55063ArticlesThe post-socialist growth machine in HungaryLaszlo J Kulcsar and Tamas Domokos

Volume 29.3 September 2005 550–63 International Journal of Urban and Regional Research

The Post-Socialist Growth Machine:

The Case of Hungary
LASZLO J KULCSAR and TAMAS DOMOKOS

Introduction
After the collapse of state socialism in Eastern Europe1 the socialist concepts of growth
and development were replaced by capitalist concepts of growth and development. It is
widely argued that post-socialist countries are still lagging behind the developed West;
therefore they must grow fast to catch up. This argument is rooted in the relative socio-
economic and political backwardness of Eastern Europe, which was not caused but only
altered by the period of state socialism.
In post-socialism the public’s understanding of development and growth was marred
by the long and painful recession after the collapse of socialism. Growth, and
particularly economic growth, gives the feeling of development and modernity. Thus,
many consider economic growth to be the only way to get ahead, regardless of its social
costs. Indeed, in post-socialism these social costs are well hidden, since post-socialist
growth happens in a very supportive environment with little resistance from anybody.
Nearly 30 years ago, Harvey Molotch (1976) introduced the concept of the growth
machine, claiming that urban development is not driven by supply and demand, but
rather by a coherent coalition of elites who benefit from local population growth. This
concept was elaborated by Molotch and John Logan (Logan, 1978; Molotch and Logan,
1984; Logan et al., 1997) and later by others. Many empirical tests were conducted;
some supported the thesis (Lyon et al., 1981; Clingermayer and Feiock, 1990;
Humphrey, 2001), while others failed to find empirical evidence (Logan and Crowder,
2002). Also, previous research has described the opposition to the growth machine, such
as community-based activism (Goetz, 1994) or anti-growth residential and entrepreneur
movements (Schneider, 1992). The main finding of the empirical tests was that the
growth machine is obviously not working similarly in every place and is, therefore,
contingent on the local socio-economic context (Broadbent, 1989; Castells, 1997). But
even if the composition of the growth machine may change over time as economic or
political conditions change, the core components — the elite coalition, the self-
interested promotion of urban growth, and the unequal benefits of this growth — are
the same in all contexts. Jonas and Wilson (1999) summarized two decades of work on
this subject, and some scholars (Clark et al., 2002) suggest the post-industrial urban
context has changed so much that the concept has lost much of its power by now.
However, most of this work focuses on the US and other Western countries.

This article was first presented at the 66th Annual Meeting of the Rural Sociological Society. We would
like to thank the most generous help of David L. Brown and the useful comments of Valerie Bunce. We
also truly appreciate the encouragement from Harvey Molotch.
1 Here we use the concept of Eastern Europe as the region that contains the former socialist countries,
excluding the successor states of the Soviet Union. The term itself went through significant changes
over time and fostered various sub-regions, such as Central Europe, East Central Europe or
Southeastern Europe. We cannot bring in this whole discourse, but the reader is encouraged to refer
to the academic literature on this subject, such as the work of Iván Berend (1986) or Maria Todorova
(1997).

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The post-socialist growth machine in Hungary 551

The purpose of this article is to develop a framework for applying the growth machine
concept in the post-socialist environment. There are several reasons why this issue is
important. To our knowledge, this has never been done before, although these countries
have new capitalist economies with strong emphasis on growth. Can we assume that the
growth machine shapes urban change in such environments? Similar to the findings in
the international literature, we also expect a different type of growth machine in the
post-socialist context, where some of the usual actors are not even slightly important,
while actors who lack power in the conventional model gain significant influence.
The post-socialist transformation raises the fundamental political economic question
of why power is unequally distributed within the community, and also the implications
of this inequality. Since the growth machine is essentially a power elite model, local
elites play the most important role in contestation over growth policy. As one could
expect a fundamental change in elites during a major socio-economic transformation
such as the post-socialist transformation, we will review various elite theories to put
together the pieces of the local elites puzzle during post-socialism.
Although local growth is usually seen as population growth, and economic
development is the main process that triggers it, the growth machine model is more than
just economics. It describes a Gramscian hegemony in which the public administrative
elite, the ‘big entrepreneurs’, the local media and even the leading intellectuals of a
community are incorporated in the pro-growth coalition. In a social environment like
this, the local elite monopolizes community power and can set an exclusive and one-
sided discourse to legitimate their pro-growth activities. Moreover, in the post-socialist
case these activities are likely to be driven by political rather than strictly economic
interests.
In the following sections, we will describe the social environment of post-socialism
that will explain the obsession with political power, present theories of elite
transformation, examine the important external actors like the nation state or
transnational capital, and present some examples of the operation of the post-socialist
growth machine. Our country case will be Hungary, but we will speculate how several
explanations can also be generalized to other post-socialist countries.

