TEN YEARS AFTER: HUNGARIAN BIG ENTREPRENEURS IN THE EUROPEAN UNION 

Prof. MihályLaki

Institute of EconomicsHungarian Academy of Sciences

VUZF UniversityOpen International Seminar

30 November 20121

RESEARCH HISTORY

- Basic research (48 interviews in 1998-2001)

Mihály Laki – Júlia Szalai: The Puzzle of Succes: Hungarian Entrepreneurs at the Turn of the Milleneum Europe Asia Studies Vol. 58 N2 3 May 2006 317-347 pp

- Follow-up research (35+7++31 interviews in 2009-2011)

under publication

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WHAT IS PERMISSIBLE (ACCEPTABLE) IN OUR ECONOMIC SYSTEM?

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PERFORMANCE OF DE NUOVO AND OF PRIVATIZED COMPANIES/OWNER MANAGERSCZECH REPUBLIC More recent studies have reached similar conclusions,

confirming that the oldnew elite of the former Czech nomenklatura and the marketeers from the first stage of the transition were not always selected on the criteria of the first best. Their position was unsustainable as society moved into the second stage of the transition and the rise of the market, competition and efficiency-enhancing institutions of capitalism.

Benaczek (2006) pp. 1165-11664

NEGATIVE EFFECTS OF THE FIRST ROUND SELECTION PROCESS CZECH REPUBLIC

„So the progress of the transition in the Czech Republic – establishing a market economy – was detoured by incompetent entrepreneurship, unsustainable property holdings, frauds, profits derived from implicit subsidies, decision-making intertwined with state bureaucracy and market competition impeded by government intervention. The result was the economic crisis in 1997–1999 when real GDP fell by 1.3%. The macro-economic misalignments were not the cause but a concomitant effect.”

Benaczek (2006) p. 1164.

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WEAK PERFORMANCE OF THE OLD GUARD AND OF THE PRIVATIZED ENTREPRISES POLAND

„In privatized enterprises, not to mention enterprises that are state owned, the owner-management, and management-employee relations have been for some time a carry-over from the communist past. Privatization means that these relations among the same people (limited replacements in the management notwithstanding) are changing rather slowly under the impact of the market environment outside the firm and owners’ performance within the firm. The reason this occurs slowly is because the same people nearly the same intra-firm environment find it difficult to get rid of the bad habits of the communist past.

The story is completelly different in the new firms. There, owner-managers relations (if they are not the same individuals, as often is the case) are set right, that is in accordance with the rules of the market, from the beginning.”

Winiecki ( 2004) p.143. 

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SELECTION PROCESS RUSSIA

„In many large Russian firms „ownership” of private assets is allocated by individual political elites in a personalistic manner.„

King (2002)

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FIRST ROUND OF THE SELECTION PROCESS ROMANIA

„Based on survey and ethnographic data, I suggested that in the race to marketization, the former cadres are at an advantage due to their organizational experience (as a form of human capital) and their network resources. Nevertheless, education, as the most basic form of human capital, plays an extremely important role in this story of post-socialist entrepreneurship: better educated Romanians have the upper hand in operating as employers eleven years after the collapse of the communist regime.”

Stoica (2004) 271. p 8

PERFORMANCE OF PRIVATIZED ENTREPRISES ROMANIA

The managers of the studied organizations respond to

the‘transition’ institutional norms in the way they responded yesterday to the norms of a centrally planned economy. Consequently, old managerial identities are still appropriate to perform the ceremony.

Kelemen (1999) 207.p

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CONCLUSION OF OUR PREVIOUS RESEARCH

„The strategy of adaptation has again been successful, as the earlier statistical data indicate, and domestic grand business has been able to maintain its share and its position. In light of such renewed success EU accession seems to promise easier conditions and mowing forward rather than collapsing. Obviously, it is a new phase with new challenges for adaptation, but after all, this is very area in which Hungarian grand entrepreneurs have for decades shown their most outstanding performance.”

Laki-Szalai (2006) 10

How to analyse non-representative small samples ?

What could be the optimal outcome?

- to produce a documented hypotesis

- which is (could be) an incentive to reconsider (to modify ) the mainstream/dominant theory  

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Definition (previous and

follow up research)

 All the interviewed persons are owners of a decisive (in lot of cases majority) share of the stocks and they are the main decision makers at a company or at a group of companies with hundreds of employees and/or with 0.5-10 thousand million HUF (3-4 million Euro) turnover/year.

