No. 69, 2005 - Thoughts on Hungarian Industrial Policy–adaptation and pathfinding

The Hungarian industrial policy of the future should be a competition and development oriented policy encompassing not only the industry itself, but also numerous segments of the economy. Conceptually, it is much more a horizontal policy – operating with sector-neutral instruments – than a type of sector policy. Thus, in our approach, industrial policy comprises business policy, innovation and technology policy, as well as competition policy.
Today’s industrial policy must face two challenges:
-it should contribute to the improvement of competitiveness of the Hungarian industry, with considering issues like easing pressures on the environment, or social and employment-related – consequences of structural transformation
-it should promote a rapid integration within the internal market of the European Union Industrial policy goals, such as improvements in competitiveness, modernization of the production structure, support for SMEs (small and medium enterprises) as well as for environmental issues, have become harmonized with those of the European Union. In the course of implementation instruments that conform to EU standards are to be used with aiming at improving cooperation between the domestic SMEs and the multinational corporations, enabling corporate networks, increasing the capacity for corporate innovation, encouraging investments.
In line with the Lisbon goals the EU’s new industrial policy has become more innovation-oriented, providing guidelines for establishing necessary frameworks encouraging entrepreneurs.
As a result of the accession:
-Hungary has become a part of the internal market, thus accommodation becomes inevitable
-Hungary’s state aid system has already been adjusted to fit the goals and the competition policy rules of the EU. As in the development policy of the future the importance of structural funds and the necessary Hungarian co-financing will grow (especially after 2007), we might assume that the guiding role of the EU objectives will strengthen
Due to export-orientation and the preponderance of foreign capital in the locomotive sectors of Hungarian industry, our integration in international production networks in the future will continue to be realized through the mediation of FDI. In the areas where foreign companies dominate already, the direct influence of economic policy is very limited. However, the improvement of the general framework of investments and entrepreneurial activity in Hungary could make this market more attractive to foreign companies, or keep domestic companies at home, enabling their integration. Many studies have also proven that, within certain sectors, as well as within certain corporate groups, differences are becoming greater than between sectors or corporate groups. Thus, the goal of state institutions desiring to enable industrial development should be instead of pursuing a sectoral approach, the strengthening of broadly-defined competitiveness capabilities, entrepreneurial skills, access to knowledge and capital, workforce training and mobility-increasing tools. The latter permitting cheap access (as soon as possible, perhaps free of charge) of needed information to businesses.

The paper is available here.