Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
CENTRE FOR REGIONAL STUDIES
OF HUNGARIAN ACADEMY OF SCIENCES
DISCUSSION PAPERS
No. 23
Regional and Cohesion
Policy in Hungary
by
HORVATH, Gyula
Series editor
HRUBI, Laszlo
Pecs
1998
Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
Publishing of this paper is supported by
Strategic Task Force for European Integration
ISSN 0238-2008
© 1998 by Centre for Regional Studies of the Hungarian Academy of Sciences
Technical editor: Magdolna Szabo
Figures: Peter Dombi
Typeset by Centre for Regional Studies of HAS
Printed in Hungary by Silmegi Nyomdaipari, Kereskedelmi es Szolgaltat6 Kft., Pecs
Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
Contents
List of Figures / 3
List of Tables / 3
1 Regional pattern of transformation / 5
2 Changing regional policy / 10
2.1 Regional policy trials in early 90s / 10
2.1.1 Rationale for the modification of Hungarian regional policy / 10
2.1.2 Strategic objectives and priorities of regional policy / 11
2.1.3 The relationship between regional and sectoral policies / 13
2.1.4 The 1991 Government Decree on state grants for regional development / 15
2.1.5 Legal regulation between 1992 and 1994 / 19
2.1.6 The territorial structure of Fund utilisation / 23
2.2 Beginning of a new era of regional policy: legislation of 1996 / 25
2.2.1 The Law on Regional Development and Physical Planning / 25
2.2.2 Scientific background of the Law / 29
2.2.3 The lurking threats / 33
2.2.4 The National Regional Development Concept / 35
2.3 Instruments of regional policy / 39
3 EU-compatibility of the Hungarian regional policy / 49
3.1 Basic principles / 50
3.1.1 Decentralisation and partnership / 50
3.1.2 Programming / 52
3.1.3 Concentration and additionality / 54
3.2 Regionalisation / 55
3.2.1 The concept of region in the context of regional development / 55
3.2.2 Unsuccessful attempts for regionalisation in Hungary / 57
3.2.3 Reasons for the criterion of the regions / 57
4 Tasks to be implemented before EU-accession / 59
4.1 The regulation of the functions of different decision-making levels / 59
4.1.1 Decentralised levels / 59
4.1.2 The central level / 60
4.1.3 Other modifications of the organisational system / 61
4.2 Building the regions and the functions of the regional development organisations / 62
4.2.1 Establishing the regions / 62
4.2.2 Geographical designation of the regions / 63
4.2.3 The operation of the regions / 64
4.3 The setting up of the programming system / 67
4.4 The reform of the financing regional development / 68
4.4.1 The concentration of resources / 68
4.4.2 Additionality / 69
4.5 The expected economic and political impacts of accession, parties of counter-interest / 71
5 Concluding remarks / 73
Appendix: A chronology of regional policy in Hungary (1990-1998) / 75
References / 78
Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
List of Figures
Figure 1: Territorial-administrative units (counties) in Hungary / 7
Figure 2: The weight of Budapest in various activities / 8
Figure 3: GDP per capita in regions / 8
Figure 4: Sectoral structure of the infrastructural expenditures of the
Regional Development Fund / 17
Figure 5: Regional structure of the Regional Development Fund / 18
Figure 6: Regional Development Fund expenditures / 24
Figure 7: Distribution of the RDF by counties / 26
Figure 8: Award of RDF per capita / 27
Figure 9: Enterprise zones and industrial parks in Hungary / 38
Figure 10: Eligible areas in Hungary / 47
Figure 11: Population of eligible areas by regions / 48
Figure 12: Various designation of regions in Hungary / 65
List of Tables
Table 1: Regional differences in some market economy
factors in Hungary / 9
Table 2: Assisted settlements by counties / 22
Table 3: Transitions of the Hungarian regional policy at
the end of the 20th century / 32
Table 4: Eligible objectives, forms and size of assistance / 43
Table 5: Regional development supports by counties / 45
Table 6: Eligible areas in Hungary / 46
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
1 Regional patterns of transformation
A constant concomitant and determining factor of the development of modem
economies is an ever fluctuating presence of differences in the economic develop-
ment of different regions. The volume and spatial extent of obvious inequalities in
the income relations and living conditions of the population, and in the state of the
settlement structure and the environment are influenced by both long term deve-
lopment trends (e.g. the history of the settlement structure of the country) and short
term cycles (e.g. effects of economic boom and recession, the changing of the eco-
nomic paradigm).
In 20th century Hungarian regional development, apart from the influence of
the inner regularities of the economy, economic policy and state regional devel-
opment policy was influenced by international political decisions that upset the
spatial structure of the country and delayed its integration into Europe.
Due to the economic policies of the last fifty years and to the settlement struc-
ture development initiated in the 1960's, the spatial structure of the country has
changed, its settlement structure has become formally (considering the rate of ur-
banisation) more modem and differences between the major regions have lessened.
In spite of these undoubtedly favourable changes, the spatial structure of the coun-
try still does not suit the conditions required for the rise of a modern market econ-
omy. The increasing social and economic innovations as well as the country's inte-
gration into the European regional division of labour are hindered by the lack of
cohesion and infrastructural connections between the regions of the country and by
the under-developed character of regional centres.
Hungary's present regional structure may be characterised by the following
(Enyedi, 1993a):
1) A small country which is homogeneous from an ethnic, linguistic, and his-
toric point of view. The population also shares the same history. Over 90 percent
of the people speak Hungarian as their mother tongue. The Hungarian language
does not have regional dialects that differ markedly from the accepted standard.
Traditionally, the country has a uniform, centralised public administration system.
The autonomy of territorial units is weak, and there is no tradition of federalism.
Regionalism is weak within the country. Homogenisation was writ large especially
in the socialist era; now the pendulum has started to swing back. A specific feature
of the Hungarian local government system is recognising the fact that local
authorities are unlimited legal subjects. The local government system is very frag-
mented. Over 35 percent of 3,100 local authorities have less that 500 inhabitants.
5
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
The average-size local government has 3,400 inhabitants which is below the Euro-
pean average (Paine, 1995). The other characteristic of local government is the
loss of importance of territorial government. The Hungarian counties can assume
only such a functions as the local governments in the settlements cannot be obliged
to perform. The size of Hungarian counties both by population and economic ca-
pacity is very restricted (Figure 1).
2) The most characteristic trait of the country's structure is its monocentric na-
ture. The capital has a very large population share (about 20 percent of the total
population). It plays a much bigger role in the intellectual and cultural life and
politics than would be warranted by the size of its population. Budapest is the only
big city in the country, and, in a way, the entire country is its periphery. Different
governments attempted to decrease the overweight of Budapest (and its metropoli-
tan area) in Hungary several times. Most of the attempts, however, failed. Only the
industrialisation of the periferal regions in 1950-1980 had consequences clearly
visible in quantitative data. The share of Budapest from the industrial employees
decreased from 50 percent in 1950 to a level of proportion with its population
(Enyedi—Barta, 1981; Enyedi,1993b). In other subsectors of the economy, in inno-
vative activities the capital city kept its undesirable overweight. Despite all politi-
cal declaration, in neither higher education nor business services, or in R&D took
place a significant decentralisation in Hungary (Figure 2). The performance of
Budapest is almost double the national average, while the GDP per capita in the
underdeveloped regions is only a half of two thirds of that (Figure 3).
3) The most characteristic feature of the regional development status of the
country is the difference in development between the western and the eastern parts
of Hungary (Table 1). The Danube river is an important dividing line. In recent
years, this contrast has become more pronounced. The Great Plain, covering about
one half of the country's area, is a traditional agricultural region. Industrialisation
carried out during the sixties and the seventies failed to modernise the Plain. It
commands special attention due to its peculiar ecological and human settlement
conditions that are so much different from that found elsewhere in Central Europe.
4) There are crisis stricken smaller areas within the larger regions. Agricultural
areas poorly endowed by nature: they are mostly mountainous and hilly areas with
agricultural activities where there is no other kind of economic activity due,
mainly, to their isolation from the main traffic arteries. The decrease in the popu-
lation in these areas has been going on for quite a long time, and there are many de-
populated villages or hamlets where only the old stayed behind. The socialist system
tried to sustain agricultural production with little success. The depopulated villages
and hamlets have been taken over by marginal elements, mostly marginalised. Gyp-
sies.
6
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
Figure 2
The weight of Budapest in various activities, 1970-1996
70
60 —
50
40 —
30 —
20 —
10 —
Business
University and Investments
Financial
Employees in Employees in
services
college
services
tertiary sector
industry
lecturers
1970 1111996
Source: Designed by the author on the basis of Regional Statistical Yearbooks. 1970, 1996. Bp.,
KSH. Various pages.
Figure 3
GDP per capita in regions, 1996
Thousand HUF
Budapest
Centre (Inc.
Western
Central
Southern
Southern
Northern
Northern
Budapest)
Transdanubla Transdanubla Great Plain Transdanubla Great Plain
Hungary
Source: Designed by the author on the basis of Regional Statistical Yearbook. 1996. p. 25.
8
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
2 Changing regional policy
2.1 Regional policy trials in early 90s
2.1.1 Rationale for the modification of Hungarian regional policy
The introduction of a market economy in Hungary, and the transformation of the
social administration, has fundamentally altered the aims and the institutional and
regulatory system of regional policy. The majority of reform programmes intro-
duced as part of the political and economic transformation have had, and continue
to have, an influence on regional processes in the Hungarian economy. The pro-
grammes themselves have also prompted new processes, both favourable and un-
favourable.
Unfavourable changes have emerged from the transformation of the budgetary
and monetary systems. Those regions exporting food and agricultural products, and
those with extractive and raw material industries, have been most adversely af-
fected by the reduction in the former large-scale state subsidies. The new tax sys-
tem relating to the labour force and the abolition of agricultural credit preferences
has resulted in falling incomes and widespread unemployment in rural areas. Even
the new regulatory (normative) system of state subsidies for local governments has
not been able to counteract the disadvantages of lagging regions. As in other Euro-
pean countries, regions of industrial crisis have emerged in Hungary, and lagging
regions are in an increasingly desperate situation.
The transformation of the institutional system of social administration is not in
harmony with regional policy aims. The establishment of autonomous local gov-
ernments and their new fmancing system has created favourable conditions for
local economic development, and particularly for settlement infrastructure. The
establishment of the central Ministry of Environment and Regional Policy is evi-
dence of the growth in importance of regional problems, but the new government
has not created any committees to deal with these problems (unlike the old one).
With the closure of the National Planning Office, medium-level administration has
been weakened, and planning as a means of economic management has almost
entirely disappeared from Hungarian economic policy. No coordinating institu-
tions to harmonise sectoral decisions have been legally established, such as re-
gional development councils. The co-ordination of crisis management and funding
programmes created at the time of economic crisis has, therefore, not been
achieved at institutional level, and the conflicts between individual institutions
have if anything grown more intense.
1 0
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
The establishment of the Regional Development Fund in 1991 was a positive
development. The sources of the Fund, funding principles and the designation of
assisted areas and sectors was heavily disputed by the Ministries, and the mecha-
nism of distribution has been centralised. A small proportion of the resources for
central regional development programmes (prepared for the development of seven
counties and one small region) was decentralised. In some cases, the principles and
priorities for the use of the decentralised state fmancial instruments (e.g. the Em-
ployment Fund) were actually against the development interests of a given region.
There was a large number of independent programmes, concepts, organisations,
budgetary resources and foundations which are all attempting to guide regional
economic development. Some development programmes and business plans were
formulated for certain areas by the regional units of the Hungarian Economic
Chamber and/or by the regional offices of the Foundation for Business Develop-
ment. Local governments, ministries and regional development associations are
being established without either a knowledge of other organisations strategies or
any attempt to coordinate or link with them.
2.1.2 Strategic objectives and priorities of regional policy
More so than in other Central and East European countries, Hungary has pre-
reform experience of operating a type of regional development policy, and a dis-
tinct regional development strategy can be identified from 1971 onwards. The
government decrees of the time led to regional development planning and the in-
clusion of regional priorities in the redistribution of fmancial resources. This can-
not, however, be construed as "regional policy". The central control of regional
development was divided along sectoral lines, and sectoral objectives were supe-
rior to regional concerns in government policies.
Regional disparities did decrease over the period 1966-8, principally through
the centrally-planned relocation of large companies to the regions. However, the
majority of these plants utilised outdated and polluting technology, and were
among the first to be affected by the reforms initiated in the 1980s. The fall in
regional disparities was, therefore, artificial and inefficient, and has not contrib-
uted to a long-term regional solution.
In 1985, a Parliamentary Decree defined the long-term tasks of regional policy
in Hungary, and a resolution for more rapid development of backward areas was
passed by the Council of Ministers to achieve the targets specified. A more up-to-
date approach to the problem was adopted, with specific aims of creating the pre-
conditions for indigenous development through economic restructuring and mod-
ernisation, as well as integrating the principles of environmental protection and
nature conservation. The resolution stated that "development resources should be
concentrated first of all on Borsod-Abaiij-Zemplen and Szabolcs-Szatmar coun-
1 1
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
ties". The programme was not able to achieve any significant results as the finan-
cial resources were insufficient and the institutional system was inadequate. In
particular, sectoral priorities continued to take precedence.
With the implementation of political and economic reforms, the environment
for regional policy changed markedly. Under the new constitution, Parliament was
given new powers, and the 1990 Government created a separate Ministry of Envi-
ronment and Regional Policy. A Regional Development Fund was established and
reorganised in 1991 for the financing of regional development. Nevertheless, a
clearly specified concept or strategy for regional policy was not formulated during
this period.
The legislation regarding regional policy was passed in 1993, providing a new
definition of the main tasks and means of regional policy. The principal tasks as
laid out in the decree included regional crisis management and the economic trans-
formation of depressed and backward regions; the implementation of selective
infrastructure projects, focusing on backward areas; and the establishment of the
basis for internal and international co-ordination. Although no specific guidance
was given on an appropriate institutional system, the decree stipulated that institu-
tions should be promoted that are in harmony with the EU system and internal
conditions.
The decree also laid down the main supporting tasks of the Regional Develop-
ment Fund, including investment aimed at job-creation and maintenance, regional
and county development programmes, infrastructure investment and business
services support.
Despite these new legislative measures, the formulation of a proper regional
policy in Hungary remained incomplete. The fundamental problem facing regional
policy-makers in Hungary remained the lack of an overtly and explicitly stated
overall concept or strategy. The Government Decrees and other measures intro-
duced to date have dealt with tasks, functions or specific organisational elements
rather than objectives. Initiatives were ad hoc. reactive and uncoordinated, and
individual county or area programmes represented only partial, rather than coordi-
nated, interests.
The nature of the coalition which formed the agenda of the new Government
following the recent (May 1994) elections has determined how, and whether, the
Law on Regional Policy could be placed on the agenda and what its content could
be. It was also be determined — to some extent — by the new Government's strategy
for economic policy on changes to the state budget, and on the future of local gov-
ernment. The programmes of the dominant political parties contained certain fa-
vourable elements from the point of view of regional policy development as they
were in agreement on several important issues:
— development disparities between regions should be reduced;
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
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Discussion Papers, No. 23.
— the reduction of regional disparities should be supported by state and budg-
etary means, and the resources in the Regional Development Fund should be
increased;
— the number of state funds should be reduced, and co-operation between
them should be reinforced;
the role of the counties, and principally their regional development func-
tions, should be reinforced; and
— a territorial-regional system for the reconciliation of interests and future co-
operation of the individual institutions of regional development should be
established
2.1.3 The relationship between regional and sectoral policies
In the past, the central control of regional development was divided along sectoral
lines, and sectoral priorities were given precedence over regional goals. Even fol-
lowing economic and political liberalisation, regional policy remained a relatively
weak policy area, and, together with the lack of strong integrative action by the
Ministry of Environment and Regional Policy, it tended to become subordinated to
the sectoral policies of other ministries.
