Working Paper
Context and Policies for the Transformation and Growth of SMEs

This paper analyses the Hungarian experience with SMEs development by highlighting the factors and policies that explain the sector features and dynamics and utilizes this experience to suggest an interpretation of the striking differences with Russian SMEs. The case of Hungary is particularly interesting for different reasons. First, Hungary has been a frontrunner in transformation, since she started a far-reaching and complex economic reform well before the other countries, in 1968. Second, Hungary was also the first country to liberalize economic activity for small businesses and to adopt and implement the basic transformation laws. Third, she also was among the very first countries to devise and implement a specific policy for SMEs. Fourth, Hungary adopted a privatization programme of former state owned enterprises based on their sale in the market for real money. This could apparently hamper the establishment of new firms, since capital is likely to accrue to the top-down privatization process. Fifth, Hungarian SMEs are apparently rather successful also in the international market, either directly or as sub- supplier of exporting firms. Sixth, new SMEs are being established largely by individuals who had a particular role in the former political and administrative elite.