Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
CENTRE FOR REGIONAL STUDIES
OF HUNGARIAN ACADEMY OF SCIENCES
DISCUSSION PAPERS
No. 62
Industrial Development, Public Policy
and Spatial Differentiation in Central
Europe: Continuities and Change
by
Gábor LUX
Series editor
Zoltán GÁL
Pécs
2008
Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
ISSN 0238–2008
ISBN 978 963 9052 95 6
© Gábor Lux
© Centre for Regional Studies of the Hungarian Academy of Sciences
Published 2008 by Centre for Regional Studies of the Hungarian Academy of Sciences.
Technical editor: Ilona Csapó.
Printed in Hungary by Sümegi Nyomdaipari, Kereskedelmi és Szolgáltató Ltd., Pécs.
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Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
CONTENTS
1 Introduction .................................................................................................................. 5
2 Industrial development in the interwar period .............................................................. 6
2.1 The spatial and political background of industrial development after World
War One ............................................................................................................... 6
2.2 Spatial consequences and regional development patterns .................................... 9
3 Industrial development under state socialism ............................................................. 13
3.1 Stalinism in space: ideology, development priorities and consequences ............ 13
3.2 Industry under consolidated state socialism ....................................................... 15
3.3 Spatial development trajectories: convergence, divergence, convergence ......... 19
4 Industrial development beyond transformation .......................................................... 26
4.1 Crisis and decline after the fall of socialism ....................................................... 26
4.2 Transition processes and the dual economy ....................................................... 29
4.3 Spatial development in a transforming world ..................................................... 34
5 Conclusion .................................................................................................................. 41
References ........................................................................................................................ 43
Annex ............................................................................................................................ 48
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Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
List of figures
Figure 1 The growth of industrial employment on the current territory of Poland,
1925–1938 ....................................................................................................... 11
Figure 2 The level of mechanisation (in horse power) and the number of
industrial sites in Hungary (1938) ................................................................... 12
Figure 3 The distribution of industrial production between the Czech and Slovak
Socialist Republics, 1937–1979 ...................................................................... 21
Figure 4 Industrial location patterns in Poland, 1945–1966 and 1966–1982 ................ 22
Figure 5 The distribution of automotive industry in Central Europe
(2003, number of employees).......................................................................... 32
Figure 6 The top 20 Central European regions ranked by per capita GDP
(2004, PPP, % of EU-27 average) ................................................................... 36
List of tables
Table 1
Indices of industrial production in Central European states 1913–1939 ........... 8
Table 2
The branch structure of industry in Central Europe 1913–1938 ....................... 8
Table 3
Industrialisation and urbanisation in Czechoslovakia, 1921 ........................... 10
Table 4
The share of COMECON markets in the trade of socialist states,
1950–1979 ....................................................................................................... 17
Table 5
Regional development instruments at the end of the 1960s ............................ 18
Table 6
De-industrialisation in Central Europe, 1990–1991 to 2003–2004 ................. 29
Table 7
The uneven distribution of industry in Slovakia (2000, %) ............................ 38
Annex
I./a
Industrial employment as a share of the total (1970–1971, %) ....................... 48
I./b
The level of industrial investments per employee (1970–1971, USD) ........... 49
II./a
Industrial employment as a share of the total (1990–1991, %) ....................... 50
II./b
Industrial investment as a share of the total (1990–1991, %) ......................... 51
III./a-1
Industrial employment as a share of the total (2003–2004, %) ....................... 52
III./a-2
Industrial employment as a share of the total, adjusted range
(2003–2004, %) ............................................................................................... 53
III./b
The level of industrial investments per employee (2003–2004, USD) ........... 54
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
1 Introduction
“It is the main proposition of this paper that ... in-
dustrialisation processes, when at length launched in a
backwards country, showed considerable differences,
... not only with regard to the speed of development
(i.e., the rate of industrial growth), but also with re-
spect to the productive and organisational structures of
industry which emerged from those processes. ... In
addition, the intellectual climate, within which indus-
trialisation proceeded, its “spirit” or “ideology”, dif-
fered considerably as among advanced and backward
countries” – Alexander Gerschenkron
(Gerschenkron 1952, p. 5)
In Central European states, the questions of industrialisation have been asked
numerous times in relation to the European core. Before WW II, industrial under-
development could be linked to the peripheral situation of Central European
economies, and meaningful parallels could be drawn with the states of Southern
Europe, who had faced the same problems. With state socialism and its focus on
catch-up through industrial location, the issue became muddled. To what extent
was the path taken by Central European states to industrialise comparable to other
economies on the European periphery, and to what extent was it a specific out-
come of socialist ideology? Furthermore, is it possible to speak about national
models, or are these variations less significant?
The role of industry had to be re-evaluated during transformation. Decline in
employment, economic share and exports was universal, but it is also visible that
some industrial activities have been able to survive and become a new source of
growth. In Central Europe’s integration into European and global networks, For-
eign Direct Investment (FDI) has reshaped space; however, it is apparent that the
dichotomy between old and new industries is a questionable one: even new
greenfield investments are closely linked to previous production millieus, while
old industries have often shown ability to be revitalised. Therefore, the spatial
structure of industry of Central Europe today is a patchwork of continuity and
change, where convergence towards the core is just as possible as the recreation
of traditional peripheral relationships.
In this paper, my aim is to trace the development of Central European industry
from three aspects: public policy (what was the role of the state in influencing
industrial growth?), economic development (what role did industry play in na-
tional economies, and how did national models compare to each other and west-
ern examples?) and spatial development (how did industrialisation and de-
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Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
industrialisation processes play out in heterogenous space?). Three major time
periods are considered: the interwar years, state socialism and the present; and the
question examined whether they represent breaks in development or continuities
and organic transitions. In this paper, “Central Europe” refers to European post-
socialist states excluding the successor states of the Soviet Union and the territory
of the German Democratic Republic. Although these spaces present very
intriguing questions, their development also poses problems which put them
outside the scope of my study. In some instances, however, they are mentioned in
the context of general problems under state socialism.
The paper is based on the results of a wider research, which used multiple re-
search methods. I used modern and contemporary secondary sources, national and
regional statistics, as well as a number of planning document during the assembly
of material. I also consulted with policy experts involved in industrial and re-
gional planning during state socialism and the current period. Although the latter
two sources are rarely cited in the text, they were invaluable in clarifying and
correcting my findings, particularly where past events were concerned. Observa-
tions on some regions; Southern Transdanubia, Northern Hungary and Upper
Silesia (Poland), as well as generalised conclusions are partially based on per-
sonal experience gained during field research. While processing secondary
sources and statistics, I was confronted with the dilemmas of reliability and accu-
racy. The heterogeneous quality of these materials required a degree of source
criticism. However, even inaccurate or propagandistic/political sources were of
worth in contrasting ideology and reality.
The paper is accompanied by a number of tables and charts. Many of them
serve to illustrate, expand on and reinforce points made in the text, while the
maps in the annex represent an independent branch of research findings, whose
aim is to give readers a “bigger picture” of spatial differentiation in Central Euro-
pean industry.
2 Industrial development in the interwar period
2.1 The spatial and political background of industrial development after
World War One
Discussions of regional development processes in Central European states com-
monly reference the socialist system as their starting point. These writings cor-
rectly identify the features of the planned economy as having had a strong impact
on Central European space, but often pay inadequate attention to equally inter-
esting prior events. Industry is a particularly inviting area in this respect: the mas-
sive drive to transform backwards states into industrially advanced ones was the
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Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
main cornerstone of socialist ideology, and the effects of this drive on the econ-
omy, society and landscape of the region cannot be understated. However, a more
sobering note from Gerschenkron 1952 (cited on p. 5) warns us that the
particulars of Central Europe’s industrialisation have deeper roots, and that
perhaps socialism was a much less clean break with previous patterns than a
cursory glance suggests. In the following chapter, I do not intend to address the
full implications of the problems resulting from the agrarian-industrial divide, the
nationally encouraged industrialisation of the mid to late 19th century or the
consequences of industry’s inability to absorb surplus agrarian labour; rather, the
focus is on how economic necessities in the interwar years “primed” economic
policy for gradually introducing central planning, and how this played out in
heterogeneous space.
The spatial arrangements and political climate produced by the peace treaties
following World War One presented new challenges for industry. The fragmenta-
tion of large pre-war markets and suppliers now divided by strong borders and
higher tariffs, as well as the political paranoia of small states, resulted in the
break-up of supplier chains and vertical integrations. We can also see the drive
towards “national self reliance”, which ultimately became total during WW2 and
under Stalinism: the triumph of political and military (vis-à-vis economic) ration-
ality leading to sub-optimal decisions such as being forced to use uneconomic
mineral resources or encouraging the development of superfluous industrial ca-
pacities. Border changes lead to the reorientation of large industrial agglomera-
tions towards new centres of consumption. On the contrary, there was an ever
increasing need to find external markets for industrial products; small states
proved unable to fully absorb the output of scale-effective corporations interested
in growth. This contradiction remained a persistent, insoluble dilemma of inter-
war development.
Enyedi (1978) points out that in addition to the restrictive influence of new
borders, Central Europe was hard hit by the falling prices of agricultural products
on the world market, which lead to agriculture’s diminished role as a source of
capital accumulation. The remaining source of competitiveness was cheap labour,
hindering the development of more advanced and capital intensive industrial
branches (chemical and machine industry) in favour of labour intensive ones (e.g.
textiles). The response to economic hardship was stronger government interven-
tion. Berend–Ránki (1976) identify four motivating factors which resulted in the
increasing interest of central control in industrialisation:
− resources (currency stockpiles and agricultural surplus) were inadequate to
finance high industrial imports;
− the falling prices of agricultural products on the world market devalued
them as a source of generating capital;
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Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
− states had an increasing need to ensure their highest possible level of inde-
pendence from hostile neighbours;
− industrial development was seen as the best instrument to combat economic
backwardness.
As production indices from these years suggest, these measures were effective
in encouraging growth, particularly in countries with a low initial development
level (Table 1), but locked them in outdated structures which helped preserve
their backwardness (Table 2).
Table 1
Indices of industrial production in Central European states 1913–1939
Year
Bulgaria
Czecho-
Hungary
Poland
Romania
Yugoslavia
slovakia
1913
1001
100
100
100
100
100
1929
179
141
112
n/a
137
140
1932
195
733
84
n/a
122
116
1939
2452
1074
1285
95
180
190
Notes: 1 – 1915, 2 – 1937, 3 – 1933, 4 – 1937, 5 – 1938.
Source: Edited by the Author on the basis of data from Berend–Ránki, 1976.
Table 2
The branch structure of industry in Central Europe 1913–1938 (%)
Branch
Bulgaria
Hungary
Poland
Romania
Yugoslavia
1913 1938 1913 1938 1913 1938 1922
1938
1913
1938
Metallurgy and machinery
6
3
26
29
20
19
12
17
20
17
Chemical industry
4
2
8
9
4
8
22
21
3
8
Textiles, leather and clothing
24
22
11
21
44
16
20
26
9
26
Food industry
58
51
41
29
18
31
27
23
59
27
Other
8
22
14
12
14
26
19
13
9
22
Total
100 100 100 100 100 100
100
100
100
100
Source: Berend–Ránki, 1976, p. 463.