The position of the Ministry of Environment and Regional Policy was relatively
weak within the Government. The policy area had no established tradition in the
Hungarian Government and did not enjoy very high prestige. The regional devel-
opment aspects of the work of the Ministry, which also included responsibility for
environmental and construction affairs, were managed by two small departments
under the supervision of a deputy state secretary. The debate over the authority of
regional development further weakened the position the MERP. In addition, as the
Ministry of the Interior retained authority for settlement development, and other
areas related directly to regional development, there is often a conflict of compe-
tence. This relatively weak position, combined with the powerful sectoral interests
against the Ministry, had greatly restricted the ability of the Ministry to fulfill
tasks of co-ordination and to provide a systematic approach to regional develop-
ment.
The political reform and transition into market economy also brought about
other organisational changes. First, as part of the new constitutional model, the
role of Parliament was reinforced. Regarding regional development, the Parliament
became responsible (in principle) for regulation, financial distribution and the
supervision of Government ministries. In practice, Parliament's role was restricted
to approving the distribution of finance since its regulatory role had yet to be le-
gally ratified.
Second, the system of was reformed. The main powers below central Govern-
ment level now reside with the local authorities which operate as autonomous ad-
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
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Discussion Papers, No. 23.
ministrative units. There are more than 3,000 local authorities in total, and there is
no legislation to force any kind of association. Associations between municipal
governments tend to be formed on an informal basis without much decision-
making authority or financial resources.
The strengthening of the level had been paralleled by a significant weakening
of the powers of the 19 county governments. In danger of being abolished during
the preparation of the LXV Law on Local Government, the counties had been left
as subsidiary administrative units; they fulfilled tasks which the local authorities
were not able, or were unwilling, to perform. Although the counties legally had a
role in regional development (e.g. relating to land use and regional development),
they received little support from either central or local governments. Indeed, the
central Government has been overtly hostile to the counties especially in the first
years of the parliament, as evidenced by the process of assigning competence.
The reform of the local governments system had had wider ramifications. The
lack of an effective regional administration had encouraged sectoral ministries to
establish deconcentrated administrative offices, of which there were about 40 dif-
ferent types. There was little if any co-ordination between these offices, and some
operate autonomously and regard other regional organisations almost as rivals,
reflecting power relationships at central level.
Third, a range of non-governmental organisations had evolved to fill the
"missing level" in regional development. These organisations included regional
development councils, development agencies, foundations and micro-regional
associations. Some of these had been set up by Government departments (e.g. the
regional development boards to administer regional development programmes in
the counties). Others had evolved with the support of international organisations.
For example, under the aegis of the Hungarian Enterprise Foundation, a local en-
terprise network existed in most counties with some 70 sub-offices. Sponsored
with international aid, and with an initial capital of HUF 4.2 billion these offices
undertook small and medium-sized enterprise promotion such as business start-up
support.
The strategic decisions regarding the role of regional policy were closely bound
up with the power play between politicians and political institutions: at national
level, notably between Parliament and the Government and between key ministries
within the Government: and at regional local levels, among different organisations
claiming various degrees of regional primacy and local autonomy. The inability or
unwillingness to cooperate at all levels was a natural consequence of the lack of
major national institution for regional policy which would have provided legal
regulation for the co-ordination and programming functions of a system of regional
development organisations, in addition to the absence of an overall regional policy
strategy.
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
A range of Government departments had a claim to, or responsibility for, re-
gional development. They included:
— the Ministry of Environment and Regional Policy (co-ordination of regional
development, environmental and landscape protection),
— the Ministry of the Interior (preparation and management of settlement and
regional programmes),
— the Ministry of Finance (creation of a system of instruments and regulations
for the regions),
— the Ministry of Industry and Trade (preparation and management of regional
programmes for the labour force and tourism, as well as regional crisis man-
agement progammes),
— the Ministry of Labour (employment policy, vocational training and
(potentially) co-ordination with local development activities),
— the Ministry of Transport, Telecommunications and Water Management
(formulation of concepts for the location of national and regional infrastruc-
ture), and
— the Ministry of Public Welfare (health and social matters, including partici-
pation in the development of Government policies on living standards across
the country).
Not surprisingly almost all ministries were involved to some degree in regional
development, and most had separate departments which specialised in this area.
However, there was inadequate regulation of competence and co-ordination. For
example, there were often "missing links" between sectoral ministries, especially
between the Ministries of Industry, Labour and Public Welfare. There were also
conflicts of interest and competence rendering co-ordination difficult (e.g. between
the Ministries of the Interior and Finance). Committees designed to promote inter-
ministerial consultation had either not been established or fail to function effec-
tively. Once again, the problem of the lack of strategic overview seriously com-
pounded the ministerial and Government confusion and conflict in this area.
Individual ministries, depending on the nature of the task, were put in charge of
particular (county) development programmes, but it is not always clear which
ministry was responsible for the co-ordination of the programme for the Govern-
ment. As a result, the lever of influence of a ministry on a certain programme was
often determined more by the eagerness of individuals or ministries rather than by
regulation within an overall strategy.
2.1.4 The 1991 Government Decree on state grants for regional
development
In 1991, a Government Decree (75/1991) on the provision of state grants for regional
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
development and for the creation of new jobs was passed. The Decree gave the
following interpretations for the overall aims of state grants given for regional
development:
1) "the grant should promote the reinforcement of the economic base of back-
ward areas, backward being defined from a socio-economic viewpoint. It
should contribute to the quantitative and qualitative expansion of job oppor-
tunities, to the improvement of infrastructure and to the creation of precon-
ditions of long-term indigenous economic development.
2) the effective creation of new jobs facilitating economic restructuring and the pro-
motion of ventures should be stimulated in areas worst affected by unem-
ployment, where the explicit need for the transformation of the old economic
system is manifested most intensively."
The formulation of priorities and the interpretation of further tasks based on
this Decree was reasonable, both from the point of view of the Hungarian situa-
tion, and that of European practice.
In assisted areas, employment regions worst affected by unemployment were
defined using their actual unemployment rate index. Problems in designation in-
cluded cases where settlements showed high levels of unemployment but were not
necessarily depressed areas. The definition of backward settlements was made on
the basis of 37 indices available at the time of investigation, using up-to-date sta-
tistical methods.
There was a delay in the drafting and approval of this Government Decree,
which resulted in the submission of a relatively small number of tenders for proj-
ects suitable for an immediate start. As a result, slow progress was made in the
utilisation of the HUF 1.5 billion allocated for projects. Exploiting the situation,
the Government allocated HUF 880 million from this fund for the support of the
Metallurgy Company of Ozd (restarting, heating, wage costs). The remaining
funds were insufficient for the completion of the original projects.
For the 242 tenders received for infrastructure development, HUF 505 million
were allocated in 1991, HUF 734 million in 1992 and HUF 167 million in 1993.
The largest sums were spent on road and gas pipe construction (Figures 4 5). For
-
tenders creating 3,159 new jobs, HUF 397 million were allocated in 1991, HUF
277 million in 1992 and HUF 2 million from the state budget. The greater part of
the subsidies reserved for future projects was, however, spent in advance due to
the number of tenders and the decision mechanisms of the Government's Inter-
Departmental Committee. No steps have been made to remedy this situation.
16
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Discussion Papers, No. 23.
Figure 4
Sectoral structure of the infrastructural expenditures
of the Regional Development Fund, 1991-1994
a) values in billion HUF
Road
Drinking Sewerage Drainage
Gas
Electric
Telephone
Other
system
water
system
system
supply
b) distribution in percentage
Gas
59%
Drainage system
0%
Sewerage system
5%
Drinking water
3%
Road system
8%
Electric supply
Other
7%
Telephone
0%
18%
Source: Ministry of Environment and Regional Policy. Designed by the author.
17
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Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
Figure 5
Regional structure of the Regional Development Fund,
1991-1994
a) values in billion HUF
10
9
8
7
6
5
4
3
2
1
0
Northern
Southern
Northern Great
Southern
Northern
Transdanubia Transdanubia
Plain
Great Plain
Hungary
b) distribution in percentage
Northern
Southern
Transdanubia Transdanubia
4%
4%
Northern Hungary
36%
Northern Great Plain
Southern Great Plain
52%
4%
Source: Ministry of Environment and Regional Policy. Designed by the author.
18
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Discussion Papers, No. 23.
2.1.5 Legal regulation between 1992 and 1994
In 1992, the Regional Development Fund was reorganised, following a further
delay in the introduction of the new legal regulation (Government Decree.
97/1992) in the summer of 1992. This delay was due partly to the increasing num-
ber of parties participating in co-ordination, and also to the strict adherence of the
Ministry of Environment and Regional Policy to the rules of administration and
democracy. As sectoral departments discovered the potential of the state subsidy
system, they tried to allocate resources for the realisation of their own sectoral
targets resulting, for example, in the higher priorities of agricultural programmes.
Although land-oriented subsidies were not in harmony with the whole system, they
became one of its structural elements and absorbed a large proportion of available
fmancial resources.
The Hungarian Parliament passed the LXXXILI Law on Separate State Funds, to
comply with the stipulation that the management of central funds must be based on le-
gal regulation. This Law was a new phenomenon in various ways, and it created a new
situation in the central subsidy system for regional development. On the one hand, as
the management of the Fund was regulated by law (despite some loop-holes), the scope
of subsidies was limited. On the other hand, the Parliament now had to determine the
main principles of depressed areas, and which issues were of particular importance
within that definition.
The LXXXIII Law defined the Regional Development Fund to be a separate
state fund having the following aims:
• to promote the economic reinforcement of backward areas, the creation of new
jobs, the restructuring of places with poor arable land and to rationalise land
use;
• to promote economic restructuring in those areas worst hit by unemployment and
to introduce marketable economic activities;
• to facilitate the regional restructuring through inter-settlement infrastructure;
• to promote the drafting of regional economic development programmes and the
development of business information services; and
• to support the realisation of regional development programmes prepared by the
Government and Parliament.
Ten income sources are mentioned in the Law, the most important ones being: state
subsidies from the central budget; international aid and loans; and, income from privati-
sation.
Decisions regarding Fund utilisation were to be made by the Minister of Environ-
ment and Regional Policy, with decisions on the allocation of subsidies being made in
19
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Discussion Papers, No. 23.
co-operation with the Ministry of the Interior. The Fund was to be managed by the
State Institute of Development. The Law stipulated the establishment of an Inter-
Ministerial Committee for the evaluation of subsidy projects. The Law also stipulated
that the guidelines for support and the definition of areas hit by employment problems,
should be controlled by a Parliamentary Resolution for a three-year period.
The 1990 census data were still unpublished at the start of 1992, which hin-
dered the border designation of the backward areas. A new category of high state sub-
sidised settlements was introduced. Higher state subsidies became available to settle-
ments in backward areas and in employment areas with an unemployment rate at
least 2.5 times higher than the national average. Subsequently, these were superseded
by new criteria under the 1993 Resolution..
The Parliament passed a new Resolution on regional development at the end of
1993. The 84/1993 Parliamentary Resolution is important as it is the first document
that gives a definition of the main tasks and the means of regional policy. The Par-
liamentary Resolution defined the main tasks of Hungarian regional policy as fol-
lows:
—"laying down the foundations of internal and international co-ordination;
— regional crisis management, the economic reorganisation of traditionally back-
ward areas and depressed regions;
— the start and acceleration of a selective infrastructure development project, con-
centrating on the most backward areas and regions, in order to improve the count-
ry's overall disadvantaged position in infrastructure development;
—the reduction of disparities in the distribution and function of settlement infra-
structure".
The Resolution stipulated that these tasks should be co-ordinated for the implemen-
tation of plans in regional policy, but no instructions were given on an appropriate
institutional system. Although there were 26 funds, with a total value of 230 bil-
lion HUF, under the control of ten ministries with some interest in regional develop-
ment, there was no co-ordination and there are no common principles for their utili-
sation.
The Resolution also stated that "the establishment of those institutions ... that are in
harmony with the institutional system of the European Community and the special-
ist conditions in Hungary should be promoted". The Parliament agreed that the Gov-
ernment should concentrate the resources of regional development measures on East
Hungary in regions worst hit by crisis.
The Decree stipulated the following supporting tasks for the Regional Development
Fund:
— making new investments that create a high number of jobs at regional level,
— making investments for the maintenance of jobs for the facilitatiOn of market and
20
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
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Discussion Papers, No. 23.
product change, and technological development,
—the provision of assistance for complex programmes for regional economic deve-
lopment,
—the support of development tasks of county development programmes that were
approved in Government Decrees,
— the provision of business services and the construction of incubator units and in-
novation business parks,
—the construction of regional transport, telecommunication and energy sys-
tems,
—making investments for the protection of natural beauty, in protected agricultural
areas,
— the development of human infrastructure connected with the creation of new jobs,
and
— the development of village, and general, tourism.
The Government Decree 161/1993 defined four categories of assisted areas for re-
gional development purposes as follows:
1) Backward settlements defined on the basis of socio-economic criteria.
2) Settlements which are themselves not backward but are located in regions desig-
nated backward on the basis of socio-economic criteria.
3) Settlements of employment zones with unemployment more than 1.5 times
higher than the national average.
4) Settlements in particular need of modernisation (i.e. those combining all the pre-
vious three elements).
The following indices were used as the criteria for "backwardness":
• the rate of long-term unemployment,
• the rate of active agricultural wage earners,
• the average value of arable lands,
• personal income tax per capita,
• the proportion of flats supplied with water from water pipes,
• the number of telephones per 1,000 inhabitants,
• the number of residents aged 60 years or more,
• the migration balance between 1980-1989 as a percentage of the 1980 popu-
lation,
• the number of flats built between 1980-1989,
• the number of cars per 1,000 inhabitants.
The selection of criteria was restricted by data availability at settlement level,
the exclusion of an infrastructure indicator, for example, was a result of this. The
smaller number of indicators was also preferred for reasons of transparency, although
clearly it reduces the accuracy of designation.
21
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Discussion Papers, No. 23.
On the basis of these indices, the number of assisted settlements increased by 75
percent (from 964 in the early 1980s) to 1,325 settlements, distributed across the four
categories (Table 2).
In the earlier support system there were no assisted settlements in Bacs-Kiskun,
Csongrad, Fejer, Gyor-Moson-Sopron, Komarom-Esztergom and Jasz-Nagykun-
Szolnok counties, some of which were put into this category under the new system.
Together with the increase in the number of assisted settlements in Baranya and
Borsod counties, the re-designation resulted in the overall increase of designated as-
sisted settlements.
The Government Decree defined three categories of state subsidies to be fi-
nanced from the Regional Development Fund as follows:
• non-repayable subsidies;
• repayable subsidies; and,
• interest rate subsidies.
Table 2
Assisted settlements, by counties 1993
1995
-
Number of
Population,
Percentage of total
Counties
settlements
1992
population
Baranya
156
45,360
2.5
10.9
Bacs-Kiskun
20
50,217
2.8
9.3
Bekes
39
140,568
7.8
34.8
Borsod-Abadj-Zemplen
284
377,166
21.0
50.4
Csongrad
12
36,219
2.0
8.3
Fejer
19
46,493
2.6
11.0
Gy&-Moson-Sopron
8
2,405
0.1
0.6
Hajci-Bihar
48
158,468
8.9
28.8
Heves
40
58,350
3.3
17.7
Jasz-Nagykun-Szolnok
39
183,171
10.2
43.5
Komarom-Esztergom
9
40,762
2.3
13.0
Nograd
111
186,447
10.4
83.7
Pest
7
9,981
0.6
1.0
Somogy
104
47,069
2.6
13.8
Szaboks-Szannar-Bereg
167
285,455
15.9
50.7
Tolna
37
33,392
1.9
13.3
Vas
46
21,490
1.2
7.8
Veszprem
57
19,413
1.1
5.1
Zala
115
50,090
2.8
16.6
Total
1,325
1,792,516
100.0
17.4
Source: Magyar KtialOny, 1992. N° 168.
22
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Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
The rate of award of interest rate subsidies was differentiated by development pri-
orities. The award limit for subsidies granted for the creation of a new job is HUF
500,000. Repayable subsidies should be cleared within four years, with a one year
loan repayment holiday following the realisation of the projects.
