Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest
CENTRE FOR REGIONAL STUDIES 
OF HUNGARIAN ACADEMY OF SCIENCES 
 
 
DISCUSSION PAPERS 
 
No. 39 
The role of the State in the urban 
development of Budapest 
by 
Krisztina KERESZTÉLY 
 
 
 
 
 
 
 
 
 
 
Series editor 
Zoltán GÁL 
 
 
 
 
 
 
 
 
 
 
 
 
Pécs 
2002 

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Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest
 
 
 
 
 
 
 
Research financed by SOROS Research Support Scheme program, 
RSS No: 359/1999. 
 
 
 
 
 
ISSN 0238–2008 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2002 by Centre for Regional Studies of the Hungarian Academy of Sciences 
Technical editor: Ilona Csapó, Zoltán Gál 
Typeset by Centre for Regional Studies of HAS Printed in Hungary by Sümegi 
Nyomdaipari, Kereskedelmi és Szolgáltató Ltd., Pécs. 
 
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Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest
CONTENTS 
1 
Introduction    
1.1  Analysis of the relationship between urban areas and nation states 
2 
Budapest, the very Centre of Hungary 
2.1  Economic, Social and Urban Development during the 1990’s 
2.2  The political background of the relationship between the capital and the 
central government 
3 
The Withdrawal of the State from the Urban Management of Budapest 
3.1  Decentralisation in Budapest: the creation of a multi-tier administrative 
system 
3.2  The withdrawal of the state from real estate ownership and urban 
planning 
3.3 Fiscal 
policies 
3.4  The status of the capital in the country: the issue of a unified 
administration of the Budapest metropolitan area 
4 
New Forms and Methods of State Investments in Budapest 
4.1  The general withdrawal of the state from urban investments in Budapest 
4.2  New methods of public intervention in the urban development 
4.3  The evolution of state’s participation in the urban development of 
Budapest through two case studies 
 
 
1. From World Expo to Technopolis - The Lágymányos-Infopark 
    International Exhibition and infrastructure investments 
    The rise of Infopark 
 
2. Millennium City Centre – a complex entertainment “theme” park 
    Conclusion: new strategies and methods of the central government 
 
General Conclusions 
 
 
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Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest
List of figures 
 
List of tables 
Table 1  The Central Position of Budapest in Hungary at the end of the 1990’s 
(Hungary = 100%) 
Table 2  Part of Normative State Subsidies in the Total of Functional 
Expenditures of the Municipalities (%) 
Table 3  Distribution of the Total Investments in Budapest 
 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
1 Introduction 
Under socialism, the central state was practically the sole initiator of urban devel-
opment in Budapest. The dominant position of the central government was charac-
teristic of the city’s entire history, from the ‘creation’ of the modern Hungarian 
capital in 1870 until the end of World War II. After the 1989 transition, two main 
factors influenced the traditional role of the state in the urban development of the 
capital. 
The first, and perhaps more evident one, was the political transition from a 
heavily centralised one-party system, based on the monopolistic position of the 
central state, to a pluralist and democratic one. Transformation was characterised 
by the re-establishment of local democracy and its administrative organs as well as 
by the complete legalisation of private ownership since 1990. Decentralisation led 
to the state relinquishing its exclusive role in the economic and the political deci-
sion-making process. 
The second phenomenon that influenced the state’s role in the urban develop-
ment of Budapest is related to international factors: to the new role of metropolitan 
areas and the changing relationship between the latter and their respective nation 
states in an increasingly global world. The analysis of this process has helped us to 
formulate the hypotheses that shall guide our study. 
1.1  Analysis of the relationship between urban areas and nation 
states  
What is the effect of globalisation on nation states? Will they ‘disappear’? To what 
extent will national governments loose influence in the face of ever more influen-
tial supranational organisations? Will nation states remain the basic units of the 
world political and economic structures and will central governments keep their 
traditional decision-making powers? According to one opinion that frequently sur-
faces in contemporary French literature the weakening of the nation state goes hand 
in hand with so-called ‘de-territorialisation’. In this view, the economic power of 
multinationals has resulted in the transformation of traditional networks of ‘soli-
darity’, which are less and less related to ‘territory’, i.e. to national boundaries. 
This phenomenon may lead to the disappearance of the state as an entity based on 
networks and interests related to a national territory (Badie, B. 1995). In order to 
maintain their political and economic competitiveness besides multinationals and 
non-governmental organisations, national governments are forced to establish their 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
own international associations. In this sense, nation states themselves contribute to 
and legitimise ‘world-wide disorder’ (Baugenard, J. 1998).1
However, it seems that the changing role of nation states and of national 
governments has to be considered in a more balanced way. Although nation states 
have to face several challenges brought up by economic globalisation, these lead to 
the weakening of state sovereignty (as regards, for example, certain economic 
decisions) but not to the disappearance of the state as an institutional, political and 
even economic entity. Multinational enterprises and nation states stand in a 
reciprocal relationship, and, as Holton argues, ‘MNEs remain dependent on nation 
states for certain types of resource in a range of circumstances’ (Holton, J. R. 1998: 
93). 
Nation states are not disappearing. In fact, many studies appear to disprove the 
‘de-territorialisation’ theory, as, for example, that of Keating, who points out that 
the share of public spending in the GDP did not decrease in developed countries, 
even during the 1990s (Keating, M. 2001). Although nation states have maintained 
themselves, one nonetheless observers a fundamental weakening of their position. 
They have lost the ‘monopoly’ of decision-making power in the political and 
economic arenas: ‘while the nation state is far from being finished, there is a good 
reason to doubt that states hold the monopoly of power within the politics of 
globalisation. A number of theorists see globalism as a multi-actor system rather 
than an interstate system…’ (Holton, J. R. 1998: 107). 
The end of the monopolistic position of central governments in these regards 
generates new methods of public intervention, which strengthens the role of 
different types of public/private co-operation. These reflect the restructuring of 
public intervention and public investment in the urban development of 
metropolitan areas. 
While globalisation has a weakening effect on nation states and on their central 
governments, it has a strengthening effect on the development of large urban areas. 
As Saskia Sassen has shown in ‘The Global City’ (Sassen, S. 1991), the economic 
and urban growth of large metropolitan areas is related to the same phenomenon 
that diminishes the importance of nation states. Put simply, over and beyond states, 
large cities serve as headquarters for global (multinational) enterprises, become the 
nodes of global economic processes, and accommodate new urban functions and 
urban hierarchies. Sassen has considered the three cities she defines as global, 
namely London, New York and Tokyo, and places at the top of the urban 
hierarchy. During the 1990s, several other studies attempted to define a hierarchy 
                                                      
1 According to Baugenard, this disorder would imply the complete disappearance of all 
institutional political organisations that are normally based on the nation state. Pulsation 
of the market would get complete freedom and nothing would save us from the absolute 
victory of ‘McWorld’… 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
of cities on a European or on a world-wide scale (Hall, P. 1993; Beaverstock, J. 
V.– Smith, R. G.–Taylor, P. J. 2000). All show that cities increasingly depend on 
new international functions in order to preserve their autonomy vis-à-vis nation 
states and their central governments. (Obviously, the importance of these 
international functions, and therefore the independence of these cities from the 
central government intervention, vary according to the size, traditional 
international roles of the cities and other criteria.) The position of these cities in the 
international urban hierarchy depends as much on their economic and functional 
competitiveness as on their economic and political position in their countries. 
After the collapse of the Iron Curtain, the largest cities in Central and Eastern 
Europe were integrated into the international urban hierarchy (Enyedi, Gy. 1998). 
This phenomenon foremost concerns the capital-cities such as Prague, Warsaw or 
Budapest. In the former socialist bloc, these cities emerged as the foremost 
beneficiaries of political transition and globalisation, as they received the highest 
concentration of foreign investment in real estate and the economy at large. These 
capitals are international hubs that prevail over the remaining regions of their 
countries. (The GDP/capita stands at 125% of the national average in Prague, 
170% in Warsaw, and 181 % in Budapest (Horváth,  Gy.  1998). This position 
assures their economic autonomy with regard to central government. 
How do the new international (global) roles of capital cities influence their 
position against the central government? The capital, especially in heavily 
centralised countries, has historically been the ‘symbol’ of the nation state. 
Particularly since the 19th century, its political position was reinforced by its 
economic power. ‘Because until recently decisions were made nationally, the 
capitals of these nation states became the logical centres of everything: 
government, commerce, finance, transport, higher education. … And the different 
elements of the system reinforced each other, creating a pattern of circular and 
cumulative causation’ (Hall, P. 1993: 884). The capital’s pre-eminence becomes a 
major political asset for the central government. However, the capital as a city is a 
distinct economic and social entity, with its own rules and actors. During the 
history of strong nation states, the relationship between the central government and 
the capital was based on the permanent interaction between them. Yet, both entities 
exercised strong economic and political influence on one another, whereas the 
central state always kept its power of decision over the city through urban planning 
and regulation, urban investments, fiscal redistribution etc. It is evident that the 
weakening of the state’s position has transformed this relationship, albeit to a 
different extent depending on the power of each central state. 
At the beginning of the 1990s, in Budapest, the combined effects of political 
transition and of globalisation fundamentally changed the status of the capital 
within the nation state. This transformation reflected the lack of economic, political 
and social stability that emerged in the wake of political transition. In Hungary, as 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
in other central European countries, basic ‘democratic’ reforms (administrative 
reform, privatisation…) resulted in a fragmented institutional structure. 
Considerable economic and political authority has been transferred to local 
decision-making bodies and to the private sector. This tendency reinforced the 
political power of the capital, while the effects of globalisation increased its 
economic autonomy with regard to the state. 
The aim of our study is to analyse how the traditional role of the central state 
has been transformed in the urban development of Budapest. In section one, the 
new and reinforced central position of the capital and its effects on the general 
political atmosphere will be considered. In section two, the retreat of the state from 
the fields of urban management and policy-making (administration, taxation) will 
be described. In the final section, new forms of state investment and intervention in 
urban development will be analysed on the basis of two case studies of important, 
state-initiated urban projects in Budapest. 
2  Budapest, the very Centre of Hungary 
2.1  Economic, Social and Urban Development during the 1990’s 
Since its creation as capital-city at the end of the 19th century, Budapest was tradi-
tionally the very centre of Hungary. Under the Austro-Hungarian Empire, it was 
developed into the second hub, after Vienna, and became a pole of attraction for 
the south-eastern regions of the Empire and the Balkans. With the collapse of the 
monarchy and ensuing territorial losses for Hungary, Budapest remained in effect 
the only major city in the country. Under socialism, the capital kept its strong cen-
tral position despite the implementation of state policies intended to expand the 
secondary urban poles. In the course of its history, Budapest was always ‘closer’ to 
the development patterns observed in Western countries; it was more open and 
more international than the other regions and cities of Hungary. Apart from its 
institutional and national functions, the capital served as a ‘gateway’, absorbing 
international influences and mediating the modernisation trends that then came to 
affect the rest of the country. After the 1989 political transition, Budapest was the 
first and most evident ‘winner’ of economic transformations, and these processes 
increased the differences between the capital and the rest of the country. 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
Table 1 
The Central Position of Budapest in Hungary at the end of the 1990’s 
(Hungary=100%) 
 