State programmes gathered momentum during the 1930s. It begs the question
how closely the gradual increases in central control and the concept of “controlled
economy” were related to the institution of central planning in post-war states.
Réti (1993) and Kıszegfalvi (Lux, 2006) argue that there was a greater degree of
continuity than usually assumed. Governments responded to the decline of 1929–
1931 and industry’s vulnerability on external markets by tightening their reins on
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
industrial production. The priorities of small states reflected their wish to reduce
this vulnerability and lessen the effects of Depression; at the same time, they were
vital for upcoming war preparations. Last but not least, the location of military
production in backwards areas coincided with regional development initiatives
(c.f. chapter 2.2). Réti draws attention to the lessening influence of private capital
in charting the directions of industry as a social consequence of state involve-
ment. Wartime economy, which he considers the logical conclusion to the proc-
ess, is independent of both the world market and the desires of the citizenry of the
state.
In addition to state control, we must draw attention to the role of foreign capi-
tal in industrial development. Capital import was instrumental before WW I, and
remained important afterwards, especially in underdeveloped economies where it
controlled 50–60% of total industrial production. The primary investors were
Great Britain, the USA, France and Germany; the Czech Republic was a smaller
regional player with strong interests in Yugoslavia. In the 1930s, German interests
increased in conjunction with the Schacht Plan, and were gradually able to exert
influence over the industrial policy of aligned countries.1
2.2 Spatial consequences and regional development patterns
The re-division of Central European space also repositioned its advanced and
peripheral regions. Due to the hard borders, globally insignificant industrial cen-
tres (such as Miskolc in Hungary) became vital in national economies, while oth-
ers (such as Košíce in Czechoslovakia) declined. The new states showed much
deeper gaps in development level than the pre-war empires, and territorial inte-
gration – hindered among other reasons by weak transport connections, cultural
differences and ethnical inhomogeneity – became a pressing concern for national
governments, for whom these factors were closely intertwined. As Gulyás (2005,
p. 23) remarks, “the political elite of a state either treats a region as a milking
cow, economically exploiting it, or, for some reason, strives for its development.
In Central Europe, this question is further complicated by the fact that the devel-
opment of a region is fundamentally influenced by its ethnical makeup. Practi-
cally, we can speak about the confluence of economic policy, regional policy and
the nationality question. … In the end, the balance of development in regions
1 In South-eastern Europe, which included Greece and Hungary, Germany consciously opposed
industrial development initiatives, preferring countries in this space to be agricultural producers
(Gulyás 2005). A concrete example of this influence is the case of the Danube steel processing
plant. The Hungarian government allocated 1 billion pengı for the project in 1938, but put the
project on hold due to German demands. The steel combine was eventually built during the first
Five Year Plan (Lux 2006).
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
whose population was not represented in the nationally dominant political elite,
was unambiguously negative, resulting in either stagnation or decline.” In short,
ethnicity was a location factor, leading to preferred or dispreferred status. Ethnical
preferences lead to especially strong contradictions where highly developed in-
dustrial regions with a strong minority presence were incorporated into less de-
veloped states (e.g. Upper Silesia, Southern Transylvania).
The patterns of industrial development varied from state to state. Czechoslova-
kia, whose western half was the most advanced constituent of the Austro–
Hungarian Monarchy, retained its lead in Central Europe, inheriting 50% of the
Monarchy’s coal and steel capacities, 72% of its textile industry and 84% of its
glassworking (Berend–Ránki, 1976). This advantage is even more impressive
when we consider that the Depression had the strongest effect here (c.f. Table 1),
and that this development level concealed significant regional inequalities show-
ing a west-east development gradient (Table 3). Czechoslovakia was overindus-
trialised for its market possibilities, leading to a sort of internal “cannibalism” – in
the 1920s, the dominant Czech elite successfully realised its interests to de-indus-
trialise Slovakia, resulting in the loss of 250 factories and approximately 30,000
jobs (Gulyás 2005; for more detailed figures, see Kazimour 1981). Similarly, the
effects of Depression were uneven, hitting harder in Slovakia and Sub-Carpathia.
Table 3
Industrialisation and urbanisation in Czechoslovakia, 1921
Region
Employment in industry and crafts
Urban population
(%)
(%)
Bohemia
40.55
22.30
Moravia
21.90
37.79
Silesia
15.90
Slovakia
17.43
11.10
Sub-Carpathia
10.41
11.10
Total
33,80
18.90
Source: Gulyás 2005, p. 69.
Similar differences were present in Poland. The independent Polish state in-
corporated regions from three empires whose trade relations were very weak be-
fore WW I.2 Lijewski (1985) argues that the essential difference fell between the
Monarchy and the Russian Empire, characterised by a lesser number of centres
2 Of the total trade flows generated by the three zones, only 7.4% crossed borders, while 84.5% was
consumed within the respective state and 8.1% was exported to the world market (Berend – Ránki
1976).
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Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
strongly separated from the underdeveloped countryside, and Germany, where
development was more even, and every significant urban centre was also a loca-
tion of modern industrial activity. In the interwar years, the inherited differences
lived on, although a weak deconcentration tendency is also visible as the northern
and eastern voivodeship showed rapid growth – although inadequate to genuinely
change the face of the country (Figure 1).
Figure 1
The growth of industrial employment on the current territory of Poland,
1925–1938 (%)
Note: Map B shows the location of the Central Industrial District within the current and interwar
borders of Poland.
Source: Edited by the Author on the basis of data from Misztal 1970.
The Polish government was among the first in Europe to adopt regional plan-
ning, resulting in the 1936–1940 Kwiatkowski plan to absorb surplus labour and
develop new industries (aeronautics, machine, chemical and arms industry). The
investments, which were equally divided between armament and general eco-
nomic improvement, affected 15% of the state’s territory and concentrated 25%
of national investments in 1937–1938 and 50% in 1939. The plan was not consid-
ered final, and Kwiatkowski himself advocated three more five-year plans after its
completion (Dziewoński 1989, Malikowski 1994).
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Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Hungary lost three of its large industrial regions (the Uplands to Czechoslova-
kia, Southern Transylvania and the Banat to Romania) in the post-war settlement,
which also levied severe war reparations and resulted in the distortion of the
country’s regional development. Budapest was the only strong industrial region
within the new borders, while others of secondary or tertiary importance
(Northern Hungary, Northern Transdanubia) had to be developed as a substitute.
Budapest was dominant: in 1938, 61.9% of all industrial workers and 41.9% of
production was located there (also see Figure 2). Outside Budapest, the
dominance of the “energy axis” in the northern part of the country – concentrating
heavy industry and dominant until 1990 – can be observed.
Figure 2
The level of mechanisation (in horse power) and the number of industrial
sites in Hungary (1938)
Source: Edited by the Author on the basis of data from Berend–Ránki, 1958.
Hungarian industry’s relative backwardness increased before WW II; the suc-
cess of select companies couldn’t counteract the maturing of previously innova-
tive activities; new branches were slow to emerge and remained small, especially
after Germany started to force the country into the role of an agricultural supplier.
The state started to play a stronger role as it was preparing for war, both through
its demand for industrial goods and through establishing new production facilities.
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
The latter was realised in smaller, scattered units primarily in what is now Central
Transdanubia. Tatai (in Rechnitzer – Tatai 1995) considers these to be the most
important progenitors of later industrial districts, especially in the case of Székes-
fehérvár.
Romania was in several respects similar to Poland, sharing its weak interior
cohesion and high development differences. Heavy and processing industry was
especially strong in Southern Transylvania (Hunedoara, Braşov) and the Banat
(ReşiŃa, Timişoara, Arad), while Old Romania was characterised by the domi-
nance of oil mining and petrochemical industry.3 This also meant a difference in
ownership – with a higher and lower share of domestic capital, respectively. Out-
side these spheres, industry was scattered, undercapitalised and overwhelmingly
traditional in character. Turnock (1970) shows that spatial development patterns
remained constant despite the presence of state intervention, and industry re-
mained concentrated in a “half-moon” situated between Bucharest and Timişoara.
The states of the Balkans (Yugoslavia, Bulgaria and Albania) were similar in
their underdevelopment. Industrial employment was low, and outside developed
islands and a few exceptional regions (e.g. the Slovenian Republic, with 8% of
Yugoslavia’s population but 38% of its textile and metal industries), it was re-
stricted to labour-intensive branches such as food industry and textiles. The min-
eral resources of the peninsula were attractive to foreign mining concessions, but
these developments were insular, the raw materials usually exported for lack of
domestic processing capacities. All in all, while growth was reasonably dynamic
– Bulgaria’s industrial output doubled between 1921 and 1929 – it was only so
because of an extremely low base (Kenessey 1964, Gulyás 2005).
3 Industrial development under state socialism
3.1 Stalinism in space: ideology, development priorities
and consequences
The ideology of Stalinism, whose influence became total in the second half of the
1940s, introduced a previously unknown homogeneity in economic policy just as
it did in all other spheres of society. The ideology of the Stalinist state denied the
possibility of local or national particulars in favour of a common goal, the devel-
opment of heavy industry. Industrialisation was seen as a solution to three major
needs: post-war reconstruction and rearmament, creating autonomous production
capacities in lieu of western imports, and finally, demonstrating the valid-
3 The Romanian mineral oil industry occupied the 5th–6th position in the world in this period (Réti
1993).
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
ity/superiority of the socialist ideology through the transformation of the land-
scape. This ideology, based on geographical nihilism and social determinism
(Hajdú 1999) proposed that all problems were common, and implied that space
and its possibilities were homogenous.
The recipe was adapted from the Soviet example to Central European circum-
stances. Markos (1951) sums up the spatial goals of Stalinism in three points:
− preference for heavy industry and industrial branches manufacturing means
of production over other types of industry and branches producing con-
sumption goods;
− division of work among companies based on the duality of profiling
(specialisation) and planned cooperation;
− the balanced distribution of industry in space and the industrialisation of
backwards areas.
In a later work (Markos, 1962), he further elaborates the practical concerns of
realising these goals in a real (differentiated) environment:
− industrial branches with a high need for raw resources or energy should be
located in their proximity at a point where transportation costs are minimal;
− developments should primarily be undertaken in backwards regions;
− long-distance cross-transportation should be reduced by local sourcing to
the greatest extent;
− the security of the state should enjoy a privilege; strategic industries should
be located in the heartlands.
In practice, the development of Stalinism played out in highly variable space,
and had to conform to political realities. Every other priority was subordinated to
security concerns and war preparations, while spatially balanced development
took a backseat. Decisions were made on the basis of political or military ration-
ality which was economically irrational. The need for heavy industry to be located
in the proximity of natural resources (labour was a mobile production factor in the
period) resulted in the prioritisation of existing industrial agglomerations, even if
a few new growth poles were created elsewhere. To cite two examples, 44.7% of
new jobs in Hungarian industry were created in Budapest between 1949 and 1953
(Kóródi–Márton, 1968), while in Poland, three voivodeships (Katowice, Kraków
and Łódz) received 54% of all industrial investments between 1951 and 1960
(Zawadski, 1965). Similar figures could be cited for all socialist states, especially
the less developed ones. Instead of eliminating pre-war differences, Stalinism
recreated and reinforced them, polarising preferred industrial regions and ne-
glected peripheries.
