THE POLITICAL ECONOMY OF TRANSITION SNAPSHOTS ON
CONTEMPORARY HUNGARIAN POLITY AND ECONOMY
Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,
Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest
Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest
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Authors: Géza Törőcsik, Balázs Szepesi Supervised by Balázs Szepesi
June 2011
Week 10
The context of economic development policy
• This lecture discusses
– How do Hungarian enterprises evaluate the activity of public authorities on the field of regulation and development funding
– How do different groups of companies utilize the public schemes offered for economic development
– What is the statistically observable effect of economic development policy grants
Literature
– Csite András – Major Klára (2010) Az állam és a vállalkozások kapcsolatának néhány jellegzetessége Magyarországon. HÉTFA Kutatóintézet – Bizalom és Vállalkozás műhelytanulmányok IV.
– http://hetfa.hu/wp-
content/uploads/HMT04_Csite_Major_Azallamesavallalkozasokkapcsolatanakneha nyjellegzetessegeMagyarorszagonISBN.pdf
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Entrepreneurs and policy Standard approach
• Business environment (enforcement, regulation, administrative burdens)
• Access to finance
• Motivating innovation
• Improving access to global markets
• Reasoning: growth, jobs, flexibility
Business environment
• Doing Business, Good governance, competitiveness indices (GEM, IMD)
• Measuring administrative costs – it is more than 10% in Hungary
• The ultimate story: DeSoto – The other path
Access to finance
• Market building approach – due to high transaction costs financial markets for SMEs cannot offer acceptable financial products
• Microcredit schemes – peer group control
• Guarantee schemes – public risk sharing
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Innovation, markets
• Cooperation: industrial zones, clusters, cooperatives, local brands
• Information: courses, IT, databases, marketing support
• Infrastructure: telecommunication, incubation, development of business services
Doubts
• What is the goal?
– Economic, social or political motives?
• What is the problem?
– Undeveloped market, disfunctional public services, social cleavages?
• What is feasible?
– Breaking the equilibrium vs. muddling through? Against reality or in alliance with reality
What is the goal?
• Economic motives – more growth
• Social motives – independent leaders in the society, more active people, stable society with accessible mobilization channels
• Political motives – building and maintaining support, breaking economic status quo, mangaing rent channels
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What is the problem?
• Undeveloped market
Market failures (scale, externality, information problems are present)
• Disfunctional public services
Untrustworthy state, hostile tax system, public regimes motivating to hide into informal economy
• Social clevages
Local economic norms are not compatible with market institutions, closed economic-social circles, lack of competitive skills for many people
What is feasible?
Breaking the equilibrium
Grand well planned projects that destabilizes status quo and opens the way for entrepreneural energies
Reform shocks that shakes up behavioral patterns WHO HAS THE POWER TO REFORM?
In alliance with reality
Managing better bargains among stakeholders, small projects based on local native initiatives, accepting informal norms and building on them
