrats came to power, who ensured the political stability that was required for development by governing for several decades. Initially, Italy lagged behind his neighbours in terms of economy. Due to the iron curtain, the United States regarded the country an ally, which promoted its catch-up. In these circumstances, in 1947, Italians joined the Bretton Woods monetary system, which later established the IMF and the World Bank,

which helped consolidate the lira. By joining the UN in 1955, Italy could become a recognised member of the international community, which ensured their return onto international markets.

industry. As a result of the increase of exports, a dual industrial structure evolved, one part of which met the domestic demand and another part of which produced for foreign markets.

Within the framework of the Marshall Plan, the country received over one and a half billion dollars. The ruins of World War II were quickly cleaned up. By 1948, production had reached the pre-war level, and doubled in seven years. By 1958, the lira was considered the most stable currency of Western countries. Undoubtedly, the exploitation of the first natural gas fields on the Po Plain, which began in the late 1950s, contributed to a rapid development, enabling the industrial triangle of Italy to evolve in the area formed by Genoa, Milan and Turin. Its strengthening was further promoted by the migration of the Italian workforce to the northern areas.

Italyâ&#x20AC;&#x2122;s economic policy supporting the industry became a synonym of incentive from 1965. A range of state incentives helped critical strategic decision-making, the acquisition of technical equipment, research and development, and the increase of exports and international exposure. Sabatini, introduced in 1965, was the most successful of the programmes promoting the modernization of machines and technical equipment. During its thirtyyear existence, more than two-hundred thousand enterprises were subsidized, with a total value of forty thousand billion liras. The success of the programme lay in its simplicity and availability. In addition to the national level, economic recovery took place on regional level as well. In 1972, regional offices were established, which exerted influence also over the local industry. The regions could plan local developments, and have influence over the craft industry, vocational training and regional financial institutions. Ossola, passed in 1977, is the most significant of laws designed to incentivize Italian exports. This act assumed the risks associated with export credit, and introduced forms of insurance against the late payment of foreign business

The early 1960s were the period of the Italian economic miracle, when the growth of industrial production reached 10 to 13 per cent, and that of total production was almost eight per cent. The reasons for this success include the fact that the country achieved financial stability, increased the volume of investments, and overturned the trade deficit. The expansion of export served as the engine of development, but it affected only some more developed industries, such as the light and the automotive

partners. By the mid-1970s, fifty industrial districts had been established in the North-East of Italy. The new industrial areas were established exclusively in locations with strong professional traditions. In these places expertise was combined with modern industrial technologies. Companies started to specialise gradually, and produced more diverse products which were, at the same time, of better quality. Rapid development was also promoted by the fact that most companies were established in the countryside, where abundant and cheap workforce was

available for small and middle-size companies, and they could produce at considerably lower costs. The most important advantage of these new industrial districts was that their fundamentals were provided by rock-solid local economic-social communities, characterized by several non-economic factors, such as the typical local culture, shared values and confidence in local organisation. The success of the Italian industrial districts enhanced the special potential of the Italian economy, which was based on local social-cultural roots.

GERMANY: AN ECONOMIC MIRACLE BORN FROM RUINS

Author: Zoltán Eperjesi

The first spark for the German economic “miracle” was kindled by the ideas of the social market economy and Erhard’s persistent economic policy. The whole thing could not have operated without Chancellor Adenauer’s clever way of building relationships – joining the Marshall Plan and seizing the opportunities offered by the Korean War in 1950 –, but first of all, restructuring attempts on world market level worked out the best. This was completed by a series of free trade treaties in Europe and America, including an active participation in the complete re-organisation of the international monetary system. The sum of the above factors granted the Germans unlimited access to a seemingly infinite market

Renowned economist and publicist Gustav Stolper could not write a lot of hopeful things about his homeland in 1947, when he made a diagnosis of Germany. He described a biologically mutilated, intellectually crippled, morally destructed nation, which lived its everyday life without food and raw materials, with an inoperable transport system and an invalid currency. A nation whose social structure was torn apart by series of mass emigrations and expulsions. A country where famine and fear killed hope. Some experts thought it would take as long as a half-century to clean up the ruins of cities and rebuild them. The entire territory of post-war Germany fell under foreign military control, and the majority of people were on the brink of spiritual and financial bankruptcy. Some four million men were killed in the war, and several hundreds of them lived disabled or in captivity. During the dictatorship and the war, millions of young people were mostly raised in the spirit of military service, and they hardly had any time left to learn serious professions. For their relationships maintained with the national-socialist regime, the majority of the intellectual and political elite were taken to internment camps, and masses of people, forced to leave their places of living, migrated from the lost territories of

his conviction in a simple way, “There is no miracle!” The Germans themselves created their own “miracle”, and then also built their myth around it. Renowned historian Hans-Ulrich Wehler named this phenomenon “the German fetish”. He thought the tale-like rise from ashes could not be derived from nothing. Although the British and American bombers had bombed German cities almost flat, most of the industrial network remained intact, that is, the engine for recovery was present from the beginning. After the Nuremberg Trials had taken place, a part of the industrial elite, who had further increased their wealth in the national-socialist regime (through forced labour and the confiscation of Jewish property), could successfully enter the economic bloodstream of the newly formed republic after 1949. Although it was a pact with the devil because of the dark past, without the experience and the capital of this layer recovery could have hardly been as successful as it eventually was. The

Handover of the one-millionth Volkswagen Beetle on 5th August, 1955

Eastern Germany. Nevertheless, a new state was formed in the western part of the country, which soon evolved to be the second largest economy of the world. The Germans living in the young federal republic could hardly believe this. East and West stepped onto separate paths. Conditions for rebuilding were very unfavourable when newly elected Konrad Adenauer and his cabinet started work, and still, they cleaned up the ruins within a decade, and the economy was more vivid than ever. New workforce was urgently needed. Well-trained experts were attracted from all over Europe by the unfolding prosperity. Migrant workers arrived, and many of them stayed in Germany forever. Everything changed completely. The Germans could hardly believe their luck, and all in all, they perceived the events as a miracle. The “economic miracle” became a well-known key word in society, shaping the mindset of a whole generation. But what were the real pillars on which the West-German economic growth lasting from 1948 to 1973 was built? Former Chancellor Ludwig Erhard – whom is still respected by many as the father of the economic recovery, since he was the Minister of Economic Affairs in Adenauer’s government – always doubted that the results were to be interpreted as a miracle. He explained

BAVARIA: IN THE HEART OF EUROPE

Author: Zoltán Boér

The largest federal state of Germany, Bavaria, this developed and rich region, to which we have been tied with a thousand threads throughout our history and in the present as well, has special significance to the thousand-year-old Hungarian programme, the process of catching up with the Western half of Europe. An entrepreneurial spirit, diligence and frugality – these are the traits on which the prosperity of the Bavarians as well as neighbouring Switzerland are based. And there is one more thing: uncompromising solidarity despite diverse nationalities and identities.

self-sacrificing work of hundreds of thousands of women cleaning up the ruins was also an important and indispensable factor. They rebuilt entire cities partly voluntarily, partly under the duress of the Allied authorities – practically without remuneration, for a bigger food portion at best. They were the ones who ensured the cities’ supplies with their hard work, and strongly promoted the economic recovery until the early 1950s.

the summer of 1948, the Minister of Finance hoped that making prices independent would increase production. This reflection is undisputedly one of Erhard’s great merits. Although the Allies found the Minister’s resoluteness and doubtful modus operandi rather outrageous, he remained adamant to implement the reforms. Trade unions curbed their wage claims because they knew if wages rose too fast, no new jobs could be created.

The above example is a god illustration of the Germans’ iron will, the intention to overcome the trauma of total defeat. Diligent work was one of the effective tools of forgetfulness. In addition, the highly debated monetary reform introduced by Ludwig Erhard was also motivating the Germans. As at last it was worth working again – apart from the gift money received initially (every citizen was given 40 marks) and other state benefits – for a salary received in a strong currency, the value of which did not drop to its half from one moment to the other. However, we must not forget that most Germans suffered enormous financial losses, especially those who had savings (deposits), since only six and a half new marks were given for a hundred old ones. With the monetary reform, Erhard’s new legislative package was also adopted, completely re-regulating the economic and the pricing policy. Certain price and wage freezes were gradually lifted; thus, they could be adjusted to market conditions. As production was still insufficient in

The territory of the Free State of Bavaria, the largest province by land area, comprises roughly onefifth of the total land area of the Federal Republic of Germany. The catch-up of the Bavarian economy and the rise of industrialisation started in the early 20th century, when the problems caused by coal shortages were resolved. The state replaced the missing source of energy with hydroelectric power plants. Agriculture also underwent major changes: human labour was replaced by the diffusion of machines driven by electricity. After World War II, despite the shocking destruction, it was the German State that possessed one of the most developed economic infrastructure in Europe. Almost twothirds of the capacities of the former empire survived. This proportion also applied to the province of Bavaria. Well-trained professionals, managers and masses of Germans deported from Eastern Europe were looking forward to focussing the energies of the country, which was adapted to total war, on reconstruction. Looking after the refugees, however, complicated the situation. There were some one million refugees in Bavaria, for a population of seven million people. The silver lining of this dark cloud was the fact that almost sixty percent of newly arriving people had some industrial or economic experience. Furthermore, they arrived when numerous companies – including Siemens, BMW, Auto Union, the predecessor of Audi, and Loewe – which had lain in the Soviet occupation zone relocated their headquarters into Bavaria. But these were not the only

factors that contributed the “Bavarian miracle”. The appearance of the new workforce had a positive influence on development, but the increase of the internal market demand had an even greater significance, as Bavarians took in more people than the national average. After the war, the traditional, agriculture-oriented economy migrated to an industrial-based one, while the federal state was continuously striving for preserving as many traditions as possible, including natural values. Together with employment, industrial output and turnover also increased: they tripled from 1960 to 1975. In the same period, the entire German economy produced an increase of

“The relationship with Bavarians has always been a determining one in the history of our homeland...” “only” 175 per cent. By now, the province of Bavaria is considered one of the most development regions in Europe. The relationship with Bavarians has always been a determining one in the history of our homeland. The pasts of the two countries meet at several points. Bavarians and Hungarians preserved the fundamentals of successful collaboration

throughout the turbulent centuries of history. Settlers, identified by the collective term ‘Swabs’, who came to Hungary from Germany, partly Bavaria, after the expulsion of the Turks, played an important role in this, until their deportation after World War II. After 1990, Bavarian-based companies assumed a significant role in Hungary’s economic catch-up and privatisations. Owing to various projects and the investments made by almost fifteen hundred companies, today Bavarian companies are prominent and essential actors of the Hungarian economy. Bavaria is also Hungary’s distinguished trading partner and political ally to defend the European culture based on Christian values in a classic sense. The successfulness of the Bavarians seems indispensable to implement the thousand-year-old programme of Hungarians, the process of catching up with the West. It is not useless to explore the Bavarian economic miracle for this arduous task. Similarly, we can also learn a lot from the example of Europe’s “ jewelbox”, Switzerland. It is a peculiarity of the country that citizens can express their opinion about nearly all important topics ranging from local problems to the highest levels, a referendum must and can be held even on the amendment of the constitution.

The Swiss economic miracle is based on an entrepreneurial spirit, hard work and capitalization. Its industry is characterised by products that have a higher added knowledge value and are of excellent quality; a considerable part of them are sold abroad. The population’s traditional ability to save money, a political-financial stability and their competence in finance also contributed to Switzerland’s becoming an important banking and financial centre. The bank sector has primarily specialized in asset and securities management, plays a dominant role and reaps profit from tax benefits and special laws. Switzerland is a world leader in subsidizing the agriculture, overtaking the over-subsidized French agriculture. At the beginning of the 20th century, onethird of the population worked in agriculture, but by now, this rate has decreased below five percent. Owing to the restructuring conducted at the end of the 20th century, the number of agricultural plants has hardly decreased, but their size has increased continually, and production has doubled. The industry is characterized by the dominance of sectors requiring extensive expertise, the production of high-quality products, and resilience. Special, unique makes predominate. The backbone of the economy comprises of small and middle-sized

enterprises, which flexibly adapt to market requirements. Two-thirds of all employees work for such companies. Switzerlandâ&#x20AC;&#x2122;s economy benefits a lot from their developed infrastructure as well: their railway, road and motorway networks, as well as their telecommunications networks are among the most developed and the most reliable ones in the world. The standard of education is extremely high and complex; the Swiss put enormous emphasis on vocational training. Switzerland is firmly committed to scientific research, research and development investments account for three per cent of the GDP. Most of these investments are funded by private companies. Regarding the number of filed patents, Germany is the only country overtaking Switzerland. At present, Switzerland is the most competitive state of the world. This is the result of several key factors. One of them is the regulation of the relationships between employers and employees, a cornerstone of which is guaranteeing the continuity of work. Practically, strikes and other restrictive measures are prohibited in all fields of the economy, but employees are granted extensive collective rights in terms of social

conditions and wage setting. The Swiss economy is one of the most developed and stable economies in Europe, while a quarter of the country is uncultivable, almost one-third of it is covered by forests, it has no access to the sea, and is absolutely poor in raw materials. Struggle for existence was the compelling force that created frugality, resourcefulness and a business spirit in Switzerland. Switzerlandâ&#x20AC;&#x2122;s five-hundred-year-long neutrality is an important source of its riches. Switzerland has not been ravaged by hostile troops, the trends of nationalism have not torn the twenty-six cantons apart, the constituent peoples have not turned against each other. Switzerland is still a shelter for investors, due to the strict protection of bank secrets and the uniquely stable value of the Swiss franc. It is exemplary how they forged an advantage from their disadvantageous situation, and instead of following the events they led the changes. Meanwhile the multinational country could remain loyal to its motto, expressing the alliance of cantons and solidarity: One for all, and all for one!

BADENWÜRTTEMBERG: A FORCED MARRIAGE WITH A HAPPY ENDING Author: Zoltán Eperjesi

It started ominously, but it turned out to be a success story. The development of Baden-Württemberg’s economy first and foremost demonstrates how diversity and differences can be aligned for a common goal.

A referendum was held on 9th December, 1951 to decide about the establishment of the third largest province of the Federal Republic of Germany, by merging Baden and Württemberg. Within a couple of decades, the province developed into a real western federal state, a “role model”, albeit the re-united southwestern regions had been rather different economically. Before World War II, both states were considered equally poor and rural. By May, 1945, the fierce battles had destroyed three-fourths of Stuttgart’s industrial facilities and the cities were entirely or partly in ruins. At the beginning of the occupation, the victorious powers were not really famous for their protective care, especially the South Baden and South Württemberg regions suffered the most under French control. Not only did France quickly overcut the trees of the Black Forest, but also removed a large number of machines from factories. By contrast, the USA stopped the massive dismantling of factories in the north of Baden and Württemberg, and in 1948 the Marshall Plan, the economic recovery of the western zones, was launched. The roots of the economic recovery of the newly formed state date back to the 19th century, going back to the textile industry, for example, since the first mechanized cotton mill was in operation in the

Black Forest (in St. Blasien) as early as 1809, after a Swiss mechanic had successfully recreated the legendary “Mule Jenny” cotton spinning mill. Merchant Carl Bockshammer succeeded in smuggling a spinning machine from England to Stuttgart in 1810. The feats of the textile industry soon diffused in Heidenheim and Stuttgart, as well as Karlsruhe and the Wiese Valley. The Black Forest Valley between Lörrach and Todtnau – as well as the Ruhr area – was one of the fastest developing German industrial regions next to the Ruhr area. In 1850, there were 110 textile factories operating in Baden, while some 52 textile factories in Wuerttemberg. The proximity to Switzerland was an advantage, since many investors from South Baden came from the Confoederatio Helvetica. Owing to the development of the textile industry, also the machine industry soon started to prosper. At the same time, high-standard handicraft companies like Voith in Heidenheim, Boehringer in Göppingen, Keßler in Karlsruhe or Lanz in Mannheim further improved. These enterprises later became global market leaders. We can generally state that the germs of the relative prosperity in the province can be found in the machine industry: in 1861, there were 38 engineering works operating in Württemberg and 33 in Baden. Geographical features were also important in the development of industrial centres. The Rhine

and Neckar rivers were considered the main arteries, but not only because of water traffic, but also of energy production. Where the rivers unite in Mannheim, there stands the factory, a song from Baden goes. Most of the goods came on the Neckar from the farther conurbations around Stuttgart, from Heilbronn, Plochingen and Göppingen, where other factories were also operating. Further factories, however, could not be established in the southern Upper Rhine region and the Black Forest because there is not a fast and reliable west-east highway leading from the south of Karlsruhe. Freight is transported mainly in the north-south direction and the number

of industrial centres starts to increase again at the he Rhine Bend towards Basel, that is, the surroundings of Lake Boden. (It has changed recently: by now, most of the chemical and pharmaceutical industry has migrated to Asia, where the textile industry was relocated decades ago.) The watch industry has been an important part of the industrial development of the province. 700,000 chronometers were produced in the Black Forest in Baden in as early as 1857 and 45,000 ones in Württemberg. Moreover, this is the industry through which Baden-Württemberg can demonstrate that

AUSTRIA: CRISIS-PROOF AUSTRIAN REBIRTH Author: Ákos Mechler

By the end of World War II, the Austrian economy had staggered and then almost completely collapsed. The factories and the assets had been almost entirely destroyed. The country had to be rebuilt from this situation, and this process was outstandingly successful, thanks to the intense involvement of the state and to political stability. structural change is possible: with the fine mechanical know-how inherited from the watchmaking, and the hard-working entrepreneurs and workers, several automotive facilities have become market leaders.

“Although when these two provinces were merged in 1952 Baden was different from Württemberg, the regions could develop together despite their different attributes and traditions.” The future of the local economy could have taken a favourable turn after the Kingdom of Württemberg and the Grand Duchy of Baden had joined the German Empire if the Prussian megalomania of the Empire had not halted Baden’s development directions. Maybe a different fate might have befallen such brilliant and pioneering inventors as Daimler or Benz. But World War I and, in particular, its aftermath ruined the earlier development of the Upper Rhine. Alsace became part of France again, and along the frontier it was forbidden to use any technology usable also for military purposes.

This seriously impacted the unfolding automotive industry. The introduction of the demilitarized zone completely halted Baden's industrial development until the 1930s. Moreover, the post-World War I measures have had far-reaching effects, which practically are still felt today. Although when these two provinces were merged in 1952 Baden was different from Württemberg, the regions could develop together despite their different attributes and traditions. Thanks to benefiting from mutual advantages, the political-economic framework building upon identical traditions, but also upon diversity has become increasingly coherent. It is due to the dominance of local and successful middle-sized enterprises. This characteristic further strengthens the economic resilience and self-confidence of this state. Despite the Cold War situation and difficult political struggles, a consensus of local German leaders and economic operators triumphed in merging Baden-Württemberg. The province has taken a major part in several complex and successful international economic programmes within the federal state of Germany. This tendency still lasts today, which is illustrated by three phenomena: a strong specialization of the industry, the embracement of local firms, and a permanent presence of the products of the South-German region in the world market. The story of Baden-Württemberg started as a forced marriage, but has transformed into a successful partnership by today, and demerger is not an option in either region.

After the end of World War II, the territory of Austria was divided by the Allied powers. That is the reason why Burgenland, Lower Austria and Upper Austria east of the Danube were occupied by the Soviet Union. The Americans had Upper Austria south of the Danube and Salzburg, the British had Styria, Carinthia and East Tirol, and the French had North Tirol and Vorarlberg. The capital was divided into four occupation zones, and the historical centre of Vienna was declared an international zone, in which occupation forces changed every month. Austria regained its full sovereignty by concluding the State Treaty on 15th May, 1955. These circumstances halted the re-start of the Austrian economy, which, nonetheless, showed considerable evidence of life in 1945 and wrote a success story until 1980, the basis of which was the “mixed economy”, simultaneously encompassing a planning and a market economy. Centralisation had an important role in this system, with the state-dominated industry serving as a base for the conjuncture. It is a historical paradox that it was the Soviet Union of all the superpowers sharing the territory of Austria which opposed nationalization the most, while the centralisation of the Austrian industrial and financial institutions was implemented owing to the economic guidelines of the United States. Political stability was an indispensable pillar of this successful economic catch-up, embodied in the coalition of Social Democrats (SPÖ) and Conservatives (ÖVP).

The economic policy of the 1960s and the 1970s was determined by the direction set by Federal Chancellor Bruno Kreisky (1970–1983). The institution of social partnership was expanded by a parity agreement system, in which all parties could take part with equal decision-making capacities. The agenda of negotiations mainly included territorial planning, education, energetics, and transport strategy. This method promoting compromises – dubbed Austro-Keynesianism – helped Austria’s catch-up with leading European nations and countries. This economic policy required ensuring external stability, maintaining a balanced budget, achieving total employment, stimulate economic growth and preserving price stability. This goal system consisting of five pillars is called the “magic pentagon”. In the catch-up period, the economic results of the Kreisky era were demonstrated by the increase of the per capita GDP, a rising rate of employment, improving wages, increasing productivity and the expansion of exports. The success of the Austrian economic policy model became evident when in the crises of the 1970s (oil price explosion, steel crisis), the results that Austria produced proved to be considerably more stable than the performance of OECD member states. The openness of the Austrian economy and its close relationship with the German economy, the structure and the optimal size of the industry all played an important role, and

eventually, the institutions of the economy were also placed on solid fundamentals, thanks to the political background. Global problems, however, affected life in the country after the second oil price explosion in 1979–1980-as, endangering the stability of the budget and posing serious dilemmas within the nationalised industry, primarily in the iron and steel industry. The main reasons of the problems were rooted in unchanged product structures and neglected innovation. The integration of modern, innovative procedures in production processes and the development of technology became increasingly imminent for the country. By the mid-1980s,

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it had become absolutely obvious that the system of state subsidies applied until then – aiming at full employment – was inoperable in the future. The government had to introduce a programme that helped to re-balance the economy. It was an almost complete break with the economic model of the previous decades, which was replaced by a pragmatic agenda promoting renewal and being responsible for resolving the crisis of the nationalised industry. For its very nature, it included less popular measures as well. By the late 1980s, cleaning up the budget, re-organising stateowned industrial production, restructuring, and re-designing the tax and social welfare system had become principal tasks.

The changes triggered the consolidation of the Austrian economy almost immediately. In 1987, for the umpteenth time, SPÖ and ÖVP formed a grand coalition again, and they considered the consolidation of fiscal policy the most important task. After the fall of Communism, the Austrian capital became a financial centre of Central and Eastern Europe again. The fracture in the economies of former Communist countries and the opening to the West created the role of a kind of bridge for Austria, therefore the Austrian financial sector could return to its historical markets, and with the EU enlargement in 2004, this expansion reached its peak. In respect of its population, economic output, employment and standard of living, Austria is regarded one of the most fruitful countries of the European union. The population of the Republic of Austria increased by 800,000 people from 1990 to 2014, although mainly because of immigration. In terms of GDP, Austria ranks number 10 within the union, producing three times more GDP than Hungary. Expansion could be measured in real value as 1.7 per cent annually between 2000 to 2005, 1.4 per cent annually between 2005 to 2010, but it amounted to only 0.4 per cent in 2014 and 0.9 per cent in 2015. In its present state, Austria is the sixth richest country of the European Union at the moment. Its history after the State Treaty of 1955 can provide us with the model of the rise of a nation and of economic stability.

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FINLAND: A BREAKOUT FROM CRISES

Author: Ádám Suslik

Finland left from a difficult situation, and faced several periods of crisis in the sixty years following World War II. This Nordic country managed to tackle these successive crises achieving progress as an outcome.

In the peace negotiations closing World War II, Finland – as a former ally of Germany – was obliged to pay war reparations. According to the agreements, most of these obligations were directed towards the Soviet Union, amounting to US$570 million. The country, regarded as under-developed and predominantly agricultural before the war, was seriously challenged, and the chance for a breakout had to be sought. The metal and wood industries, regarded the leading ones before, offered the economy an opportunity for growth. In addition, the catch-up of services and agriculture also started with state subsidies. Military spending was continuously being reduced. By the mid-1950s, an economic re-structuring had taken place; at the same time, the Finnish, the only one of all nations required to pay, had paid the reparations in full. In the meantime, Finland’s politicians declared full neutrality and their desire to remain outside the activities of any international organisations. The main reason for this was their economic dependency on the Soviet Union; it must be noted, however, that this dependency greatly contributed to their ability to easily overcome crises arising over time. Their relationship with the Soviet Union – due to their opposition in the war – was not free from problems, but during the presidency of Urho Kekkonen it was reconciled, and the opening to the West could also start. After the country had paid war reparations, Finnish foreign trade was not controlled from the top after 1960, and the share of Western countries in the

exchange of commodities increased to such an extent that in 1961 Finland applied for a membership in the European Free trade Association (EFTA). One of the main reasons was the fact that Great Britain, considered an important partner in foreign trade, was also a founding member of the organisation. First, Finland became an associate member, then, from 1986, a full member of EFTA. The trade indicators with countries belonging to the organisation increased from eight per cent to fifteen percent. In 1966, the popular front entered government under Rafael Paasio. They initiated a comprehensive transformation of the economy and education at the beginning of their term. Paasio introduced a devaluation of thirty per cent, increasing the competitiveness of the country’s exports. Prices, wages and rental fees were regulated, and the budget was tightened, so that the opportunities of competitiveness should not have been corrupted. The unfolding economic crisis of the 1970s forced the Finnish to prefer a closer economic cooperation with Western countries. The best opportunity that Finland saw was to join the “predecessor” of the Union, the European Economic Community (EEC) and Nordek, the manifestation of the economic cooperation of Nordic states. This caused concerns in the Soviet Union, which exerted continuous influence over the country. Therefore, Finland was “forced” to conclude similar agreements with the member states of the Socialist bloc. The market situation required a further strengthening of Western relationships. The treaties concluded with the

“The market situation required a further strengthening of Western relationships.” EEC in 1973 declared that no customs protecting import would be introduced by member states, and the effective ones would be gradually demolished. Not only did phasing out customs duties create a competition in the internal market, but also Western opportunities expanded, forcing the Finnish economy to implement a new restructuring. It was necessary because the Middle East crisis caused a minor downturn of the country. At the same time, the deficit caused by falling oil prices was counterbalanced by increased exports, especially with the help of the Soviet market. The Miettunen, Sorsa and Koivisto governments of experts helped the country out of the crisis by their measures to eliminate unemployment and adopt a new tax reform. After the recast of the budget, turnover and excise taxes became more important sources of revenues than income-based ones. The consecutive governments revised the earlier economic agendas and moved towards the development of a more liberal market economy. Kekkonen considered preserving the policy of Finnish neutrality and signing advantageous trade treaties the key to the development of the country.

Of the agreements made with the Soviet bloc, the President focussed on the one signed in 1977, promoting production cooperation, specialisation and corporate production capacity. Apart from Soviet interests, Kekkonen regarded the EEC market important for the Finnish industry, primarily for the products of the wood industry. Manoeuvring between the two blocs, however, had never jeopardised Finland’s neutrality. Kekkonen called this a “total trade policy”, which advocated the expansion of free trade, a healthy competition and preserving an international division of labour. The period between 1978 to1988 can be considered as one of the Golden Ages of the country’s economy, when development was gradual and even. GDP growth was 3.8 percent annually, as opposed to the 2.9 per cent of neighbouring countries. Regarding purchasing power Finland was on the same level with France, but was below the USA, Sweden and Germany. The data of Finnish diplomat and journalist Max Jakobson show that the share of state ownership in the GDP was forty per cent, thus the Finish economy could adapt to the changes in the world market more flexibly. The decade of wealth was followed by a sharp decline. Finnish academician, Seppo Zetterberg thinks the reason should be sought in the dissolution of the Soviet Union. Although price levels increased, the Finnish mark was devaluated and public spending was cut, the solution for the problems of the economy had yet to be devised. In the late 1980s,

experts saw the end of the welfare state in Finland. There was a series of various signs of crisis. First, a credit and an export crisis, then a real economy and a state budget crisis arose. In the 1990s, Finland was hit by the worst crisis, but it was successfully resolved. The government of Social Democrat Lipponen reduced the fixed exchange rate of the mark, and, as a consequence of the decision, the Finnish National Bank lowered the base rate. Then the main focus shifted onto innovation, education and the strengthening of enterprises. Knowledgebased technology was promoted by resources and regulations. By 1997, the government deficit decreased to 0.9 per cent, and Finland was the first Nordic country to introduce the euro in 2002.

SWEDEN: THE HOME OF PROSPERITY

Author: Zoltán Eperjesi

Thinking of Sweden, the first things that come to our mind are usually tranquility and prosperity. The Scandinavian model, building upon high taxes and extensive social benefits, has also been battered by the recent turns of the world economy, but the system has remained fundamentally crisis-proof. The secret lies in two key words: a strong bourgeoisie and a strong market.

Compared to other European countries, fastpaced industrialization was almost a century late in Sweden. This modernization process, still taking place today, has amalgamated the large rural areas of Sweden and its rapidly developing urban centres. The main characteristic of the Swedish economy is that it has several industrial centres, which are dispersed more or less all over the country’s territory, but they operate in a complementary way. Export has a significant role in the country‘s life, most of it is related to such global large corporations as ABB, AstraZeneca, Electrolux, Ericsson, H&M, Ikea, SKF and Volvo. Internationally competitive Swedish industries include the manufacturing industry (automobiles, electronics, the pharmaceutical industry and defence technology), information technology, biotechnology, renewable energy, and, last but not least, the wood and paper industry. Sweden’s most important economic partners are the Scandinavian countries and the United States, but Germany ranks first. The economy is further strengthened by the fact the Swedish citizens regard self-directed and lifelong learning very important. This plays a part in why education and research and development have such a legendary high standard in the country. Another strength is that a balanced system to tax companies has been created and is operated by the state. Deficiencies, however, include a high rate of hidden employment, owing to – among others – long sick leaves and early retirement.

The high price levels of products and services – except for healthcare and education – also have a detrimental effect. It is less widely-known that Swedish households are struggling with rather high debts, especially housing loans, in spite of the fact that the prices of properties in metropolitan reas show a slowly decreasing tendency Sweden’s economic performance is characterised by the fact that the country, which is heavily dependent on export, i.e. the state of its partners in foreign markets, could handle the detrimental effects of the financial-economic crisis of 2008 relatively well. The surprisingly successful crisis management was primarily due to a still impressive growth of consumption, and state investments also provided a remarkable economic drive.

“The main characteristic of the Swedish economy is that it has several industrial centres.” Nonetheless, the old Swedish model, characterised by the welfare state and protectionist traditions, which used to be the most important keystone of the welfare state, has required multiple and comprehensive reforms. It is an important factor that the model of the Swedish economic policy was not a result of preliminary planning,

but it evolved along several individual measures over time. Even today, economists still debate whether there is a Swedish model as such. We can observe, however, significant differences between the old and the new Swedish model. Moreover, we can rather talk about a Scandinavian and not a Swedish model. It is definitely characterised by a system of heavy taxation, which creates the funds for considerable social benefits in Northern countries. Unsurprisingly, labour legislation is much more lenient, while the regulations of providing unemployment benefits and paying pensions are very detailed. Practically, the Rehn–Meidner model serves as the theoretical base of the old Swedish model: enterprises unwilling to improve their productive capacity were to be pushed out of the market by the government and trade unions, with continuously rising minimum wages, in order to – among other things – be able to pay higher wages to employees. This policy was really effective until the mid 1960s, as the rate of unemployment fluctuated between 1.5 to 2.5 per cent, and basically full employment was achieved. At the same time, owing to a balanced cooperation between trade unions, the Swedish economy was characterised by a solid incomes policy and low inflation. In addition to a growth rate of four per cent, the fluctuation of economic processes, the so-called business cycles remained moderate. On the basis of major indices of macroeconomics, we can establish that the productivity of the Swedish economy dropped behind the performance of the members of today’s Eurozone.

there is a self-confident bourgeois society, which has been socialised and trained under the circumstances of a market economy for generations. The strong middle class expect the state administration, together with the government, to place serving bourgeois interests in the centre of its political agenda and operations. In spite of all the deficiencies of the welfare state, we can establish that the economic and social conditions still prevailing in Sweden today have been centred around one concept from the very beginning: there is no Swedish model, no welfare state, and no bourgeois welfare society without a market.

The newer Swedish model evolved after the 1990s. The identification of institutional weaknesses started as early as 1992. By 1995, the state budget reform had been completely renewed. despite effective economic performance, the open and small Swedish economy needs important rules to meet today’s difficult challenges with necessary economic and financial measures. The essence of the new Swedish model is the creation of a second, heavily earnings-based insurance system in addition to the benefits to which each citizen is equally entitled. With this, politicians mainly aimed at meeting the higher needs of the well-off middle classes. Since high tax incomes are indispensable for maintaining the system, the state constantly depends on a solid tax-payer base. In Sweden,

THE POLISH ECONOMIC OUTBREAK Author: Dániel Bácsatyai

There is hardly any state in Europe that has survived the crisis as successfully as Poland has. In this article, we are looking into the underlying reasons for this Central European success.

In spite of its profound social and political fault lines, not only does Poland excel among postCommunist countries with the stability of its economy, but it also belongs to the most rapidly developing regions within the European Union. Poland was the first country of the former Eastern Bloc where the GDP reached the level on which it had been before 1990 (in 1995). Moreover, in the prolonged economic storm of the 2000s, this country proved to be the least vulnerable of its Central European companions. Poland is – as we will see, disputably – regarded as a successful example of the application of the economic policy prescriptions formulated in the so-called Washington Consensus, recommending fiscal policy discipline, a minimal state and privatisation. Leszek Balcerowicz, the Minister of Finance of the solidarity government was the symbol of the policy aiming at as extensive market liberalisation as possible and fiscal stability. His task was not an easy one: of the Central and Eastern European members of the Comecon, it was Poland that had to face the gravest inflation. The net government deficit of the year 1989 amounted to 44 per cent of the GDP – a rate exceeded by only Hungary (61 per cent) and Bulgaria (63 per cent). Balcerowicz quickly restored the equilibrium of public finances, and implemented the institutional transition in the same quick and systematic manner. Some of his critics reproached him for his anti-growth, restrictive fiscal policy that was implemented for the sake of the equilibrium, while others criticised him for the heavy burdens put on the society, the massive job losses, and radically slashing social

benefits. In fact, unemployment – and consequently, outward migration – are still among Poland’s unresolved problems. And indeed, contrary to earlier expectations, the neoliberal model proved to be unable to mitigate the difficulties implied in changes. However, it is also true that the path of transition was completely untrodden: it was not about replacing a capitalist regime by another, but they endeavoured to give up the Soviet-type model of economic planning, which systematically denied an essence of capitalism, private property. After the transition, a growth of seven per cent was achieved in 1995, surprising pessimistic analysts. The majority of commentators thought that success was the result of Balcerowicz’s quick, radical package of measures, which proved to be effective despite the social losses suffered. Neoliberal economists could acknowledge with relief that their theory – maybe not in the way as they had originally conceived – had proven to be true in Poland. Others thought that the Balcerowicz Plan had been completely mistaken. The most prominent representative of this view is Balcerowicz’s successor, Grzegorz Kołodko, who explains the successes solely with the pro-growth policy pursued in the years between 1994 and 1997 and his own economic programme called “Strategy for Poland”. The representatives of both sides fail to ask the question what makes Poland excel from the Visegrád Group and other countries of the region that have pursued a similar path. Turning the question around: why have the EasternCentral European countries that successfully implemented economic liberalisation been legging

“A key to success lies in halting the privatisation of large, state-owned companies, or even dismissing the relevant recommendations of the Washington Consensus.” behind Poland since as early as the mid-1990s? Why was Poland the first in the region to reach the GDP level that it had had before 1990? A key to success lies in halting the privatisation of large, state-owned companies, or even dismissing the relevant recommendations of the Washington Consensus. The law on privatisations was adopted only in April, 1993, and hardly anything was done about it until 1996. Therefore, the Industrial Development Agency (Agencja Rozwoju Przemysłu), the state agency responsible for privatisations, was provided with the opportunity to consciously prepare – with, among other things, export loans – state-owned

large companies considered worth surviving so that they could get along under market circumstances and become attractive also for strategic investors. The process of privatisation took place slowly, under the wise control of the state. As a result, several Polish companies, start-ups and former state-owned companies alike, are successful at competing abroad. In addition, Polish governments put special emphasis on industrial development. For this purpose, they created economic zones and regional development agencies to attract investors suited to local conditions into the Polish countryside deprived of industry and work opportunities. As opposed to the other states of the region, the first capitalists of the new order were not emerging from former managers of socialist large companies, but foreigners. It presented an undeniable advantage: privatised companies were forced to operate by market rules. In other Central-Eastern European countries, the capitalists emerging from the old elite could better preserve their political relations, ensuring state subvention for their companies. In the long term, the lack of competition led to the failure of innovation, to the detriment of competitiveness. In most of the former socialist countries, a shift to capitalism was implemented – and shaped – by the old nomenclature and the technocratic elite.