The on-going attempts to regulate regional policy were evidence of the continuing
problems arising from central Government ministerial conflict. Although preparations
for a regional development act started in 1992, and a concept for its regulatory system
was prepared in 1993, it failed because the Ministry of the Interior and other ministries
opposed it. The Decree (169/1993) on the detailed rules of allocation of the Regional
Development Fund at the end of 1993 did not, bring a fundamental change in the
utilisation of the Fund.
The favourable changes included in the Decree were:
• the possibility for the provision of repayable and interest subsidies;
• the Regional Development Board is to be consulted by the regional policy
committee where available; and,
• financial assistance can be obtained (up to 70 percent of the costs under certain
conditions) to contribute to the preparation costs of a regional development or
crisis management plan.
However, as the Decree did not fundamentally change the conditions or con-
cepts of regional development, the critical remarks also remained valid. There
were a number of other less favourable aspects to the Decree. First, no steps were
taken towards the decentralisation of regional policy. If regional development
boards had been given the authority for decision-making and financial resources in
the spirit of decentralisation, they could have been established in a shorter period
of time. The interest subsidy fund for the development of village tourism should
also have been decentralised and the Inter-Departmental Council should not deal
with the allocation of these relatively small items.
Second, the use of the same management techniques for the problems of areas hit by
unemployment and for backward areas cannot be accepted. Apart from the rational
non-agricultural land utilisation, the same targets are supported by the Fund in both
fields.
Third, in spite of the original idea of RDF the job creation expenditures have
continuously been decreasing from 1992 (Figure 6).
2.1.6 The territorial structure of Fund utilisation
Some observations may be made on the basis of the four-year operation of the
Regional Development Fund. There were significant regional differences in the
state subsidy system. Between 1991-1993, eighty percent of the total HUF 13.72
billion of the Regional Development Fund was allocated to Szabolcs-Szatmar-
23
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
Bereg and Borsod-Abauj-Zemplen counties. The award rate per capita was HUF
11,657 and HUF 5,580 in these two cases.
In 1991-1992, the Regional Development Fund granted support for the creation
of 10,500 new jobs, 53 percent of which were created in Borsod and Szaboles
counties (61.2 percent of awards were used for this purpose). The cost-per-job of
subsidies was between HUF 114,000 and HUF 537,000.
The principal issue regarding the spatial distribution of the Regional Deve-
lopment Fund was the excessive concentration on the northern and north-eastern
regions, mainly on Szabolcs-Szatmar county. Although this region has the most
serious problems, and is the most underdeveloped county, such a high concentra-
tion of resources is in harmony neither with the number of underdeveloped settle-
ments, nor with their population nor with the degree of their underdevelopment.
Regarding subsidies, it is difficult to understand why almost 80 percent of sub-
sidies were allocated to two counties and at the same time the four Southern Trans-
danubian counties, which suffered from a high rate of unemployment and backward
settlements, were allocated only 4.25 percent. It is also difficult to see why. Szabolcs-
Szatmar-Bereg county with 167 assisted settlements received 150 times more state
support than Baranya, with 156 problem settlements (Figure 7). Award of Re-
gional Development Fund per capita by counties shows a very large disparities
(Figure 8).
Figure 6
Regional Development Fund expenditures,
1991-1994, billion HUF
40x..24meN0Infrastructure
7 —
development
s,tztaskabsJob creation
6 —
_Total
5 —
4 —
3 —
2 —
0
1991
1992
1993
1994
Source: Ministry of Environment and Regional Policy. Designed by the author.
24
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
2.2 Beginning of a new era of regional policy: legislation of 1996
2.2.1 The Law on Regional Development and Physical Planning
In order to assist the balanced regional development of the country and the socio-
economic development of its regions, to implement a comprehensive regional de-
velopment policy, in accordance with the content of the European Regional and
Spatial Planning Charter and taking into account of the regional policy principles
of the European Union, Hungarian Parliament adopted the Law on Regional De-
velopment and Physical Planning on 19 March 1996.
The objectives of the Law are:
• to assist the development of a market economy in every region of the coun-
try, to create the necessary conditions for sustained growth, to improve eco-
nomic conditions and the quality of life through co-ordination between so-
cial, environmental and economic interests,
• to create the conditions for self-sustaining development,
• to reduce adverse differences — in terms of living conditions, economic, cul-
tural and infrastructural conditions — between the capital city and the rest of the
country, towns and villages, as well as developed regions and ones at a dis-
advantage,
• to encourage initiatives by regional and local communities and to co-ordinate
them with the national objectives.
The main principles of the Law are as follows:
s decentralisation,
s subs idiarity,
s partnership,
s programming,
s additionality,
s transparency and
s concentration.
25
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
5
199
t
hor.
1991-
au
t
ies,
he
t
by
d
coun
ne
by
ig
Des
RDF
licy.
t
he
f
o
l Po
t
ion
iona
i
bu
tr
d Reg
Dis
t
an
en
onm
ir
f Env
o
try
is
:
Min
Source
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
t
hor.
1995
au
,e;
he
t
1991-
by
d
ne
ita,
ig
cap
Des
er
p
licy.
DF
a
l Po
R
ion
d of
d Reg
Awar
t
an
men
iron
f Env
o
try
is
in
oc
a)
M
e:
ou
.
Sourc
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
The Law determines the tasks and competence of central state organs and re-
gional organisations as follows:
The tasks of the Parliament are:
— to approve the national development strategy, as well as the principles, ob-
jectives and long-term priorities of regional policy,
— to approve regional development and physical plans covering the whole of the
country and the regions of high priority and determine the elements of plans
that are binding for local governments,
—to determine guidelines for regional development support and the criteria for
the designation of eligible regions,
—to determine, in course of the implementation of the Annual Budget Law, the
funds used for regional development,
—to determine self-government tasks related to regional development,
—to request the government to report on the development of regional processes
and the implementation of regional policy.
The Law orders to establish a new organ for assisting the Government in carry-
ing out regional development. The National Council for Regional Development
has competence to make proposals, comment and co-ordinate.
Regional development tasks within the country are co-ordinated by the County
Development Council consisting of representatives of county general assemblies,
local government associations, economic chambers, employees interest represen-
tation organisations and Ministry of Environment and Regional Policy. The CDC
co-ordinates the development ideas of the central and local governments and vari-
ous actors of regional development:
— examines and evaluates the social and economic situation and endowments of
the county,
— makes proposals for the long-term development concept, medium-term pro-
grammes, sub-programmes and major development objectives and tasks,
— make proposals for development objectives and using various financial re-
sources,
—participates in the preparation of decisions concerning the allocation of local
government supports, as well as separate state funds,
—determines evaluation guidelines for programmes.
Members of the county development councils are:
—president of the county assembly,
—mayor(s) of town(s) of county right located within the county,
—representative of the minister,
—representatives of the regional chambers,
—representatives of the development associations of local governments within
28
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
the county (one representative per each statistical district,' 5 to 10 people de-
pending on the size of the county),
— a representative of the employers' side and the employees' side respectively
of the county employment council.
In the institutional system the county general assemblies has a week position,
their tasks comprise co-ordination of social infrastructure and approving the long-
term development strategies and programmes. This underevaluated role of territo-
rial governments causes many problems in the future.
County governments may — by taking into consideration the recommendations
of the Government — set up a regional development council in order to implement
regional development and physical planning tasks involving areas outside the
county boundary. The operation of this organ cannot be foreseen. Because of in-
strumental powerless it is the "black horse" of the new regional policy.
2.2.2 Scientific background of the Law
It has been a practice in Hungary too that in some — mainly initial — phases of the
preparation of acts, regional researches are given an active role. In order to get
acquainted with the functional logic of the social activity to be regulated by the
law, to explore its inner and outer connections and to work out its effect mecha-
nisms one needs thorough knowledge, theoretical skills, and consequences drawn
from the evaluation of practical experiences.
It can be said without any bias that in the creation of the legal frameworks of the
systemic change, Hungarian social sciences have had a role not well enough ap-
preciated so far. They would deserve special recognition in establishing the change
of paradigm, for they were able, besides having a good knowledge on the special
features of Hungarian development, to give answers to the European correlations
of the transformation. It is not by any chance that in matters of legal harmonisation
Hungary has the most favourable position in East-Central Europe. We have to
admit that building the legal system of the European Union into the Hungarian
legal regulation is also the merit of the Hungarian social sciences (Kecskes, 1995;
Harmathy, 1995).
The legal regulation of regional development, however, had to follow a special
path, different from the basic categories of market economy. This quest for the
* The system of statistical districts (small areas) is a system covering the total area of the
country, and not crossing the county borders. Statistical districts are groups of
geographycally contiguous settlements, having actual working, residential, transport and
secondary provisional connections (education, health care, trade etc.). In the statistical
district system localities may belong to one or more central settlements' attraction zone.
All towns are centres (or co-centres) of attraction, however there are also villages with
central role.
29
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Discussion Papers, No. 23.
way was also hindered by the fact that the notions used in state socialism were
often rejected. Nevertheless, for the sake of modernisation we cannot avoid re-
stating some seemingly outdated categories.
Trust is fading in any scientific notion if its political content is exaggerated.
During its three decades of development, regional development could not avoid
this fate, either. In the beginning the Marxist social theory rejected it as an inde-
pendent partial policy and reduced it to a single tool serving the planned economy.
Later — in the peak time of the socio-economic reforms — the initiatives that urged
the development of decentralisation, but were weak and isolated, were handled
with mistrust, too. These initiatives were many times labelled as being provincial —
an honour with doubts. Although research concepts were stated about the need for
an innovation-oriented regional development policy, there was no demand for its
detailed implementation, because of the attitude of the economy against innova-
tions. It was the consequence of insufficient knowledge of the functioning of the
market economy that in the very beginning of the 1990s the propositions of the
professional groups urging the creation of the system of objectives, tools and insti-
tutions for up-to-date regional development were refused by political representa-
tives, many times expressing slogans against the restoration of some elements of
the planned economy (Ries, 1992).
The Hungarian researchers of regionalism expressed in many forums — almost
like maniacs — their consequences drawn from the analysis of the regional proc-
esses in Hungary in the 1980s and the evaluation of the regional changes of the
Western European post-industrial development.
The researchers of the regional processes pointed out several reasons for the
failure of the former regional development policy:
1) The interrelation between economic policy and regional development policy
did not exist, the economic policy based on the principle of sectors did not
take regional aspects into consideration;
2) The organisational and functional system of regional policy was divided, the
efforts of the central organs competing against each other eliminated one
another. Regional policy was essentially not more than an accumulative,
consumer type urban and village development;
3) The responsibility of regional policy was mainly a socio-political one. Em-
ployment and living conditions were the starting and final points that re-
gional policy had to choose, consciously breaking all the ties that could have
enabled any influence on the reasons behind, the triggering processes;
4) The lasting lack of resources, the few and centralised tools, the eclectic ob-
jectives of support significantly restricted the space of regional develop-
ment, forcing its productivity within very narrow limits.
The point in the arguments of the researchers for the importance of a new re-
gional policy was that in Hungary, like in Western Europe, a few things were in-
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Discussion Papers, No. 23.
evitable, namely
• Firstly, the moderation of the negative phenomena caused by economic
transition and market processes (unemployment, increasing gap between in-
comes, differences of living conditions);
• Secondly, the elimination of the obstacles to the spatial penetration of inno-
vation (service industry, technological renewal, integration into the European
network economies);
• Thirdly, a co-operation, a clear division of labour and a development coali-
tion of the central state, the local-regional communities, the public and pri-
vate sphere (Enyedi, 1994, 1995; Horvath, 1992; Hrubi, 1995).
The results of the researches also drew attention to the fact that a Europe-
conform restructuring of the Hungarian regional policy is necessary, not only be-
cause of the change of the political system, but also because the processes that
influence regional development have reached an important crossroad: After the
end of the traditional industrialisation, the post-industrial phase begins with sig-
nificant rearrangement among the sectors, in all points of the economy a funda-
mental technological renewal is needed in order to enhance competitiveness, fi-
nally, the control of the society is based on the co-operation of autonomous com-
munities (Enyedi, 1989).
The consequences drawn from the analysis of the processes of the recent past
and the evaluation of the European development have their direct or indirect effect
in the Law on Regional Development. We can clearly say that, in spite of the po-
litical compromises, we possess a legal document that can achieve the appreciation
of the European professional public opinion, because the Law:
1) With its objectives is compatible with the principle of social justice and
fairness (irrespective of the spatial location of the place of residence, all
citizens have the right to have their share from the growing wealth of the
country), the political principle of equality (it serves the strengthening of the
cohesion among the spatial constituents of the country), and is basically ori-
ented towards economic development;
2) With its organisational system it builds on the principle of partnership, the
natural division of labour among autonomous institutions, it is decentralis-
ing by its character;
3) It operates with market-conform tools, it creates a possibility to use regional
economic regulators, it can force the measurement of the efficiency of the
used tools, a visible and clear responsibility of the certain organs.
The Law of 1996 thus in principle created a Euro-compatible system of regional
development in Hungary. If we look at its basic features, it is a lot different from
the regional development practices of the socialist planned economy and of the
transition following the systemic change (Table 3). The new era, started by the
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Law on regional development, can only be called decentralised, however, with
some restrictions. The basic principles and the text of the Law can make us opti-
mistic, but the wide range of open question to be arranged during the implementa-
tion is worrying. What is the guarantee for the assertion of the European principles
in formulating the Government decrees? What if the bureaucratic interests of the
central apparatus of regional development overcome, the new system of regional
development flows towards intermediate solutions and can only be called as de-
concentrated? This fear seems to be justified by the arguments about the scales of
the decentralisation of the central resources for regional development and by the
measurements made by the Government so far in working out the regional devel-
opment concept of Hungary.
Table 3
Transitions of the Hungarian regional policy at the end of the 20th century
Bureaucratic
Transitory
Decentralised
The policy's
(1985-1990)
(1991-1995)
(1996—)
Aim
Equalisation
Equalisation
Restructuring
Object
Underdevelopment
Underdevelopment
Moderation of the
negative effects
of the market
Target group
Underdeveloped
Underdeveloped set-
Problem region
region
tlement
Tools
Regional
Regional Development
Earmarked
Development and
Fund, projects
provision for re-
.
Organisation Fund,
gional development,
planning
additional
resources pro-
gramming
Way of fmancing
Centralised
Centralised
Decentralised
Form of incentive
Automatic
Discretionary
Discretionary
Dominant element
County council
Local government of
Regional
of the implemen-
the settlement
Development
tation
Council
Effect on
Isolated
Isolated
Integrative
developments
Dominant
Industry
Infrastructure
Manufacturing,
favoured sectors
(gas, telephone)
business services,
innovations
Population
4%
17%
28%
concerned
Scales of direct
0.05% of GDP
0.2% of GDP
0.3-0.5% of GDP
fmancing
32
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
2.2.3 The lurking threats
Although we have to welcome the fact that those responsible for the preparation of
the Law built the bigger part of the proposals of the scientific public opinion into
the norm text, at the same time we feel obliged to call the attention to our doubts
and to the threats that are present during the application of the Law. If we take a
closer look at the details, the new regional development policy of Hungary, com-
pared to the common regional policies of the European Union, still shows many a
difference.
What are the most striking differences?
1) In Western Europe much higher amounts are spent on supporting regional
development — depending on the scales of regional differences — than in Hungary.