Budapest 
The rest of the country 
Population in 2000 
18% (1,8 million) 
82% (10 million) 
(525km2) 
(93 000 km2) 
GDP in 1995 
33.4 
66.6 
Number of enterprises with 
51% 49% 
foreign capital 
Foreign Investments in 1995 
52% 
48% 
Number of full-time students 
43% 57% 
in college or university in 
1998 
Number of employees in 
63% 37% 
main urban centres in retail, 
communication, tourism, 
financing and real-estate 
Number of employees in 
53% 47% 
R+D in 1997 
Number of research insti-
44% 56% 
tutes in 1997 
Unemployment rate in 1998 
3.6% 
9.1% 
(the whole country) 
Number of employees in 
51% 49% 
administration 
International air transporta-
100% 0% 
tion 
Number of enterprises 
29.7 
70.3 
Source: KSH, Horváth, Gy. 1998. 
Beyond recalling the sheer numeric weight of the capital’s population, this table 
illustrates the structural preponderance of Budapest with regard to the rest of the 
country. No other hub in Hungary disposes of the basic infrastructures required for 
international exchanges. For example, Budapest is still the only city in Hungary 
served by an international airport. Equally, the capital occupies an exclusive posi-
tion as the centre of ‘knowledge bases’; it is home to the lion’s share of Hungarian 
institutions of higher education, research and development. This entails a high con-
centration of foreign investments and of employees in the service sector, a process 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
itself induced by the international opening of the country in fields such as commu-
nications, tourism, real estate, etc. 
The pre-eminence of Budapest is further reinforced by the persistent lack of a 
network of medium-sized cities in Hungary, which could compensate this prepon-
derance. Indeed, the second-largest city in Hungary, Debrecen, claims only 
200,000 inhabitants as opposed to Budapest’s almost 2,000,000. This asymmetry is 
also visible if we analyse the characteristics of the Hungarian urban network in the 
broader Eastern European context. While Budapest figures among the major cities 
in this part of the continent, with Warsaw, Prague and Kiev, medium-sized, re-
gional centres such Brno in the Czech Republic or Krakow in Poland are not to be 
found in Hungary (Buchholz, H. J.–Grimm, F.–D. 1994). The prominent position 
of Budapest is thus based, on the one hand, on the concentration of demographic 
and economical resources and, on the other hand, on the gap which prevails be-
tween Budapest and the other cities and regions of the country.  
Budapest is ‘one step ahead’ of the other cities of Hungary in terms of urban 
development. During the 1990’s, the major transformation in urban development in 
Hungary was the acceleration of suburbanisation. The phenomenon has character-
ised Budapest since the very beginning of the transitional period (and some signs 
were even visible during the socialist era). In contrast, it is just beginning in other 
cities. During the 1990’s, the population diminished in Budapest and in the country 
as a whole, with the exception, however, of the settlements surrounding Budapest 
(Daróczy, E. 1999). (Between 1990 and 1999, Budapest lost 9.7% of its population, 
while the number of inhabitants in the 78 surrounding settlements increased by 
8.8%. Over the same period, the population of the country decreased by 2.3%.) 
Suburbanisation was further encouraged by the strong economic development of 
existing settlements. Because of the availability of large green-field sites in the 
agglomeration belt around Budapest, green-belt investments were more attracted to 
that zone than to the capital itself (Barta, Gy. 1999). By the 1990s, an unbroken 
economic and residential agglomeration zone had formed around the capital. 
The spectacular international development of Budapest led to the spatial re-
structuring of the city itself, with the revitalisation of some neighbourhoods that 
occupy ‘strategic’ positions. The privatisation and the restructuring of former state 
industries, the installation of international firms, banks, high-level services etc. 
have fundamentally transformed the urban landscape of Budapest. The capital is 
now flooded by new urban developments: office buildings, shopping centres, in-
dustrial and technological parks, (luxurious) residential complexes and buildings. 
New urban nodes and functional zones emerged as a result of economic transfor-
mations, entailing the enlargement of the city-centre and the regeneration of some 
former industrial zones as venues of high-level tertiary activities. The latter are at 
strategic points in the capital, along the main roads leading to the most important 
motorways or by the riverside 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
The prosperity of Budapest hides, however, uneven urban development. During the 
1990’s, the appreciation of sites in certain ‘winner’ parts of the city stands in 
contrast to the depreciation observed in other neighbourhoods. Degradation con-
cerns foremost the historical centre, the former industrial lots and most housing 
estates, products of socialist urban policies. The degradation of these areas resulted 
from the lack of public intervention and rehabilitation projects during the socialist 
as well as the post-socialist period. Contrary to the ‘winner’ neighbourhoods, these 
areas have benefited neither from high-level tertiary and residential development 
nor from international investments. They suffer disproportionately from the fact 
that, since 1989, only a small middle class emerged, which has proved unable to 
muster the economic resources required for local regeneration. Likewise, no stable 
local small and medium enterprises (SME) have emerged, which could sustain such 
regeneration. Therefore, strategic interventions, such as urban rehabilitation pro-
grammes, integration into the metropolitan transport system, etc., may be required 
to improve the lot of these disadvantaged areas. The ‘slum’ areas of Budapest are 
the most visible manifestation of the withdrawal of the central state and of the pub-
lic sector in general from urban development. During the 1990s, the lack of central 
subsidies and of strategic public intervention was only occasionally counterbal-
anced by public-private partnerships organised at the very local level of the dis-
tricts. 
During the 1990’s, practically all phenomena observable in the urban restruc-
turing of Budapest were related to private-sector investments and initiatives. This 
was accompanied by the weakening of the public sector and by the abrupt with-
drawal of the central state from urban management and planning. 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
Source:designed by the author, 2001 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
2.2  The political background of the relationship between the 
capital and the central government  
The unique position of Budapest in the country is also a reason why the relation-
ship between the central government and the City is an important factor influencing 
the political atmosphere in Hungary. The political weigh of the capital is tradition-
ally high compared to other local governments and its mayor is conceived as a 
political power on the national level. This is true in general in heavily centralised 
countries, as France for example. In Budapest, there are two tendencies that alter-
nately determine the political relationship between the capital and the central gov-
ernment. These tendencies are rooted in the historical development of Budapest, 
and though they were more or less ‘put aside’ during the socialist regime, they 
‘automatically’ re-appeared in the 1990s. 
The first tendency is what I call ‘opening’ policies. In this case, the aim of 
central policies is to open the country to foreign, especially western influences. As 
the capital-city acts as a gateway to the West, supporting its economical and urban 
development is at the core of governmental policy. State supports strongly the 
urban development, the political and economical strengthening of the capital, 
which increases its autonomy from the state. When the capital and the central 
government are in political alliance, the growing autonomy of the capital is 
acceptable to the state as both of them are following the same objectives. 
The second tendency is what I call ‘closing’ policies. In this case, the aim of 
central policies is to reinforce the local and national socio-economic capabilities of 
the country, and in doing so, restrain foreign influences. The liberal and open char-
acter of the capital hinders the implementation of these policies. Thus the capital’s 
traditionally prominent position becomes the reason for its opposition with the rest 
of the country and the central government. Closing policies intend to increase cen-
tral control in the capital, particularly by reducing municipal autonomy. 
Traditionally, ‘opening’ policies were followed by central governments with a 
more liberal (left-wing) political course, while ‘closing’ policies followed the more 
conservative (right-wing) line (during the inter-war period, they were coupled with 
nationalistic tendencies). These policies altered face to the City of Budapest (here-
after ‘the City’) where left-wing traditions were always stronger than at the level of 
the ruling central governments. During the historical development of Budapest, 
state always remained the dominant party with the power to influence the capital’s 
powers. 
‘Opening’ and ‘closing’ tendencies were both presents during the 1990s. The 
alternation of the two tendencies depends on the political majority controlling the 
City and the central government. The capital has maintained its left-wing tradition. 
Since the first free elections, in 1990, a liberal majority has governed Budapest. 
The mayor belongs to the Party of Free Democrats (SZDSZ). Meanwhile, the 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
central government has changed its majority every four years: it was rightwing 
during the period from 1990 to 1994, leftwing between 1994 and 1998 and again 
rightwing since 1998. 
Opening policies that aimed to reinforce the capital were present in the second, 
leftwing legislature. In order to restore economic stability, the socialist-liberal 
government sought to open the country to foreign, international investments 
alongside massive privatisation. As the capital is at the core of the country’s 
international standing, state projected and directly subsidised several large 
investments (a new metro line for example) in order to support the metropolitan 
development of Budapest. This was the period when an institutional relationship 
was developed between Budapest and its metropolitan area. Opening policies of 
this period contributed heavily to the strengthening of the economical and political 
autonomy of the Budapest Municipality. 
The conservative government that was elected in 1998 introduced inverse 
policies. Its objective was to create a stable middle class in Hungary with 
reinforced local small and medium enterprises. The policies of this government 
with regard to the capital show the signs of ‘closing’ tendencies. The diminishing 
of state subsidies and the exclusion of the capital from the scope of regional 
policies reflect a counter-reaction to the enhanced economic and political authority 
of the City. 
This political background appears several times as one main reason for changes 
in the state’s role vis-à-vis the capital. It is sometimes difficult to understand the 
‘real’ situation that underlies them. Nevertheless, in this research, I have tried to 
draw conclusions on the general phenomena that are characteristic for the 1990s, 
independently from political preferences. 
3  The Withdrawal of the State from the Urban 
Management of Budapest 
In Hungary, as in most Central European countries, one basic element of political 
transition was the restitution of local government as a main element of democratic 
political structures. The weakening of the state’s roles in these countries is to a 
large extent related to the abolishment of the monopolistic position of the central 
authorities. As a result, local responsibility and decision-making obtained a dispro-
portionate weight in the decentralisation process. Civil organisation and the self-
management of local societies emerged as the alternative to formerly centralised 
political structures (Kende, P. 1997). 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
It seems, however, that decentralisation did not really weaken central govern-
ment, rather the intermediate, second-tier levels of management. Local authorities 
obtained wide-ranging autonomy, but he lack of fiscal and administrative power at 
second-tier echelons, left in the hands of central government the possibility of di-
rect intervention in local issues. This incongruous situation put in danger the effec-
tiveness of the entire decentralisation process (Bennett, R. J. 1998; Pálné, Kovács I. 
1998). 
These arguments prove that the transformation of the state’s roles in post-so-
cialist countries presents a contradictory picture: on the one hand, one observes a 
notable weakening of central authority, on the other the persistence of a state-cen-
tred political structure. Yet, in the case of Budapest, the picture is clearer: the state 
has almost fully withdrawn from urban management. This reflects the special po-
litical and economic position of the capital in the country. In the following section, 
the main aspects of the state’s withdrawal from the urban management will be con-
sidered: the decentralisation of the capital’s administrative system, the transfer of 
state property to the local governments of Budapest, the decreasing role of central 
subsidies in the municipal budgets and the place of Budapest with regard to Hun-
garian regional policies. 
3.1 Decentralisation in Budapest: the creation of a multi-tier 
administrative system 
In Hungary, decentralisation was prescribed by the 1990 Act on Local Govern-
ment. This act created local governments entitled to decide upon local issues, to 
own estates and to manage their own budget, derived partly from their own income 
and partly from local taxes and other revenue. The law also defined municipalities’ 
obligation in the fields of education and the maintenance of basic infrastructures. 
In Budapest, this law created a complex and fragmented administrative system. 
The capital was managed by 23 autonomous local governments, of which the Mu-
nicipality of Budapest was just one. (At that moment, Budapest was divided into 22 
districts and, in 1994, a 23rd district was created.) All district councils in the capi-
tal were instituted as elected bodies endowed with the same rights and preroga-
tives. But, while the districts gained responsibility over local duties, the central 
municipality was allocated more ‘general’ tasks, which concerned the whole of 
Budapest. Although this system fitted in with the principle of weakened second-tier 
echelons, in the case of the capital it proved impossible to manage. While, for ex-
ample, the Municipality of Budapest had to maintain and develop the main infra-
structures and roads in the capital, the diversity of political and urban interests of 
the different subdivisions excluded any coherent urban development and planning. 
 
