Market reform and state paternalism in Hungary: a path-dependent approach

Hungary is one of the worst-hit countries of the current financial crisis in Central and Eastern Europe. The deteriorating economic performance of the country is, however, not a recent phenomenon. A relatively high ratio of redistribution, a high and persistent public deficit and accelerated indebtedness characterised the country not just in the last couple of years but also well before the transformation, which also continued in the postsocialist years. 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. The paper attempts to explore the reasons behind policymakers’ impotence to reform public finances. By providing a path-dependent explanation, it argues that both communist and postcommunist governments used the general budget as a buffer to compensate losers of economic reforms, especially microeconomic restructuring. The ever-widening circle of net benefiters of welfare provisions paid from the general budget, however, has made it simply unrealistic to implement sizeable fiscal adjustment, putting the country onto a deteriorating path of economic development.

Running in the Family – Paternalism and Familiness in the Development of Family Businesses

The study focuses on two features of family businesses (FBs), namely familiness and paternalism. These two concepts are inseparable in two ways: inseparable from family businesses and also from each other. Family businesses differ from one another in the degree of family involvement, leadership and management in the business. Paternalism as a leadership attitude is naturally present in FBs, especially in the founding stage of development. This feature provides the solid bases for establishing a strong and proud culture built around the personality and success of the founder. This characteristic however can become a major hindering factor upon succession. Through a review of the literature and the INSIST studies for Central Europe this study aims to identify the supportive and limiting factors of both phenomena and examine the case studies of the INSIST research project for signs of the existence of these supportive and limiting factors. It is found that the degree of familiness in these firms is a sliding scale and a lack of familiness is not a precursor for failure. Paternalism is found to be broken down into authoritarian, benevolent, moral and enlightened. After discovering studies claiming that paternalism is a stage in the process of leadership style changing from participative to autocratic (or vice versa) and that Central Europe and the current era of instability and uncertainty lead to employees preferring a more autocratic or paternalistic style, our findings suggest that there are more driving than restraining forces for family firms adopting a paternalistic style. Furthermore many cases appear to be on the path from an authoritative towards a more enlightened paternalistic leadership style either out of choice in the search to shake off the drawbacks of other types of paternalism or as part of a natural evolution of this particular leadership style within the context of this study.

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.