Varieties of Entrepreneurship on Europe’s Periphery: Illiberal Hungary in Historical Context

Abstract

This paper suggests that a combination of varieties of capitalism (VoC) and entrepreneurial ecosystem (EE) approaches is not only capable of revealing that there is a broader variety of entrepreneurship than currently offered in the literature but also that certain types of entrepreneurship are transnationally interdependent. Historically embedding the case of illiberal Hungary, the paper discusses several models of entrepreneurship via the scholarship of Iván Szelényi, a neoclassical comparative sociologist of social, political and economic transformations in the former Soviet bloc. Szelényi’s contributions span from studying Socialist entrepreneurship of the 1970s and 1980s to investigating transformations in two post-Socialist contexts, first, the post-1990 area when neoliberal transnational entrepreneurship coexisted with domestic neo-patrimonial entrepreneurship, and second, the post-2010 epoch when illiberal transnational entrepreneurship is intertwined with domestic neo-prebendal entrepreneurship. The paper offers conclusions for entrepreneurship research in two respects: first, it underscores the relevance of the transnational dimension, second it puts emphasis on the importance of a more nuanced understanding of agency in the ream of political coordination exercised by political classes in structuring opportunities and constraints both for domestic as well as for transnational entrepreneurship.

Keywords:

• Entrepreneurship
• entrepreneurial ecosystem
• varieties of capitalism
• legitimacy
• Weber
• post-socialist
• neoliberal
• illiberal

Varieties of entrepreneurship: combining varieties of capitalism and entrepreneurial ecosystem approaches

The chief ambition of both varieties of capitalism (VoC) scholarship and entrepreneurial ecosystem (EE) research is to study the systemic framework of entrepreneurship, a multifaceted phenomenon that is critical to economic and social prosperity (Hall and Soskice 2001; Hancké, Rhodes, and Thatcher 2007; Acs and Szerb 2007; Acs, Autio, and Szerb 2014; Stam 2015). Both approaches are fundamentally comparative and assess the role of an array of formal and informal institutional factors as well as some of the individual level attributes that play into substantially different models of entrepreneurship around the world. When applied separately, both VoC and EE have a weak understanding of historical change, something that scholars of post-Socialist transformations, like sociologist Iván Szelényi (Eyal, Szelényi, and Townsley 1998; Szelényi and Mihályi 2020), political economists Dorothee Bohle and Béla Greskovits (2012, 2018) and scholars of global social change (Böröcz 1992, 1993, 1999; Éber 2019) managed to surmount by offering a wider scope of models of capitalism along with subtle explanations as to how they came about and how they continue to change. The case of Hungary in particular and transition economies in general offer a historical laboratory of sorts where a whole string of entrepreneurship models (Smallbone and Welter 2001; McMillan and Woodruff 2002) evolved from Socialist to illiberal, a series which presents a challenging precedent of dynamic change that entrepreneurship scholars should be able to have a handle on.

In order to empirically delineate distinct models of capitalism, VoC scholars focused on complementary national institutions that govern companies’ interaction with labor markets, financial markets and institutions of research and education. Several distinct models of how companies access the key resources of finance, labor and know-how have been identified (Hall and Soskice 2001): liberal market economies (LME)¹, coordinated market economies (CME)², Mediterranean market economies (MME)³ (Amable 2003) and Eastern European dependent market economies (EEME)⁴ (Nölke and Vliegenthart 2009; Lane and Myant 2007; Myant and Drahokoupil 2011). Eastern European market economies were further distinguished into three post-Socialist models of capitalisms by Bohle and Greskovits (2012): neoliberal post-Socialist market economies⁵, embedded neoliberal post-Socialist market economies⁶ and neocorporatist post-Socialist market economies⁷.

Entrepreneurial ecosystems, on the other hand, have been empirically identified on national and regional levels via composite indicators such as Global Entrepreneurship Index (GEI), or the Regional Entrepreneurship and Development Index (REDI) exposing entrepreneurial diversity along the dimensions of individual level entrepreneurial attitudes, abilities and aspirations as well as the institutional settings into which entrepreneurial activities are embedded (Acs and Szerb 2007; Acs et al. 2014; Szerb et al 2019, 2022). The entrepreneurial ecosystem approach grasps the complementary factors of systemic and framework conditions that explain entrepreneurial activity and the overall impact of entrepreneurship on the economy and society (Stam 2015).

