Small firms and economic transformation in Hungary

Abstract

Since 1989 processes of economic reform and restructuring in Eastern Europe have been a focus for considerable analysis. Less attention has been given to what might be called the ‘bottom‐up’ processes of economic transformation, that is the development of the small and medium shed business sector in Eastern European economies. This paper tries to re‐address this balance by reporting on an analysis of small firm development in Hungary. The authors argue that in the earliest phase of transition, the development of the small firm sector was the outcome of mainly two processes: first the breakdown of large state firms into smaller private firms; and second, the removal of stifling regulations which earlier inhibited small firm birth and growth. The authors also discuss the growth of the small firm sector in Hungary in relation to the culture of informality and compare the Hungarian entrepreneur to the Bulgarian and Slovenian.