In many cases the volume of the grants amounts to 1-1.5% of the national GDP,
although a part of the resources of the fmancial incentives does not burden the
national budget as it comes in the form of EU-grants;
2) In the countries where innovation shows a dominant regional concentration
(is concentrated in only one centre), regional policy is strengthened, besides its
own tools, by acts serving the decentralisation of certain activities;
3) The proportion of the population living in the eligible areas is double the
Hungarian proportion in 1995;
4) The designation of the problem regions takes place with relatively exact in-
dices, by different methods. The basic element of the designation is never a settle-
ment but a bigger regional unit (small region, county, region). The primary desig-
nation criterion in the major part of the countries is the income-generating ability
and lasting unemployment in the region;
5) The distribution of the grants among the designated problem regions is rela-
tively balanced, despite the measuring (discretionary) type of the grant manage-
ment, while in Hungary the north-eastern counties — partly because of political
causes — were awarded grants unproportionately higher than the weight of their
population;
6) The sectoral orientation of grants is towards manufacturing and exporting
business services in Western Europe, while in Hungary infrastructure has been
dominant so far. The very few job creating investments in industry and services
were not required to contribute, besides increasing the number of employees, to
strengthening the regional cohesion, either;
7) The organisational systems responsible for the monitoring of regional de-
velopment grants show many special characteristics country by country in Western
Europe, depending on the philosophy of the state organisation. Still decentralisa-
tion is a general tendency: The regional governments are given a significant role in
the evaluation of the grants and influencing their use even in those countries where
33
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
the central state system plays a dominant role in the control of regional policy and
the competences of the regional governments are strongly limited;
8) The aim an object of the regulation of regional development in all countries
is the successful implementation of the regional development strategy of the na-
tion. Even the most elaborately prepared and worked out law becomes insignifi-
cant if its creators do not state their propositions built on strategic plans. The de-
cisionmakers of the Hungarian regional policy made a mistake: They initiated the
working out of the regional development concept of Hungary too late, despite the
propositions of the researchers. This mistake can be partly mended if the concept
builds from bottom up, takes the needs and requirements of the regional communi-
ties into consideration, and does not only try to harmonise the regional allocation
of sectoral developments. The answer to the question "how to build strategies" can
be regarded as another milestone of the future of Hungarian regional development,
of its integration into Europe.
The presently working systems in Western Europe have already proved their fa-
vourable effects on the improvement of the income generating ability and com-
petitiveness of the regions, on increasing the number of jobs and decreasing un-
employment. In case of their consequent application, similar results can be ex-
pected in Hungary, as well.
For the financing of regional development and the creation of the new incentive
regulation, the conditions are partly favourable in Hungary. The Law on Regional
Development and the Regional Development Concept of Hungary contain many
elements of the Western European development models and the EU regulation. A
new incentive system of regional development can be built on them. The reform of
the state budget and the restrictions of the regulation of state expenditure can pro-
mote the operation of the resources of regional development, too.
However, we have to take unfavourable factors into consideration, as well. Be-
cause of the deficit of the budget, the reluctance to give up any right achieved and
the effective skill of the local governments of settlements to assert their interests,
increasing the amount of the resources of regional development is difficult. The
melting of a major part of the separate state funds into the budgets of ministries
weakens the chances of co-ordination, the local governments of the settlements are
reluctant to abandon their addressed and target grants. Even if their management
becomes a responsibility of the Ministry of Environment and Regional Policy, it
will take quite an effort and a series of political debates and deals until the indi-
vidual settlements voluntarily give their target grants, utilised with definitely low
efficiency so far, to common regional development objectives.
It will not be easy at all to adapt the Western European experiences, because of
the special features of the Hungarian system of public administration. It is feared
that the planned base institution of regional development — the addressee of the
decentralisation of the central earmarked provision for regional development — will
34
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
integrate organically into the regional institutional system of public administration
with more difficulties than expected. In order to assert the principles of additional-
ity and programming, a legally not too strong institution has to co-ordinate among
much more actors in Hungary. These difficulties may strengthen central interven-
tion, decentralisation can, if we look at its quality, relatively easily transform into a
deconcentrated regional development especially if the regulation of the earmarked
provision for regional development is not considerate and normative enough. Thus
it is very important to clearly state the rules of the use of central resources for re-
gional development, with special respect to
—the forms of decentralisation of the support resources;
—the range of activities to be supported and their regional effects;
—the continuous control of the used grants and
—the designation of the eligible regions.
We have to stress these doubts because experiences have taught us: if the pro-
fessional public opinion is not united concerning these basic questions, if it has
difficulty in following the trains of thought of the changes, then the logic of the
system can be damaged in the application of the Law and the original objectives
cannot be carried out.
2.2.4 The National Regional Development Concept
In a market economy, which is primarily based on private ownership, and in a plu-
ral democracy, which has eliminated the centralisation of political power, the
function which regional development policy had in the former centralised, not
market-orientated system must be changed fundamentally, due to the following
factors:
— The majority of the levelling and redistributional mechanisms that were built
into the former price, wage and income regulations have been eliminated and
the differentiating (occasionally levelling) and selecting forces of the market
have become active. General economic rules and the basic elements of eco-
nomic policy seem to be leading to more significant regional and local differ-
ences and conflicts, and the management and balancing function of regional
policy is, therefore, becoming more intensive;
— The hierarchical dependence of economic organisations upon sectoral mi-
nistries and the structuring of the economy on exclusively sectoral principles
have also been disposed of. National companies have split into independent
plants and regional units. In view of this, regional co-operation and the
structuring of the economy on a regional basis have gained more signi-
ficance;
—The political autonomy, decision-making and fmancial management compe-
tence of municipalities, as well as the great increase in their number, have
35
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
given regional policy a new profile and dimension. It must be taken into
consideration that the majority of decisions concerning regional development
will be made in a decentralised way. The regional policy of the Government
should provide the tools for co-ordination, co-operation and orientation in
this process;
—Instead of a few ministries and large companies, the spatial structure is now
made up of several hundred thousand entrepreneurs, economic organisations,
non-profit-making organisations, their associations and interest representa-
tion organisations. The number of actors participating in the process has in-
creased enormously. Regional policy must involve existing interest rep-
resentation organisations in the decision-making process, must set up (or as-
sist the setting-up of) those which are currently missing at all levels of re-
gional and local development in order to ensure that its objectives are imple-
mented on the basis of the widest possible social consensus;
— With the integration into the European Union in view and with regard to
Hungary's special characteristics and problems, both our institutions and in-
struments should be harmonised with the existing and foreseen future re-
quirements of the EU.
The future of the Hungarian spatial structure was drawn up by the National
Regional Development Concept which was adopted by the Parliament in March
1998 (Parliamentary Resolution 35/1998).
The aims of the Concept are as follows:
•
to determine those regional development principles, guidelines and aims — in
the long term — suited to the international condition-which are followed by
the Government during its own regional development activity and which the
Government wants to orient the other actors of the regional development;
•
to detail those regional targets to be asserted in the sectoral development
policies of the Government;
•
to promote the fulfilment of the tasks of the new institutional system influ-
enced by the Law on Regional Development and to create the harmony be-
tween the regional and those of the counties.
The tasks of the Concept are:
—to change the spatial structure in a way that it can provide a basis and frame-
work for effective, innovative and competitive economic activities and can,
thereby, contribute to the dynamic development of the economy and increase
its income-generating capacity;
—to reduce differences in social and economic opportunities, to approximate
civilisational and infrastructural conditions at the level of larger regional
units and settlements and to tackle the social problems of seriously underde-
veloped regions and settlements;
36
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
—to develop programming (planning) methods, instruments and institutions
which — if concentrated on regions or areas of an appropriate size — are ca-
pable of identifying and managing structural crisis at an early stage and can,
therefore, contribute to their solution;
—to assist the mobilisation and utilisation of the regional (human, natural and
other) resources of economic development;
—since conflicts concerning the environment and land-use, which cannot auto-
matically be regulated by market forces, and conflicts arising from the fact
that the scarce resources have to be shared mainly occur at the regional level,
the role of regional policy in co-ordination between the various sectors and
ministries is as important as the co-ordination carried out at the national
level;
—to encourage cross-border co-operation and relations and, thereby, contribute
to the better use of the potentials of regions and settlements that have become
peripheries of the country due to the creation of political borders.
The Hungarian State has huge debts, high payments and budgetary deficits,
which are impossible to maintain in the longer term, and high inflation. It is, there-
fore, unavoidable that the focus and main priorities of regional development will
be different in the short term and the long term. They ate not, however, mutually
exclusive: short-term priorities will not hinder actions taken in order to achieve
long-term objectives and vice versa.
Medium-term priority objectives are:
—to remove institutional and technical barriers (i.e. to settle the ownership
structure, solve infrastructural bottlenecks) and use the general instruments of
enterprise promotion in regions where economic development has already
begun or is expected to begin in the near future, to establish enterprise zones
and industrial parks (Figure 9);
—to tackle the crisis caused by acute social and employment problems. In addi-
tion to the inevitable provision of unemployment benefit and social assis-
tance, education, training and retraining, community work, which can help
solve the infrastructural, environmental and social problems of settlements,
and, in hopeless cases, the encouragement of migration to a reasonable de-
gree and direction should be given an increasingly important role to play;
—to start the restructuring process through concentrated intervention in the re-
gional focal points of the economic crisis (first of all in mining regions, the
main sites of military and garment industry and in agricultural regions with
uncompetitive production or with lost markets);
— to formulate an adequate regional mobilisation policy based on internal de-
velopment potentials and aimed at the reduction of regional social, de-
mographical and ethnic segregation.
37
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
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Discussion Papers, No. 23.
8
199
ary,
Hung
in
ks
ar
l p
ia
tr
dus
d in
an
ones
e
z
r
is
terp
En
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
The long-term priorities of regional development are:
— to bring the spatial structure of economic activities in line with the require-
ments of sustainable development and the natural and environmental poten-
tial of the individual regions, while maintaining those values of the settlement
structure which are worthy of preservation and taking into consideration the
aesthetic aspects of landscaping;
— to create equal opportunities for communities living in different regions and
settlements in terms of economic activities, business opportunities, civilised
living conditions and incomes proportionate to the work and risk undertaken;
— to ensure that Hungarian regions, large cities and other central settlements of
different levels and with various functions are integrated into the European
region with common and open borders and take their functions within the
European network of towns and cities established on the basis of a fair divi-
sion of labour, establish the position of the country in terms of transport,
communication and tourism and create the preconditions required for fulfill-
ing the functions of a European regional centre offered by the geographical
situation oft he country.
2.3 Instruments of regional policy
Regional development processes are primarily influenced by the general economic
state and regulation of the country and, secondarily, by the specific instruments of
regional development, which are of a limited size and effect. As a consequence,
requirements concerning the general system of economic regulations and institu-
tions have priority.
Planning and incentives have already been included in the system of instru-
ments of state influence, which is becoming wider and more flexible. A clear in-
tention has also been expressed to decentralise the system of distribution and to
use state funds in a more concentrated and target-oriented way.
The Law on Regional Development has created favourable conditions for a dif-
ferentiated regional development policy. Developing regions are given a greater
role to play and the Law provides them with the infrastructure and other conditions
of operation that may accelerate their integration into the large regions of Europe.
Regional policy does not only imply crisis management and regional equa-
lisation. Regions that are more active in the field of innovation and have reached a
more advanced stage in closing-up and modernisation should also receive regional
development resources (Horvath, 1992; Ries, 1992).
The significant increase in labour costs has had a negative impact on the la-
bour-intensive production of less developed regions, in particular. It costs busi-
nesses much more to employ workers than would be justified by labour costs at the
level of the national economy, since the extra employment generated by lower
39
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
labour costs would save unemployment benefit payments and would, therefore,
reduce costs at the level of the national economy.
From the point of view of regional development policy, it would be desirable to
reduce the rate of social, security contribution paid by employers. The expansion
of venture tax and personal income tax incentives in underdeveloped and disadvan-
taged regions should also be considered, as this would encourage the location of
businesses in such regions, their long-term operation and the expansion of em-
ployment.
Prevailing bankruptcy and liquidation procedures also effect companies located
in rural or crisis regions with a small capital and poor liquidity. The modification
of these procedures is very urgent for underdeveloped and crisis regions.
Since a significant percentage of the GDP in Hungary is made up by goods and
services purchased by the Government, the regulation of public procurement is of
great importance from a regional development point of view. Regional preferences
can be implemented in national or central public procurement.
The model, order and process of privatisation should also be re-considered in
underdeveloped and crisis regions. In such regions, the population has little capital
and either there is no interest on the part of foreign investors in the state property
to be privatised or there is much less interest than in other regions. Privatisation
for cash, therefore, has very limited possibilities in such areas.
In such regions, therefore, ESOP programmes and other favourable solutions or
forms requiring a smaller proportion of cash should be used more extensively. It
especially applies to the plants or units of large companies located in rural or un-
derdeveloped regions or settlements, which would be liquidated without an ESOP
programme or other similar forms, whereas these solutions can at least give a
chance for the reconversion or further development of the plant with the help of
unified local forces.
Regulations concerning financial institutions should also be modified. It would
be desirable if the Law on Financial Institutions would not only make it com-
pulsory for banks to provide a minimum range of services, but also for their
branches. Banks with their registered headquarters or with a branch (branches)
outside Budapest should be given preference as regards the registered capital re-
quirement (/l/es, 1992).
The possibility for banks to acquire property, i. e. real niversal banking should
also be considered in certain areas.
The structure of the banking system also needs reviewing. Competition and
economising on state resources would require an increase in competition in the
residential market, while the funds and deposits of local governments should be
brought in line with the other resources of the state budget.
The new fmancing system of local governments should be developed further in
the coming years. The high rate of subsidies should be reduced, while the share of
40
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
local resources, taxes and other income in the funding of local governments should
be increased. In this way, not only the central budget, but also the financial situa-
tion of s would be more closely related to the state and income-generating capacity
of the economy. The greater disparities appearing as a result could be reduced by
means of equalising assistance.
Certain elements of the fmancing of development actions by local governments
should be altered in a way that they become parts of a wider-based and more
flexible decentralised allocation mechanism. It is essential to re-regulate fmances
in a way that it prevents indebtedness and ensures a more effective control of fi-
nancial management.
The implementation of regional development objectives should be ensured by
the co-ordinated operation of general economic and local government regulations
and the systems of normative instruments and special fmancial instruments avail-
able for certain regions.
Among special regional development instruments, the regional development
support specified in the budget line allocated to the Ministry of Environment and
Regional Policy from the central budget (tasks taken over from the Regional De-
velopment Fund) is of great importance, which provides grants, loans and interest
subsidies to assist the implementation of development efforts in beneficiary re-
gions.
The other significant fmancial instrument is the Regional Equalisation Frame-
work supporting the infrastructure development efforts of local governments,
which is fully decentralised on the basis of the indicators of development. County
development councils will invite applications for these funds. During the alloca-
tion of the funds, the special features and development needs of the county, the
lack of resources for development actions carried out by local governments and
important development objectives that are not included in other support systems
(e.g. infrastructure related to tourism) should be taken into consideration.
The objectives of the Targeted. Budgetary Allocation for Regional Development
are (Government Decree 31/1998):
•
to reduce significant social and economic differences between regions in
terms of living conditions, economic and cultural conditions and infrastruc-
ture;
• to assist the co-ordinated use of various sectoral grants and the implementa-
tion of the integrated restructuring programmes;
•
to assist the involvement of international fmancial resources in regional de-
velopment programmes;
•
to assist cross-border co-operation between border regions, common plan-
ning and co-ordinated development on the basis of bilateral and multilateral
agreements.
41
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
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Discussion Papers, No. 23.
Assistance may be given from the budgetary allocation for the following pur-
poses:
— job creating investments and development projects, which are aimed at mar-
ket and product change and help maintain current employment levels,
— the creation of innovation centres, business incubators and industrial parks
assisting enterprises, and human infrastructure development projects involv-
ing job creation,
— the preparation, method of implementation and conditions of regional devel-
opment programmes, and the preparation of programmes encouraging the
development of local societies,
— investment into productive infrastructure, which is related to economic de-
velopment and assist enterprises, i.e. primarily development projects of re-
gional importance in the field of energy, transport, piped water and sewer-
age networks, telecommunications and residential waste treatment,
— special targeted programmes promoting local economic development and
development projects related to community work providing part-time em-
ployment,
— development projects assisting the restructuring agriculture, the utilisation
of agricultural lands for non-agricultural purposes, the development of lands
not included among nature protection areas and the development of rural
tourism.
