Discussion Papers 1993.
Spatial Research and the Social-Political Changes 103-107. p.
LOCAL DEVELOPMENT STRATEGIES
103
LOCAL DEVELOPMENT STRATEGIES :
ENCOURAGEMENT OR
RE-ACQUIREMENT?
CSILLA KERESZTES NAGY
It is, indeed, a great pleasure to have the opportunity of addressing an international
seminar having such a great tradition.
Before I proceed to present the details of my research, I would like to emphasize that
this research was carried out as part of a project dealing with the conditions in Bacs-Kis-
kun county, so the results obtained may not be characteristic of the whole country, though
they may show some general features.
This is simply an attempt to reveal the connection between the development of a set-
tlement and the financial or economic conditions provided by, or via, its local council or
government. The strongest urge to do this was the fact that, according to the new law on
self-governments in Hungary, there is to be settlement economy, which, for example, can-
not be said about the past few decades, and this local economy will rely on first of all the
so-called "own resources" of settlements. These resources include, of course, natural re-
sources as well as labour and human capital and financial resources; not only local or
redistributed taxes, fees and subsidies but entrepreneurial profits as well.
The problem is that we have very little conceptual basis for understanding what the
real keys are to economic success on a settlement level because the paradigms and meth-
odology of regional economics and the input-output analysis do not provide much practi-
cal or detailed guidance for local leaders and local communities about how to spend their
time and money to improve their local economy.
That is why it was decided to search for some empirical evidence which might show
how the economic position of the different types of settlements has changed within the
reforms of the redistribution system for the tenth consecutive year.
The last decade, the 1980s, is really very interesting from this point of view. The so-
called Concept for National Settlement Network Development introduced in 1971, then
criticized and abandoned recently, was only an ideology which aimed to concentrate all
the functions and financial supply in the big cities and county seats. However, in the early
1980s, the administration modified the policy of financial redistribution by increasing the
share of villages and small towns. But, at that time, restrictions imposed by the central
budget could already be felt more than the impact of this relative advantage on the infra-
structural development of the underdeveloped areas. In the middle of the 1980s there was
a more comprehensive reform in the governing system, resulting in a more normative
Keresztes Nagy, Csilla : Local Development Strategies: Encouragement or Re-Acquirement?
In: Spatial Research and the Social-Political Changes. Pécs: Centre for Regional Studies,
1993. 103-107. p. Discussion Papers. Special
104
CSILLA KERESZTES NAGY
ruling mechanism, still the over-centralized, separated nature of council economy and the
submerged role of infrastructural development did not change.
Nowadays there is a new draft on the agenda. It can hardly be called a concept: at best
it is only an idea of how to relieve the central budget by charging local governments not
only with obligatory tasks but making them raise money as well.
There is one positive feature of this idea namely that, unlike the traditional type of
planning, the subsidies coming from the central budget do not follow the hierarchy of
settlements formed under the aegis of the Concept for National Settlement Network De-
velopment. Theoretically, every settlement gets the same proportion of money corre-
sponding to the number of inhabitants, the number of dependency population and some
special functions like hospitals, secondary schools etc. This so-called normative system
has been taking place for two years now, with the active assistance of the intermediate
level of administration: the county council.
These past two years, called the years of adaptation, have already proved that a lot of
corrections must be made because the county council had to intervene in several cases
simply to prevent some local councils from going bankrupt. As these corrections do not
seem to have taken place yet, it is quite doubtful how most of the settlements will manage
to improve or at least maintain their employment and income.
To cut a long story short, our empirical studies highlighted some very interesting phe-
nomena that can prove, on the one hand, that the existing—and not really modified—re-
financing system has some inadequate features, and, on the other hand, that there are very
great differences among settlements as far as their ability for survival is concerned.
In the course of the research we made several attempts and calculations. In the end, the
factor-analysis taking into account the specific per capita data on council budget resources
and the development expences provided the most information. We got three complex in-
dices which can be described as the following:
(1) The first and main factor emphasizes the measure of the so-called nor-
mative share in the councils' budget. This new hierarchy of settlements clearly shown by
the analysis seemed to be much the same as the former one according to the Concept for
National Settlement Network Development. This fact suggests that despite the reforms,
stressing the equal rights and equal chances for each of the settlements, there is a semi-of-
ficial hierarchy of settlements left, referring to the key settlements' responsibility for sup-
plying. That is why we called this factor "the hierarchy index".
The other striking fact is that a stochastic connection can be observed between the
measure of per capita income tax and the rank of the settlements in this hierarchy. The
income tax could have played a decisive role in the development of settlements but I
would like to tell you a few things about this topic later on.
(2) The second factor showed a very close connection between the specific
institutional equipment of a settlement and the per capita subsidies given by broader units
of governments. Of course, this is not very surprising if we take into account the fact that
the financing of a settlement's—for example a small town's—institutional and infrastruc-
tural network system up to the past few years had been planned according to a "basis
Keresztes Nagy, Csilla : Local Development Strategies: Encouragement or Re-Acquirement?
In: Spatial Research and the Social-Political Changes. Pécs: Centre for Regional Studies,
1993. 103-107. p. Discussion Papers. Special
LOCAL DEVF.I .OPMENT STRATEGIES
105
aspect". It means that an expense level that had already been accepted was considered as
a basis of further calculations. In other words, this money could be taken for granted for a
relatively well-equipped settlement like a small town.