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Discussion Papers, No. 39.
In 1994, a new administrative reform was introduced in order to reinforce the 
second-tier levels of administration. This reform aimed at strengthening the Mu-
nicipality of Budapest, which in effect obtained increased powers over the districts. 
The Municipality of Budapest thus acquired a unique position in the country, hav-
ing been granted the attributes of a regional-territorial authority, comparable to 
those of a German Land. The administrative power of Budapest became greater 
than that of any other local government in the country (Perger, É. 1999). 
Yet, the exclusive position of the capital masks a very contradictory political 
situation. The 1994 reform did not impinge upon the local autonomy of Budapest 
districts. The latter retained their local powers, and their political interests contin-
ued to hinder municipal decision-making. Districts also kept basic rights such as 
the allocation of construction permits and the definition of local priorities, which 
transformed urban planning and strategy making into a permanent political debate 
between the districts and central municipality. The autonomous position of the 
districts therefore limits heavily the political power of Budapest Municipality. The 
political interests of the ruling government further complicate the situation. At 
four-yearly intervals, the political composition of local and central governments 
changes, which alters the political landscape of the capital (following the political 
tendencies described above). As a result, central government is free to exploit rival-
ries between the districts and the City. The management of Budapest is hence still 
highly politicised and depends strongly on party preferences. 
3.2  The withdrawal of the state from real estate ownership and 
urban planning 
Another important aspect in the establishment of ‘local democracy’ was the ascrip-
tion of fiscal assets to municipalities. Before 1989, all urban lands, infrastructures 
and other real estate properties were owned by the state, and local councils had 
only the right of use. The transfer of these goods from the central government to 
municipalities in 1990 was essential to ensure the economic and political autonomy 
of local governments. In the case of Budapest, district councils received all the 
public housing stock. That means that 52% of the total housing stock of the capital 
became municipal property – and an important share of this stock was constituted 
by large housing estates in the centre, i.e., in the most disadvantaged neighbour-
hoods of the city. The Municipality of Budapest meanwhile received all the large 
urban infrastructures and the companies related to urban services (the Budapest 
Gas Company, Budapest Transport Company, etc.). The roads and other public 
spaces were ‘divided’ between the districts and the capital: main roads were attrib-
uted to the latter, secondary roads to the districts. 
 
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Discussion Papers, No. 39.
The newly acquired properties served as a fiscal basis for municipalities who 
launched a privatisation process. Privatisation of housing accelerated the re-estab-
lishment of housing market, but it did not really help the district councils to ensure 
their financial stability. The conditions of privatisation prescribed by law defined 
sale prices well below the market value of flats. Tenants could buy the flat they 
occupied for a relatively low price and sell it afterwards for a price often ten times 
higher (Cséfalvay, Z.–Paal, M.–Lichtenberger, E. 1995; Bodnár, J. 1996). Mean-
while, the maintenance of the buildings remained the duty of the local councils. 
The transfer of the housing stock also had another important consequence on the 
development of Budapest: central government has disengaged itself from the field 
of public housing policy for almost one decade. Districts have but few possibilities 
to acquire public revenues for rehabilitation and construction; they too have thus 
completely withdrawn from the management and financing of public housing. In 
1994, the Municipality of Budapest created a housing rehabilitation fund, but could 
only allocate very limited financial assets for this purpose. State subsidies mostly 
encourage the construction of new housing. The districts are therefore obliged to 
recur to public/private partnerships for housing construction undertaken on public 
land. 
In the mid–1990s, the Municipality of Budapest launched the privatisation of 
the large utility companies: between 1995 and 1997, three main companies have 
been privatised: gas, sewage and water. According to the contracts, the Municipal-
ity kept the majority of shares in every company. The maintenance of infrastruc-
tures and service became the duty of the new owners, while further development 
has to be supported by the Municipality. The main difference between this privati-
sation to those undertaken by the districts is that the former allowed the City to 
constitute an important fiscal reserve. This reinforced its economic autonomy and 
may strengthen its position in political conflicts with the central government. 
Decentralisation and property transfers also deeply transformed the conditions 
of urban planning in Budapest. Until the political transition, urban planning was 
part of central planning since all lands and utilities were owned by the state. As a 
result of the creation of autonomous local governments, planning became the joint 
responsibility of the City and the district councils. Also, methods of planning have 
changed. Formerly, simple land-use master plans were prepared that set out precise 
conditions for the further development of the capital. In the 1990’s, these were 
replaced by strategic urban planning: the Municipality of Budapest prepares the 
structural development conception while the districts define detailed land used 
plans. Thus, the latter are responsible for the allocation of construction permits, 
which gives the districts huge power in urban development. Moreover, the detailed 
plans necessary for granting the construction permits were largely prepared in 
many districts before the development of any strategic conception by the central 
Municipality. (In fact, it is several times a necessity for the districts: they have to 
 
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Discussion Papers, No. 39.
give quick answers to the demands of new investors.) Concerning urban planning, 
it seems that political transition did not only lead to the complete withdrawal of the 
central state, but, as a result of the fragmented structure of local authorities, it 
induced the weakening of the whole process. 
3.3 Fiscal policies 
The transfer of urban utilities and the withdrawal of the state from urban planning 
certainly reinforced the autonomous position of local governments in the urban 
development of Budapest with regard to the central state. The state kept, however, 
strong political influence through an otherwise quite complicated fiscal system in 
the capital. 
After 1989, fiscal policies were radically transformed. The socialist system 
based on central redistribution, where state subsidies were allocated according to 
tasks that were set out by central planning authorities. After 1990, that has 
changed, and levels of state subsidies are since established according to quotas 
defined on the basis of the operating costs of municipal institutions. 
While the transfer of property increases the economic autonomy of municipali-
ties, one observes a general decrease in central government subsidies allocated to 
local governments in order to meet their obligations. This tendency is apparent 
throughout the country, but Budapest is still in a favourable position compared to 
that of other local governments: 
Table 2 
Part of Normative State Subsidies in the Total of Functional Expenditures 
of the Municipalities (%) 
 
City of Budapest 
All Hungarian municipalities 
1993 60,3 
48 
1997 42,8 
32 
1999 25 
27 
Sources: Ministry of Interior, TÁKISZ. 
The table shows that normative state subsidies do not suffice to compensate the 
total of functional expenditures borne by the municipalities. The latter are therefore 
obliged to cover the remaining share by their own income, from local taxes and 
other sources such as the returns of the privatisation of transferred properties (for 
instance, housing stock). The favourable position of the City during the 1990s was 
 
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Discussion Papers, No. 39.
attributable to a larger concentration of institutions and infrastructures of national 
importance than in other municipalities (even in the districts). Since 1999, 
however, the newly elected central government has withdrawn several special 
subsidies from the Municipality of Budapest: the most important cutback was the 
withholding of the subsidies allocated to the Budapest Transportation Company 
(representing HUF 2 billion per annum). The last line of the table shows the 
equalisation of the sum allotted to the City of Budapest and to other municipalities. 
This phenomenon masks an increase in political tension between the central 
government and the City since the 1998 elections. 
The evolution of the structure of local councils’ sources of revenue in the 
capital also reflects changing political conditions. Until 1997, the City developed 
an active fiscal policy. This tendency culminated in the years 1996 and 1997, 
following the privatisation of the main utilities (see above). The increase of local 
income in Budapest is largely attributable to the sale of shares and other properties 
in conjunction with a strong increase of income related to credit-policies. During 
these years, the capital was involved in several large urban investments undertaken 
hand in hand with the ruling central government then dominated by the same left-
wing socialist-liberal party coalition as the City itself. (The two main investment 
projects were a fourth metro line linking Southern Buda to the north-eastern part of 
Pest and a new National Theatre in the very centre of Budapest.) In 1998, the 
newly elected, conservative government entirely rejected these investments and 
introduced new urban projects. The effects of political opposition on the part of the 
City have since further weakened its formerly active credit policy. As a result, 
since 1998, Budapest revenue decreased again, falling below its 1993 level. 
(Figure 3). 
In Budapest, the district councils have developed more balanced fiscal policies. 
Income is based in large part on state subsidies and on local revenue. The latter’s 
importance is attributable to the selling off of municipal land and real estate. In 
terms of fiscal policy, the districts have much less autonomy than other local gov-
ernments. The two main local taxes, the professional tax and the tax on tourism, are 
collected and redistributed by the City according to norms and quotas defined on a 
yearly basis. Personal income tax, a source of revenue transferred from the central 
government, complements these assets of the City. In virtue of the administrative 
reform of 1994, which increased municipal authority, the City is fully entitled to 
define the criteria of income redistribution, though it can ask the opinion of the 
districts. Part of the income derived from these taxes is allotted to different City 
funds (rehabilitation fund, cultural funds, social funds), and the remainder is di-
vided between the 23 districts and the City. In reality, the redistribution process is, 
 