The objectives and maximum amounts of assistance that can be given from the
Targeted Budgetary Allocation for Regional Development are specified in Table 4.
The maximum amount of financial support given to job-creating investments may
not exceed HUF 1 million per employee. The amount of interest subsidy given
may be 50 percent of the interest on the loan if the project is not receiving any
other forms of state assistance. If the project is receiving another forms of state
assistance, then the maximum amount of interest subsidy can be 30 percent of the
interest on the loan. The projected level of employment must be reached within 6
months of the completion of the project and the jobs created with the financial
support received must be maintained for at least 5 years.
42
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
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Discussion Papers, No. 23.
Table 4
Eligible objectives, forms and sizes of assistance
Eligible areas
Eligible
Forms of
Under-
Declining Rural Areas hit by high
objectives
assistance
developed industrial areas
level of unem-
areas
areas
ployment
1
2
3
4
5
6
1. Job-creating invest-
Non-repayable
ments and develop-
grant as a per-
30
25
20
30
ments and develop-
centage of eli-
ment projects, which
gible costs
are aimed at market
or
and product change
Repayable as-
and help maintain
sistance as a
current employment
percentage of
50
40
30
50
levels
eligible costs
In the case of
both forms of
assistance, in-
terst subsidy as
30
30
20
30
a percentage of
the interest of
the loan
2. The creation of in-
Non-repayable
novation centres, bu-
grant as a per-
siness incubators and
centage of eli-
40
40
30
30
industrial parks as-
gible costs
sisting enterprises
3. The preparation of
Non-repayable
programmes ancour-
grant as a per-
aging regional devel-
centage of eli-
70
70
70
70
opment and the de-
gible costs
velopment of the lo-
cal society
43
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
1
2
3
4
5
6
4a Investment into
Non-repayable
productive infrastruc-
grant as a per-
ture, which is related
centage of eli-
40
35
40
35
to economic
gible costs
development and as-
Interest subsidy
sists enterprises
as a percentage
of the interest
30
30
30
30
of the loan
4b The construction of As a percent-
gas distribution net-
age of the net-
works
work develop-
20
15
20
15
ment contribu-
tion
Interest subsidy
as a percentage
of the interest
30
30
of the loan
5a Development proj-
Non-repayable
ects aimed at non-
grant as a per-
agricultural land use
centage of eli-
50
30
50
30
gible costs
5b Development proj-
Interest subisdy
ects aimed at non-
as a percentage
agricultural land use
of the interest
50
40
50
40
in the form of enter-
of the loan
prises
6. Investments to sup-
Interest subsidy
port the development
as a percentage
of rural tourism
of the interest
50
40
50
40
of the loan
7. Human infrastructure Non-repayable
development projects
grant as a per-
involving job-
centage of eli-
40
30
25
30
creation
gible costs
or
Interest subsidy
as a percentage
of the interest
50
50
50
50
of the loan
8. Special targeted pro-
Repayable as-
grammes promoting
sistance as a
local economic de-
percentage of
40
30
30
40
velopment
eligible costs
Source: Government Decree 31/1998.
44
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Discussion Papers, No. 23.
The total expenditure earmarked for regional development in 1998 is HUF 20
billion, at least 70% of which will be used through the county development coun-
cils (Table 5).
Table 5
Regional development supports by counties
Targeted
Regional
Regional
equalisation
Total
supports per
Counties
allocation
framework
capita,
HUF million
HUF
Budapest
0
0
0
0
Baranya
290
477
767
1,892
Bacs-Kiskun
473
780
1,253
2,333
Bake s
330
543
873
2,193
Borsod-Abadj-Zemplen
639
1,060
1,699
2,299
Csongrad
301
481
782
1,853
Fejer
167
253
420
983
Gyar-Moson-Sopron
170
253
423
995
Hajdd-Bihar
412
677
1,089
1,994
Heves
195
324
519
1,594
Jasz-Nagykun-Szolnok
371
611
982
2,357
Komarom-Esztergom
131
208
339
1,093
NOgrad
250
419
669
3,055
Pest
364
609
973
1,000
Somogy
234
387
621
1,860
Szabolcs-Szatmar-Bereg
567
953
1,520
2,657
Tolna
161
259
420
1,700
Vas
102
150
252
930
Veszprem
194
317
511
1,359
Zala
151
237
388
1,307
Total
5,500
9,000
14,500
1,431
Source: Government Decree 28/1998.
The level of decentralisation is determined on the basis of social, economic and
infrastructural development, taking into account the level of development of the
county (per capita GDP) and the development of the regions.
In line with the Law on Regional Development and Physical Planning, from
1996 counties and statistical areas are to be evaluated in terms of eligibility for
support instead of ranking the settlements.
Within the counties the following types of regions complied with the eligibility
requirements:
— Small areas are considered socially and economically less developed if the
complex indicator calculated with factorial analysis on the basis of the demo-
45
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Discussion Papers, No. 23.
graphic, economic and infrastructural development level is less than 75% of
the national average;
—In selecting the priority regions of industrial restructuring the system of indi-
cators used in the European Union was applied. Therefore, in the evaluation
process the percentage of the working population employed in the industry,
and changes in the number of people employed in the industry compared to
1990, and the rate of unemployment shall be taken into account. Those re-
gions were granted the priority status the indicators of which were different
from the national average, i.e. the percentage of the population employed in
the industry was higher, and the other two indicators (rate of unemployment,
number of people employed in the industry compared to 1990) are less fa-
vourable than the national average;
—In selecting the regions of agricultural and regional development the EU
principles were taken as a basis, but the adoption of the concrete system of
indicators was not possible due to the specific Hungarian characteristics, e.g.
the profitability of the agriculture cannot be measured on regional level, so
the evaluation is based on the per capita personal income tax base. The other
deviation is due to the fact that in most agricultural regions with a low in-
come level the population density is usually high, there is no constant de-
population, since the natural birth rate is quite high. To avoid this deviation, a
so called migration balance was incorporated into the system of indicators;
—Those small areas were put on the list where the rate of permanent unem-
ployment (more than 180 days) was 1.25 times the national average.
The list of areas eligible for support was adopted by the Government in 1998.
According to the new classification, 33.5 percent of the population lives in these
areas (Table 6; Figures 10-11).
Table 6
Eligible areas in Hungary, 1998
Number
Number of
Type of area
of
eligible settle-
Population,
'000
areas
ments
1 Underdeveloped
83
1,650
3,017
2 Declining industrial
6
94
284
3 Rural
38
849
1,320
4 Hit by high level of
unemployment
41
911
1,742
Eligible areas*
88
1,740
3,408
* One small area may be included in more than one problem type. The number and population of the
eligible areas were only counted once.
Source: Central Statistical Office.
46
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
'000
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
3 EU-compatibility of the Hungarian regional policy
The complex and high level legal regulation of Hungarian regional develop-
ment, as well as its particular institutional system, is of a unique and pioneer
character in Eastern and Central Europe; it could even serve as an example for a
number of EU Member States. This is acknowledged in the European Commit-
tee's report on the country, as is the fact that most elements of the Hungarian
regional policy is compatible with the structural policy of the EU. The goals of
the Act XXI of 1996 on Regional Development and Physical Planning are in
accord with the principles of social justice, equity and solidarity as well as co-
hesion in general. The structure of the Hungarian Regional Development Con-
cept and its regional orientation partly meets the requirements for a national
development programme document and for the EU compatibility of long the
term development goals.
Commission Opinion on Hungary's Application for Membership of the
European Union (Brussels, 15 July 1997) contains following statements of the
current position of the regional policy in Hungary:
— „The Hungarian Government is well aware of the need of an active re-
gional policy involving all Government levels;
— Hungary is the first country among Central European countries which
adopted a legal framework closely in line with EU structural policy.
Many sections of the new law have been drafted in the perspective of
taking over the acquis;
— Problems still exist in implementing the newly adopted regional devel-
opment policy. Institutions still have to be created and existing ones need
support and experience;
— Lack of co-operation between ministries which have deconcentrated set-
tlements and the ... county development councils, which are the major
actors for regional development needs to be corrected;
— Regional co-operation between counties should be strengthened;
— Hungary's administrative capacity to manage integrated regional devel-
opment programmes seems satisfactory. Thus, subject to the remaining
reforms, Hungary should be ready to apply the Community rules and to
channel effectively the funds from the EU structural policies."
49
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Discussion Papers, No. 23.
3.1 Basic principles
3.1.1 Decentralisation and partnership
Territorial decentralisation in Hungary is realised on several levels. Yet these
territorial levels do not have the same institutions and scope of authority. There
is no clear division of tasks among these levels, neither is it properly defined on
the legal level in what cases and in what territorial and functional magnitude
direct central assistance is justified to interfere with the activity of the so-called
selected and crisis areas. The scope of the regional level has not been defined,
its institutions and functions have not developed yet.
In the decisions on the distribution of regional development resources, in the
decentralisation of planning and in partnership co-ordination headway was
made on the county level by the setting up of county level development councils.
Nation-wide experience shows that while significant problems were caused by
the ambiguous legal status of the councils, flexibility in this matter did facilitate
the establishment of these institutions, the first decisions on the distribution of
funds and the speeding up of the planning processes. With regard to the re-
quirements of the EU the following items are to be highlighted from among the
experiences of the operation of the county territorial development councils:
•
Certain problems have arisen during their operation which show that the
ambiguity of their legal status will lead to problems about their role and
other conflicts. The county development council has a right to exclude
from its funds those settlements which are not members in any of the as-
sociations, or those associations which have failed to pay their dues to the
council. In the long run it seems inevitable that strategic planning should
belong to the scope of an elected body;
•
There is hardly anything as yet to guarantee the effectiveness and exper-
tise of the councils' operation since in most cases there are no separate
working organisations with experts employed and with a system of con-
nections and information to build upon. It is clear that the major source of
conflicts among the members is the distribution of costs and the estab-
lishment and location of the working body;
•
The on-line and evaluative financial control of the utilisation of the funds
can only be maintained by the State Treasury with the aid of a stronger
territorial apparatus because without it the process would become ex-
tremely slow. The involvement of the Treasury in regional development is
challenged by many, yet within the present organisational framework it
would be unwise to reverse the process. The monitoring system should be
established on all levels of decision making and distribution parallel to
the operation of the financial and legal controlling system.
Bottom-up regional development trends today are the most relevant in the
case of small areas, therefore to operate them and to maintain their activity is of
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Discussion Papers, No. 23.
vital importance. These communities are markedly affected by the Law on Re-
gional Development which has caused significant conflicts. While the Govern-
ment initiative is strongly justified that these small regional organisations
should draw nearer the borders of the statistic and/or selected areas, yet experi-
ence shows that the legislative and Government measures employed so far to
encourage this process have not been effective enough. Many settlements are
still not members of any associations, and the real activity in many places is not
connected to the associations, that is to the council representation, but to previ-
ous associations and federations, which usually cover a smaller area, cities and
towns in many cases not taking part in them. Here legislation resulted in the
duplication, instead of integration, of institutions. Another problem to be solved,
especially in the light of EU accession, is whether the extent of county level
decentralisation makes it possible that the development councils support in-
vestments other than those regionally favoured. It is to be noted here that the
principle of concentration encourages and makes possible the utilisation of
funds primarily in the favoured areas.
Owing to the legal regulations, the weakest level of the territorial division of
labour is the region. Its missing institution is the regional development council,
whose establishment is voluntary, its territory is not aligned by Law to the
NUTS II level, it has no resources or scope of authority defined, and it can only
perform tasks that are transferred to them by the county development councils
from among their own tasks. Those regional councils which have been estab-
lished so far are still in the process of being organised, their creation is primarily
motivated by the EU resources to be obtained. These councils do not yet have
definite programmes, working organisations or their own resources. The greatest
problem is, however, that their territories do not correspond to the pattern that
will expectedly be the NUTS II level in Hungary.
Adhering to the principle of bottom-up development, legislation is partly
justified in being cautious in encouraging and prescribing the establishment of
associations among counties. Yet in the long term it will hardly be possible to
operate and finance a regional development institution and working system
where the statistics and programming levels do not correspond to the real scope
of authority of the actually operating organs of decision making. Neither would
it be sound if a duplicate system emerged with a domestic regional development
institution and planning framework on the one hand and an EU oriented one on
the other.
The principle of partnership emphasised in the EU regional policy seems
more important than either the political legitimacy of regional policy decisions
or subsidiarity, therefore the Hungarian institutional system is, in this respect,
progressive.
Another characteristic of Hungarian decentralisation, which seems to make
little difference in the accession to the EU and is also attested to in other coun-
tries, is that the targets of decentralisation are not the local governments and not
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Discussion Papers, No. 23.
the administrative organs, but special partnership organisations operating on the
basis of delegation. What is problematic, however, is that strategic planning is
also done by these partnership organisations. Within this framework of decision
making the publicity of regional planning is less ensured.
According to the EU regulations on the Structural Funds, on the principle of
subsidiarity not only the Member State can be assumed as a partner in the Union
level regional policy but also the regional and local authorities, and, as defmed
by the internal legislation of the Member States, its economic and social organi-
sations. Their participation is on the regional level and in the debates among the
partners which continuously shape the EU level measures.
The Hungarian partnership organisations are mostly dominated by the s. On
the regional level the partnership organisations do not function, therefore their
strong integration or their federation would be absolutely necessary. The re-
quirements of partnership are not exhausted by the establishment of the special
partnership organisations but these organisations are to work in a co-operative
manner with wide publicity. The Hungarian partnership institution system fails
to comply with these requirements yet.
Another requirement that the management of regional development has to
meet is co-ordination, the present legal regulation and institutions of which are
not satisfactory. Agenda 2000 emphasises co-ordination especially among the
ministries for the concentrated and effective utilisation of the resources. The
National Regional Development Council and the National Regional Develop-
ment Centre operating beside the former are two organisations which are capa-
ble of to ensuring the co-ordination between the sectors. At the same time its
present powers, licences, legal status and composition indicate that the Council
has no strong co-ordinating impact. On territorial level co-ordination and the
concentration of resources also fail to work properly: rural development re-
sources, for instance, are distributed by the bureaus of the Ministry of Agricul-
ture, the deconcentrated organs concerned in regional development are only
invited in the regional development councils. On the whole, the institutions and
the operational framework of co-ordination are almost completely undeveloped.
3.1.2 Programming
Programming, which has not been practised in Hungary yet, in the wide context
includes both planning and implementation. In the narrow sense of the word it is
a strict order of procedures which is compelling in both the preparation and
implementation of the programmes (Farago, 1995, 1997).
The point of programming is:
• Strategic approach: only those projects (operative programmes) can be
supported which fit one of the strategic programmes;
• Integrated, and not centralised, distribution of resources: through the in-
tegrated utilisation of the various resources, aiming at a synergic effect,
the resources can be more effectively utilised;
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Discussion Papers, No. 23.
•
The requirement of coherence (pyramid of goals): national level macro-
goals and local development initiatives should strengthen each other. The
best social and economic effects can be achieved by supporting- measures
which enhance each other's impacts;
•
It builds upon the vertical and horizontal co-ordination and co-operation
effected by decentralisation;
•
Its integrating element is territoriality, therefore the development units
and the areas of action are the various (national, regional and smaller)
territorial units;
• A basic requirement is that the process of financing and implementation
can be controlled and transparent, which requires the establishment of a
monitoring system.
The practice of regional development and territorial planning is not uniform
in the countries of the Union. We are therefore not expected to adhere to a non-
existent unified practice but to assert the common basic principles and to inte-
grate the necessary common elements and connecting points into the Hungarian
practice. The EU does not define directives in regional development and territo-
rial planning; but sources from the Structural Funds are distributed on certain
conditions, which, in our own interest, should be fulfilled. The expectations of
the Union in territorial planning are expected to be integrated in the regulations
on the distribution of the Structural Funds after 1999 (Begg, 1997; Agenda
2000).