The inherited social environment

In order to understand the environment in which the post-socialist growth machine
operates, we take a short historic detour to see why Eastern Europe is peculiar in many
aspects. A full investigation of this question is outside the scope of this article, but
extensive work on this subject by Chirot (1989), Schöpflin (1993), Janos (2000) and
Berend (2003), to name just a few, concluded that the political traditions of Eastern
Europe since the ‘long sixteenth century’ created a different relationship between state
and society than those in the West, and also different attitudes toward modernity and
therefore modernization. The important point from our perspective is that Eastern
European development patterns, even with significant intra-regional heterogeneity, gave
birth to a particular political culture that was based on uncontrolled power accumulation,
façade institutions, etatism, political intolerance and a deep belief that development
should be conducted from above. This political culture was perpetuated in the twentieth
century and has remained dominant during the post-socialist transformation.
Even with the lack of real local autonomy, local elites had two important goals during
socialism. They had to compete with other localities for redistributive resources, and
they had to assert and maintain their local power position. Due to the shortage economy
described by Kornai (1992), this competition for resources was an essential aspect of
local level success. In both processes local elites used back-door lobbying, network
exploitation and corruption within the party hierarchy. This process became self-
perpetuating and ensured the continuous regeneration of Eastern European political
culture.

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During the socialist period, local community development had particular

characteristics. The fundamental logic was to block any efforts at self-organization,
which were considered to be a threat to the political system. Accordingly, the state was
largely responsible for organizing and regulating community life and local social space.
However, the rejection of the traditional concept of local community agency gave way
only to atomization with the elimination of traditional social cohesion, and not
individualism. In fact, individualism was strongly discouraged in the system of
egalitarianism.
The outcome of these efforts to create an egalitarian society was the opposite of what
was expected, as we can see from the example of socialist urbanization (Enyedi, 1996).
The underlying hypothesis was that socialist development would homogenize spatial
and social structures over time, and the inherited inequalities would disappear. The
search for local identity and local organization was strongly discouraged, and traditional
communal bonds were substituted by new, universalistic and therefore more controllable
social relations. This forced egalitarianism has a strong post-socialist legacy. Although
people can build genuine communities again, they are much more interested in
expressing their formerly suppressed individualism, and after the enforced false
community feeling during socialism, their general attitude is that ‘common’ really
means ‘no one’s’.
After the collapse of socialism a wide-scale structural transformation process shook
the region, but the conceptual sphere shaping local growth and development changed
only very little. The basic assumption was that growth only needs to occur in a different
way than before. The decay of the socialist system in the 1980s prepared the rapid shift
to capitalist norms, or what were perceived to be capitalist norms. After a short period
of enthusiasm over the regime change it became clear that the majority of society would
be excluded from any decision-making about the socio-economic transformation. It
is not surprising that this general atmosphere incorporated the pursuit for individual
wealth and the appreciation of individual success, as opposed to the spoiled image of
community. And those who could best utilize the transformation were the post-socialist
elite.

The elite transformation

As Molotch (1999) noted, the growth machine idea is derived partly from Mills’ power
elite thesis. As with any model of concentrated community power, the growth machine
involves interrelated elite groups with their institutional network who are able to abuse
power and influence the most important decisions at both national and local level.
Bourdieu’s (1983) approach is similar to Mills, arguing for dominance of economic
capital, as a starting point, corresponding with the original concept of the growth
machine, where economic power is transformed into political influence.
During the 1990s, peculiarities of post-socialist capitalism became more visible. As
Eyal et al. (1998) and King (2001) pointed out, one of the basic features of the new
capitalism was the absence of a genuine capitalist class. This was also the case in
Hungary, despite the country’s relative openness to economic reforms in the late socialist
period. Although there were some expectations that the intelligentsia would come to
power in post-socialist Hungary (Konrád and Szelényi, 1989), it did not happen.
Hankiss (1989) noted relatively early in the transformation that the power elite would
resign voluntarily and support the transition only if their power could be successfully
converted in the new order. This is exactly what happened in Hungary, where the old
political privileges were converted into economic privileges in the late 1980s and early
1990s, presenting what Jadwiga Staniszkis (1991) calls ‘political capitalism’. According
to Erzsébet Szalai (2001), the new economic elite came from the old technocrat socialist
elite. Beginning in the early 1980s, economic cadres competed for power within the
communist party against the old socialist bureaucrats. This was originally the drive of

