Events

Poverty and the Traps of Hungary's Postcommunist Welfare Reforms

September 14, 2005 // 12:00pm1:00pm

What is the nature of poverty? Is it the price societies must pay in order to achieve a successful transition to a market economy? Or is poverty a permanent feature of society, regardless of market type? These were the questions that Julia Szalai prompted her study of Hungarian welfare reforms 15 years after the transition to a free market began.

To answer these questions, Szalai needed to define what type of economic system Hungary had created through its transition from a command economy. Within the spectrum, ranging from Nordic-style socialism to Austrian corporatism to British liberalism, her findings indicate that Hungary has created its own hybrid style of liberalism and corporatism.

Like other postcommunist countries, Hungary was under pressure by the World Bank and the IMF to implement the so-called "Washington consensus," which is a liberal framework for economic transition. According to that model, Hungary downsized the public sector, emphasized individual responsibility, transferred property from the public to the private sector as well as other policies meant to speed up the process of marketization. In so doing, the state's withdrawal from the economic sphere inadvertently led to a wholesale desertion of state responsibility for the people who were affected by the changes.

At the same time, what had existed in Hungarian socialism as the "second economy," that is small-scale private enterprise, served as the social basis for entrepreneurship in the new economy. Under communism, entrance into the second economy was contingent on being a part of the first economy. This essentially meant that most people had two jobs, one in the public sector (in which they put minimal effort) and one in the private sphere (in which they put all their energy). On the day the old regime collapsed, those that could operate in the second economy instantly transformed into legitimate businesses and became the primary actors that shaped the new market. These new entrepreneurs created a nexus between business and the government, which adds a corporatist element to the Hungarian economy.

Since the second economy was closed to the poor under communism, the poor lost out in the transition period as well. This group makes up about one-fourth of the population, yet it does not have much influence over government policy and welfare reforms, since the government has been under greater pressure from external forces pushing the Washington consensus and internal forces promoting their corporatist goals. In addressing the issue of welfare reform, moral arguments have been raised about the so-called "deserving" and "undeserving" poor, stressing the importance of individual responsibility. As a result, the welfare state in Hungary is in ruins, with little hope for reform.

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Experts & Staff

  • Christian F. Ostermann // Director, History and Public Policy Program; Global Europe; Cold War International History Project; North Korea Documentation Project; Nuclear Proliferation International History Project
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