On the regional level, there was a marked increase in monofunctionality.
Mining areas and heavy industrial centres already saw one-sided development
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
before the war, but this situation was exacerbated by the decline of supplementary
industries and strictly enforced production profiles. The urbanisation of early
socialism was rapid, but it was accompanied by shortages of housing, communal
infrastructure, services and products, which had to be supplied by the employers
or workers. Hidden unemployment became a problem, especially among women
who were now increasingly entering the labour market. These troubles can be
traced back to the dysfunctions of development policy. Due to the inadequacy of
public funds, modernisation was often partial in industrial regions, moving on to
other areas after creating the barest necessities. Pockets of underdevelopment
became preserved under a superficially “developed” surface. The most extreme
cases of partial modernisation could be seen in some coal and steel regions, where
the dysfunctions of what was at that time recognised as “extensive development”
were never addressed, and which became the worst crisis areas in the post-social-
ist economy.
If the interwar decades were characterised by economic fragmentation, Stalin-
ism made this situation universal and extreme. The entirety of the socialist block
except Yugoslavia was isolated from the world economy, and despite the com-
mon ideological ground, states also functioned as self-sufficient autarchic entities
to the greatest possible extent. Flows between the Soviet Union and its satellites
(which included bilateral exchanges, war reparations and the transfer of know-
how) were an exception, but multilateral trade among the smaller socialist coun-
tries was at a nadir.4 The consequences of dual isolation on spatial development
were severe, leading to even more inefficient parallel industrialisation and the
exploitation of uneconomic natural resources.
How can we evaluate the effects of Stalinism on industrial development? To
an extent, it was not as distant from global trends as sometimes suggested. The
1950s were also a period of industrialisation in Western Europe and industry was
seen as a useful tool of modernising backwards peripheries such as the Italian
Mezzogiorno. The difference was that in Central Europe, industrialisation took
place in a highly irrational environment, where ideology (taming/remaking nature
as a heroic ideal) and military needs totally repressed economic rationality. The
results were often oversized, ignored real demands and were troubled by inherent
dysfunctions which incurred further costs in the following decades.
3.2 Industry under consolidated state socialism
From the second half of the 1950s, it became apparent that the previous policies
were unsustainable, leading to a wave of reforms across the socialist sphere. Re-
4 The COMECON, although formally created in 1949, lacked an effective charter until 1959, and its
operations were extremely restricted.
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
forms played out differently in different countries; we can see divergent national
paths, which ranged from controlled experiments in reintroducing some market
incentives as in Hungary, to staying close to the Stalinist model as in Romania.
None of the reforms could go beyond the hard limits of the socialist system, as
Czechoslovakia’s example demonstrated. If there were victories, they would be
small ones in the eyes of an outsider. We can speak not of radically transforming
socialist development policy, but correcting and supplementing it; more modern
and rational capacities were created, and older ones modernised, but all this co-
existed with previously built structures until transformation. Although the defin-
ing characteristic of reforms was divergent development, there were four common
elements:
− transferring some economic control from direct command to intermediate
organs,
− technological change (switch from “19th century” coal-and-steel industry
towards hydrocarbons, chemical industry, electronics, etc.),
− increasing cooperation and specialisation among socialist states, some de-
crease in their economic isolation
− the emergence of regional policy as a corrective instrument.
All of these played a role in territorial decentralisation. Lessening the control
of central planning gave some power the regional level. Bauer and Szamuely
(1979), in their comparison of socialist planning systems, conclude that industry
saw a period of decentralisation which was subsequently followed by increasing
central control, and that in the 1970s, the end result was the division of power
among central institutions, intermediate bodies and individual companies. They
propose that this arrangement, where substantial decisions were usually made on
the intermediate level, was the stabilised outcome of institutional reforms in
planned economies. Stabilisation also meant ossification; after the winding-down
of the reform period, most planning systems remained relatively stable until trans-
formation.
The switch to oil and gas as leading energy sources, but also less resource-
intensive production, decreased the needs for resource proximity and transporta-
tion; consequently, allowed more evenly distributed industrial location. This also
meant that industry could be more readily used as a tool of regional policy, lo-
cated on sources of labour instead of raw resources. Instead of a small number of
larger growth poles, socialist development policy was able to support multiple
lesser ones: small cities or large villages. But technological change didn’t re-
structure existing industrial regions. Instead, we can speak of “layered” industrial
structures, where older, outdated and energy-hungry activities coexisted with
later, more modern ones. As Greenspan (2007) points out, Schumpeterian crea-
tive destruction was missing from the mechanisms of the socialist economy.
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Building new industry was prioritised over modernising the existing one; and
when the latter received state money, it mostly went into structural preservation.
Economic cooperation and specialisation was a troublesome issue. On one
hand, specialised national production profiles were recognised to be potential
sources of increased efficiency. On the other hand, national interests in less de-
veloped states advocated complex autonomous industrial capacities and moderni-
sation through mutual technology transfers. The debate soon became one about
national sovereignty. In 1962, the Valev Plan, a Soviet initiative proposed the
deeper integration of socialist states along the Danube River, but Romania sternly
rejected its recommended agricultural and petrochemical role in the arrangement
and reduced COMECON participation after 1964 (for the initial concept, see
Valev, 1964; for further development, Turnock, 1986 and Gulyás, 2005). Produc-
tion profiles were eventually realised in a significantly weaker form than initially
imagined. Data collected from different sources suggests that even with all ef-
forts, the share of intra-COMECON trade in the total only increased by 1.8%
from 1960 to 1970, and “products for energy” agreements between the Soviet
Union and its satellites dominated exchange vis-à-vis deeper integration among
the smaller member states. We can instead point to the growing role of extra-
block trade after 1970, with western and third world countries (Table 4). The dual
isolation of socialist economies remained, but weaker than the freeze of the Sta-
linist years.
Table 4
The share of COMECON markets in the trade of socialist states, 1950–1979 (%)
State
1950
1960
1972
1979
Albania*
88.9
41.1
Bulgaria
80.7
80.2
75.7
Czechoslovakia
55.6
63.8
71.3
67.2
GDR
71.0
65.8
Hungary
68.1
52.0
Poland
58.4
56.6
62.3
54.7
Romania
89.2
65.8
53.7
35.4
Soviet Union
64.5
51.9
All members
61.8
60.8
62.6
n/a
* Albania withdrew from the COMECON in 1961, but increased its trade with China from 7 to 36%
(Böröczfy, 1975).
Source: Edited by the Author on the basis of data from Meisel 1974, Böröczfy 1975 and Peche
1982.
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Regional policy from the 1960s was specifically an instrument aiming to ad-
dress problems of inequal development (as opposed to general economic devel-
opment policy, which also had an effect on space). With a few exceptions, such as
Hungary, where agricultural cooperatives also played a significant role, its main
tool was industrial location. Labour-intensive industries were developed in small
towns and sometimes rural areas, both as a social measure and a response to de-
creasing labour mobility. In the process, going back to previously neglected local
knowledge and light industrial traditions was not uncommon. Among Central
European socialist states, Poland and Hungary used the broadest range of policy
instruments (Table 5). It is notable that many of these tools are testament to de-
creasing central control and movement towards less direct intervention. Of
course, regional policy remained subordinate to national planning directives, and
at its most successful, it was a corrective instrument generating growth outside
existing structures. In industrial regions, the effects were rather meagre. Although
“one-sided development” was discussed in contemporary works (e.g. Bartke 1971
and Kóródi–Kıszegfalvi, 1971), policy only succeeded in alleviating the problems
of the 1950s – gaps between urban needs and infrastructure, hidden unemploy-
ment among women and (very rarely) the reindustrialisation of smaller areas af-
fected by mine closures.
Table 5
Regional development instruments at the end of the 1960s
Instrument
Bulgaria Czecho-
GDR
Hungary Poland Yugosla-
Soviet
slovakia
via
Union
Preferential credit condi-
X
X
X
X
tions
One-time investment con-
X
X
X
tribution
Differentiated tax and wage
contributions, cost subsi-
X
X*
X
X
dies
Differentiated public works
X
X
X
X
costs and communal taxes
Differentiated land prices
X
X
X
X
and land use fees
Industrial parks, infrastruc-
X
X
tural development
Differentiated pricing and
X
X
X
tariff policies
*Encouraging industrial location close to labour by requiring companies to pay commuting costs
(Bartke 1971).
Source: Edited by the Author on the basis of Kóródi – Márton 1968 and Bartke 1971.
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3.3 Spatial development trajectories: convergence, divergence, convergence
As discussed in 3.1, the results of Stalinism were national homogenisation and
regional polarisation. Development policies converged to the point of being
nearly identical. Socialist states, separated by wide development gaps, became
more similar to each other. At the same time, the difference between preferred
and neglected regions was enormous. Those who were excluded from central
redistribution were truly marginalised, unable even to properly reconstruct and
maintain their interwar industries. Globally speaking, it was a multiplication of
the same pattern; common development at enormous costs. By the mid 1950s, the
unsustainability of this growth model was self-evident, requiring extensive re-
forms.
How did the reforms influence the spatial structure of industry? Looking at
Annexes I./a and I./b, we can see that the most industrialised regions were still
pre-war ones. As discussed by Enyedi (1978), the majority of industrial employ-
ment before WW II was concentrated into an upwards triangle bordered by lines
drawn between Łódz, Erfurt and Budapest. In 1970–1971, this formation was still
strongly visible, although some counties in Romania had joined them – although
at severe costs. It is notable that Yugoslavia and Hungary both show a low level
of industrial employment. The reasons are partly methodological: in both coun-
tries, a share of industry (some 10–15% in Hungary), was under the control of
municipalities or cooperatives. Additionally, in Hungary’s case, the concentration
of Budapest, accounting for 34% of employment and 23% of total investments, is
contrasted by a more “empty” countryside.5
Overall, the share of employment in industry and construction reached an av-
erage of 51% by 1970–1971. Among the examined states, the differences are not
excessive: the higher figures of Czechoslovakia (55%), Romania (53%) and Po-
land (52%) and the lowest of Yugoslavia (47%), Albania (46%) and Hungary
(46%) are relatively close; this points to convergence compared to the more po-
larised pre-war conditions. Outside central regions and Katowice voivodeship,
Czechoslovakia, Poland and Hungary show a relatively even spatial distribution
of employment, while southern and south-eastern states have higher differences.
Where the share of industrial employment reflects the contemporary situation
of industrial development in socialist states, per capita investments expressed in
US dollar values offer an insight into development priorities. Naturally, Annex
I./b can only give a snapshot, and may be distorted by high-priority projects; nev-
ertheless, these anomalies do not affect the big picture. Poland and Romania stand
out with high investment volumes, while Bulgaria shows a lower level. In Hun-
gary, the “energy axis” of industrialised counties is apparent, while in Romania,
5 Outside Budapest, Sofia city (16%), Southern and Northern Moravia (14 and 15%), Katowice
(20%) and Bucharest (16%) count as Central Europe’s super-concentrations.
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there is a strong divide between Transylvania and Old Romania. In Czechoslova-
kia, investments were divided between the Czech and Slovakian sides along
population lines; by this time, programmes aimed at Slovakia’s catch-up had al-
ready concluded.