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Discussion Papers, No. 39.
year after year, the object of intense political debate.2
 
                                                      
2  The City receives the larger share of this revenue: in 1996: 56%, in 1997: 59%, in 1998: 
57% and in 1999: 69%. 
 
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Discussion Papers, No. 39.
3.4  The status of the capital in the country: the issue of a unified 
administration of the Budapest metropolitan area 
The special authority of the City over its districts and its fiscal privileges are im-
portant signs of the reinforced political position of the City. The capital’s growing 
autonomy seems to provoke a certain reserve on the part of successive central gov-
ernments. These ‘fears’ and conflicts result from the lack of a well-defined role of 
the state in the management of the capital. Current political conflicts have clearly 
demonstrated this. However, despite decentralisation, central government restricts 
the capital’s prerogatives, thus balancing the latter’s autonomous position. Yet, 
considering the importance of local revenue, government financial policies only 
affect the City to a limited extent. There is, nevertheless, one field in which the 
capital depends strongly on central decisions, namely that of regional policies and 
especially the question of metropolitan government. 
During the 1990s, whatever the political colour of the central government, Bu-
dapest was treated as an ‘entity apart’ from the rest of the country. The capital, as 
the metropolitan hub of Hungary, was permanently excluded from national 
regional policies. The capital did not qualify for special central subsidies for 
regional development because it always attracted the better part of almost every 
other type of central funding (the cultural central fund, commercial fund, 
rehabilitation fund, etc.) (Horváth, Gy. 1998). But, the general exclusion of Buda-
pest from the national regional strategies and the institutional system shows that the 
position and the roles of the capital in the country are still far from stable. This is 
illustrated by the fact that no solution has been found regarding the form 
metropolitan government should take. 
This debate goes as far back as the first part of the 20th century, when the status 
of the first belt of industrial suburbs became an issue. The final response to this 
problem was the simple extension of the capital’s city limits, in 1950, by the 
Communist party. After transition, analogous problems arose concerning the wider 
metropolitan area, which has no institutional relationship with the capital. Since the 
beginning of the 1990s, rapid suburbanisation created many economic and 
functional ties between Budapest and the surrounding area. As a result, the lack of 
an institutional relationship became an urgent problem. For historical reasons, there 
was no ready-made solution in Budapest for the issue of metropolitan government. 
Indeed, during the socialist era, the metropolitan belt had been cut off from the 
capital. After the collapse of the centralised system and the creation of local 
governments, it proved impossible to change in any way the administrative system 
in Hungary and to modify (decrease) the authority of the local governments of the 
capital’s periphery (Perger, É. 1999). Budapest’s city limits could not be extended 
again and it was impossible to create an administration responsible for the 
metropolitan area. Further, the centralised model of metropolitan government was 
 
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Discussion Papers, No. 39.
on the decline in Western Europe since the 1980s (Barlow,  M. 2000). (The 
traditional two-tier system gave way to more fragmented forms of management, as 
shown by the suppression of the Greater London Council or the creation of the Ile-
de-France region around Paris, which was itself divided into seven départements.) 
In addition, any measures towards institutionalising of the poles of attraction 
around Budapest could well have further reinforced of the capital’s pre-eminence. 
The establishment of an institutional structure for the metropolitan area was 
finally realised by the left-wing government that introduced the 1996 Act on 
Regional Development (the first act of this kind in the post-socialist countries). 
Special councils for regional planning were created in each county and, on a 
voluntary basis, by the regions, to co-ordinate County Councils. The Act did not 
define the territories of those regions, but made special mention of the Lake Bala-
ton and Budapest areas. The latter included 78 outlying townships (designated by 
decree in 1997), and the capital with its 23 districts. In the two special regions, the 
creation of Regional Development Councils was made mandatory. The 
Metropolitan Council was created in 1997. The composition of the Council was 
well-conceived in that all the main actors in the field of spatial planning were 
represented: the central government, the City of Budapest, the districts, the 
metropolitan townships, and representatives of the private sector (economic 
chambers). This Council, however, had but little authority and resources. It could 
not mediate between Budapest and the surrounding communities and was thus not 
in a position to resolve major issues such, for example, as the management of 
common infrastructures. But at least it could launch the preparation of a 
development strategy for the whole metropolitan area, by promoting the interests of 
all actors in the large area it represented. The presence of representatives of the 
central government and the different ministries guaranteed the national relevance 
of this programme by ensuring that the Budapest metropolitan was duly taken into 
consideration in regional policy-making (Perger, É. 1999). 
The fact that the City was only one of the actors represented in the Council 
evidently decreased the City’s ‘prominent’ position within the metropolitan area. 
But, in contrast, the Act favoured the integration of the entire metropolitan area, 
and this in turn also reinforced the position of the capital. 
In 1999, under the new, right-wing government, the 1996 Regional 
Development Act was modified in order to establish a regional structure along the 
lines of those created in the European Union. Seven statistical regions were 
created, along with corresponding regional development councils. In this new 
structure, Budapest and its metropolitan area are part of the Central Region, 
composed by the capital and Pest County. The Budapest Metropolitan Council was 
merged into the Central Region Development Council. While the creation of 
statistical regions was a necessary step towards European integration, it was also a 
step backwards as regards co-operation between the capital and the metropolitan 
 
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Discussion Papers, No. 39.
townships. Political tensions (e.g., the opposition between the left-wing mayor of 
Budapest and the president of the Region, appointed by the central government), 
have practically cut-off Budapest from ‘its’ region and therefore from a part of its 
metropolitan area. 
During the decade of the ‘transitional period’ in Hungary, no real solution 
emerged for organising a metropolitan government of Budapest. This was even true 
when the Metropolitan Development Council was functioning. The authority of 
this council did not extend to the co-ordination of the municipalities administrative 
activities, financing, etc. Thus, at the metropolitan level, the capital’s two-tier 
system (district councils and City) must deal with a subruban belt composed of 
completely autonomous municipalities. While the districts of the capital are in 
many aspects directly subordinated to the City, the municipalities of the suburban 
belt are more dependent on the fiscal and planning policies of the central 
government. Local municipalities in general agree that although decentralisation 
has had an unequivocally positive effect on local development, the withdrawal of 
the state has created an ambiguous situation, because it left behind a vacuum that is 
not compensated by co-ordination at the metropolitan level. In our questionnaire, 
the most frequently mentioned field of local management where this vacuum 
appears was financing: central subsidies do not even cover expenditure related to 
municipalities’ mandatory tasks. Second was housing construction, social policies 
and basic communal tasks such as the operation of infrastructures, institutions, 
schools, etc. Third was the lack of co-ordination in spatial planning and in 
infrastructural investments even though these issues seemed to have been partly 
resolved in 1996. 
4  New Forms and Methods of State Investments in 
Budapest 
The general withdrawal of the central state from the urban management of the 
capital is also manifest in the field of urban investments. During the 1990s, the 
private sector came to dominate urban development in the capital while state inter-
vention almost entirely disappeared. This stands in obvious contrast to the structure 
of urban development during the socialist system. However, even in the era of 
globalisation, the capital remains the most strategic point, the ‘showcase’ of the 
country. State initiatives for prestigious development projects thus remained con-
centrated in the capital, irrespective of political relationship between the central 
government and the City. Nevertheless, because of the growing competition on the 
land market provoked by the dominant role of international companies, central 
 
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Discussion Papers, No. 39.
government has had to develop new forms of intervention. During this decade, 
state participation in prestigious urban development projects gradually switched 
from an ‘authoritarian’ to an ‘entrepreneurial’ mode. 
4.1  The general withdrawal of the state from urban investments 
in Budapest 
During the socialist period, the state was the only actor in the urban development 
of Budapest. After 1990, private ownership was legalised and the country opened 
up to the flow of international capital at the same time as administrative decentrali-
sation progressed through the creation of autonomous local governments. As a 
result, the central state became only one of many actors of urban investment and 
development. 
 
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Discussion Papers, No. 39.
Table 3 
Distribution of the Total Investments in Budapest 
 
1992 1995 1996 1997 1998 1999 
Total investment 
154,333 313,420 361,532 445,567 593,245 590,503 
(in million HUF) 
Registered companies 
50.2% 
68.6% 75.1% 71.0% 67.7% 67.0% 
Central government 
11.1% 10.0%  9.1% 10.7% 14.1% 13.0% 
investment 
Local government 
6.9% 6.9% 4.9% 8.2% 7.7% 7.0% 
investment 
Investment 
by 
citizens 
10.6% 8.1% 7.8% 8.5% 8.1% 11.0% 
Others (individual 
 
 
firms, social security 
 
 
institutions, enterprises  21.2% 6.4% 3.2% 1.6% 2.4% 
2.0% 
under legal transfor-
mation, etc.) 
Share of enterprises 
with foreign direct 
22.5% 43.8% 47.9% 
 44.9% 44.3% 
investments (of the 
total investments) 
Share of building in 
37.6% 40.1% 41.4% 40.6% 41.4% 39.6% 
total investment 
Source: Statistical Yearbooks of Budapest, KSH. 
After 1989, the private sector’s role in investment in the capital grew steadily: 
while only half of all investments were made by the private sector at the beginning 
of the 1990s, the proportion rose to more than two thirds of total investment by the 
middle of the decade. Meanwhile, the role of foreign capital has increased 
constantly: by 1996, almost half of all investment was made by foreign entities. 
The share of the construction industry, which is of particular interest to this study, 
has stagnated at around 40% from year to year. 
Since the early 1990s, the re-emerging Budapest real estate market attracted 
several international real estate companies (Colliers International, DTZ, etc.), 
whose continued presence has had a deep impact on the urban restructuring of the 
city. The spread of their investments, which concentrated on commercial centre 
and office construction, had a mixed effect on urban development in Budapest. 
While in some neighbourhoods the influx of foreign capital sparked rapid urban 
regeneration, in others it resulted in the formation of a disordered landscape  
 
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Discussion Papers, No. 39.
The first wave of commercial construction concentrated on office buildings. Be-
tween 1990 and 2000, office construction totalled 600,000 m2 according to Colliers 
International. At the beginning of the decade, the lack of modern office stock war-
ranted this choice in the city centre. By the end of the 1990s, office construction 
was pushed further out of the city centre, to the so-called non-core areas (Colliers 
International, 2001). 
 