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the new generation of ‘nomenklatura’, when younger and better-trained members of the
party tried to acquire power within the system. The regime change interrupted this
process, but technocrats, unlike the compromised bureaucrats, could easily convert their
existing knowledge and networks into economic benefits at the beginning of the
transformation. Thus, this is a case of elite continuity, not a replacement of old elites as
might be expected during a major socio-economic transformation. This argument is
supported by Csite and Kovách (2002), who point out that in 1993 only about 10% of
the economic elite obtained their positions after the regime change. Examining four
Eastern European countries, Róna-Tas and Böröcz (2000) came to a similar conclusion.
Moreover, they argued that the window of opportunity for a major change that was
opened at the beginning of the post-socialist transformation had already been closed.
Kovách (2002) echoed this conclusion by proclaiming the end of post-socialism.
Elite transformation at the local level in Hungary took a somewhat different form.
Local societies allowed the emergence of a closely interconnected local elite from the
early 1970s, partly because Hungary introduced greater market reforms than other
socialist countries. This elite contained the local party leadership, the council
administration and leaders of the local socialist firms and collectives. The most
discredited members of the local political elite were expelled in 1990. Some others, for
example those who directed the most important firms, were able to join the national
elite, but the majority had to transform their power locally. They were able to utilize
their position within the privatization process, becoming managers in the former state
companies, or gaining positions in the local governments. Not all members of the local
elite came from socialist enterprises, though. We can find among them a few who ran
successful small businesses during the 1980s in selected occupations that were allowed
to operate (restaurant owners, tourist or fashion businesses, etc.). They were familiar
with the interrelation between political and economic power, as in many cases political
connections were needed to start a business.
This means that despite the fundamental social and economic transformation,
members of the Hungarian local elite were usually not recruited from the grassroots
movements. In fact, the transformation process simply seems to have consolidated the
previous political structure. In this respect Hungary is probably an extreme case, as the
regime change was managed from above, and the role of social movements was much
less significant. In other countries, like Poland, where Solidarity was the driving force
behind the changes, the political recruitment from social movements was considerably
higher.2
Two major types of actors were missing from Hungary’s elite transformation. First,
as indicated earlier, the intelligentsia was not able to emerge as a homogeneous elite
group during post-socialism, even though it had been predicted by Szelényi. However,
by the mid-1990s, Szelényi revisited his original thesis and concluded that between 1988
and 1994 the turnover in the cultural elite was roughly 50% (Szelényi and Szelényi,
1996). Szelényi’s previous prediction about the emergence of the cultural elite was based
on Hungary’s relatively liberal political and social structure, which, at least in theory,
could allow its best members to get close to the power base during the 1980s. Eventually
he concluded that the cultural elite during socialism consisted mostly of first generation
intellectuals, and the strong rejection of this group by the conservative government that
held power between 1990 and 1994 was the main reason behind the large turnover.
Even when independent intellectuals were elected to the local councils, their relative
inexperience, insufficient networks and reliance on information provided by ‘official’
experts made their position very weak. Furthermore, if they were employees of various
institutions run by the local government (schools, cultural or community centers), their
job was controlled by the council, so not much space was open for confrontation with
the pro-growth coalition.

2 A comparative study of the Eastern European elite transformation can be found in Hingley and
Lengyel (2000).

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554 Laszlo J Kulcsar and Tamas Domokos