Two decades under state socialism, even if development priorities and plan-
ning had changed over time, were not without consequences. Although industri-
alisation was unable to reshape the map of Central European industry like it in-
tended to, states had become closer, even when the divergence of policies in the
reform period is taken into account. The question arises if the results are specific
to the socialist model, or comparable to peripheral and agrarian regions of
Europe. Evidence suggests that while the Stalinist policies of the 1950s were a
detour from the path taken by market economies, reforms in the 1960s lessened
these differences.6 The political retrenchment of the late 1960s halted the conver-
gence process: over the next two decades, policy became fossilised and again
increasingly homogenous due to political pressures, while damaged adaptation
mechanisms lead to increasing differences between western and Central European
economies.
States experienced the convergence–divergence–convergence shift of indus-
trial development in different ways during socialism. Czechoslovakia, which suf-
fered relatively little during the war, had Central Europe’s most advanced indus-
try beside the GDR. Losses in the Czech parts were primarily in human capital
(war deaths and the deportation of Jews and Germans), while physical damage
was higher in the Slovakian federal republic. The early reconstruction plans pro-
posed modernisation in industrialised regions and building new industries on pe-
ripheries. However, in 1949 and 1950, these plans were scrapped in favour of a
few large projects, primarily enlarging existing industrial agglomerations (espe-
cially Ostrava–Karvina, where two giant steel combines were constructed). Slo-
vakian industrialisation focused on metallurgy in Košice and military industry in
more dispersed locations.
The regional differences between Czech and Slovakian areas only began to be
treated under the second Five Year Plan (1956–1960). Slovakia’s industrial pro-
duction in 1960 was still 10.6% below its population weight, while by 1970, the
gap fell to 7.6%, and by 1979, to 3.6% (c.f. Figure 3). This equalisation was both
politically expedient (reducing tensions between Slovakian and Czech elites)7,
6 My interviews with Hungarian experts active in planning during the socialist period revealed that
they were familiar with Western theories of economic development, and were consciously trying
to adapt them to the local economic circumstances and political realities – not always an easy
thing.
7 On the other hand, we have to remark that with respect to Slovakia’s excluded Hungarian
minority, development policy was discriminatory and consciously assimilationist. Economic
nationalism, an unmentioned side of socialism, affected all minority groups in Central Europe. In
Czechoslovakia’s case, districts with a Hungarian majority received 70–75% less investments per
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and economically rational by prioritising backwards regions with a labour surplus
instead of advanced ones suffering from increasing shortages. In subsequent five
year plans, the development of peripheries occurred through new heavy industrial
units. Slovakia’s specialisation in military industry remained a strong direction.
Figure 3
The distribution of industrial production between the Czech and Slovak Socialist
Republics, 1937–1979
100%
80%
60%
SSR
40%
CSR
20%
0%
1937
1948
1970
1976
1979
Source: Edited by the Author on the basis of data from Kazimour, 1981.
Poland’s industry had to be extensively rebuilt after the war due to new bor-
ders, destruction and steep human costs.8 The post-war years were a time of large
migrations, the reconstruction of ruined cities and industrial rebuilding. Plans had
to integrate new territories and compensate for lost eastern ones, and find a solu-
tion to the divide between industrialised south-western and backwards north-east-
ern voivodeships. In the Six Year Plan (1950–1955), this objective was mostly
rhetorical. Most new investments were realised in Upper Silesia and Poland’s
industrial cities (Warsaw, Łódz, Wrocław, Pozńan; to a lesser extent Bydgoszcz
and Gdańsk–Gdynia), mostly situated in developed regions. Even new towns –
Nowa Huta and Tychy – served to reinforce already developed areas.
We can see the contrast between earlier and later development priorities in
Figure 4. After 1957, Polish planning was decentralised, and in addition to central
capita than those with a Slovakian majority; industrial units in Southern Slovakia were preferably
located in towns with a majority Slovakian population (Gulyás 2005).
8 Jews in the textile industry of Łódz and Germans/Silesians in Upper Silesia carried a lot of the
know-how which became unavailable to socialist Poland.
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Figure 4
Industrial location patterns in Poland, 1945–1966 and 1966–1982
Note: 1 – Fixed capital over 100 million złoty; 2 – Fixed capital over 1 billion złoty (both in 1970
prices).
Source: Lijewski 1985, pp. 200–201.
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spatial planning, voivodeships received considerable autonomy in setting their
objectives. Like in Hungary, decentralised industrialisation’s aim was to absorb
labour surplus in small towns and agricultural areas. These investments were
relatively “cheap” to realise, but became very successful in combating hidden
unemployment. Larger investments also affected less developed regions: the re-
development of the former Central Industrial District took place in the second half
of 1950s, Płock’s petrochemical facilities were built up from 1959. Most new
industrial units were located in medium–sized towns with a population between
20,000 and 100,000. By the 1970s, decentralisation was running out of steam;
strategic plans aiming at restructuring and the development of new agglomera-
tions were shelved because of insufficient funds. The largest project of this later
period was the construction of the massive Huta Katowice in Dąbrowa Górnicza
from 1972.
In addition to war losses, Hungary was burdened by reparations and the un-
certain ownership of its industry. German property, which included assets seized
from Jewish owners, was owned and managed by the Red Army, while in strate-
gic branches, mixed Hungarian–Soviet ownership was established (“maszov-
companies”). Soviet or mixed use involved an estimated 90% of light industrial
plants and a significant share of heavy industry. These capacities were eventually
bought back by the state during the 1950s. The development goals of Stalinist
Hungary initially included the industrialisation of the agricultural Great Plains
through labour–intensive branches, but like elsewhere, these ideas were rejected
in favour of a few large projects. Kıszegfalvi (Lux, 2006) mentions four priori-
ties:
− a massive steel combine on the Danube and the construction of the new city
Sztálinváros (now Dunaújváros), where machine industry was also located;
− coal mining for industrial purposes, including the exploitation of low–yield
coalfields;
− military industry, including the militarization of several civilian factories;
− machine industry (mining and agricultural equipment).
These priorities worked against balanced spatial development; in fact, the main
architect of Hungary’s decentralised spatial development plan received a prison
sentence for his troubles (Germuska, 2004). The result of Stalinist development
was strong concentration; the capital received 44.7% of new jobs created between
1949 and 1953, while the Great Plains only 12.7% (Kóródi–Márton, 1968).
The late 1950s saw institutional reforms. Central control gradually decreased,
and in the 1960s, market incentives were introduced in limited degrees. Industry
was consolidated into larger corporations, leading to the formation of multi-
branch companies which became dominant in the second period of the socialist
economy. Multi-branch companies typically had headquarters in Budapest
(sometimes in large cities), and they collectively employed 400,000 workers in
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more than 600 settlements by 1978 (Barta, 2005). Agricultural cooperatives,
which were reformed in the 1960s, also became involved in labour-intensive in-
dustrial production, especially goods which were in short supply. “Frozen” ideas
of regional development were revived. Most small towns and numerous large
villages gained some sort of industry, often by the resurrection of old traditions.
This became essential when labour was becoming increasingly less mobile and
agricultural workers left their jobs to work in industry. Still, commuting, even
temporary migration was significant, often over very long distances.
The dark side of modernisation on the peripheries was its vulnerability.
Branches, as well as small–town companies, were severely undercapitalised and
used outdated technologies. They were very successful by the standards of the
period, essentially eliminating rural unemployment, but economically fragile:
most branch plants failed after 1990, while the rest were/are increasingly margin-
alised in global competition.
Romania’s industry wasn’t heavily damaged, but like Hungary, Soviet and
mixed ownership became the highest among socialist states. “Sovroms” were
especially significant in Romania’s oil mining (36% of output, refining and re-
serves), but otherwise ranged from lumber to uranium extraction. The Romanian
government only had a limited sovereignty in economic policy, and in fact, recon-
struction and the 1951–1955 Five Year Plan were executed in parallel by state
organs and Soviet military government. The former prioritised heavy industry,
while the second was more interested in fuels and raw resources. The end result,
as elsewhere, was the strengthening of traditional mining and industrial regions;
Southern Transylvania (Braşov, renamed Oraşul Stalin between 1950 and 1960
and Hunedoara’s metalworking industry were especially prominent), the Jiu val-
ley, ReşiŃa and Ploieşti. Between 1954 and 1956, the sovroms were gradually sold
back to the state; at the same time, development was refocused from fuel industry
to heavier emphasis on metallurgy (Markos, 1951; Turnock, 1970; Réti, 1993).
Instead of economic reforms, Romania embarked on nationalist Stalinism un-
der Nicolae Ceauşescu. Rigid central planning remained in effect, and the priori-
ties of development policy were still focused on extensive industrialisation. After
its partial withdrawal from the COMECON over the Valev-plan (Valev 1964,
Turnock, 1970, 1986), the country was becoming increasingly isolated, and con-
tinued the autarchic initiatives which were typical in the 1950s. In space, devel-
opment was focused on the lagging Old Romanian counties; individual invest-
ments were smaller and more dispersed than previously. The aim of this initiative
was a homogenous development level linked by national energy networks; how-
ever, the result was the recreation of atavistic, extremely inefficient structures
which were responsible for severe environmental degradation (Turnock, 1986;
Hunya, 1987).
In contrast with other socialist economies, Yugoslavia was fast to break with
traditional Stalinism. In 1949, the Five Year Plan was modified, and in 1951,
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long-term planning was effectively discontinued. Industry was reorganised on the
basis of company self-management. Serbia kept its political leadership among
member republics, but there was a strong attempt to economically develop others,
particularly poor ones. Between 1938 and 1963, the share of Bosnia–Herzego-
vina, Macedonia and Montenegro increased from 8.8% to 19% in industrial pro-
duction, but deep divides remained in existence.
In the 1960s, the Yugoslavian system moved towards (regional and company-
level) decentralisation, and then disintegration. The 1965 reforms ceded addi-
tional power to member republics, developing a many-layered planning system
with federal, republic, municipal and company levels. The development of back-
wards republics continued; Bosnia-Herzegovina became a hub for heavy industry.
Although additional reforms between 1971 and 1975 attempted to encourage ter-
ritorial cohesion by company integration and regional (primarily industrial) pol-
icy, the “southern”, less developed republics fell behind in development and their
growth slowed after 1965. Federal redistribution gradually became highly con-
tested; Mihailović (1985) argues that Yugoslavia, instead of being successfully
decentralised, became “a cohabitation of eight centralisms” linked by weakening
economic ties. Last but not least, the increasing prices of metals on the world
market had a deleterious effect on Yugoslavia’s import-dependent heavy industry;
in effect, it experienced the economic crisis of the socialist system earlier than
other states.
Bulgaria’s main problem was its historical underdevelopment. The establish-
ment of the planned economy went smoothly, but the aims of industrialisation had
to take the country’s backwardness into account. Accordingly, the central aim
wasn’t metallurgy (which received 13% of funds during the Five Year Plan), but
the base industries allowing the economy to move towards it (energy production
had a share of 31%). Only by 1960 was there a sufficient foundation to begin the
construction of the Kremikovtzi Steel Complex near Sofia City, which employed
18,000 workers by 1972 (Palairet, 1995). The development of Bulgaria involved
high resource concentration into the capital, and to a lesser extent Dimitrovgrad, a
new town near Haskovo.