ISRAEL: ADVANCEMENT IN THE ROCKY DESERT Author: Zoltán Boér

The Jewish state – located in the middle of a rocky desert, lacking any natural resources, surrounded by hostile countries, and having a population of over 8 million – has rapidly become a major player of the globalised world economy. In the period elapsed since its foundation in 1948, Israel could boast one of the outstanding successes of the universal economic history of the modern era.

This not exactly how it happened in Poland. The Polish public did not give up the traditions of intensive, grassroots resistance against any oppressive power (suffice to think of the Warsaw Uprising in 1944, or the Poznań protests in 1956) even in the decade preceding the regime change. The fact that the state socialist regime allowed room for agricultural private property and the society of Polish villages did not disintegrate so fast as in other countries also contributed to this. The Solidarity Movement unfolding in the 1980s and the increasing pressure under which the Catholic Church, providing the underlay of the Polish society, was placed – which was hardly independent from the Polish pope, John Paul II, who was a thorn in the side of the leadership of the Soviet Bloc – resulted in constant tension in the country.

The regime change – as opposed to the majority of other countries in the Eastern Bloc – was a real community experience for the Polish, which ended the revolutionary atmosphere of almost ten years. This is the explanation for the patience of the society with which the occasionally brutal reforms of the transition were received. Thus, one of the major strengths of the Polish economy lies in the health of its companies. One more important factor must be highlighted: the commitment of governments elected since the regime change to reforms – or, at worst, their neutrality to reforms –, which, despite substantial ideological gaps, has guaranteed that no serious dispute should arise about the direction that Poland should follow on the path of economic recovery. Successive governments have not turned their backs on the reform-friendly politics of their predecessors, and the economic policy has not taken a completely different turn at each change of government, either.

The most spectacular element of development was, without doubt, its speed. Two major peaks can be detected in Israel’s economic history, separated by the period of stagnation and hyperinflation. In the period from 1948 to 1970, per capita GDP almost quadrupled, and the population tripled its initial size and grew to three million. It was the entrepreneurial state that played a key role in this first period of growth. The roots of the first peak go back as far as the early 1800s, when a group of Jewish settlers arriving in the areas being under the control of the Ottoman Empire attempted to create agricultural

communes. In the 1920s, the productivity of the Jewish community increased by eighty per cent, while the population doubled in the same period. The growth of the economic activity of the community was twenty-eight per cent per year on average, even during the Great Depression. By the mid-1960s, the transition from a central development to an economy based on private equity had become necessary. It was in 1966 that Israel first experienced the stagnation of the economy. The Six-Day War that broke out a year later, however, set back the necessary reforms. In total, the occupied territory was three times bigger than the

Harvest workers in an Israeli kibbutz

land area possessed by Israel until then, therefore the government launched large-scale infrastructural investments again. A huge economic incentive programme was initiated again, as a result of which the rate of development grew by more than seven times within a year.

the government. Commercial banks and pension funds were obliged to invest in government bonds, or fund investments designated by the state. Inflation had risen above seventy-six per cent by 1976, and it was one hundred and thirty per cent in 1980, and it reached four-hundred and forty-five percent by 1984.

The Yom Kippur War of 1973 did not entail another economic boom. Infrastructure was severely damaged, companies and entire sectors were affected by a labour shortage that occurred due to massive

The second stage of the rise started at the dissolution of the bipolar world ruled by two rival major powers and is still ongoing. Hyperinflation was

enlistments and long military services, business life practically stopped for three weeks. During the war, the government kept the wages on an artificially high level, which resulted in an extremely high government debt. In order to counterbalance the bulging debt load all taxes were raised, including the ones on capital investments. They used short-term and expensive loans to finance the deficit, which entailed a rise of bank interest rates. The monopolistic predominance of the state in the capital market slowed down the recovery of the economy. The conditions and interest rates of all loan and deposit products, both in consumer and corporate lending, were determined exclusively by

successfully curbed by a stabilisation plan adopted in 1985, and government deficit also started to decrease. Public spending was cut, privatisation started, and the role of the state in capital markets was reformed. All this, however, was not sufficient for an economy based on private capital and dynamic enterprises to be born in Israel. In order to make the economy really flourish, a new venture capital industry was required in addition to a newer wave of skilled immigrants. A landmark solution was provided by a programme proposal called Yozma. The government set up ten new funds by investing a hundred million dollars. Each fund involved three participants: the original owner of

capital, a foreign company and an Israeli investment firm. The potential incentives incorporated in the programme represented real attraction for foreign participants. In the new fund, the government kept a capital share of forty percent for itself, but offered partners the opportunity to purchase the stateâ&#x20AC;&#x2122;s portion of capital for a price increased by interest rates but still favourable in five yearsâ&#x20AC;&#x2122; time if the fund proved to be successful. The ten Yozma funds established between 1992 and 1997 collected over two hundred million dollars with the help of the government funding. Within five years, state sources were completely bought out or privatised. Today, the funds manage a capital of almost three billion dollars. This system enabled the Israeli technology industry to join the rise of information technology. In 2003, the government reduced the tax rate and the commission on the movement of capital. The introduced bank reform package started to make itself felt, and the government bonds guaranteeing a yield of some sixper cent were also phased out. From 1996 to 2000 the export of Israeli technology doubled.

At the moment, industries focussing on research, development and innovation generate over fifty per cent of Israelâ&#x20AC;&#x2122;s export. More than eighty per cent of the required funds is provided by the business sector, and forty per cent of the investments flows in from abroad. Several multinational companies located their research centres in Israel, which is an extremely important factor. Tax allowances are significant pillars of the Israeli innovation policy; private individuals are entitled to the most important one, and taxpayers can deduct the total invested amount from their tax base for two years. The story of Israeli economic successes well demonstrates that a breakthrough can be achieved even without proper territory and a large population. High-quality human capital can counterbalance the lack of natural resources. Political decisions made in due time and welcomed by a social consensus, careful and consistent economic and social policies can also lead to success, even from a situation that looks adverse at first sight. The modern history of the State of Israel provides an example of that.

JAPAN: A NATION REBORN TWICE Author: Dr. Bálint Somkuti

There are not many states that can boast two complete transformations within a hundred years. This is what has happened to Japan. There is a lot to learn from the example of the Asian island state – even though the transformations were not completely voluntary.

Like Great Britain, Japan is also separated from the mainland by a narrow strait, therefore the country is closely connected to the sea for several reasons. The legend about the foundation of the country is a clear evidence: the Japanese archipelago evolved from the substance dropping off the spear of a sea goddess, Amaterasu. For geographical-cultural reasons, the island state stayed out of the processes taking place on the Asian continent. Consequently, after the continuous civil wars of the 15th and 16th centuries, the Tokugawa shogunate implemented the Japanese version of “excellent isolation” for almost a hundred and fifty years in the 17 th century. The expanding colonising empires, however, reached Japan’s boundaries by the mid-1850s. The United States forced Japan, a country under increasing social pressure, to open its harbours and market. The so-called Meiji restoration, led by mostly lower-ranking samurais loyal to the emperor, ended the system of shogunates, and transformed the entire country from above, based on Western models. Parallel to the creation of a new administration and a centrally governed education system, the abolishment of the system of privileges, a universal military conscription and a political constitution, the transformation of the economy, supported by state loans, upgraded Japan onto the level of developed countries within two generations.

This enormous leap generated significant social tensions. Although most samurais got along also in the new system, interestingly, their greatest revolt was prompted by a group that had been a committed supporter of the emperor earlier. The leader of the revolt, Saigō Takamori was called “the last samurai” by many of his contemporaries, too; but as opposed to his portray in the film with the same title, he was a leader with a modern mindset. He was wearing a western uniform in several photographs and paintings, and his main concern was not the abolishment of privileges, but growing corruption entailed in government funding provided generously and completely without control to modernise the economy. After the greatest revolt of samurais had been suppressed in 1877, the slogan “rich country, strong army” soon became reality. Owing to funding provided to the light industry, which had been traditionally significant in Japan, related industries (mining and heavy industry) soon boomed. Significant central funding prompted the establishment of zaibatsus, industrial and financial business conglomerates, whose influence and size allowed control over significant parts of the Japanese economy and even foreign policy until the end of World War II. By the early 20 th century, the country, being poor in capital and raw materials, hardly reached the economic level of the poorest Western states. However, the emerging nation, relying

The first Japanese diplomatic mission in Europe, consisting of samurais. The delegation signed the London Protocol in 1862, which opened the island state to Western countries. on its economic and military strength, gradually earned equality in foreign policy, and in the RussoJapanese War of 1904-1905, it proved its ability to apply the acquired knowledge in practice by defeating Tsarist Russia. The country stayed away from World War I. But its developing economy required more and more raw materials and markets. The Washington Conference making decisions on the balance of power over the Pacific region in 1921-22 gave some of the former German colonies of the region to Japan, but much more would have been needed. The decisions of the Conference – with the economic crisis arising a couple of years later – led to significant political and social tension, as the majority of the population and decision-makers were on the opinion that the two major powers of the Anglosphere intentionally forced Japan to stop building its empire. The economic crisis – with a series of bank failures – started in 1927 for Japan. Due to the world crisis arising in 1929, the price of Japan’s main export item, silk, dropped by fifty per cent. The rrural population was threatened by famine. Within sixty years, industrialisation and rapid population growth made the country, which had been self-sufficient before, entirely dependent

on raw materials. Gradually, the situation of the economy became the main issue of national security. The main aim of militarism intensifying from the early 1930s was to gain control over markets and sources of raw materials by military means. This expansion could have only one target country, in addition to the Asian colonies of Western powers: weak China. The issue of control over sources of raw materials inevitably drifted Japan into World War II. After the destruction of war, Japan had to be literally rebuilt from its ruins. The occupying American troops were led by General MacArthur, whose main task was, apart from control, rebuilding. The Gaijin shogun (in English: foreign governor) introduced wide-ranging political, economic, social and military reforms. After punishing war criminals and dissolving zaibatsus, the economic revitalisation began with significant American intellectual and financial support. As a result of state-of-the-art business theories and the annually paid, considerable American support, Japan’s economy soon recovered. The new economic system was based on keiretsus, i.e. sets of companies extending beyond industries. The country suffering from a lack of markets faced a new crisis at the end of the 1940s, and the next collapse was prevented by the outbreak of the

Korean War. Japan proved to be a reliable supply base, and the final treaty of peace, supplemented by a federal treaty, was concluded between the USA and Japan in 1952. Naturally, certain consequences ensued from these rapid changes in the island state producing an annual economic growth of two digits. The tensions caused by urbanisation, motorisation and left-wing political movements, however, were successfully defused, and the political-social stability as well as the close cooperation of employers and employees raised Japan among the most developed countries by the end of the 1960s.

Finally, there is an interesting parallel between the problems of Japan in the 1970s and current European issues. In the island state, due to the enormous development, it was increasingly difficult to find skilled workforce, which threatened production. Since they still remembered the adverse experiences of Korean migrant workers in the early 20 th century, immigration could not be a solution, and a different path had to sought. One was the massive outsourcing of work processes representing lower added value to countries with similar work ethics, which later became the Asian Tigers (South Korea, Taiwan, Singapore); and the other one was promoting robotization.

KOREA: SKYSCRAPERS REPLACING RICE PADDIES

Authors: Zoltán Horváth, Tamás Nánási

Korea is one of the nations and countries that can boast an ancient past. The first kingdom – the Gojoseon kingdom – was founded in 2333 B.C. Koreans are proud of their thousands-year old traditions, which empowered them even in hard times.

They badly needed this in the 20th century, since Korea’s history, which had been linearly evolving until then, took a radical turn in 1910. Japan overthrew the Joseon Dynasty reigning since 1395, and occupied the country. The aggressive, oppressive rule has left deep marks in Korean society. The Japanese exploited the Koreans, whom they considered inferior, in all respects. After World War II, the opportunity opened up again to establish an independent Korea. The peninsula, however, became a front line of the Cold War, and was divided at the 38th parallel. The Northern communist state, backed by the Soviets, launched an attack on 25th June, 1950, which marked the beginning of a three-year-long civil war, resulting in three million casualties and the destruction of the economic infrastructure installed by the Japanese. After the armistice was signed, South Korea had to rebuild practically everything. The successive governments of the republic, however, were unable to create stability, and in spite of the financial aid provided by the United States, economic growth failed to begin. Eventually, a coup d’état led by Major General Park Chung-hee in 1961 ended the political turmoil. After that, power was held by military leaders until the end of the 1980s. South Korea’s amazing development started and took place within thirty years under strongly centralized control. South Korea was led by Major General Park until his assassination in 1979. From the very beginning, he had considered the development of the economy of developed Western countries and Japan worth examining.

He intended to adopt some models, especially the ones where centralised control helped the rise of the economy. His administration devised a Korean economic development strategy, which was partly based on these models and took the form of five-year plans. The chief economists of the Economic Planning Board, the agency responsible for implementation, were fresh graduates of US universities. Growth was felt immediately after the first five-year plan was launched. GDP grew by 2.2 per cent in 1962, and growth leapfrogged in the next two years, being 9.1 and 9.6 per cent. Years when South Korea’s GDP saw an extreme growth of more than 10 per cent – the double or triple of Western European figures of the time – were not infrequent. Within ten years, from 1966 to 1977, South Korea doubled its GDP, and could grow even when the oil crisis pushed the Western world into downturn. The state assumed a keyés role in economic development. The ta a GDP-t, akkor is növekedni tudott, amikor introduced planning economy was different from a the solutions used by so-called “socialist countries” , as the plan and the market were regulating together. The Economic Planning Board was given a major and more powerful role; the private sector had always been subordinated. The agency played an important part in centrally distributing scarce resources and attracting foreign capital, as it could outline ambitious plans to investors. Conglomerates (chaebols) were also important partners of state control, several of them were headed by former chairmen of the Planning Board. The number of large companies employing

more than 500 people grew from 72 to 574 within twenty years from 1963. For decades, Samsung has been the largest of them, then Hyundai ranks second, followed by Lucky Goldstar and Daewo. Originally, the Samsung Group was founded as a simple food trading family enterprise, which became known world-wide when they endeavoured to produce office equipment and mobile phones. Today, their extremely broad range of business activities include aircraft making, shipbuilding and healthcare services. After the Japanese occupation, agricultural production had to be regulated first. Almost one and a half million families received a smaller farm during the land reform, and rice trade continued as a state monopoly. But rapid industrialisation, a general characteristic of the Asian Tigers, became the key question of economic catch-up. Centralised programmes centred around the increase of production, for the sake of which the import of technology and a large share of foreign capital were also promoted initially. Up to 1960, the USA had powerful influence on South Korea’s economy. The first step of industrial development was to

boost the textile industry. Then the country’s first big steel complex was built with foreign loans, as the World Bank refused to finance it; production grew by 44 times within twenty years. The electronic industry, established in 1959, became a distinguished sector in two decades, and today South Korea is one of the most prominent participant of the high-tech industry. The value of export from this sector grew by thirty times from 1972 to 1984. This result required such central measures as the one determining 594 electronic items that must be produced in South Korea. The enormous change was also down to the fact that South Korea was the only developing country that played a unique and pioneering role in introducing new technologies. The inflow of foreign technologies was encouraged by laws and targeted aid, and, at the same time, the promotion of domestic research and development was given particular emphasis. The Korea Institute of Science and Technology was founded, and initiatives of companies received considerable allowances. While in 1963 97 per cent of funds to be spent on research and development was provided by the

government in 1963, in 1988 the private sector covered as much as 82 per cent of this kind of expenditure. The dramatic transformation of education was indispensable for gaining economic power. In 1945, only a quarter of Korea’s population was literate, and there was only one university in the country. In 1993, however, young people could choose from a hundred and forty institutions of higher education, and almost eighty per cent of them graduated. Another foundation of this success was provided by the extraordinary employee morale that characterises South Korean employees. Owing to a puritan, Confucian mindset, South Koreans, with heads of companies at the vanguard, worked fifteen hours more per week on average than Western Europeans, for very low average wages. This situation has not changed with the growth of real wages: it was not consumption that increased but the willingness to save.

“The enormous change was also down to the fact that South Korea was the only developing country that played a unique and pioneering role in introducing new technologies.”

HUNGARIAN CENTURIES: IN THE WAKE OF OUR ECONOMIC SUCCESSES

IN THE WAKE OF OUR ECONOMIC SUCCESSES Author: György Matolcsy – Governor of the National Bank of Hungary

Hungary is one of the great restarters of European history: it has managed several times to get back to its feet from defeats and failures, and even advance in the vanguard together with the winners of the time. This success, however, often lasted only for a fleeting moment in history, and was followed by a newer period full of failures. Now we are restarters again. We have managed to recover after 2010, we have overcome the inherited moral, political, financial and economic crisis in the past four years; hardly any nation of the European Union has succeeded in that. The Polish, the Balts, the Slovaks, the Germans, the Austrians and the Scandinavians took advantage of the exceptional opportunities provided by the global and the European economy in the last two decades, but we failed to do so; all they have had to do is to continue what they started, but we have had to restart all over again. Our restart is successful: we have overcome successive crises, our political and social stability is favourable for development, the new economic policy has resulted in equilibrium and growth at once, we have repelled the external and internal attacks carried out against the Hungarian model, the new value system based on labour and proportional taxation has consolidated. The moment has arrived to ask the question: from which eras and what can we learn in order to achieve the Hungarian success of this century? We are living in a transitional period of a change of era here, in the middle of Europe. History is shifting from West to East again: China, Japan, India, Brazil and their regions gain ground against North America and Europe. A new world based on the equilibrium of continents is replacing a twohundred-year-old Western hegemony. Europe opts for a beautiful decline instead of winning the future: we need to seek new allies. We live in a transitional period of paradigm shifts. The neoliberal thought prevailing from the 1980s has weakened, and pushed the world into a financial crisis in 2007-2008, which has left the East in a good, the USA in a tolerable and the European Union in a weakened state. The earlier winners of great duals are weakening and the defeated are getting stronger: the state against the market, the nation state against international institutions, labour against social benefits, the real economy against

the financial economy, value against interest, the common good against private interest, competition against monopolies, morals against unscrupulous greed, community against libertines. We are progressing towards a new equilibrium; the exaggerations and distortions of the first decades of the market and entrepreneurial period, which started in the 1970s, can be counterbalanced by a new era. In 2010, the Hungarian strategy built upon these turning points: we brought forward a lot of what the world will be boiling over in the coming years. We concluded the transitional era of the two decades after 1990, and set off for a new era built for several decades. The transitional nature of the previous two decades is perhaps best indicated by the economic formula of the era: if the budgetary equilibrium improved, economic growth deteriorated; if growth was fine, the equilibrium deteriorated. We could enjoy one or the other only temporarily, but not permanently. Although we won both of them between 1998 and 2002, but politics deteriorated: the government of equilibrium and growth proved to be temporary. Today, the building of the Hungarian state can rely on both of them, therefore we can make our path towards the construction of social and economic structures leading to historic successes. A middleclass, based on extensive property and knowledge, national institutions, strong small and middle-sized enterprises, a domestic-owned bank system, innovation-driven growth, the demographic and healthcare turning point, encouraging hundreds of thousands of young ex-pats to return home, the unified economic space of the Carpathian Basin, Budapest emerging among the best cities in the world, building universities ranking in the top 200 require years, or even decades. Everything has started, everything can succeed. Which are the success stories of the Hungarian economic history that we can learn from? We are analysing ten state-building successes, the common

The front of the first Hungarian gold florin

The back of the first Hungarian gold florin

feature of which is the fact that the national elite of the specific era took advantage of their opportunities and extended the limits of their time. Saint Stephen successfully built future-proof state and ecclesiastical institutions, used the innovations of the agricultural revolution and religious orders, and maintained a good balance between East and West in the meantime. Andrew II and Béla IV are two faces of one era: the first one lost two-thirds of the royal domains, adopted the new world based on the production of goods and financial economy too early and too fast; Béla IV used the institutions of the old and the new era creating balance during the second foundation of the state, and created balance between the West and Hungary with regional alliances. Our Angevin kings and Matthias Hunyadi were riding in the vanguard of their age, bringing the first 500 hundred years of the Hungarian national existence to climax. Gábor Bethlen and the first generation of the Rákóczis built the Fairy Garden based on absolute power and a mercantile economic policy before the arrival of the age. The long period between 1700-1848, which created the colonial structure, also deserves attention: what are the things in which the Hungarians of the age could achieve small, but later important successes? We can learn a lesson of both success and failure from the period after 1867 until as long as 1914: why did not this long era, just as the one ahead of us, succeed, despite it seemed successful? István Bethlen’s work also deserves analysing: how was the almost impossible achieved between a lost world war and the Great Depression? From 1945 to 1947, Hungary attracted attention with the fastest rebuilding in Europe: how was it possible, and can we learn from this success? The analysis of the Eastern imperial structure of the period from 1950 to 1990 can also be interesting: where did initiatives exploiting the opportunities of the era develop on the peripheries and in the centres of the newer colonial structure? The analysis of the transitional period from 1990 to 2010 can help us to close everything that do not lead

into the future, but to see everything – even in a small scale and weakly – that already leads towards the success of the new era. Finally, it is worth outlining the Hungarian vision of the coming decades: where do we want to arrive, with what strategy and in what alliances? The common success factors of these periods of economic history are worth indicating at the very beginning of our analysis A strong central power was a sine qua non condition of all successes; the lack of it led to internal struggles, and an external dependency taking advantage of those. If the central power was too strong and did not allow the parts to decide independently, it also resulted in failure: the prevalence of the coordinating Hungarian value system, focusing on the growth of the individual and the family, required as strong internal freedom as the specific era allowed. Independency has been a necessary but insufficient condition: if the independence of the state was coupled with a weak central power, success was halted. There was, however, no success without the independency of the state, because a periphery subordinated to external and stronger interest groups evolved, leading to the draining of resources. An equilibrium of external powers is again an indispensable condition for shorter- or longer-term economic successes: a balance of power between East and West, West and West, the region and the Hungarian state always had to be created for success. Too quickly adopted models at the beginning of an era and the forced transformation always led to distortions and reversals. On the level of the era, a balance between an economy open for external markets and an economy closed for internal markets was required; dependency from one single external major player resulted in a distorted structure. No matter how promising it might have been economically, oneway opening has always ended up in failure. Success required a proportional use of resources, economic structures standing on only one leg did not produce permanent results. A development strategy in line with Hungarian attributes was required. Investments administered by an external dependency and unsuited to Hungarian attributes did not succeed. Economic success always required a massive social rise, corresponding to the specific era – if it confined to small elites, economic development was not permanent. It is a lesson that the technologies of a new era could never be exploited massively and the markets of a new era could never be reached without a strong capital and artisan-knowledge centre cities. In the past one thousand years, we have succeeded to do so surprisingly frequently – why would we, Hungarians, not succeed again in this century?

SAINT STEPHEN, THE BUILDER OF THE STATE

Author: Attila Kiss

Under Saint Stephen, the Magyars, who had arrived from a civilisation of the steppes, successfully joined the European cultural area, and have been an integrated part of it for a thousand years now. Building a Christian monarchy and laying the country onto new foundations have rightly set and still set King Stephen as a role model. When he came to the throne, major changes were taking place in Europe, and a new European paradigm evolved: with the Scandinavians, the Czechs and the Polish being christened, the continent united, and its political and social affairs transformed. It became obvious that after the failure of the forays the Hungarians had to find their place in the new order. It was an enormous task: to create unity in the Carpathian Basin on Christian fundamentals and keep it an independent factor in the embrace of the West and the East. Saint Stephen created political unity first. He gradually consolidated his power by defeating Koppány, and then – as a king – crushing the rule of other chieftains within the clan, Gyula in Transylvania and Ajtony in the Transtisza region. It was followed by institutional reforms, creating the secular and ecclesiastical foundations of the state structure, foundation of the counties and episcopates, on which the new administrative organisation of the country was based. The first ones were established in Transdanubia and Upper Hungary, and, based on these, the next ones were set up in the East of the country. The centres of the counties, the royal fortresses, became the buds of medieval towns. In organizing the Church, the work that István primarily had to undertake was to continue conversions and build churches. The first episcopal seat was set up in Veszprém, followed by the foundation of the archbishopric in Esztergom, then bishoprics in Transylvania, Győr, Eger, Pécs and Csanád, and a diocese in Kalocsa. The cultivation of the Latin language was diffusing, enabling the country to join the intellectual life of Europe. A secular clerical organisation and a parochial network were established and also monks started

Saint Stephen’s “lancea regis” silver dinar, the first Hungarian coin to settle down in the country. When Stephen came to the throne, the Benedictine archabbey in presentday Pannonhalma had already been standing. The Benedictine monasteries in Zobor, Bakonybél, Zalavár and Pécsvárad as well as the Basilian monastery in Veszprémvölgy are considered to be founded during his reign. In addition to monastic literacy, stateof-the-art forms of farming were introduced by the monks in their domains, in line with the international practice of the age. In the immediate surroundings of the monasteries, in the gardens and vineyards tended also by monks the elements of intensive horticulture and unknown plans appeared. The legal grounds for consolidating the new social structure were provided by Saint Stephen’s two Codes, primarily tailored to domestic economic and social conditions. In the new order, the fundamentals of the economic power of the king were constituted by the fact that most of the country’s territory

became royal domain, some of which he donated to loyal members of the privileged class and the Church. He levied the first taxes (fair tax, pennies of freemen, salt tax) and made the payment of the church’s tithe compulsory. Minting the first Hungarian coins, the silver dinars was an important symbol of the state’s sovereignty as well. Hungary had become a bridge between the East and the West – it was seeking peace with its neighbours and the two “superpowers” of the age, the Holy Roman Empire and Byzantium, but it was also able to repel threats endangering its independence. Saint Stephen’s political greatness manifested primarily in recognizing the opportunities and constraints of his time, and consistently succeeding in the transformation of the country, founding our independent state entity. He created the unity of the country and a strong central power with an iron will and great faith, integrating the Hungarians into

Europe while carefully guarding the independence of the country. King Stephen was given four decades to implement his policy. This time proved to be sufficient for him to consolidate the new Hungarian state as an independent factor of power, to create balance between East and West, and render the Kingdom of Hungary a key player of a unifying Christian Europe. An established state structure, a sprouting Christian culture and the innovations generated by it became guarantors of internal growth, and purposeful external relations reinforced the situation of the Hungarian state also on a dynastic level. The medieval Kingdom of Hungary was built upon this long-lasting foundation, which, through a Christian statehood, guaranteed the survival of the Hungarians up to this day. After creating and safeguarding an independent Hungarian system, the work of organising the state and the period of development with a European perspective could continue.

BÉLA IV, THE SECOND FOUNDER OF THE STATE Author: Zoltán Boér

The country was subjected to the most severe military attack of the era following the Hungarian conquest of the Carpathian Basin during the reign of Béla IV. After the Mongols’ devastation, the king successfully rebuilt the country, winning him the epithet of the second founder of the state. Béla IV’s father, Andrew II dissipated a considerable part of the royal domain by issuing huge grants of land. In order to compensate for the revenues lost, he attempted to push his incomes towards the direction of royal revenues, and hired foreign officials to administer these. Both this sharp shift in the economic policy and the significant influence of German officers, who arrived in the retinue of his wife, caused a discord among noblemen. The monarch was also active at his foreign policy, but his successive campaigns in Halych and the Balkan, and his crusade to the Holy Land did not bring any lasting results. Consequently, the noble opposition forced Andrew to issue the Golden Bull in 1222, then to renew it. Even as a prince, King Béla IV opposed his father’s reign, but he had the opportunity to implement his political ideas and strengthen the economic fundamentals of the central power after he had been crowned. He started to take back royal estates donated by his father, which deteriorated his relationship with the noble orders on the eve of the Mongol invasion. In 1241-42, the Mongols delivered a crippling blow on the medieval Hungarian state. The defeat was overwhelming, and inflicted ghastly devastation on the country but the enemy eventually withdrew. Béla immediately took control again. His greatness as a monarch is demonstrated by his ability to revise his earlier policy, in which shifting the direction of his economic policy formed a key part. The king was able to do a paradigm shift that created balance in

economy, internal affairs and foreign policy. After the withdrawal of the Mongols, he appointed men particularly loyal to him to manage the country. A political consensus evolved around him, in which abandoning earlier excessive restitutions of land and wealth, and finding the right middle path played a great role. Afterwards, the monarch did not aim at gaining political and economic benefits as fast as possible, but developing the economy for a long-term benefit of the treasury. The value system had reversed: it was not revenue-related reform measures that led to economic and social consequences, but a complex economic and social reform policy had revenuerelated implications. In order to create economic stability, he had to eliminate the two-decade-long chaos around coinage. During Béla IV’s reign, a stable currency appeared in domestic markets, as the new silver dinar was introduced. Before the Mongol invasion, mining had represented a minor source of revenues for the state, in spite of the fact that Hungary had some of the most significant reserves of noble metals. The flourishing of mining promoted the revival of towns and the intensification of foreign trade relationships at once. Mining burst the frameworks of being a royal private business, and transformed into an urban undertaking. The essence of the new form of operation was that the entrepreneurs enjoying the liberties of urban citizens established capital-intensive companies and introduced mechanical techniques with the help of

Statue of Béla IV by Miklós Köllő in the colonnade of the Millennium Monument; photo by Tibor Vermes which deeper-lying ore bodies could be extracted. The fact that mining companies employed workers of a free status shaped the society. The long-term perspective of the royal economic policy is also reflected in the provisions related to towns. Béla IV laid down as a condition for grants of land the requirement of building a stone fortress. For the monarch, the general development of towns was a more important viewpoint than direct regalia revenues. Lost customs revenues were recovered for the treasury indirectly, through city tax. Direct taxes decreased, and to make up for them, emergency taxes at intervals of several years were introduced. A common feature of regalia revenues was that they placed the centre of gravity of the treasury on the new elements of the economic transformation through a novel exploitation of the royal prerogatives. During the reign of Andrew II, the shift of the centre of gravity to royal rights deriving from the exchange of goods and coins was shock-like; now the timing was right. The main drive for the massive internal migration of people and the immigration of foreign settlers implied by the rebuilding of the country was a broad set of privileges granted in return for settling down. The promises of obtaining self-cultivated, heritable land and free disposition of own wealth proved to be irresistible. The monarch successfully repositioned the country also against neighbouring countries. In addition to the traditional western and southern direction, Béla IV also looked towards the east, and successfully integrated the Cumans, also using the marriage of his son, Stephen V. The king recognised the necessity of buffer states against eastern threats, and entered into a dynastic marriage with the royal family of Kiev, successfully positioning Hungary in the new geopolitical space in East-Central Europe. An inspiration to his descendants, Béla IV recognised that the political elite of any time can pursue only one objective: to keep the Hungarian homeland in Hungarian hands, and use it for Hungarian interests. His reign provides a guideline also about how to turn seemingly hopeless disadvantages into advantages. Since it was successfully accomplished centuries ago, why would it not be successful again?

THE GOLDEN AGE OF THE KINGDOM OF HUNGARY Author: Zoltán Horváth

The 14th and 15th centuries were the centuries of prosperity in the medieval Hungarian state. Our Angevin (Anjou) kings, Sigismund and Matthias elevated the country to a real European major power and the spearhead of the Central European region. All the great Hungarian monarchs of the era built strong royal power, created a stable currency and a modern economic and monetary system, funded constructions, promoted culture and arts. At the same time, the Kingdom of Hungary undertook military endeavors unmatched in size and success since the forays. Economic life flourished, the creation of the gold florin and its exchange coins of stable value settled the monetary affairs, resulting in the rise of mining and commerce, which earned considerable revenues for the country. The standard of living significantly rose in all segments of society. At the very beginning of the 14th century, our native dynasty became extinct and the country sank into anarchy. Charles Robert of Anjou’s road to consolidate his ruling power was bumpy, but after that he immediately set to recover the economy. He incentivised the extraction of the large deposits of precious metals with a new kind of mining tax (urbura) to engage owners in exploiting their ore deposits. Relying on this, he had gold florins and later silver dinars of a permanent value minted. The gold production of the country exceeded two tons by the middle of the century, which was almost threefourths of Europe’s total gold production. The king reformed tax administration, introduced the gate tax and the thirtieth customs duty. He deprived the oligarchs of their counties, and handed them over to his loyal men to administer them. His state administration and judicial reforms enhanced public safety and predictability. Charles aimed at exploiting the economic and political synergies of Central Europe,

and he arranged the meeting of kings in Visegrád in this spirit. Louis I, also as Louis the Great, inherited a flourishing country from his father. The stability of the domestic affairs that Charles I created gave the background for his endeavors abroad, and the fame of Hungarian soldiers spread all over Europe. With his Polish kingdom, he achieved an unprecedented CentralEastern European union. In his economic policy, he followed the example of his father, and his reign is considered the age of wealth in economic history. As a result of financial and political stability, commerce flourished, the towns developed and the frameworks of a guild-based economy evolved. Several of his provisions became corner stones of the Hungarian legal system for centuries. Owing to his provisions, serfdom and nobility were legally standardised, and the feudal state consolidated in Hungary. Just as Charles did, Sigismund of Luxemburg also had to go a difficult road to overcome the opposition of high nobles, but eventually he successfully created a political unity. Then, leaving from the Hungarian heartland, he entered the scene of world politics and became its most important leader. First he became a German and later a Czech king, and finally he was elected Holy Roman emperor, following the footsteps of his father. He always kept Hungarian interests in view, but looked at international politics from a European perspective. The Council of Constance is a diplomatic masterpiece, which made Sigismund Europe’s most prominent monarch and which had an enormous role in the European unity of the coming centuries. In the Battle of Nicopolis, he experienced the strength of

the Turks, and he was aware that only an international collaboration can curb their expansion. Compared to his great predecessors, Matthias started his reign with an even greater disadvantage, since he was not a descendant of a royal dynasty, and owned only about one-tenth of the country’s territory. Therefore, he had to work hard to overcome the barons. He soon realised that he could reinforce his royal power if his revenues were increased and a military force obeying only him was set up. His centralising efforts were also reinforced by his economic measures. He standardised public administration, introduced taxation by households and the crown customs duty, and levied extraordinary taxes several times. He had a silver coin of a permanent value minted, and punished counterfeiting severely. His measures consolidated the monetary system, and the treasury had incomes similar to those of Western major powers. These enabled him to finance his dreaded mercenary army, which was dedicated to repelling the intensifying attacks of the Turks and seizing the Kingdom of Bohemia and the Duchy of Austria. During the reign of our great kings, Hungary took place in the vanguard of European politics. They adopted progressive laws in line with the standards of their age, and also their economic reforms brought success. The prestige of the internally consolidated country increased also externally, and became a major power, owing to dynastic and military successes. Simultaneously with the increase of the country’s weight in international affairs, cultural development started to take place. The gothic and Renaissance buildings, artefacts, codices and chronicles of our kings, but especially Matthias’s library are the

imprints of a leading country of the age. The knightly culture and the knightly ideal were introduced under Charles I and started to flourish under Louis I. A university was founded by Louis the Great in Pécs, by Sigismund in Óbuda and Matthias in Pressburg. All the four kings were impressive monarchs, naturalborn politicians, and multilingual, educated individuals. The key to their success, on the one hand, lied in their preparedness and their individual competence. On the other hand, it also lied in creating a strong central power by overcoming noble parties. Creating a stable monetary and economic background, which ensured the freedom of their political room for manoeuvre, was a prerequisite for all of them. Finally, it lied in a strong army and a brave foreign policy, enforced by the army, within the framework of which the aspirations to unite Central Europe were fulfilled, ensuring Hungary’s becoming a major power. At the same time, they created peace and stability within the country, took advantage of the opportunities of their age, since with a consistent, heavy-handed policy they made the Central-Eastern European region catch up with the Western world weakened by the Hundred Years’ War and the plague, creating a unified and “single speed” continent. Similarly, today it takes a unified Europe to meet the challenges of the age, in which the catch-up of the Central-Eastern European region represents a key element. They had faith and will, they called for cooperation, and made the countries strong and successful. Today, chroniclers are writing again about the decline of the West, and we do not lack educated individuals, either. Do we have faith and strength to follow the footsteps of our great kings?

