Market reform and fiscal laxity in Communist and post-Communist Hungary: A path-dependent approach

Purpose – The purpose of this paper is to present a conceptual framework in order to analyse and understand the twin developments of successful microeconomic reform on the one hand and failed macroeconomic stabilisation attempts on the other hand in Hungary. The case study also attempts to explore the reasons why Hungarian policymakers were willing to initiate reforms in the micro sphere, but were reluctant to initiate major changes in public finances both before and after the regime change of 1989/1990. Design/methodology/approach – The paper applies a path-dependent approach by carefully analysing Hungary's Communist and post-Communist economic development. The study restricts itself to a positive analysis but normative statements can also be drawn accordingly. Findings – The study demonstrates that the recent deteriorating economic performance of Hungary is not a recent phenomenon. By providing a path-dependent explanation, it argues that both Communist and post-Communist governments used the general budget as a buffer to compensate the losers of economic reforms, especially microeconomic restructuring. The gradualist success of the country – which dates back to at least 1968 – in the field of liberalisation, marketisation and privatisation was accompanied by a constant overspending in the general government. Practical implications – Hungary has been one of the worst-hit countries of the 2008/2009 financial crisis, not just in Central and Eastern Europe but in the whole world. The capacity and opportunity for strengthening international investors' confidence is, however, not without doubts. The current deterioration is deeply rooted in failed past macroeconomic management. The dissolution of fiscal laxity and state paternalism in a broader context requires, therefore, an all-encompassing reform of the general government, which may trigger serious challenges to the political regime as well. Originality/value – The study aims to show that a relatively high ratio of redistribution, a high and persistent public deficit and an accelerated indebtedness are not recent phenomena in Hungary. In fact, these trends characterised the country well before the transformation of 1989/1990, and have continued in the post-socialist years, too. To explain such a phenomenon, the study argues that in the last couple of decades the hardening of the budget constraint of firms have come at the cost of maintaining the soft budget constraint of the state.

Post-Crisis Lessons for Open Economies

In a systemic perspective, what are the primary transmitters of global competitiveness with the proper coordination mechanism? What are the systemic impacts of the U.S. economy on world markets? Will the United States stay the main engine of world economic growth for quite some time to come, or at least in the current decade? Will and should the United States, as the single largest open economy of the world, be in some way responsible for the provision of global economic stability as a valuable public good? Was the recent crisis predictable? These are the main questions addressed, all of which are answered in a new global context, and the responses are based on some known principles of international economics and economic history.

"Rentier States" or the Relationship between Regime Stability and Exercising Power in Post-Soviet Central Asia

The paper intends to give an insight into the relations of the economic and political systems of the Central Asian republics using the theoretical framework of the "rentier economy" and "rentier state" approach. The main findings of the paper are that two (Kazakhstan and Turkmenistan) of the five states examined are commodity export dependent “full-scale” rentier states. The two political systems are of a stable neo-patrimonial regime character, while the Kyrgyz Republic and Tajikistan, poor in natural resources but dependent on external rents, may be described as "semi-rentier" states or "rentier economies". They are politically more instable, but have an altogether authoritarian, oligarchical “clan-based” character. Uzbekistan with its closed economy, showing tendencies of economic autarchy, is also a potentially politically unstable clan-based regime. Thus, in the Central Asian context, the rentier state or rentier economy character affects the political stability of the actual regimes rather than having a direct impact on whether power is exercised in an autocratic or democratic way.