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Discussion Papers, No. 39.
1995 saw a new sector open to international investment, namely retail 
developments. The accelerated construction of shopping malls and megastores 
reached some of the central districts, but they appeared practically all over in Bu-
dapest. The most spectacular development, West-End City Centre, completed in 
2000, was built by Tri-Granit, a Hungarian–Canadian joint venture owned by Sán-
dor Demján. (It appears in our study as a firm operating in agreement with the 
central government.) In some of the former industrial outer districts (13th, 22nd, or 
17th), the new shopping malls had an advantageous effect on urban regeneration as 
they created real centres for services and entertainment that were hitherto 
completely missing in these neighbourhoods. Besides an increase of local tax 
revenue, this was one of the reasons that led district councils, as well as the City, to 
support (or at least not hinder) the spread of these developments. In contrast, the 
outlying townships mostly attracted megastores. In these cities and villages 
concentrated retail construction generated important economic growth. The most 
spectacular development took place in cities such as Budaörs or Törökbálint, 
located at the western limits of Budapest, on the either side of the Vienna and Ba-
laton motorways. 
The third type of international investments is related to industrial developments 
such as warehouses and industrial parks. The majority is composed of green-field 
projects built outside of the city limits, where land is still available. The 
reinforcement of local economies in the metropolitan area is largely attributable to 
this type of investment (Barta, Gy. 1999). Substantial industrial areas in Budapest 
have been abandoned or are now occupied by smaller, mostly Hungarian firms. 
Another type of private (international) ‘mass’ developments has been emerged 
recently. Tourism, which has been a major factor of economic growth, also 
highlighted the lack of infrastructure for the more sophisticated traveller, especially 
with regard to high-standard hotel and conference centre facilities in the capital. 
Since the year of 2000, a large number of new hotel construction projects have 
been launched. Some of these projects imply the reconstruction of magnificent 
buildings in the city centre such as the Gresham or New York Palaces, which had 
been left abandoned for decades (Keresztély, K.–Ramond, I. 2001). 
The role of private investment has increased whereas public sector participation 
has diminished. The share of state investment is stagnating at around 10%, 
although, since 1997, and especially during 1998, a slight increase was noted. This 
means that the state continued to invest in the capital, albeit at a much lower level. 
 
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Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
4.2  New methods of public intervention in the urban development  
The highly dominant position of commercial and mostly international investment 
in restructuring the capital’s urban landscape does not apply to the case of Buda-
pest only. The same tendency can be observed more or less in all post-socialist 
cities, but in particular in the ‘leading’ capitals such as Prague or Warsaw, where 
rapid economic and political transition from the state socialist system took place 
after 1990 (Sykora, L. 1998). This phenomenon presents similarities with processes 
of urban regeneration in large cities of Western Europe and North America during 
the 1980s as a result of political and economic transformations (i.e., globalisation). 
We have elsewhere mentioned, in a more general context, that globalisation re-
stricted but did not suppress the position of nation states and of the public sector in 
general in the course of economic development. The same can be said for public 
policies in urban development: the strong position of private and international 
capital in urban investment does not imply the disappearance of all publicly initi-
ated urban development projects. However, the methods of public intervention 
underwent major changes in adapting to the new economic challenges.  
One of these challenges is ‘urban competition’. What will be the position of a 
city in the national, international and global urban hierarchy? Does it have any 
particular functions (such as London as a global economic hub, Brussels as the new 
political centre of Europe or Paris as a traditional cultural centre of the 
Continent…) to be developed in order to maintain its attraction with regard to other 
cities? Or, if not, what potential advantage does it have that can be developed in 
order to obtain a particular ‘niche’ position?  Attracting enterprises, investments 
and tourists in order to improve the competitiveness of the city has to be the 
foremost objective of urban politics. 
The other challenge for policy makers is the weakened economic position of the 
public sector. The withdrawal of the state from traditional urban planning, 
subsidies and general forms of urban management was a particularly rapid process 
in Budapest. But, in a doubtless less abrupt manner, this occurred in Western 
Europe as well during the 1980s. The decline of the welfare system, the decreasing 
economic and fiscal prerogatives of nation states forced municipalities to use local 
resources and to build up partnerships (Kozma, G. 1995). 
New practices in public policy making have evolved from entrepreneurial 
methods and have been transposed to the context of urban development. ‘City mar-
keting’ thus aims at ‘selling’ a city in order to improve its competitiveness on the 
‘market’ of cities (Kozma, G. 1995). The even broader term ‘entrepreneurial city’ 
is applied to every manner of entrepreneurship, such as innovation, capital 
accumulation, opening of new markets, etc. (Jessop, J.–Sum, Ngai-Ling 2000). In 
all cases, public authorities adapt their urban policies to the methods of the private 
actors and entrepreneurs in the field of urban development. 
 
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Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
According to Jessop and Ngai-Ling, there are five fields where entrepreneurial 
innovation of urban policies can occur: 
•  the introduction of new types of urban place (technopoles, intelligent cities, 
cross-border cities, multicultural cities, etc.); 
•  new methods of space or place production to create location-specific advan-
tages for producing goods/services or other urban activities (the installation 
of new physical, social, and cybernetic infrastructures, etc.); 
•  the opening of new markets – whether by place marketing or by modifying 
the spatial division of consumption through enhancing the quality of life for 
residents, commuters, or visitors (e.g., culture, entertainment, spectacles, new 
cityscapes, gay quarters, gentrification); 
•  finding new sources of supply to enhance competitive advantages (finding 
new sources of funding from the central state, EU, inward investment, pat-
terns of immigration, etc.); 
•  reconfiguring or redefining the urban hierarchy and altering the place of a 
given city within it. 
In the definitions used for ‘entrepreneurial city’ or ‘city-marketing’, ‘city’ 
means the local government in co-operation with other actors. The authors 
underline that ‘although behind the entrepreneurial cities the collective coherence 
of a wide range of actors is necessary (branches of central and supranational 
governments, non governmental associations and organisations, private-public 
partnerships, etc.), entrepreneurial strategies are heavily dependent on “mayoral 
leadership”’. He adds also that ‘the capacity to pursue entrepreneurial strategies 
and the sort of strategies that are likely to be pursued will clearly depend on state 
institutional and/or territorial structures as well as on broader economic, political, 
and socio-cultural factors’ (Jessop, J.–Sum, Ngai-Ling, 2000).  In this definition, 
the central state appears as a possible partner of the city, or as an institutional 
(administrative) factor that is indispensable for the entrepreneurial strategies of a 
city to succeed.  
Our research indicates, however, that the central state cannot be regarded as a 
mere institutional framework for city management, especially in the case of capital 
cities in highly centralised countries (such as France, but also Hungary). These 
cities have held on to their primary positions in the national urban hierarchy and 
are at the core of national development despite (or even because of) their growing 
independence as a result of their position in international economy. Central 
governments therefore do have a special interest in developing the city. These 
interests may be different or similar to those of the local government. In any case, 
the state can and will intervene in urban development as an ‘independent’ investor 
to enforce political interests and to realise projects of political or public 
importance. But, to do that, central government – just as the city government – is 
also constrained by the challenges of ‘competition’ and it has to involve in 
 
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Discussion Papers, No. 39.
collective projects based on widespread partnerships to achieve the success of its 
objectives. 
The same can be stated for Budapest. During the 1990s, the central government 
gradually engaged in real entrepreneurship through some of the large investment 
projects in the capital. But what are the regional characteristics of this 
entrepreneurship? How are these felt in Budapest? Is the state ‘successful’ in 
implementing partnerships? What are the forms of co-operation between the state 
and other actors? The following chapter will seek answers to these questions 
through two case studies.  
4.3  The evolution of state’s participation in the urban 
development of Budapest through two case studies  
In the course of this research project, we focused on two large urban development 
projects in Budapest. The central state initiated and, in part, financed both. Both are 
rooted in ‘old’ projects that appeared again and again in urban development pro-
posals of Budapest. As during past periods of the capital’s history, both of them 
became the object of strong political debate during the 1990s. The case of the ‘In-
fopark’ project shows how state intervention strategies have been transformed from 
the beginning of the 1990s as a result of changing economic and political condi-
tions, and the hidden contradictions in this process. The ‘Millennium City Centre’ 
project is more recent, it is still ‘under construction’, but shows some possible fu-
ture paths for state intervention in large projects in the capital. Both undertakings 
can be regarded as investments reflecting the ‘national interests’ of the capital. 
Nevertheless, these projects create ‘new urban spaces’ that have – and will con-
tinue to have – an important effect of attraction on their neighbourhood and on the 
spatial development of the city as a whole. In that sense, they adapt several criteria 
of ‘innovation’ quoted above.  
 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
 
 
 
 
 
1.  From World Expo to Technopolis – The Lágymányos-Infopark 
 
International Exhibition and infrastructure investments 
 
The first Budapest Technopolis is situated in Southern Buda, in the ‘Lágymányos 
area’ on a site of 21 hectares. This area was one of the former ‘EXPO Project’ 
sites, abandoned in 1994 when the project was finally dropped. The sequence of 
events took place between 1987, when the government decided to go ahead with a 
World Expo in Budapest, and 1996, when the American AIG/Lincoln began to 
 