THE GOLDEN AGE OF TRANSYLVANIA

Author: Ákos Mechler

In the age of trisection, the reign of the princes of Transylvania, Gabriel Bethlen and George Rákóczi I achieved political and economic success. The Transylvanian state, manoeuvring with a clever policy among the major powers of the era, is an excellent example that, with a competent leadership, even a smaller country is able to succeed in the frontline of international politics. In the Principality of Transylvania, the unsuccessful reign of Gabriel Bárthory was characterised by anarchy. Gabriel Bethlen came to the throne with the help of the Turks, therefore he was unpopular at the beginning of his reign, but he soon proved his competence. He realised at a very early stage that he could become independent from the Turks if he could rely on a strong economy. Therefore, at the diet of Medgyes (Medias), he put forward his proposal to set up the Aerarium Publicum (treasury) and tax the three Transylvanian nations. The proposal, however, was rejected as the orders resisted. Subsequently, Bethlen ignored the diet, and sought to increase conventional incomes instead of taxes. The estate law, which was adopted by the monarch and revised grants of land back to 1588, served the purposes of laying the foundations of the prince’s power. With the application of this law, the estates of the prince and the revenues of the treasury significantly increased. Based on the example of the estate law, rights to thirtieth customs duties and salt mines were also withdrawn. Bethlen’s innovative economic policy fits the system of mercantilism. Bethlen’s artefact is made even more splendid – if possible – by the fact that he did not pursue this policy on a theoretical basis but he can be regraded an “instinctive mercantilist”. In order to increase exports and implement an active balance of foreign trade, he introduced a foreign trade monopoly for various precious metals, livestock and finished products, which he purchased at a maximised price and resold them both for the East and the West. Bethlen convinced the Ottoman Port to grant Transylvanian goods an exemption from customs duties. In order to boost the industry of the principality,

he settled down foreign craftsmen, miners and merchants in Transylvania, which increasingly tilted the economic balance from feudal estates in the direction of industrial-commercial revenues. Given Betlen’s encouragement, new mines opened. Transylvania’s important commodities included mercury and copper, in addition to salt and precious metals. In those days, the copper mines in the valley of the Black Körös and a Swedish town, Falun had the highest mining yields in Europe. Recognising this, Bethlen was seeking an economic cooperation with the Swedish to rule the entire European copper market. Monetary administration was centralised by the monarch: by regulating the services of miners he achieved that all gold was delivered to the ispán (head) of the mint in Kolozsvár (Cluj Napoca). Minting was located from Szeben to Kolozsvár, and a new minting chamber was established in the capital, Gyulafehérvár (Alba Iulia). He actively took part in curbing the European inflation wave, which the peak of the exchange rate of gold coins ensued, by signing a monetary pact with the Emperor and the Polish king on putting money of the same shape and value into circulation and mutually accepting them. The monarch pursued a tolerant religious policy and a constructive educational policy. It greatly contributed to the consolidation of the Principality. In addition to his large-scale constructions of fortresses, he developed existing schools, and urged the building of new ones. He founded an academy in Gyulafehérvár, the college of the time, and had a library and a press built next to it. He invited foreign artists and scholars to Transylvania, and he strongly advocated the Western peregrination of students. He contributed to the translation of the Bible by Catholic George Káldi

Kolozsvár (Cluj Napoca; Claudiopolis) in 1617 – copper engraving from Civitates Orbis Terrarum, based on a painting by van der Rye with a donation, and published the Latin-Hungarian dictionary by Albert Szenczi Molnár. Transylvania’s peaceful development continued under George Rákóczi I as well. For this, international affairs proved to be ideal, since one the neighbouring “superpowers”, the Turks were struggling with internal conflicts, and the other, the Habsburgs were engaged in the Thirty Years’ War. The favourable external milieu fundamentally contributed to the fact that Rákóczi continued the mercantilist economic policy of his predecessor. He restored the trade monopoly system, which had been abolished after Bethlen’s death. He encouraged mining with new laws, and had craftsmen settled down in the country. He also continued his predecessor’s large-scale construction projects and his cultural policy, with the help of his wife, Zsuzsanna Lorántffy. He had a court school built next to the academy of Gyulafehérvár, developed the colleges in Transylvania and advocated the academic education of Transylvanian students. He established a typecasting workshop in Sárospatak and a press in Várad. Among other things, he gave donations for publishing the history of Transylvania written by János Szalárdi and the Romanian translation of the Bible. George Rákóczi I sought to preserve

Transylvania’s peace and internal equilibrium, which was a worthy continuation of the politics pursued by Prince Gabriel Bethlen; however, he did not continue Bethlen’s extensive foreign policy. Gabriel Bethlen is recognised by after-ages as a hard-working politician with outstanding capacities, a diplomatic genius of his age. His entire life and political agenda were centred around the unification of the country starting from Transylvania by any means. His participation in the Thirty Years’ War also aimed at creating a unified country based on Reformation and national sovereignty. His alliance with Protestant countries and the dynastic relationship through his wife were made on the basis of this policy. Although he could not achieve a national kingdom, during his reign Transylvania could succeed even in a higher weight-class of international politics, and his heartland developed in peace and prosperity. This success required Gabriel Bethlen and George Rákóczi I’s princely power based on stable economic foundations and outstanding diplomatic skills. Similarly, today, in addition to a strong economy and a stable political will, our right sense of proportion can help us lead the country to success in the competition between the major powers of our age.

A COUNTRY ON THE ROAD TO RECOVERY Author: Zoltán Horváth

In the long period of peace from the beginning of the 18th century to 1848, Hungary could achieve several important successes that proved to be of key importance later. These provided the basis for the great catch-up of the country with the Western half of Europe after 1867.

In the last decade of the 17th century, the 150-yearold great dream, the expulsion of the Turks, came true. The Peace Treaty of Szatmár brought a period of over two centuries and full of bloodshed to a conclusion. The casualties severely affected Hungary’s demographic trends and ethnic relations. The population of the country dropped to three and a half million, which was roughly the population size in the age of King Matthias. In the meantime, Western-European countries had developed into modern nation states with a strong bourgeoisie. Transylvania’s integration into the Empire also allowed the exhausted Hungarian nation significantly less room for political manoeuvre. The Court and the landlords settled a significant number of foreigners in the devastated areas, and some parts of the country lost their Hungarian character forever. In fact, a third foundation of the state was taking place, as the magnitude of the Turks’ devastation exceeded that of the Mongol invasion. The survivors and the settlers slowly repopulated the new Hungary. The population size was nine and a half million in 1800, and increased over eleven million by 1830. During the industrialisation implemented in the mid18th century, and due to drawing an internal customs border, the Court promoted the industrialisation of the Hereditary provinces. Hungary was intended to assume the role of the pantry. Accordingly, it was primarily agriculture that was developing in this era. While only one-third of the country’s arable land was cultivated at the beginning of the 18th century, this proportion reached seventy per cent in the early 19th century. New plantation crops appeared,

a three-field system was adopted, the technical standard of agriculture improved. The Banat region became one of the most developed agricultural regions of Europe. Parallelly, industry remained underdeveloped. In addition to the guild-based industry of the 18th century, the manufactories operated mainly in the textile and leather industry; and our copper, silver and salt mining was outstanding. The country had significant export surplus; we primarily exported mining products, cattle, wool and wine, while on the import side, manufactured goods, textile, metal devices and weapons ranked first. After a period of quiet development, the conjuncture of the Napoleonic wars was followed by a period of recession beginning in 1816, forcing landowners to restructure. Animal husbandry had an increasingly important role, and wool accounted for an increasing proportion of the Hungarian export. The war made the iron and sugar industry as well as coal mining pick up, and the foundations of the milling industry, which became world-famous later, were laid down in those days. Related to the Reform Movement and the work of István Széchenyi, lending started and the first credit unions were set up. Among other things, the regulation of the waters of rivers started, and shipping on the Danube was introduced, the road network was expanded, the Chain Bridge was built, and railway transport started in our country in 1846-47. A law was adopted on voluntary indemnity, on the freedom of establishing factories, and on bills of exchange. The Hungarian noble resistance successfully defended the country’s separateness against merging attempts, taking advantage of the opportunities arising against its monarchs fighting against external enemies. This bargaining power further developed

Széchenyi, Kossuth, Deák by Mór Than (Ceiling fresco in the Hungarian National Museum)

owing to external failures, as territorial losses and the strengthening of the Hungarian party made the centre of gravity of the Habsburg Empire shift to the Danube basin, thus Hungary’s loyalty was of key importance for the Court in order to keep the major power status of Austria. Without doubt, it was a success that the medieval territory of the country was basically restored owing to the wars of liberation, and even Fiume (Rijeka), which became an important access to the sea later, was added to it. In this era, there were no acts of war in the country, thus the population could thrive in peace. The Hungarian political, cultural, scientific and artistic life could unfold in the sovereign territory of the state. A Hungarian group of intellectuals and their political agenda evolved. Therefore, 1848 did not find the country unprepared. The political

concept was ready, and so were the political leadership and their mass base. Divided Poland had no chance of this. Although the Hungarian nation failed to integrate the large numbers of settlers in the two centuries following their arrival in the devastated parts of the country, which eventually had tragic consequences, Hungary could boast several successes in this era. It preserved its limited independence with stubborn political resistance and could stay away from great European conflicts. Internal peace created an opportunity for financial growth and intellectual development. The country was slowly gaining strength, and could assert its interests in 1848 and 1867. Today, not only internal unity but also – relatively – significant room for manoeuvre are available for us to keep the country on the path of political independence and peaceful growth.

HAPPY PEACETIME DAYS

In the Vortex of Outstanding Achievements and Social Failures Author: Zoltán Eperjesi

The Austro-Hungarian Monarchy, born in 1867, laid the Austro-Hungarian relationships onto new foundations. In addition to the political background set, the economic compromise was also agreed upon, which aligned and standardised the internal markets of the new state structure. Finance and transport became common affairs, and the measurement system became identical. All these developments were based on the customs and trade union forming between the two parties. Hungary’s 19th-century attempt to catch up with Europe was greatly influenced by the fact that the country had only limited sovereignty within the Austro-Hungarian Monarchy. The complete maximisation of the incomes of the state budget and the promotion of the industrialisation of the Hereditary provinces constituted a cornerstone of Vienna’s economic policy. As a result of the customs union, domestic agricultural products could be put on the market without much difficulty, while manufactured goods had to face competition with the more developed Czech-Austrian industry. The stock exchange, founded in 1864, significantly contributed to the development of Budapest’s central financial-administrative role. The inflow of foreign capital generated a financial conjuncture and the credit conditions became favourable. Therefore, from 1867 to 1872 a huge wave of establishing businesses started, also dubbed as an “investment fever”. Although the global economic recession of 1873 caused serious losses, from the 1880s considerable growth began again. Albeit the Hungarian territories, compared to the Austrian ones, were always characterised by weaker urbanisation and a strong rural character, Hungary’s catch-up with the hereditary provinces and the West of Europe gained great impetus in this era. Agricultural production doubled, and although latifundia predominated, crop rotation was introduced and the product structure was modernised both in livestock and crop production. After the turn of the millennium, the growth rate gradually slowed down, mainly because the new economic units primarily conserved out-of-date mechanisms. The successful market, infrastructural and industrial integration of the first decades of the period from 1867 to 1914 was

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based on grains, that is, the milling industry, railway constructions and the iron and the steel industry. These sectors, however, due to low productivity and a low return on capital, did not directly lead to the diversified development of processing industries. In terms of the volume of grains ground, Budapest became a world-leader mill city. The efficiency of the Hungarian milling industry is a good example of taking advantage of local conditions and innovation: in addition to high-quality wheat from the South of Hungary, the roller mill, an invention of András Mechwart, gave advantage to the mills in the capital. In addition to using world-class technologies, there were talented Hungarian engineers and innovative production plants in the background of inventions and innovations. The Ganz factory, which employed such geniuses as Donát Bánki, Miksa Déri, Ottó Titusz Bláthy, Károly Zipernowsky and Kálmán Kandó, played a prominent role in this development. Among other things, the production of hard cast wheels and inventions of the milling industry started in the foundries of the factory. During dualism, the Hungarian state had a significant role in economic development, and actively led it with customs tariffs, mechanisms of repaying customs duties, interest rate guarantees, tax exemptions, favourable loans and the legal instruments of economic regulation. The development of the infrastructure provided the indispensable background of economic growth. Improving public roads, the development of navigation, and the expanding railway network promoted the harmonisation of the internal market. Gábor Baross was an emblematic figure of the development of the infrastructure. Through the nationalisation of the railway, Fiume’s development, river regulations, the

Workers of the Ganz & Co. shipbuilding factory in 1902 development of the port, public roads, post and telegraph offices he introduced the Hungarian economy into Europe’s bloodsream. Budapest, which developed into a metropolitan city in the age of the Monarchy, has preserved much of the character that it assumed then. In its very beginning, the politics of the Compromise concealed severe social and economic deficiencies which became increasingly urgent over time. The Hungarian leadership undertook the contractual framework which severely limited the sovereignty of the state and entailed the conservation of the predominance of agriculture and the food industry. Increasing state debt and the deteriorating market position of Hungarian grains, undermined by the USA’s cheap production in the late 1880s, also caused difficulty. In the meantime, the provinces continued to develop on different levels. Therefore, Western European standard models of the time could be better adopted in the Austro-Czech- Moravian regions, although the Austrian regions themselves lagged behind more developed Western industrial zones. Technological and technical modernisation could not take place everywhere, because the various innovations were not profitable because of the oversupply of cheap workforce in the countryside, either. Obviously, the economic-social integration process took place in the shadow of Vienna, but the Empire suddenly came to a halt a couple of decades after the successful commencement of modernisation attempts, and also dragged its peoples into World War I. One of the lessons of the failed Hungarian catch-up efforts is that in the alliance of weakened major powers there were not many opportunities left for real economic self-realisation. As soon as the strong central power staggered, the developing economic systems reacted sensitively. Due to the sudden change of direction, the modernisation and innovation processes operating so far broke down.

The success of the catch-up was also hindered by the fact that a great part of the society could not adapt to rapid changes. After the Compromise, Hungary – after a delay of several decades – relatively quickly resumed the thread of industrialisation, but it was not enough for a strong urban bourgeoisie to evolve. By the early 20th century, Hungary had become an agro-industrial country with a developed food industry and intense export activities. Compared to the Compromise, the national income tripled by 1900, and quadrupled by 1914. This, however, did not ensue a rapid rise of broad masses of society, due to an unproportionable distribution of wealth. Frictions between the centre and the provinces became permanent, but the strong central power more or less successfully balanced between different nationalities and ethnic groups until the eve of the world war. Before World War I, the Monarchy was operating as one of the largest multinational countries of Europe, but the losses suffered in the world war impaired the state along the Vienna-Budapest axis and it dropped out of the circle of European major powers. Its domains were rearranged in line with the ideas of major powers, and the united market was replaced by separate states and their small markets, and the Hungarian party became one of the major losers of its time. The outstanding performance of the Hungarian economy – for which the foundations were provided by making good use of local capacities and innovation – ended up in failure, due to the lack of independence. The success of this era, however, proved that with a combination of suitable people, knowledge, tools, conditions and a good portion of luck, we can elevate the level of the national economic development to meet the world standard. It is reasonable to ask if it could become a remarkably successful endeavour at the turn of the century, why could we, Hungarians not write a similar success story now?

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ISTVÁN BETHLEN, THE CRISIS MANAGER

Difficulties and Solutions Author: Árpád Suslik

After World War I, the Austro-Hungarian Monarchy ceased to exist. Although Hungary became independent, its territory and population were radically reduced. Due to the world war and the peace treaties, its economy was in ruins and also burdened by enormous war reparations obligations. Rebuilding did not go smoothly. Until 1921 the successive governments were simply unable to cope with the difficulties they had to face and the situation was not very stable, either. The incomes of the state were less than half of its expenses. The Hungarian korona devaluated, further increasing the already heavy burdens. Count István Bethlen, succeeding Pál Teleki in 1921, was the only person who could surmount the crisis with competent and hard work. István Bethlen was born in Gernyeszeg (Gornești; formerly Ghernesig), in Maros-Torda (Mureș) County, in present-day Romania, in 1873. He commenced his political career as a district representative, first as a pro-government politician, and then as an opposition one after István Tisza had been appointed as Prime Minister. After the world war, in 1919 his name had already come up as a potential Prime Minister candidate, but back then he refused the mandate, and was appointed as head of the Asylum Office. From 23rd April, 1921, he took over the country’s governance as the Prime Minister of the new Hungarian government. Right after he had been appointed, István Bethlem had to face the country’s near-bankruptcy situation, aggravated by the inflation of the korona. Therefore, one of his first tasks was to consolidate the exchange rate of the Hungarian korona, by curbing the inflationary processes. He was stopped by insurmountable obstacles several times, especially in the case of capital levy. During the decade of his governance, he had to cope with several difficulties in the uncertain internal and external political situation, both in the post-war period and during the Great Depression. With hard work, he completely re-organised Hungary’s economy, raising it from chaos. Promising positive signs were observable

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from as early as 1922, and by the late 1920s, he managed to rebalance public finances. Protecting domestic production, he set up an independent Hungarian customs system, which was harshly criticised by many because it strongly protected domestic industries. By the end of the decade, industrial output exceeded the pre-war level by twelve per cent; especially the textile industry developed. Customs revenues accounted for fifteen per cent of all incomes. Consequently, the country was able to produce for export again. For the sake of stabilisation, he imposed several austerity measures. He eliminated unnecessary expenses, reduced the number of officials, and re-valuated and rationalised the country’s sources of income. On 24th June, 1924 the autonomous Hungarian National Bank, set up based on a British model, commenced its operations, with an initial capital of thirty million koronas. The Bank pursued a strict deflationary policy, its bullion reserve reached fifty-four per cent by the end of the year. The initial interest rate of twelve per cent dropped to six per cent over time. The bank had an important role in accounting for foreign loans. Keeping his independence, it closely cooperated with the government, and supported its economic policy. From 1925 pengő value was introduced and from 1st January, 1927 pengő became the legal currency. As a result, the financial situation consolidated, and economic indices showed the signs of an economic recovery. Per capita GDP increased, even in 1929, at the beginning of the crisis it achieved a growth of two and a half per cent. Owing to the hard work of Bethlen and the government, national companies, including the Hungarian National Railways, the Hungarian Post and the National Iron and Steel Factory were reorganised. The

Founder’s share of the Hungarian National Bank railway sections distorted by the borderlines of Trianon were repaired and made operational, which promoted the domestic as well as the foreign exchange of goods. The electrification of railway lines, first on the Budapest to Hegyeshalom section, started in order to increase trade. The government spent a part of the reconstruction loan to satisfy the credit needs of the agriculture, reduced land tax, thus the costs of agricultural production also lowered. From the mid-1920s, the state concluded trade treaties essential for its existence with, among others, England, France, Austria and also the Czech Republic, introducing the country into the bloodstream of world trade. He appointed excellent experts to lead foreign trade, first Tibor Scitovszky, then Lajos Walkó. One of Bethlen’s goals was to create a social policy based on western models to reduce the tension between employees and employers. By adjusting income and turnover tax, the burdens of craftsmen, merchants and the urban bourgeoisie were eased. He made health and pension insurance compulsory. Bethlen’s administration placed great emphasis on improving the situation of the disabled, war-widows and war-orphans. Offices of public welfare were set up to look after them. National labour protection offices were also formed at the same time; their role was

to ensure the continuity of public works during strikes. The development of public health, education and cultural policy required hard, tedious work and an extremely high financial sacrifice. The reorganization of public and higher education was led by Kunó von Klebelsberg, Minister of Religion and Public Education. Debrecen, Szeged, and Pécs became university towns; new universities were organised with the professors of the University of Kolozsvár (Cluj Napoca) in Szeged, and with the professors of the University of Pozsony (Bratislava) in Pécs. Hungarian Institutions in Vienna, Berlin and Rome were established for students to study abroad and to diffuse Hungarian culture. The promotion of culture and education entailed the development of sciences as well. Such famous scientists pursued their activities in the 1920s as Albert Szent-Györgyi, Dénes Mihály, Kálmán Tihanyi and Leó Szilárd. Vitamin C, the “projectophon”, the absorption refrigerator with no moving parts, a completely electronic television system – these were all Hungarian inventions from this period. István Bethlen’s government successfully stabilised life in Hungary between the Trianon borders. The rebuilding of the Hungarian state, with long and timeconsuming work, was successful, despite difficulties arising from time to time. Hungary began to rise.

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ARDUOUS REBUILDING Author: Zoltán Horváth

Hungary was severely hit by the devastation of World War II. Still, from 1945 to 1948, the country was being rebuilt at a brisk pace, thanks to the arduous work of the Hungarian people. The hope of creating a new, free country based on a fairer social structure gave wings to rebuilders, who resurrected the country from its ruins in three years through their tremendous efforts.

Measured by the value of 1938, war damage was estimated to amount to twenty-two billion pengős, which was five times more than the national income in the last year of peace. 40-45 per cent of national wealth was lost: it was either destroyed or robbed by the German and Soviet armies. Hungary made tragic sacrifices in other respects as well. Nearly one million people died, which, compared proportionally to the population of the country, was the highest number after Poland and the Soviet Union. Three-fourths of the livestock perished, and more than half of the manufacturing industry was destroyed. Only 4,500 km of the 7,600 km-long network of rail tracks maintained by MÁV (Hungarian State Railways) were operable, while 70 per cent of locomotives and 89 per cent of carriages were destroyed or taken abroad. The country’s infrastructure also received a heavy blow. The bridges of the Danube and the Tisza were lying in the rivers, the buildings of Székesfehérvár, Szolnok, Esztergom, Veszprém and Szombathely were badly damaged. Destruction was particularly large-scale in the capital, where only 26 per cent of the nearly forty thousand buildings remained intact. The most serious harm was inflicted on the Danube row, the Castle, the buildings of the Tabán, and such junctions as Kálmán Széll Square, Gellért Square, Kálvin Square and Deák Square. The same thing happened to the spas of Budapest, and the Castle District in Buda was particularly severely damaged. Here no more than four per cent of the buildings remained intact, 87 per cent of them was badly damaged or destroyed. Only two hundred of the three thousand classrooms of the schools in Budapest remained unharmed. Budapest’s power

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grid and the fleet of BSZKRT (Budapest Capital City Transport Ltd.) also suffered huge losses: there was not a single operable bus left. All who could started to work in as early as May, 1945. The first task was – to prevent epidemics – to create basic hygiene, that is, to bury the dead, dispose the accumulated waste, and make hospitals useable. Then they started cleaning up the ruins. According to estimates, one and a half cubic metres of ruins and debris had to be removed in Budapest. Reconstruction was particularly heroic immediately after the siege, when there were neither sufficient workforce nor tools available. Initially, the local citizens provided the workers with food and clothes. Public utilities and buildings providing the most basic services were rebuilt with extreme difficulties, from scrap materials found among the ruins. First, the reconstruction of Saint Roch Hospital, the Communal Bread Factory, the Central Town Hall and Saint John Hospital started. It was particularly important to provide crossings on the Danube. Fourteen thousand tons of iron was retrieved from the material of blown up bridges, which had swelled the river and had caused severe flood risks. First, Kossuth Bridge was rebuilt from scrap materials, and the materials of ruined houses and the other bridges. It stood at the Southern side of the Parliament, and came to operation on 18th January, 1948. Then came Liberty Bridge, which was opened on 20th August, 1946. The reconstruction of the busiest crossing, Margaret Bridge, took a longer time, due to the considerable damage it had suffered. The achievement of the bridge builders is reflected by the fact that 2063 of the 2300 destroyed railway

and road bridges were rebuilt until May, 1948. In addition, 250,000 square metres of road surface and 80,000 running metres of sidewalks were destroyed in Budapest. By 1948, all roads and railway sections had been repaired, and the lost vehicles of MÁV and BSZKRT were replaced. The provision of all three basic utilities had been restored in most parts of Budapest by May 1945. In Europe, Budapest was the only city where no utility restrictions had to be introduced in the winter of 1947. Rebuilding was taking place without any interruptions in spite of continuous difficulties of supply. In the winter of 1945-46 the scarcity of food in the capital was so great as during the siege. As Sándor Márai wrote, “starving workers ran electricity into Budapest”. In addition to the mental shocks inflicted by the lost war, financial losses and family tragedies, the workforce of the men who were killed or injured in the war or taken off to perform “little work” (malenky robot) or who ran away from the country or became prisoners of war had to be replaced. Therefore, masses of women started to work. The trauma of the lost war was intensified by the fact that in the new peace treaty, signed in Paris in 1947, the nation was forced back between the Trianon frontiers. Hungary had to cover the costs of catering and accommodation for the occupying forces and the Allied Control Commission as well. The country was obliged to pay unrealistically high reparations of 300 million dollars, calculated at the world market price of 1938. Hungary was also obliged to start paying the instalments in as early as 1945. In addition, under Soviet pressure, the government had to reject the funds offered by the U.S. Marshall Plan. Directly, it was the greatest hyperinflation of history that delivered the hardest blow to the economy. In the spring of 1946, cash was replaced by direct exchanges of goods, and due to the slump of the purchase power of wages it was not worth working for money. Thus, the introduction of the forint, replacing the pengős, on 1 st August, 1946 was considered a key success of the economic policy, for which the foundations were provided by the gold reserves returned to the Hungarian National Bank by the Americans. With the introduction of the stable forint, money regained its functions as a token of exchange and a value measure, and setting the price levels could form the basis of economic stabilisation. The land reform was implemented in the predominantly

The first permanent Danube bridge of the capital, Kossuth Bridge, which started from beside the Parliament. Photo by the Hungarian Telegraph Office (MTI) agricultural country, which also had key importance. Thirty-five per cent of the arable land areas of the country were divided among 650,000 peasants, who had a key role in providing food supplies. It shall be emphasised that in the post-war period – despite harsh conditions – the fastest reconstruction in Europe took place in Hungary. In 1948, performance approximated or exceeded the level of the last year of peace, 1939, in all areas of the economy. According to Károly Széchy bridge engineer, during bridge reconstructions, for example, ten years’ work was done within two years. Such profound spiritual powers worked in the country which can be experienced only in exceptional moments of history. Society selflessly cooperated for one major goal, and their collaboration brought success. It is a particularly ruthless game of destiny that the achievements of their enthusiastic work were eventually monopolised by the Communists in the shadow of Soviet arms. The “big spider” in Moscow was weaving an increasingly thicker net around Hungary in the years of reconstruction, and finally gorged it in 1949. Thus, the Hungarians’ attempt to catch up ended up in failure again. It was proven again that economic catch-up was not possible without political independency. Still, the unmatched success of the reconstruction demonstrates that Hungarians – against the common belief – are capable of cooperating, doing hard work with faith, and, as a result, also delivering outstanding economic performance.

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SHACKLED BY COMMUNISM Author: Zoltán Eperjesi

After World War II, the national economy of Hungary was in a critical state. By 1946 a critical situation had developed. The economic policy of the government primarily aimed at restoring the balance of public finances: the economy was somewhat stabilised by re-scheduling the Soviet reparations, reducing wages, stockpiling, introducing the forint, and creating the new price ratios. In the meantime, however, the Hungarian Communist Party – with Soviet support – took control of the key positions of the political-economic life, which led to thrusting capitalistic production and the market economy into the background.

After the Communist take-over, the Soviet-style restructuring of the Hungarian economy commenced. Communists operating a single-party dictatorship led by Mátyás Rákosi forced rapid industrialisation, commenced the collectivisation of agriculture and the elimination of private property. The one-year and five-year plans of the national economy were implemented with the management of the National Planning Office and the People’s Economic Council. Mainly military and strategic viewpoints were considered, which quickly alienated the national economy from real market conditions. “The starry sky was the limit”, according to Rákosi’s keynote speech. Stakhanovism became the showcase of this slogan, giving priority to quantity over quality. They were trying to achieve the goal of the economic policy to make Hungary the country of iron and steel while neglecting the development of the food and textile industries, which had been characteristic of our region. Although the artificially bloated heavy industry absorbed the excess workforce flowing out from agriculture, underdeveloped background sectors hindered any real economic growth. Agriculture, however, had a tight budget, and there were disruptions in public supplies. The plan and peace loans drew in the income of workers as hidden taxes between 1949 and 1956. Collectivisation was slow, because the people of the land resisted: they insisted on their land and their independence. The continuous drain

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of incomes generated by agriculture (compulsory deliveries of crops and “sweeping the attic”, i.e. being forced to deliver every scrap of produce) shook the peasants’ confidence in land ownership. Due to economic disproportions, the persecution of kulaks, internments, criminal proceedings and social controversies, the internal political situation grew more tense. The opportunity to restrain hardliners opened up only after the death of Stalin, under Prime Minister Imre Nagy. The reversal commencing in March, 1955, however, indicated a return to the situation before 1953. The growing economic, political and social dissatisfaction culminated in the Revolution of 1956. Although the national uprising was crushed by the numerical superiority of the military, it still resulted in the reconsideration of the Soviet-style economic policy. The adjustment launched in 1957 applied the Soviet planning scheme in a much less extreme framework. Increasing the standards of living of the population, ensuring development and mitigating crisis situations became the basic objectives. During the consolidation of the Kádár era, new kinds of decisions were made: the supply of food and goods improved, giant housing schemes were launched, new motor vehicles and weekend cabins appeared. However, these all entailed the country’s indebtedness. In the mid-1960s it was apparent that the regulation of industrialisation focussing on quality had become winded, and such reforms were necessary

“After World War II, the Hungarian nation got stuck again in the periphery and the buffer zone of major powers.” that rather enhanced competitiveness. Furthermore, the liquidity problems generated by foreign, short-term loans threatened with a drop in living standards. As a result, a series of measures aiming at the revision of central planning and direct control was introduced through a New Economic Mechanism from 1968. After 1970 – especially in the 1980s – the produce of the Hungarian agriculture approximated and in certain product groups even met, the global standard. The developments were still basically funded from credit – increasingly of Western origin – as the Soviet Union got into a permanently difficult situation due to the explosion of the oil price and the effects of the world economy, and could provide less and less support for its satellite states. This was also a cause of the gravest problem of the Hungarian economy: the deterioration of the exchange ratio. After 1975, newer loans had to be taken out to pay the instalments of older loans: a debt spiral commenced. In 1978, an attempt was made to stop indebtedness. In order to avoid insolvency, Kádár’s leadership made Hungary join the International Monetary Fud and the World Bank, which created the opportunity to take out newer foreign loans. By 1984, the strategy of curbing was applied with more or less efficiency: they tried to control inflation and indebtedness. After 1985, the increase of debt further accelerated, the standard of living plunged, and inflation got out of control. The nomenclature wanted to exit the crisis by accelerating, fleeing forward, which further aggravated the situation. In the meantime, a change of direction took place in Moscow. The Soviets were not controlling the Communist regimes of Eastern Europe so strictly as before. Subsidising inefficient enterprises, and the irresponsible use of financial, human and natural resources made the country approximate state bankruptcy by 1989-1990. The

introduced reforms proved to be dysfunctional without a complete transformation of the political framework. After World War II, the Hungarian nation got stuck again in the periphery and the buffer zone of major powers. A new system, a completely unfamiliar social and economic structure was forced on the country. This new system was unreasonable from its genesis, and was tied to the fate of the Soviet Union during its existence. Futile and insufficient attempts were devised to reform it. Although the emerging system gave broad social groups an opportunity to rise, it rendered the communist idea the principle of re-organising the society. Within the Soviet system of relationships of alliance-dependency, there were few opportunities to break out. Under the watchful gaze of the Big Brother, no chance of real success opened up. By drowning the Revolution of 1956 in blood, the attempt to break out failed from a political point of view, while the repeated attempts of the economic policy failed one after the other due to the abnormal nature of the system. The enclosed market system of the Eastern Bloc and the COMECON did not encourage the production of quality or innovative products, which led to a continuous decline of work ethic and of a healthy spirit of competition After the revolution of 1956, the Kádár leadership could make the Hungarian society accept their political primate only by maintaining a relatively high standard of living, funded from foreign loans. “Whoever is not against us is with us” – this political paradigm allowed reasonable freedom in public life in Hungary compared to other eastern satellite states. Eventually, all these led to a regime change, which was peaceful despite its many defects. Although no opportunity of a more significant breakout of the economic policy opened up in the communist-socialist era, following the regime change, Hungary was “the first to turn” “a body length ahead” into the 1990s before other EasternEuropean countries. The Hungarian nation – as so many times in the course of its history – survived, although with lasting harm, foreign occupation and a system forced upon it, and started to write a new chapter of its history with great expectations in 1990.

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LOST DECADES Author: Bálint Somkuti

The peacefully replaced Kádár regime left bankruptcy behind. József Antall, the first freely elected Prime Minister had good reasons to dub his own cabinet a kamikaze government. Due to a collapsing economy, indebtedness and an ill-advised transformation, the new political leadership set up in 1990 did not or could not take several necessary actions.

Twenty-five years ago may people wondered what new direction Hungary would take. Back then it seemed that a well-thought, step-by-step transition would take place, slowly but gradually catching up with the Western European standard, which was regarded the etalon. “To Europe! But all of us!”, said Dénes Csengey, but, from a certain point of view, achieving this target seems rather distant now, twenty years later.

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with greengrocers and EWTs (Economic Work Teams) in the 1980s, not only generated social tension in everyday life, but almost ruined its own opportunities for internal or national accumulation of capital.

Why haven’t we catch up with the West? Several factors played a role in our lagging behind. First is extremely high indebtedness. During the Kádár regime, barely a half of the loans taken out was spent on investments; the rest was spent on maintaining the standard of living. Furthermore, the political leadership missed the opportunity given at the regime change to restructure our debt. Poland made a different decision and asked for rescheduling. Among other things, this was one reason why Poland’s development was slower but more balanced, up to the upswing witnessed in recent years.

The third and maybe the most important factor is the exclusivity of a neoliberal economic and social approach. In the period following the regime change, Hungary was one of the best students of the neoliberal economic policy even on a global level. Not only did shock therapies, including forced privatisation and restraining the role of the state, test the tolerance of the society, but they also led to such considerable problems as the diffusion of Swiss franc-based loans, or social expenses funded from loans due to diminishing state revenues. As opposed to our neighbours and other countries in the region, Hungary’s development – as a result – has not been even, but it has either accelerated or fallen short of its opportunities after changes in the political direction.

The other important factor is the phenomenon appropriately dubbed “scam capitalism”. “Scam capitalism” was the direct continuation of pranks common in the former system. On the other hand, the majority of the old-new economic elite, adopting the frameworks and forms of capitalism, but rejecting its ethical principles, spent most of their wealth obtained during the ill-advised and forced privatisation, instead of using it for the benefit of the society (and, at the same time, themselves). Wild capitalism, which commenced

But let us go through the periods of the last 25 years! The stumbles of the Antall government elected in 1990 and the application of the neoliberal economic solution insisting on decreasing the role of the state as soon as possible led to enormous tensions. The liquidation of inefficient state-owned companies exclusively on the basis of financial viewpoints resulted in losing one and a half million jobs. Fast, ill-advised privatisation, neglecting the social impact soon evoked a kind of left-wing nostalgia. The high government debt,

kept in a secret earlier, and the fading of hopes of fast changes also contributed. These all brought about the victory of the Hungarian Socialist Party (MSZP), which promised competence. Seen from the outside, it was unreasonable to add the Alliance of Free Democrats (SZDSZ) to the party obtaining an absolute majority in the elections in the Horn government formed in 1994. However – if there is any truth to assumptions –, the coalition with the neoliberal party was formed under considerable external pressure, through fear of a Communist reversal. Afterwards, instead of the tranquility and the economic stability expected, the politics of the MSZP–SZDSZ- government took an even more vehement, harsh capitalist turn. For the society, the Bokros austerity package, contradicting campaign promises and deploying the elements of a neoliberal economic policy, was a huge slap in the face. It contributed to the fact that the electoral programme of the dynamic Alliance of Young Democrats in 1998 promised a national twist based on small and medium-sized enterprises, which gained the voters’ trust. The new economic guideline commenced on the basis of a coalition with the Independent Smallholders’ Party went against the earlier practice, and set the goal of supporting domestic operators and for the state to play a more prominent role. During the first Orbán government, such event happened that was one of the rare steps taken in full agreement: in the eve of the next Balkan War, our country became a NATO member. In addition to this important change, a series of steps to rebuild the shattered economy and society began, including the Széchenyi Plan, which proved to be very successful, or programmes promoting the housing of families. Despite the reduction of government debt, improving economic indices and prospects, in 2002 the MSZP-SZDSZ coalition was authorised again by voters. Although Péter Medgyessy kept his campaign promises, but it entailed an increase of the government debts, and when he was forced to resign halfway through his term, the social-liberal coalition ceased to have any left-wing character

left. It happened in 2004, when we joined the European Union. Not much later, the country took a negative turn again in terms of the economy. After the left-liberal coalition was authorised again in the elections of 2006, the cabinet made adjustments along newer neoliberal principles because of deteriorating economic indices. The package, called the convergence programme, put most of the burden of the austerity measures again on the shoulder of the population. Owing to the ill-advised economic policy implemented after 2002, the introduction of the euro, which seemed to happen surely in 2007, failed, but indirectly it ensued another grave problem. Hungary, which was at the vanguard of the region in the 1990s, gradually dropped behind its neighbours. The government intended to counterbalance this problem with boosting retail landing. Therefore, foreign currency-based loans, typically Swiss franc-based ones, the risks of which were withheld by the cabinet, came to the fore. Banks were even encouraged to issue these loans, and, as a result, almost 1.3 million foreign currency-based loan contracts were concluded. Owing to these loans, the standard of living seemingly improved. But not for long; like in 1989, a disillusionment followed. The global economic crisis commencing in 2007 did not stop at borders, and Hungary, a vulnerable country from an economic point of view, got close to bankruptcy. The Bajnai cabinet managed to partially resolve the situation that also ensued a crisis of the government, but the repayment of the 25 billion-dollar loan taken out for this purpose was clearly passed on the next government. By 2010, an economically completely vulnerable country was looking forward to the elections, which brought about significant changes. As if 1990 were repeated. A right-wing government was left with the rehabilitation of a country destroyed economically (as well) by the left wing. The difference was that this time the economic stabilisation did not demand significant social sacrifices, and thanks to Hungarian creativity, the crisis was successfully managed with so-called unorthodox solutions, which have served ever since as examples not just to our neighbours but entire Europe.

