Consolidating Economic Reforms: The Hungarian Experience with Lessons for Poland

Abstract

How to assess Hungary's present situation in the broader context of overall economic and political developments in post-socialist Eastern Europe? The regional perspective suggests that in terms of parting with state socialism and building market democracy Hungary - and a few other countries including Poland - represents the maximum any former socialist state could achieve between 1989-98. While in this respect no country succeeded in getting farther, most other states have struggled with the peaceful or forceful formation of identity or a new, independent state, which often dominated over and conflicted with, the issues of economic reforms and democratization on the transformation agenda. Another key to success is that Hungary - similar to Poland, but to a much larger extent - became a major target for foreign direct investment. This is due to a number of factors: from Hungary's strategy for debt, macroeconomic management and privatization, to the foreign investors' and creditors' own expectations. However, the resulting large capital inflow had a major impact on the features of Hungarian capitalism. While everywhere in East the new ownership structure displays various combinations of foreign owners, national capitalists, and the scattered property rights of workers, the proportions dramatically differ. In much of the East the cohort of foreign investors is entirely missing, while capitalists of often doubtful origin, skills and strategies acquired overwhelming share and influence. At the other extreme, in former GDR virtually the whole business elite is foreign: West-German or of other Western origin. On this scale Hungary, with a one-third of its largely private economy in foreign hands [Hegymenet, 1998: 163] in 1997 is closest to the former GDR - and at the same time farthest from the other extreme exhibited by Eastern national capitalisms. This location makes the Hungarian case specific and hints both at the risks the country avoided and the ones it took.