The already existing conditions and strengths that facilitate the introduction
of programming:
•
The legal framework of regional development exists;
•
The backbone of strategic programming is strategic planning, and the
Hungarian practice of making development concepts is similar to strategic
planning. Development concepts prepared or being prepared for the vari-
ous territorial units could be expanded or transformed into strategic pro-
grammes;
•
Part of the resources have already been decentralised and distributed
through tenders;
•
The banking system (Treasury, banks) has been established and is capable
of handling fmancial assistance.
Deficiencies and weaknesses in the introduction of programming are as fol-
lows:
•
The greatest obstacle to the introduction of programming is the present
practice of budget planning. The strategic and operative programmes,
therefore, do not have a real budget background;
•
There is no real link between strategic planning and the operative
(sectoral) programmes;
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Discussion Papers, No. 23.
•
The concrete programmes are monocentered, harmonisation with other
programmes is lacking. The mechanism of broad scale co-ordination is
undeveloped;
•
The utilisation of the various (central) resources is not co-ordinated. At
lower levels, own local resources, which would strengthen resolution in
development, are not added to the central resources;
•
The regional level is weak. It lacks its own scope of decision making and
financial resources. Its scope of authority and the content of its planning
has not been clearly defined;
•
Regions that are formed voluntarily and containing a number of subjec-
tive (political) elements do not facilitate long term strategic programming;
•
Regional development monitoring is missing and so is the evaluation
system of the utilisation of resources.
3.1.3 Concentration and additionality
Conditions for concentration and additionality are still deficient in Hungary.
Apart from the geographical concentration of the regional development re-
sources (the EU-conform geographical designation of the types of assisted ar-
eas), which will remain in national competence in the future anyway, neither
activity-based concentration nor the combination of resources comply with EU
principles and trends.
In all assisted areas of the European Union investments creating new jobs,
supporting enterprises and having to do with human infrastructure development
have a significantly greater share than in Hungary while those having to do with
technological infrastructure have smaller. Part, but defmitely not the whole, of
this discrepancy can be explained by the underdeveloped nature of the Hungar-
ian infrastructure. Local governments should mature and instead of over-
emphasising their own direct responsibility and of concentrating on investments
that directly influence their political popularity they should put much greater
emphasis on the support of business and on the creation of a favourable envi-
ronment for business. If this will not be the case then local government behav-
iour itself will be the major reason why they are not sufficiently involved in
regional development decisions. The increasing weight of economic develop-
ment renders greater importance to the territorial centres where conditions are
more favourable for the concentrated creation of jobs.
Resources influencing regional development are splintered, at present, funds
are shared among nine ministries. The co-ordination of resources is weak. It is
inevitable that the mechanisms for the uniform handling, regional distribution
and utilisation of the development resources be established. Local governments
in Hungary receive various forms of assistance but the equalising mechanisms
are of different orientations and operate on different principles.
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The Hungarian local government system, within the communal sector, is
overweighed and focused on the maintenance of institutions, which, as far as the
regional development policy is concerned, makes it difficult to have a clear
overall picture: financial inequalities (when tasks and resources are compared)
cannot be clearly assessed, therefore the goal and resources system of equalisa-
tion misses its aims (e.g. finances may fail even at high indices of supply). The
territorial level of local government is incapable of operating a comprehensive
goal and resources system in territorial policy. Mobilisable local government
means are scarce (and ever decreasing), the creditability of the local govern-
ments is weak, along with their poor budgets they are coping with profound
problems of maintaining and operating their institutions, they practically have
no free resources. This is true in the case of both larger cities, which are deter-
mining factors in regionalisation, and county level local governments, which
have hardly any revenues other than fees.
The magnitude of financial resources assigned directly for regional devel-
opment goals is insignificant in comparison with other funds. The processes of
the various funds in defining their goals, methods of distribution and selection
criteria are not harmonised. The need for harmonisation and co-ordination to
comply with territorial aspects still emerges as a Government concern rather
than as practice while sectoral aspects and assertion of interests are still domi-
nant.
Joint financing does not only raise quantitative but also administrative re-
quirements. One prerequisite for the approval of EU assistance is that a state-
ment of recognition of financial obligations on the part of the central and local
governments and the private investors throughout the duration of the project be
enclosed in the application. In Hungary, where budget planning for several years
ahead does not or hardly exists, this requirement poses considerable problems.
Regulations change every year, which makes fmancial obligations for several
years ahead disproportionately risky. Here EU financing is linked to the further
development of the whole regulation system to result in more stable regulation.
Without this it is impossible to receive considerable assistance.
3.2 Regionalisation
3.2.1 The concept of region in the context of regional development
The concept of region in the context of regional development (referred to in the
following as region) is the determining institutional framework of the definition,
working out and implementation of the various regional development objectives.
The region is the primary territorial unit of the development of territorial
economic and directly linked major (production) infrastructural systems, where
the primary goal is the development of the whole of the territory, but where
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cohesion, the reduction of the internal (mainly inter-county) differences is also
to be aimed at.
Therefore the basic territorial policy function of the region is to expose, co-
ordinate, represent and assert the general regional interest (having to do with
territorial development) beside the interests of the settlements, small regions,
the counties, the sectors and the macro-economy. The two most important ele-
ments in the content of its function are territorial economic organisation and
development and regional infrastructural development. The goals of this func-
tion are to create a region capable of autonomous development, shaped in the
direction of stronger internal cohesion and to establish the regional market by
strengthening territorial division of labour and by systematically developing the
infrastructure.
Therefore the region is a firm level of decentralisation working on the basis
of a long term strategy, with a co-ordinating and integrative role, where bottom-
up territorial interests are primarily represented. At the same time it is the scene
of co-ordination with national regional development interests.
To fulfil this role the region has to be a basic element in the territorial in-
formation system and a determining level in territorial planning, and it has to
possess the necessary scope of authority in decision making, financing, control,
etc. In other words the region is an:
— information (statistics and registration),
planning-programming, and
— development unit.
In Hungarian practice so far these elements have only been present relatively.
Joining the NUTS system of the EU is one of the preparatory elements be-
fore accession to the organisation, since, among other reasons, this is the only
channel through which Hungary can engage the regional policy of the EU and
receive substantial supplementary resources for its regional development goals.
The territorial units of the five-level statistical and territorial system of
NUTS are of different importance and significance concerning regional devel-
opment policy. NUTS II level has a determining, NUTS I level has a supplemen-
tary role in the present regional development policy.
NUTS II level is:
— the primary level in the working out and assertion of the regional policies
of the different countries and the European Union,
— the level for statistics and analysis, information, comparison and the cir-
culation of data in connection with regional development and planning,
— the primary level of the preparation and implementation of regional de-
velopment concepts and programmes,
— the level where the decentralised and co-ordinated distribution of the re-
gional and horizontal assistance of the EU Structural Funds and the dis-
tribution of the internal regional development resources take place.
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3.2.2 Unsuccessful attempts for regionalisation in Hungary
The national level political approach to the region and to regionalism has
changed several times in history but, in spite of plans and attempts for reform,
has always remained uncertain. None of the political regimes undertook or
found it feasible to do away with the centralised structure of power, politics and
administration and to establish a real territorial division of power (Hajda,
1993c; Paine, 1997).
In the Hungarian social and political development and in the administrative
spatial organisation the counties have played a distinguished role until as re-
cently as 1990. Sabotaging "from below", they were several times able to ship-
wreck attempts for comprehensive regionalisation, which were initiated from
above or from academic circles and were themselves in most cases heavily bur-
dened with uncertainty (Hajdit, 1993b).
Within spatial frameworks broader then the county level there has tradi-
tionally been a lack of such power group or interest group which could or would
wish to force the regionalisation of the country.
Several sectoral attempts (in administration, planning, regional and settle-
ment development) have been made for the establishment of the country's re-
gional structure but each of these attempts and territorial divisions proved
short-lived.
Even today power and politics on both central and territorial (county) level
regard the region and regionalisation as a threat.
The territorial division of the regions defined by the principles of
"complexity", homogeneity and functionality and the regions defined by sec-
toral (administration, planning, development, statistics, industry and agriculture)
considerations, either hypothetical or prepared on the basis of real territorial
research, have led to vastly different configurations.
To sum up: there exists no political or professional consensus regarding the
concept, function, hierarchic structure, number, territorial framework etc. of the
region.
3.2.3 Reasons for the creation of the regions
In Hungary the regions are necessary for the correction of the regional policy,
for the establishment of the framework of further decentralisation and to create
the conditions of compatibility for accession to the EU.
The emerging and partly institutionalised spatial structure (small regions,
counties) is not sufficient for a regional policy oriented in economic deve-
lopment, because:
— The smallest unit of the territorial economy is the county (because of the
existing institution al system and potential, the capability and factors of
capital attraction, the existence of a suitably sized and concentrated mar-
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ket, the conditions for the development of the division of labour and of
the market economy, and the possibility of an increasing employment
level);
— Within the existing framework, competition among the local and territo-
rial initiatives for development is inevitably limited, the size of the terri-
torial development initiatives renders them infeasible (the initiatives are
splintered and local);
— No direct reference can be realised between the national spatial develop-
ment requirements and practice and the local and territorial aspirations
and initiatives, co-ordination is only partial and formal;
— The elements decisive in territorial economic growth belong in the system
of requirements of the central management level;
— Important principles of regional policy laid down by law (programming,
concentration, subsidiarity) can only be asserted to a rather limited extent
within the present framework;
— The present institutional structure does not follow all of the territorial in-
terest levels in the same way and with the same scope of authority, this
deficiency results in centralisation and the dominance of sectoral interests
(the decentralised regional development institution system can only indi-
rectly handle the decisive elements of modern regional development, such
as territorial economic clusters and networks, business services, R&D and
innovation, environmental development, regional communication and
transport networks, territorial cohesion etc.).
The existing regional development institution system and mechanism des-
tines the regional development policy to be basically short term, budget depend-
ent and divided, with little power to assert interests;
Opportunity for further decentralisation is limited within the present frame-
work, because, on the basis of the existing spatial units, the information, inter-
est, decision-making, control etc. conditions for the functions and competencies
to be decentralised are not ensured and cannot be established without violating
the full assertion of the principles of the regional development policy (including
primarily the principles of concentration, programming and subsidiarity).
Accession to the European Union and participation in its potential regional
funds require compliance with the regional policy of the European Union and
with its statistics and information system.
With or without respect to accession to the EU, the new national territorial
system of regional development, one which is capable of adjusting to the
quickly changing real processes, should be established. On the whole, as far as
regional policy and the establishment of the regions are concerned, the internal
reasons for reform and the tasks induced by the requirements for the accession
to the EU converge.
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4 Tasks to be implemented before EU-accession
During the conference on accession, no severe conflicts to be solved immedi-
ately are likely to arise in the question of the institution al system since almost
all EU principles on regional policy are included in the regulation of the Hun-
garian institution al system except for the professional working body, the han-
dling of finances and monitoring. In the further development of the institutional
system absolute priority should be given to the regional decision level, to Gov-
ernment and sectoral co-ordination, to a professional working body and to the
establishment of monitoring.
4.1 The regulation of the functions of different decision-making
levels
4.1.1 Decentralised levels
An important task at all levels is to clearly define the legal nature of the deci-
sion-making and executive organisations of regional development and to pre-
pare detailed and accurate codes for the organisations.
When clarifying the legal nature of the regional development councils, un-
ambiguous regulation is necessary primarily in the legal control over their op-
eration, in the legal control over their finances, in revealing fraud, in the legal
nature of the planning decisions made by the councils, in the rights and obliga-
tions 'ensuing from membership in the council, in the fmancing of their opera-
tion, in the system of legal remedies against council decisions on the distribu-
tion of resources, in the publicity of the operation of the councils, in the demo-
cratic control of the councils and in the mechanism of local partnership.
Clarification of these regulations is necessary because the forms of partner-
ship common and wide-spread in the EU are voluntary, they do not cover the
whole administrative territory of the country, and do not make decisions pertain-
ing to the executive power, strategic planning or redistribution of Government
resources. Judged by the Commission report on Hungary it seems that the Union
is not properly informed about the relationship between the regional develop-
ment councils and the local governments and about their legal characteristics.
Therefore it would be wise to prevent possible objections by more accurately
regulating the existing Hungarian model, already challenged by certain political
circles, which is different from the common Western European system of con-
sultative and voluntary partnership organisations of regional policy but with a
stronger legal basis. More accurate regulation should especially affect the con-
trol and democratic publicity of the regional development councils.
The establishment of regional development working organisations (agencies)
is also to be tackled on a general basis. It should be made clear on which levels
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the Government encourages the establishment of the organisations. Given the
resistance of the local actors against the establishment of the working organi-
sation, the solution in this stalemate situation could be effected by strong Gov-
ernment support for the establishment of the working organisations through the
central financing of the organisations on the one hand and through the working
out of the organisational form on the other, perhaps also endowing them with
their own legal entity and tasks. The working organisations could, for instance,
have centrally defined tasks in connection with the territorial information sys-
tem, with monitoring and with the preparation of applications and tenders. The
establishment of the working organisations is an urging task since expertly pro-
grammes and competent management are the keys to gain access to EU funds. A
full time, well-sized professional and competent working organisation is espe-
cially necessary at the regional level. At county level the increased involvement
of the county and city local governments and chambers may easier ensure the
establishment of their own working organisation, from local resources and by
local decisions. In the case of small area associations, towns and cities should
undertake a greater role or, in the long term, it is possible that general associa-
tions may be formed comprising gravity zones of cities or small areas which can
perform local tasks of regional development.
4.1.2 The central level
An extremely important task, expectedly taking up longer time and involving a
number of conflicts, is the strengthening of Government co-ordination. This is
the field where the EU opinion is the most critical in spite of the fact that the
National Regional Development Council already exists.
The role of the council could be strengthened to some extent even without
the modification of the law, if, for instance, the participants were represented at
a high political level. Although this is prescribed by law, since the Government
side has to be represented in the work by one of its ministers, the existing prac-
tice is different. The regional development act itself contains contradiction,
since in theory it enables the council to make decisions, yet the text of the act
only allows for decision making in approving of its own procedures and, in case
of objection by a minister, to call on the county development council to carry
out new level. Although this is prescribed by law, since the Government side
has to be represented in the work by one of its ministers, the existing practice is
different procedure.
The real strengthening of the council would be possible through modification
of the law, namely by endowing it with authority of decision and agreement,
and/or by modifying its presidency and its connections to the ministries (the
Prime Minister, the Prime Minister's Office), co-ordination between ministries
cannot be rendered into the competence of one ministry.
It is only a strengthened National Regional Development Council which will
be capable of co-ordinating national regional development planning, program-
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ming and financing. The Central Regional Development Monitoring Committee
should be set up at beside the council.
The modification of the organisation and dependency relations of the council
may interfere with some positions of the Ministry of Environment and Regional
Policy and scope of authority but this has to be considered as subject to the in-
terests of the Government level co-ordination of regional policy.
4.1.3 Other modifications of the organisational system
An important deficiency of both the territorial and central institutional systems
is that the organisation and operation of the territorial information systems are
undeveloped and have not been regulated yet in spite of the fact that a Govern-
ment decree has been issued in this question. The county chief notary's author-
ity in the territorial information system is challenged by many. This is by all
means to be reconsidered since the Central Statistical Office seems more suit-
able for the task; also the strengthened management of the regional development
councils would be a better choice in the future. A EU-conform statistical system
is basically founded upon the Central Statistical Office and it cannot be the
question of local consideration and initiation anyway. The setting up of a solely
central based statistical system would be the most satisfying solution.
A matter of long term consideration is that the relationship of the regional
development institutional system and the administrative and local government
system should be set on a new basis, perhaps a territorial reform should be car-
ried out. From the point of view of regional policy this is important because
experience shows that those regions of programming and development which
are compatible with the administration are in a better position and hold political
legitimacy. Sectoral co-ordination, too, is easier in case of a regional develop-
ment system compatible with the administration:
In the long run it is conceivable that the regions become the framework not
only of regional development but of a broader horizon of central and local gov-
ernment involvement This would influence the future of the counties, and that
obviously in the direction of their getting functionally weaker.