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Discussion Papers, No. 39.
erect the first office blocks on the site. It exemplifies the state’s changing position 
as regards the urban development of Budapest.  
The story begins in 1987, when the Hungarian and Austrian Prime Ministers 
signed an accord to organise a joint Vienna-Budapest International Exposition in 
1995. The slogan of this Expo was ‘Bridges to the Future’, which reflected the 
main objective, namely to establish the two, located on either side of the iron 
curtain, as ‘twin cities’, thereby paving the way towards the European integration 
of Hungary. In 1989 a continuous greenfield and industrial area on both sides of 
the Danube in the southern part of the city was allocated for Expo Grounds. The 
site stretched from the Lágymányos area on the Buda side to an abandoned part of 
Ferencváros (9th district) on the Pest side. To the south, it was bounded by Csepel 
Island. After the political transition, the idea of the exposition sparked into a fierce 
political debate. The ruling right-wing government (1990–1994) supported the 
project as an important opportunity for the expression of national identity in an 
international context. The political opposition considered it an expensive and 
potentially embarrassing investment for a country that was in critical economic 
situation. The City of Budapest (also held by the opposition) withdrew its support 
for lack of financial guarantees for the project. Vienna rejected hosting the Expo in 
a referendum in 1991. Yet, against all odds, the Hungarian government decided to 
push forward with the project, albeit it with an altered schedule, from 1995 to 
1996. As the lack of budget resources offered a sound reason for the opposition to 
vote against the project, the central government set a ceiling on state expenditure 
for the Expo and intended to obtain the remaining costs through private investment. 
The site situated in Ferencváros (the Pest side) was divided into plots that were to 
accommodate hotels and other commercial projects. (The infrastructure of these 
plots was to be financed by the exchequer.) However, by 1993 and 1994, out of the 
fifteen available plots, only three were sold (Eörsi, J. 2000). Finally, the left-wing 
government, elected in 1994, rejected the Expo project. 
The Expo was bogged down from the start by political contradictions that are 
typical for Budapest. The government and leading politicians adopted the idea as a 
prestigious national project that could project Hungary onto the world stage. They 
insisted on going ahead with the project, even in the face of serious setbacks. 
Paradoxically, for a long time after committing themselves to the project, they did 
not offer a concept for the future exploitation of the projected investments. This 
was strongly reminiscent of the way the government handled investment during the 
socialist period (interestingly, the idea of the Expo was born during the socialist 
era), when central decisions on such development projects did not really need to be 
sustained by any economic or social rationale. Under increased pressure from the 
opposition, however, the government decided to adopt an idea that first emerged 
during the 1920s, that is to convert the Expo buildings of the Lágymányos site into 
 
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Discussion Papers, No. 39.
a new university campus, following the event. The detailed development plans 
were prepared in 1992 (Vargha, M. 1998). 
In 1990, the project entitled ‘Additional Infrastructure Investments’ of the Expo 
was prepared by the central government. It contained plans for the construction of 
the remaining part of the Vienna-Budapest Motorway, the circular M0 motorway 
around Budapest, the reconstruction of the Hungaria Boulevard and the 
construction of the Lágymányos Bridge (Népszabadság, 24/10/1990) (see Figure 
6). In 1992, the central government also agreed to vouch for a credit to be drawn by 
the City for the construction of a new metro line (the Fourth Metro). According to 
this agreement, the first section of the metro was to be completed by 1996 (in time 
for the Expo). In 1994, the newly elected left-wing government (1994–1998) and 
the City signed a new agreement to abandon the Expo project. By way of 
compensation, the central government guaranteed to continue the financing of the 
additional infrastructure projects and to finish the constructions of the Expo (thus, 
the buildings of the university campus) which had already begun. 
Accordingly, the Lágymányos Bridge was inaugurated in 1995 and the 
Hungaria Boulevard in 2000. The metro line construction was scheduled to open in 
1998, when a right-wing government came to power (1998–2002), rejected the 
project outright and disowned any pledge its predecessor had made with regard to 
the metro line. 
 
 
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Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
 
 
 
 
The construction of the bridge and the boulevard testify to a recurrent lack of 
strategic thinking in urban development projects. According to the initial master 
plan, the bridge was intended to form part of the Hungaria Boulevard, which, 
initially planned as a circular motorway in the 1970s, runs largely within the city 
limits of Budapest. During the 1990s, the ‘question of the bridge’ blew into a 
conflict between practically all the interest groups concerned. First, in 1987, 
 
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Discussion Papers, No. 39.
circular motorway and bridge projects provoked massive protests by local 
inhabitants. This was first movement of its kind in the history of socialist Budapest. 
Second, at the end of the 1980s, the plan for the Hungaria motorway had to be 
dropped by the central government because the World Bank refused to support its 
construction within the city, and queried the project of the bridge as well. The City 
of Budapest voted the construction of a bridge on the southernmost edge of the 
city. Finally, as the Lágymányos was part of the central government’s program in 
view of the World Exhibition, the City made a compromise, and accepted the 
construction of both bridges. Nevertheless, in subsequent agreements between the 
central government and the City, only the construction of the Lágymányos bridge 
was supposed to be financed by the central budget (Miklóssy, E. 1995). When 
construction began, the old plans were used, and the bridge was built to the 
specifications of a motorway. Since the Hungaria motorway project was 
abandoned, this plan was not appropriate for the area surrounding the bridge. This 
is especially visible on the Buda side, where the motorway-like bridge suddenly 
turns in a secondary street. 
In terms of public transport, further paradoxes emerged. On the Pest side, the 
reconstruction of the Hungaria Boulevard was completed in 2000. Yet, rather than 
to the motorway plan, it responded to an alternative ‘green boulevard’ project. 
Here, Number 1 tramway line passes down the centre of the road. The bridge links 
onto the boulevard, whereas the last stop of the tramway is at the abutment on the 
Pest side. Although there would be room for the tramway path on the bridge as 
well, the extension of the line is envisaged neither by the City nor the state  (Grof, 
I. 2001). Consequently, the rapidly expanding Infopark Complex on the Buda side 
of the bridge suffers from this inadequate solution, since it is practically impossible 
to get there directly from the city centre via public transport. With some basic co-
ordination, the functional integration of this newly constructed area into the urban 
landscape of Budapest could have been resolved optimally. 
The rise of Infopark 
Construction continued on the Lágymányos site even when the Expo project has 
been abandoned. In 1996, the Church of the Vatican was the first building to be 
inaugurated; three university buildings followed, one for the University of Eötvös 
Loránd, one for the Technical University, and a combined IT (Information 
Technology) building for the two universities. A sport centre was also constructed, 
which, sadly, is currently out of use. Many other buildings that were planned for 
the Expo were never realised (for instance, a theatre for the universities)  
 
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Discussion Papers, No. 39.
Apart from these buildings which occupy mainly the northern part of the site (at 
Petőfi Bridge), the creation of a large university campus with several additional 
buildings was abandoned. A 14-hectares site next to the university buildings has 
remained empty. In May 1996, the government decided to build an Information and 
Technology Innovation Park (InfoPark) in this area. This program followed the 
example set by other scientific parks such as Stanford Research Park, Sillicon 
Valley, etc. A Phare programme launched in 1995, which aimed at sustaining 
innovation in small and medium sized enterprises, supported the scheme. 
The InfoPark concept corresponds to the main criteria of innovative 
interventions listed by Jessop et al. (see above). The objectives were: 
•  to create an area that acts as an ‘incubator’ for enterprise and can profit from 
the presence of the universities;  
•  to stimulate innovation, research and development activities by encouraging a 
strong relationship between commercial enterprise and the universities;  
•  to train highly qualified experts as a result of the scientific co-operation 
between the high-tech companies and the universities;  
•  to help create an ‘information society’ by supporting long-distance education 
and teleworking; 
•  to acquire additional financing from the private sector, non-governmental 
organisations and foreign capital; 
•  to reinforce the regional position of Budapest in Central-Eastern Europe. 
(Barta, Gy. 1999b). 
In order to implement the project the government established the InfoPark RT 
company with HUF 10 million equity. InfoPark Rt (Share Company) is owned by: 
•  - the Eötvös Loránd University and the Technical University – 25% 
•  - the National Committee for Technical development and Innovation – 25% 
(since 1999, this committee is integrated into the Ministry of Economics) 
•  - the Hungarian Investment Bank – 49% 
•  - the Ministry of Economics – 1 ‘golden’ share.  
It was clear that in the long term, the whole InfoPark would have to remain state 
property, yet it was not possible to realise the investments by way of the central 
budget. Thus, it was decided to build InfoPark on an entrepreneurial basis. That 
means that the state-owned company only rents the land of InfoPark for 99 years to 
the investors. The one symbolic ‘golden’ share of the government in the InfoPark 
Rt ensures that only an Information and Technology Innovation Park could be 
established on the site.  
The first investor, AIG/Lincoln signed the contract in 1998. The American 
company rented one plot at the southernmost part of the Lágymányos site to 
develop the first building called ‘Infopark Research Centre’. Before the 
construction was terminated, 75% of the 11,000 m2 of offices were rented to 
 
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Discussion Papers, No. 39.
companies such as IBM, Hewlett Packard, ICL, Panasonic. The only condition 
fixed by contract between InfoPark Rt and AIG/Lincoln was that the office space 
had to be rented to high-tech enterprises that intended to develop a strong 
relationship with the universities (Vincent, A. 2001). In 1999, MATAV, the 
Hungarian telecom company, expressed an interest to establish itself at InfoPark. A 
German investor, IVG/Deutsche Telecom, would subsequently manage the 
construction of the MATAV building. 
Soon, InfoPark Rt was seeking an investor to manage the construction of the 
entire park site. AIG/Lincoln proposed to manage the InfoPark development as a 
joint venture between separate companies created for the construction of each 
building. According to their strategy, the construction of one building would only 
begin when a sufficient number of tenants would have committed themselves. In 
the end, InfoPark Rt designated the German IVG/Deutsche Telecom as the general 
developer of the Scientific Park. The most important reason for this choice was that 
IVG/DT was a semi-public company; Deutsche Telecom was a partial owner of 
MATAV and IVG was only half-privatised in 1993. According to A. Vincent, 
development manager of AIG/Lincoln, the way of thinking of IVG/DT was closer 
to the principles and objectives of the public owned InfoPark Rt than that of the 
privately owned American company.  
In 1999, IVG/DT and InfoPark Rt. signed a contract to create a private company 
‘Infopark Development Company’ in order to manage the development of the 
InfoPark site. 99% of the company was owned by IVG while the Hungarian State 
kept one ‘golden’ share in order to keep its veto rights.  
At the time of this study, four buildings have been completed and three are in 
planning. The ‘Central Service Building’ was inaugurated in June 2001 and it 
promises to improve the services (shopping, post office, etc.) of the Park. Services 
have been one of chief shortcomings of InfoPark until now: the park is located far 
from the city-centre, and – especially from its southern part, next to Lágymányosi 
híd – it is impossible to reach a well serviced area during lunch break… 
 
 
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Discussion Papers, No. 39.
 
