REVIEW #7: Crony-Owned Enterprises in Hungary

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The state’s influence on the economy through company ownership is a peculiar issue. The Hungarian state’s share in the economy is high – but mostly in line with other countries. What stands out among OECD countries is the number of companies owned partially or wholly by the state that attests to some degree of micromanagement. But state-owned enterprises (SOEs) are just part of the problem. What the statistics – and macroeconomists – cannot measure is how much of the economy is run not by the state, but by cronies.

Download full article: 07_CRONY-OWNED ENTERPRISES IN HUNGARY_ESZTER NOVA

SOEs have a massive problem of not having to respond to market forces and becoming vehicles of rent-seeking. But crony-owned enterprises (COEs) are not driven by market logic either. If SOEs are less motivated to serve customers and deprioritize market demands in favor of easy public money, COEs are no better. Transparency and legal sheltering by the state are issues for both types of enterprises. The only difference between SOEs and COEs is that COEs are not meant to benefit the budget or the public. They are a step backwards, even from a state-controlled economy (misleadingly called state capitalism).

Hungarian State in the Economy

According to OECD statistics, the share of the state in the Hungarian economy is large, but similar to other countries. When it comes to the number of companies owned by the state, though, Hungary leads by a gigantic margin.

According to 2012 OECD data, Hungary led OECD countries by number of SOEs, responsible for about 5% of state-dependent employment. The Hungarian state owned no less than 371 companies partially or wholly, followed by Poland (326 SOEs), Lithuania (137 SOEs), and the Czech Reublic (125 SOEs), among OECD countries.

Download full issue: SOS SOEs_REVIEW7_FULL 

Eszter Nova
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