The second type of actor missing from the Hungarian elite transformation was civil
society. Even though civil society revived during the 1990s, this shows little resemblance
to the Western experiences (Howard, 2002; Mendelson and Glenn, 2002). In Hungary,
even though independent NGOs exist at the national level, they seldom interfere with
local politics. On the other hand, some local NGOs operate more like political parties,
engaging in local political issues, and running candidates for local election.
The operation of the classic NGOs, representing community interests, is hindered by
many factors. First of all, their main (and in many cases the only) source of funding is
the local government itself, so they are in a very weak position to counterbalance the
local elite. Research on local NGOs in Hungary shows that dependence on the local
governments usually comes with undeveloped technical infrastructure, small budgets
and weak human resources (Domokos and Kulcsar, 2004). Moreover, the stronger NGOs
are usually larger foundations that focus only on a narrow segment of local public life
as donors and typically do not perform any kind of interest representation in local
politics. An additional peculiarity of the Hungarian situation was that the reaction of
people to the negative aspects of post-socialist transformation was individual action
instead of collective action (Greskovits, 1998).
Summarizing the elite transformation in Hungary during post-socialism, we can say
that the new local elite is typically composed of five major groups.
• Local directors/managers of former state firms and collectives;
• Successful local small business entrepreneurs;
• Survivors of the socialist local administration;
• Independent members of the local cultural elite;
• Cadres of the new political parties.
The easiest way to acquire power was to transform the previous economic power, use
the opportunities of privatization to buy the state firms and obtain access to capital or
build on existing small businesses. In this way the technocrats were able to turn their
knowledge and networks into economic power. Once the chaotic times of privatization
were over, the market was dominated by the early starters who were at the right place
at the right time. After this time, access to economic power required a longer detour that
was contingent on first accumulating political power. We note, though, that during the
post-socialist transformation economic power does not exclusively mean traditional
capital ownership, but also the important influencing potential in community
development.
It is no wonder that all the other groups, both the surviving administration and the
newcomers, tried to seize the local political positions. Local elite competition in
Hungary had two general outcomes. One was when one faction could solidify its power,
creating a monolithic political and economic structure that later was able to survive
through multiple consecutive elections. This merge was two-sided: political positions
provided opportunity for economic ‘successes’, while some members of the economic
elite were incorporated into the political decision-making.
The other outcome was when competing political factions, usually conservative and
leftist/liberal groups, ended up in rotating administrations. It was actually the emergence
of two smaller but also monolithic elites. In this case both sides have their own political
and economic bases and networks, which ensure their survival during periods when they
are out of office. Eventually these elites learned to live with each other, especially since
in most cases the elections were not won by a landslide and those who lost still had
several representatives in the local councils. This outcome, even if there is an elite
rotation, cannot be considered as real political pluralism, because at any time there is a
strong and almost impenetrable growth coalition in power. Thus, with a political shift
only the governing coalition changes and not the nature of the agenda.
We have focused on the elite transformation because it helps to explain the
composition of the post-socialist growth machine, and particularly the reasons why
certain groups are under- or overrepresented in it. We argue that local elite composition

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The post-socialist growth machine in Hungary 555

is contingent on local social structure and how it has changed during post-socialism.
The peculiarities of this change are important in analyzing the operation of the growth
machine. But as an additional factor, the local growth machines in Hungary had to take
external actors into account as well.

The external actors: transnational capital and the nation state

The post-socialist growth machine is strongly influenced by external actors both
catalyzing and regulating its operation. Two major external actors, transnational
corporations (TNCs) and the nation state, have profound affects on localities. While
dependence on external capital for investment tends to be a general feature of countries
in the economic semi-periphery, the strong role of the nation state is more than would
be expected from the modernization paradigm. This is a peculiar historical feature of
Eastern Europe, where the various efforts at modernizing the region always came from
above, and this is especially true of Hungary (Berend, 2003).
Transnational corporations dominate the Hungarian economy, indeed, more so than
elsewhere in the region (Szalai, 2001). Although they are similar to the absentee-owned
firms in the original model in terms of extracting profit from localities, the relationship
they generate is sometimes the exact opposite. The local political elite tends to put aside
their internal power struggle if local economic development involves the transnational
partners, since these companies usually offer employment, and create a general
perception of development. It is important to note, though, that TNCs usually do not
drive the local growth machine as they are somewhat disconnected from the local
community. With their privileged position, however, they can put a lot of pressure on
the community for various advantages and benefits. As a result, TNC-related economic
growth during post-socialism has been limited to particular industries and locations
(Greskovits, 2003).
The relationship between the local elite and the transnational capital is ambivalent.
By the time the transnational companies’ presence became significant in Hungary, the
local political and economic elite had already merged to a considerable extent. The elite
supported the TNCs as long as they offered employment and ‘development’ for the
community, or if the elite’s local companies could obtain subcontractor or supplier
functions. On the other hand, local elites could also put up a strong resistance if TNC
development efforts conflicted with their own economic interests. In many cases foreign
investors are required to contribute to local infrastructural development, for example
with road resurfacing in the area, but such contributions are rather an exception than the
rule. The general pattern in Hungary is that investors receive generous indirect subsidies,
mostly local tax exemptions.
The post-socialist nation state is also a very important actor in local community
development. This is partly rooted in the historic pattern of modernization from above,
and partly in the contemporary situation, where many post-socialist local communities
are relatively poor and don’t have the economic potential to attract foreign investors.
Thus, they have to build their development on the familiar and important basis of state
resource redistribution. According to the Hungarian State Audit Office, in the mid-1990s
more than 80% of the local governmental income came from some central source (ÁSZ,
1995). Scholars have pointed out that the decreasing proportion of income tax left at
the local level shows a financial centralization tendency similar to the 1980s (Kopányi,
2001), and this Hungarian trend is the exact opposite of what is observed in the European
Union (European Commission, 2003). Here there seems to be a similar competition for
state redistributive resources as happened during socialism, indeed, with the same lobby
techniques and the exploitation of party connections.
This brings us to a very important feature of the post-socialist nation state. The state’s
economic role has changed since privatization, but the competition for redistributive
resources has largely remained the same. Moreover, after every government change the