 
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Discussion Papers, No. 39.
It seems now that the InfoPark project is on its way to become the most impor-
tant technology centre in Budapest. Until now, this has been the only centre of its 
kind and scale in Central Europe. It is worth mentioning Budapest’s other technol-
ogy park, developed with private investment by the Hungarian software company 
Graphisoft in 1998. It is much smaller, and it is far away enough (on the Northern 
part of Budapest) not to compete directly with InfoPark. The question remains 
whether the continuous increase in the number of new offices in InfoPark is a sign 
of complete success of the ‘Scientific park’ project or not? 
The first criterion for success would be an active role for the universities in the 
project. But have they really established collaborative relationships with the com-
panies that came to reside in the area, as originally intended? Although the univer-
sity grounds are not included in the site managed by the InfoPark Development 
Company (the main owner of which is the German investor) the representatives of 
the universities are members of the management board of the Company. This also 
guarantees that the developments remain in line with the original, scientific pro-
gram of InfoPark and, as the director of InfoPark Rt said, ‘that the park does not 
give place, for example, to the construction of new shopping malls’, which remains 
the most frequent field of private real estate investment in Budapest (Grof, 2001). 
Certain initiatives have been taken by the companies in InfoPark to establish con-
tact with the universities. MATAV and Westel (Cellular Telephone Company) 
created the Pro Progression Foundation for the Technical University in order to 
create an International Technological Centre. IBM also made an agreement with 
the Technical University for the creation of an 'e-business academy', where the 
software company offered to finance the software and hardware requirements of 
the project. In addition, IBM and Compaq have set up a scholarship scheme for 
students. 
However, the main benefit of these initiatives for the companies is an easy ac-
cess to highly trained experts from the universities rather than creating other types 
of co-operation with them, for example, in basic or applied research. There is still a 
high risk that InfoPark could become a centre for high-tech offices instead of a 
scientific and technology park, as was originally intended. This risk is evidently 
related to the fact that any development of InfoPark now depends on private inter-
ests (Barta, Gy. 1999b).  
The other criterion for declaring InfoPark a success is its full integration into the 
urban fabric of the capital. As discussed above, the lack of co-ordination of infra-
structural projects in the former Expo area resulted in InfoPark being almost en-
tirely cut off from the other parts of the city. This is especially true for the Southern 
part of the site, situated next to the Lágymányos Bridge. As main tramway and bus 
connections with the city centre stop at the northern part of Infopark (at Petőfi 
Bridge), the only possibility to get to the Southern buildings is by car or on foot. 
The companies of the first building (Infopark Research Centre) therefore organised 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
a minibus service to link the building with more central parts of Buda. According 
to Grof, the chances of improving this situation in the near future are minimal. The 
City has just recently finished the reconstruction of the Hungaria Boulervard, 
equipped with a tramway, and is not planning to continue this line beyond the 
Lágymányos Bridge. InfoPark has practically no relations with the Budapest Mu-
nicipality, which in turn has no plans for the integration of this area. This lack of 
co-operation may also reflect the permanent opposition between the government 
and the City. 
Despite of these shortcomings, we have concluded that the InfoPark project is 
the first example in Budapest of a completely new type of state intervention where 
entrepreneurial methods have been followed. 
2 
Millennium City Centre – a complex entertainment “theme” 
park 
Our second case study, the so-called ‘Millennium City Centre’ is also rooted in the 
former project of the international exposition. It concerns an area in Ferencváros 
that has been defined as one part of the Expo on the Pest side, opposite 
Lágymányos. The construction of a large-scale cultural and entertainment centre 
began on this site in autumn 2000, following an agreement between TriGranit, one 
of the most important real estate development companies in Budapest, and the 
central government.  
TriGranit is a joint venture between the Canadian enterprise, TrizechHahn Cor-
poration, which holds 50% of the shares, and a consortium of investors formed by 
AIG Europe (that also finances AIG/Lincoln), EBRD and Polus Investment. This 
latter is owned by Sándor Demján, a Hungarian-Canadian businessman who has 
interests in several companies in Hungary. TriGranit appeared in Budapest with 
large-scale retail developments. They began with smaller-scale investments in the 
10th district, and they went gradually towards more important realisations (Kézdy, 
2001). In 1999, TriGranit inaugurated the largest shopping mall and entertainment 
complex in Budapest, the ‘West-End City Centre’.  
Since 1998, TriGranit tendered twice to buy and develop the territory of the 
former Expo in Ferencváros. (Since the abandonning of the Expo, the 12 of the 15 
plots defined in 1992 remained under state ownership.) The tender was rejected 
both times, first, because of the ‘lack of competition’ (TriGranit was the only ap-
plicant), and the second time because the government decided to build the new 
national theatre on one of the plots. In October 1999, the Canadian investor signed 
an agreement with the Hungarian prime minister. As a result, 11 of the 12 plots, 
altogether 45 000 msq, were sold to the latter at a relatively advantageous price of 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
HUF 2,4 Billion  (the year before the site was offered for HUF 2,52 Billion). In 
counterpart, the company undertook the construction of the National Theatre for a 
limited price of HUF 6,7 Billion price. (HVG, April 2000.) 
This agreement (hopefully) put an end to a long-lasting debate in Budapest 
about the fate of the new National Theatre. This debate has been a recurrent one 
during the history of Budapest, and the proposals repeatedly failed because of po-
litical or financial problems. One of the most debated issues was the location for 
the theatre. Following the political transition, the question arose again, and, during 
the mid 1990s, the left-wing government began the construction of the new Na-
tional Theatre and entertainment complex in the city centre. In 1998, as occurred 
with several state projects at the time, the new government rejected the project, 
abandoned construction and began looking for a new location.  
Spectacular political debates followed, particularly since the abandonment of 
the construction left a visible scar in the middle of the city (called often as ‘the 
national hole’ which itself symbolises the relationship between the central govern-
ment and the City). Finally, the decision to build the theatre on the former Expo-
site also avoided further debate, as these plots were owned entirely by the central 
state. Furthermore, this solution integrated rather well with the projects of Tri-
Granit.  
An agreement with the company-investor became a guarantee of the project. 
The site in Ferencváros is a large empty area. Though the former state owned com-
pany created for the realisation of the international Expo improved the site in 1992 
by installing public utilities, the infrastructure remains to be developed: with the 
exception of one shopping centre and a petrol station, nothing has been constructed 
here. The area will require a large-scale development involving the complete re-
structuring of the surrounding lots, an investment that was not feasible by means of 
public capital.  
The construction, of the National Theatre financed by TriGranit, began in the 
autumn of 2000, on the 12th plot of the site, which incidentally remained under 
state ownership. A state-owned company manages both the construction and the 
operation of the theatre.  
The development of the 11 plots bought by the investor is still in the project 
phase. TriGranit envisaged a development that would consist of (apart from the 
theatre): 
•  a convention centre, with hotel, casino, thermal spa, multiplex cinemas and 
music theatre 
•  a Museum of Modern Art 
•  a 16,000 msq exhibition hall 
•  4 to 6 hotels 
•  61,000 msq office space 
•  high rise residential buildings for condominiums 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
•  retail units 
If this project is realised, it would give rise to multifunctional cultural and tour-
ist centre in Budapest that would strongly improve the position of the surrounding 
9th district and its brown-field area. But also, it may become a strong pole of at-
traction for the whole city. The project includes several investments that are still 
lacking in the capital, especially the conference centre and the exhibition halls. The 
development may therefore improve the future position of Budapest in the wider 
regional and European context.  
Although the Millennium project has generated strong political debates, it can 
be considered as a highly innovative investment in the long run. The concept re-
flects some methods of urban development policies that are used in West European 
cities. As can be seen in the case of recent development-projects in South London 
(Tate Modern) or in Paris (National Library or the Stade de France), the Millen-
nium project in Budapest unites the development of cultural and tourism functions 
with the need to revitalise run-down brown-field neighbourhoods. The project is 
based on the concept of private-public partnership, implying co-operation between 
the government and the private investor.  
The Millennium Centre Project is, however, not without the contradictions re-
sulting from the lack of co-operation between authorities. The main problem of the 
Ferencváros site is that the whole area is cut in half by the tracks of the suburban 
railway towards the Southern part of Pest (HÉV). The presence of this line is the 
main cause of the very low demand for these plots since the Expo project. As part 
of the exhibition infrastructure investment program, this stretch of track was to be 
brought underground, but this plan was abandoned along with the Expo. In fact, 
both TriGranit and the government refuse to offer a solution to this problem. The 
City – the owner of the Transport Company – remains passive concerning the 
whole development, since the tracks are not under municipal ownership. In the 
spectacular model of the project exhibited at the headquarters of TriGranit Rt, the 
train line is simply, not represented. The question of the train line has clearly been 
sidelined, quite possibly because of the forthcoming elections. Yet, the issue is 
likely to raise further political whirlwinds. 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
 
 
 
 
Conclusion: new strategies and methods of the central government 
What conclusions can be drawn from these two case studies? 
Both projects respond to almost all the conditions of innovative ‘entrepreneurial 
urban policy’: 
•  They create new urban spaces following the requirements of urban competi-
tiveness: a scientific-technology park and a cultural and entertainment park; 
•  They are multi-functional, and incorporate several types of urban activity (re-
search, production at InfoPark, tourism, culture, entertainment, residential 
and retail functions at the Millennium project); 
•  Both open new markets for the city: high-tech research-development at In-
foPark, and entertainment complex at the Millennium City Centre;  
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
•  Both have a role in neighbourhood urban regeneration (especially the Millen-
nium City Centre may play an important role in the development of the 
brown-field area of the southern part of Pest), and together they play a role in 
the ‘extension’ of the city centre to the southern parts of the capital.  
•  Both improve the position of Budapest in the international hierarchy of cities 
by creating modern and international urban centres in the region.  
They are realised as partnerships between the central government and 
international real estate companies. This co-operation may offer a mutual guarantee 
for the competitiveness and long-term success of the projects.  
However this optimistic picture hides several weaknesses that could endanger 
the success of these investments. 
According to the agreements with the investors, the role of the state is limited to 
the ownership of the land. The central government sells or rents the land to the 
investors, and agrees to the strategic concept of the investment, but the investor 
will subsequently acquire a dominant position in the project. The advantage of this 
is that it guarantees a long life-cycle for the project, which will not be subordinated 
to the changes in the composition of the central government. The disadvantage is 
the risk of loosing sight of the initial aims of the projects (i.e., InfoPark may 
become a high-rise office complex rather than a real scientific park).3  
State initiative was rooted in political reasons or previous alliances. In the case 
of InfoPark, the construction of the universities, which was already under way and 
the agreement with the City regarding additional investments ‘attracted’ the 
establishment of a scientific park. In the case of the Millennium City Centre, the 
state's initiative was based on the political need to create a prestigious investment 
(the National Theatre) on a plot that is entirely owned by the state in order to avoid 
further political confrontation concerning this question. All other investment 
objectives (i.e., the creation of a high-tech scientific park, of a new centre in the 
city, etc.) were worked out in the wake of these initial decisions.  
These two weaknesses were partially based on subjective observations and may 
require further refinement or further case studies including international 
comparisons. Nevertheless, the third and most important weakness of the two 
development projects is evident from this study: the appalling lack of co-operation 
between the state and the local authorities. In these projects, the central government 
(whatever political majority is in power) proceeded as an individual investor and 
often without harmonising its program with the local authorities. This is especially 
visible in the lack of strategic co-ordination with the public transportation system 
of the city. (At Infopark, the lack of facilities on the southern part of the site, at 
                                                      