In the later period, the Bulgarian planning system was especially volatile, with
multiple waves of reform and retrenchment. Briefly, the country experimented
with Soviet-style regional government (abolishing sectoral in favour of complex
regional plans and disbanding eight central ministries; competences were dele-
gated to the executive committees of thirty districts), but this radical redesign was
gradually diluted and the practice discontinued. The next reform wave was based
on market incentives and organisational consolidation9, while in 1974, ministerial
control was re-established and industry organised on the principle of “national”,
9 In 1971, the totality of Bulgarian industry fell under the aegis of 66 “state economic organisations”
(Bauer–Szamuely, 1979).
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later “spatial-productive” complexes (Bauer–Szamuely, 1979; Najdenova–Popov,
1984). During all this institutional chaos, Bulgaria strengthened its heavy
industry, although it was costly and extremely inefficient. The situation was more
favourable in electronics assembly and machine industry.10 Industry was spatially
concentrated in production, with Sofia province and Sofia City accounting for
50%, but balanced in employment, where the aforementioned areas weighed in at
15.6% in 1985.
Albanian industry was characterised by extreme backwardness through the pe-
riod, as well as increasing political and economic isolation. In the 1950s, a com-
bination of Stalinism and self-management based on Yugoslavia’s example domi-
nated; later, the country imported all of its technologies from China, only to break
these ties as well in the mid 1970s.
4 Industrial development beyond transformation
4.1 Crisis and decline after the fall of socialism
With the collapse of the socialist system and the dissolution of COMECON mar-
kets, Central Europe’s industrial regions had to reposition themselves in the
framework of the global economy. They needed to compete on Western Euro-
pean, global, and increasingly on domestic markets, while also having to face the
economic and social consequences of impeded (postponed) industrial restructur-
ing (Audretsch et al. 2000). Although the resulting depression was sometimes
seen as a system-specific problem, reflected in the popular image of post-socialist
states as “economic deserts plagued by general decay” (Domański, 2004b, p.
377), its symptoms and underlying causes were similar to the experiences of west-
ern Old Industrial Regions (OIRs). Market loss, plant closures, social disintegra-
tion and environmental strain were not inherently (post-)socialist problems, nor
were the immediate causes: outdated products and the failure of regions to adapt
to new circumstances. These aspects of industrial depression were thoroughly
dissected in regional studies and other disciplines. If we talk about differences, we
may not find them in the general features of depression, but rather three factors
which had made it more severe.
The first of these is the dysfunctional spatial consequences of socialist eco-
nomic policy (discussed in detail in chapter 3.1). Extensive industrialisation was
10 In the late 1980s, the Kremikovtzi Steel Complex required its ore and coke to be imported, took
15% of Bulgaria’s energy consumption, was its largest polluter and generated only 1% of its
production value. In turn, electronics’ share in production value was a full 12%; together with
machine building, it provided 55% of Bulgaria’s export value in 1982 (Hunya, 1987; Curtis,
1992).
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able to create new industrial centres in Central Europe, but didn’t have the ability
to build complex regional economies. The resulting urban centres were strongly
monofunctional, characterised by a small number of large employers and a lack of
economic alternatives. Modernised peripheral areas, sometimes the location of
new cities, were in an even more disadvantaged situation, since their modernisa-
tion was very one-sided. Policy didn’t justify the creation of small and medium
enterprises. Some of them survived into the planned economy where they had pre-
war traditions, but in heavy industrial regions, these traditions were often weak or
nonexistent. All in all, the result was a strong culture of dependence, surpassing
western examples. In many cases, the reliance on large companies extended to
municipal services (heating, infrastructure, etc.) and public institutions due to
inadequate urbanisation. When companies no longer had the money to fund them,
their burden fell on the shoulders of cash-strapped local authorities who already
had to deal with economic disintegration. Finally, “layered industrialisation”, the
practice of leaving outdated Stalinist and even pre-war factories in place lead to
the worst crises in Central Europe – often the total collapse of the local economy.
The second factor is damaged adaptation mechanisms, a consequence of dual
economic isolation. In the international context, this meant the isolation of so-
cialist states from the world economy. External market impulses such as the oil
shocks or post-industrial development were too weak to have an impact on deci-
sions until it was too late. On the national level, the survival of non-market ra-
tionality was another force working against adaptation. Even in states where
adaptive measures were taken, they were belated and marginal, focusing on cos-
metic issues instead of general problems. This attitude can be clearly identified as
institutional sclerosis as described by Boschma–Lambooy (1999) and Steiner
(2003) – but, unlike in market economies, there were no political or economic
corrective mechanisms which would eventually result in reforms (Greenspan
2007). Risk-avoidance and postponement became the usual policy response to
identified problems. Finally, on the sub-national level, we can again draw atten-
tion to dependence: much more importantly than simple lobbying power, large
industrial units were so strongly linked to local and regional economies that their
collapse would have meant social catastrophe – something that would have been
politically and morally unacceptable. On the other hand, inaction offered no rem-
edy, and lead to the further worsening of problems.
The third factor is the new conditions of systematic change. These conditions
once again acted against effective crisis management. The institutional instability
of societies in transition made traditional planning methods untenable, while a
radical approach, fusing planning, decisionmaking and execution (Faragó, 2004),
was unavailable due to a lack of political and monetary capital. Therefore, the
typical reaction of democratic governments was to use their resources to prevent
the immediate collapse of industrial companies, and social measures to lessen the
impact of unemployment in crisis regions. This step is consistent with early policy
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responses made in the EEC (Ex post evaluation of 1994–99 Objective 2 pro-
grammes, 2003), although less effective because of low funds. Anti-industrial
sentiment, often coupled with environmentalist concerns, was a less significant,
but responsible factor for the weakness or non-existence of coherent restructuring
attempts. This is a problematic issue. Herrschel (2007, p. 443) points out that
“existing structures and associated social status and organisation were suddenly
rendered ‘historic’ and lost their economic rationales. This included in particular
the old industrial areas with their focus on monostructure depending on heavy
industry and extractive work (coal mining).” However, this is only one side of the
equation: we have to draw attention to the power of surviving institutional lega-
cies which continued to influence industrial (re)development. Know-how, social
capital, management (in)competencies and other path-dependent factors survived
well into post-socialism, even if they were “reimagined” to fit into the conceptual
framework of the market economy.
As a result of the above, the crisis of industrial regions in Central Europe was
wider and more severe than in the west, with more restricted and less effective
public involvement. Instead of active, policy-driven structural change, the process
was overwhelmingly passive and market-driven, resulting in rapid de-industriali-
sation. This is both a positive and a negative phenomenon: it can be seen as a
natural move to a modern, more service-driven economy, but it also involves de-
skilling, the loss of export potential, etc. While the common interpretation of “de-
industrialisation” suggests modernisation, in Central Europe’s crisis areas, an-
other form, the loss of industry with no replacement is also possible.11 The higher
share of tertiary activities can be interpreted as an outcome of successful restruc-
turing, but also a sustenance economy where services are dominant only for a lack
of alternatives, and entrepreneurship is a simple survival mechanism.12 The level
of de-industrialisation varies from region to region and country to country; as a
generalisation, we can say that it was more severe in south-eastern than north-
western post-socialist states (Table 6). As discussed later in the paper, industry
and de-industrialisation has a different significance for central, intermediate and
peripheral regions, which show different ways of integrating into the global econ-
omy.
11 “When economists talk of ‘de-industrialisation’, they normally mean the shift from industry to
services which is characteristic of the most advanced economies. ... In Kosovo, de-
industrialisation refers to a very different phenomenon. It means the collapse of industry and a
return to the pre-industrial past.” (De-industrialisation and its consequences. A Kosovo story.
2002, p. 5) For further discussion of industrial collapse, see Lux 2007.
12 Szalavetz (2003, p. 180), referring back to Rosenstein–Rodan and Hirschman, warns of a low
level equilibrium trap, which can be “thought of as a massive coordination failure: several
investments do not occur simply because other complementary investments are not made, and
similarly, these latter investments are not forthcoming simply because the former are missing.”
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Table 6
De-industrialisation in Central Europe, 1990–1991 to 2003–2004
Country
Industrial employ-
Industrial employ-
Industrial employ-
ment in 1991
ment in 2004
ment in 2004
(1991=100)
Albania
242,500
127,000
52
Bulgaria
1,785,000
967,900
54
Croatia
694,700
469,000
68
Czech Republic
1,958,900
1,844,400
94
Hungary
1,349,400
906,300
67
Macedonia
260,000
190,400
73
Poland
5,483,100
3,509,900
64
Romania
4,512,000
2,173,700
48
Serbia and Montenegro
1,307,100
650,500
50
Slovakia
848,900
846,000
100
Slovenia
429,300
342,700
80
Source: Edited by the Author on the basis of national statistical yearbooks.
4.2 Transition processes and the dual economy
Seventeen years after systematic change, it is possible to see the main trends
which have reshaped the industrial structure of Central European states during
their integration into global networks. The integration process takes place over
decades, and with the passage of time, the special characteristics of post-socialism
lessen while common European problems gain their place.
It is arguable that the strongest force which continues to mould industry is the
investment preferences of transnational corporations. Capital investment at the
beginning of the 1990s was mostly in the form of acquiring privatised assets,
while later, greenfield projects took their place. Companies owned by foreign
interests surpass local ones in capitalisation, export potential and productivity,
giving them a significant power to influence economic growth. The result is a
dual economy (Barta, 2005; Domański, 2003), where there are strong, long-term
differences between the efficiency of foreign and domestic industrial companies.
Duality has both sectoral and spatial consequences. Transnational corporations
show a preference towards manufacturing (especially machine industry and
chemicals), leading to stronger modernisation in these branches. At the same
time, their location choices are influential in spatial differentiation, leading to
increasing differences between preferred and neglected regions. Privatisation
reinforces previous differences, while greenfield investments create new ones.
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Spatial differentiation occurs on national and subnational levels. Economic
regulations, political/legal stability and investment incentives were decisive in
national differences during the 1990s and continue to be relevant, if less influen-
tial today. On the subnational level, the most relevant factor was at first the acces-
sibility of western markets. Western border areas with good road connections
benefited, and previously existing west-east development gradients became
steeper. However, there are signs that simple accessibility has become less im-
portant over the years, while the importance of skilled labour is on the rise.
Today, industry plays a role all over Central Europe, but this role is not the
same everywhere. Its growth or decline means different things for different loca-
tions: for example, a manufacturing plant producing machinery would not be as
valuable for the economic prosperity of a national capital as of a declining indus-
trial region – or a rural periphery struggling with high unemployment. When we
examine industry’s significance in our economies, we have to discriminate on the
basis of space, and consider the questions of development and modernisation in
the regional context. Naturally, all regions have specific problems and opportuni-
ties, but it is possible to generalise: in my opinion, a threefold pattern is visible on
the map of Central European industry, representing distinct regional types devel-
oping along different trajectories.
Central regions (national capitals) were major manufacturing hubs in the so-
cialist period, preferred by economic development policy. During transformation,
several of their companies closed down, and their place was taken by services.