Combining varieties of capitalism and entrepreneurial ecosystem approaches enables us to appreciate a far greater diversity of entrepreneurship than conventionally discussed in the literature. “A plea for” for a varieties of entrepreneurship agenda has already been made recently (Dilli, Elert, and Herrmann 2018; Herrmann 2019), albeit with bias toward developed economies. The ambition to combine VoC and EE research programs also opens up the question of how we can explain the interplay between institutional conditions and entrepreneurship in cases when entrepreneurship undergoes salient to radical changes. The understanding of such changes in entrepreneurship has to rely on the perspective of complex institutional macro transformations on the one hand (as pursued in the VoC approach), and on the other hand on the perspective of the interaction of individual and institutional factors (as practiced in EE research).

Iván Szelényi’s scholarship is dedicated, in part⁸, to the study of these two types of perspectives in the context of how entrepreneurship emerged under Socialism (Szelényi et al 1988), how entrepreneurship developed after 1990 (Eyal et al. 1998), and how entrepreneurship was transformed after 2010 (Csillag and Szelényi 2015; Szelényi and Mihályi 2020). His analytical apparatus for studying entrepreneurship has been evolving in the course of almost 50 years in a Weberian neoclassical sociological framework (Bohle and Greskovits 2020; Eyal, Szelényi, and Townsley 2001, 2003) which enables a robust understanding of agency and systemic transformations, both for varieties of entrepreneurship as well as for his larger project, varieties of Socialist and post-Socialist regimes.

Varieties of entrepreneurship in socialist and post-socialist regimes

Szelényi advocates a Weberian concept of regime, i.e. systemic conditions anchored in one or more types of legitimacy (Szelényi and Mihályi 2020). All four ideal types of legitimacy distinguished by Max Weber, traditional, legal rational, charismatic and democratic legitimacy respond to the fundamental question why people accept authority and on what grounds authority is claimed. As ideal types, they are analytical constructs and do not immediately correspond to empirical reality: their purpose is to delineate coherent aspects of social reality in order to be applied to concrete research questions – in our case, to the question of the systemic and framework conditions of entrepreneurship in Socialist and post-Socialist regimes.

Traditional legitimacy rests on the belief that traditions originating “time out of memory” designate and at the same time constrain the personal authority of various traditional rulers such as patriarchs (who rule over their household), landlords (who rule over their land and the people living on the land), predenbal lords (who rule over several lands with the assistance of personal prebendal clients), patrimonial lords (who rule over several lands with the assistance of personal patrimonial “officials”) and feudal lords (who share their authority by granting fief to their vassals who become landlords themselves). The difference between prebendal clients and patrimonial “officers” lies in the extent to which their lords grant them personal and material autonomy: in the case of prebendal clients, they only have their lord’s orders and allowances to rely on, whereas patrimonial “officers” can expect to be regarded as competent in matter that fall in their “expertise” and be able to dispose over the means of administration, including some property. Traditional legitimacy implies a social network of personal loyalties and interdependencies. The corresponding economy, traditional economy is typically aimed at providing sustenance for all those who are traditionally interdependent.

Legal rational legitimacy, in contrast, rests on the belief that it is not men but written laws and regulations which rule the lives of people who act in their overlapping capacities as officers or lay clients of various impersonal bureaucratic organizations, from state bureaucracy to a number of other hierarchies, such as corporate, educational, health care organizations, etc. Impersonal legal rational authority (“legality”), is highly calculable even if laws and regulations themselves can change, for modifications can happen as prescribed by procedures for amendments. Legal rational authority implies overlapping social networks of impersonal ties connecting lay clients, subordinate and superior office holders. The corresponding economy, rational capitalism is typically aimed at producing goods and services for the market to realize profit and wages in the context of the capitalist firm which ties free employers and employees via impersonal employment contracts.

Democratic legitimacy is again an inherently personal rule, where voters put and sustain their trust in candidates, representatives and leaders to do what is best for “we the people” irrespective of traditions or legal regulations. Democratic legitimacy is similar to the fourth type, charismatic legitimacy in that followers of charismatic leaders to whom exceptional qualities are attributed (such as rhetorical capacity, great deeds or impressive personality traits) do not expect that traditions, laws (or even common sense, for that matter) be observed. Purely charismatic visions typically neglect the economy, are not capable of sustaining provisions for large groups of people in the long run but are rather prone to ignite revolutionary changes. Followers cannot help but are swept away by the leadership of an exceptional person resulting in ephemeral social networks sustained as long as charisma is “proved”. Democratic legitimacy, in contrast, implies relatively stable social networks of interdependent trustors and trustees who interact in negotiating the public good in many walks of life, including the economy.⁹

When applied as analytical tools for understanding social reality, pure ideal types are never to be encountered in concrete empirical settings according to Weber. Instead, when they are properly construed, it is the combination of ideal types that can serve the purposes of interpreting targeted aspects of empirical reality. Szelényi, accordingly, draws on several types of legitimacies to portray the totalitarian Socialist regime, the reform Socialist regime and two chief versions of post-Socialist regimes in the context of the former Soviet bloc in general and Hungary in particular (Szelényi and Mihályi 2020).