Here another interesting observation was made: big villages which were later estab-
lished as towns showed very similar features to the small towns at that time from this point
of view, so they were definitely planned to be small towns or, at least, got a little more help
from the broader administration than the others to reach this status. So we called this
second factor "the index of small town institutional planning". Working with per capita
indices, the county seat, Kecskemet, could not reach outstanding positions in these calcu-
lations, for the first wave of financial resource concentration aiming at the county centres
had already been over before the period our research covers, and, having proportional
indicators, its absolute advantage cannot be observed in this way but we were convinced
that this absolute advantage is not the very thing which should be examined nowadays.
(3) The third factor must be the most interesting one; we called it "vitality
index". Those settlements which happened to reach outstanding positions according to
this calculation could generate virtual infrastructural development in spite of the fact that
they were not in the mainstream of redistribution, so they had to use and get on with their
own resource base in the community. It is, of course, very difficult to find the keys and
activities that gave rise to success in these settlements. But there are a few elements and
conditions in common which can be described:
(a)
Most of them are rural communities dependent on agrarian activities.
They seemed to have been able to react to the changing macro-econ-
omic circumstances and to be entrepreneurial about their own future
development;
(b)
There can and could be found enough personal or other entrepreneurial
financial resources, and willingness to invest in local private initiatives
and local infrastructure;
(c)
These communities have or had a flexible leadership that can or could,
on the one hand, assist and encourage local enterprises, and, on the
other hand, gain money from the redistribution system both in formal
and informal ways.
The most surprising fact is that a lot of these entrepreneurial communities do not be-
long to the best tax payers as far as the per capita personal income tax payments are con-
cerned, though the population of these settlements seem to be rather wealthy. Anyway, it
must be added that the income tax is preferencial to some extent regarding agricultural
activities. Can this be the only explanation to this phenomenon? However, according to
the existing rules, there is not any direct connection between the taxation capability of a
settlement and its ability to develop.
Although there are some kinds of new local taxes planned, the two main tax resour-
ces—the personal income tax and the value added tax—are collected directly by the cen-
tral budget and the community can at best re-acquire some of it one or two years later, as
Keresztes Nagy, Csilla : Local Development Strategies: Encouragement or Re-Acquirement?
In: Spatial Research and the Social-Political Changes. Pécs: Centre for Regional Studies,
1993. 103-107. p. Discussion Papers. Special
106
CSILLA KERESL1ES NAGY
the amount is in its yearly budget but the central administration does not calculate the
more than 30% inflation which reduces this sum during that time.
If a community cannot or does not pay enough per capita personal income tax, its local
government gets extra subsidies. To give you a really astonishing example: maybe the two
wealthiest villages in our country, Kecel and Soltvadkert received the highest extra sub-
sidy last year for this reason.
Two questions can be raised about that:
1.
How can a community be made to be willing to pay taxes if they cannot
feel or see any practical and virtual advantage in it?
We have to take into account that the Hungarian taxation system is very progressive
and its rates are very high. Even the lowest paid active earner has to pay one third of his
income as tax, and over a 300,000 gross yearly income, which should not be considered
high nowadays, the rate is 40 or 50%.
2.
How can a local leadership be made to be interested in recovering this
big sum of money from the members of the community?
To make the situation clear, in these communities about two thirds of the average in-
come come from the so-called second or third economy. That is why it is not registered,
so it can be only estimated. Our empirical studies proved that except the bottomless cen-
tral budget, neither the individuals nor the community or its leadership are really inter-
ested in cashing in this horrible sum of money. That is the most inadequate element of the
existing ruling mechanism.
SUMMARY
Having been treated and governed in such different ways, the settlements in Bacs-Kis-
kun county—and I dare say in the whole country—will not react in the same way to the
sweeping changes going on in the governing system of their economy. Some of the small,
never or hardly subsidized communities have already shown more readiness, willingness
and capacity to respond than, for example, the better equipped and subsidized small
towns. The new legal rules can, of course, impede or enhance the progress of these small
vital communities—for example, the new land law—but at least they are not only people
settled together; they have interests in common and they want to compare themselves to
other similar communities. That is why they are willing to tax themselves to invest in local
infrastructure even if they are unwilling to pay any tax to the central government, which
can be understandable on several grounds.
A worse situation can be predicted for the small towns and other key settlements where
the so far unconditionally subsidized institutional network will probably lose granted re-
sources. In this case they will have to create encouraging circumstances for initiative,
Keresztes Nagy, Csilla : Local Development Strategies: Encouragement or Re-Acquirement?
In: Spatial Research and the Social-Political Changes. Pécs: Centre for Regional Studies,
1993. 103-107. p. Discussion Papers. Special
LOCAL DEVELOPMENT STRATEGIES
107
instead of re-acquiring money taxed away by the redistribution system. Still, there must
be some kind of redistribution system left to help backward areas and crisis phenomena.
But everyone has to see that they will not be able to do this without two cornerstones
which do not really depend on the settlements and communities themselves:
— the first one is stability;
— and the second one is the expectation of fair rules of the game.
Without these we can be afraid of the takeover of the "good old" bargain mechanism,
the very thing we wanted to eliminate.