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new leaders oversee the redistribution of resources through their own cadres.
Professional and intellectual considerations do not count for much in this case. The local
importance of this is twofold. On the one hand, local politicians have learned that they
can expect redistributive development funds only if they have good connections with
the prevailing government. On the other hand, local positions are constantly filled with
‘parachutists’, good comrades from the national level who obtain significant influence
in local affairs later.
The continuous importance of state redistribution has also been supported in a strange
way by the European Union. The EU put pressure on the national governments with
regard to the principles and practice of territorial development (Kulcsar, 2003). In
Hungary, for example, the 1996 law regulating this process put local governments and
some other territorial development actors into key positions with regard to the money
redistribution. As EU funds became increasingly available through these channels, it
generated political and economic interests at the key points of the system, thereby
making local governmental positions and connections more attractive. Local elites soon
learned how to use this system to support community development that was consistent
with their interests.

The operation of the post-socialist growth machine

The post-socialist setting was perfect for the development of a strong growth machine.
Local elites who had growth agendas were popular, and during the early years of
recession there was a strong desire for almost any type of development, especially in a
visible physical form. No wonder that the movements opposing the growth machine
were weak in this setting. Proposed development was only rejected when it had a clear
and visibly negative impact on the environment, like waste deposits. If the impact of
development was not clear (like new roads versus increased traffic), people got confused.
This refers to a more general problem. During socialism people only had a limited
amount of highly controlled information, while after 1990 they were overwhelmed by
the variety of information sources, without being socialized to select the most reliable
or filter out the obviously misleading ones. Many people eventually opted not to believe
any of them. Hence, if the negative side effects of development are not obvious from
the beginning, most people are unable to distinguish between various ‘expert’ opinions.
The lack of anti-growth entrepreneurs can be explained by another aspect of our
model. In Hungary the local elites tended to solidify in a short time, and the flaws of
the market economy did not allow new entrepreneurs to break into the elite via
competition. Interrelated political/economic elite positions are well guarded and
newcomers do not have much chance. Thus, even if there is no monolithic elite in a
place, contention takes place mostly as political struggle and not as market competition.
This leads to another significant difference. In the original growth machine model,
the local elite disagrees on certain issues, which makes coalitions more fragile and
changeable over time. In the post-socialist Hungarian situation, coalitions are stronger
because they incorporate basically every member of the elites. Since the center is the
administrative elite, coalition changes erupt only around election times — every four
years.
In his study about the end of post-socialism, Kovách (2002) argues that the local
economic elite in Hungary did not start any local political activity until 1997. It was not
obvious until this time that local governments had become important actors in the
redistribution of various state development funds. Also, the 1995 shock therapy and the
related neoliberal economic agenda resulted in a level of economic growth that could
not be maintained without local political allies. Moreover, transnational companies
began their penetration into the local economy and so the local economic elite needed
political allies.

