No. 19, 1993 - Stages of State Involvement: Dilemmas and Turningpoints for Privatization in Hungary

In recent years, Hungarian society and economy have entered the path of transition to a market economy. In this transitional period, the privatisation of state property plays a special role. Principles establishing its regulatory and institutional preconditions took shape in parallel with recognizing the importance of privatization. Antecedents like institutions, regulations and the behaviour patterns of companies and state economic management – which were deeply rooted in Hungarian society during the two decades of reforms – contributed to forming the principles. The importance of antecedents should be stressed because, compared to other countries of the Central European region, they had established the preconditions of a more gradual and natural transformation in Hungary by the time privatization was put on the agenda. Thus, the gradual transition to a market economy implied that the companies, financial sector and state economic management met the new requirements with some previous experiences.
Regarding privatization, all of these facts made possible choices among the strategies to apply. In principle, there were two essentially different strategies to choose from. They were basically different in the extent to which they applied market and non-market methods in establishing the new ownership structure.
As essential element of the privatization strategy to be developed was the determination of the characteristics of state involvement. Hereafter, the effects of changing (strengthening) state involvement in recent years will be discussed. This changing involvement has modified the characteristic features of privatization and the realization of principle which influenced privatization earlier. The paper explains how the market methods of privatization are losing their importance as an effect of tensions accompanying the transformation process, while non-market procedures seem to be gaining new strength.
The stages and turning points of the five-year history of privatization in Hungary will be analysed in a chronological framework. This survey deals with the economic determinants of privatization, excluding the direct political considerations which often push economic motives into the background. (The political aspects can not be completely excluded, since the changing of property rights and ownership structure is closely connected to power redistribution in Hungarian society.) The lead up to the privatization of enterprises and the dilemmas which have emerged in the wake of accompanying tensions will be analysed. The next step will be the describing of the way the state has tried to overcome the dilemmas by strengthening its influence in managing the problems of privatization. Finally, a developing trend will be highlighted, one which may lead to an open break with the principles having characterized privatization until now.
The paper is available here.