Industrial Restructuring in the Budapest agglomeration

The major 'motor' of the recent Hungarian industrial development has been foreign direct investment, particularly by multinational companies. This has stimulated the development process, as shown by the dynamism of production, exports and profitability of industry in Budapest. On the other hand, this has also led to a split of the industrial sphere into its foreign and domestic sections, or into foreign-owned companies and domestic SMEs. The major question asked in this project is where is Hungarian industry heading and will the gap between the contracting domestic part and the foreign multinationals continue to widen or will they be joined in a much more favourable scenario. Barta sees this as a question of whether Hungary can avoid the 'dead-end street' of South Asian industrialising countries, and instead move towards a new Eastern European or Hungarian model. He concludes that Budapest industry does not follow any given model and indeed its development probably cannot be seen as a 'model' proper in itself, but is, or will be, a mixture of different elements. This would be a welcome fusion of Hungary's rich human resources of accumulated knowledge with foreign direct investment. Budapest would play an exceptional role in such a process, as the gateway for foreign output to the rest of the country. The share of industry in the Budapest economy will continue to decrease, but it will become a more modern and profitable sector. It will also fulfil a technological transfer role between the developed world and the Hungarian countryside (or even a larger region of central and eastern Europe). Barta predicts that Budapest industry will develop a special structure, with a large subcontractor network supporting the large foreign enterprises, and alongside this industrial districts formed by SMEs.

The Redistribution of Property Rights, Corporate Governance and Company Restructuring after Privatisation"

The project covered the main issues of privatisation, corporate governance and company restructuring after privatisation in Hungary and in the Russian Republic, together with a summary of the broader picture of company-level changes in Central and Eastern Europe, discussing the issues of micro-financial restructuring in the Czech Republic, Hungary, Poland and Slovakia. The two countries selected as the focus of research can be regarded as the two most widely differing cases of the economic transformation in Central and Eastern Europe. Hungary began its transition very early in 1989, while Russia was very late in doing so. Hungary first implemented a series of institutional and systemic reforms before stabilising its public finances, while Russia has struggled with financial stabilisation for years without great success. Company restructuring and the introduction of new forms of governance only began in Russia in the mid-1990s. Hungary opted for "traditional" western methods of privatisation and invited a large amount of foreign direct investment (FDI) while in Russia the bulk of state-owned property was privatised either by free distribution or by a strange blend of ESOP-MBO schemes. FDI in Russia remained modest because of the high risk and uncertainty surrounding economic transactions there. Hungary was a forerunner in privatising public utilities, while Russia has moved cautiously in this area. The group's studies show that the Hungarian economy is now over the "transformation recession" and its economic success is largely due to its successful privatisation and to the dominant participation of foreign investors in company take-overs and in the restructuring process. The study of Russia provides a comprehensive account of the main factors in the so-far modest results in Russian privatisation and economic transformation.

Separation of Ownership from Control and Discretionary Managerial Behaviour in a Transition Economy

This study was the final stage of a four-year study of managerial behaviour and company performance in Bulgaria and examined the influence of changing ownership and control structures of companies on managerial behaviour and initiative. It provides a theoretical summary of the specific types of ownership, control, governance structures and managerial strategies in the Bulgarian transitional economy during 1992-1996. It combines two theoretical approaches, the property-rights approach to show concentrated property-rights structure and private and majority types of control as determinants of efficient enterprise risk bearing and constrained managerial discretion, and the agency theory approach to reveal the efficient role of direct non-market governance mechanisms over managers. Mr. Peev also used empirical information collected from the Central Statistical office in Bulgaria, three different enterprise investigations of corporatised state-owned enterprises between 1992 and 1994, and his own data base of privatised and private de novo industrial companies in 1996-1996. The project gives a detailed description of the main property-rights structures in Bulgaria at the present time and of the various control structures related to these. It found that there is a strong owner type of control in private and privatised firms, although, contrary to expectations, 100% state -owned enterprises tended to be characterised by a separation of ownership from control, leaving scope for managerial discretion. Mr. Peev predicts that after the forthcoming mass privatisation, many companies will acquire a dispersed ownership structure and there will be a greater separation of ownership from control and potential or inefficient managerial behaviour. The next aspect considered in detail was governance structures and the influence of the generally unstable macroeconomic environment in the country during the period in question. In examining managerial strategies, Mr. Peev divided the years since 1990 into 3 periods. Even in the first period (1990-1992) there were some signs of a more efficient role for managers and between 1992 and 1994 the picture of control structures and different managerial behaviour in state-owned companies became more diversified. Managerial strategies identified included managerial initiatives for privatisation, where managers took initiative in resolving problems of property rights and introducing restructuring measures and privatisation proposals, managerial initiatives for restructuring without privatisation, and passive adjustment and passive management, where managers seek outside services for marketing, finance management, etc. in order to adjust to the new environment. During 1995-1996 some similarities and differences between the managerial behaviour of privatised and state-owned firms emerged. Firstly, the former have undergone many changes in investment and technology, while managers of state-owned companies have changed little in this field, indicating that the private property-rights structure is more efficient for the long-term adaptation of enterprises. In the area of strategies relating to product quality, marketing, and pricing policy there was little difference between managers of private, privatised and state-owned firms. The most passive managerial behaviour was found in non-incorporated state-owned firms, although these have only an insignificant stake in the economy.

Economic and Social Changes in Czech Society after 1989: an Alternative View

The group presents an analysis of the development of the Czech society and economy during the 1990s. They believe that the Czech neo-liberal strategy of transformation led to a partial and uneven modernisation and that this strategy is unable to provide a firm basis for a complex process of modernisation. The increasing developmental problems encountered during 1996-1999 can be seen as empirical evidence of the inadequacy of the neo-liberal transformation strategy. These problems are connected to institutional shortcomings due to the excessive speed of privatisation, its form with certain important Czech innovations (particularly the voucher method and an attempt to resuscitate the Czech national capital) and with the overlooking of the importance of the legal framework and its enforcement. The overly hasty privatisation has created a type of 'recombinant property' which lacks the economic order necessary to stimulate efficiency in an atmosphere of prevailing social justice. A second reason for the present difficulties is the long-term lag behind the civilisation and cultural standards typical of the advanced European countries. The first steps of the Czech transformation concentrated mainly on changes in the institutions important for the distribution of power and wealth and largely neglected the necessity of deep-reaching modernisation of Czech society and the economy. The neo-liberal strategy created conditions conducive to predatory and speculative behaviour at the expense of creative behaviour. Inherited principles of egalitarianism combined with undeserved economic privileges survived and were reinforced by important new developments in the same direction. This situation hinders the assertion of meritocratic motivations. The group advocates the development and implementation of a complex strategy of modernisation based on deliberate reforms, institutional changes and restructuring on the basis of strategic planning, and structural and regional policies which stress the role of cultivation of the institutional order and of the most important factors of economic growth and development.