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HUNGARIAN WAY Author: Tamás Nánási

Although the events of the present and the recent past will be surely judged by the after-ages, we can be sure that some will look back at the first years of the 2010s as the period when Hungary was going down to history. If we can call awakening to consciousness and recovery a regime change, we can declare: in the past five years, implementing and finishing the process distorted and disrupted in the 1990s have begun in our country.

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In an economic sense, it means that after the Eastern

2014 – with the IMF and the European Commission,

Bloc, the vassal dependency also from the West has been broken and loosened. In addition, we have broken away from a many-decade-long, defective practice of economic policy generating one crisis after the other, and placed growth in a permanent orbit while restoring the financial equilibrium. The world has to acknowledge that using Hungarian purchase power, services and market has a price, as in any other self-respecting European country Why did the Brussels-based Commission and the Parliament of the European Union, the International Monetary Fund (IMF) and some of the financial investors react to the measures of the second Orbán government coming into office in the summer of 2010, with high tension, frontal attacks and the application of double standards? Primarily, because Hungary rejected foreign recipes. The new economic policy implemented by Prime Minister Viktor Orbán, and György Matolcsy, Minister of the National Economy opted for an independent way, their own cure for creating financial consolidation and economic growth at once. The Hungarian model ended also a several-decadelong financial dependency based on sub- and superordinate relationships. As opposed to most of the socialist countries, by the turn of the 1970s and 1980s, most of our debts consisted of loans issued at variable rates on Western-European markets. In 1982, the country just narrowly escaped bankruptcy; the vassal relationship between the West and Hungary culminated in our membership in the IMF and the World Bank. This dependency changed a lot and a lot of times, but the global financial crisis of 2008 made the control of international organisations over our country even closer. Due to our vulnerable situation, the Hungarian government of the time concluded a loan agreement of a very short term – lasting until

the repayment of which affected nearly one-fourth of the total budget in certain years. Hungary went through a complex crisis consisting of a bundle of crises in 2010. The opportunity for Hungary’s recovery was almost trapped in a vicious circle by the fact that the global financial crisis hit the country amidst an unsustainably high level of indebtedness and government debt, a precarious economic structure, a growth crisis, employment difficulties and lending problems. At that point, our country was considered as one of the riskiest states of the world.

"As the result of a historic change, our country can be one of the prominent operators, engines of East-Central Europe again. Of the region, which, stepping out from beside the West struggling with permanent crises, can become the new hope of the European Union.” In this situation, the second Orbán cabinet, taking the lead, soon realised that the processes leading to the budget deficit of 6-7 per cent had to be stopped, and the financial consolidation of the country had to be addressed first. It became apparent very quickly, however, that the recipe would not be provided by

Prime Minister Viktor Orbán and György Matolcsy, Governor of the Central Bank of Hungary (Photo by the Hungarian Telegraph Office, MTI) lenders. The government went straight against austerity-based IMF plans and Brussels’s ideas. The cabinet made a decision on the first action plan breaking down forty-year-old taboos on the 11th day of their term. First, the consequence was that our creditors got up from the negotiating table in the summer of 2010, and all through 2011 and 2010 the country was under the constant pressure of another IMF loan. Eventually, in the summer of 2013 – almost a year before the end of their term – the government and the Hungarian National Bank repaid the international loans taken out under compulsion. If nothing else, the beginning and the end of this process faithfully reflects the turnaround that the new Hungarian economic policy, going its own way, accomplished within a couple of years. Essentially, since its accession to the Union, Hungary had not met the requirement of a budget deficit of less than three percent, therefore an excessive deficit procedure was launched against our country, potentially resulting in withholding or withdrawing some of the Union aids. The new Hungarian economic policy, however, achieved a budgetary trend reversal as early as 2010, and as a result, we met the Union’s requirement for six years in a row. After some hesitation, Brussels terminated the procedure in June, 2013 and the country got rid of a grave threat. The level of the Hungarian government deficit also has got into a continuously decreasing orbit: our debts are financed by the market now, and within that, the share of domestic investors is increasing. The Hungarian budgetary consolidation was basically based on making the domestic burden-sharing

fair and just. Solidarity taxes levied on specific sectors, primarily the ones dominated by multinational companies, violated the taboos specified, in word or in thought, by creditors and the interests of global companies concerned. The partial nationalisation of the wealth managed by private pension funds, which had proven to work inefficiently, was also a significant source of the budgetary turnaround. When creating the balance, the Hungarian government fundamentally refused the recipe of creditors based on austerity measures imposed on the population, and instead it involved such sectors in public burdensharing where the rate of after-tax profit exceeded even twenty per cent. In addition to striking the balance, the Hungarian economic policy, going its own way, focussed on achieving an economic turnaround, for the sake of which the internal resources of the country had to be deployed. The restructuring of taxation played a key role here as well: the single-rate tax and family tax allowances generated funds of several hundred billion forints for free use. It was coupled with the significant expansion of employment, the massive increase of real wages, the revival of bank lending and the launch of investments; as a result of all of these taken together, “the fruit was ripe” by 2013, the government objective was fulfilled and a growth turnaround, also feasible in a longer term, took place. As the result of a historic change, our country can be one of the prominent operators, engines of East-Central Europe again. Of the region, which, stepping out from beside the West struggling with permanent crises, can become the new hope of the European Union.

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VISIONS 2050 COUNTRIES

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USA IN 2050

them, but places that provide affordable housing options, a high quality of life, transportation hubs, and act as gateways to the global economy.

Author: László Gere

America 2050 is a national infrastructural development, planning and policy programme launched in 2009 to promote America’s future growth and development responding to the challenges posed by population growth, demographic change and infrastructure needs in the 21st century. A major focus of America 2050 is the emergence of so-called megaregions – large networks of metropolitan areas, where most of the projected population growth by mid-century will take place – and how to organise governance, infrastructure investments and land use planning at this new urban scale.

Regional Plan Association (RPA; the USA’s most important urban research and advisory organisation) has launched its long-term infrastructural development policy programme called America 2050. In the initial phase of the planning work, the National Committee for America 2050 was founded and a homepage, www.america2050.org was created and the America 2050 strategy was devised, which provides a framework for policies and investments needed to stimulate the USA’s growth in the 21 st century. Research and academic institutes, various bodies of public administration, and the development departments of larger cities are involved in planning. There is a growing need for these frameworks in a time of rapid technological, geopolitical, demographic and environmental change. As never before, the economic prospects of the USA in the 21 st century are threatened by global competitors, all of whom have created long-range strategies for growth and competitiveness. This is why this national strategy has been designed, as a pledge to sustain future success. THE ULTIMATE OBJECTIVE OF DESIGNING THE AMERICA 2050 STRATEGY IN FIVE MAIN POINTS – C reating national framework for prosperity, growth, and competitiveness – B uilding a world class multimodal transportation system – E nsuring protected environmental landscapes and coastal estuaries

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– E conomic and social opportunities for all members of society – Identifying globally competitive megaregions MAJOR FUTURE TRENDS IN THE USA Six major trends will shape America’s future by mid-century. These processes must be considered when the long-term strategy of the country is created. 1. New Global Trading Patterns From 1929 to 2005, foreign trade increased from 11 percent of the national GDP to 27 percent, and this trend is likely to accelerate in the future. Globalisation is creating a new set of winners and losers, not only among nations and industries but also among regions. As global services and trade have replaced manufacturing as the leading sources of growth in the United States, “global gateways” such as Miami, Los Angeles, Seattle, Houston, and New York have gained, often at the expense of traditional manufacturing and agricultural regions in the heartland. Currently, global trading patterns are changing, and America’s competitive position depends on accommodating to them. The USA’s competitive advantage in high-skill technology and service industries is increasingly threatened by more educated workforces abroad and the greater mobility of capital brought on by the dismantling of global barriers to trade. Competitive advantage will belong to regions that can not only attract high-skilled workers and businesses that employ

2. Rapid Population Growth and Demographic Change While other industrialized countries, particularly in Europe, face projected population losses in the coming fifty years, the United States is poised for tremendous growth. In a single decade, from 1990 to 2000, the population of the United States grew 13 percent, from 248 million to 281 million. The United States Census Bureau estimates that the national population will reach 420 million people

poses a serious challenge to the nation’s economy and national security in the face of fluctuating oil prices and America’s dependence on foreign oil. In the future, sustainability will be less like an option and more like an imperative. Therefore, America must adopt a comprehensive strategy that includes the optimum use of vehicles as well as diffusing new land use patterns. 5. Uneven and Inequitable Growth Patterns Across America, growth is occurring unevenly, both within regions, between central cities and suburbs, and across major regions of the country. Fast-growing areas of the south and west attract

by 2050. This population growth will also bring considerable demographic changes, with implications for the way cities, metropolitan regions, and transportation systems are designed. According to surveys, Baby Boomers and “Echo-Boomers” (aged 24-34), as well as immigrants and non-white populations exhibit a preference for urban living, therefore it is particularly important to focus on cities.

migration from other areas of the country at the same time as many areas of the country are losing population. These trends cannot be reversed but they can be moderated. Declining areas require targeted strategies. Among these are large rural regions, as well as second- and third-tier cities, which lost parts of their populations after the companies constituting their economic bases had collapsed/ceased to operate

3. Inefficient Land Use Since 1970, virtually all U.S. population and economic growth has concentrated in large metropolitan regions, resulting in an increasing area of suburbs. Many of these places are essentially running out of developable land or exhausting the service capacity of their municipality. Related concerns are intensifying traffic congestion, rising property taxes, longer commutes, and increasing housing prices, as well as conflicts between development and the green infrastructure that sustains regions, such as public water supplies and wildlife habitats. While many cities and inner suburbs are now experiencing infill development and revitalization, involving new areas is still the dominant trend in development. This expansion, however, expend energy resources at higher rates, cause air pollution, and require greater investments in roads and infrastructure. Instead, compact forms of urban planning would be much more sustainable and cost-effective.

6. Metropolitan Infrastructure That Is Reaching Capacity The country’s roads, rails, airports and seaports will reach their capacity limits early in the 21st century. Unless infrastructure is developed in the future, the country will limit its own economic potential. The strategy identifies 10 emerging megaregions in the USA. The megaregions are defined by their common interests, which will form the basis for policy decisions in the future. The five major parameters that define megaregions are: – Environmental systems and topography – Infrastructure systems – Economic linkages – Settlement patterns and land use – Shared culture and history.

4. The Mounting Energy Crisis and Global Climate Change America’s dependency on motor vehicles in transport (the causes of which are described above)

THE NECESSITY TO DEFINE MEGAREGIONS – T he recognition of emerging megaregions enables cooperation across jurisdictional borders and addressing comprehensive, complex challenges. On this level, it is easier to align decision making and more effective to implement longterm planning.

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– T he USA’s competitors in Asia and Europe are creating Global Integration Zones by linking specialised economic functions. The increased mobility of workers, information, and goods between the networked cities of these megaregions enables greater collaboration, flexibility, and innovation. Efficient mobility is also a competitive advantage in the global playing field, where value is created by time savings. – T he creation of megaregions also presents an opportunity to reshape large federal systems of infrastructure and funding, such as future surface transportation bills, the reorganization of the passenger railroad service, housing and urban development authorizations, and farm policy. Just as the Interstate Highway System enabled the growth of metropolitan regions during the second half of the 20th century, the development of emerging megaregions will require High-Speed Rail (HSR) lines, according to the strategy. These improvements will create new capacities for goods movement, and will pave the way for a dramatic expansion of the nation’s logistics sector, providing new jobs and making up for losses in the U.S. manufacturing sector.

The America 2050 strategy seeks to facilitate the emergence of 10 (or more) megaregions by focusing on five key objectives: 1. Create capacity for growth. One of the most important principle is to implement transportation-oriented developments. In addition to investments in transportation infrastructure, the strategy pays particular attention to coordinating transportation and land use, reshaping the transportation patterns of communities, revitalising existing centres. 2. Re-establish upward social and economic mobility. The strategy sees the key to development in building and developing transportation links. Better connections between metropolitan regions will improve labour prospects, bypassed areas may start to develop, and investments create new job opportunities. 3. Protect and reclaim natural and energy resource systems and promote less landconsuming patterns of growth. The protection of region-shaping environmental landscapes and coastal estuaries is the

complement to America 2050’s investment strategy in transportation infrastructure and the revitalisation of centre cities. The preservation of natural assets and the development of the green infrastructure support the quality of life, reduce greenhouse gas emissions, improve air quality and ensure a healthy living space. 4. New financing and decision-making frameworks The new planning approach does not propose establishing new megaregional governments. Rather, strategic partnerships should be forged on

10 emerging megaregions of the USA on the basis of the America 2050 strategy

Source: http://www.america2050.org/content/megaregions.html

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“As never before, the economic prospects of the USA in the 21st century are threatened by global competitors, all of whom have created long-range strategies for growth and competitiveness.”

a megaregional level. Partners are motivated for cooperation by mutual self-interest and shared policy objectives. 5. Reform the federal role in land use policy. Traditionally, there is local control over land use decisions, with the consent of the federal government. The activities of multiple federal organisations and agencies should be combined and integrated for more efficient coordination. Összefoglalás A fentiekben bemutatott 2050-re szóló USA vízió bár átfogó szemlélettel készült, mégis alapvetően műszaki beállítottságról árulkodik, hiszen a fejlesztések középpontjába az infrastruktúrát helyezi, és minden mást ennek rendel alá, illetve ezen fejlesztések szükségességével indokol a továbbiakban. Az országos megarégiók és fejlesztési magterületek lehatárolása fontos lépés, azonban kérdés, hogy ezen túl milyen konkrét megvalósítási javaslatokat dolgoznak ki, illetve, hogy a megarégiókon kívüli területek felzárkóztatása és gazdaságélénkítése mily módon fog megtörténni. Ezzel együtt fontos, és a jövőben mindenképpen figyelemre méltó stratégiáról van szó.

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CHINA IN 2050 Author: Viktor Eszterhai

It is extremely difficult to provide any forecasts about China’s future, as it is a country of the size of a continent, with significant internal regional, social and cultural differences. Moreover, in the past decades, it has gone through one of the fastest social-economic transformations, and most of relevant analyses failed to anticipate its development path successfully. Nevertheless, in this study I will attempt to present the country’s most important and most likely development characteristics that can be expected in the next decades.

CHINA’S FUTURE IN THE LIGHT OF OFFICIAL OBJECTIVES The Chinese Communist Party (CCP) has formulated a “two-hundred-year goal” about the country’s future: to create a “moderately prosperous society” (xiaokang shehui), meeting all criteria, by 2021, the 100th anniversary of the founding of the CCP, and turn China into a developed country by 2049, the 100th anniversary of the proclamation of the People’s Republic. These are all related to the “China Dream” programme of Xi Jinping, the General Secretary of the Chinese Communist Party, the objective of which is to continue the modernisation of Chinese society and the rebirth of China’s greatness (fuxing). Thus, Chinese goals are obvious: to join the centre countries of the world economy, build a well-off society and turn China into a major power again. In order to achieve these goals, however, China has to find solutions for countless challenges and continue reforms. ECONOMIC TRANSFORMATION With the “reform and opening-up” announced in 1978, China became from a regional power a factor of the world economy with global weight within a couple of decades. According to long-term macro-economic forecasts, calculated at a nominal value, China’s economic output will outstrip that of the United States by the 2020s (indeed, measured by purchasing power parity, it already outstripped the United

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States in 2014), and the country becomes the largest national economy of the world (Figure 1). The continued dynamic development of China’s economy is facing an extremely significant challenge: it has to avoid the trap of so-called least developed countries. Therefore, Chinese economy has to go through the structural transition that has already been commenced. The export-driven economic growth model, in which China exports products to the developed world, relying on cheap workforce and a more developed infrastructure, processing imported raw materials, is being replaced by a consumption- and R&D-driven economic growth, which is complemented by the export of the most developed industrial products. Although only short-term forecasts about the consumption habits of the Chinese society are available, we can declare that consumption will be undoubtedly the society’s tensile force in the future, owing to the fact that the rapid increase of wages measured at real value allows broadening masses of people to rise up to the middle and the upper-middle class. From 2015, China has had largest middle class (109 million people), overtaking the USA (92 million people). Chinese consumption is expected to have three main characteristics: uppermiddle class and affluent households will provide the engine for the growth of consumption, new generations (Chinese consumers born after 1980) will have more sophisticated consumer needs, and finally, e-commerce will have an increasingly powerful role. These will have a significant impact not only on the domestic operators of the Chinese economy,

Development cycles of the Chinese industry based on the homepage of the State Council but also on the world economy: global companies will seek to meet the needs of the most important market, China. In the past decade, China has taken a major step to make research and development increasingly dominant in its economy. According to the principles laid down by the CCP, by 2020 China will have to become a leading innovation power of the world, and create the foundations of a knowledge-based society, while by 2050, it will have to become the dominant major power of science and technology. In terms of R&D expenses, China already overtook the European Union in 2014, and according to a study published by the OECD, China is expected to overtake also the USA in 2019. Regarding R&D, there has been a significant shift towards quality research in recent years, and this tendency is likely to strengthen. The objective set in the long-term plan, i.e. catching up with the centres of the world economy, seems realistic. The CCP expects the catch-up of the Chinese industry with the centre countries from joining the fourth phase of the industrial revolution. “Made in China 2025” (Zhongguo zhizao 2025) was compiled by including the recommendations of the “Industry 4.0” programme aiming at creating a new generation of the German industry, focussing on smart industrial manufacturing, that is, the combination of IT and production. The following areas are targeted by

the Chinese programme: 1) advanced information technology; 2) CNC machine tools and robotics, 3) aerospace and aeronautical equipment; 4) high-tech shipping; 5) modern rail transportation; 6) newenergy vehicles and equipment; 7) power equipment; 8) agricultural equipment; 9) new materials; 10) biopharma and advanced medical products. Although the findings of MERICS indicate that the average standard of the Chinese industry is not expected to approximate that of developed countries, it will represent a real competitor also for the companies of the most developed industrial major powers in the area promoted by the state. The distinguished key areas are expected to promote further areas of the industry, thus the central government’s objectives set for the mid-century are likely to be realistic. ABOUT DEMOGRAPHIC CHALLENGES China’s birth control policy adopted in 1979 (jihua shengyu zhengce) – often dubbed as the “one-child” policy – successfully restrained the rapid population growth of the earlier decades, as a result of which population increases slowly by 2010s even on a global scale (0.43 per cent). Consequently, China will not possess the title of the most populous country for long. China’s population will reach its peak sometime around 2030, then it will start to decrease, and from

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2023 on, India will be the most populous country of the world. The birth control policy was a conscious choice, with the objective of increasing the average well-being of Chinese people, but it has had serious consequences in the long term: China has become a rapidly ageing society by now. The UN estimates the rate of elderly people (aged 60 or over) within the society to increase to 36.5 per cent. Approximately 600 million elderly people have to be supported by the working-age population (in 2050, there will be as many working-age people as many inactive ones). Not only do these have a negative effect on the expansion of the economy, but China has to be able to create a general pension system, which is sustain-

million people will move into the cities. This means a new form of life, work and services but also a changing culture and values for millions of people.

In the coming decades, China will rise to become the leading power of the globe. The most important question is how it will relate to the international order of the world: will it appear as a player following or making the rules on the stage of global politics? In her speech delivered in the Munich Security Conference in 2016, Fu Ying, Vice Minister of the Foreign Ministry, declared that China was committed to

able in the long term. Another characteristic of China’s drastic transformation is extremely rapid urbanisation, which has been combined with the urbanisation of the country by the CCP. While in past years the rate of urban residents has hardly exceeded the rate of rural population, by 2050 76 per cent of the population is expected to live in urban areas, which means that nearly 300

changing the current world order. In her interpretation, the current world order has three main characteristics: an American (Western) value system, the U.S. military alignment system, and the post-war system of international institutions (including the UN). Today, these three pillars are considered by China insufficient to resolve the problems of the world, therefore China supports only the last one of

GEOPOLITICAL OBJECTIVES AND CHALLENGE

the three pillars, because it has been present from its foundation, and also has become its beneficiary. China is committed to changing international rules, and a reform in line with the Chinese value system and norms. One of the major questions of the future is how these changes will take place: peacefully or full of conflicts. China’s constructive attitude, ensuring the common good supports the first option, e.g. Xi Jinping’s speech delivered at the World Economic Forum in 2017, or the One belt, One Road geopolitical scheme, which is deemed to transform Eurasia’s network of connections. On the other hand, however, China, is rapidly reducing its backlog against the USA, a global hegemon. The military spending of the two greatest powers, the USA and China, is nearly equal, and might account for as much as 45 per cent of global security spending by 2045, according to some estimates. The most important issue of the two

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major powers will be the control over South-East Asia and maritime transport routes. Maintaining a peaceful international environment remains the objective of China’s foreign policy, because it ensures the achievement of the goals of foreign policy while minimizing the risks. CONCLUSION Due to the constraint of its length, this summary did not aim at providing an all-encompassing picture; only the most important development trends have been identified. It can therefore be concluded that China’s second hundred-year-old goal is realistic and having finished its modernization programme by the mid-century, China may rise to become one of the wealthiest countries of the world and the greatest power of the globe.

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RUSSIA 2050

of Russian ethnicity seems even more daunting. Central-Asian immigration is anticipated to slow down gradually, and might cease by 2030 – at this point, China or India is likely to be a more attractive option than Russia.

Author: Anton Bendarzsevszkij

The future vision of the largest country of the world is not so obvious at all in the coming decades, and a very wide range of forecasts have been produced about Russia’s future. In the two extremes, some experts include Russia in the seven most important countries of the world, while others anticipate its disintegration and a complete economic collapse. Based on current trends and development opportunities, we endeavor to create a rough impression of Russia’s future and geopolitical significance in 2050.

THE GREATEST CHALLENGE: DEMOGRAPHY The greatest problem that Moscow might face in the future is not the situation of the economy or the closedness of the political system but demography. The largest country of the world, which occupies 11 per cent of the Earth’s land area with its territory of 17 million square kilometres, was the fourth most populous country of the world in the 1960s (without the Soviet republics), in spite of the fact that only 125 million people lived there; in

2010, however, it ranked only ninth with its population. Russia’s population reached its peak in 1992, when 148.7 million people lived there. Since then, the population has been continuously decreasing: the census of 2010 registered only 142.8 million people, and Russia was added to the list of countries with the fastest shrinking population, next to Japan and Germany. If we consider the fact that in the meantime considerable migration to larger Russian cities from former Soviet republics has been taking place, the shrinking of the population

-16% Russia

-13% Germany

+28% United States

+2% China

+32% Mexico

+176% Nigeria +18% Brazil

-15% Japan

+34% India +138% Kenya

A demographic survey by Pew Research Center examined the world’s largest countries. Russia ranked first in the list of countries with the fastest shrinking populations. By 2050, its population is projected by Pew Research Center to decrease by 16 per cent

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Having considered all these factors, Russia is estimated to have a population of 109-119 million by 2050. Healthy demographic indices are crucial for the development of countries. If a large number of young labour force participates in the economy of a country that can provide the economy with a large surplus – as it happened, for example, in China, or in the Western countries after World War II. Japan’s economic miracle is attributed to demography by many. An ageing population, however, and dependents outnumbering the working-age population places a great burden on the economy. On top of increased burdens, the lack of new, skilled workforce also undermines the competitiveness of the economy, and might prevent Russia’s economy from gaining strength in the future. Currently, there are approximately 11 million foreign citizens in Russia, 80 per cent of whom are from one of the former Soviet republics; the major sources are Ukraine (2.4 million people) and Uzbekistan (2.2 million people). Brookings Institutes estimates additional 8-19 million immigrants to arrive in the country, in addition to the immigrants already living in Russia, which is likely to cause tensions with the population of Russian ethnicity. At the same time, Russia will need immigrants, and very possibly, it will have to fight for them and attract them to the country by creating favourable conditions so that they should not choose Asian countries. RAW MATERIALS Another predictable problem for Russia will be presented by the structural change of energy sources and the gradual exhaustion of raw materials available in the country, which sooner or later must be faced. Two conflicting trends must be considered here. One of them is the growing diffusion of renewable energy sources – wind, solar and hydro energy – in recent years. One of Russia’s most important trading partners is Germany, where 30 per cent of the electricity was generated by renewable energy sources in 2015. By 2050, the

share of renewables is globally projected to reach 57-94 per cent. The other trend is that for various reasons there has been a drastic drop in the prices of energy resources in recent years, and due to the growing share of renewables it is expected to continue. Thus, while the market of gas and oil is expected to shrink in the coming decades, the prices are not expected to rise despite declining deposits. It indicates continuously decreasing revenues for Russia from energy carriers. At the same time, a part of its revenues is still likely to derive from energy carriers in 2050, but it will be definitely insufficient for economic growth that could be seen in the 2000s. According to the Energy Research Institute of the Russian Academy of Sciences (ERIRAS), Russia is likely to reach the peak in the extraction of crude oil around 2020-2050, with 10-11 million barrels per day. Subsequently, oil extraction will gradually decline, and the export of oil and gas to Europe will also continuously decrease. ERIRAS calculates a 33 per cent share of Russian energy carriers in the European energy market in 2015, but they project a share of only 20-23 per cent in 2040. According to the Russian institute, Russia’s economic prospects will greatly depend on Asian markets, which will not migrate to renewable energy sources to such an extent as Western Europe will. Russia’s Minister of Natural Resources said that in 2014 there were 12.5 billion tons of discovered, extractable oil in Russia. Based on current reserves, the oil in Russia is calculated to run out in 21 years, by 2038. Gas deposits may last longer – for another 71 years, that is, until 2088. Naturally, probably new deposits off energy carriers will be discovered, and the reserves will last for a couple of decades more compared to the current situation, but the trend is basically calculable. The exploration of new deposits and the extraction of less easily accessible resources, however, will require investments, which, at the moment, are not promoted by current prices of the energy market and Russian political risks. The territorial claims of the North Pole represent an important issue, which must be decided in some form by 2050. If Russia manages to obtain the rights to exploit the area, which is rich in raw materials, it can gain further economic benefits.

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HOW OTHERS CAN SEE IT There are not many states the future positions of which are seen in so many ways and so to the extreme by geopoliticians as Russia. Forecasts range from the disintegration of the country to a significant economic recovery, which, perhaps, is an indication of the fact that it is extremely difficult to reliably explore Russia’s geopolitical, political and economic development in the coming decades from the present situation.

World energy supply by source, from 2000 to 2050 WHAT THE FUTURE HOLDS On the basis of trends that can be currently seen, the following vision would be outlined for Russia for the decades up to 2050. Future does not seem as gloomy as some experts envisage. Geopolitically, Russia is expected to remain an important, major country by 2050 as well. Owing to its size and its arsenal of nuclear weapons, it is not expected to be attacked or divided by other major powers – nuclear weaponry, the army modernisation in the 2010s and large military personnel (771,000 active and some 2 million military reservists, based on data from 2016) all ensure discouraging potential attackers. Moreover, the continuously increasing military budget and new, forward-looking military developments exert their effects in the long term. In our opinion, Russia remains a geopolitically important country in the future, but it will lose its economic weight, and in terms of economic performance, it will be a country of medium significance. The share of alternative energy carriers will be significant by 2050, but, though to a lesser extent, also traditional energy carriers will remain considerable; moreover, Russia is rich in other raw materials. All these will ensure a stable operation of the economy for Moscow, but without any significant growth. For Russia, the early 2000s would have been ideal for restructuring and modernising the economy,

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but this opportunity was missed. Such transformations will be much harder to implement in the future, and the drastic decline of the Russian population will render growth almost impossible. The simultaneous rise of Asian states will push Russia to a kind of economic, raw material supplying periphery. Moscow’s integration attempts are expected to be unsuccessful, too. The aim of the Eurasian Economic Union, launched in 2015, would have been transforming into a Eurasian Union later, which would have implemented the 21st-century integration of the post-Soviet region under Russian leadership and with supranational institutions. The Ukrainian-Russian crisis, broken out in 2014, however, interrupted this process, and its effects reach far beyond Ukrainian-Russian relations. After the occupation of Crimea, post-Soviet republics have been watching Moscow’s activity with suspicion, and the most important force of persuasion – money – has been lacking since the Russian economic crisis of 2014. Therefore, what we can see is that the Chinese capital gradually flowing into the post-Soviet region and the economic relations are making Asian partners more attractive than Moscow. This process has definitely started in Kazakhstan and in the states of Central Asia, and we have no reason to assume that this would reverse. Furthermore, China’s “One Road, One Belt” initiative, launched officially in 2013, offers a palpable alterative for the region.

The changes that first took place around 2008 (after Putin’s speech delivered in Munich, in which he raged against the Western world order and he threatened with a looming new “Cold War”, and after the global crisis of 2008, which staggered the positions of the West) and then around 2014 (Russia’s annexation of Crimea and the imposition of Western sanctions) are well discernible in the forecasts. The U.S. Central Intelligence Agency (CIA) has been preparing global forecasts since the 1990 on security policy, economic tendencies and international affairs. The situation of Russia is detailed in all their reports. The earlier reports suggest that Russia was not taken seriously; the first change occurred in their report of 2008 (“Global tendencies until 2025”): then the image of the enemy of the USA, building foreign relationships in Europe, the Middle East and Asia against the USA, appeared. The latest report of the CIA, providing a forecast until 2035 – “Global Trends 2035: Paradox of Progress” – was published in January, 2017. All through the text, Russia and China are mentioned together, which is particularly interesting. The report predicts that Russia and China will be emboldened in the coming years and decades, and will check U.S. influence. This overconfidence – as the CIA calls it – will increase tension to levels not seen since the Cold War, but it will not end up in an interstate conflict. According to the report, however, the Sino-Russian cooperation has been rather tactical, and can be easily corrupted in the struggle for Central Asia. The CIA highlights Russia and China’s demographic problems, and they forecast the median age to be the highest in the world in these countries in 2035 – 43.6 years in Russia and 45.7 years in China.

Another U.S. national forecast also dwells on Russia – U.S. Air Force Center for Strategy and Technology (CSAT) endeavors to outline a vision on the global world order until 2030. CSAT predicts Russia to become a challenger of the USA by 2030, although, they also note, this will require significant infrastructural and economic reforms. The report emphasises that in the early 2000s the USA underestimated Russia, where profound, unexpected reforms often took place throughout its history, entailing a complete resurgence of the county over and over again. This latter forecast is slightly contradicted by George Friedman, a Hungarian-born American geopolitician, founder of Stratfor intelligence platform. Friedman’s books on his forecasts were published in 2009 (“The Next 100 Years”) and in 2010 (The Next Decade”). He predicted the escalation of a new Cold War between Russia and the United States roughly for the period between 2010 and 2020. The author thinks that this tension will end up with Russia’s economic collapse, and, as a result, Russia will not be a serious global rival to the USA Similar consequences were drawn by the contributing editor at Foreign Policy magazine, who prepared a forecast for 2050 in his study published in 2015. According to Foreign Policy, NATO is not likely to be around in the future – since the next global challenger of the USA will be East Asia and China, and not Russia, against which NATO was originally established. However, the analyst expects Russia to be one of the most important economic players. In 2050, the economic ranking list of Foreign Policy is likely to be led by the United States, China, Japan, India, Brazil, the EU and Russia. The Economist Intelligence Unit’s economic forecast for 2050, published in 2015, significantly differs from this ranking. According to this report, Russia will not rank among the most important economies. The Economist expects China, the USA, Indonesia, japan, Germany, Brazil, Mexico, Great Britain and France to be in the global forefront in 2050.

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INDIA 2050 Author: Zita Vajda

India, with its enormous population, its economy and its inherent huge potential, is already a country of special significance. India has had and continues to have a prominent role for mankind. In the current digital age, new technologies will bring about dramatic changes in the country.

India is a very diverse and special, maybe the most complex and exciting country of the world, thus we can rightly assume that this complexity will place creativity in the centre of India’s society. The number of young, creative Indian professionals is increasing, resulting in the leapfrogging of culture, science, arts and start-up businesses. The current tendency is that the economic and intellectual centre of the world is shifting towards the East. This is primarily due to China’s increasing role, but we must not forget India’s re-emergence, either. It is reasonable to compare the past and the present: when Europe touched the bottom after the fall of the Roman Empire, India was living its Golden Age. The current situation is also similar: the West is declining, but Asia, including India, is on its way to rise. By the mid-21 st century, the digital age and the continuous development of technology will lift India into the global forefront in several terms. That is exactly the reason why it is essential for the West to learn from India, with India and in India, because if we ignore it, we will drop behind. The study presents the changes taking place in India’s demography, economic role, geopolitics and technology, and examines the opportunities that India has to expect by 2050, the 100 th anniversary of the Republic of India.

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decades to 1.5 billion by 2030 and 1.7 billion by 2050. According to the UN’s projection, India will be the most populous country throughout the 21st century. Nine countries are expected to account for more than half of the world’s projected population increase over the period between 2015 to 2050, and it is India that will see the largest population growth (384,282,000 people). The reason for this considerable population increase is the continuous rise of the fertility rate, and the decrease of the mortality rate: in India, people live much longer now than a couple of decades ago. In the following cartogram, India’s size was drawn based on its population; we might look at this country now through different eyes than we have done so far. In an ordinary map, India is hardly noticeable; but here it is completely distinct. India is one of the most densely populated countries of the world. According to the data of the 2011 census, its average population density was 382 people/km 2 , which is likely to increase to 500 people/km 2 by 2050. This figure is well above the average density, which is 46 people/km 2 . India’s vast population means that this low-income country has to overcome several difficulties. A solution

might be presented by the 100 New Smart Cities programme of the Indian government, which will attract 300 million new residents to cities by 2050. In September, 2015 in the UN summit held in New York, the world’s leaders set 17 sustainable development goals to achieve until 2030, each of which are relevant for India. The goals include the eradication of poverty and hunger, the provision of clean water and basic public safety, and the reduction of inequalities. All these pose serious challenges to India, but Prime Minister Narendra Modi and his government are committed to the goals. The “Make India”, “Skill India” and “Digital India” programmes promote the achievement of the goals, but they still seem to be extremely hard to achieve, due to the heterogeneity of the country. THE YOUNGEST POPULATION OF THE WORLD By 2020, India will have the highest rate of young people: two-thirds of the population are of working age, and the median age is 29 years. The increase of the rate of young people in society may mean a benefit as well as a disadvantage. In a pessimist view, there will not be a sufficient number of jobs for so many people, while optimists predict that a growing workforce will have a beneficial impact on the economy of the entire country, for example there will be an increasing number of consumers and tax-payers, and the middle class will grow. The challenge is whether young Indians can have access to proper education and knowledge to acquire 21st-century skills. The joint report of IRIS Knowledge Foundation and UN-HABITAT claims urban residents have 93 per cent more chance to receive adequate training than the rural population has. This poses a challenge that must be responded to as soon as possible.