This change was relatively rapid, and although unemployment was significant for
a few years, most employees could find new jobs in the service sector. The most
innovative service activities, especially business services, are strongly concen-
trated in central regions (for the example of banking, see Gál 2005), as are ad-
ministrative/political functions. The development of central regions has been
mostly tertiary, and in their chase, tertiarisation and de-industrialisation are asso-
ciated with successful transition. As a note of caution, it has to be remembered
that this doesn’t mean development lacks an industrial component, and central
regions managed to retain their presence in the highest value added branches such
as pharmaceuticals, precision machinery and optics. Higher education and R&D
are also located in large urban centres, including capitals. Finally, even when
manufacturing is found in intermediate regions, corporate headquarters or branch
offices are often maintained elsewhere – out of country or in capital cities.
Industry continues to be a strong dynamising force in intermediate regions
(that is, regions with an average urbanisation level, but without the problems of
peripheries). They can benefit from service-based growth, but all available evi-
dence suggests that this in itself is insufficient for prosperity, and a mixture of
industrial and tertiary activities is optimal. Western border regions are typically
mentioned as winners of transition; the growth of automotive and machine indus-
try in the Vienna–Gyır–Bratislava trans-border area is just one example (Grosz
30
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
2006). On the other hand, they are not the only ones to belong to the category.
Old Industrial Regions which have been successful in their adaptation by diversi-
fication into new industries or the innovative restructuring of their traditional
branches start to become very strong contenders even if they do not benefit from
an ideal geographic position. Their main strength is an established industrial mil-
lieu, with skilled workforce, technical education and supporting institutions.13 The
role of these factors is becoming more and more important as pools of skilled
labour are depleted across Central Europe and competition for employees in the
previously preferred western border areas drives up wages. Labour shortage –
which is a radically different situation from the beginning of the 1990s, when it
was in abundant supply – also results in the re-evaluation of competitive advan-
tages which were taken for granted before. Today, unionised, more costly labour
is much less of a disincentive than mainstream economists predicted – and it
could be argued that it is actually a contributing factor to long-term success.
Traditional and new peripheral regions are still coping with inherited and new
backwardness. They were either under-industrialised, or their previous capacities
were eroded so strongly that they can be considered lost. Most of the former are
rural and/or eastern border areas, whose traditional light and food industries suf-
fered during transition, and are losing further ground to global competitors. Some
Old Industrial Regions have also fallen into this trap with the downgrading of
their human capital. It is a common observation that industrial depression leads to
a decrease in skills thanks to emigration and the adverse social consequences of
long-term unemployment. The result may be low level stabilisation as a periph-
eral region, instead of catch-up to intermediate ones. Their main problem today is
no longer the lack of potential investors, but rather the fact that they can’t offer
enough skilled workers to make investments worthwhile. Peripheral regions need
the intervention of regional policy to re-industrialise, but these measures must be
accompanied by social regeneration – first and foremost to reduce inactivity. On
the other hand, contrary to usual expectations, not all peripheral industries are
suffering. In certain branches and regions where cost advantages are still signifi-
cant, we can see the re-emergence of traditional light industry, increasingly serv-
ing the needs of international supplier networks.14 Their challenge is whether their
advantages remain sustainable in the face of global competition, and whether they
will be able to diversify into higher value added activities or even new branches
before their cost advantages are eroded.
13 Upper Silesia is probably the best example in this respect; for the role of human capital, see Geisle
–Szczepańsk–Cymbrowski, 2005; for the role of institutional networks and policy, see Lux, 2008
and Klasik–Heffner, 2001.
14 For example, textile companies in Eastern Slovakia, Hungary and Bulgaria have experienced new
growth, and even become intermediaries between western and post-Soviet states (Kalantaridis–
Slava–Sochka, 2003; Smith et al. 2005).
31
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Figure 5
The distribution of automotive industry in Central Europe
(2003, number of employees)
Source: Edited by the Author on the basis of data from Worral–Donnelly–Morris, 2003.
32
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
The spatial structure created by the ongoing differentiation process is charac-
terised by a mixture of continuities and new phenomena. The location preferences
of transnational corporations have played a role in modifying the picture of previ-
ous decades: some traditional industrial regions have lost in significance, while
others emerged as new competitors. At the beginning of transformation, it was
often prognosed that radical changes would take place, and the map of industry
would be completely redrawn. But evidence suggests that these predictions did
not come true. Continuities play a larger role than anticipated, as Figure 5 demon-
strates through the example of automotive industry. Even allowing for differences
in labour and capital intensive forms of production, it is apparent that manufac-
turing centres are almost always located in locales with strong industrial tradi-
tions, and the largest production facilities are all old ones – by far outstripping
greenfield projects. This continuity is either manifested in the survival and trans-
formation of traditional corporations, or the adaptation and evolution of industrial
millieus. New plants are located in old regions, even OIRs, as the successful
transformation of Central Transdanubia or Upper Silesia demonstrates. Based on
my interviews with decisionmakers and entrepreneurs in one Polish and two Hun-
garian OIRs, the single most important source of growth potential is the avail-
ability of skilled labour. The relative abundance at the beginning of the 1990s no
longer exists as tertiarisation proceeded and deskilling took place. Secondary
education, and strong technical universities were instrumental in replacing losses,
and where they didn’t succeed – which was unfortunately the case in both Hun-
garian examples – the scarcity of skilled professionals became the main impedi-
ment before FDI inflows.
Do the development processes in Central European industry point towards
convergence towards the European core, or the re-constitution of pre-war periph-
eral positions? It was often feared that the dual industrial structure of transition
societies would result in deskilling and disembeddedness, or “desert cathedrals”.
Pavlínek–Smith (1998), recounting arguments from Dunning, Grabher, Lipietz
and Smith, pointed out that “defensive structural change” – focusing on low or
medium technology activities, the lack of innovative products and relying on la-
bour cost as the most important competitive advantage – would lead to the preser-
vation of core-periphery arrangements. It follows, then, that even in re-industrial-
ised regions where FDI inflows are strong, catch-up is an illusion, and moderni-
sation relative, as the resulting structures will be just as crisis-vulnerable as so-
cialist ones.
This concern is not altogether unrealistic, and has to remain a cautionary note
to decisionmakers and regional scientists. Central European industry could at the
moment be described as semi-peripheral – not purely relying on cheap, unskilled
labour, but still very distant from the optimal level of high value added activities.
However, I consider semi-peripheral industry better than the alternative. Semi-
peripheral industry can play a positive role in regional development, if it keeps
33
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
the economy active, provides employment and maintains industrial millieus – or,
it stabilises. In the case of peripheries, old and new, the effect is even more bene-
ficial as a generator of growth and a chance to escape disadvantageous situations.
Economic policy must be able to distinguish between these two roles, since they
do not fulfil the same function. For peripheral regions, the positive outcome is
regeneration, reintegration and social improvement. For intermediate regions, it is
a stepping stone towards higher embeddedness and endogenous growth.
What can states and regions do to favourably influence their industrial devel-
opment? First, they have to recognise how different regions require different so-
lutions. But they also have to acknowledge their limitations. The main tool of
public policy today is no longer the creation of new industrial centres – neither
political realities, nor public funds allow this form of intervention. Instead, policy
should provide assistance in institution-building and preparing the ground for
investments which will come from the private sector if the appropriate conditions
are present. To be efficient, this requires a degree of administrative decentralisa-
tion, especially in the realm of economic policy. So far, only Poland has genu-
inely moved towards decentralisation among post-socialist states, and it appears
that the results were positive. It remains to be seen if others will follow the exam-
ple.
4.3 Spatial development in a transforming world
How did Central European regions experience change during transformation?
Annex II./a shows that by 1990–1991, the degree of de-industrialisation had al-
ready been significant across Central Europe. In all states except Romania, strong
tertiarisation took place. Two decades before, only central regions and regions
with large cities over approximately 250.000 inhabitants were affected by this
trend; now, it spread everywhere. South-eastern states now had a higher share of
industrial employment than north-western ones.15 But on the national level, tradi-
tional divides and spatial structures survived: it can be seen in the differences
between the Czech and Slovakian Republics, Hungary’s “energy axis” in the
northern counties, or Romania’s divide between Transylvania and Old Romanian
areas. Overall, the concentration of industrial employment decreased when we
compare it to previous decades: regions where employment was previously highly
concentrated lost share (but remained significant), while under-industrialised ones
gained some.
Regional investment statistics (Annex II./b), which offer an insight into proc-
esses of change, show an opposite process: instead of deconcentration, the pre-
15 This was as much an outcome of belated development as the continuation of early socialist growth
policies – especially in Romania.
34
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Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
vailing trend was strong concentration into industrialised regions and decline in
peripheral ones. Unfortunately, there wasn’t enough data to construct a good
comparative map about per capita investment levels in Central Europe, as figures
were sometimes given in percentiles instead of national currency, and strong in-
flation during the early transition period would have made the results suspect in
any case. Therefore, the annex shows the share of industrial investments in the
total – which can shed some light on national trends, but doesn’t enable a good
global comparison.16 Although investment volumes were falling everywhere, their
contraction in Poland is the most visible, showing a sharp contrast between the
south-western industrial heartlands and rural peripheries. Hungary’s situation was
similar, although decline was smaller early on due to successful policies encour-
aging foreign investment. North-western counties close to the border were the
major winners of the process, along with the capital; Old Industrial Regions out-
side the previous area and rural peripheries its losers. In Romania, industrial in-
vestments were still the most significant, and showed concentration in mining and
heavy industrial centres.
Based on these two dimensions, we can conclude that in the early transition
period, the spatial structure of industry reached a tipping point. Before 1990,
Central European countries made relatively successful efforts to industrialise
backwards areas, either as a form of regional policy (especially in Hungary and
Poland) or a general drive (as in Romania). After 1990, peripheries had to face
changed circumstances. Their products were often outdated, and there was little
hope for investments to remedy this situation as social considerations had to take
a backseat. To borrow Gorzelak’s (1998) regional typology, while negative dis-
continuity was the threat for Old Industrial Regions, peripheral regions faced the
threat of negative continuity, or conserving former disadvantageous positions.
Annexes III./a–1–2 and III./b show the transformed industrial landscape of
Central Europe at the time of EU accession. What stands out is the continuing de-
industrialisation of post-socialist countries. The degree of this process was such
that two separate maps had to be constructed – one using the scales for 1990–
1991, and a separate one where interior differences would be more visible. In
employment, only one Polish region, Upper Silesia, exceeded 35% in industrial
employment; from all regions mapped, one half did not reach this level. Only
three regions exceeded 50%: fifteen years before, one quarter of the total did, and
in 1970, almost one half. The diverse role of industry is evident from Annex
III./a-2. The most developed central regions show the lowest levels of industrial
employment – but so do eastern peripheries. Troubled regions can be found
among those where the ratio is highest – but also others which grow dynamically.
Development level cannot be simply linked to sectoral composition; we must look
16 Data for Yugoslavia was available, but I decided to exclude it on grounds of appearing grossly
inaccurate.