3  Although, by the end of 2001, at ’Millennium City Centre’ the central government plans 
to take in charge the construction of the Conference Centre as well, besides the building 
of the National Theatre. (Népszabadság, 31 December 2001.) 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
Millennium City Centre, the unresolved problem of the train line that cuts through 
the site…). This 'outsider' position of the central state reflects its withdrawal from 
the urban management and strategic planning of Budapest.  
5 General 
Conclusions 
This study analysed urban policies in Budapest during the 1990s from the point of 
view of the central government’s role in urban development. It set out three objec-
tives: 
1) to outline the general processes of state withdrawal from the urban manage-
ment of Budapest after the political transition; 
2) to analyse new forms and methods of state presence in urban development 
through two case studies; and 
3) to place the whole process in a broader, international context. 
After the political transition, the withdrawal of the central state from Budapest 
affected almost every field of urban management from local administration to 
fiscal policies, management of local infrastructures, housing policies, urban 
planning, etc. In all these fields, local governments obtained almost exclusive 
control of these functions due to the decentralisation process resulting from the 
political transition. Decentralisation especially reinforced the position of the City 
of Budapest, which became a powerful political and economic player in national 
politics. This unique position is underlined by the marked economic development 
of the capital compared to other parts of the country and to the integration of Bu-
dapest in the international hierarchy of cities. Nevertheless, this unique position of 
the City hides some weaknesses. The fragmented administrative system of the 
capital and the autonomous position of the districts as well as the lack of 
institutional relationship with the outlying communities hinder the co-ordination of 
the metropolitan area’s development. Despite decentralisation, central government 
kept some of its controlling functions through fiscal policies, state subsidies and 
the implementation of national regional policies. The strong position of the capital 
has resulted in increased political tensions between the City and the central 
government.  
During the 1990s, central government has withdrawn from practically all fields 
of urban development (housing, infrastructure, etc.), by transferring these to local 
governments. However, it remained one of the chief investors in Budapest by 
promoting prestigious urban projects. Thus the role of the state in the improvement 
of the capital’s position in an international context remained significant. In these 
prestigious projects, the central government gradually ventured into applying some 
new methods and forms of intervention. Investments followed the methods of 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
public-private partnerships, where the state no longer plays the dominant role as it 
did under socialism. The analysis of two case studies showed that as a result of 
decentralisation, the state occupies a completely ‘outsider’ position in Budapest, 
and does not fill a role of a co-ordinating authority. The lack of co-operation 
between the state, the district councils and the City may compromise the success of 
state-initiated urban development projects.     
The changing role of the state in the management and urban development of the 
capital city is only partially the result of political transition. Similar tendencies can 
be observed in most large cities. The weakening of states’ and the reinforcement of 
urban areas’ economic and political positions is a general phenomenon related to 
processes of globalisation. The case of Budapest fits into a wider international 
pattern, but it at once highlights the particularities of post-socialist transition. 
While the retreat of the state in Western countries was ‘based’ on pre-existing 
structures, in Budapest these global processes were coupled with the creation of a 
new political system. This is the reason for the ambiguous relations and often 
exaggerated political tensions between the central government and the City. 
 
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Keresztély, Krisztina : The Role of the State in the Urban Development of Budapest. 
Pécs : Centre for Regional Studies, 2002. 53. p. 
Discussion Papers, No. 39.
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Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest 
The Discussion Papers series of the Centre for Regional Studies of the Hungarian Academy 
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BANKŐNÉ LODNER, Dorottya (ed.) (1988): Environmental Control and Policy: 
Proceedings of the Hungarian–Polish Seminar in the Theoretical Problems of 
Environmental Control and Policy 
OROSZ, Éva (ed.) (1988): Spatial Organisation and Regional Development Papers of 
the 6th Polish–Hungarian geographical Seminar 
DURÓ, Annamária (ed.) (1993): Spatial Research and the Social–Political Changes: 
Papers of the 7th Polish–Hungarian Seminar 
DURÓ, Annamária (ed.) (1999): Spatial Research in Support of the European 
Integration. Proceedings of the 11th Polish–Hungarian Geographical 
Seminar (Mátraháza, Hungary 17–22 September, 1998) 
GÁL, Zoltán (ed.) (2001): Role of the Regions in the Enlarging European Union 
Discussion Papers 
No. 1 
OROSZ, Éva (1986): Critical Issues in the Development of Hungarian Public 
Health with Special Regard to Spatial Differences 
No. 2 
ENYEDI, György – ZENTAI, Viola (1986): Environmental Policy in Hun-
gary 
No. 3 
HAJDÚ, Zoltán (1987): Administrative Division and Administrative Geogra-
phy in Hungary 
No. 4 
SIKOS T., Tamás (1987): Investigations of Social Infrastructure in Rural 
Settlements of Borsod County 
No. 5 
HORVÁTH, Gyula (1987): Development of the Regional Management of 
the Economy in East-Central Europe 
No. 6 
PÁLNÉ KOVÁCS, Ilona (1988): Chance of Local Independence in Hungary 
No. 7 
FARAGÓ, László – HRUBI, László (1988): Development Possibilities of 
Backward Areas in Hungary 
No. 8 
SZÖRÉNYINÉ KUKORELLI, Irén (1990): Role of the Accessibility in De-
velopment and Functioning of Settlements 
No. 9 
ENYEDI, György (1990): New Basis for Regional and Urban Policies in 
East-Central Europe 
No. 10  RECHNITZER, János (1990): Regional Spread of Computer Technology in 
Hungary 
 
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Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest 
No. 11  SIKOS T., Tamás (1992): Types of Social Infrastructure in Hungary (to be 
not published) 
No. 12  HORVÁTH, Gyula – HRUBI, László (1992): Restructuring and Regional 
Policy in Hungary 
No. 13  ERDŐSI, Ferenc (1992): Transportation Effects on Spatial Structure of Hun-
gary 
No. 14  PÁLNÉ KOVÁCS, Ilona (1992): The Basic Political and Structural Prob-
lems 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  HORVÁTH, Gyula (1992): Culture and Urban Development (The Case of 
Pécs) 
No. 17  HAJDÚ, Zoltán (1993): Settlement Network Development Policy in 
Hungary in the Period of State Socialism (1949–1985) 
No. 18  KOVÁCS, Teréz (1993): Borderland Situation as It Is Seen by a Sociologist 
No. 19  HRUBI, L. – KRAFTNÉ SOMOGYI, Gabriella (eds.) (1994): Small and me-
dium-sized firms and the role of private industry in Hungary 
No. 20  BENKŐNÉ Lodner, Dorottya (1995): The Legal-Administrative Ques-
tions of Environmental Protection in the Republic of Hungary 
No. 21   ENYEDI, György (1998): Transformation in Central European Postso-
cialist Cities 
No. 22   HAJDÚ, Zoltán (1998): Changes in the Politico-Geographical Position of 
Hungary in the 20th  Century 
No. 23  HORVÁTH, Gyula (1998): Regional and Cohesion Policy in Hungary 
No. 24  BUDAY-SÁNTHA, Attila (1998): Sustainable Agricultural Development 
in the Region of the Lake Balaton 
No. 25  LADOS, Mihály (1998): Future Perspective for Local Government 
Finance in Hungary 
No. 26  NAGY, Erika (1999): Fall and Revival of City Centre Retailing: Planning 
an Urban Function in Leicester, Britain 
No. 27  BELUSZKY, Pál (1999): The Hungarian Urban Network at the End of 
the Second Millennium 
No. 28  RÁCZ, Lajos (1999): Climate History of Hungary Since the 16th Century: 
Past, Present and Future 
No. 29  RAVE, Simone (1999): Regional Development in Hungary and Its Prepa-
ration for the Structural Funds 
 
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Discussion Papers 2002. No. 39. 
The Role of the State in the Urban Development of Budapest 
No. 30  BARTA, Györgyi (1999): Industrial Restructuring in the Budapest 
Agglomeration 
No. 31  BARANYI, Béla–BALCSÓK, István–DANCS, László–MEZŐ, Barna 
(1999): Borderland Situation and Peripherality in the North-Eastern  Part 
of the Great Hungarian Plain 
No. 32  RECHNITZER, János (2000): The Features of the Transition of Hun-
gary’s Regional System 
No. 33  MURÁNYI,  István–PÉTER,  Judit–SZARVÁK Tibor–SZOBOSZLAI, 
Zsolt (2000): Civil Organisations and Regional Identity in the South 
Hungarian Great Plain 
No. 34  KOVÁCS, Teréz (2001): Rural Development in Hungary 
No. 35  PÁLNÉ, Kovács Ilona (2001): Regional Development and Governance in 
Hungary 
No. 36  NAGY, Imre (2001): Cross-Border Co-operation in the Border Region of 
the Southern Great Plain of Hungary 
No. 37  BELUSZKY, Pál (2002): The Spatial Differences of Modernisation in 
Hungary at the Beginning of the 20th Century 
No. 38  BARANYI, Béla (2002). Before Schengen – Ready for Schengen. 
Euroregional Organisations and New Interregional Formations at the 
Eastern Borders of Hungary 
 
 
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