DEMOGRAPHIC CHALLENGES

ECONOMIC TRENDS

According to the UN’s World Population Prospects of 2015, India’s current population is 1.3 billion, which means that one in six people on Earth is from India. This figure increases by one person in each minute. Within five years, by 2022, India’s population (approximately 1.4 billion people) is likely to overtake China’s population. The analysis expects India’s population to grow for several

In the past years, India’s economic performance has been the main engine of the country, attracting several foreign investors, corporations and international universities into the country. In the GDP (nominal) list of countries, India currently ranks number seven, and its share of the global GDP is 3 per cent. This is a rather low level, considering the fact that 18 per cent of the world’s

The world’s population in 2050

Source: http://www.worldmapper.org/images/ largepng/11.png

Global dominance of the top three economies in 2050

Source: The Economist Intelligence Unit

population live in India. Therefore, India is said to belong to the category of low-income countries, but there is every indication that it is on the path to catch-up. India is likely to be one of the top three economies of the world after China and the USA by 2050. By then, China and India will be richer than the next five countries (Indonesia, Germany, Japan, Brazil, and the United Kingdom) put together. A 2011 analysis of Citibank suggests that India (now ranks number three) might overtake the USA by 2030 and China by 2050 in terms of GDP at purchase power parity (at PPP) in 2050, and become the world’s largest economy. The analysis expects the world’s economic centre of gravity will have shifted between China and India by 2050. Therefore, it will be important to monitor the growth phases of these countries and their neighbours. PwC’s “World in 2050” study claims that India will have the second largest economy after China by 2050. The GDP forecasts, however, suggest that India is growing faster than China and the USA, although growth is expected to slow down after 2020. The IMF’s forecast estimated that India’s GDP growth rate would be 7.2 per cent in 2017 (the IMF has trimmed the forecast by 0.4 percentage points due to the impact of demonetisation) and 7.7 per cent in 2018.

Key economies' share of world GDP in PPP terms

Source: PwC analysis (based on IMF estimates for 2014)

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on nuclear fuel supply. It is one of the major goals of the new Modi government to enhance its relationships with the West by relying upon the successful Indian diaspore. In order to intensify relations with Southeast Asia, Narendra Modi changed the “Look East” policy into “Act East”. Closer cooperation with Southeast Asia might help India achieve its goals, such as to curb China’s influence in the region and to reinforce the country’s world power status. In terms of economy, the relationship between India and China suggests that increasing trade between the two countries indicate their intention to become friendly rivals. There is a Chinese proverb: “a distant relative is less useful than a close neighbour”, meaning that our friends might change but our neighbours do not. And, according to an analyst of a think-tank in India, “you cannot change geography”, consequently, India and China must cooperate in one way or another.

At PPP, India accounted for 7 per cent of the world economy in 2014, and this share is likely to increase to 13.5 per cent by 2050, overtaking both the USA and Europe. It also demonstrates that the centre of economic gravity is gradually shifting towards the East. INDIA’S GEOPOLITICS IN THE 21ST CENTURY Within 20-25 years, India is likely to become an economic and political global power. By 2050, India will have the third largest economy after the USA and China. The development of the country will exert a great impact on global affairs, and its rise is indicating the emergence of a multipolar world order. Therefore, the path which its development will take and the way in which its economic model will influence the world make a difference. India’s current geopolitics is being influenced by several factors, the most important of which are: 1 India’s obligation to take the lead in the region (South Asia). 2 It has to devise its global goals – neutrality or strategic autonomy. 3 I ndia’s economic power must be completely exploited.

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4 T he fact that Indian culture is the most ancient one in the world has philosophical importance, and the country must profit from it. INDIA’S FOREIGN POLICY Jawaharlal Nehru’s policy advocating political neutrality (“nonalignment”) made it difficult for India for decades to build relationship with foreign allies. India’s foreign policy, however, has dramatically changed since the appointment of Prime Minister Narendra Modi in May, 2014. Modi commenced his term with a series of diplomatic visits. In addition, he actively represented India in multilateral forums (BRICS summit, G-20). India is forging closer trade relations with Europe. In order to do so, Narendra Modi has held a meeting with German Chancellor Angela Merkel to sell his dream project named “Make in India”. Narendra Modi and France’s Prime Minister Francois Hollande have agreed to enhance their alliance in the region of the Indian Ocean, where France is also a leading power, and they have also agreed that the creation of a solar energy OPEC is reasonable. At the moment, the India–USA-relations are also flourishing, which also stems from the agreement

“India is forging closer commercial relations with Europe.” On the basis of the recent period, improving the Indo-Japanese alliance has also been an especially important geopolitical goal. Japanese Prime Minister Shinzo Abe said, ‘The Indo-Japanese alliance is the most important bilateral relationship of the world.’ Modi had a similar opinion during his visit in Japan in 2014: ‘The 21st century belongs to Asia… but how the 21st century will be depends on how strong and progressive Japan-India ties are.” A flourishing Indo-Japanese friendship is demonstrated by the fact that Varanasi – the most sacred centre of Hinduism – and Kyoto became sister cities at the end of 2014. THE ROLE OF TECHNOLOGY Digital technology is transforming the world, and India is no exception. IT products and services account for most of India’s export. India is using technology to an increasing extent in governance, healthcare, education and commerce. One example is the introduction of the Aadhar biometric identity card, which stores the data of more than one billion Indian citizens in a cloud-based

system. This system promotes the targeted delivery of benefits to eligible people, and through the database, companies are also able to verify the identity of job applicants. Young Indians and Americans jointly established a new sector, called decision science. One example is Mu Sigma, with head offices in Chicago and Bangalore, where thousands of talented young people work – they call themselves decision scientists –, using software and data to promote the business development of Fortune 500 companies (the five-hundred largest businesses of the world). In the future, digital technologies are expected to diffuse in rural areas as well. This is not only an interest of the Indian government, but also of Facebook and Google. It is a goal to provide rural India with proper internet service, as 3D printing is likely to have a major role in manufacturing processes in the countryside. With the diffusion of e-commerce, also these local craftspeople can sell their products via the internet. In the future, perhaps small high-tech communities will evolve in the countryside. The diffusion of telemedicine will also have an enormous role in the future, since the medical records of patients can be sent to hospitals with the help of smartphones, enabling the doctors to recommend the best possible treatment. This new technology will significantly ease the life of rural people. Developed economies are working on building ultrafast 5G internet networks. Devices connected to such networks will have low energy consumption, and smart phones can operate for a long time without charging them. It would be beneficial for India to connect immediately to a 5G network. Technological advancement has a great role on national and social level as well. For example, if translation software systems work perfectly, communication between Indians speaking a lot of different languages will be easier. Another important benefit is strengthening the sense of national unity through social media (Facebook, Twitter). Prime Minister Narendra Modi has his own application, where he can be heard in several languages; more surprisingly, the Prime Minister used a 3D hologram during his election campaign to reach more voters at once.

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THE VISION OF JAPAN AND KOREA Author: Eszter Polyák

Japan and the Republic of Korea, the technological forerunners of the world, are preparing for the future with extremely conscious planning. The two countries will face similar challenges in the coming decades, but if they can achieve the goal set for 2050, they can create outstanding value again. The following visions primarily examine the aspects of population, energy security and environmental protection.

Countries producing remarkable results in the fields of robotism, smart devices and other innovations serve as examples to several other countries, especially in terms of energy planning and proposals to resolve demographic problems. Another similarity between the two countries is that they have not been able to resolve the economic and social problems of the last decade yet, which was further aggravated by infavourable demographic trends. Consequently, they are looking for new ways of development, and other countries can also learn from examining their future visions. SOUTH KOREA First, we will look at the situation of the Korean population expected around 2050. At the moment, South Korea’s population is some 50.6 million people, and at a growth rate of 0.61 per cent, population increase is expected to reach its peak between 2035 and 2040, with approximately 52.7 million people. For the period from 2050 to 2055, the population growth rate is estimated to be -0.51 per cent, which projects the trend of a slow, but stable population decrease. In 2050, more than two-thirds of the Korean population of 50.59 million will be 65 years old or above and “Vision 2030” prepared under Rho Moohyun’s government also addressed the problems of an ageing society. The trend indicated by “Grand Vision 2050”, which will be outlined later, can provide a solution: until 2050, the number of foreign residents, which was 1.1 million in 2009, is projected to quadruple, and

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Japan and China, Korea can rely on its reinforced relationships in the Middle East, since recently it has successfully entered the traditionally strong markets of the countries in this region with its developed petrochemical technology. Climate change is also likely to pose challenges to the peninsula. Korea’s climate has subtropical features, and the average temperature is forecast to rise by even as much as four degrees Celsius. GOVERNMENTAL PLANNING FOR THE TECHNOLOGY OF THE FUTURE In South Korea, there is a ministry dedicated to the future impact of technology and future planning. The Ministry of Science, ICT and Future Planning has outlined a plan composed of five strategies, with the objective to build a creative economy and make people happy, which they intend to achieve by means of science, technology and information and communications technology. The ministry has divided the plan into five strategies, which can be seen in the figure below: As the first strategy, Korea is promised with the ecosystem of a creative economy, the implementation of which is conceived to be divided into several steps. In

several cases, these steps express necessary conditions, such as creativity and talent management in the country, which is intended to be addressed by a national movement of imagination and challenges. In the field of ICT, particular attention is paid to talent management both on academic and professional levels. The commercialisation of universities and government-funded research institutes is regarded the best tool to translate creative ideas into reality. Apart from supporting entrepreneurial ideas, new jobs would be created by involving new industries and strengthening the existing ones basically by utilizing ICT. The cooperation between the private and the academic sphere would be involved in the development of local industries, and the start-up ecosystem infrastructure would be established according to local characteristics and by strengthening local communities. On regulatory level, the processes would be promoted by an enhanced protection of intellectual property. The second strategy provides for active Korean innovation, and the expansion of the research and development capacities of the nation. Smart solutions have been designated as the growth engine of the future, including the fields of stem cell and brain

Strategy of a creative economy Rate of aged people (65 years <) in the total population of the Republic of Korea, 1950-2050 in this case, South Korea will become a multicultural country, owing to the foreign residents accounting for 9.8 per cent of the population. ECONOMY AND ENVIRONMENT The above-mentioned “Grand Vision 2050” suggests other future trends as well. The economic performance of the Korean economy is regarded competitive with western economies, therefore per capita GDP is likely to increase to eighty thousand dollars. Economic challenges to the country might be posed by a persisting excessive export-dependency, as global economic problems will affect it particularly sensitively. Since Kora is poor in raw materials, it will also be hit by the increasing prices of fossil fuels, therefore new technologies must be invested in, and allies must be sought. Against his two regional rivals,

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research, nano materials, clean energy and space technology. Revamped government-funded research institutes will serve as centres of research, which assume an increasing role today and also pursue business activities. A framework is provided by the objective to make the researcher career appreciated also in a wider social environment. Focussing on software and developing related education and research are named as the third strategy. Software is coupled with a global distribution of Korean-style content, and the software sector would be supported by the best internet network of the world. The fourth strategy aims at the international cooperation of competitive Korean researchers. We can detect a parallel between the world-renowned Korean cultural wave, hallyu, and the wave of Korean science and technology, which would connect the Korean scientific and start-up sphere to the global market, and wants its trained scientists to enter the global labour market. The last strategy places all the listed ICT goals at the service of the wellbeing of Korean people. On the one hand, they intend to use developed devices to resolve social issues within the framework of projects; on the other hand, they want to reduce communication costs and build a safe and convenient internet environment for everyone.

programme, since the resources of the countries are finite, and they expect an opening-up in the medium and long term. The integration of the peninsula is formulated along several strategies. One of them is the infrastructural connection between the two countries along the industrial corridor stretching along the western shore of the peninsula and the eastern energy corridor. The “Gyeonggi Bay Area Development” Scheme is notable for its practical feasibility; the project located in the Midwest area of the peninsula would promote the rebuilding of the Northern economy. All these developments, however, can be implemented in an adequate international environment, thus the key to the reunion will lie in the cooperation of the USA and China.

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As a first step, it is necessary to present an overview of demographic processes, since Japanese plans for the future were devised having regard to these circumstances. The demographic projections of the Japanese National Institute of Population and Social Security Research expects the rate of children aged under 15 to be between 8 and 12 per cent, of the working-age population to be around 53-54 per cent and the aged population aged 65 and over will account for 33 to 39 per cent of the population by 2050.

Japan’s demographic pyramid in 2045 JAPAN Currently, Japan is struggling with numerous economic and demographic problems, such as huge government debt, deflation, which is weakening the economy, and a decreasing rate of working-age people in the ageing society. In many fields, the country has thoroughly devised plans; we will have an overview of the ones on economy, climate change, the future of energy management and scientific development, in the same way as we have done in the case of South Korea. The Science Council of Japan (SCJ), a governmental body representing the scientific sphere, has set the goal for Japan to establish itself as a “nation of dignity” and to build “Asian trust” by 2050. Dignity is a value aligned with the 21st century, implying pride in Japanese products, technologies and the soft power

groups and individuals can result in dropping behind. SCJ claims it is a crucial part of Japan’s future to have a global mindset, and to include the aspects of sustainability in education.

DEMOGRAPHY

According to the forecasts on Japan’s future by Stratfor, the geopolitical intelligence platform, in the 2030s, workforce shrinking and population ageing will not approximate the sharp decline expected for the 2040s, and the results of the efforts of the 2010s and 2020s to boost fertility rates will not manifest, either. By 2060, the number of workingage people will be half of the working-age population in 2015, and the total population will drop by 25 per cent. These all suggest that Japan will be confronted with internal issues related to economic and social management in the years after 2040.

THE FUTURE OF THE PENINSULA For a while, the concepts have centred around South Korea, but as the two countries basically still nourish the future plan of uniting, scenarios about the shared future of the peninsula have also been devised. A 2009 study by the Korean Research Institute for Human Settlements (KRIHS) regards it worth talking about despite the uncertain future. The basic assumption of the survey conducted among the experts of the topic was that the relationships between the two Koreas would develop peacefully. It can result in a common market by 2030, after North Korean political reforms. According to numerous researchers, the two Koreas together can be a “bridge of Northeast Asia”, as they could take advantage of the geo-economical potential that the location of the peninsula presents. The enhanced economic integration might bring about a free trade agreement between China, Japan and South Korea, and the majority of respondents are optimistic about Korea’s future. They regard Northern reforms inescapable, despite Pyongyang’s nuclear

deriving from it. In addition, Japan wants to earn Asia’s trust, as regional cooperation constitutes an important stronghold of the future.

Changes in the global economy, 2010-2050 In the context of demographic problems, transforming social stereotypes would also be important. Ideas about the economic participation by women, the concepts about education and the attitude towards

ECONOMY In 2013, to commemorate the 50th anniversary of its foundation, the Japan Center for Economic Research conducted a research on the future of the world and Japan’s economy. The staff of the research centre created the world economic map in 2050 by examining 64 countries. The forecast was based on indicators affecting long-term economic growth. These indicators measure economic liberalisation, stability, the extent of job market liberalisation, females in the workforce, and the ease of starting a business.

Five institutional indicators determining productivity, South Korea and Japan If these institutional factors remain on their present trends, growth in China will slow significantly, and Switzerland and the countries of Northern Europe will continue to have the highest per capita income. The Unites States will continue to enjoy economic hegemony, and owing to its open economy, it will see continued inflows of capital and workforce, achieving low but stable growth. They think China has failed to implement timely institutional changes and will drop behind in political stability and economic liberalisation, and is likely to tumble into the middle income trap. Due to institutional backlogs and the Chinese population, which will have declined by 2050, Chinese economy will not be able to overtake its American competitor, contrary to current expectations, and U.S. GDP will be three times bigger than China’s total income. Moreover, the country will not be able to increase productivity, therefore China’s productivity growth will fall to 0.9 per cent from 2011 to 2050. Relationships maintained with the strong U.S. economy will remain particularly important for Japan, since both in terms of capital and other resources, as well

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as business models, its economic growth depends on the USA. Joining the Trans-Pacific Partnership (TPP) free trade agreement was expected as a necessary step to strengthen bonds. A risk of dropping behind is posed to Japan’s economy by the low participation of women in the labour market. In the region, South Korea sets a good example to Japan: a considerable improvement was observed, and the Korean economy is much more open and demonstrates a greater willingness to participate in free trade agreements. In Japan, improvements of the five institutional indicators will continue at a slow pace, but the shrinking of the population to 100 million is likely to mean that the economy will be shrinking as well, which makes

as well. The Fukushima disaster made the country commit itself to developing new, sustainable sources replacing fossil fuels and nuclear energy. It is a major issue for the international community to keep the increase of global mean temperature between 2 to 2.4 degrees Celsius. In order to realise this, developed nations must make the greatest sacrifices, and must reduce the share of greenhouse gas reductions by 80 to 95 per cent by 2050, compared to the 1990 level. In addition, Japan is eager to find alternatives for nuclear energy, as it is one of the most earthquake-prone countries in the world, and there is a high risk in maintaining 48 nuclear reactors, and the great amounts of radiating waste cause further

the social security system and government finances very difficult to maintain.

difficulties. Currently, the electricity and industry sectors account for two-thirds of Japan’s total CO2 emissions, but Japan’s industrial and social structures are very likely to change by 2050. The climate vision of Kiku Network mentions the fact that Japan’s economy has successfully accommodated to challenges, such as the oil crisis, thus they can successfully act to create a low-carbon society by 2050, and even can take on a global leadership role with cuttingedge technology.

In addition to outlining the situation predicted for 2050, researchers have also prepared action plans for the Japanese government with the primary goal of mitigating the population decline. Japan’s economy is threatened by a fiscal collapse due to rising tax and social security burdens, therefore the JCER proposes stabilising the population at around 90 million, by opening up the country and inviting people, expertise and investments. France is referred to as an example of the reforms, where fertility rate was successfully increased, primarily by striking the work-life balance. It took thirty years for these reforms to produce results, and their most important elements include balancing raising a child and work, various childcare options and other benefits and tax breaks. JCER recommends adopting similar reforms, as well as increasing the intake of immigrants, preferably professionals and foreign students. With a continuous increase, 200,000 immigrants per year would arrive by 2050, and in this case 6 per cent of the population would be foreign-born. These decisions are likely to strengthen Japan’s economy by 2050, since public burdens would decrease with this intervention, and Japan can retain its international position. If no steps are taken, the shrinking size of the Japanese economy will prevent the country from negotiating with the USA and China as an equal partner. ENVIRONMENT AND ENERGY Planning new energy sources is a fundamental part of the visions. As a leading country of nuclear energy technology, Japan has experienced its pitfalls

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They want to take responsibility for reducing greenhouse gas emissions and emissions from energy use by 80 per cent by 2050, compared to 1990. In the vision it is declared that Japan should not depend on nuclear power, and simultaneously with the use of sustainable sources, a change in social values is also necessary. 2050 provides a sufficient time frame for technology development, and the climate vision finds that it is feasible to reach the reduction targets until 2050. They are able to realise this by eliminating the use of nuclear energy, and they will apply the gradual introduction of already commercialised energy efficiency technologies and renewables in lieu of high-risk new technologies. Compared to the earlier researches of the Energy and Environment Council of the Japanese government, the speed of transition to sustainability is estimated to be potentially higher. Some opinions go even further than that: there is a possibility for Japan to rely on 100 per cent renewable energy by 2050. Although the Japanese Ministry of Economy Trade and Industry is keen to remind the public that nuclear power is essential because renewable energy alone is not sufficient, complete transition requires great

Shift to renewable energy by 2050, ISEP

care with regard to the reactor construction plans devised before Fukushima. The Institute for Sustainable Energy Policies (ISEP) argues that, as the first step, they can rely on the already mentioned energy efficiency, and ideally, this reduced energy demand would be entirely supplied from renewable sources, as it is shown in Figure 6. The first analysis of the Japanese renewable energy policy platform established in 2008 by ISEP is less confident, but more realistic, indicating that Japan could supply 67% of its electricity needs from renewables by 2050 (see the figure above). In addition to the government, Japanese businesses are also committed to lay the fundamentals of future environmental sustainability. Epson has created its own vision for 2050, according to which CO2 emissions can be reduced by 90 per cent across the lifecycle of their products. Toshiba envisages affluent lifestyles in harmony with the Earth in 2050, primarily by enhancing the creation of new values, mitigating environmental damage caused by overpopulation and reducing emissions radically.

TECHNOLOGY Japan has been excelling with its technological achievements for decades, and will designate new strategic branches of science and create a new technology policy in the future. They wish to address new challenges with which the country wants to face as a leading Asian power in 2050. They want to resolve global problems, such as global environmental degradation, population growth and the sustainability of human society, as part of the vision created by the Science Council of Japan. They regard science and technology to be not only development opportunities for industries but also a key to the happiness of a broader society. However, they do not want to utilise their accrued knowledge and technological potential on their own, but in cooperation with other Asian countries, since they can help implement large-scale investment projects.

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Africa: 2050 Author: Ráhel Czirják

Hearing the name of the Dark Continent, most people in the Western world associate to aids, epidemics, armed conflicts and famine. But seen from Asia or Africa itself, the continent looks completely different. In terms of economy, Africa is the second fastest growing continent of recent years, with an increasing inflow of Asian – primarily Chinese – capital. The black continent is also the fastest urbanising region of the world. But what does the future hold for Africa? Will the favourable tendencies continue or will unfavourable processes take place instead? We are addressing these questions in our article.

DEMOGRAPHY The world’s population numbers nearly 7.3 billion now, and one in seven people lives Africa. By the middle of the century, the UN anticipates the total population of the world to grow to 8.7 to 10.8 billion – depending on which scenario is considered: the Low, the Middle or the High Variants. According to the middle scenario, 50 per cent of the total population growth from now to 2050 will occur in Africa, where 1.3 billion people will be added. Thus, by the mid-century, the black continent will account for 25 per cent of the world’s total population, and Asia’s share will decrease to 54 per cent, from its current share of 60 per cent. This spectacular population increase in the Dark

be only 1.8 per cent by the middle of the century. This is explainable with the reduction of the fertility rate, that is, the average number of children per woman of childbearing age will decrease. This is also illustrated by Figure 2.

African fertility rates (1967-2047)

Global population by continent (1950-2050) Continent, however, will be the result of a continuously slowing growth. The current annual growth rate of the entire continent is 2.4 per cent, but it will

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If we examine the population indices of the continent, it is apparent that this growth will not take place evenly. Currently, Central Africa is the region that has the largest growth, where the annual population growth rate is almost 3 per cent. There are 152 million people living in this region, and their number will approximate 370 million by 2050. According to the UN’s middle scenario, by then growth rate will drop to 2.1 per cent. In terms of growth rates, Eastern Africa lags just little behind Central Africa: here the population of 400 million increases by 2 per cent annually. By the mid-21st century, the growth rate

will slow down here as well – will drop below 2 per cent – but it still will be the most populous region of Africa, with 878 million people. The population growth of Western Africa, with a current population of 353 million, will also be as fast as that of the other two regions, where the annual average population growth rate is 2.6 per cent. The UN’s middle scenario estimates this growth to slow down to 2 per cent by 2050. Its population will approximate 800 million people, and it continues to be the second populous region of Africa. Currently, there are 224 million people living in the Northern region of the continent. In terms of its growth rate, the region is one of the last ones: with a rate of 1.76 per cent, it is last but one. This growth will slow down by the middle of the century, just like on the entire continent, and drops below 1 per cent. By 2050, the population is estimated to be 354 million. The Southern region has the smallest share of Africa’s total population – 63 million people live here now – and this is not expected to change in the future. According to the UN’s estimates, its current annual growth rate of 0.89 per cent will fall to 0.46 by 2050, and the middle scenario estimates 78 million people to be living in Southern Africa then. Africa currently has an extremely young population: the share of people under the age of 17 is approximately 50 per cent. Consequently, the population pyramid of the continent has actually a pyramid shape. This is illustrated by Figure 3, where the population is shown by gender and in five-year age groups. By 2050, with a slowing population growth rate and an increasing life expectancy – it will increase from the current 56 years to 70 years until 2060 – Africa’s society will become older. The number of workingage people (between 15 to 64 years of age) will triple by 2060, so the population pyramid will become wider, and will take the shape of a beehive. (Figure 4) This demographic development will present an enormous advantage to the continent from an economic point of view, as it may mean an increase of the economically active population, and a decrease of the dependency ratio (non-working age population as the percentage of working age population) and increasing national saving. But to have a positive economic impact from this kind of population tendency, African states must provide a sufficient number of jobs for their population. Without this, only the growth of social tension can be expected.

URBANISATION The UN’s statistics show that we have been living in an urban world since 2007, when the global urbanisation rate (the ratio of urban residents within the total population) crossed the 50 per cent threshold. That is, since then more than half of humankind live in urban areas. UN’s World Urbanisation Prospects (2014) expect this trend to continue, thus 66.4 per cent of the global population, that is, more than 6.2 billion people will be urban residents by 2050. However, there are significant differences between continents: while in the developed world and the countries of Latin America only a small proportion of the population (20 to 30 per cent) live in rural areas, in Africa and Asia this figure is above 50 per cent. The UN expects the ratio of urban residents of these continents to exceed that of rural population by 2050 and to be 63.4 per cent. But if we look at absolute numbers, more people live in the cities of the global South than in developed countries: in the former region, their number is over 3 billion, which is expected to grow to 5.2 billion until 2050, while less than one billion people live in the cities of the latter region, and their number will be 1.1 billion by the middle of the century. On the basis of the growth rate, today Africa is the

Africa’s population pyramid (2010)

Africa’s population pyramid (2050)

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AFRICA: 2050

Megacities in Africa (2016, 2030) Region North Africa West Africa Central Africa East Africa Sout Africa

fastest urbanising continent, where urban population increases by 3.4 per cent annually. The growth rate will somewhat slow down by 2050 – and will be “only” 2.56 per cent. Due to this extreme population growth, the number of urban population will increase from the current 505 million to 1.3 billion by 2050. Thus, one in five urban residents of the world will live in Africa by the mid-century. Growth tendencies within the continent are similar to population growth and will vary in different regions. More than one-third of Africa’s urban population (33 per cent), almost 160 million people, currently live in Western Africa. The growth rate of the region is over 4 per cent, but is expected to fall to below 3 per cent by the middle of the century. By 2050, the Western

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region will have a share of 38 per cent of the continent’ s total urban population – here, more than half a billion people will live in urban areas. One of the three megacities (cities with populations over 10 million) of the continent, Lagos in Nigeria, is situated in Western Africa. 13.6 people live in this metropolitan city lying on the Atlantic coast. The UN’s statistics show that its annual average population growth rate is nearly 4 per cent, thus its population is expected to grow to 24 million from now to 2030. One of four urban residents in the continent, a total of 112 million people, live in Northern Africa now. The growth of urban population is more moderate in the African part of the Mediterranean than, for example,

City, country Cairo, Egypt Lagos, Nigeria Kinshasa, DRC -

Population (2016) 19.1 million 13.7 million 12 million -

in Western Africa – with a figure of 2 per cent – and is the second slowest on the continent after Southern Africa. The growth of urban population is expected to slow down even further by the middle of the century, and will be 1.4 per cent by 2050. Then 200 million people will live in the urban areas of Northern Africa, but its share within the continent will decrease to 15 per cent. Cairo, the largest megacity of Africa with its population of 19 million, is situated in Northern Africa, which will increase its population to 24.5 million people by 2030 at an annual growth rate of 1.8 per cent. Currently, Eastern Africa has the highest growth rate (2.35 per cent), with one-fifth of Africa’s total urban population. In absolute numbers, it means more than 100 million people. Growth will somewhat slow down, as it will do so in other regions as well, but still remain over 3 per cent. Consequently, the number of urban dwellers will approximate 380 million by 2050. The intensive urbanisation of this region is best reflected by the fact that there will be a megacity here as well: Dar es Salaam, with its current population of 5.4 million growing to almost 11 million by 2030 The UN’s data show that 63 million people lived in cities in the central part of the Dark Continent in 2015, that is, the region’s share of the total urban population of Africa is 13 per cent. By 2050, this figure is expected to increase by 1 percentage point, as the number of urban residents will approximate 200 million. Africa’s third megacity can be found in Central Africa: it is the capital of the Democratic Republic of Congo, Kinshasa, with a population of 12 million, which will become almost 20 million by 2030. Africa’s slowest urbanising region – with a growth rate of 1.43 per cent – is Southern Africa, which has the smallest share of the urban population of the continent (4 per cent). Despite the further slowing anticipated for the mid-century, however, it will double its share. It will mean that the number of the actual population will grow from today’s 38 million to 55 million. This region will produce the most spectacular growth in terms of megacities: by 2030,

City, country Cairo, Egypt Lagos, Nigeria Kinshasa, DRC Dar es Salaam, URT Johannesburg, SAR Luanda, Angola

Population (2030) 24.5 million 24.2 million 19.9 million 10.8 million 11.6 million 10.4 million

one-third of the six megacities will be located in Southern Africa, as the population of Johannesburg and Luanda will increase over 10 million. Africa’s rapid urbanisation is both an enormous economic opportunity and a challenge. McKinsey Global Institute claims that the shift from rural employment towards urban employment increases productivity by 20 to 50 per cent. Population, knowledge, technology, information concentrate in cities, thus they are able to function as engines of the economy. In Africa, however, the growth of urban population is so rapid that the development of the infrastructure – housing, transport, public services – is unable to keep pace with it, and the labour market is unable to absorb the workforce moving here, either. Consequently, a significant part of the population will have no other choice than living in slums. According to the UN’s latest data, more than 200 million people lived in slums in Sub-Saharan Africa in 2014. Although the share of slum-dwellers within the urban population has been showing a decreasing trend in recent years (in Africa, it was 70 per cent in 1990, and “only” 56 per cent in 2014), absolute numbers reveal a strong growth. In the case of Sub-Saharan Africa, it means a growth from 93 million in 1990 to 200.7 million. Thus, the Dark Continent must resolve the problem of slums to realise the urbanisation of the continent as an economic and social benefit, and not as an exacerbation of current problems. ECONOMY In 2011, the Institute for Security Studies (ISS), in collaboration with the Josef Korbel School of International Studies at the University of Denver, prepared a monograph entitled African Futures 2050, which contains social and economic forecasts for the continent. Although the researchers call attention in their study to treat each statement about the future with reservation since they are extrapolations of the current trends for the coming decades, they can still provide interesting insights.

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GDP growth in African regions (2000-2060) Africa Central Africa East Africa North Africa South Africa West Africa

2000 4.5 -1.4 7.5 3.9 5.4 4.1

2010 4.9 4.7 6.2 4.7 3.3 6.7

2020 6.2 7.2 7.9 5.5 3.9 8.8

2030 5.9 6.8 9.3 4.8 5.3 5.5

2050 5.3 2.8 8.3 3.7 4.5 4.6

2060 5.0 4.1 6.8 3.2 4.1 4.9

growth, however, has not been felt by a large proportion of the population. Looking forward, ISS sees a good chance that the total economies of Africa will collectively exceed $13 trillion in size by 2050, making it larger than even the US or EU

GDP per capita (PPP) in African regions (2008-2048) ISS expects the African economy to take off in the next decades, primarily due to the growth of working-age populations and the movement of those peoples to cities, which are driving to diversify economies away from agriculture and towards manufacturing and service sectors. The growth of per capita GDP – measured at purchasing power parity – in the continent is demonstrated by Figure 8. It reflects that the bulk of economic growth since 1960 has been primarily generated by Northern Africa, with its energy-based economies. The diversified economy of the Southern African region has also significantly contributed to Africa’s economic performance. In the second half of the 21st century, Eastern Africa gained only about $150 per capita and Western Africa about $130 per capita, while GDP per capita in Central Africa has remained almost unchanged since 1960. The economic gap between the economically strong northern and southern regions on one hand, and the other three regions on the other, is close to $1 500, in terms of per capita GDP. Inequality across the continent is expected to increase: while the citizens of Northern and Southern Africa should reach $7 500 annual income per person, a common threshold for middle-class status, before 2040, Central Africa, in contrast, may attain only about $2 000. Owing to the economic performance of recent years, Africa is the second fastest growing region of the world. This fast

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economies in 2010. The compound annual growth rate required for that result is 5,1 per cent. The African Development Bank has also provided forecasts about growth. Similar to ISS, it estimates the GDP growth of the continent to be 5 per cent by 2050. Despite optimistic projections, the society of the continent must face great challenges. Extreme poverty levels will remain high, even with average GDP growth rates of 5 to 7 per cent. ISS thinks that rates may decline, but the numbers living in extreme poverty remain near 300 million people for the continent as a whole. The African Union adopted the document entitled Agenda 2063 at its assembly held in Addis Ababa, the capital of Ethiopia, on 30th and 31st January, 2015. It is both a vision and an action plan for the continent for the unforeseeable future. The document calls upon all segments of the African society to act together so that a prosperous and united continent based on shared goals and a shared mission should evolve in the near future. The agenda specifies seven aspirations: 1. A prosperous Africa based on inclusive growth and sustainable development; 2. An integrated continent, politically united and based on the ideals of Pan-Africanism and the vision of Africa’s Renaissance; 3. An Africa of good governance, democracy, respect for human rights, justice and the rule of law; 4. A peaceful and secure Africa; 5. An Africa with a strong cultural identity, common heritage, shared values and ethics; 6. An Africa whose development is people-driven, relying on the potential of African people, especially its women and youth, and caring for children; 7. Africa as a strong, united and influential global player and partner.

As for the foreign affairs of the continent, ISS believes that the economic gaze of Africa will increasingly turn to the east, while development assistance and the promotion of good governance will continue to flow from the West. China and India will continue to increase their influence on the black continent, but Europe will continue to have an important economic role. Agenda 2063 We have presented the futures that various institutes and institutions envisage for Africa, based on current trends. But the continent formulated its own goals that it wishes to achieve by the second half of the 21st century. After having set and detailed the goals, the document entitled Agenda 2063 provides for setting up an implementation, monitoring, evaluation system, making the achievement of the goals accountable and transparent. This system would have a wide range of tasks: • Identifying leadership and stakeholders at the national, regional and continental levels and assigning roles and responsibilities to each of them; • Providing policy guidelines that would be adopted/ adapted by national, regional and continental stakeholders with respect to the implementation of Agenda 2063;

• Conducting an institutional review of AU structures, processes and methods of work in relation to the implementation of Agenda 2063; • Leveraging the strengths of the Regional Economic Communities as the focal points for coordinating the implementation, monitoring and evaluation of Agenda 2063; • Leveraging the strengths of AU institutions, such as African Union Commission (AUC), NEPAD Planning and Coordinating Agency (NPCA), etc., to coordinate implementation; monitoring and evaluation at the continental level; • Leveraging the strengths of collaborators and other strategic partners, such as the African Development Bank (AfDB), the UN Economic Commission for Africa (UNECA), etc.; • Organising an annual stakeholder platform to review the progress of implementation of Agenda 2063 at the national, regional and continental levels and submitting the outcome of these deliberations in the form of Annual Agenda 2063 State of the Union Report to the Assembly of the African Union. Thus, the continent has committed to itself to a comprehensive and irreversible transformation and development, to which a long road and hard work lead, but which will be definitely for the benefit of the Dark Continent.

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Evolving to exponential Author: Csaba Mányai and the TXD team

Technological progress has become exponential. It is turning our world upside down, opening doors we have never imagined, driving connectedness and complexity explosions that are changing the very rules of the game. Many believe Exponential Technology will save us – others are claiming It accelerates our spiral of doom. Wherever it leads though, one thing is sure: it is undoubtedly happening. Its evidence is all around us. It is transforming our reality, our potential and our challenges.

But as we travel towards the future at an everincreasing speed, we may do well to remember that we are still human. Exponential progress is unevenly distributed and may only create abundance with sharp inequalities. We are still torn with questions. We are still separated by our differences. We still feel burdened by need. Could it really be solved? Can Exponential really save us? Or are we destined to endure? There may be a key to this challenge. As technology evolves in exponential loops to unimaginable heights around us, it does indeed create unprecedented potential and opportunities. But much though that may be, it may not nearly be enough. Realizing its true potential – and avoiding its most devastating traps – requires us to make our human side of the story evolve as well. We need to find and maintain a healthy balance. To do this, however, we will need to rewire our thinking, reconsider our questions, reimagine our solutions and redesign our systems. What you are holding now is a curated collection of explorative and hopefully mind shifting essays, all exploring how we could evolve ourselves and our systems to this new world. The essays will take you on journeys, ask important questions and explore meaningful solutions. And independent though they are of each other, there are plenty of opportunities to find connections.

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“Technological progress has become exponential. It is turning our world upside down, opening doors we have never imagined.” One thing shared by all of them, for example, is their connection with “Alone AND Together”, the theme for TEDxDanubia 2017. Written by our speakers, fellows or TXD community members, they may be an elaboration on what you heard in a talk or may be an entirely different adventure inspired by the theme. Think of this book as another TEDx event, only in a different form. We hope the ideas in this book will give you as much pleasure, wonder and inspiration as they gave to us…

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Hybrid Thinking Author: Dr. Arndt Pechstein

As multi-award-winning entrepreneur, coach, and specialist in Neuroscience, Biomimicry (bio-inspired innovation), Design Thinking (user-centered innovation) and Digital Business Models, Berlin-based Dr. Arndt Pechstein advises companies and organizations in agile innovation, adaptive leadership, learning networks, and a new digital mindset. Arndt is managing director of the innovation firm and academy phi360.eu, and founder and director of the German think-tank for Biomimicry. He designs co-creative change strategies and programs that can impact human behavior across all sectors, ranging from automotive, banking, pharmaceutical, and energy concerns, to manufacturing, e-commerce, and education. Arndt combines technical and analytical knowledge with human cognitive and intuitive behavior and creative approaches, to create sustainable and scalable solutions in a complex and exponential world.

terms of control structures, and following simplified models. Meanwhile, technology has always been developing exponentially. The only problem of exponential progression is that during its initial phase we don’t notice it. We mistake it for simple, linear growth, for which classical topdown approaches and control structures seem to work well. And then at some magical moment we “suddenly” get the feeling of losing control.