While Socialist regimes in their totalitarian stage were ruled by a combination of terror, charismatic Stalinist style rulers and the nomenclature of the state bureaucracy which also run the centrally planned economies of the Soviet bloc, reform Socialist regimes opted for more rational solutions. Attempts at improving rational redistribution by relying on professionals with the potential of grating power to intellectuals (Konrád and Szelényi 1978, 1979) were followed by the inclusion of rational market mechanisms. Seizing market opportunities were one form of Socialist entrepreneurship by managers of state owned firms (Szelényi and Mihályi 2020), a practice that rationalized the bureaucratic control over the economy. Socialist entrepreneurship by rural agricultural family business (Szelényi et al. 1988) on the other hand was situated outside the confines of Socialist bureaucracy and relied on traditional motivations in two respects: firstly in terms of the family based organization of entrepreneurship, secondly by virtue of recourse to family legacies of entrepreneurship as a motivational factor to seize the opportunity opened up by the reform Socialist regime to produce independently (Szelényi et al. 1989).

The post-1990 transformation of the Socialist regime was propelled by the charismatic appeal of intellectual (Bildungsbürger) neoliberal ideology (Eyal et al. 1998; Bohle and Greskovits 2012) whose revolutionary impact was formidable both on the reconstruction of the political system, the creation of institutions of democracy and the rule of law as well as in informing the transformation of the economy. The post-socialist neo-liberal regime dogmatically pursued privatization and promoted FDI, creating the contours of what we propose to call post-socialist neoliberal transnational entrepreneurship, the study of which continues to captivate scholars to this day. One group of researchers captures the systemic conditions of this type of entrepreneurship as FDI-dependent growth regime (Gerőcs 2021; Gál 2013; Gál and Schmidt 2017; Nolke and Vliegenthart 2009; Drahokoupil 2008), generating a dual economy along sectoral divides separating TNCs and domestic companies (Bohle and Greskovits 2012; Scheiring 2020). Szelényi and Mihályi (2020) offer a more comprehensive perspective in this regard in that they situate both the transnational and the domestic dimension of entrepreneurship in the context of the post-socialist liberal regime. Legality notwithstanding, the creation of domestic bourgeoisie necessarily involved neo-traditional elements of patron-client dynamics in access to capital, credit, information and property, resulting in post-socialist neo-patrimonial entrepreneurship as a counterpart to post-socialist neoliberal transnational entrepreneurship. Szelényi and Kolosi (2010) in their volume, How to be billionaires? The spirit of neoliberal post-communist capitalism concluded that by 2010 the position of post-socialist neo-patrimonial entrepreneurship vis-à-vis politics was so secure that top businessmen were on a par with political leaders in Hungary.

The post-2010 transformation of the post-socialist neoliberal regime was propelled by the political class headed by a plebiscitary leader (Körösényi 2019; Körösényi, Illés, and Gyulai 2020) in coalition with neo-patrimonial entrepreneurs dissatisfied by their market positions vis-à-vis neoliberal transnational entrepreneurs (Scheiring 2020; Gerőcs 2021). The post-socialist illiberal regime initiated a major restructuring of opportunities and constraints resulting in changes that affected both the transnational as well as the domestic segments of entrepreneurship in post-2010 Hungary. As Bohle and Greskovits note (2018:7) “[t]wo sets of policy measures have been designed to combat inequality in the position of foreign and domestic capital: sectoral taxes [banking, energy, tele-communication, advertising, retail] and the nationalization of some companies and redistribution of others to native actors.” At the same time, FDI was not discouraged and NTCs were selectively targeted with massive direct subsidies (double of that which had been allocated between 2004-2010, notes Scheiring 2020) (Gerőcs 2021). Close to a hundred TNCs and domestic companies have also been promoted publicly in a series of so called partnership agreements since 2012.¹⁰ Key beneficiaries of this new area have been German automobile TNCs (relocating to Hungary in the context of the post-2009 crisis recovery, Gerőcs and Pinkasz 2019) reinforcing the core of what we propose to call post-socialist illiberal transnational entrepreneurship. The domestic counterpart is predicated upon systemic conditions deeply intertwined with those of illiberal transnational entrepreneurship, but diverging from the neo-traditional legitimacy of neo-patrimonialism. Patron-client dynamics in post-socialist neo-prebendal entrepreneurship are no longer confined to securing access to capital, credit, or information but extend to the large scale restructuring of property relations (e.g. in the domestic service and bank sectors Mihályi and Szelényi 2019), favoritism in public procurement, opportunity creation in the non-tradable sectors (Gerőcs 2021) and vast direct subsidies to clients (28 times more than that which had been allocated between 2004 and 2010, notes Scheiring 2020). Paradoxically, improving material conditions facilitated by the accumulative state (Scheiring 2020) at the same time increases the exposure of entrepreneurship via the overall destabilization, volatility and unpredictability of property relations (Szelényi and Mihályi 2020).

