Since the 2010 elections, Hungary has been following a unique, yet controversial and debated way of economic and political development. The Hungarian prime minister, Viktor Orbán claims that Western democracy has been failing and a strong ‘illiberal’ leadership is necessary to recover from the crisis. The ruling party, FIDESZ is aiming to strengthen the role of state and government regulation at the cost of weakening market system forces. Under the name of ‘unorthodox’ economic policy the Hungarian government has comprehensively centralized the administration, increased state ownership, levied new, selective taxes, begun to regulate utility prices heavily, and introduced discriminatory rules in many industries. At the same time education, the health system and social security support has been declining.
However, one of the most debated steps has been the change of the incentive structure by supporting the emergence of a new ruling elite. Amongst others, specific licenses (e.g. tobacco selling), explicit rental rights (soil rents), public and EU financed tenders, and selective orders have contributed to the rise of an oligarchic capitalism resembling Russia’s. And what about entrepreneurship? It is clear that most of the changes are against what we call the supporting entrepreneurial ecosystem. At the same time, however, the new technology boom has also reached Hungary giving a push to the emergence of many young, innovative entrepreneurial startups. This startup activity has been supported by government sponsored venture capital funds considerably alleviating the equity gap in the technology dominated high tech and high growth sectors. In addition, many other government and Hungarian National Bank initiatives have been created to improve the financing possibilities of businesses.
What can the Global Entrepreneurship Index (GEI) data show us about Hungary’s entrepreneurial ecosystem? From the historical perspective, Hungary has long been in the middle of GEI rankings. From its historically low 33.5 GEI score in 2008, Hungary improved significantly to 50.3 in 2011. However, Hungary’s GEI score has been declining over the last three years to only 42.7 in 2013. At the same time, other EU member Central and Eastern European countries improved their entrepreneurial position. Not only the Baltic states but Poland, Romania and Bulgaria were also ahead of Hungary according to the latest GEI 2015 report.
Examining further the Hungarian entrepreneurial ecosystem in sub-index level it is clear that Entrepreneurial Attitudes are the lowest out of the three sub-indices followed by Entrepreneurial Abilities. Entrepreneurial Aspirations are the best out of the three sub-indices. Having a closer look at the fourteen pillars, three bottlenecks can be identified: Opportunity perception has always been Hungary’s worst pillar but Product innovation and Competition are also well below averages. In somewhat varying degree, these three pillars have been amongst the lowest pillars over the whole 2006-2013 time period.
An interesting case is the Risk capital pillar: From being a serious problematic factor in 2006 it improved by 2010 significantly, especially due to increased informal investment activity. However, while informal investment improved, small business lending declined considerably. So, the informal investment improvement alone may not be a positive sign for better finance opportunities. In 2013, Finance became problematic again by being the forth weakest pillar. However, focusing only on the improvement of financing options would not help Hungary improve its entrepreneurship ecosystem, since the country faces three other, even more binding bottlenecks: opportunity perception, innovation and competition.
Thus, the Hungarian entrepreneurial ecosystem showed several changes over the 2006-2013 time period. After an impressive improvement, GEI scores declined over the 2011-2013 time period. While the government elected in 2010 introduced many new rules and practices that were against the market economy principle and entrepreneurship, GEI data did not show a major collapse of the Hungarian entrepreneurial ecosystem. However, it seems that a slow weakening could continue, especially if the present trend of private and individual initiations are further discouraged and state intervention is increased. Besides focusing mostly on improving the financing possibilities, Hungarian economic policy should pay more attention to other even more binding problems in opportunity perception, innovation and competition.