35
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
into distinct region types to correctly appraise the value of industry in our trans-
forming societies. Comparisons of industrialisation and GDP rankings verify this
conclusion: the first spots are taken by service-driven regions, but they are imme-
diately followed by intermediate industrial regions with strong positions in manu-
facturing (Figure 6). Even four significant Old Industrial Regions – Közép-
Dunántúl, Moravskoslezsko, Śląskie and Pomorskie – have made it to the list. The
continued significance of industry is also seen when we consider sub-national
patterns. Even with de-industrialisation, traditional divides and development gra-
dients survive: the southwest–northeast division of Poland, the “energy axis” of
Hungary, the continued importance of former industrial centres in Romania, etc.
Figure 6
The top 20 Central European regions ranked by per capita GDP
(2004, PPP, % of EU-27 average)
160
140
120
100
80
60
40
20
0
1
1
2
3
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Note: White columns indicate service-based central regions; black columns indicate intermediate
regions, whose growth is primarily based on manufacturing.
Source: Edited by the Author on the basis of data from Eurostat.
36
Lux, Gábor :
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Investments statistics, seen in Annex III./b, show wide differences. In Bul-
garia, masked by low overall levels, there is a more than twofold difference be-
tween the south-western capital region and the northern central one. Although
regional statistics couldn’t be found, reports regarding industry in Romania sug-
gest that similar polarisation takes place. In Poland, western border areas and the
capital are the primary targets, as are in Hungary: however, while the latter saw an
overall higher investment level, its distribution within the country was less equal.
Northern Hungary had the single highest investment ratio per employee in Central
Europe, while Southern Transdanubia fell into the lowest bracket.
As in previous periods, the effects of industrial transformation are highly vari-
able in different countries. The Czech Republic inherited Czechoslovakia’s more
advanced industries; this, coupled with fast macroeconomic stabilisation, eased
adjustment. The government proposed wide-encompassing sectoral programmes,
fast privatisation, support for small and medium entrepreneurships and the
reorganisation of problem companies to ease transformational recession.
Czechoslovakian industry struggled with four spatial problems: dependence on
coal and steel in Moravia and Western Bohemia, monofunctional cities, areas
whose economy was dominated by large-scale industry, and underdeveloped,
peripheral industrial regions (Myant, 1995). From these problems, the first was
especially significant in the Czech Republic. The Ostrava-Karvina industrial ag-
glomeration was affected by mine closures and the decline of metallurgy; the
policy responses involved innovative restructuring, economic diversification as
well as institution-building. The weakness of administrative decentralisation hurt
Ostrava’s adjustment; its transformation was much less impressive than
neighbouring Upper Silesia’s (Nesporova, 1998; Sucháček, 2005).
The Czech Republic’s overall de-industrialisation was minimal, although there
was some movement in space towards smaller settlements. New investments
show concentration into the central region; foreign capital found it advantageous
to exploit existing networks and traditions. Between 1990 and 2000, 47.6% of all
FDI flowed into Prague and a further 11.9% to Central Bohemia. State investment
policy, through the CzechInvest agency, had an alleviative effect: from the funds
it attracted, only 2.5% and 18.8% went to these areas, while Ústí nad Labem and
Olmütz reached 30.9% and 12.1%, respectively (Young 2004).
Slovakia, although it had a similar level of industrial employment as its Czech
counterpart, had a more troubled inheritance in post-socialism. Sectoral problems
(e.g. the overpresence of military industry) were compounded by regional ones:
the eastern part of the country struggled with surfacing hidden unemployment and
peripherality. Until the late 1990s, foreign investments were meagre, and they
were overwhelmingly concentrated in the west, while in the east, old companies
dominated. A strong gradient became visible (Table 7). Embeddedness was lower
than in the Czech Republic, with less advanced supply relations; companies
mainly manufactured low value-added products.
37
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Table 7
The uneven distribution of industry in Slovakia (2000, %)
Region
Market
Value Added
Productivity by
Employment
VA (SK=100)
Bratislava
31.9
24.0
195.0
12.3
Western Slovakia
27.0
38.2
101.0
38.0
Central Slovakia
19.4
20.3
80.0
25.4
Eastern Slovakia
21.7
17.5
72.0
24.3
Total
100.0
100.0
100.0
100.0
Source: Sectoral Operational Programme Industry and Services [of Slovakia] 2003, pp. 7–8.
In the late 1990s and early 2000s, reforms were passed to encourage new in-
vestments. Industrial parks were a successful measure to increase foreign interest;
although investments there are still spatially uneven, parks in the east successfully
attracted large investors, often in traditional branches (e.g. US Steel Košíce and
chemicals producer Chemko). The brownfield form is also more popular: three of
Slovakia’s five brownfield-based industrial parks are in the Eastern Slovakian re-
gion (www.sario.sk). Industry has gained a pivotal role in post-accession devel-
opment policy. In the 2007–2013 strategies, the emphasis is on industrial support
structures and productive infrastructure.
Poland faced the return of old problems. Development gaps widened in the in-
dustrial-agrarian, urban-rural and western-eastern relations (Blazyca 2001). The
most serious crisis emerged in Upper Silesia (then composed of three voivode-
ships), where almost 44% of industrial employees worked in the declining coal
and steel sector. Although it was believed that the region would face protracted
decay, innovative restructuring in traditional branches, diversification into new
industries (especially automotive industry) and exploiting the urban functions of
the Katowice agglomeration proved more successful than anticipated. A crucial
factor was the institution-building of the local elite, whose bottom-up activity
made Upper Silesia the test-bed of Polish regional policy. Successful measures,
such as the regional contract between the government and regional administration,
and the creation of Special Economic Zones were adopted elsewhere in the coun-
try, although in other regions, different solutions were sometimes more fruitful
(e.g. endogenous growth in Łódz vs. the investment-driven path of Silesia).
Foreign investments showed a preference for large urban agglomerations, par-
ticularly the Mazowieckie, Upper Silesian and Wielkopolskie regions (20.7%,
17.3% and 11.9% of the national investment volume between 1990 and 2000).
Domański’s studies demonstrate an urban-rural dichotomy of preference for
capital- and labour-intensive manufacturing. Road accessibility and skilled labour
38
Lux, Gábor :
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
were the leading location advantages, but in recent years, services provided by
local governments and local market access have gained in importance. Among
advantages, there is a demonstrable movement from costs to markets and special
skills, and supplier networks are on the rise (Domański, 2003, 2004). The spatial
development priorities of the state encourage endogenous growth in advanced
regions and raising activity on the peripheries.
Hungary’s total industrial production fell the least in Central Europe from
1989 to 1993, but this masked an ongoing differentiation process: deep recession
in certain branches (60% production decline in machine industry and metallurgy,
36% in mining and 33% in chemicals) and dynamic growth in others which saw
foreign investments immediately after systematic change. The spatial outcome
was favourable for the central region and the Vienna-Budapest axis,17 but meant
depression for Northern Hungary and some parts of Southern Transdanubia,
where mining and other crisis industries were concentrated. The harshest decline,
however, was in peripheral industry. In the collapse of multi-branch companies,
their rural branches were the first to be cut loose; at the same time, agricultural
cooperatives were dismantled and their industrial activities mostly disappeared.
In the second phase of transition, the duality of industry increased. Hungary
had an early advantage due to legal reforms and other factors including tax bene-
fits and political-economic stability. However, the modernising influence of FDI
gradually started to decrease after the mid–1990s, while its regional embedded-
ness (e.g. supplier relations) were still weak, and it overwhelmingly favoured
Central Hungary, (65% in 2000) Central and Estern Transdanubia (15% com-
bined) while the remaining four regions collectively had only 20%. It is increas-
ingly evident that new sources of competitiveness need to be found. Szanyi (2003)
proposes the re-evaluation of public policy along the following lines:
− skilled, healthy workforce (involving reforms in healthcare and education),
− national leading products and their promotion,
− support for capital accumulation in domestic entrepreneurships,
− infrastructure and communication networks,
− the mobilisation of underutilised regional resources.
Support for local production systems (supply relations, clusters, industrial
parks) and regional innovation, as well as administrative decentralisation are re-
quired to break from low added-value activities. Unfortunately, the documents of
development policy still treat industry as a sort of taboo, or are oblivious of its
significance beyond generic support for encouraging investments. Centralist re-
17In Budapest, extensive de-industrialisation took place. Other than short-term social costs, the most
important challenge was how to handle brownfield areas left behind by collapsed giants (for a
thorough examination, see Barta et al 2006).
39
Lux, Gábor :
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
flexes on the part of the national government, as well as local provincialism, play
an adverse role.
Post-socialism, or more accurately post-Stalinism in Romania lead to an espe-
cially severe transformational recession. Its overdeveloped but outdated energy
sector and heavy industry were even more anachronistic on the world market than
other socialist economies. The result was drastic contraction: 52% fall in indus-
trial employment until 2004, and decline from 46.2 to 25.2 in GDP share. In ad-
dition to tertiarisation, post-traditional ruralisation, population movement from
urban to rural areas, and industry to agriculture became visible (Maniu–Kallai–
Popa, 2001). Although depression was ubiquitous, the Hunedoara area and the Jiu
valley stand out as especially problematic. A 1997 World Bank programme gave
support for mine closures and diversification, but while its social components
were executed, local development was feeble and the repatriation of miners also
failed (Ianos–Popescu, 1989; Haney–Shkaratan, 2003). Emergence from the
crisis only really started after 2000, since Romania wasn’t attractive to foreign
investors. The regional concentration of FDI was high, primarily going into the
Bucharest agglomeration and the western region (especially Timişoara). In recent
years, there has been a slight evening out, particularly with the growth of major
urban areas, but the capital’s share remains at a high level.
Among the former Yugoslav republics, Slovenia’s industrial transition was the
smoothest; inheriting the federation’s most modern branches, serious decline was
confined into the heavy industrial Maribor and Podravska areas. We can point to a
traditional presence on western markets going back to the 1970s, and effective
public policy as additional helpful factors. A 1999 industrial development con-
cept, recognising the threats of semi-peripheral growth, recommended focusing
on high value-added, innovative industrial branches. A national development plan
was completed in 2001, before EU accession; this, and later documents were still
dedicated to structural change.
Post-socialist states in South-Eastern Europe, including former Yugoslav re-
publics, Bulgaria and Albania, share many similarities in their industrial trans-
formation, most prominently stronger state control and the destructive de-indus-
trialisation mentioned in chapter 4.1, although Romania and to a lesser extent
Croatia have been successful in joining Central European development trajecto-
ries. Continuing state ownership is semi-successful in warding off industrial col-
lapse, but at the cost of considerable hidden unemployment and postponed ad-
justment. Decline in traditional branches wasn’t counteracted by alternatives; the
dilemma of these states is if, and how the remaining industry can serve as a basis
for reindustrialisation and new growth. It is not evident whether creative destruc-
tion or a more careful approach would be better, but these questions may mean
the difference between catching up and staying on the periphery.