The articles in this special issue deliver empirical evidence on contemporary Hungarian entrepreneurship in a European context. Szerb et al. (2022) show the diversity of European entrepreneurial ecosystems on various regional levels and highlight the relatively disadvantageous position of contemporary Hungarian entrepreneurship even in a European peripheral context. Grünhut, Bodor, and Erát (2022) show the diversity of European entrepreneurial value systems, highlighting a robust homogeneity of entrepreneurial values on Europe’s periphery: Hungarian entrepreneurship is no exception to the peripheral entrepreneurial profile characterized on the one hand by low appreciation of challenges, risks, competition, novelty, and innovation and on the other hand by high appreciation of prestige, power, material and symbolic wealth. Huszár and Berger (2022) embed entrepreneurship in Hungarian social structure and show that in the context of material improvement, middle class attitudes combine increasing status consciousness with weakening solidarity.

Conclusions

Entrepreneurship in the post-socialist Hungarian context offers evidence of the importance of the transnational dimension: although there are important differences in the systemic conditions of the neoliberal area in the two decades after 1990 and in the illiberal area after 2010, both are examples of TNC-driven entrepreneurial ecosystems. Neoliberal transnational entrepreneurship coexisted with domestic neo-patrimonial entrepreneurship, while illiberal transnational entrepreneurship is intertwined with domestic neo-prebendal entrepreneurship. Reflection on how regime changing changes came about that restructured opportunities and constraints both for domestic as well as for transnational entrepreneurship is another aspect that can enrich future entrepreneurship research. A more nuanced understanding of agency in the realm of political coordination exercised by political classes appears to be indispensable as evidenced by the impact of the neoliberal consensus around 1990 and the potency of illiberal leadership after 2010.

These points are all the more relevant as Hungary is evidently not alone either in terms of TNC influence or as far as the changing status of domestic entrepreneurship is concerned. FDI intensity and TNC presence is a decisive attribute of both neoliberal and embedded neoliberal post-socialist capitalisms from the neoliberal Baltic societies to the embedded neoliberal societies of Poland, Czech Republic and Slovakia (Bohle and Greskovits 2013), whereas the transformation of domestic entrepreneurship from neo-patrimonial to neo-prebendal models appears to be at the core of changes in post-2000 Russia as well (Szelényi and Mihályi 2020). Incorporating the aspects of transnational interdependence and political agency into entrepreneurship research has the potential of enlarging the geopolitical and historical scope of studies in varieties of entrepreneurship.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

Research was funded by the National Research, Development and Innovation Fund of Hungary, Project FK138098.

Notes on contributors

Katalin Füzér

Katalin Füzér is Associate Professor of Sociology at the University of Pécs. She holds a PhD in Political Science from the University of Pennsylvania and studied sociology at Beloit College and Eötvös Loránd University, Budapest. Her research interests cover trust and social capitals, class formation, the digital transformation and related public policies.

Notes

1 US, Canada, UK, Ireland, Australia, New Zealand.

2 Japan, Germany, Austria, Switzerland, Netherlands, Belgium, Denmark, Finland, Sweden, Norway

3 France, Portugal, Spain, Italy, Greece

4 Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Slovenia.

5 The Baltic states of Estonia, Latvia, Lithuania.

6 The Visegrád states of Poland, Czech Republic, Slovakia, Hungary.

7 Such as Slovenia.

8 The other two protagonists of Szelényi’s oeuvre are, famously, intellectuals (Konrád, Szelényi 1978, 1979), and, less famously but equally importantly, socially excluded groups, such as the Roma, the underclass, guest workers or the industrial working class with rural residence (cf. a broad overview by Western 202045).

9 We recognize that treating democratic legitimacy on equal footing with Weber’s „three pure types of legitimacy” is not conventional, noted also by Szelényi (Szelényi, Mihályi 2020). For a recent discussion of the similarity vs contrast between Weberian charismatic and democratic legitimacy cf. the persuasive account of Magalhães (2022) who, quoting Weber (2005: 741–742), shows that democratic legitimacy is an “anti-authoritarian reinterpretation of charisma … entail[ing] a reversion of the original causal nexus: the authority of the charismatic leader no longer stems from intrinsic exceptional qualities, which per se command the devotion of followers—in the pure form of charismatic authority, obedience, far from being a matter of choice, is owed to the ruler that proves to be touched by grace—but rather from the selection of the leader by the followers” (Magalhães (2022:74).

10 https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok Accessed 14/08/2022.