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The post-socialist growth machine in Hungary 557

Local administration was less dependent on local business for some time. The new
local governments received significant properties in 1990 in the form of houses and
other estates, and former state firms, so they could rely on this wealth during the first
years after the regime change. But from the mid-1990s these resources were depleted,
and around the same time, when the local economic elite started to show interest in the
local governments, politicians also had to find new ways to finance their communities.
One additional peculiarity of the Hungarian situation, which helped to concentrate
political and economic power, should be mentioned. This is the presence of a special
organization, a trustee that handles all local governmental property. These trustees are
products of the peculiar economic and social circumstances of the post-socialist
transformation.
Immediately after ownership of community properties was transferred to local
governments, they were faced with the significant difficulty of handling them. The local
council had the responsibility but local representatives were seldom experts on this
subject. Moreover, the bureaucratic legal procedures made it almost impossible for
investors to work out the details of an investment directly with the local council. Some
local governments hired market companies specializing in property management, but
after some shocking incidents in which local governments lost a lot of money, these
companies proved to be an unsafe and expensive solution.
By the mid-1990s, many local governments decided to create a special trustee
organization, which was owned by the local council, but appointed professionals to deal
with the everyday issues of property management. The local elite immediately realized
the opportunity of seizing these positions in the trustee organization to carry out their
own development agenda, having all the insider information they would need. Moreover,
supervision from the council was minimal as it lacked expertise in this field. Thus, the
local elite could work largely independently from the elected representatives of the
community.
A very good example of this situation is a section about the simplicity of investment
on the web page of a local governmental trustee company. They promote the city as
follows (original English text, emphasis in original):
The Hungarian labour and social laws do not contain elements which would make the settling
of plants or hiring of work-force hard . . . Generally, for implementing a factory project here,
there is no need for special permissions, which could be obtained hardly and could be issued
in only a long period. The permissions for land usage and construction can be arranged quickly
and flexibly after having learnt about the planned project in full detail. During the preparations
of the factory implementation the city will assist the planning, verification and co-ordination
procedures. The town will lend a hand with the obtainment of construction permissions and
at registrations at the Registry Court . . . There are several independent planning companies
available in the town. Tenders may be announced for the preparation of planning. Contractor
capacities are available — as required by the technology — for industrial building
constructions. Recently, several industrial buildings have been built — with good references
— and with modern western technology.

In this example we can see that the local government (‘the city’) will not make any
problems, indeed, it will do anything to attract investors. After the investor is dazzled
by this opportunity, he can be guided to the right course: ‘independent’ planning
companies and constructors are available ‘with good references’.
The self-regulating organizations of economic actors, like business chambers, did not
make problems for developers in Hungary. After 1990, membership was mandatory for
every entrepreneur. But the leaders of the chamber were usually big business
representatives, and they used the chambers for their own purposes. When the mandatory
membership was exempted in 1998, most of the disappointed small entrepreneurs left
the chamber.
In the following we briefly discuss three typical community development examples
— industrial investments, new residential areas and shopping centers — with regard to

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558 Laszlo J Kulcsar and Tamas Domokos

their relation to the growth machine. For particular examples we rely on comparative
research in two medium-size cities in Hungary (we call them Fur City and White City).3
We use typical examples to show the operation of the growth machine and at the same
time present the altering effect of some important differences between the two places.
The two cities are very similar in their historic development. They are in the same
region, and they have the same public administration classification, holding the same
rights and responsibilities. White City is the larger, with a population of about 100,000,
while Fur City has 60,000 inhabitants. The real difference with respect to our argument,
however, lies in two important and interrelated facts.
White City’s relatively developed manufacturing industry collapsed rapidly after
1990, because it was deeply embedded in the Council for Mutual Economic Assistance
during socialism. It left a large pool of unemployed but not unskilled labor as a base
for future investment, supported by very good transportation access. Socialist industrial
development policy did not give Fur City a similar role. The main industrial investments
occurred in a number of smaller towns in the area, and Fur City itself was designated
to be an intellectual center. This meant that in the early 1990s, due to the lack of large
industrial units, Fur City was less attractive to external investors.
The other difference is that while White City has been run by two conservative and
two socialist periods in a rotating order since 1990, Fur City’s power elite, a closed
group of entrepreneurs and politicians, were able to remain in position after four
consecutive local elections. We assume that there is a connection between these two
differences, as the less attractive investment environment of Fur City was better for the
emergence of a monolithic elite.
New industrial investments were essential for post-socialist economic restructuring.
The argument behind them is familiar: they create new jobs and increase local revenues.
This argument was very powerful during the economic recession. Capital was most
welcome everywhere, since its promise for new jobs was a good insurance for local
leaders keeping political power. But the main investors were transnational corporations,
who went where they expected the best return. In White City, TNCs have a strong
bargaining position and their presence is a restraint on the local elite. In Fur City, where
there was much less transnational investment, the growth coalition was able to operate
without external restraints.
Although the local elite supports foreign investments because it solves problems they
can’t handle, they are careful to promote other developments as their own initiative.
New residential areas are good examples of this. During socialism, housing shortages
were one of the most obvious social problems. After the regime change, when ownership
restrictions were lifted, the demand for new houses became even stronger. People who
lived as tenants in socialist housing estates could buy their apartments in the early 1990s
for about 10% of the market price, since local governments, the original owners, needed
money fast.4 The emergence of the housing market soon created demand for new,
expensive residential areas that had better amenities.
The land speculations connected to these new residential areas offered good
opportunities for extra profit. In Fur City the real estate prices rapidly increased after
1990 due to the proximity of a popular tourist spot and the geographic limitations of
residential expansion. On a typical occasion, a future residential site was first developed
by the local government, building the utility infrastructure from community resources.

