The rise and fall of Hungary - the Britain of East-Central Europe

Hungary, once the best-performing socialist country and a leader in the 1990s, now has a rate of economic growth slower than that of the other countries in the region. The present overweight, overspending state and the returning disequilibria derive from the softer dictatorship of the Kádár period, which instated a 'quasi-welfare state' to boost its legitimacy. Maintaining this on a macro level has softened the country's budget constraint and led to indebtedness. This uncovered 'welfare policy' has survived in a mutant form under democratic conditions and become one of the main causes of today's woes. While the micro-level budget constraints of companies have hardened, soft democracy has allowed the macroeconomic budget constraint on the state to remain soft. The two Hungarian characteristics of a state overweight for decades and the continuity of the process of systemic change have between them turned Hungary into a textbook example of the decline of a society ruled by Olson interest groups.