A more real alternative seems to be, however, the political strengthening of
the counties, which in turn involves that the doubled regional development de-
cision system on the county level may be abolished and the important compe-
tencies will be rendered back to the county governments.
It also needs more time to work out, considering the horizontal and partner-
ship relations which primarily characterise the activity of regional development,
the regulation of the so-called political or planning contracts. These contracts
are capable, through by-passing the planning hierarchy and redistribution, of co-
ordinating the activity of the partners in advance, making it calculable. These, in
turn, could be made the legal framework of programming but especially that of
the concentration of resources.
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There are marked deficiencies in the field of professional consulting, plan-
ning and financing institutions connected to regional development, either profit
oriented or not. This decreases the professional standards of programming, de-
creases absorbtivity and lessens the volume of local resources.
4.2 Building the region and the functions of the regional
development organisations
4.2.1 Establishing the regions
The institutional and operational processes of regional development so far have
been characterised by the adaptation to the regional level of the mechanisms of
the previous regional development system, which was linked in a one-way de-
pendency to the central level, but no particular new content of regional devel-
opment has been expressed during this process.
The ideal of bottom up building, too much respect for lower level develop-
ment and decision autonomies which were very disperse and often lacking in
real substance, and the lack of a national regional development strategy (which
made it almost impossible to encourage processes matching the goals of a co-
herent regional policy) started a building process which little considered the
macro-economic interests in the country's spatial structure, was rather incon-
gruent with it and was not controlled with regard to the basic goals of regional
policy. This building process, accompanied by the counties' protection of their
administrative and power status, excludes the possibility that a region with rele-
vant functions be established on a voluntary basis. What is more, the prevailing
regional development institutional system, which is of the executive-distributive
type, inevitably prefers exclusiveness to a more flexible organisational-
developmental variety. Therefore, and also because of the urging time limits, the
EU-compatible regions of the regional development policy are to be established
through a central political decision, not excluding, however, other occasional or
long term emergence of voluntary regional self-organisation.
The Hungarian structure to be worked out is influenced by the system of re-
quirements ensuing from the present EU structures, but is not automatically
determined by it. When working out the Hungarian structure, and therefore
when defining the regions of programming, decision makers have considerable
freedom of action.
— The NUTS system is the structural unit of the EU for statistics, registra-
tion, information and development; EU-compatibility, therefore, requires
that the Hungarian structure be established and harmonised to the NUTS
structure before accession to the EU;
— The NUTS II region, in the present framework, is the scene of the recep-
tion and utilisation of the European Union regional development re-
sources, thus playing a key role in the system. In the 15 Member States of
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the European Union the NUTS II region is a category for economy of
scale. The NUTS II region also works as the framework of the decentrali-
sation of the regional development activity and funds in the present mem-
ber states of the European Union;
— Owing to conscious regional policy and practice, the programming region
is also the framework of the strengthening of internal regional cohesion
and competitiveness.
The 206 NUTS II regions of the EU widely differ in their legal and adminis-
trative position, in their size and population. Basically, they are nationally des-
ignated units, at the same time the NUTS II system of each country complies
with the uniform requirements in that they are compact units of statistics
(registration and analysis), planning (programming, co-ordination) and regional
development (assistance policy, decentralisation).
The number of the middle-level administrative units in the ten associated
Eastern European countries is 357, out of which 250 belongs to those five which
were selected for the first round of negotiations (to be noted that 147 of these
units is in Slovenia) (Horvath, 1996a). It is obvious that the EU cannot handle
this many territorial units as subjects of assistance. It is inevitable, therefore, to
create greater territorial units for this purpose.
The basic question in introducing the NUTS system, and within it the estab-
lishment of the key NUTS II level, is to what extent the Hungarian State recon-
siders the ways its system is built up and operated and how it can solve, or leave
as it is, the problem of the territorial structure of its administration.
There is no external constraint from the EU for the modification of the sys-
tem and administration of the Hungarian State. The organisational and territorial
structures that match the regional policy of the EU can be established through
minor modifications in the existing Hungarian structures.
4.2.2 Geographical designation of the regions
The actual geographical designation of the NUTS system and within it the
NUTS II level, is an internal affair from the EU's point of view, which means
that apart from some general criteria there are no absolute EU requirements
about the geographical designation, so the Hungarian parties involved have to
reach their own consensus.
All the more so, since the main aspects to be considered in the geographical
designation of the development regions are the following:
— previous history of regional co-operation, opportunities for territorial co-
hesion,
— proportionality in the country's spatial structure,
— relative territorial homogeneity considering the basic goals of regional
policy,
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Discussion Papers, No. 23.
— internal structures of the regions that allow proper operation (centre, sub-
centres, willingness and ability for co-operation etc.), compliance with
administrative borders,
— the "geo-political" similarity of the units to be integrated into the region,
the proximity of the international orientations which are decisive in the
long term,
— costs of the establishment and operation (the institutions for decision
making and for the preparation of decisions, the professional and adminis-
trative background institutions, the organisations for information man-
agement, planning, management and controlling-monitoring activities, the
institution system for decentralised financing), economy of scale with re-
gard to the functions.
On the basis of the above aspects there are more reasons that support the six-
part division. The most important of these reasons are:
— The two-part, as opposed to the three-part, division of the Transdanubia is
more grounded historically;
— The internal cohesion of the territorial units realised by the two-part divi-
sion of the Transdanubia is stronger, the courses of development predict-
able on the basis of internal resources also suggest unity along these lines
of division;
— Further partitioning would lead to such dualities of development which
are spatially unnecessary when the whole of the country is regarded;
— The two units, although different in nature and development, have terri-
torially accepted regional centres, the emergence of a third regional centre
has little ground and is hardly probable.
The regions to be established are shown in Figure 12.
In this situation the responsibility and the capability of making a decision on
the side of the Government and the Parliament are determining. When defining
the regional units it is not the particular and short term territorial financial inter-
ests that have to be considered, but rather the regions' better matching to the EU
structure and, in the "Transdanubia debate", the long term structural interests of
the country and of the area.
4.2.3 The operation of the regions
After the geographical designation of the regions, the regulation of their devel-
opment councils has to be made more clear. Their tasks, organisations and tools
have to be precisely defined.
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Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
The scope of authority of the regional development councils should be defined
congruent with the NUTS II units. This could be done by modifying the regional
development act to prescribe that the regional councils be established as the scenes
of interest harmonisation between the central government and the region. The
Government has a right to initiate the establishment of these regional development
councils, and if it declared that it would only participate in these regional devel-
opment councils this may effect the voluntary participation of the counties;
The relationship between the institution system and the various concepts of the
region used in the Law and in the National Regional Development Concept
(planning region, functional region, development region, programme region, spe-
cial area) should be made unambiguous. The regions, working with the participa-
tion of the Government and having their own resources and scope of authority,
should be identical to the six NUTS II units, while the Regional Development
Council of Budapest and that of the Lake Balaton are not part of this structure.
The regional development council should have its own resources provided for
by law, and it should also be laid down that the primary beneficiaries of the EU
regional assistance are the regions. The concentration of resources and the inte-
gration of sectoral resources require that the addressees of territorial redistribution
should be the regions. At county level, decisions should be made on the infrastruc-
tural resources of the settlements and small area local governments; where consid-
erations of equity and the goals of equalising should prevail.
Modifications should be made in the composition of the regional development
councils to ensure the representation of the county seats, keeping in mind that the
larger towns cities play an increasing role in the regional policy of the EU. The
small region associations, the chambers and the employees of the small region
should each send one representative to the council. Regional integration among the
chambers may be especially feasible in the long term, for which the existing legis-
lation on chambers provides an opportunity. The system of contacts between the
regional development councils and the sectoral administrative organs should be
established.
The regional development councils should not have a deduced scope of author-
ity, but their tasks should be directly laid down by law, not forgetting that the ma-
jority of the decentralised regional development resources and most of the interna-
tional resources would be devoted to them, and that they would be an important
scene of the interest harmonisation between the central and territorial levels.
Among the tasks laid down by law, of special importance are the roles of general
economic development, participation in the international regional co-operation, the
development of the greater infrastructural networks, developments which are im-
portant from an environmental point of view, activities connected to innovation
and the technological transfer, and the professional support of planning at the
lower levels.
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It is advisable to set up a professional regional development agency for the
planning and implementation of programmes. The agency may also perform all of
the tasks of a working organisation. For the delicate task of the preparation and co-
ordination of decisions, which is a crucial point in the operation of the whole sys-
tem, even in this case, a separate system should be established. All the more so,
since the building of partnership is yet the least developed element of regional
development, while the ex ante representation of the interests of the various actors
in the decisions is required by the need for a more public planning on one hand,
and by the very idea of integrated joint fmancing. The establishment of the region
does not necessarily involve the modification of the structure and territorial system
of the potential partnership organisations, which would otherwise significantly
expand the already substantial tasks of co-ordination.
A monitoring committee should also be operated along with the regional devel-
opment councils. The handling of the resources of the regional development
councils should be the task of banks or the Treasury. During the transition period
before the accession to the EU, for the purposes of organising the regions and of
fostering regional planning and innovation, resources can be obtained, in the form
of pilot programmes, from the so-called communal innovation projects included in
the programmes supported from the European Regional Development Fund, and
within the framework of the Communal Initiatives.
4.3 The setting up of the programming system
The preparation of regional plans (programmes) conforming to the assistance sys-
tem should be begun:
• The National Regional Development Concept should be converted into a Na-
tional Development Plan (national programme). Beside actualisation, it should
be supplemented with macro-economic and sectoral evaluations and pro-
grammes. The time span of this plan is seven years. The next programming pe-
riod in the EU is expected to be between 2000 and 2006, therefore it is to pre-
pare the programme for this period;
•
The developments that are highlighted in the National Development Plan as
central tasks should be turned into operative programmes, and it should be en-
couraged that they also be built into the lower level programmes. The operative
programme should also include in a co-ordinated way all those projects of na-
tional scale which the central Government wishes to implement either on its
own or in joint financing. The time span depends on the programmes, but is
generally between two and three years. The yearly budget should also include
the budgetary coverage for the approved programmes;
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• The regional development concepts which have been or are being prepared
should be modified to meet the requirements for the Single Programming
Document.
The regional development assistance system should be modernised. It would be
advisable to apply the EU guiding principles on assistance in the Hungarian sup-
port policy, no matter whether accession to the Community is considered or not.
The majority of the resources should be invested into large scale programmes (at
least 0.5 but preferably more than 2 billion HUF) since these are the projects that
can be feasibly realised in joint financing.
The regional development act only contains the basic elements of the institu-
tional system of programming. For the accession it is required that this institution
system be unambiguously defined and its functions clarified.
4.4 The reform of the financing regional development
4.4.1 The concentration of resources
One precondition of programme fmancing is that the assistance resources should
operate systematically and on similar bases and that co-ordination among them
should be ensured in an institutional form. In the case of a great number of re-
sources or which belong to several ministries this precondition is difficult to sat-
isfy. Therefore, and also for the more efficient organisation of regional decentrali-
sation, it is advisable to reduce the number of assistance types. At the same time,
concentration serves the considerable expansion of the volume of direct regional
development resources.
A shift is necessary in the Government's attitude to responsibility; it would be
necessary to work out a budget and financing system which ensures the realisation
of a self-dependent and conscious regional development policy. This requires in-
creased Government co-ordination and the marked representation of regional in-
terests in the Government's financial decision mechanisms.
The tasks defined in the Government proposal (Ministry of Finance, 18 July
1997) drafting the EU-conform restructuring of the Hungarian support system are
identical to the basic goals of the further development of the regional development
policy, since:
•
it prescribes the concentration of resources,
•
intends to set up a single information system for the various forms of assis-
tance,
•
it declares the necessity of joint financing,
•
it commits itself for regional decentralisation,
•
proposes the reform of the budget.
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Access to EU assistance requires change in the structure of the central and lo-
cal government budgets. It seems advisable to prepare separate budgets for opera-
tion and for development. There is a case for the restructuring of the Government
funds and earmarked provisions in a way which makes it possible to separate the
fmancing of public tasks from the assistance system for developments (e.g. no
operational or clearly social fmancing should be made from funds and earmarked
provisions devoted to development purposes). In the long run efforts should be
made to ensure that the development resources should emerge in different financial
funds according to their different prior goals. This involves also the merging and
restructuring of funds and earmarked provisions.
4.4.2 Additionality
Another basic problem of the financing of the goals of the cohesion policy is the
volume of the national (budgetary, local government and business) resources as-
signed to the EU assistance resources. In the case of assistance from the Cohesion
Fund the internal part is 15%, while in the case of the Structural Funds it is 25 to
50%.
It is theoretically conceivable, yet practically impossible, that the internal part
be covered by purely Government obligation, therefore the actors involved and
interested in regional development should be brought to a position where they
dispose of considerable own resources and participate in the distribution of central
assistance to different extents according to the types of resource.
The actual transferring of the resources is generally rather slow and bureau-
cratic, therefore it is necessary to clarify how and through what channels the sums
can be loaned. For this purpose and for the handling of money, keeping in mind
the requirements of commission through tender, a bank or the Treasury would be
suitable. This in itself may contribute to the decentralisation of the banking sphere
and/or to the strengthening of the territorial network of the Treasury.
The efficiency of the financing system is increased by the mechanism of plan-
ning contracts between the central Government, the region and the other actors of
regional development, the document including the legal and financial obligations
of the unification and utilisation of the various resources.
It is in the strategic programmes, and in the National Development Plan within
the framework of programme financing, that the budget defines the structural assis-
tance objectives, the volume of Government contribution and those resources of
the local governments and of the economic sphere which have to be taken into
account. At the same time the volume of those regional development resources and
foreign resources have to be also recorded which are to be used for this purpose. A
separate programme should be designed to effect a significant change in attitude in
order to draw community resources into the play and to win the favour of inves-
tors.
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Local government financing should be developed in such a way that each local
government be provided with enough resources to perform its obligatory tasks, to
implement the tasks it has undertaken, to carry out developments, cope with defi-
ciencies and to contribute to the regional development goals. Coverage for this is
to be provided by the total sum of all assistance plus the allocated and own re-
sources. This system may ensure that the local governments and the various other
actors of regional development can all participate in the fmancing of the' develop-
ments. The other side of this is that local developments of the local government
should be primarily financed from local government and local economic resources.
Central state financing by right is necessary only when a local development objec-
tive helps solve a problem of national scope, needs substantial capital investment,
its return can only be expected in the long term and other resources are difficult to
involve.
Beside the decreasing of the role and proportion of central assistance, it is in-
creased own resources, better ability of self-financing and restructured local taxes
(possibly with the introduction of extra taxation) that can establish the basic
framework in which the local governments' contribution to the resources can be
ensured, that is, that the local government sphere, following the requirements of
changing budgetary planning, can take responsibility in advance.
There should be such automatic processes built into the financing system which
make it possible to plan for several years ahead and allow for free motion and di-
vergence only in a very narrow domain in order that the local governments can
properly fulfil their obligations as scheduled in the fmancial plan.
In the local government sphere the desirable conditions of operation would be
provided by the application of a resources system which fosters fmancial self-
dependence, at the same time ensures equalisation among the local governments of
different income capacities. There are basically two possible ways of increasing
financial self dependence
-
in present-day Hungary. One is the transformation of the
divided personal income tax system to one of central and local decisions, the other
is the introduction of local property-taxation on the basis of property value. This
may provide an income source primarily for the local governments of the towns
and cities. Among local taxes, a value based property tax would be necessary.
When introducing that, however, several tasks would have to be solved such as to
create legislation on the process of estimation, organise training programmes and
prepare the public for the new system. Personal income tax will, in the long term,
remain one of the basic fmancing elements of local government management, em-
phasising the operation of the income equalisation mechanism in the field of local
government fmancing and helping developments through the system of target sup-
ports (opinions are divided on the role and future of the industrial production tax).
This system will not work unless the systematic reform of the tasks and author-
ity of the local governments is carried through and the levels of competence are
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clarified. Beside the reduction of tasks of the small settlement local governments,
which will still lack sufficient resources in the long term, and beside the organisa-
tion of the services in an integrated and associative form, the running of the set-
tlement equalising system, working independently of regional development, will
also be necessary.