3 The methods used were the following: (1) statistical analysis of the various socio-economic indicators
of the places; (2) analysis of public registers of the enterprises, with special attention to ownership
and decision-making positions; (3) targeted in-depth interviews with key informants (representatives
of the local council, members of the local administration and key entrepreneurs in the local
economy); and (4) content analysis of the local media.
4 We also need to note that the selling prices were determined by the local councils, in which many
representatives were in the same situation — they didn’t want to pay too much for acquiring
ownership of their apartments.

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The post-socialist growth machine in Hungary 559

After this, it was transferred to the real estate companies of the local elite (who made
the decisions about the development in the first place in local government), who could
later sell it for an extreme profit. They were even able to manipulate the zoning
procedure and acquire extra parts of the area that were originally designated for
recreation.
Shopping centers were a different case. The main theme here was not new jobs,
although it was part of the argument too, but Western-style consumption. After the
miseries of socialism, one improvement really materialized when post-socialist
consumption patterns started to look like those in the West. The new malls and shopping
centers were fancy, clean and relatively safe places, gaining rapid popularity. Even
though public opposition was probably the greatest here, as small entrepreneurs tried to
defend their businesses, public support was also the greatest. Shopping centers became
symbols showing that the local population was considered to be ‘worthy’, as everybody
knew that they are not built in poor communities.
In both of our study sites, external investors approached the local governments to
build shopping centers, using the site of the farmers’ markets that were in the downtown
area on a valuable piece of land. The outcome, however, was not the same, highlighting
the difference between the cities. In White City, where there was a consensus about
foreign capital, the local elite let the investor build the shopping center on one condition:
it also had to incorporate the renewed farmers’ market, which retained its original
ownership. Besides having a renewed farmers’ market, the local elite could benefit from
being subcontractors during the construction.
In Fur City the situation was more complicated. Downtown business was owned by
the local elite who did not want a strong competitor.5 They were able to manipulate the
local council to designate another area for the new shopping center. This change came
with a price though: the old market had to be renewed because it was already ‘promised’
to the local community. Its costs, however, were paid by the community, as the source
was the local budget, since the investor could not be forced to bear the costs after the
site change. The investor agreed to move to the new site on one condition: the local
government had to develop the new area first. But before the new site was announced,
the local elite, using inside information, acquired land around the new spot, anticipating
an increase in its value.
This example clearly shows the uneven distribution of benefits. The foreign investor
got what he wanted, a somewhat worse site, but he could avoid the downtown market
reconstruction and was given developed land. The community had to finance the old
market reconstruction, which originally would have been done by the investor, and also
the infrastructural development in the new area to compensate the investor. Even if the
community got the new market and the shopping center, the real winner was the local
elite by: (1) preventing downtown competition through political connections; (2) getting
benefits from the market reconstruction as exclusive subcontractors; and (3) making
extra profit on land manipulations at the new site.
These examples have a common component. There was significant demand for all of
them in the community. Local leaders supported them, since they gave the appearance
of development and could be converted to political capital. As a result, some convincing
improvements were seen on the surface, which is the important part during post-
socialism. The physical landscape during socialism was shabby and worn. The new
developments changed it to look more Western-like, with fancy new buildings and their
close surroundings. And everybody liked it.
The Hungarian post-socialist growth machine seems to be even more successful than
the one Molotch described 30 years ago. Local elites accumulated wealth, while people

5 The local elite was so powerful in guarding downtown business interests that they could prevent
McDonalds from opening a downtown restaurant for ten years. McDonalds restaurants were the first
visible sites of ‘Westernization’ even before the regime change, and also their expansion was the
fastest — it was not easy to keep them out of downtown Fur City for so long.

