Abstract
Hungary was regarded a success story of FDI-led development model in Central and Eastern Europe during the 1990s. The country underwent fundamental economic changes which resulted in sound macroeconomic performance. Neighbouring countries could caught-up in FDI attraction instead of FDI transfers from the EU-fuelled economic growth. Critiques-dominated communication and support of selected local companies and clients increased. The capital attraction policy changed from normative to selective measures. Moreover, multinational businesses in trade, communication, and financial services were levied with various surcharges. The chapter analyses the new FDI management toolkit of the Hungarian government. The main conclusion is that the new policy is not a form of economic patriotism but rather a form of patronage in crony capitalism.
The chapter was developed within the framework of a research project supported by the Hungarian National Research, Development and Innovation Office (Grant No. 112069).
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- 1.
Poland, the Czech Republic, Slovakia, and Hungary.
- 2.
The term competition state is taken from Drahokoupil (2008) and refers to liberal state policies which allow global competition to penetrate domestic markets fully. I follow Schoenman (2014) in my use of the term “patronage state”, which refers to the importance of personal business–government linkages in shaping economic policies and a strong, general curtailment of competition on local markets, with the government asserting dominance over business by means of selective-advantage measures (business capture).
- 3.
Some of this work has already been done and published in the literature that I will also cite in this chapter.
- 4.
Drahokoupil (2008) characterises the FDI-related elite—the “comprador service sector”—and its reproduction as follows: “I characterize the domestic actors linked to FDI as the comprador service sector… (It) comprises various groups providing service for foreign investors. It includes local branches of global consulting and legal advisory firms and their local competitors, companies providing other services to foreign investors and officials from FDI-related state bodies. This group is comprador as it is structurally dependent on transnational capital, whose interests it represents. Structurally, this sector is not a bourgeoisie, as it constitutes neither a propertied class nor a professional managerial class….(Its) links to foreign capital can be characterized mainly by the Weberian notions of ‘market capacity’ and ‘income class’….the comprador service sector helps to translate the structural power of transnational capital into tactical forms of power within the states…The structural power of capital is derived from the dependency of the state and society at large on the investment decisions” (pp. 366–7) This type of dependency is also fundamental to Nölke and Vliegenthart’s (2009) DME model.
- 5.
The career of Gábor Széles is a good example of this. Until 1990, he was the president of Műszertechnika Coop, a small firm producing electronic devices for the Hungarian market. His firm was one of the two lucky Hungarian companies which formed a winning coalition with the Swedish company Ericsson for a tender to produce electronic switching centres for the Hungarian wired telephone network in 1992—that is, before the appearance of cellular services. Despite this opportunity, Műszertechnika could not establish itself as a significant player in electronics. Széles then lobbied for another, less technology-intensive opportunity; he ended up participating in the privatisation of the large Hungarian bus producer Ikarus. He also acquired the large Hungarian electronics firm Videoton. Neither of these projects turned out to be successful, insofar as these firms’ original industrial activities could not be maintained. Today, both companies operate primarily as real-estate development agencies and component producers. Széles used to be a high-ranking official in the MDF (Hungarian Democratic Forum), the larger party in the right-wing coalition which formed Hungary’s first post-communist government in 1990. These days, Széles is the owner of a right-wing-oriented media network.
- 6.
The most striking action was the introduction of the “Lex MOL”, an amendment to the commercial code which changed corporate-governance regulations so as to help the Hungarian oil company repel a takeover bid by its Austrian competitor ÖMW. These legal changes were passed—barely—with the mutual agreement of the government and the opposition.
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The other main source of investment financing was EU transfers. Hungarian national sources’ share was rather small.
- 8.
- 9.
The Magyar Külkereskedelmi Bank Rt. (Hungarian Foreign-Trade Bank Co.) was owned by the Hungarian affiliate of Bayerische Landesbank until 2014.
- 10.
The government explained this measure by suggesting the company was guilty of tax evasion. However, it was never explained whether there was anything illegal about RTL’s tax returns; even if there was, why would such irregularities not have been addressed by the appropriate state authority, the tax office?
- 11.
It is of course another question whether today’s sales revenues are sufficiently high for the necessary investments. Observers have suggested that public utility companies are still in extremely bad financial condition and do not invest anymore, which may compromise the quality of their services.
- 12.
A full transcript of these interviews was published in Szanyi (2016b).
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Szanyi, M. (2019). The Emergence of the Patronage State in Central Europe: The Case of FDI-Related Policies in Hungary Since 2010. In: Gerőcs, T., Szanyi, M. (eds) Market Liberalism and Economic Patriotism in the Capitalist World-System. International Political Economy Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-05186-0_6
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