Diagram of exponential growth vs. linear thinking

Entering the Age of Digital Humanism Given the disturbances that this rapid acceleration causes, what can we do to stay afloat? How can we solve wicked problems, run agile organizations in an interconnected world, and make educated decisions about innovation strategies and possible futures?

Four steps to 21st century innovation

Evidently, the challenges we face as both orga. nizations and humanity as a whole cannot be solved by 20 th century approaches. Analyti-

mechanical work. Post-education life then continued with a job in one of the many prestigious organizations where by following certain rules one could climb up the ladder of hierarchy to eventually gain control over more people, areas and fields. Finally, or so we were convinced, hard work would be followed by a gilded retirement. But then something happened. Mysteriously, technological advancement started to speed up, and suddenly we found ourselves in this overwhelming chaos which we call complexity and the age of digital disruption. Time for a reality check! Leaving an Era ofCertainty and Control Most of us grew up in a world that seemed predictable. We were raised in an era of linear thinking. Our life journey started within an educational system that rewarded knowledge repetition, competition, and individual merit. This is not very surprising, given that it has its origin in the time of the first industrialization of society, when a structured workforce was needed for

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What had actually happened was anything but sudden. By assuming a linear mindset and being part of a mechanistic system, we were trapped in a simplified world view. It turns out that life on earth has never been that simple and predictable. While our cultural heritage (coming from the time of the Enlightenment in the eighteenth century, when we started emphasizing reason and divided the world into disciplines) has made us hugely successful, it has also lured us into a comfortable way of thinking inside boxes, in

cal methods alone, linear ways of thinking, and top-down hierarchies fail increasingly in a world that is becoming more organic and net.worked, where social and global dynamics are changing, and where connectivity is driving an explosion of complexity. So now – more than ever – we urgently need new approaches and forms of thinking, organizing, and managing ourselves. Hybrid Thinking: The 21 st Century Solution Recipe Throughout my work with global organiza.tions over many years, I have realized many limitations in various approaches to innova.tion and change. While leading organizations in innovation, sustainable value generation, and operating through projects related to transformation and change, a network of world experts in their fields and I have developed and tested the Hybrid Thinking approach to overcome these shortcomings. Hybrid Thinking combines and integrates cutting-edge meth.ods, frameworks, and tools in an innovation engine that drives meaningful value creation and successful change. In a world where boundaries between almost anything (an. alog-digital, man-machine-nature, local-global, product-service-experience, start-up-corporate, analytical-creative) blur, Hybrid Thinking lever.

ages the potential between different poles along a gradient, and turns complexity and diversity into an asset. Hybrid Thinking does not just constitute an approach; it represents an entire new mindset for the 21 st century. The four integrated levels of Hybrid Thinking that help individuals and organizations to deal with and manage complexity in an interconnected, digital world are as follows: • T he Innovation Source: learning from nature through biomimicry; • T he Intelligent Actor: tapping the power of our brains through neuroscience; • T he Network Effect: leveraging networks through agile methods; • System Integration: creating viable solutions through circular and platform design. 1. The Innovation source Inspiration from living systems: Learning from nature through biomimicry Challenges, organizations, and technologies are changing from controllable to ephemeral, from linear structures to fluid networks, and from mechanistic to organic.

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Through constant evolution and adaptation to contextual needs over billions of years, natural systems have developed smart solutions to all fields of life, ranging from resource efficiency, value networks, collaboration, self-organization, and swarm intelligence, to mobility, smart materials, and additive manufacturing. Biological systems are resilient and robust in times of disturbance, and display adaptive behaviors over a wide spectrum of conditions. Biomimicry uses the full range of biological systems – from microscopic cells to the complex behavior of whole ecosystems – as models and applies biological design principles thus opening up new

Taking inspiration from systems that are designed for and operating in a network logic thus seems wise. Systems with such properties – biological organisms and systems – are omnipresent and have been developing over billions of years. We are a result of this evolutionary process, as are millions of other species populating our planet. Together, they form intricate inter-connected systems that bear the potential for breakthrough innovations. Making this knowledge and these strategies available and actionable is what a growing number of innovative organizations do, in order to gain a strategic advantage, to innovate, adapt, and build learning and sustainable networks. Networks, self-organization, and collaboration are starting to replace line hierarchy, control systems, and competition. Yet how do we create self-organizing networks (teams of teams) in which there are efficient feedback mechanisms and information is exchanged transparently? By looking at nature, it is easy to find answers to these questions. The process of taking nature as a model and adapting powerful strategies and design principles from natural systems is termed biomimicry. The term “biomimicry” originates from the Greek words bios (life) and mimesis (imitate). While the adaptation of biological design principles in product innovation and design has gained significant

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attention, its potential to revolutionize processes and even entire organizations is largely unexplored. Biomimicry analyzes biological systems, abstracts their design principles and functional patterns, and transfers them to problem-solving. It matches whole systems thinking with responsible innovation meeting market demands in a volatile and fragile world. Biomimicry – which is both a mindset and a method – condenses eons of evolution in a creative innovation process to spearhead disruptive innovation and to catalyze a paradigm shift.

„While the adaptation of biological design principles in product innovation and design has gained significant attention, its potential to revolutionize processes and even entire organizations is largely unexplored. ”

and unexpected opportunities to find solutions. With the global need to manage increasingly more complex systems and challenges, biomimicry thus constitutes the missing link between human advancement and planetary foresight. It is the linchpin of the wayin which we will innovate, work, and think in the future, and – unlike any other method – it is capable of generating entirely novel and viable solutions in almost any field. An example of biomimicry applied to an organizational context is the collective intelligence of networks, as found in swarm-forming insects. This principle has an enormous transformative potential for organizations, businesses, and societies. Bees, for example, communicate within their hive through elaborate motion patterns. While the majority of bees enforce stable patterns, i.e. bringing in food from established sources, a small number of individuals explore new terrains and create disturbance and diversity in the hive. Initially, these signals are ignored, but as soon as the established sources start to dwindle, more and more bees become aware of the alternative. Through intricate feedback systems (resource allocation and imitation), eventually a new pattern emerges and initiates a change. Such change is solely based on selforganization, tight feedback systems, and a network logic. No top-down decision making is involved. Similar mechanisms operate in flocks of migrating birds. Leadership changes repeatedly, as none of the individuals knows the entire flight route, and nor would any of them be physically able to lead the way all the way.

While biomimicry provides us with an inspiration source and a set of design principles, it does not explain how we actualize a transition and lead change in people. As intelligent actors, the understanding and application of brain mechanisms and neuro.network principles are crucial for successful transformation endeavors. 2. The intelligent actor Intuition and creativity as vital brain resources: What we can learn from neuroscience In biology, two successful strategies have evolved to deal with complexity. The first is the distribution of intelligence across thousands (or millions)

Biology leading to insights for digitalization

Location and properties of systems 1 and 2

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starts by linking seemingly unrelated topics in an associative manner. Likewise, experiences, more than processes, products, and services, are starting to affect people in their behavior and beliefs. Discovering, experiencing, and learning are increasingly more valuable than knowing and measuring. As far as creative tasks and change processes are concerned, people can only be intrinsically motivated and perform at their best if autonomy (self-direction and creativity), learning (personal development and fulfillment), and identification (a true sense of purpose) converge.

of swarm-forming organisms (the so-called super-organisms). This powerful mechanism has allowed several insect species to populate nearly every continent of our planet. The second strategy, which has turned out to be even more successful, was the development of our brain, in which the intelligence is an emergent effect of the activity patterns of billions of inter-connected nerve cells. Understanding and applying the mechanisms of our brain is the key to driving change and predicting and guiding possible futures. While neuroscience provides a wealth of information about those neuro-mechanisms, our current culture is directly opposed to what our brain is good at doing. This is a result of the Enlighten.ment and industrialization. The past two centuries have placed a strong emphasis on the scien.tific-analytical approach. This focus on analytics created deep specializations: the world was divided into scientific disciplines and mechanistic organizationmodels with clearly defined lines, power struc.tures, and hierarchies. Combined with the In.dustrial Revolution and mass production, a culture of fragmentary thinking and an assem.bly-line mentality became the norm. Rational and analytic approaches, KPIs, and measures alone were the basis of justified decisions. While that strategy works well in both simple and complicated contexts, it fails dramatical.ly when dealing with complex contexts and challenges.

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Our brains are capable of far more than what we currently use them for. According to the theory of mind and the dual process theory, our brain operates in two modes: systems 1 and 2. System 1 thinking operates under conditions that are ambiguous, where outcomes and risks are unknown. It is the reflective mode of our brain. By probing and simulating in an evolutionary fashion, system 1 is able to manage complexity and change. Its processes originate from the evolutionarily much older part of our brain, the limbic system. It is responsible for unconscious, intuitive actions, for empathy, trust, and decision-making. Emotions, social interactions, and personal dynamics play an important role in system 1. The abductive reasoning mode operating in system 1 is perfectly suited for wicked and complex problems with unpredictable outcomes. System 2, on the other hand, is active under conditions that are predictable and relatively simple. It is the algorithmic response based on our experiences and mental models. System 2 processes happen in the evolutionarily rather young cortical areas of our brain, which are responsible for knowledge, rational-analytic skills, and language. This system engages in conscious, deductive reasoning, which works best for simple and predictable situations. In a world where conditions are in constant flux, a balanced combination of analytics with creativity, and of rationality with intuitive thinking, is central to survival. The challenges that we face call for integrated and systemic thinking, which

„Our brains are capable of far more than what we currently use them for.” Understanding brain mechanisms empowers us to drive change that is people-driven. Another essential component of innovation and change, however, is the emergent power of networks. Individuals alone will fail to transform ideas or organizations. 3. The network effect Design for emergence and collaboration: Co-creating solutions through agile methods. The future is not centered around the individual any longer. Instead, a collaborative working culture and the integration of skill and expertise diversity are becoming common practice. The foundation for this megatrend involves the so-called WE-qualities (“WeQ” instead of IQ [Spiegel, 2015]) leading to an emergent network intelligence and a distributed creativity. They are revolutionizing every sector of society, ranging from education and research to workplaces, company culture, and innovation practices. Curiosity, critical thinking, creativity, and transparency of information are on the rise to an unprecedented degree. Collaborative open-source approaches and co-creation formats are indicators of this new era. Selforganization, feedback mechanisms, iteration, and a culture that considers failures as learning opportunities are fundamental principles of this trend. Complexity can only be managed through pattern recognition, which, in turn, requires self-organized networks: teams of teams that share information freely and exchange feedback

regularly. The goal of networked systems is to bring individuals together in order to strengthen their performances, abilities, and knowledge, and to prevent the formation of functional silos. Fixed structures become organic, adaptable organisms capable of mastering complex circumstances and meeting future challenges. This is not very different from the human brain, where billions of nerve cells exchange information through high-speed connections: likewise, cloud technologies and the collaborative commons exceed the capacities of individual people, connecting the brains of many individuals to a collective super.intelligence. This societal transformation whereby collaboration and sharing through distributed data coincides with distributed organizational structures paves the way for a society and an economy that will both be connected globally and managed locally. Such development is evident in all sectors of society. In 2016, Bosch CEO Volkmar Denner announced the abolition of individual bonuses, in order to foster Design Thinking process and teams creating a collective cloud intelligence and distributed creativity (WeQ)

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collective identity and motivation. Networks and collaboration are becoming the dominant standard for dealing with exponential dynamics. In line with this trend, innovation methods that leverage team collaboration and include the needs and desires of people are becoming extremely popular. Design Thinking, a user-centered, co-creative method, employs various tools and an iterative process to transform company and innovation culture and to solve problems in new ways. It combines collaborative work in heterogeneous teams with a structured process that equips teams with creative confidence and a toolset to shape user-centered innovations. Transformative effects are reached rapidly through an iterative mode and a hypothesis-driven validation process. Starting with user research to probe pain points and jobs to be done, the process identifies and defines the actual problem of a given challenge and designs solutions that are desirable. In an agile, iterative testing mode (build-measure-learn), solution prototypes are tested repeatedly and eventually implemented. Agile approaches such as Design Thinking, Lean Start-up, and Scrum establish a culture essential for the workplace of the 21st century. These are not just ways to reshape and reinvent business opportunities but equally ways to catalyze and drive company transformation. They leverage the combination of talent, knowledge, intuition, passion, and technology, creating emergent benefits for organizations that are ready for the future. Eventually, successful integration into the larger ecosystem is a key prerequisite for organizational development and viability. Thus systemic considerations and the design of smart business platforms are key to survival. 4. Systems Integration Integration into viable systems: Circular and platform design in business and innovation strategy. Change does not only affect organizational factors internally. The output of companies and organizations is undergoing a massive transformation, too. Consumers are no longer satisfied with a one-way communication channel, receiving information from companies. They wish to actively engage in developments. Hence, cocreation formats and approaches based on usercentered innovation are booming. But beyond

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mere user-centricity and the fulfillment of market needs, a new pattern emerges: one that transcends the sole economic goal of competitive profit-making. It is the profound interconnectedness of business and society that couples business viability with sustainable value creation. Peter Drucker, who predicted many major devel-

Hybrid Thinking – the tetrahedron of transformation (Nature as Inspiration Source, Humans as Intelligent Actors, The Power of Emergence and the Network Effect, and (Eco) Systems Integration)

„The output of companies and organizations is undergoing a massive transformation, too. They wish to actively engage in developments.” opments of the late 20 th century decades before they occurred, called for a balance between profitability and responsibility, between a company’s vision and the common good, and between short-term needs and long-term sustainability. Business is the wealth-creating organ of society. But what is most important is that management realize that it must consider the impact of every business policy and business action upon society. It has to consider whether the action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony. (Drucker, 1954) The global economy has entered a stage where continuous growth as the sole measure of success can no longer be sustained. Both an increasing scarcity of resources and anthropogenic changes demand a reevaluation of economic outputs, organizational structures, and value systems. Likewise, our products, industrial processes, and value chains need a fundamental rethink. Most sectors have already been disrupted as a result of the possibilities provided by ICT. Open-source models such as Wikipedia or other digital platform models have largely replaced their traditional counterparts. Meanwhile, not only does the convergence of communication, energy, and global mobility, along with the

in a rising circular economy. By deriving functional and operational patterns from evolutionarily tested systems of various scales and embedding them in validated business models, Circular Design can provide viable answers to complexity and allow businesses to adapt, learn, and develop in dynamic environments. Hybrid Thinking: Designing Digital Organizations with a New 21 st Century Mindset

emergence of super-networks, allow individuals to compete with major established players, but mainstreaming technological advances, including additive manufacturing, sensor technology, automation, and artificial intelligence, allows this phenomenon to spread from the virtual to the physical world. In combination with mindset and policy changes that occur in response to global challenges, such as climate change and social awareness, responsibility and values become important denominators of business. Many traditional products are becoming increasingly challenged or even replaced by platforms, services, and experiences. Accordingly, approaches that design for circularity and platforms that operate at a nearzero marginal cost will outcompete 20th century strategies. As a powerful strategic combination of biomimicry and hypothesis-driven Business Model Generation, Circular Design is one of the few approaches capable of dealing with a huge trend emerging in business design: While value chains have been the major economic phenotype of businesses in the 20th century, value networks are driving innovation and survival in today’s business ecosystem. Sectors, actors, and resources are increasingly interconnected and interdependent

Just like the natural world surrounding us, people, organizations, and markets are not mechanical systems that can be operated and controlled through linear approaches. Instead, they require an understanding of their operating principles and system dynamics. People, organizations, and businesses share remarkably similar features. People can only be motivated intrinsically and perform at their best if autonomy, personal development, and identification meet with a purpose. Likewise, organizations thrive best when self-management driven by peer relationships, networks involving all personal skills, and a grand company purpose converge. Finally, business solutions demand the involvement of all stakeholders, innovation based on functional requirements, and true value creation that goes beyond the actual product. Thus people, organizations, and economic systems can operate in a strikingly similar fashion. The “biologization” of organizations and essentially our entire world is a new stage of human and planetary evolution. This development builds on the growing linkages within the digital field, and increasingly causes the democratization of processes and the dissolution of system boundaries – boundaries that were never really there to begin with and only existed in our minds. Hybrid Thinking is a combination of the four most powerful approaches of innovation and change management: (i) Biomimicry, (ii) Neuroscience, (iii) Agile Design/Design Thinking, and (iv) Circular Design/Platform Business Modeling. It bridges gaps seen in most single innovation approaches, where viable transitions and a whole systems view are missing. Hybrid Thinking provides both an integrated toolset for innovation and change and a value set for sustainable value creation. It thus allows organizations to redefine

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their structures and processes with regard to their context, empowering them to adapt and survive in turbulent times. Hybrid Thinking is a catalyst capable of driving 21 st century solution design. It provides the mindset and toolkit necessary to manage our complex world. Driven by the prospects of disruptive innovation, it remains a magnet for solving design challenges in novel ways. By forging a positive instead of an adversarial relationship between business, people, and natural systems, Hybrid Thinking promises to be an economic gamechanger.

The times of “silo thinking” are over. Organizations will change. We will all will change. Only through collaborative and creative working methods, networks, and systemic approaches, will we be able to master the exponentially increasing complexity. A very exciting time of transformation has just started. A new era of human thinking, the age of “Hybrid Thinking”, has begun.

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Reclaiming Schooling „FUTURE SMART” Author: Csaba Mányai

TEDxDanubia founder and curator, speaker coach, transformative innovation designer, speaker. He works with leaders and organizations on redesigning systems in a future-smart way, avoiding disruption traps and designing break-through winning solutions in time.

„Education is the foundation of our future” “If you wanted to create an education environment that was directly opposed to what the brain was good at doing, you probably would design something like a classroom.” John Medina, a brain scientist wrote these words in the introduction to his book Brain Rules in 2008. But how could he come to such a conclusion? And why is it that we still build classrooms all over the world as the basic unit of infrastructure for education, when it might be so profoundly dysfunctional? This, however, is arguably far from being the only thing about education that does not seem to make much sense. Education is the foundation of our future, yet we seem to content ourselves with a global education system based on so many outdated and often dysfunctional principles. How can this be possible? As you might expect, a lot of thought and research has gone into answering these questions lately. And the most compelling answer emerging from this conversation is that the origins of our education system go back to the Industrial Revolution. In fact, they are rooted in Gutenberg’s invention of the printing machine and the exponential dissemination of knowledge that it provoked, but it was systematized by the Industrial Revolution. The system was designed to fit the conditions and the challenges of the industrial era. And although

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there have been a lot of variations and innovations, the fundamental system has largely remained unchanged. In contrast, however, the world around us, its conditions (social, technological, etc.) and its challenges have been changing quite dramatically. We are living through the era of an emerging techno-sphere, driving a continuously increasing pace of change and opening the doors to directed evolution. We see shifting power systems and transforming social dynamics, a complexity explosion driven by connectedness, and planetary scale impact of human behavior, just to name a few of the changes. This is why we experience an increasing mismatch and disconnect between developing real-life preparedness on the one hand and education on the other. This is also one of the major reasons why we experience a devaluation of the educational currency, diplomas. So it is hardly surprising that this is a much discussed and debated topic amongst educators. Rightly so. We badly need systemic innovation and reform, even a revolution. Parents, however, have largely remained spectators in this game. This matters quite a lot, because the question of an educator – and therefore the angle from which he/she approaches the issue – is quite naturally slightly different from that of a parent. The educator, when thinking about reform, asks “What do we do?”, “How do we do it?” and “How could we do it better?”.

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His/her exploration focuses on what function to perform in society and how, most often doing it in a systemic way. But a parent’s most immediate question is more specific. It is about individual children with individual stories. It is about how to best prepare him/her for life. So the questions from this perspective would become more like ‘What does preparedness for life in the 21 st century mean?’,

hypotheses built on synthesizing research, experience and common sense. They are here to be used, debated and experimented with, to be refined in an evolutionary sense. But they are also a way to start actually doing something about progress in a conscious and systemic way – and maybe figure out the truth too as we go along…

“What is the role, purpose and potential of school in a fitting preparation process?” and “How schools could best fulfill that purpose?”. And, of course, “How can we do something about it?”.

1. First, what is school for today? Although we primarily associate schools with education, they perform two other highly important functions as well, which may be – for entirely pragmatic reasons – even more important than education First and foremost schools perform child care. They take care of kids while their parents are at work. And the pragmatic importance of this cannot be overstated. Our whole socio-economic system is based on the social construct of jobs and salaries. Only a few can afford to stay out of the job dynamics, so it is overwhelmingly important to have a widespread network of reliable child care, so that people can work jobs. There are, of course, questions one may ask with regard to this function. Security, health, food, cleanliness, values and flexibility are all factors that a parent might want to consider when evaluating how well a given school performs in this regard. Second, schools perform a socialization function. They provide the

If we look at existing reality, parents have largely entrusted education to the education system. We, as parents, have conversations about it, but do not reclaim the power to actively shape it. We may hope for and await better solutions in the form of new and better schools or systems, and may even work on making it happen, but what do we do while this change is still to come? And systemic change does not seem to happen quickly and easily. Some people, of course, create their own schools, but that is not a viable or even sensible approach for most of us. So what then? I believe it is time we made a change. And that change starts with redrawing the map and reclaiming the understanding and power of creating preparedness for life in the 21st century. Redrawing the Map If we want to draw this new map, however, we need to revisit, consider and answer a few fundamental questions. 1. W hat is school for today? In other words, what functions do schools perform currently in society? 2. W hat does preparedness for life mean in the 21st century? 3. H ow can we develop and nurture that preparedness? 4. H ow does learning happen? What kind of environments and conditions support the development process? So let’s dive in. Let me offer you my answers to these questions. They are not intended to capture ultimate truth and they do not claim to do so. They are no more, and no less, than well-founded

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„going through school creates a set of shared expectations on how the world works” context for the child to learn how social dynamics work outside the family environment. What are the rules, the norms, the success and survival strategies? What is cool and what do we respect? How do we handle tension and conflict? Another important aspect of this is that going through school creates a set of shared expectations on how the world works, and a similar experience foundation of having gone through a more or less similar schooling process. These create a commonality (local, or even global), which helps us to connect and cooperate with each other. All this is characterized by the philosophy, values and practice of a given school. These create and define the culture of the school, which ultimately provides the context for socialization.

What you LOVE Passion What you are GOOD AT

Mission What the world NEEDS

ikigai

Profession

Vocation

What you can be PAID FOR

These two functions are so vital and so indispensable for our world to operate as we know it that any systemic reform concept of schools is bound to fail if it ignores them. This also explains why our school system might be highly functional and virtually impossible to change, even if it does not perform well with regard to creating preparedness for life. So we arrive at the third function, education. The key question about education is connected to its role and purpose. And that to me is about developing and nurturing preparedness for life in the 21st century. It is about fostering and supporting meaningful learning and development in a healthy and efficient way. So a starting point to untangle all this is the question at its core: “What does preparedness for life mean in the 21st century?” 2. What does preparedness for life mean in the 21 st century? Nobody really knows what exactly someone 15-20 years from now will need to know, or what professions will be sought after, or even exist. Preparedness in the traditional sense (targeted preparedness) has become a fast-moving target. So it is not a secure profession for life, nor even the ability to pursue a successful career in a given field that can

prepare a 21 st century child for life. Although such strategies may have been valid and justified for previous generations, those days are gone. Reference points and cornerstones are shifting. It is a constantly changing landscape with intricate and growing complexity, in which a vast number of new opportunities and dangers emerge almost continuously. Navigating such a new terrain is an entirely new challenge. It is more about finding individual paths, rather than following predefined highways efficiently. Such preparedness inevitably develops spontaneously to some degree, but most of education currently does rather little to meaningfully guide this process. So we need to aim for a more agile and flexible form of preparedness (agile preparedness). It is about the ability to combine financial independence or success with fulfillment, meaning and purpose. It is about the ability to dissolve the barrier between work that you do because you have to, and a private life that you have – ideally – because you want to. It is about being able to manage fluid structures and regular reframing. It is about developing the capacity for valuable and marketable contributions to business and society. It is about the ability to respond, react, and find or invent sensible

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solutions to new problems and challenges in a world that we cannot foresee, but whose contours (the tendencies and dynamics of its emergence) we can identify. As a consequence, the concept of preparedness must be based on a more holistically human perspective, beyond the functional: a “healthy” education or preparedness, above and beyond an “efficient” one. At this point, I would like to introduce a Japanese concept about preparedness that might serve as an interesting framework in which to think about such a more holistically human approach. Wikipedia defines Ikigai (生き甲斐, pronounced [ikigai]) as follows: it is a Japanese concept meaning “a reason for being”. Everyone, according to the Japanese, has an ikigai. Finding it requires a deep and often lengthy search of the self. So now our question morphs into the riddle of how we could translate all this into an actionable development framework or process.

3. H ow can we develop andnurture this preparedness? The underlying principle behind our thinking is the idea that such preparedness can only be “grown” rather than “manufactured”. It follows the logic of an organic process rather than an industrial one. So the right metaphor to use when thinking about guiding this development is that of a gardener. In much the same way as it is important

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for a gardener to consider water, nutrients and exposure to sunlight for example, we suggest identifying a few domains that are key drivers and components of a healthy development process: domains that describe an ecosystem of learning fit for the 21 st century. This map, however, is not a tool for planning or managing parallel threads in an educational process. These domains are intertwined and interdependent. Rather, it is designed to help parents to ask the right questions and reclaim control over the development process, and to provide a framework of understanding that combines consistency and structure with space for creativity and personalization – for parents and educators alike. In this way, it may also create a platform for constructive conversation and cooperation between parents and educators. Using the framework, as a parent, you can ask whether or not your schooling performs well, for instance, with regard to balanced brain development or core content. But it is not designed to give you a recipe for making them happen. That is a question to which schools, educational tools, schooling methodologies attempt to give specific answers. You can subscribe to any of these, or even design your own puzzle. All of the domains, however, describe vital pillars of the 21 st century development process. So it is important to consider how your school performs, or how your child develops relative to each domain, where the strong and weak points are, and what the key development goals and the emphasis may be in a particular period of development (or school year, if you will). Our framework, therefore, is not about giving you specific answers on what to teach or how to do so. There are infinite numbers of possibilities within each domain for that. It is rather a map that can enable you to understand, evaluate, guide, manage and improve your schooling portfolio to fulfill its purpose. You can also evaluate any particular educational tool (a class, a workshop, a method, an e-learning process, etc.) or a system (a school, a methodology, a national education system) by analyzing 1) what it offers / brings to the table in each domain, 2) how well it performs in each domain and 3) how

synergically these domains are combined and coordinated as an ecosystem of development.

development process, what the key development goals should be and what you could do about them.

This provides a framework for analysis, for indicators, and for management from the systemic level down to “ just” planning one particular educational tool. So you can explore how well your current schooling portfolio (in and outside school) performs, where the weak and strong points are in the

Development Domains Core Content Since more and more of our challenges and problems present themselves in new – even unexpected – ways, we cannot prepare for them in the old way

Sci-Tech Literacy

Core Content

Balanced Brain Development

Explorative Learning

Talent Lab Dynamics

Cooperation & Communication

Kelly 2nd grade

Core Content Explorative Learning

Sci-Tech Literacy

Focus Gateway capabilities: - Reading - Writing - Math - English

Focus Start teaching digital media consumption skills and habits.

Focus Existence of multiple points of views and alternative thruths. Intro to ‘Asking questions’ and ‘What we don’t know’. Play to build relationships with subjects.

Balanced Brain Development Focus Add more sports and dance. Need to pay attention to engage in ‘practical life activities’.

Cooperation & Communication Focus Ability to perform well in a community. (conflicts, cooperation, self control, etc.)

Talent Lab Dynamics Focus Introduce various fieldsof knowledge and activities in playful ways to see what spurs enthuisasm.

As an example, Kelly in second grade may have the above picture. Her school performs well with regard to “Core Content” and “Cooperation & Communication” (strong indicated by green) for this particular period, but falls short of expectations with regard to “Explorative Learning” and “Balanced Brain Development” (weak indicated by red). With regard to “Sci-Tech Literacy” and “Talent Lab Dynamics” we have considered the school’s performance as neutral (indicated by gray). We have also indicated key development goals in each domain based on our own educational methodology, circumstances and values. So this year we need to pay special attention to the red domains and find ways to augment them by engaging additional activities and educational tools.

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of learning the answers and solutions in advance. Rather, we have to be well prepared to figure them out. So the ability to find connections and patterns or meaning, to identify problems, and to design fitting solutions becomes key. For this to work, however, it is not enough to think or ask questions well. You also need a certain knowledge and skill foundation that can orientate and equip you: knowledge that can put you on a fast track towards solutions. I believe such a core-content foundation can be built by focusing on a balanced and meaningful combination of three categories.

Of course, you need to consider what in each of these categories you deem valuable or important, where you put an emphasis, and how you create a synergic and balanced combination between the three.

Orientation Knowledge

Gateway Capabilities

Navigation Skills

We need to master gateway capabilities through which further exploration and self-development are possible. Such Gateway Capabilities may be reading, writing, mathematics, languages, listening, storytelling, focusing, self-discipline or planning, all of which can give you access to new dimensions of information and exploration. We also need orientation knowledge. Specific skills and factual knowledge are still important, but their roles have changed. We used to understand them as sort of an “internal library”, but now they serve more as a springboard, which helps you to apply the appropriate pattern and gives you a strong start in the right directions. Specified information is searchable and floating around in abundance. The key is to have a strong foundation that helps you to make sense of and utilize this information space efficiently and meaningfully. The scale is wide, as you pass through phases of development ranging from a broader understanding of the world around us to specific expertise. Scientific Disciplines, Music & Art, Dance, Environment, History, Values & Culture (what our culture is about, what values we aspire to and why), Special Expertise and Vocations all fall into this category. 164

Finally, we need strong navigation skills. Navigation skills are about understanding how social and psychological systems work around us and acquiring the tools to manage and navigate them. From knowing how to commute in your locality to understanding the role and function of money, from economics to psychology, from entrepreneurship to “Good Life” Strategies (what we know about happiness, success, failure, relationships), from energy to war or peace, from using media to political participation, these are all examples of skills that enable you to navigate the complex reality of our society.

Explorative Learning and Solution Design The second domain comprises explorative learning and solution design. Its focus is on developing the aptitude and ability to enquire, to explore, to ask good questions and design new or apply already existing answers in a smart way. It provides an important dynamics to drive core content learning as a tool, but it is also a development domain of its own, because it is a highly valuable technique and capability that can be refined, developed and mastered. It is about cultivating a proactive, efficient, and confident relationship in dealing with the unknown. It can be developed by teaching through a Curriculum of Questions, by addressing and exploring what we don’t know and why, by infusing game dynamics and play in the learning process, by embracing challenge orientation, experiential learning and an experimental attitude (the culture of making good mistakes), by tapping into the spirit of adventure and discovery, and by teaching system design, multidisciplinary creativity and solution focus. Sci-Tech Literacy Sci-Tech Literacy is designed to address the challenges of the increasingly complex in.formation space and the digital, technologi.cal transformation. It is about getting comfortable and creative with technology and technological prog.ress, and also about developing a quality capacity for scientific, enquiring and critical thinking (which is not 165

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primarily concerned with specific knowledge of scientific disci.plines). The two are synergically connect.ed, and therefore they are best considered in one domain. These capabilities are vital in the era of fast moving, ever more dom. inant techno-sphere, algorithmized filter bubbles and information overload. They are the engines behind a healthy and efficient relationship with the new communication space, and vital for tapping into the new tech-driven opportunities and avoiding the pitfalls. One particularly important aspect of this domain involves developing digital literacy, spanning from at least a general understand.ing of coding (the language of computers and the digital world) all the way to healthy digital media consumption habits. But critical thinking, reframing skills, pattern recognition, scientific experimentation, or data and infor.mation management all belong in this domain too. Finally, it is also very much about at least a basic understanding of technological (and scientific) trend projections with their possible implications. Balanced Brain Development The brain best functions when it is stimulated in a variety of ways. So the efficiency of a development process is well served by balancing different types of cerebral engagements. Creativity and art, music and dance, sports and drama are not only important in their own right, but also because they engage the brain in different ways, thus dramatically increase the progress and potential of the more intellectual parts of the learning process too, and can fundamentally change the potential for talent discovery. In other words, a smart and dynamic balance of imagination, movement and thinking is a requirement for healthy development. So beyond the traditionally more dominant intellectual aspects of learning, a conscious effort is needed to infuse other aspects as well. A good start would be to think in terms of three categories when planning what other things to include: Practical Life (from lighting fire to bio-hacking, from cooking to building structures etc.), Art and Imagination (from drawing to singing, from poetry to acting, etc.), and Physical Movement (from tying knots to working wood, from sports to dance, etc.).

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So it is about consciously adding selected activities in each of these categories to your schooling portfolio (if missing in school), in order to make sure that the development process stays healthy and balanced, and retains its vitality. Cooperation and Communication Skills In our ever more connected world, almost nothing happens in isolation. Almost every challenge we face or may face in the future requires from us a strong ability to cooperate and communicate. These skills are fundamental components of preparedness in the 21 st century. We live closer together than ever, we are more connected than ever, and we depend on each other more than ever. So it is important to consciously develop these skills on both a strategic and an operative level. It is about group dynamics and building on collective work, projects, challenges or exploration. It is also about consciously developing practical skills in communication and negotiation, listening and resolution, presentation and storytelling, or debate and constructive conflict management. Finally it is about nurturing empathy and developing a healthy measure of social and environmental responsibility.

„Life in the 21st century is increasingly characterized by creating personal and individual paths in an increasingly “jungle-like” world” On a more strategic level we can develop the capacity for positive sum game design, collaborative strategies (from work to consumption, from innovation to problem-solving, from financial solutions to scientific research) and collective intelligence techniques. Talent Lab Dynamics Life in the 21st century is increasingly characterized by creating personal and individual paths in an increasingly “jungle-like” world, even if this is balanced by ever more tightly shared destinies. Individual paths, however, cannot be discovered simply by following

predefined highways efficiently. So the ele.ments of discovery and customization play a key role in a healthy development process. In real life, however, time and resource constraints translate into a limitation that precludes having or developing everything, and special attention can only be devoted to a limited number of development areas. So it is important to focus on individual talents and build customization dynamics into the schooling portfolio. To be extremely practical, we could define talent simply as a unique combination of strengths, weaknesses and interests. And we need to consciously design activities, tools and processes to help surface, identify and nurture these unique combinations as a vital pillar of our schooling portfolio (in or outside of school). It can also provide a very powerful reference point in deciding what specific subjects, challenges and capabilities to focus on within the various domains. These domains can provide a map and a framework for understanding how to drive development, what to expect from schools and educational tools/ services, and how to design your own schooling portfolio. Once again, there is an infinite number of variations of specificity within each domain, but a healthy development process needs to address

and drive development in all of these domains. Using this framework, you can evaluate how elements of your schooling portfolio (including the school itself) perform, where the weak and strong points in the development of your children are, so you can reclaim control and the power to consciously shape the journey. Our map, however, is not yet complete. There is one more thing to consider. The context in which development happens is just as important as what needs to be developed. 4. H ow does learning happen?What kind of environments and conditions can provide a Nurturing Context? Learning is most meaningful and efficient when it happens as an organic growth process. But even if we fall short of that, learning always happens in an emotional and spatial context characterized by relationships and experiences. And this context serves as the soil from which the seeds of talent can grow. There is a whole host of literature, research and data available out there on how learning happens, and how we can best support or guide it. One point on which all seem to agree is that learning is embedded in and shaped by emotions, relationships and spatial experiences.

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So it is not only the nature of the teaching and the guiding that is important, but also the nature of the context in which they happen. This context can be anywhere from nurturing to paralyzing or destructive, and may determine the health, the efficiency, and even the direction of the whole development process. We can learn from those whom we love, and we can learn from those whom we fear, for example, but they are very different kinds of learning, with different kinds of results, even if the content is the same.

Thus we end up with a map showing how best to support and nurture development by creating an optimal emotional and spatial context for the process. Again, the best way to design, create and manage such an environment, the key points where the emphasis and focus are, may vary by methodology and individual cases, but such a framework can enable you to ask the right questions and help you to evaluate and improve the learning environments for your children. So where does all this leave us?