40
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
5 Conclusion
Central Europe’s industrial transformations in the 20th century and at the turn of
the new millennium demonstrate the dual presence of continuities and change. On
one hand, while all periods discussed in this paper had their particulars and vola-
tile political rearrangements, the institutional sphere was a lot more path-depend-
ent. Central planning in the late 1940s was not foreign to states which had ex-
perimented with tightened controls in the interwar years and wartime economy;
likewise, the reform period of socialism could build on concepts elaborated, but
not realised (and often vigorously attacked) during Stalinism. Finally, the reac-
tions of governments immediately after systematic change inherited numerous
reflexes from the planners of later socialism. Of course, none of this should be
construed as a denial of substantial changes; rather, an argument for seeing in-
dustrial development as a more organic, gradual process. Three closely correlated
dimensions in this process appear significant.
The first dimension is state control. State control was extended in response to
perceived market failures after World War One, and became total in the wartime
economy. Central Europe’s modernisation and catch up attempts also played a
role: it was commonly accepted that closing development gaps would require
public direction and support. These beliefs were synthesised in the totalitarian
ideologies of the 1940s and 1950s; however, they were plagued by horrid dys-
functions which were only acceptable as long as all other considerations were
subordinated to military and political (ideological) dictates. Homogenised indus-
trial policy had to be relaxed; this in turn lead to divergent national models at-
tempting to reform central planning, primarily in the area of regulations. By this
time, however, socialism was “done” as most of its major projects had concluded,
and adjustments, including regional policy experiments, were only minor. Symp-
toms of crisis did not initiate an adaptation process, and conservation prevailed.
By 1990, Central European economies were struggling with postponed industrial
crisis. Lacking the resources and political capital for effective restructuring, state
control had to be reduced – accordingly, the location patterns of private entities,
predominantly from the west, became the strongest force of change on the indus-
trial landscape. Although direct intervention is currently untenable, states can still
influence development, primarily in institution-building, physical infrastructure
and facilitating the settlement of innovative industrial branches.
The second dimension is economic development, which runs parallel with state
control. In the interwar years, development trajectories were divergent despite
some common elements: they progressed differently in Czechoslovakia, Central
Europe’s only advanced state; in Poland and Hungary which had a medium de-
velopment level, and in the more peripheral others. The gradual economic isola-
tion of Central Europe, war and socialist ideology homogenised this diverse field
through uniform recipes which denied national particulars as much as regional or
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local ones. The 1960s reforms, although they didn’t break the socialist paradigm,
represented interior divergence and external convergence (growing differences
between socialist states but slightly decreasing differences when compared to
market economies). In contrast, the situation was the opposite in the 1970s and
1980s: economic and political retrenchment, which lead to interior homogeneity,
but a departure from world trends. It is a cautionary note that transformation
proved how illusionary this separation was: after 1990, Central European econo-
mies had to return to the global mainstream one way or another. The question is
how this takes place: will they reduce their development deficit and join the
European core, or be increasingly marginalised?
The final dimension, spatial development, may be interpreted within individual
countries, but also for the sum of Central European space. Spatial differentiation
is a natural by-product of economic and social processes, and in semi-peripheral
Central Europe, there were always strong contrasts between developed and back-
wards areas. Until the end of the 20th century, one of the most important differen-
tiating forces was the uneven distribution of industry. Differences between urban
industrialised regions and small-town or rural peripheries were strong in the
interwar period, while under Stalinism, preference for a few growth poles and
conscious discrimination against everything else exacerbated them. At the same
time, even preferred areas were characterised by one-sided development and ur-
banisation shortages (a different matter from under-urbanisation, a “normal”
characteristic of Central European space). Adjustments and regional policy ex-
periments in the 1960s and 1970s were also mainly industrial, although they were
more of a social measure and maybe represented a different ideology than “main-
stream socialism” – labour-intensive production, resurrecting local traditions, etc.
The value of industry was questioned after 1990, both as a consequence of eco-
nomic failure in socialism’s showcase regions, but also in light of post-industrial
development. However, while tertiarisation is universal in all regions, its signifi-
cance is not. Only central regions could succeed based on a predominantly ser-
vice-based economy (and they maintained footholds in the most innovative in-
dustrial branches), while in intermediate and peripheral ones, hopes to this effect
proved largely illusory. In some cases, tertiarisation is simply an outcome of eco-
nomic collapse, a return to pre-modern conditions. Public policy has yet to accu-
rately evaluate the continuing significance of industry in regional development.
Strategies created by individual regions contain industrial elements, but national
concepts often neglect them outside general statements. It appears that concepts
prepared for the 2007–2013 programming period show improvement in this re-
spect, but how they will eventually play out is still to be seen.
42
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Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
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Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex I./a
Industrial employment as a share of the total (1970–1971, %)
Source: Author’s construction based on national statistical yearbooks
48
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex I./b
The level of industrial investments per employee (1970–1971, USD)
Source: Author’s construction based on national statistical yearbooks
49
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex II./a
Industrial employment as a share of the total (1990–1991, %)
Source: Author’s construction based on national statistical yearbooks.
50
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex II./b
Industrial investment as a share of the total (1990–1991, %)
Source: Author’s construction based on national statistical yearbooks
51
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex III./a-1
Industrial employment as a share of the total (2003–2004, %)
Source: Author’s construction based on national statistical yearbooks.
52
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex III./a-2
Industrial employment as a share of the total, adjusted range (2003–2004, %)
Source: Author’s construction based on national statistical yearbooks.
53
Lux, Gábor :
Industrial Development, Public Policy and Spatial Differentiation in Central Europe: Continuities and Change
Pécs : Centre for Regional Studies, 2008. 54. p. Discussion Papers, No. 62.
Annex III./b
The level of industrial investments per employee (2003–2004, USD)
Source: Author’s construction based on national statistical yearbooks
54
Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
The Discussion Papers series of the Centre for Regional Studies of the Hungarian
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The series has 5 or 6 issues a year. It will be of interest to geographers, economists, so-
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Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
Papers published in the Discussion Papers series
Discussion Papers / Specials
BENKİNÉ 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
HORVÁTH, Gyula (ed.) (2002): Regional Challenges of the Transition in Bulgaria and Hungary
KOVÁCS, András Donát (ed.) (2004): New Aspects of Regional Transformation and the Urban-
Rural Relationship
BARANYI, Béla (ed.) (2005): Hungarian–Romanian and Hungarian–Ukrainian border regions as
areas of co-operation along the external borders of Europe
ENYEDI, György – KOVÁCS, Zoltán (eds.) (2006): Social Changes and Social Sustainability in
Historical Urban Centres. The Case of Central Europe
KOVÁCS, András Donát (ed.) (2007): Regionality and/or Locality
SZIRMAI, Viktória (ed.) (2007): Social Inequalities in Urban Areas and Globalization. The Case of
Central Europe
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 Hungary
No. 3
HAJDÚ, Zoltán (1987): Administrative Division and Administrative Geography 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 Development 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
No. 11
SIKOS T., Tamás (1992): Types of Social Infrastructure in Hungary (to be not published)
56
Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
No. 12
HORVÁTH, Gyula – HRUBI, László (1992): Restructuring and Regional Policy in
Hungary
No. 13
ERDİSI, Ferenc (1992): Transportation Effects on Spatial Structure of Hungary
No. 14
PÁLNÉ KOVÁCS, Ilona (1992): The Basic Political and Structural Problems in the
Workings of Local Governments in Hungary
No. 15
PFEIL, Edit (1992): Local Governments and System Change. The Case of a Regional
Centre
No. 16
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 medium-sized
firms and the role of private industry in Hungary
No. 20
BENKİNÉ Lodner, Dorottya (1995): The Legal-Administrative Questions of
Environmental Protection in the Republic of Hungary
No. 21 ENYEDI, György (1998): Transformation in Central European Postsocialist 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 Preparation for the
Structural Funds
No. 30
BARTA, Györgyi (1999): Industrial Restructuring in the Budapest Agglomeration
No. 31
BARANYI, Béla–BALCSÓK, István–DANCS, László–MEZİ, 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 Hungary’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
No. 39
KERESZTÉLY, Krisztina (2002): The Role of the State in the Urban Development of
Budapest
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Discussion Papers 2008. No. 62.
Industrial Development, Public Policy and Spatial Differentiation in
Central Europe: Continuities and Change
No. 40
HORVÁTH, Gyula (2002): Report on the Research Results of the Centre for Regional
Studies of the Hungarian Academy of Sciences
No. 41
SZIRMAI, Viktoria – A. GERGELY, András – BARÁTH, Gabriella–MOLNÁR, Balázs
– SZÉPVÖLGYI, Ákos (2003): The City and its Environment: Competition and/or Co-
operation? (A Hungarian Case Study)
No. 42
CSATÁRI, Bálint–KANALAS, Imre–NAGY, Gábor –SZARVÁK, Tibor (2004): Regions
in Information Society – a Hungarian Case-Study
No. 43
FARAGÓ, László (2004): The General Theory of Public (Spatial) Planning (The Social
Technique for Creating the Future)
No. 44
HAJDÚ, Zoltán (2004): Carpathian Basin and the Development of the Hungarian
Landscape Theory Until 1948
No. 45
GÁL, Zoltán (2004): Spatial Development and the Expanding European Integration of the
Hungarian Banking System
No. 46
BELUSZKY, Pál – GYİRI, Róbert (2005): The Hungarian Urban Network in the
Beginning of the 20th Century
No. 47
G. FEKETE, Éva (2005): Long-term Unemployment and Its Alleviation in Rural Areas
No. 48
SOMLYÓDYNÉ PFEIL, Edit (2006): Changes in The Organisational Framework of
Cooperation Within Urban Areas in Hungary
No. 49
MEZEI, István (2006): Chances of Hungarian–Slovak Cross-Border Relations
No. 50
RECHNITZER, János – SMAHÓ, Melinda (2006): Regional Characteristics of Human
Resources in Hungary During the Transition
No. 51
BARTA, Györgyi – BELUSZKY, Pál – CZIRFUSZ, Márton – GYİRI, Róbert –
KUKELY, György (2006): Rehabilitating the Brownfield Zones of Budapest
No. 52
GROSZ, András (2006): Clusterisation Processes in the Hungarian Automotive Industry
No. 53
FEKETE, G. Éva – HARGITAI, Judit – JÁSZ, Krisztina – SZARVÁK, Tibor –
SZOBOSZLAI, Zsolt (2006): Idealistic Vision or Reality? Life-long learning among
Romany ethnic groups
No. 54
BARTA, Györgyi (ed.) (2006): Hungary – the New Border of the European Union
No. 55
GÁL, Zoltán (2006): Banking Functions of the Hungarian Urban Network in the Early
20th Century.
No. 56
SZÖRÉNYINÉ, Kukorelli Irén (2006): Relation Analysis in Rural Space – A Research
Method for Exploring the Spatial Structure in Hungary
No. 57
MAUREL, Marie-Claude – PÓLA, Péter (2007): Local System and Spatial Change – The
Case of Bóly in South Transdanubia
No. 58 SZIRMAI, Viktória (2007): The Social Characteristics of Hungarian Historic
City Centres
No. 59
ERDİSI, Ferenc – GÁL, Zoltán – GIPP, Christoph – VARJÚ, Viktor (2007): Path
Dependency or Route Flexibility in Demand Responsive Transport? The Case Study of
TWIST project
No. 60
PÓLA, Péter (2007): The Economic Chambers and the Enforcement of Local Economic
Interests
No. 61
BUDAY-SÁNTHA, Attila (2007): Development Issues of the Balaton Region
58