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560 Laszlo J Kulcsar and Tamas Domokos

were given a fancy landscape and the feeling of development. However, the following
question remains: besides the local elite, which part of the community profited from
this? Statistics indicate that even in the best performing cities with considerable
investment and low levels of unemployment, like White City in our case, this usually
does not involve any improvement in social, cultural or health services. Despite this, the
overall outcome was apparently positive. Communities that were overrun are satisfied
and proud: they love the growth machine in an Orwellian sense.

Comparative conclusion
The main difference between the original growth machine concept and the Hungarian
post-socialist version is in their social contexts. In the US, suburban residential groups
and downtown small businesses stand against land developers, local administration and
external capital. In the post-socialist context it is actually hard to find a clear cleavage.
This is because the core of the growth coalition is more powerful, and at the same time
anti-growth movements are weaker, significantly decreasing the contention over growth.
Even with rotating political power, the growth agenda as the conceptual basis of political
rule is constant.
In the Hungarian version, external (in this case, transnational) capital plays a
somewhat different role from that in the West, putting restraints on the local growth
machine. Local elites have had little success in influencing transnational corporations
— they had to learn live with them. Besides the TNCs, the nation state is another
important external player, and also a base of resources that has a big impact on local
development. The competition for redistributive resources emphasizes the importance
of political networks, and those who can use these connections without moral
restrictions have proved to be most successful. Thus, the external actors seem to be more
powerful in the post-socialist case than in the original growth machine model.
The nature of the pro-growth agenda is primarily political in the post-socialist case.
The power core is the local administration and this strongly influences the composition
of the growth machine. Again, this differs from the Western model where local
government is controlled by the economic elite and not vice versa. The different social
context also renders particular actors that have considerable power in the West quite
unimportant in the post-socialist model. For example, land development is not promoted
through financial institutions and the undeveloped lease and mortgage system makes
banks less important. Real estate companies do not have much to say either, since the
main owner of land is the local government, which without a fully developed land market
promotes land development within its own administrative system. Construction
companies are also less important, since business comes through political networks,
therefore the initiator is the local political elite, and the actual construction itself is often
done with the help of family members.
Unions are very weak, which is not surprising after 40 years of socialism where
unions were portrayed as a very important part of society, but were wholly compromised
by the communist party. Other potential anti-growth movements are also weak, as people
are disillusioned, and solidarity along with the motivation for collective action has
declined in civil society.
The weakness of counter-movements, the dire need for any type of development in
virtually all communities after the recession, and the flaws of market institutions that
do not allow a healthy rate of turnover in the economic sphere result in a powerful
growth machine. What we found in Hungary was that it is less pluralistic, not just
because it contains fewer actors within the core, but also because political and economic
interests are more closely connected. The relative variety of actors in the US model
allows more diversity in the growth coalitions and more pluralism in the local political
system.

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The post-socialist growth machine in Hungary 561

Despite these differences, the growth machine’s basic assumption about the
concentration of economic and political power is the same. However, since in the post-
socialist model the core component is the political elite, the power concentration utilizes
political networks and institutions as opposed to purely economic connections.
This assumption suggests an important question for future research. The original
model of the growth machine typically takes place where there is a significant potential
and capacity for growth and wealth accumulation, like a large urban environment. But
if we approach the question from the standpoint of hegemony, we might say that in the
post-socialist case the growth machine could be set up even if there is no realistic
opportunity for growth, because it is organized around political power, influence and
control over the community. It is a growth machine to the extent that it uses the promise
of growth to carry out its own political agenda.
We believe that the elaboration of the growth machine concept in a post-socialist
context using the example of Hungary helps us to understand the dynamics of power
accumulation in a capitalism with a strong socialist legacy. In this case the differences
in the composition and operation of the post-socialist growth machine not only result
from differences in the Western versus Eastern urban settings, but more fundamentally
from differences in the way that capitalism is being recreated on the ruins of the socialist
system in Eastern Europe.

Laszlo J. Kulcsar (kulcsar@ksu.edu), Department of Sociology, Anthropology and Social

Work, Kansas State University, 225-B Waters Hall, Manhattan KS, 66506, USA, and Tamas
Domokos (tdomokos@echosurvey.hu), Echo Survey Institute, 8000 Szekesfehervar, Forgo u.
15, Hungary.

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