To make this a little more tangible and manageable, I suggest assigning three different characteristics to learning environments to assess their nurturing power. This way any learning environment can be described by a particular combination of these characteristics: Caring, Developing and Inspiring. Caring refers to a loving, supporting, guiding and understanding atmosphere, providing safety and positive emotional charge. Developing is about fostering focus, self-discipline, goal orientation, resilience and grit as a means to progress. Inspiring means building on the power of curiosity, challenges, visions and adventure to spark internal motivation, and the finding of meaning and purpose as the engine at the core. Of course, successive phases of development require a shift in the balance between the three. And although individual cases may vary, there are general guidelines as to how the balance can shift to support development as we move along. The relative emphasis is on Caring during the first phase, on Development during the second and on Inspiring during the third. It is important that we talk about RELATIVE emphasis, since all three phases require an optimally balanced mix of the three. You can apply this pattern to one particular development process or to the more general development process spanning from early school to high school and university. In addition, the nature and the governing dynamics of each characteristic changes with the successive phases: 1 st Phase 2nd Phase 3 rd Phase Caring nurturing supporting guiding Developing fundamental systemic specific Inspiring relationships exploration curiosity

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I believe the ultimate conclusion is that we all need to engage with the idea of figuring out education and stop leaving it just to professionals. It does not, of course, mean that we suddenly become experts on the subject, but we all are stakeholders, and we all have a very personal and vested interest, so we should ask good questions and explore viable answers. We may hope that systemic infrastructural change of the education system is possible and on its way (we should even work on making it happen), but we should also keep in mind how hard and slow such a change may prove to be. So in the meantime, we need to think of things that we can do, ways of “hacking” the system, and ways to reconfigure already existing elements to create both actionable solutions in the short term and an organic, selfamplifying, emergent dynamics towards systemic change in the long run. It all starts by embracing the responsibility of mapping, understanding, evaluating and designing development journeys and performance against its purpose. Based on such a map and understanding, we can more consciously search for and choose schools, design development programs (whether personal or professional), ask questions from and cooperate with teachers (instead of simply demanding performance and feeling entitled to know better and intervene), and even help to build better relationships between parents, teachers and children. So it is about reclaiming the sense and power of navigating, designing and augmenting the specific learning journeys that matter to us most, and – in doing so – little by little reshaping education in an evolutionary way.

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Parag Khanna

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Parag Khanna’s lecture at Corvinus University of Budapest

Parag Khanna’s lecture at Corvinus University of Budapest on 16th March, 2017, as part of the PAGEO Geolectures series

We were discussing earlier who are the voices in geopolitics that we read and are learning from: from the new generation, from our generation, from, hopefully, your generation, because there are not enough new approaches to geopolitics; people think of it in many ways as just studying history. But it’s not; it is as dynamic, and as changing, as fluid as ever in history. So, I hope to contribute to encouraging you to stay with this field and to develop it, to put the ideas into practice. Let me begin by presenting some of the major ideas that relate to this idea of Connectography. Connectography is not a world you will find in the dictionary, maybe next year, but not last year, because I invented it. I did so precisely because I think that the younger generation has to have a new approach in which geography is not thought of as a static thing. When we think of geography, we think of forces that are immovable: continents, oceans, we think of time in this geological scale. And those changes therefore, again, are very long-term and driven by the past. Today the world I think is changing very-very rapidly, so I want to show you some of the maps and images that convey that line of reasoning. The first is a map of the world infrastructure networks. This is all of the world’s transportation networks, like highways and railways, and bridges and tunnels and so forth. It’s also all of the energy systems, the oil and gas pipelines, the electricity grid. And I’s also the communications systems, the internet cables and so forth. If you take these three layers of infrastructure, these are the physical embodiments of connectivity. To connect from one place to another place, from one person to another person requires some physical infrastructure. But most of our maps don’t show us that. Most of our maps just show us countries and borders. They show us dividing

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“it requires us to rethink our maps” lines, they don’t show us connecting lines. But these lines are real. They are more real than most borders are. Most borders are actually invisible, whereas these lines are real, physical, tangible lines that we built: your government built them, all the governments in the world, all the companies in the world built these lines. And they are used to connect us but most of our maps only show us the lines that divide us. I think it’s not just an intellectual mistake, it’s not just a normative mistake; it’s an actual physical mistake. If you map over time, especially the last one hundred years, fifty years, just the last twenty-five years, there has been enormous acceleration of the building of this connective infrastructure. I believe it is literally re-organising human society. We think of human society as being inherently divided into nations and boundaries, and the basic unit of the world is the national unit. I believe that in this world that we are moving into the natural unit, the most effective unit, the most important unit will not be the bordered country but he connected city. And that is coming about as a result of all of this investment in connectivity across our geography, and it is that fusion of connectivity and geography that gives us connectography. It is, in my opinion, the most powerful, the most revolutionary force in the world today. Again, it requires us to rethink our maps. We are traditionally accustomed to see maps of natural geography and maps of political geography. In the classrooms of this university, I bet that most of the maps are like this. And sometimes your maps are like this. Have you ever had a map like this, in your classroom? No. That’s the problem. I am on a mission that I want every map in the world replaced with maps

of connectivity rather than maps of division. Or, to be more fair, I believe that if you want to properly understand the world of the 21st century, you cannot look only at this (political) map: this only tells you the legal relationship between two countries, and the size of that country. That’s it. It does not tell you how the world works. If you look at a topographical map, it just shows you nature. It doesn’t show you how we use nature. And if you look at only infrastructure, it just shows you what we’ve built but it doesn’t show you what impact it’s having on the rest of the world. So, I believe that in the 21st century you have to learn all three kinds of geography: natural geography, political geography and functional geography, if you want to properly understand what’s happening. There is another kind of map that I think is much useful for understanding the 21st-century world than our traditional maps. This is a map that captures a few different things of the same time. The first is demographics. Tell me: do you have a map in your classrooms that shows you where all of the people in the world are? No. Do you think it’s important to know where the people are? Yes! So, this is a map

that actually shows you something very useful, because every one of you is on this map as a pixel. There are eight billion pixels on this map, and every one of you is one of those pixels. So now, for the first time, you can actually see where the people are. And it tells you some very important things. The most important thing about how we organize ourselves in the world is not whether you live in a country with natural boundaries and a sense of national identity. The most important thing for all people in the world is to live near water. Because that’s what we always did. For sixty thousand years, the most important thing is that we, humans need to be near water. We don’t have to live in countries, we don’t have to have national sovereignty in boundaries, we don’t have to have armies, but we need water. Most of the world lives near bodies of water: oceans, rivers, lakes and so forth. The other thing that’s very important is to see that most of the world population lives now in Asia, not the Western world. We’ve been accustomed to thinking of the world is being dominated by Europe, by the United States. But for the rest of your lives, the next hundred years, the world population will peak and it will probably reach maximum ten billion people. So, one day, in the year 2040 or 2045, you will all open the newspaper and on the

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“in the 21st century you have to learn three kinds of geography: natural geography, political geography and functional geography, if you want to properly understand what’s happening.”

front page there will be an article and it will say: ‘the wold population has peaked, and now it will begin to decline.’ But even as it declines, most of the world’s people will be here, in Asia. I didn’t put borders on these particular maps, instead what I’ve put are these ovals. On your political maps, your normal map, you just see every city as a dot of the same size. Budapest is one dot, Mexico City is one dot, New York is one dot, London is one dot, and all of the dots are the same size. in the real world. Cities are not of all the same size. Some cities have tens of millions of people. In the Pearl River delta in Southern China, there is a cluster of cities together. It starts in Guangzhou and goes down to Hong Kong. It’s one integrated region, there are trains and highways, it is very-very dense and connected. By 2025-2030, the population of that cluster will be about eighty million people. What’s the population of Germany, the largest country in Europe? Eighty million people. Then, the economy of just that area will be about 2 trillion dollars, which is the economy of all of India with more than one billion people. So, what matters in this world? Is it just how big your country is, how many people you have? Or, is it how dense is your city, how much

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economic activity is in your city, what is the skillset of the people in your city, how connected is your city? What matters more? The truth is that it is the degree of connectivity, the kind of density, the quality of the economy that matters a lot more in the real world, in today’s world than just being big. Congo is big, is Congo important? Sudan is big, is Sudan important? No. These other factors matter a lot more. So, there are about fifty of these urban clusters that are more important than other ones. They are the places with the most people, the most economic activity, the real hubs for entire regions. Again, you can see that most of the world’s megacities are in this Asian space, particularly in China, in India, in Southeast Asia. Now, one time I showed this map in Australia and people said, ‘Oh, no! Where are we, where’s Australia?’.

did the Soviet Union think? How do empires think historically?’ You would say, ’they want to grow bigger. They want to conquer their neighbours. They want more territory. They want more resources.’ But cities think differently. if you ask the mayor of New York, the mayor of London, of Dubai or any other city, the mayor of Budapest what do they want, they say, ’I need more connectivity. I need more flights

to connect from here.’ Then, they are saying, ’We need our stock market to merge and to connect to other countries’ stock markets and to get more investment. We need more railways to connect so we can export all the cars that we make in this country.’ In traditional geopolitics, a country says, ’I want to expand, I want to conquer’. In the view of the world where cities are making big decisions that shape national policy they are saying, ‘We don’t want territory just for the sake of territory; we want connectivity to enhance our economic position, to bring in money, to bring in education, to bring in opportunities and so forth.’ The future is really an inter-urban civilisation. So, geopolitics looks very different. The conflict in the 21 st century is much less about territory. There are still obviously wars of territory. You have a neighbour called Ukraine so I am sure you know that territory still matters. But how many wars, international conflicts are there right now in the world today? Just a couple, and those matter but that does not tell you everything about how the world works. But what is happening every day, every week, every month, 365 days a year, is that countries are competing and cities are competing for connectivity. That’s what matters every

I said, ’Don’t worry. It is not a bad thing if you are not a megacity of fifty million people.’ But Sydney is one of the most important economic hubs in the world anyway. So, it’s not just about size, it’s about density, connectivity and activity. This is about fifty of the most important economic centres of gravity in the world. If you think about traditional geopolitics, and if I ask you ’How does a country think? How

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created by America, and the purpose of this agreement was to isolate China. Instead, three years later, America did not show up and China showed up. So, did America win? Obviously not. you only win in this world if you are connected. The most connected power wins, not the one that does not show up. You can’t isolate anyone anymore. You can only influence by being connected. There is another negotiation called the Regional Comprehensive Economic partnership – that’s a lot of Asian countries that are getting together. America thought that it could convince some countries to join the TPP, America’s agreement and exclude China. But in fact, all of these countries are simultaneously negotiating with China in this other partnership. What’s the moral of the story? Smart countries, like Australia, Singapore, New Zealand, Thailand, always play both sides, never pick just one side, in a world where being more connected is how you win.

single day. You don’t have to worry every day that your country will be conquered. You have to worry every single day that a city nearby or the country next door is going to lower its tax rate, it is going to steal jobs and supply chains, that manufacturing will shift over there, that investment will move over there. That’s what countries have to worry about every single day. And that is war – it is not military war, but it is economic war. I call it tug-of-war. It’s a tug-of-war to control global supply chains and value chains because if you control global supply chains, if you are the centre for the production of oil and gas, if you are the centre for manufacturing, if you are the entre for the development of digital goods and software, then you are powerful, then you are rich. If

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you look at some of the trade negotiations that are going on, you may have been hearing that the TransPacific Partnership between western hemisphere, between the United States and Canada, and Asian countries, that fell apart because Donald Trump said he does not want the USA to be part of the Trans-Pacific Partnership. But what happened was that yesterday and today, in Chile, in Santiago, all of these trade ministers got together. All of these countries that were part of that negotiation got together in Chile, but America didn’t come. Instead, China came. America said, we don’t want to be connected in this trade agreement anymore, and China said, ‘Oh, America is not coming? We will go.’ So, there is the irony: this was an agreement that was

Now let’s go back to Asia. What’s been happening in the last 25 years-27, since the collapse of the Soviet Union, all of this space is getting more and more connected. Hungary joined the European Union in 2004, but ever since 1989 Europe, the European Union has been gradually expanding from West to East. You receive structural funds and investments from Brussels, you have been modernising your infrastructure. All of the countries, Romania, Bulgaria, the Balkan countries, the Baltic countries are all joining or joined the EU, all are modernising their economies, all are becoming members of the European Union, and now there are better railways connecting from West to East, all the way to Turkey. For the last 25 years, China has been doing the same thing going, not from West to East, but from east to West. The interesting thing is that China has more neighbours than any other country in the world: China has fourteen neighbours. That’s a lot of neighbours; that’s a lot of potential conflicts. Any country you share your border with potentially you could have a conflict with. So, China has a very-very powerful military but it does not want to fight wars with all of its neighbours – otherwise it would have done that by now. Instead, what it’s doing is doing the same thing as Europe has been doing: it’s building infrastructure. It’s doing that because instead of fighting war with them, it wants to control their supply chains: it wants to import raw materials: gas from Myanmar, resources

from Pakistan and from the Middle East through Pakistan, there are pipelines through Turkmenistan and Kazakhstan to the Caspian Sea through China and of course through Russia – oil and gas deals, fixing the Russian railways. China is investing in all of these things with all of its neighbours so that they can not only import raw materials and commodities from the Middle East but also so they can export more rapidly to Europe. Couple of years ago China announced the creation of the Asian Infrastructure Investment Bank (AIIB). At the time, the United States under Barack Obama did not like this institution. They said it is a very bad idea, it will undermine the World Bank, it will not follow world standards, this is a sort of geopolitical plot. The Obama administration called up all of the leaders of the European countries and urged them not to join that Chinese bank. The European countries, however, joined the AIIB. There are 70 members now in two years that quickly joined this Chinese bank, because the purpose of this bank is to connect Europe and Asia. This is the world’s largest landmass. Most of the world’s population lives on Eurasia. Of course, you want it to get more connected. That is how you will maximise the opportunity of growing economic relations across this space. The countries of South Asia are poor and underdeveloped, post-colonial countries. The countries of Central Asia and of the Caucasus are poor former Soviet republics. All of them want this infrastructure. Why would they not join a bank that’s going to finance all this infrastructure? Of course, they will. But it is also a geopolitical plot; this is how China shapes and even dominates some countries without having to use any tanks, warplanes, or bombs. Instead, it sends tractors, cranes and trains. It doesn’t send troops – it sends construction workers. And step by step, month by month, project by project – electricity grid, hydro-canal, dam, highway, bridge – and one by one, it shapes these countries’ supply chains. It doesn’t change the government; it doesn’t invade them in the way as America invaded Iraq. It just reshapes their supply chains and economies, and uses them as a passageway to export everything that it’s producing more efficiently to Europe. And that is ultimately mutually beneficial. Right now, there is a lot of talk about protectionism. The Trump administration wants to put up walls, physical walls, raise tariffs, introduce border

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adjustment taxes, taxing imports coming into the country. Some people believe that this is going to be very bad for globalisation, globalisation could reverse, there could be trade wars, and so forth. I want to show you the data that contradict that because that is a false analysis. The truth is that because of all of this connectivity between all of the continents of the world, every part of the word is getting so much more connected, physically connected; and then there are new trade agreements, new institutions enabling and facilitating the flow of goods, the flow of people, the flow of money, the flow of data. Entirely new patterns of trade are developing, where the United States is not at the centre; in fact, China is already the No. 1 trading partner of 124 countries. For 52 countries in the world, the United States is the top trading partner. So, no matter what Trump does, how will it undermine or change the ways all these other countries are trading with each other? It won’t. If he raises taxes, so that one country’s exports to America will slow down, those countries will export to other countries. And you can see that’s exactly what’s happening. The United States and Europe actually trade across the Atlantic Ocean 1 trillion dollars per year. Now, for many-many years, the United States and Europe have been in the tightest and largest trade relationship in the world. But now let’s look at what’s happening across these Silk Roads across Eurasia, in Europe and Asia. The EU-China trade is 400 billion US dollars per year, the EU-ASEAN trade is about 200 billion US dollars a year, the EU-Japan trade is 150 billion dollars a year, the EU-India trade is 100 billion dollars a year… I left out Australia, South Korea, but if you add it up Europe’s trade with Asia is about 1 trillion dollars a year – probably more. And that is before all of these Silk Roads are even built, before Europe is really well-connected to Asia and before Europe has any free-trade agreement. It’s with good reason that Hungary is very enthusiastic about connectivity, about getting on the Silk Roads, about having the transportation corridors built to Hamburg, to Piraeus Port in Athens, in Greece, eastward across the Black Sea, and so forth. The more connected your country is the more you’ll be part of these flows. And the

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way to succeed, the way to become wealthy is to be more and more connected. And the same thing is happening with every other part of the world. Africa and South America did not use to have a lot of trade – now they do. Asia and Africa used to have very little trade – now just China and Africa alone have a trade of 400 billion dollars. Asia trades more with Africa than the USA does, and maybe in ten years‘ time Asia will trade more with Africa than even Europe does. Who knows? Because they have complementarities. Africa has resources, Asia is building lots of things and has billions of people that are consuming them. Geopolitics is driven by these complementarities. If you come from my generation you are taught that geopolitics and alliances are these bonds between countries that are shaped by values, by Western values, certain civilizational values. And that is partially true. Alliances and geopolitics are not the same: alliances are actors within geopolitics. But at a deeper level geopolitics is shaped by complementarity: who has supply and who has demand? And that is what’s changing the entire world in this multipolar direction. I want to talk a little bit more about the role of China because the way this country has become a superpower is through this connectivity. China has not always been a superpower, much of China is still very poor. 40-50 years ago, was a very-very poor, peasant society in the grips of the cultural revolution, “the great leap forward”. Only in 1979 they started to establish these little special economic zones for trade to attract investment so they could start to manufacture things. The first one was Shenzhen in 1979. we’re coming upon the 40th anniversary of Shenzhen, and that is exactly those forty years that China went from becoming a poor and backwards peasant society to being a superpower and the world’s largest economy. How did it do it? Did it do it because it built ten thousand nuclear weapons? No. Did it do it by building fifteen aircraft carriers that are sailing around the world and patrolling the oceans? No, because China only has one aircraft carrier, they just bought it a couple of years ago. So, that’s not how China became a superpower. China became a

“The more connected your country is the more you’ll be part of these flows. And the way to succeed, the way to become wealthy is to be more and more connected.”

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parag khanna: CONNECTOGRAPHY

demand. There are three chokepoints in the world of shipping, three areas where if there is a blockage, a terrorist attack, a war or closure then goods would stop flowing. That is the Suez Canal in Egypt, the Straits of Hormuz between Iran and the UAE, and the Straits of Malacca, just between Singapore and Indonesia. We’ve always feared in geopolitics that if there is again any disruption here, in these three, there will be conflict. But in the world of total connectivity that means is if there is a disruption here, what about just going over the Arctic routes? Because of the climate change now the shipping lanes are open over the

superpower because in 1979 it created a little special economic zone called Shenzhen and then created more and more of them. And then more companies started to invest there, and eventually, instead of having to import everything they started exporting lots of things. And suddenly, people started to say in the 1980s, the 1990s, that China is the world’s factory floor, they are making everything. And now everyone has a trade deficit with China, they have a surplus. China took those trade surpluses every year and started saving it in their currency reserves. They built four trillion dollars’ worth of currency reserves and now start to export that money, and use that money to build infrastructure for other countries, to build highways, railways and pipelines to feed the economy. They invest in Britain, Germany, France, Portugal, Italy, Luxembourg, Hungary. One of the biggest beneficiaries is Germany because Germany has one of the most high-tech economies in the world. China’s started out low-tech, with toys and mechanical things that break after five minutes, but now China’s doing semi-conductors, Huawei phones, solar panels, wind turbines, high-speed railways, aeroplanes, the world’s fastest computers, the largest volume of gene sequencing machines. They are getting rid of the low-end stuff, they are giving it to Bangladesh, Indonesia, Africa, and they try to keep the high-end stuff. What do you do if you have four trillion dollars and you want to control the expensive, lucrative value chains, if you want to compete with Apple, if

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you want to compete with Siemens? You have to start buying German companies. And so, starting in 2014, 2015, China said, ‘let’s start spending money in the most sophisticated economy of the world, in Germany. All of that is about moving up the value chain. What odes a country want? Does it want to conquer its neighbours or does it want to be a sophisticated economy with wealthy and productive people? I think what most countries want is the latter. Most of the world’s border disputes are actually settled. It’s really about moving up the value chain and using industrial policy and investment leverage to move up the value chain. This world is becoming so thoroughly connected infrastructurally, but that doesn’t mean that geopolitics is going away. Infrastructure corridors can be the pathways for conquest. If you want to control the supply chain, sometimes you have to go in and to stabilise that supply chain. So, in all of these places where China has these big investments maybe one day, maybe already, there are Chinese troops there. And of course, China is so well-connected physically to all of these countries now. This is not necessarily an argument about connectivity leading to peace. Connectivity can be the pathway for conquest. But in some ways connectivity creates a world that I think is a much better world, a more resilient world. And that is because you have multiple pathways for the supply of something to reach the market, for supply to meet

Arctic for an increasing number of days every year. And it’s faster to ship goods from Hamburg and Rotterdam over the Arctic through the Behring Strait to Asia than to go through the Mediterranean. Or, what about going overland through the Silk Roads if you are shipping cars, goods and other things. So, giving you another specific example: ten years ago, there were lot of concerns that the United States and China would fight a war to control the oil of the Middle East. But ever since that time, two things have happened: no.1 is that America has discovered shale gas and shale oil, so America has become the largest oil and gas producer in the whole world. And in fact, it exports oil and gas to Europe and exactly one year ago America started exporting oil to China. Instead of fighting, America is just selling oil to China. Isn’t that a better solution? No war for oil. In geopolitics, we are always concerned about war over resources, but there is no reason of a war over oil when you just sell it. So why fight when you can trade? So, I think that connectivity is a source of resilience. In the end, you come up with not a map but maybe a diagram of world power, of world relationships. If you put together all of the factors I have been talking about, it looks like this. First of all, every region of the world, every continent in the world matters. We didn’t always live in that kind of world. Think about the European colonial era: the world was hierarchical, Europe controlled everything. Some parts of the world didn’t matter at all for decades and decades. Today, it’s different: every region is participating in this network. And that’s the second thing: not only is every part of the world important, every part of the world is connected to every part of the world. There is no power at the centre. In the 1990s, we asked ourselves, ‘now, that the Soviet Union is gone, America is the only superpower, what system will come next?’ I think this is what the future

is already starting to look like. Every continent matters, every region matters. In each region, some countries are matter more than others. America is not at the centre, it can’t dictate everything, but it’s certainly the most important power in North America and it has very strong linkages to other regions. But all the other regions also have strong linkages to each other. So, the world doesn’t look like a pyramid – one power at the top, everyone else below; it looks like a spider web, a network structure because every region matters, every region is negotiating and making its own deals with every other region. At that means actually a very stable structure. A lot of times in geopolitics people find it simpler: it’s just easier if there is one number one.

“But the world is not simple, the world is very complicated, very complex.” But the world is not simple, the world is very complicated, very complex. The world will not be so simple. The world becomes more complex and we have to appreciate that, we have to appreciate that connectivity, regionalism, and these other forces that are really shaping the world much more than our traditional geopolitical theories that are built primarily on just territory, size and military power. I think this a more stable world because I described it earlier as a spider web: there is actually stability to that structure. This is the way the world is becoming. No matter what some countries do or don’t do because it is connectivity that’s making the world this way and connectivity is that revolutionary force that we all want, we all crave, we, as people, cities and countries, regions – everybody wants connectivity. The more you invest in connectivity the more you inevitably build the world that looks like this. So often in the day-to-day headlines we worry about that one event, that one black swan, that one Brexit, that one election of Donald Trump as if it’s going to throw globalisation in reverse, make globalisation stop, be a spark that cause World War III. I don’t think that it is that actually going to happen. There will be lots of tension in the world, there will be lots of conflict, there will be lots of struggle to control resources, economic power and so forth. But it is a very different kind from previous generations and connectivity is the reason why it is so much more complex, but ultimately also so much more stable. 181

HOW TO RUN A COUNTRY IN THE 21ST CENTURY?

Author: Parag Khanna

Parag Khanna is a leading global strategist, world traveler, and best-selling author. He is a Senior Research Fellow in the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is also the Managing Partner of Hybrid Reality, a boutique geostrategic advisory firm, and Co-Founder & CEO of Factotum, a leading content branding agency.

THE SECRET TO SUCCESS Rarely is a national elite so tough on itself—and yet if any country deserves to pat itself on the back, it’s Switzerland, which sits at or near the top of nearly every global index of wealth, competitiveness, quality of life, innovation, and many other indicators. But Switzerland’s cardinal virtue is self-reliance. Precisely because it is small and vulnerable, it has been fiercely protective of its independence and neutrality throughout Europe’s turbulent centuries. It was home to the League of Nations in the early 20th century and hosts the second headquarters of the United Nations—but only actually joined the UN itself in 2002. It sits in the middle of the European Union, but will probably never join it. The rallying cry I heard multiple times at the 2014 retreat was “Integrieren heisst verlieren!” (“To integrate is to capitulate,” or more colloquially interpreted: “Integration is for losers.”) The strategic paranoia that animates Swiss leadership is shared by at least one other country— the one chosen as the special guest nation at the 2014 Alpine gathering: Singapore. Switzerland and Singapore are the only two countries in the

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world that rank in the top tier across all the following indices that suggest having a real plan for the future: The WEF’s Global Competitiveness Index, Infrastructure Quality Index, and Sustained Prosperity Index, INSEAD’s Global Innovation Index, and the World Bank ’s Government Effectiveness Index. These two small states have become global standard bearers for health and wealth, low corruption and high employment.

On the surface, few countries could seem more different than Switzerland and Singapore. They are both roughly shaped like horizontal diamonds and have red-and-white colored flags, but the similarities end there. Switzerland is a 700-yearold European democracy while Singapore is an Asian technocracy that turned 50 in 2015. Switzerland is the epitome of bottom-up democracy: Local plebiscites influence even strategic national decisions; the national interest cannot deviate from the popular will of the people. Switzerland is so decentralized it does not have a president (or head of state), but rather a Federal Council of seven members whose chairman rotates each year. (Most citizens cannot name even three of the seven.) Singapore, by contrast, has become synonymous with top-down, government-knows-best rule. Policies have historically been designed by technocrats outside of public scrutiny. Singapore’s founding father Lee Kuan Yew micro-managed the country for 40 years, and his son Lee Hsien Loong is the current prime minister. (Everyone knows their names.) Even the aesthetics are opposed: Switzerland

is mountainous and landlocked; Singapore a tropical seaport. Singapore is a city-state; it is 100 percent urbanized. By contrast, one third of Switzerland’s population is rural; the country is famous for snow-capped mountains and cows. Singapore’s skyline features glistening corporate towers, while Switzerland’s tallest building (the headquarters of pharmaceutical firm Roche in Basel) scarcely reaches forty stories (still far shorter than the country’s tallest dam). So which is the ideal system for a complex and fast-changing world? In which direction should today’s haphazard Western democracies reform: Swiss-style popular democracy or Singaporestyle strategic technocracy? What model should post-authoritarian or newly democratic societies pursue: Swiss-style organic economic diversification or Singapore-style managed innovation? The answer is both. Having lived for stretches in both these small countries, I’ve come to see that despite their enormous differences, what matters most is that Switzerland and Singapore

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are small countries with vastly different histories from America. There is no one universal political model for the world, but all large countries could evolve towards better governance by studying Switzerland and Singapore’s marriage of democracy and data.

The search for an ideal state form best suited to the times is not an idle philosophical exercise but a recurrent necessity. Today most governments lack the capacity to do anything more than react incoherently to events. America’s financial wiz-

Over the past seventy years, scholars have endeavored to identify the regime type best suited to the conditions of the times. In the early 1940s, Yale political scientist Harold Lasswell hailed the rise of “garrison states” such as America and Japan, where elites governed the militaryindustrial complex necessary to prevail in World War II and the Cold War. But strength alone is insufficient to delivery security and prosperity.

ardry both caused its financial crisis while also bailing itself out from it, but beyond the numbers the human cost in social dislocation, deferred retirement, and loss of national morale has been devastating, a major contributing factor to the rise of Donald Trump. Then there are the growing risks of geopolitical confrontation and cyberwar, transnational terrorist and criminal groups, economic competition and protectionism, climate change and natural disasters, and technological disruptions to our everyday way of life. No society can let its guard down for even a second.

Today the only countries we call “garrison states” are nuclear-armed failed states like North Korea. As Cold War barriers dissolved, attention shifted towards how to capitalize on the onset of a truly global marketplace—a world of geoeconomics over geopolitics. Harvard Business School professor Michael Porter argued that achieving competitive advantage required building strategic clusters of industries to attract investment. Concentrating production, building interdependence, and investing in human capital—rather than expanding territory—would lead to the rise

A NEW STATE FOR A NEW ERA

are both verifiably democratic and rigorously technocratic at the same time. They both have a high percentage of foreign-born populations, national military and civil service, strong linkages between education and industry, diversified economies, and massive state investment in R&D and innovation. A hybrid of Swiss direct democracy and Singaporean technocracy—a direct technocracy—is the superior form of government

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for the 21st century. Indeed, if Plato were alive today, he would select the educated and activist Swiss populace as his ideal citizens and Singapore’s rigorously trained technocrats as the chosen “Guardians.”

Having it All: The Best Countries to Live in. Only Switzerland and Singapore rank in the top ten across a wide range of measurements of quality of life and good governance.

A hybrid of the two would be world’s most boring but effective regime—precisely what every country should aspire to. It does not matter that these

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of what UCLA and Harvard economic historian Richard Rosecrance in 1996 labeled the “virtual state” or “trading state.” Extending this emphasis on the economic over the political, Philip Bobbit, in his masterful Shield of Achilles (2003), traced the emergence of the “market state” era in which the maximization of individual commercial opportunity defines power and success. Lastly, business strategist Keniche Ohmae, in his book The Next Global Stage (2005), argued that urban agglomerations of city-states resembling the medieval Hanseatic League would become the world’s power centers. The search for an optimal state form continues into the information age—and it should logically be called the “Info-State.” The info-state is an evolution and modification of these earlier models. Whereas Ohmae’s model operated on

“the more democracies there are, the more they give democracy a bad name.” just-in-time cycles, like Japanese corporations, and Rosecrance’s was disaggregated like a laptop manufacturing supply chain, 21 st century infostates don’t fully trust the invisible hand of the free market. Instead the public and private sectors join forces to develop strategic economic master plans to maintain their edge. Switzerland and Singapore are geographically small, but their ability to concentrate and harness flows of money, goods, resources, technology, information and talent makes them gravitationally large. Their economic geography matters as much as their political geography: Indeed, they define their geography by their connectivity rather than just their territory; their supply chains are as important to their map as their location. At the same time, while they are the archetype of open economies, they also have fortress-like elements, always vigilant to control migration and filter out financial contagion, cyber-hackers and terrorists. Info-states such as Switzerland and Singapore are also the places where we can witness the best efforts at direct technocracy. Rather than 186

governing by staggered electoral mandates alone, they also practice real-time consultation with citizens through plebiscites and petitions, surveys and public workshops. The info-state is thus a postmodern democracy (or “post-democracy”) that combines popular priorities with technocratic management. Experiments in direct technocracy are already visible around the world from Estonia and Israel to the UAE and Rwanda to India and China—across both democracies and non-democracies. Info-state governments therefore don’t toe one agenda; their mandate is to always improve in all areas—no excuses. Their only ideology is pragmatism. As with natural selection, governance models evolve over time through adaptation, modification, and imitation. The more the world becomes connected and complex, devolved and datasaturated, the more the info-state model will rise in status. Global political discourse is shifting into a post-ideological terrain where performance— based on citizen satisfaction and international benchmarks—is the arbiter of success. All societies want a balance of prosperity and livability, openness and protection, effective governance and citizen voice, individualism and cohesion, free choice and social welfare. Everyday people don’t measure these things by how “democratic” their state is but whether they feel safe in their cities, can afford their homes, have stability in their work, have a plan for growing old, and can remain connected to friends and family. Comparing countries by GDP per capita alone has been reduced to statistical sophistry compared to these more tangible aspects of quality of life. Instead, we are coming to appreciate that the difference between successful and failing countries today is not rich versus poor, left versus right, or democratic versus authoritarian, but whether they have the capacity to meet their citizens’ basic needs, empower them as individuals, and act or change course when needed. Everything else is window dressing. BEYOND DEMOCRACY TO GOOD GOVERNANCE The spread of democracy has hit many stumbling blocks since the end of the Cold War. Self-inflicted wounds are the primary cause: Populism has hijacked governments, strongman nationalism

has usurped Russia, Turkey and Venezuela, coups and corruption have stymied Pakistan, Nigeria, and other states. According to Stanford professor Larry Diamond, the rate of “democracy breakdown” has doubled during the 1999-2011 period over the 1986-1998 years. Freedom House’s 2014 report finds that 54 countries show declining political and civil rights. The majority of the world’s countries are still nominally electoral democracies—but the more democracies there are, the more they give democracy a bad name. The term “democracy” tells us ever less about how—or how well—a country is run. Indeed, from Mexico to Italy, democracies today are the places where surveys show populations having the least trust and respect for politicians. In countries like Iran and Russia, elections are merely instruments of pacification, a release valve that buys breathing space for regimes. Rule of law, meaning laws are above the executive, looks more like rule by law, in which governments abuse the law as a tool of power. More than half of Russians believe Putin’s ruling party is full of “crooked thieves.” In Brazil, the rising middle class has rebelled against a democratically elected but incompetent kleptocracy. Democratic elections alone are clearly insufficient to ensure accountable governance. In Asia too, democracy is more an exercise in vote-banking than political progress. The world’s most populous democracy, India, has long embodied the phenomenon of elections as auctions, an elaborate yet unsophisticated arms race to buy votes (particularly along ethnic lines) with sacks of rice or flat-screen TVs. In Bangladesh, too, democracy is an endless poker game amongst two ruling families who use control over ministries and courts to undermine each other at every turn—agreeing only to pass laws that curb judicial independence and press freedom. This—not the vision of America’s Founding Fathers—is the reality of “democracy” for most of the world’s population that lives in nominally democratic states. Few people in these countries are under any illusions that their democracies are well functioning, so nor should Westerners be. Imagine you are the incoming president of a young populous Asian, Arab or African post-colonial state—the regions where the vast majority of the

world’s population lives. Which state would you aspire to replicate: China or India? Singapore or the Philippines? Vietnam or Indonesia? There is no doubt that emerging societies would rather emulate better-managed technocracies than flailing democracies. This means not just Singapore but even Malaysia, Vietnam and Thailand. Malaysia is mired in corruption but is stable, modern multiethnic state with first-world infrastructure and rising prosperity. Vietnam is a single-party regime yet has massively modernized the country and reduced poverty, with foreign investment pouring in to employ its hard-working and skilled population. Thailand’s 2014 coup ousted incompetent democratic leaders in favor of a military junta; Thais backed a permanent political role for the military in a constitutional referendum in 2016. These aren’t ideal regimes, but they’re orders of magnitude superior to Bangladesh or Indonesia It is precisely because India, Indonesia and the Philippines have each endured decades of forgettable or regrettable governments that they have all in recent years elected leaders with explicitly technocratic pretensions. Indians, Indonesians and Filipinos are no longer content to be part of vibrant commercial societies but with dysfunctional governments. Fed up with patronizing clichés about how they thrive despite their governments, they have voted in governments with no-nonsense agendas focused on infrastructure, jobs, education and technology. Here then is a prominent reason why Westerners need to understand the new normative power of technocracy: Because it is super-region Asia’s future. Across Asia, technocracy has become a form of salvation after societies realize that democracy doesn’t guarantee national success. Instead, democracy eventually gets sick of itself and votes for technocracy. Think about it: These three countries have had functional democracy for at least a generation, but only now is the world paying attention to their progress in digital ID cards, cutting red tape, and establishing special economic zones—all ideas that come from technocratic leaders. Because East Asian societies are modern and increasingly liberal, they will evolve towards better governance that balances political openness with goal-oriented technocracy. 187

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capitalism—rather than democracy—that drives growth, and government capacity that enables welfare delivery. As INSEAD dean Ilian Mihov has demonstrated through correlating variables of the World Bank ’s Worldwide Governance Indicators (WGI) to economic growth, it is rule of law that ultimately correlates to success, not democracy. What India’s new technocrats realize is that, unlike China, India went through political devolution prior to building national unity, meaning it remains much less than the sum of its parts. Successive governments have perennially made pay-outs to the provinces to purchase loyalty, which only encouraged further fragmentation. At independence, India had only 14 provinces; today it has 29. Modi is not out to reverse democracy but to compensate for this debilitating sequence of devolution before modernization by spending $150 billion on railways, pushing through a national goods and services tax, and launching campaigns to prioritize toilets over temples. For all his flaws, his technocratic mantra is a big step forward for India: “Minimum government, maximum governance.” The rise of elected technocrats comes not a moment too soon for Asia’s masses. India’s Narendra Modi and Indonesia’s Joko Widodo have backgrounds as provincial governors where they confronted local needs and tested ideas. They are a reminder that leaders with actual experience governing are almost always a superior choice to representative politicians—and also that poor non-elite leaders can aspire to be good technocrats. Indeed, it is well known that while Modi rode democracy to the top, he is a “tea stall technocrat.” He has no patience for trite rubbish such as the “First 100 Days,” and declared a national day of mourning in India when Lee Kuan Yew passed away in 2015. Western political commentators presume that good technocrats will eventually be replaced by bad ones—the “bad emperor” problem—sending countries back to the drawing board with democracy’s primacy restored. But the last thing India needs is more American-style democratic rancor. The difference in India’s and China’s regimes— and in their performance—over the past fifty years proves beyond any doubt that it is market

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In western thought, a deep complacency has set in that confuses politics with governance, democracy with delivery, process with outcomes. But the “will of the people” is not just to repeat their desires over and over without results. China’s spectacular rise versus that of democracies such as India has shown the world that it is better to have a system focused on delivery without democracy than a system that is too democratic at the expense of delivery. For democracy to be admired, it has to deliver. Elections are an instrument of accountability, not a mode of delivery. The input legitimacy of democracy can never compensate for the output legitimacy of delivering the basics. Good technocracies are equally focused on inputs and outputs. Their legitimacy comes both from the process by which the government is selected and the delivery of what citizens universally proclaim they want: Solid infrastructure, public safety, clean air and water, reliable transportation, ease of doing business, good schools, quality housing, dependable childcare, freedom of expression, access to jobs, and so on. The technocratic mindset is that delay in

getting these things done is itself a form of corruption. Instead of perpetual blame games and acceptance of stasis as the norm, good technocracies are always out to solve their problems. Once we stop preaching democracy and instead ask what is the essential course for governments to get their act together and stop inflicting unnecessary suffering on their people, we can move from style to substance. In the long run, the quality of governance matters more than regime type. That is why neither the governments nor citizens of countries such as China and Singapore makes any apologies for achieving success despite not mimicking Western models. Why would they when today it is citizens of democracies who clamor for technocracy more than the citizens of technocracies demand more democracy. Let’s take away from all of this not that democracy is undesirable, for it is not only a crucial foundation of legitimacy, but also a vital pillar of successful technocracy. Instead, democracy has to be seen not as a universal solution but a principle to be observed in the quest towards the higher objective of good governance. The elements of good governance—accountable leadership, national stability, political inclusion, effective service delivery, regulatory quality, transparent rule of law, low corruption, impartial judiciary, civil liberties, protection of rights, provision of economic opportunity and other variables—are proferred by all modern societies. What matters is execution as measured by the process for determining laws, the autonomy of the bureaucracy, and the effectiveness of policy delivery, among other metrics. Successful governments are also differentiated by their capacity to adapt to rapidly changing conditions. Good governance requires grasping complex global trends and developing farsighted strategy with accelerated decision-making— none of which democracy itself excels at providing. Technocrats of the past have been accused of failing to cope with complexity; today it is the democracies that are failing to adjust to new realities. Indeed, today’s technocratic regimes bear little resemblance to those associated with the term a generation or two ago. They are not Mao’s cult of personality or Soviet central planning.

