Institutional Transformation and Enterprise Change in an Emergent Capitalist Economy: The Case of Hungary

Abstract

The collapse of state socialism in Eastern Europe has transformed many of the institutions governing state enterprises and was expected to lead to radical changes in enterprise structures and practices. This was especially so where ownership had changed. However, just as new constitutions do not create liberal democracies overnight, so too the withdrawal of the state from direct control over the economy and privatization does not automatically generate dramatic enterprise transformations. This study of 27 Hungarian enterprises in the early 1990s shows that products and the markets served changed remarkably little, and the employment and organizational changes that have taken place in most enterprises have been less radical than might be expected. Ownership changes have not always led to major shifts in control, nor have private owners implemented sharply different policies from state controllers. The highly fluid institutional environment limited the commitment to, and capacity for, major strategic changes in most substantial Hungarian enterprises. Where changes have occurred, they have been most significant in: (a) state enterprises that are in severe financial difficulties, and (b) companies controlled by foreign firms.

Crisis and change in industrial relations in Central and Eastern Europe

“…As anticipated by evolutionary economists who favoured a gradual phasing out of old institutions (Murrell, 1992) and institutional sociologists (Elster et al, 1998;Stark, 1992;Whitley and Czaban, 1998), the transition process was far more complex than the design implementation of new formal institutions (Hoen, 1996). The costs of burgeoning unemployment and social welfare were inevitably financed by loans from the advanced economies, resulting in a 'transnational variety of capitalism' (Bohle and Greskovits, 2007) or 'dependent market economies' (Nölke and Vliegenthart, 2009).…”

Business Systems Theory and Employment Relations

“…Although the business systems framework has been used to analyse the development of economies in Central and Eastern Europe (Czaban et al, 2003;Whitley and Czaban, 1998), recent research in this area has tended to draw on the VoC paradigm (see, for instance, Bohle and Greskovits, 2007;Lane and Myant, 2007;Nölke and Vliegenthart, 2009). Only a limited number of studies, therefore, has attempted to apply and extend the business systems framework systematically to other countries and regions (Wood and Frynas, 2006;Wood et al, 2011).…”

The Institutional Construction of Firms

“…The legal system in such countries is either very limited in its ability to resolve disputes, or liable to render capricious and unpredictable judgements. Schmitz, 1998;Menkhoff, 1992;Whitley and Czaban, 1998;Whitley et al, 1996). When business owners do develop alliances and partnerships in such economies, these are usually based on personal ties, and are family-like if not actually based on close kinship links, as in Taiwan and other Pacific-Asian societies (Gates, 1996;Hamilton, 1997;Hamilton and Kao, 1990).…”

“…It follows from this characterisation of MNCs that only some of them are likely to develop distinctive kinds of transnational organisational capabilities (Whitley, 1998;. Firm specific organisational capabilities take time to build and usually involve relatively "low powered" incentives to encourage employees to work together to deal with technical and organisational problems and to contribute to the improvement of organisational knowledge.…”