Entrepreneurship and small business: The Hungarian trajectory

Abstract

In Hungary the superiority and the rationality of the centrally planned system had already been questioned in the mid-1950s and in lower or louder voice ever since. After the suppressed revolution and initiated systemic changes of 1956, the comprehensive economic reform of 1968 was an attempt to combine plan and market keeping basic characteristics of the system as dominance of state ownership, high centralization, the power of the single party, etc. Despite several new initiatives, this experiment failed. From these initiatives, four will be dealt with: the birth and flourishing of the second economy, the rise and fall of the intrapreneurial groups, the turn from toleration to promotion of private small business, and the start of the divestiture privatization. The four junctions of the special Hungarian “reform trajectory” nolens-volens prepared the fundamental systemic changes: the transition to a proper market economy—partly by introducing basic constitutents of the new system, and partly by contributing to the erosion and disintegration of the former system. The analysis of these historical lessons helps to understand the present situation of the Eastern European economies and in particular of Hungary. It facilitates the identification of the major tasks to stop stagnation and decline, to start revitalization of these economies, and instead of the use of routine International Monetary Fund and World Bank schemes, to elaborate adequate forms and methods of aid. In the European market economies, the share of small business in employment (measured by firms up to 100 employees) might be around 50%, in Hungary, about 20%, in Poland about 15%, and less in the other Eastern European countries. The development of entrepreneurship and small business is one of the major prerequisites of the transformation of these economies. The knowledge, however, about the actual situation, the conditions needed to increase the number of start ups, the rate of survival, and the growth potential of small and medium-sized enterprises is rather scarce. From the findings of the questionnaire survey, the following conclusions can be derived: 1. The increase of the share of the SMEs should be based on their better competitiveness in domestic and export markets; this is overshadowed now by the quantitative ambitions. 2. SMEs have advantages vis-à-vis the large enterprises as well as disadvantages. To counterbalance them, an accelerated development of the infrastructure for banking, training, consultancy, and information; preferential treatment (credits, taxation) in some cases, networking, and more services of the trade associations are needed. 3. In a declining, depressed economy, one cannot expect the renaissance of entrepreneurship and small business. Fighting high inflation, loosening restrictions, and a better management of the country's debt service should create a healthier economic environment—for small, medium, and larger enterprises equally.