Academic journal article International Journal of Entrepreneurship

Establishing and Developing Entrepreneurship and Small Business Growth in a Post-Communist Economy: The Case of Hungary

Academic journal article International Journal of Entrepreneurship

Establishing and Developing Entrepreneurship and Small Business Growth in a Post-Communist Economy: The Case of Hungary

Article excerpt


Working in a post-Communist economy, the recently-elected government of Hungary has developed a policy and plan to foster the establishment and development of entrepreneurship and small business growth. This article surveys the recent political and economic history of the country, describes the details of this plan, compares its components to current American programs, analyzes the plan and relates it to current research and theory, and presents some recommendations to increase the likelihood of success.


Following the World War II defeat of Germany, and the resulting Soviet dominance of Eastern Europe, a Communist government was established in Hungary in 1948. For more than forty subsequent years, a typical Soviet-style economy existed, with virtually all businesses, down to the smallest one-person workshops, state-owned and part of a centrally planned economic system.

In 1989-90, as the Soviet Union under President Mikhail Gorbachev loosened its grip over the Eastern European nations, the Hungarian Communist Party agreed to free multi-party elections, which resulted in a right-of-center coalition government, and which began the restoration of a market economy in Hungary.

As has been the case for all the post-Soviet Bloc nations, the past decade has not been an easy one for Hungary, either politically or economically. In the 1994 elections, political power was transferred to a left-of-center party dominated by reform-oriented ex-Communists. Most recently, in the May 1998 elections, a center-right coalition gained control (www.itaiep, 1999; www.kecskemet, 1999; www.users, 1999).

This frequently shifting political environment has naturally hampered economic development. Compounding the issue have been several other factors, again common to much of Eastern Europe. A weak economy, with limited investment from the more economically developed nations, in combination with a total population of only about ten million people, and with a generation of managers and workers having no experience in and little understanding of the required skills and attitudes necessary for business success in a free market, have resulted in an economy growing at a pace well below that desired and necessary for a strong and competitive nation.

Furthermore, this transitional economy has had both positive and negative impacts upon the population. Some individuals have risen to the new challenges and opportunities presented by these changes, and a new breed of successful entrepreneurs has started new businesses or taken over old ones (Banerjee, 1999). However, these individuals are few in number in comparison to those persons who have not easily adjusted to the new economic mode. In Hungary, and throughout the old Soviet bloc, the market economy has taken a toll, especially on men, who are now leading shorter and less healthy lives. Specifically, there have been rising suicide rates, poorer health care, and an increase in self-destructive behavior, such as drug and alcohol abuse and crime (Lewis, 1999).

The current government naturally wishes to rectify this situation. Because 99.2% of the 770,000 businesses operating in Hungary today are small, a national plan has been developed in 1999, by the Ministry of Economic Affairs, to foster growth for these small firms.



The overall objectives of this new business development strategy are to generate economic growth and foster employment in the nation. Within this overall objective, family businesses are to be supported, impeded social groups (including ethnic minorities and women) are to be brought into the economy, and schemes to assist small businesses in supplying larger firms are to be established (Ministry of Economic Affairs, 1999).

Firm Size

In 1999, there are approximately 770,000 business enterprises in Hungary, of which 96. …

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