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Basic social indicators

Indicator Interview partners 1999-2001 and 2010-2011 (%)

TARKI representative survey (2000) (%)

Control group2010-2011 (%)

Male 92 93 84

Older than 40 (1999-2001

90 79 36

University or College Degree

88 84 80

Living in Budapest or in big towns

73 75

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Turning points of the old guard’s carrier path and methods of acquisition

Turning point indicators Privatization Founding of new companies

Party membership

rather party member

rather non party member

Rank or position

rather top manager

rather staff member

Sector changes rather remained in the socialist sector tillv1989

rather moved into the private sector before 1989

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Performance measured by company development 1990-1999

START UP SIZE

OF THE COMPANY

SIZE OF THE COMPANY IN THE TIME OF THE INTERVIEW

TOTAL

small medium size big

small - 15 11 26

medium size - 7 6 13

big - - 7 7

uncertain - - 2 2

Total - 22 26 48

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Performance measured by company development 2000-2008

START UP SIZE

OF THE COMPANY

SIZE OF THE COMPANY IN THE TIME OF THE INTERVIEW

TOTAL

small medium size big

small - - - -

medium size 9 8 3 20

big 6 2 15 23

uncertain

Total 15 10 18 43

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Plausible explanations (explanatory factors) of the weak performance in

the last decade (companies)

- the mood of property acquisition- world economic crisis since 2008- macro economic development- conventional incentives 1 (taxes)- conventional incentives 2 (loans and rate of interest)- non conventional incentives 1(stable/calculable state regulation)- non conventional incentives 2 (stability of the property rights regime)- branch structure- innovativeness- involvement of the state 17

Growth of GDP industrial production and of the number of companies

Period yearly average growth of GDP (%)

yearly average growth of industrial production (%)

Number of companies

1983-1989 1.5 1.5 fast growth

1990-1993 - 4.7 - 4,6 fast growth

1994-2002 3.6 7.5 fast growth till 1998 later slow down

2003-2008 3.1 6.3 slow growth

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Taxes as % of GDP in HungaryYear Current tax burden Total taxes

(including SSC) as % of GDP in

Total taxes (including SSC as % of GDP EU 25 arithmetic)

1995 2353.3 41,6 36,91996 2790.1 40,6 37,31997 3332.1 39.0 37,51998 3946.7 39,0 37,5

1999 4461.1 39.1 37,82000 5231.4 38.5 37,92001 5843.3 38.3 37,6

2002 6511.8 38.0 37,42003 7129.0 37.7 37,42004 7788.5 37.6 37,22005 8244.2 37.5 37,6

2006 8842.3 37.2 37,72007 10113.1 39.8 38,22008 10731.5

2009 10271.519

Volume of company loans compare to GDP 1999-2008 (%)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Company loans 21.02 22.7 21.45 19.38 21.57 22.61 24.12 24.87 26.16 27.42

Loans for small and medium size companies

4.05 6.68 8.39 8.16 9.43 10.75 12.72 13.19 14.36 14.09

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The distribution of subscribed capital of enterprises with single and double entry in

1992-2009THE DOMINANT OWNER IS

Year State

Hungarian private person

Hungarian company

Foreign person or company

Other Total

1992 52,1 10,2 0,0 11,4 26,2 100,01994 44,5 10,7 17,6 17,8 9,5 100,01995 25,7

11,5 19,1 26,8 17,0 100,0

1997 13,5

10,5 22,6 35,0 18,4 100,0

1998 12,0 10,7 25,6 40,3 11,3 100,01999 9,2 9,1 18,0 51,6 9,5 100,02000 7,9 9,2 20,6 58,5 6,4 100,02001 7,7 8,8 17,0

60,1 6,4 100,0

2002+ 12.3 13.2 24.5 40.2 9.9 100.02003+ 13.3 12.9 22.0 44.2 7.7 100.02004 13.3 14.0 24.0 40.7 8.1 100.02005 8.9 15.1 24.0 40.9 11.1 100.02006 8.1 14.0 25.0 44.2 8.7 100.02007 6.6 13.1 30.9 40.6 8.4 100.02008 6.5 10.4 25.7 50.0 7.2 100.0

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Frequent (typical) characteristics of life/carrier path

indicator old guard controll group

profession of the father middle level manager at a state owned company

owner of a small private company

education university - college university - college

foreign language skills weak advanced

dominant places of learning by doing

state owned big company

family business orforeign owned company (in Hungary or abroad)

involvement in professional-political activities

moderate weak

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The usual market strategy and development (old guard )

- the collapse of state owned companies produced additional demand

- enter to the (shortage) market or market niches of these previous/privatized companies was lucrative

- fast growing market share on these markets stimulate other (Hungarian or foreign) companies to enter

- the impacts of the additional demand disappeared these markets began to saturate – mainly in the first years of the new century

- the newcomers (multinational companies for example) used very efficient tools of competition

- the market share of the previous participants of the competition diminishes23

Some elements of the successful adaptation (control group)

-Diversification

- New markets or market niches at home and abroad

- Restructuring the network capital (cooperation with the multinationals – subcontracting)

- Implementation of West European management methods24

Frequent reasons for business failures (delays)

- too optimistic forecasts

- trade of real estates

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Thank you for your attention!

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