Depending on the approval of the proposed measures it would be necessary to
complete two further tasks. One is to carry out the proper impact analyses meeting
all sectoral, economic, territorial and social aspects, and to review the whole of the
effective legal material, making modifications if necessary. This affects the acts on
regional development, on state finances, on the budget, on the local governments
and on local taxes, and later may involve the modification of the Constitution.
4.5 The expected economic and political impacts of accession,
parties of counter-interest
The most important economic impact of the EU-conform regional policy and
communal assistance is that, after the reception conditions are ensured, regional
development will have resources of a greater order of magnitude than at present.
Part of this, through the creation of new jobs, will directly flow to the economic
actors. Even more significant will be the increasing opportunities for background
infrastructural development.
The new regional policy is expected to effect the catching up of the less devel-
oped parts of the country and the strengthening of the competitiveness and income
productivity of the regions. Apart from the actual economic effects the transfor-
mation of the system of institutions and tools of regional policy will have impor-
tant professional, moral and political impacts.
The handling of EU resources requires the application of such planning, financ-
ing, co-operational and controlling methods which, without the accession, could
only be mastered much slower and with much more difficulty. Modern planning,
programme and project management, the "value for money" way of thinking and
the strict rules of avoiding corruption introduce a new practice, the effects of
which may penetrate those fields not affected by the Structural Funds thus facilitat-
ing the modernisation of the country.
Accession to the EU also enforces the transformation of the institution system.
The assertion of the principles of decentralisation, subsidiarity and partnership
requires the redefmition of the decision competencies, the decentralisation of
power and the strengthening of the autonomy of the territorial communities. The
present unitary State of Hungary may become a decentralised country.
During the preparations for the restructuring of the decision-making positions,
conflicts may arise, especially in the following fields:
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• National level:
— sectoral obtuseness and counter-interests,
— fight for competencies between ministries,
— attempts for centralisation (e.g. the intentional misinterpretation of the
principle of concentration);
•
Regional level: in the lack of traditions, institutionalisation and resources
the regions may become incompetent; in Hungary feelings against the redis-
tribution unit are still too strong. The county local governments are afraid of
the region. The strengthening of the counties' competence for infrastructural
development will encounter resistance by the settlement local governments;
•
Programming will require financing different from what prevails, so the re-
distribution of revenues and the loss of decision positions (power) may in-
duce resistance;
•
The refinement of the co-ordination mechanisms and keeping to the demo-
cratic rules may temporarily prolong the planning and decision process and
hinder professional rationality;
•
Since the whole of the country will be assisted, the potential addressees may
include the developed regions and. Budapest, which will probably further
sharpen the antagonism between developed and backward regions;
•
Owing to the intensive presence of the Government and the profound defi-
ciencies of the public services system, the equalisation objectives in Hun-
gary always seem more important than the advantages ensuing from decen-
tralisation. This is true for both the central, territorial and local government
policies and for the typical local government opinion. The requirements of
geographical concentration may fuel antipathy among the rural settlements,
resistance against the territorial centres (towns) intensifies and chances for
regional co-operation decline. Since the small areas do not share regional
development functions and resources, what is more, the new regulation will
even decrease their resources, objections from the small area organisations
can be expected. A separate programme should be worked out to make it
understood that regional development is primarily the task of the regional
level;
•
The birth of the Hungarian regional development council was burdened with
compromises and political pressure about the new institution system is not
going to subside even in the future. This threatens the corporate decision
making and co-ordinating role and gives way, instead, to the distribution of
the central funds. For the financing of regional development this would
mean that the regional development policy is not run by the interests of the
communal sector, that the partition of the system prevails and that the pri-
vate sphere remains isolated.
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5 Concluding remarks
The above discussion illustrates that regional policy in Hungary is in a state of
flux, with dynamic processes of change at regional and national levels. There is a
widespread, but not universal pressure for structural adaptation within regions and
localities. New forms of regional development are being introduced or revived.
Different institutional structures and organisational systems are emerging, and the
relationships between levels of government and between actors within regions are
changing.
These developments give rise to several questions or issues.
The first question is whether the resources available for regional development
are adequate for the challenges of economic and social restructuring.
By comparison with the redistributional effects of public fmance as a whole,
the impact of regional aid is small. Regional Development Fund accounts for less
than 0.2 percent of GDP. In the present Hungarian practice governmental regional
policy is jointly assisted by the various subsystems of the budget, especially the
central budget, separate state funds, and the budgets of local governments.
The volume of financial resources in the Regional Development Fund can only
be increased at the expense of other state and sectoral funds, and priority should be
given in the state budget reform and the revision of the state funds to the resources
for regional development.
The Hungarian Government undertakes that by the time of Hungary's accession
to the EU it will establish a financial system corresponding to the Structural Funds
of the EU:
• which will create an agricultural support system in accordance with EAGGF
to strengthen and transform the structure of agriculture, to counterbalance
the impact of unfavourable geographical features on agriculture, and to fos-
ter the development of rural society, environmental protection and nature
conservation,
• which will set up a Regional Development Fund corresponding to ERDF,
increase endogeneous potential of the regions, foster local developments,
small and medium-sized enterprises, cross-border co-operation and innova-
tion,
• which will further differentiate in the target system of the Labour Market
Fund, which already almost corresponds to the target system of the EU in
accordance with the ESF.
Second, the trend towards regions becoming more self-reliant may have many
positive virtues, but there is a danger that regionalisation may be seen as a substi-
73
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
tute for central Government action. There is a potentially destructive dimension to
the increasing competition among regional authorities.
In Hungary, being a unitary country, the large administrative regions are absent,
their formation is not urged by either the governmental agents interested in cen-
tralisation or the regional organs that wish to expand their own competences. The
reform programme of the public administration of Hungary does not take the or-
ganisation of the administrative regions into consideration, either. From the aspect
of regional development, however, the programme regions should be organised in
Hungary as soon as possible.
The weaknesses in the regional structure of the Hungarian economy and society
(the dominance of the capital city in advanced activities, the extreme regional dif-
ferences in income generation, the lack of regional cohesion within the semi-
peripherial regions and the peripheries) can only be abolished if a strong decen-
tralisation process takes place, that is at the same time accompanied by concentra-
tion to a certain extent. That is why the management of the organisational process
of the regions can be considered as an important task.
The formation of the development-programme regions is a designation task to a
lesser degree, to a larger extent it depends upon the creation of mechanisms and
organisational solutions enabling the co-operation among the actors interested in
regional development (regional development councils, county governments cham-
bers, companies—businesses etc.).
Finally, within Western Europe, the relationship between the EU and nation
states in the field of regional policy is in need of review. Depending on the out-
come of discussions over EU enlargement, such a review has always been antici-
pated since the EU appears unlikely to be able to extend its current regional policy
to potential new Member States in Central and Eastern Europe. These concerns
will have to be addressed, is the key principles of EU regional policy and the
commitment to EU economic and social cohesion, are not to be endangered.
The financial cost of Hungary's accession to the EU regional development
budget is difficult to calculate at this stage. In our estimation regional development
support for Hungary would cost 1.5-2 billion ECU.
In addition to financial restructuring a key constraint for regional development
in East-Central Europe, however, is that regional policy is still in infancy. In Hun-
gary, however, regional policy measures have progressed far beyond the concep-
tual stage, the institutional infrastructure has been in action, there has been a re-
cent trend to achieve greater compatibility between EU and Hungarian regional
policies.
74
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
Appendix: A chronology of regional policy in
Hungary (1990-1998)*
1990
•
Establishing the Ministry of Environment and Regional Policy
1991
•
Parliamentary Resolution 24/1991 on certain current questions on nature pro-
tection, landscape protection and utilisation of Great Hungarian Plain
•
Government Resolution 1038/1991 on regional development assistance serving
the purpose of job creation and the development of backward areas
•
Government Resolution 1073/1991 on promotive measures of closingup of
Szabolcs-Szatmar-Bereg county
1992
•
Law LXXXIII of 1992 on Separate State Funds (including Regional Develop-
ment Fund)
•
Parliamentary Resolution 69/1992 on the nature and environmental protection,
landscape utilisation of SzigetkOz (the upper reaches of the Danube)
•
Government Decree 97/1992 on regional development supports for job creation
and development of backward areas
•
Government Resolution 1031/1992 on mitigation of employment, economic and
operation concerns and of the job creation tasks in short-terms in the Ozd area
(north-east part of Hungary)
•
Government Resolution 1037/1992 on the preparation of establishing Balaton
Regional Council
•
Government Resolution 1065/1992 on measures for improving the economic
and social situation of NOgrad county
•
Government Resolution 1070/1992 on the tasks of the development programme
of Borsod-Abailj-Zemplen and Heves counties
1993
•
Parliamentary Resolution 84/1993 on the principles of regional development
support and on the criteria of classification of eligible areas
•
Government Decree 59/1993 on support available from the Supplementary
Fund of Targeted Support
•
* Closed in April 1998.
75
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
•
Government Decree 161/1993 on the list of eligible areas of regional develop-
ment
•
Government Decree 169/1993 on the detailed rules of allocation of the Re-
gional Development Fund
•
Government Decree 174/1993 on the eligible settlements for Supplementary
Fund of Targeted Support
•
Government Resolution on the tasks of the short and medium -term develop-
ment of Bekes county
•
Government Resolution 1010/1993 on the certain questions in connection with
the Lake Balaton Regional Council preparation
1994
•
Government Decree 52/1994 on amending of 169/1993 Government Decree on
the detailed rules of allocation of the Regional Development Fund
•
Government Resolution 1007/1994 on establishing the long-term concept and
on the short-term development tasks of Pecs-Komlo area (in Southern Transda-
nubian region)
•
Government Resolution 1014/1994 on the preparation of economic develop-
ment of Zahony area (North-eastern part of Great Hungarian Plain)
•
Government Resolution 1015/1994 on the financial conditions of gas supply in
Zemplen-Abaaj area (in north-eastern part of the country)
•
Government Resolution 1022/1994 on the short and medium-term development
tasks of Jasz-Nagykun-Szolnok county
•
Government Resolution 1034/1994 on the questions of the establishing the
Lake Velence Regional Development Council
•
Government Resolution 1039/1994 on the financial conditions of the gas supply
development in the Bihar (Hajdii-Bihar county) and Kevermes (Bads county)
small areas
•
Government Resolution 1055/1994 on the fmancing conditions of establishing
the gas supply of Szabolcs-Szatmar-Bereg county
•
Government Resolution 1099/1994 on the fmancing of dismantling work neces-
sary the establishment of the industrial park of Ozd
1995
•
Government Decree 113/1995 on the support of the integrated restructuring and
crisis management programme of Borsod-Abauj-Zemplen county
•
Government Decree 115/1995 on amending of Government Decree 169/1993
on the detailed rules of the use of the Regional Development Fund
•
Government Resolution 1046/1995 on measures for promoting economic de-
velopment of Zahony area
76
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
•
Government Resolution 1123/1995 on the integrated restructuring and crisis
management programmes of Borsod-Abairj-Zemplen county
1996
•
Law XXI of 1996 on Regional Development and'Physical Planning
•
Government Decree 107/1996 on the detailed rules of the use of development
funds serving the purposes of regional equalisation in 1996
•
Government Decree 108/1996 on the detailed rules of the use of the targeted
budgetary allocation in 1996
•
Government Decree 109/1996 on the distribution between the counties of the
targeted budgetary allocation for regional development and the development
funds serving the purposes of regional equalisation in 1996
1997
•
Parliamentary Resolution 30/1997 on the list of eligible areas
•
Parliamentary Resolution 97/1997 on modification of eligible criteria of indus-
trially declining areas
•
Government Decree 80/1997 on the detailed rules of the regional equalisation
supports
•
Government Decree 105/1997 on the distribution between counties of the tar-
geted budgetary allocation for regional development and the development funds
serving the purposes of regional equalisation in 1997
•
Government Decree 106/1997 on the list of eligible areas
1998
•
Parliamentary Resolution 35/1998 on the National Regional Development Con-
cept
•
Government Decree 19/1998 on the list of eligible areas
•
Government Decree 28/1998 on the distribution between counties of the tar-
geted budgetary allocation for regional development and the development funds
serving the purposes of regional equalisation in 1998
•
Government Decree 32/1998 on the detailed rules of the regional equalisation
supports
•
Government Decrees 51-58/1998 on designation of enterprise zones
77
Horváth, Gyula: Regional and Cohesion Policy in Hungary.
Pécs: Centre for Regional Studies, 1998. 80 p.
Discussion Papers, No. 23.
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Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
The Discussion Papers series of the Centre for Regional Studies of the Hungari-
an Academy of Sciences was launched in 1986 to publish summaries of re-
search findings on regional and urban development.
The series has 3 or 4 issues a year. It will be of interest to geographers, econo-
mists, sociologists, experts of law and political sciences, historians and every-
body else who is, in one way or another, engaged in the research of spatial as-
pects of socio-economic development and planning.
The series is published by the Centre for Regional Studies.
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P.O. Box 199,7601 PECS, HUNGARY
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* * *
Forthcoming in the Discussion Papers series
Sustainable Agricultural Development
in the Region of the Lake Balaton
by
Attila, SANTHA
Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
Papers published in the Discussion Papers series
No. 1
OROSZ, Eva (1986): Critical Issues in the Development of Hungarian Public
Health with Special Regard to Spatial Differences
No. 2 ENYEDI, GyOrgy — ZENTAI, Viola (1986): Environmental Policy in Hun-
gary
No. 3 HAJDO, Zoltan (1987): Administrative Division and Administrative Geo-
graphy in Hungary
No. 4 SIKOS T., Tam& (1987): Investigations of Social Infrastructure in Rural Set-
tlements of Borsod County
No. 5 HORVATH, Gyula (1987): Development of the Regional Management of the
Economy in East-Central Europe
No. 6 PALNE KOVACS, Ilona (1988): Chance of Local Independence in Hungary
No. 7 FARAGO, Laszlo — HRUBI, Laszki (1988): Development Possibilities of
Backward Areas in Hungary
No. 8 SZORENYINE KUKORELLI, ken (1990): Role of the Accessibility in De-
velopment and Functioning of Settlements
No. 9 ENYEDI, GyOrgy (1990): New Basis for Regional and Urban Policies in East-
Central Europe
No. 10 RECHNITZER, Janos (1990): Regional Spread of Computer Technology in
Hungary
No. 11 SIKOS T., Tam& (1992): Types of Social Infrastructure in Hungary (to be not
published)
No. 12 HORVATH, Gyula — HRUBI, Laszlo (1992): Restructuring and Regional
Policy in Hungary
No. 13 ERDOSI, Ferenc (1992): Transportation Effects on Spatial Structure of Hun-
gary
No. 14 PALNE KOVACS, Ilona (1992): The Basic Political and Structural Problems
in the Workings of Local Governments in Hungary
No. 15 PFEIL, Edit (1992): Local Governments and System Change. The Case of a
Regional Centre
No. 16 HORVATH, Gyula (1992): Culture and Urban Development (The Case of
Pecs)
Discussion Papers 1998. No. 23.
Regional and Cohesion Policy in Hungary
No. 17 HAJDU, Zoltan (1993): Settlement Network Development Policy in Hungary
in the Period of State Socialism (1949-1985)
No. 18 KOVACS, Terez (1993): Borderland Situation as It Is Seen by a Sociologist
No. 19 HRUBI, L. — KRAFTNE SOMOGYI, Gabriella (eds.)(1994): Small and me-
dium-sized firms and the role of private industry in Hungary
No. 20 BENKONE LODNER, Dorottya (1995): The Legal-Administrative Ques-
tions of Environmental Protection in the Republic of Hungary
No. 21 ENYEDI, GyOrgy (1998): Transformation in Central European Postsocialist
Cities
No. 22 HAJDU, Zoltan (1998): Changes in the Politico-geographical Position of
Hungary in the 20th Century