They are civil rather than military, inclusive rather than a clique, data-driven rather than dogmatic, and more transparent than opaque. Even the world’s oldest democracy is more technocratic than you think. THE BEND OF HISTORY In the coming decades, global competition will punish the sentimental. A society that could do something better but doesn’t is either stupid or suicidal—or both. For political systems this means less emphasis on democracy and more on good governance. Success is measured by delivering welfare domestically and managing global complexity, not by holding elections. Such pragmatism opens the door to fruitful conversation over improving governance rather than presuming one end-state. Governance is more than a race to efficiency, but no Western government would be worse with a bit more emphasis on technocratic substance over democratic style. It could well be that the solution to every single major problem faced around the world today has a solution in small states rather than big ones. The idea that states as small as Singapore and Switzerland could be role models has been dismissed out of hand for decades. But today’s world features growing numbers of effectively autonomous provinces and city-regions. As authority shifts from state to city, from federal to municipal, the comparison is no longer from state to state, but across these key decision-making units. In a world of city-states, it is the experience of large countries that has less relevance than ever. Success matters more than size. In the most important measures of competitiveness, small states hold their weight and then some. City-states are ground zero for finding solutions to the 21st century challenges of sustainable urbanization, managing diversity and navigating a turbulent global economy. The edge small states have is that they are already accustomed to strategizing for survival. They don’t suffer from what America’s Cold War grand strategist George Kennan called the “hubris of inordinate size.” As the New Zealand scholar David Skilling points out, successful small states are strategically coherent and know their interests, focus

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relentlessly on their economic competitiveness, and adapt their focus as circumstances dictate. With less inertia, they are more nimble, able to change policies more quickly. Fewer layers stand between decision-making leaders and the civil servants who implement policies, as they are often just down the hallway. There is a focused stack of federal, provincial and municipal authorities all functionally aligned with the same interests rather than competing with each other. We cannot simply assume that because Europe represents the highest average standard of living and quality of governance today, or that America has demonstrated a capacity for self-renewal, that these attributes will be sustained into the future. Governments have to cope with decentralized social systems, new channels of accountability, increasingly complex identities and a hyper-competitive commercial environment.

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This is a tall order—and it’s far from clear that America or Europe will manage these shifts better than others. Churchill’s dictum that democracy is the worst form of government save for the alternatives must be revised. Direct technocracy is the superior model for 21st century governance. It combines Switzerland’s collective presidency executive and multi-party parliament with Singapore’s data-driven and utilitarian-minded civil service: A blend of technocracy and democracy, assisted by technology. To keep pace, Western societies do not have to reinvent the wheel, but their political systems must undergo a managed evolution from within—otherwise it simply will not matter who their elected leaders are.

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BOOK RECOMMENDATIONS

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BOOK RECOMMENDATIONS

Geoffrey West: Scale: The Universal Laws of Life and Death in Organisms, Cities and Companies

Bill Emott: The Fate of the West: The Battle to Save the World’s Most Successful Political Idea

In his book, Geoffrey West is on a quest to find universal principles and patterns connecting our world, cells, ecosystems, cities, social networks and businesses. Scale primarily addresses global problems such as sustainability, population explosion, urbanisation, ageing and increasing human lifespans. It also tries to find reassuring answers to a lot of questions concerning many of us: Why can we live for 120 years but not for a thousand? Why do mice live for just three years and elephants for up to 75? Why do companies behave like mice, and are they all destined to die? Do cities, companies and human beings have natural, predetermined lifespans? Indisputably, West’s book captures the spirit of science in the 21st century, revealing the deep connections not just across physics and biology but society and life.

When faced with global instability and economic uncertainty, it is tempting for states to react by closing borders, hoarding wealth and solidifying power. We have seen it at various times in Japan, France and Italy and now it is infecting all of Europe and America. This insularity, together with increased inequality of income and wealth threatens the future role of the West as a font of stability, prosperity and security. In the author’s opinion, a major challenge that liberal democracies must face is posed by special interest groups such as bankers accruing too much power and influence – and this is a problem that must be addressed. States such as Britain under Thatcher or Sweden in the 1990s managed to clear away the powers of interest groups and restoring their societies' ability to evolve. To survive, the West needs to do now everything it can, from reinventing welfare systems to reimagining education.

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Robert D. Kaplan: In Europe's Shadow: Two Cold Wars and a Thirty-Year Journey Through Romania and Beyond

Jacques de Lisle – Avery Goldstein: China's Global Engagement: Cooperation, Competition, and Influence in the 21st Century

In his latest work, Robert D. Kaplan comes a journey through Europe’s Eastern frontier – Romania – to describe all the forces that will determine the fate of the continent. The renowned author first visited Romania in the 1970s when he was a young journalist and the country was under Ceausescu’s dictatorship. What ensued was a lifelong obsession with the country – a country that, he thinks, today is key to understanding the current threat that Russia poses to Europe. The book, a blend of travelogue and memoir, encompasses Kaplan’s experiences of thirty years, in which he tried to get as familiar with the problems of the ideological and geographical frontier as possible. In addition, Kaplan examines larger questions of geography, imperialism, international relations, the Cold War and the Holocaust, through the lens of this Eastern European country trying to break free from the shadows of Hitler and Stalin.

China is again undergoing a period of significant transition, as China's government under President Xi Jinping is addressing challenges to the economy and other domestic issues after three decades of dramatic growth and reforms. Parallelly, a new type of foreign policy – a more proactive approach to assert their security, international economic and cultural interests – is required to better fit what they see as China's place in the world. In this volume of studies, China specialists from around the world explore key issues raised by a changing China’s interaction with a changing world, China’s emergence as a more capable actor on the international scene, which will reshape a new system of international affairs in the future. The essays analyse the issues of technological innovation, political trends, the security order in the Asia-Pacific region, China’s humanitarian intervention, the development of naval power and territorial disputes, as well as trade and finance.

Yuval Noah Harari: Homo Deus: A Brief History of Tomorrow

Anja Manuel: This Brave New World: India, China, and the United States

With insight and clarity, tenured professor at the Hebrew University of Jerusalem and best-selling author, Yuval Noah Harari maps out the possible futures of mankind and how Homo Sapiens can become Homo Deus. The book envisions a not-too-distant world in which we face a new set of challenges. The author explores the projects, dreams and nightmares that will shape the twenty-first century – from overcoming death to creating artificial life. It asks the fundamental questions about the future: Where do we go from here? And how will we protect this fragile world from our own destructive powers? The book can be regarded as a sequel to Harari’s former, critically acclaimed work Sapiens, and basically wants to call attention to the combined negative consequences of history, ethics and biotechnological developments, while also providing mankind with an alternative.

The basic idea of the book is that China and India will soon become two of the world’s indispensable powers. Asia will surpass the combined strength of North America and Europe – and not just in economic might; consequently, both India and China will have an increasing role in international decisions. During her career, Anja Manuel, a former advisor to the U.S. Department of State, has met numerous political and business leaders of India and China. Drawing also on her own experiences, in her book she presents the problems that both Asian major powers have to face during their development. ‘We wring our hands about China, Manuel writes, while we underestimate India’, which may have a crucial influence on China’s future. Although the relationship between the two countries is still ambiguous, Manuel shows us that a different path is possible – the USA can bring China and India along as partners.

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top 10

Hungarians in the global forefront In order to preserve and to convey national values, the Central Bank of Hungary and Pallas Athéné Geopolitical Foundation intend to draw global attention to young Hungarian talents and creative communities. “TOP 10 - Hungarians in the global forefront” is a joint publication introducing Hungarian talents we can be proud of, who, as role models, encourage and inspire today’s youngsters. Because “we, Hungarians can make it into the top league in Europe and globally”. Our selection is an overview of success stories from the past three years, encompassing the fields of gastronomy, sport, culture, tourism, technology and science, highlighting such segments which usually remain hidden from the general public. Let’s take a look at those sensational Hungarians who recently added colours to the world-wide web and the map of understanding the 21st century.

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LIST OF SOURCES Tech-tonic shift Cséfalvay Zoltán: A nagy korszakváltás. Kairosz Könyvkiadó Kft., 2017, 431. Ricardo Hausmann: The Growth And Diffusion of Knowhow Ricardo Hausmann hivatalos honlapja. http://ricardohausmann.com/?page_id=18 RSA éves konferencia 2017, Dublin, Írország: The Great Regional Awakening: New Directions. http://www.regionalstudies.org/conferences/conference/rsa-dublin-2017 (2017.06.07.) RSA éves konferencia statisztikái 2017, Dublin, Írország: The Great Regional Awakening: New Directions – Statistics http://www.regionalstudies.org/uploads/documents/Dublin_Stats.pdf (2017.06.07.) Hausmann, Hidalgo et al.: The Atlas of Economic Complexity – Mapping Paths to Prosperity. Puritan Press, New Hampshire, 2011. http://atlas.cid.harvard.edu/media/atlas/pdf/HarvardMIT_AtlasOfEconomicComplexity.pdf

Goals, missions of China’s new five-year plan, In: Xinhua http://news.xinhuanet.com/english/201603/05/c_135158252.htm (2016.05.) Kersley, Richard –Stierli, Markus: Global Wealth in 2015: Underlying Trends Remain Positive. Credit Suisse, https:// www.credit-suisse.com/us/en/about-us/responsibility/ news-stories/articles/news-and-expertise/2015/10/en/ global-wealth-in-2015-underlying-trends-remain-positive. html (2015.11.13.) Kuo, Youchi: 3 great forces changing China’s consumer market. World Economic Forum, https://www.weforum.org/ agenda/2016/01/3-great-forces-changing-chinas-consumer-market/ (2016.01.04.)

Learnings from Successful Economic Catch-Up Processes and Articles of Economic Success

Long-term macroeconomic forecasts. Key trends to 2050. The Economist Intelligence Unit, Five megatrends and possible implications, PricewaterhouseCoopers, (2015.04.)

A cikk eredetileg a Magyar Krónika 2014/4 szeptemberi–2017/6 júniusi számaiban jelent meg folyamatosan a Pageo Alapítvány támogatásával

Made in China 2025. The State Council of the People’s Republic of China, http://english.gov.cn/2016special/madeinchina2025/ (2017)

USA in 2050

Salát Gergely: Demográfiai folyamatok Kínában, Kommentár, http://kommentar.info.hu/iras/2012_1/demografiai_folyamatok_kinaban (2012.01.)

Todorovich, Petra and Hagler, Yoav (eds.): America 2050: New Strategies for Regional Economic Development. America 2050 Research Seminar Discussion Papers and Summary. Healdsburg, California by Lincoln Institute of Land Policy and Regional Plan Association. http://www.america2050. org/pdf/2050_Report_Regional_Economic_Development_2009.pdf (2009.03.31.) Regional Plan Association, “America 2050: A Prospectus,” New York: http://www.america2050.org/pdf/America2050prospectus.pdf (2006.09.) China in 2050 Dee, Philippa: Time to rethink the global rules, East Asia Forum, (2013.08.19.) Eszterhai Viktor: Kína: élre törni a kutatásban. Geopolitika.hu, http://www.geopolitika.hu/2016/10/24/kina-elre-torni-akutatasban/ (2016.10.24.) Five megatrends and possible implications, PricewaterhouseCoopers, https://www.pwc.com/us/en/faculty-resource/assets/symposium/2014-megatrends-overview.pdf (2013.11.03.) Fu Ying: Putting the Order(s) Shift in Perspective. 52nd Munich Security Conference, (2016.02.13.) Global Strategic Trends - Out to 2045. In: Strategic Trends Programme, Development, Concepts and Doctrine Centre, Ministry of Defence, UK https://www.gov.uk/ government/uploads/system/uploads/attachment_data/ file/348164/20140821_DCDC_GST_5_Web_Secured.pdf (2014.08.21.)

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Guojia zhong chang qi kexue he jishu fazhan guihua ganyao, (2006-2020) 国家中长期科学和技术发展规划纲要, (2006━2020年) Zhonghua Renmin Gongheguo Guowuyuan 中华人民共和国国务院, Xinhua shehui Beijing 新华社北京２月９日电http://www.gov.cn/jrzg/2006-02/09/content_183787. htm (Nemzeti közép- és hosszú távú Tudomány és Technológia Fejlesztési Terv (2006-2020) Kínai Népköztársaság Államtanács, Xinhua hírügynökség, Peking (2006.02.09.)

“World Bank; Development Research Center of the State Council, P.R.C. 20. China 2030: Building a Modern, Harmonious, and Creative High-Income Society [pre-publication version]. Washington, DC: World Bank https://openknowledge.worldbank.org/handle/10986/6057 (2012.02.27.) World Population Prospects, United Nations, Revision 2015. https://esa.un.org/unpd/wpp/publications/files/key_findings_wpp_2015.pdf World Urbanization Prospects, United Nations, Revision 2014. https://esa.un.org/unpd/wup/Publications/Files/WUP2014Highlights.pdf Wübbeke, Jost – Meissner, Mirjam – Zenglein, Max J. – Ives, Jaqueline – Conrad, Björn: Made in China 2025: The making of a high-tech superpower and consequences for industrial countries. Mercator Institute of China Studies, https://www. merics.org/fileadmin/user_upload/downloads/MPOC/ MPOC_Made_in_China_2025/MPOC_No.2_MadeinChina_2025.pdf (2016.12.02.) Xi Jinping: zai di shier ju Quanguo Remin Daibiao Dahui di yi ci huiyi shang de jianghua习近平:在第十二届全国人民代表大会第一次会议上的讲话, Xinshehui (2013.03.17.) 新华社, 2013年3月17日. http://news.xinhuanet.com/politics/201303/17/c_115055434.htm Xi Jinping XII. Országos Népi Gyűlés során tartott első beszédének leirata, Xinshihui hírügynökség, (2013.03.17.)

Xin Xiangyang: 辛向阳: „Zhongguo Meng” yu „liang ge yi bai nian”“中国梦”与“两个一百年”, Zhonggong Guizhou sheng wei dangxiao xuebao 中共贵州省委党校学报, 2013年4期. http:// www.cssn.cn/mkszy/201401/t20140115_943766_1.shtml A „kínai álom” és a „két százéves terv”, Guizhou tartományi Pártiskola (2013.04.) Russia 2050 ALEKSASHENKO, Sergey: „The Russian economy in 2050: Heading for labor-based stagnation.” In: Brookings, https:// www.brookings.edu/blog/up-front/2015/04/02/the-russian-economy-in-2050-heading-for-labor-based-stagnation/ (2015.04.02.) A CIA 2017. januárjában megjelent jelentése „Global Trends 2035: Paradox of Progress” https://www.dni.gov/index.php/ global-trends/three-scenarios (2017.03.25.) Az Economist Intelligence Unit jelentése: http://pages.eiu. com/rs/783-XMC-194/images/EIU_Long-termForecasts_ KeyTrends2050_FINAL2.pdf (2017.03.24.) „Chinese may become Russia’s second largest ethnic population by 2050.” In: Tass, http://tass.com/society/908875 (2016.10.26.) „How Much Renewable Energy Will Be Installed In 2030? 2040? 2050?”. In: ZacharyShahan.com, http://zacharyshahan.com/how-much-renewable-energy-will-be-installedin-2030-2040-2050/ (2013.02.24.) KOCHHAR, Rakesh: „10 projections for the global population in 2050.” In: PewResearchCenter, http://www.pewresearch. org/fact-tank/2014/02/03/10-projections-for-the-globalpopulation-in-2050/ (2014.02.03.) KRUTIHIN, Mihail: „Útkereszteződésben: mikor fogy el Oroszországban a kőolaj?” („На распутье: как скоро в России закончится нефть?”) In: Forbes, http://www.forbes.ru/ biznes/339227-na-raspute-kak-skoro-v-rossii-zakonchitsyaneft (2017.02.16.) „Mikor fogy el az olaj és a gáz Oroszországban?” In: Republic, https://republic.ru/economics/schetchik_nefti_i_gaza979932.xhtml (2014.01.20.) „Oroszország a CIA szemével” („Россия глазами ЦРУ”). In: Rosbalt, http://www.rosbalt.ru/ blogs/2014/06/10/1279305.html (2014.06.10.) POLUNIN, Andrej: „2050-es előrejelzés: Oroszország kihal, Kína leszegényedik, India felemelkedik.” („Прогноз-2050: Россия вымрет, Китай обеднеет, Индия поднимется”) In: Svpressa, http://svpressa.ru/politic/article/45284/ (2011.07.11.) USAF Air Force Center for Strategy and Technology (CSAT), „Blue Horizons” program. http://www.airuniversity.af.mil/ CSAT/ (2011.07.06.) WALT, M. Stephen: „What will 2050 look like?” In: Foreign Policy, https://foreignpolicy.com/2015/05/12/what-will2050-look-like-china-nato/ (2015.05.12.)

Buiter, Willem – Rahbari, Ebrahim: Global Growth Generators. Citigroup, http://www.investphilippines.info/arangkada/wpcontent/uploads/2011/07/Citi-Global-Growth-Generators. pdf (2011.02.21.) India is set to become the youngest country by 2020. In: The Hindu http://www.thehindu.com/news/national/indiais-set-to-become-the-youngest-country-by-2020/article4624347.ece (2013.04.17.) India’s partnership with Southeast Asia nears its limits In: Stratfor (2016). https://www.stratfor.com/analysis/indiaspartnership-southeast-asia-nears-its-limits (2016.09.20.) India projected to add 300 million urban residents by 2050: UN report. In: The Economic Times, http://economictimes. indiatimes.com/news/politics-and-nation/india-projectedto-add-300-million-urban-residents-by-2050-un-report/ articleshow/52323432.cms (2016.03.18.) Narendra Modi történelmi látogatása Japánban. In: Inter Japan http://interjapanmagazin.com/narendra-modi-tortenelmi-latogatasa-japanban-melyulo-japan-indiai-kapcsolatok/ (2014.09.06.) Martin, Peter Yoga Diplomacy. Narendra Modi’s Soft Power Strategy. In: Foreign Affairs https://www.foreignaffairs.com/ articles/india/2015-01-25/yoga-diplomacy (2015.01.25.) The digit era. Indian business prepares to tap into Aadhar, a state-owned fingerprint-identification system. In: The Economist, http://www.economist.com/news/business/21712160nearly-all-indias-13bn-citizens-are-now-enrolled-indian-business-prepares-tap (2016.12.24.) The World in 2050. Will the shift in global economic power continue? In: Pwc, http://www.pwc.com/gx/en/issues/ the-economy/assets/world-in-2050-february-2015.pdf (2015.02.) Long-term macroeconomic forecasts. Key trends to 2050. The Economist Intelligence Unit https://www.eiu.com/public/topical_report.aspx?campaignid=ForecastingTo2050 (2015) India’s demographic dividend In: Thomson Reuters, https:// blogs.thomsonreuters.com/answerson/indias-demographicdividend/ (2016.07.07.) Top 10 largest countries in the world by GDP nominal (2015). In: Reinis Fischer https://www.reinisfischer.com/top-10-largest-economies-world-gdp-nominal-2015 (2016.11.27.) Unis Vienna: Fenntartható fejlődési célok. http://www.unis. unvienna.org/unis/hu/topics/sustainable_development_goals.html United Nations World Population Prospects – The 2015 Revision https://esa.un.org/unpd/wpp/publications/files/ key_findings_wpp_2015.pdf United Nations in India. Sustainable Development Goals. http://in.one.un.org/page/sustainable-development-goals1/ The Vision of Japan and Korea

India 2050 A Virtual Narendra Modi.In: BBC News, http://www.bbc.com/ news/business-27939865 (2014.08.07.) Census 2011. Density of India. http://www.census2011.co.in/ density.php

Barrett, Brendan FD: Can Japan Go 100% Renewable by 2050? In: Our World by United Nations University. https:// ourworld.unu.edu/en/can-japan-go-100-renewableby-2050 (2011. 04. 11.)

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Creative Economy and People’s Happiness Through Science, Technology and ICT. Vision & Strategies, Ministry of Science ICT and Future Planning, Republic of Korea. http://english. msip.go.kr/english/msipContents/contents.do?mId=Mjcx Data Query: Average annual rate of population change (percentage). In: World Population Prospects, the 2015 Revision. United Nations, Department of Economic and Social Affairs, Population Division. https://esa.un.org/unpd/wpp/DataQuery/ Dél-Korea – Népesség 1950-2100. http://nepesseg.population.city/del-korea/#1 Environmental Vision 2050. Toshiba. https://www.toshiba. co.jp/env/en/vision/vision2050_0.htm Forecasting Japan: 25 Years Later. In: Stratfor. https://www. stratfor.com/analysis/forecasting-japan-25-years-later (2015.10.01.) In the Republic of Korea in 2050, more than one-third of the population will be 65 years old or above. United Nations ESCAP. http://www.unescap.org/ageing-asia/did-youknow/370/republic-korea-2050-more-one-third-population-will-be-65-years-old-or-above Japan Climate Vision 2050: An energy future independent of nuclear power and fossil fuels. Kiko Network, 2014.3. http:// www.kikonet.org/wp/wp-content/uploads/2014/05/japanclimate-vision-2050-scenario-en.pdf Japan Vision 2050: Principles of Strategic Science and Technology Policy Toward 2020. Science Council of Japan, 2005. http://globaltrends.thedialogue.org/publication/japan-vision-2050-principles-of-strategic-science-and-technology-policy-toward-2020/ Komiyama, Hiroshi: Vision 2050 and the Role of Japan toward the Sustainable Society. http://ieeexplore.ieee.org/ document/1619151/?reload=true Korea in 2050. In: The Korea Times. (2009. 09. 03.) http://www.koreatimes.co.kr/www/news/opinon/2015/11/202_51218.html Lee, Sang-Jun et. al: The Vision of the Korean peninsula and Territorial Networking Strategies. Summary. KRIHS. (2009. 12. 31). http://library.krihs.re.kr/upload/publication/s_report/0000049898.pdf

African Development Bank: Africa in 50 Years’ Time – The Road Towards Inclusive Growth, https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Africa%20 in%2050%20Years%20Time.pdf (2017.02.14.) Afrikai Unió: Agenda 2063 – The Africa We Want, http:// www.un.org/en/africa/osaa/pdf/au/agenda2063.pdf (2017.02.14.) International Food Policy Research Insitute: Report: Africa is projected to have just one low income country by 2050 ,http://www.ifpri.org/news-release/report-africa-projectedhave-just-one-low-income-country-2050 (2017.02.14.) ISS: African Futures 2050, https://issafrica.s3.amazonaws. com/site/uploads/Mono175.pdf (2017.02.14.) RICZ, Judit: Nyomornegyedek, szegénység, bűnözés – van-e kiút? In: Fala Város Régió, 2009. 2. 26-33. o. United Nations – Department of Economic and Social Affairs: World Urbanization Prospects 2014, https://esa. un.org/unpd/wup/CD-ROM/ (2017.02.14.) United Nations: The World’s Cities in 2016, http://www. un.org/en/development/desa/population/publications/pdf/ urbanization/the_worlds_cities_in_2016_data_booklet.pdf (2017.02.14.) United Nations: World Cities Report 2016 – Urbanization and Development. Emerging Futures, http://wcr.unhabitat.org/ wp-content/uploads/sites/16/2016/05/WCR-%20FullReport-2016.pdf (2017.02.14.) TED TALKS Az exponenciális robbanás, Hibrid gondolkodás és A jövő oktatása „Future Smart” című előadások átiratai eredetileg a TXD IDEA BOOK 2017 – Evolving to exponential című kiadványban jelentek meg Parag Khanna: Connectography A cikk Parag Khanna 2017. március 16-án a Corvinus Egyetemen tartott előadásának leirata How to Run a Country in the 21st Century?

Population Projections for Japan: 2001-2050. National Institute of Population and Social Security Research. http:// www.ipss.go.jp/pp-newest/e/ppfj02/ppfj02.pdf (2002.01.)

Khanna, Parag: Connectography – Mapping the Future of Global Civilization. Random House, 2016., 496.

Sakai, A: Environmental Vision Towards 2050. Seiko Epson Corporation, Japan, 2008. http://www.gmn.hkpc.org/ images/16oct09/ppt1.pdf

Book Recommendations

Scavone, Art: Global infrastructure: South Korea’s vision. In: White & Case, https://www.whitecase.com/publications/insight/global-infrastructure-south-koreas-vision (2016.01.18.) Shim, Doobo: Waxing the Korean Wave. Asia Research Institute Working Paper, No. 158. http://www.ari.nus.edu.sg/wps/ wps11_158.pdf (2011.06) Vision 2050. Maintain Position As a First-tier Nation. Japan Center for Economic Research. http://www.kooperationinternational.de/uploads/media/concept20131210.pdf (2013.01.) Europe 2050 European Commission, Directorate-General for Research and Innovation: Global Europe 2050, European Union, https://ec.europa.eu/research/social-sciences/pdf/policy_ reviews/global-europe-2050-report_en.pdf (2012.)

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Africa 2050

West, Geoffrey: Scale: The Universal Laws of Life and Death in Organisms, Cities and Companies. W&N, 2017., 496.

LIST OF PICTURES AND FIGURES A Hungarian Compass Between East and West: 1. figure: Az egy munkavállalóra jutó ledolgozott órák száma országonként 1980-2010,The Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics Ricardo Hausmann: The Growth And Diffusion of Knowhow: 1. picture: wikimedia 2. picture: http://www.regionalstudies.org/conferences/conference/rsa-dublin-2017 3. -5. picture: Hausmann, Hidalgo et al. (2011): The Atlas of Economic Complexity – Mapping Paths to Prosperity. Puritan Press, New Hampshire, October 2011. http://atlas.cid.harvard.edu/media/ atlas/pdf/HarvardMIT_AtlasOfEconomicComplexity.pdf Century of The British Empire,, 1815–1914: 1. picture Louis-Philippe Crépin: A trafalgari csata, 1807, wikimedia.org Italy: Successes Built on Tradition: 1. picture: Garibaldi megérkezése Nápolyba, 1861. március 17‑én Korabeli színezett fametszet (részlet) Germany: An Economic Miracle Born from Ruins: Source: blogspot.com/1: http://4.bp.blogspot.com/-uWj9ZUIA1. picture: Az egymilliomodik Volkswagen bogár átadása, 1955. augusztus 5-én, in-die-zukunft-gedacht.de Bavaria: In the Heart of Europe: 1. picture: Rothenburg ob der Tauber, Bajorország, canadastock/ Shutterstock.com 2. picture: Schaffhausen, Svájc, trabantos/Shutterstock.com The Polish Economic Outbreak: 1. picture: Henner Damke/shutterstock.com Israel: Advancement in the Rocky Desert: 1. picture: Aratómunkások egy izraeli kibbuczban, Everett Historical/shutterstock.com Béla IV, the Second Founder of The State: 1. picture: IV. Béla szobra a Millenniumi Emlékmű oszlopcsarnokában, Köllő Miklós alkotása, fotó: Vermes Tibor The Golden Age of Transylvania: 1. picture: Kolozsvár 1617-ben – rézmetszet a Civitates Orbis Terrarum című műből, van der Rye festménye nyomán A Country on the Road to Recovery: 1. picture: Than Mór: Széchenyi, Kossuth, Deák (Mennyezetfreskó a Magyar Nemzeti Múzeumban) Happy Peacetime Days: 1. picture: A Ganz és Társa hajógyár munkásai 1902-ben, Fortepan.hu Arduous Rebuilding: 1. picture: A főváros háború utáni első állandó Duna-hídja,a Parlament mellől induló Kossuth híd. Fotó: MTI Hungarian Way: 1. picture: Orbán Viktor miniszterelnök és Matolcsy György jegybankelnök. Fotó: MTI USA in 2050: 1. figure: Az USA tíz felemelkedő megarégiója az America 2050 stratégia alapján, http://www.america2050.org/content/ megaregions.html

China in 2050: 1. figure. A kínai ipar fejlődési ciklusai az Államtanács honlapja alapján, http://english.gov.cn/2016special/madeinchina2025/ Russia 2050: 1. figure: A Pew Research Center demográfiai kutatása, http://esa. un.org/unpd/wpp/index.htm 2. Ecofys jelentése alapján, „A Plan for 100% Renewable Energy by 2050” https://skepticalscience.com/100-percent-renewableby-2050.html India 2050: 1. figure: A világ lakossága 2050-ben, http://www.worldmapper. org/images/ largepng/11.png 2. figure: A top három ország globális erőfölénye 2050-ben, the Economist Intelligence Unit 3. figure: A top három ország globális erőfölénye 2050-ben, the Economist Intelligence Unit The Vision of Japan and Korea: 1. figure: In the Republic of Korea in 2050, more than one-third of the population will be 65 years old or above. United Nations ESCAP. 2. figure: Creative Economy and People’s Happiness Through Science, Technology and ICT. Vision & Strategies, Ministry of Science ICT and Future Planning, Republic of Korea. 3. figure: Forecasting Japan: 25 Years Later, Stratfor. 4. figure: Vision 2050. Maintain Position As a First-tier Nation. Japan Center for Economic Research. 5. figure: Vision 2050. Maintain Position As a First-tier Nation, Japan Center for Economic Research. 6. figure: Barrett, Brendan FD: Can Japan Go 100% Renewable by 2050?, Our World by United Nations University. 7. figure: Barrett, Brendan FD: Can Japan Go 100% Renewable by 2050?, Our World by United Nations University. Africa 2050: 1. figure: United Nation – Department of Economic and Social Affairs: World Population Prospects, https://esa.un.org/unpd/wpp/ Download/Standard/Population/ 2. figure: ISS: African Futures 2050, https://issafrica.org/research/monographs/african-futures-2050 3. 4. figure: African Development Bank: Africa in 50 Years’ Time – The Road Towards Inclusive Growth, https://www.afdb.org/ fileadmin/uploads/afdb/Documents/Publications/Africa%20 in%2050%20Years%20Time.pdf 5. táblázat: Adatok forrása: World Urbanization Prospects 2014, https://esa.un.org/unpd/wup/CD-ROM/ 6. táblázat: Adatok forrása: World Urbanization Prospects 2014: https://esa.un.org/unpd/wup/CD-ROM/ 7. figure: United Nations: The World’s Cities in 2016, http://www. un.org/en/development/desa/population/publications/pdf/ urbanization/the_worlds_cities_in_2016_data_booklet.pdf TED TALKS: pictures: http://www.tedxdanubia.com/ figures: TXD IDEA BOOK 2017 – Evolving to exponential

Emott, Bill: The Fate of the West: the Battle to Save the World’s Most Successful Political Idea. Economist, 2017., 272. Kaplan, D. Robert: In Europe’s Shadow: Two Cold Wars and a Thirty-Year Journey Through Romania and Beyond. Random House, 2016., 336. De Lisle, Jacques – Goldstein, Avery: China’s Global Engagement: Cooperation, Competition, and Influence in the 21st Century. Brookings Institution Press, 2017., 365. Harari, Yuval Noah: Homo Deus: a Brief History of Tomorrow. Harvill Secker, 2015., 448. Manuel, Anja: This Brave New World: India, China, and the United States. Simon & Schuster, 2016., 368.

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CREDITS EDITOR-IN-CHIEF Norbert Csizmadia MANAGING EDITOR Anton Bendarzsevszkij EDITORIAL BOARD Ágnes Bernek Anton Bendarjevsky László Körtvélyesi Géza Salamin Péter Szatmári György Szapáry István Szilágyi Ákos Vajas COPY EDITOR István Czene ART EDITORS Gyula Nagy Fülöp Kovács PUBLISHED BY: Pallas Athéné Geopolitical Foundation H-1013 Budapest, Döbrentei utca 2., Hungary DATE OF PUBLICATION July 2017.

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AUTHORS Arndt Pechstein Dániel Bácsatyai Tamás Bánkuty Anton Bendarzsevszkij Zoltán Boér Luca Boros Ráhel Czirják Zoltán Cséfalvay Norbert Csizmadia Zoltán Eperjesi Viktor Eszterhai László Gere Zoltán Horváth Attila Kiss Tamás Kovács Csaba Mányai György Matolcsy Ákos Mechler Tamás Nánási Khanna Parag Eszter Polyák Bálint Somkuti Ádám Suslik Árpád Suslik Judit Urbán Zita Vajda

ABOUT HUG

LEGAL & PRIVACY STATEMENT

Hungarian Geopolitics (HUG) is a Pallas Athéné Geopolitical Foundation, which relies on Hungarian and foreign authors to present the most recent and the most interesting values, achievements and changes seen in the current Hungarian and global geopolitical and geostrategic scene, as well as in other related fields of science (social science, economics). HUG aims at inspiring the community interested in geopolitics, in addition to the fields of science, to create new value through extensive knowledge.

HUG (Hungarian Geopolitics) Magazine is a free publication, and not intended for sale. All information and content published in HUG is the intellectual property of Pallas Athéné Geopolitical Foundation (PAGEO). No content of the publication may be copied, distributed, published or used in any way, in whole or in part, without prior written permission from the foundation. CONTACT Please send your questions, comments and feedback to our staff at hug@pageobudapest.hu.

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Published issues

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An essential selection of

book workshops consisting of 4 titles

(SCENARIOS OF THE FUTURE) George Friedman and György Matolcsy

“expect the unexpected” “see the events of the world through the eyes of decision-makers”

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There is almost complete agreement about the fact that in our days we are living in a very fast series of technological shifts, to which we are almost unable to adapt. New technologies, new economic principles, new consumption patterns, new employment models, new battlefields, new generations, new myths and new dynamisms have emerged. This new era will produce its winners and losers as other eras have done earlier. For Hungary, it is a question of crucial importance how we can be among the winners of this change of era. The first step of the way leading there is exploring the main characteristics of the new era.