Our accession to the European Union offered an unparalleled opportunity for Hungarian businesses to break out. In the past nearly two decades, Hungary has been one of the main beneficiaries of EU funds, while the state has spent a lot of its own funds on business development, even in a European comparison. The possibility has opened up in principle to break the dualised structure of the Hungarian economy, i.e. to reduce the gap between the productive multinational companies that are prominent in international competition, and the less competitive domestically owned enterprises that have difficulty breaking out of the domestic market.
However, the data so far show that we have not managed to take advantage of the historical opportunity. Although there has undoubtedly been some catching up, the productivity of domestically owned small and medium-sized enterprises is still far behind that of multinationals operating here or regional enterprises of similar size, while in regional comparison, very few domestically owned enterprises have succeeded in becoming international champions. This is especially surprising if we take into account how much EU and budget resources we spent on corporate subsidies, or if we compare the extent of Hungary’s catch-up with the progress our closest regional competitors were able to show.
In doing so, of course, the question arises as to how to determine the purpose of business development grants. In the case of small, capital-poor post-socialist countries like Hungary, the development policy must always take into account the structural obstacle of a lack of capital, as well as the fact that we started at a significant disadvantage in the opening towards European markets, both in terms of the number of already existing domestic companies, the structure of the economy, and the culture of innovation and work considering. It is no coincidence that all the governments that followed the regime change treated foreign capital and the ability to attract foreign investments to Hungary as one of the key factors of our competitiveness. According to the dominant argument since the very beginning of the nineties, the “pulling effect” of multinational companies settling in Hungary is indispensable for the strengthening of the domestic corporate sphere – they argued that the spillover effect associated with the activities of multinationals (supplier chains, technology and innovation, work culture) is ultimately the key to the strengthening of domestic companies due to the interrupted traditions of the market economy.
More than three decades after the regime change and almost two decades after Hungary’s accession to the EU, it is worth examining the lessons that can be drawn from experience and data. We are looking for answers to the following questions below:
- What characterises the past twenty years of Hungarian business development policy?
- What results emerge from the data – has the abundance of resources given to the corporate sector turned out to be a blessing or a curse?
- Does the form of subsidies matter? Which is better: non-refundable aid or loan subsidies and tax incentives?
- Can the direction of the development policy based on foreign direct investment (FDI) be sustained?
- Can we learn lessons from the examples of more successful countries?
- What should we do differently if we set ourselves the goal of being able to substantially help the strengthening of domestic companies in the next decade?