'I wanted to hire people better than me'

Tanya Beckett reports on Hungary's journey to the free market

Setting up a business during Communist-era Hungary was easy, says Gabor Bojar, founder of software company Graphisoft.

"It's true that there was no access to capital, no access to the market, we didn't have passport to travel for example.

"But there was something which was much more important and that was access to talent.

"And attracting the best talent at that time was easy because it was the first opportunity [for many] to do something and prove that you can do better."

Graphisoft, now an international company, was one of the first private businesses to have been founded in Hungary under the Communist regime.

It was more liberal than others in the former Soviet bloc, and in 1982 new rules were introduced allowing small enterprises to exist.

Mr Bojar jumped at the chance.

"I wanted to hire people who were better than me," he says.

"It came from the frustration of my first job in a state-controlled company. I was shocked to learn that my boss was not happy if I was good.

"After a while I understood that if I am good I can endanger his position."

If a company is privately owned, he explains, normal human selfishness means that you want to hire the best people.

An early macintosh model One of the first Macintosh computers is now on display in Mr Bojar's office. He smuggled this into Hungary to help develop his software company

Hungary is a country with a history of good ideas. Mr Bojar's office is just along the corridor from that of Erno Rubik, inventor of the Rubik's cube.

The inventor of the ballpoint pen, Laszlo Biro, was Hungarian, as was the man behind the first helicopter and the discovery of vitamin C.

Perhaps one of the most famous businessmen is the billionaire hedge fund manager and Hungarian emigre - George Soros.

George Soros George Soros set up institutes in many former Soviet bloc countries that are committed to promoting democracy

He left in 1947 - initially for London, ending up in the US.

Now in his 80s, he still comes back regularly.

So regularly in fact that a visit from him is no longer an item on the news, as it once was.

Just a couple of years after the birth of Graphisoft, Mr Soros was setting up the first of his many institutes in the former Soviet bloc devoted to promoting democracy - and ideas that undermined the Communist ideology.

'Morally clear'

He makes the point that the change was more a collapse of the old system than great conviction in a new one and that bringing one system down is harder than setting a new one up.

"It was a collapse but the situation was morally very clear, really quite black and white. Even the people in the regime realised that there was something wrong with the regime, so they were ripe to fall," he says.

"It was a regime that fell because of its own incompetence."

Mr Bojar says he sensed change was afoot in 1983 when he nervously applied for a visa to travel to Vienna for a day to give a presentation about his new company. Instead of being declined, he was told: "Comrade, thank you for bringing in some hard currency."

Graphisoft boss in 1980s Mr Bojar took advantage of legislation in Hungary in 1982 allowing private enterprises
Graphisoft in the early days In the early days none of the Graphisoft employees had passports to travel

In many ways Hungary had a head start in the free market compared with the rest of the Soviet bloc. By 1989, when the Communist regime collapsed and the Berlin Wall fell, Graphisoft was already preparing to open up an office in San Francisco.

But despite Hungary's initial advantage, some say it hasn't realised its full potential. Growth has been faster in neighbouring Poland, for example.

"We used to think the transition would take 25 years, now it might be 45," says economist Laszlo Matyas, at the Central European University.

He's keen to point out that it's not all bad - the budget deficit is below 3% - a feat which many of its Western counterparts have not managed. Unemployment is about 8% - not great but below the EU average.

'Original sin'

But Mr Matyas describes one of the problems as that of "goulash oligarchs" - they're a little more benign than in other parts of the former Soviet bloc, indeed many of them are involved in philanthropic organisations, but they are a small group of businessmen, not more than 20, with a strong influence on the economy and politics.

"They behave like monopolies in some sectors and they really hamper competition," he says.

"It was the original sin of privatisation, those who were well-placed got a good start."

"It undermines the Hungarian economy heavily because it undercuts long-term investment in the economy. Foreign capital won't come and it undermines confidence."

Laszlo Matyas Laszlo Matyas warns of the influence of what he calls "goulash oligarchs"

And that does seem to be borne out in the figures. According to Capital Economics, foreign investment fell from 20% of gross domestic product (GDP) in 2010 to 17% of GDP in 2013, with 25% of GDP being a good benchmark for emerging markets.

Many lay that at the door of the unpredictable nature of the policy making of the recently re-elected right-wing government.

Mr Bojar has another theory. In his book he explains that he feels "that the entrepreneurial spirit that was so present in the early 1980s has been all but swallowed up by complacency".

While he is staunchly pro the EU, arguing that it provides better regulation, more stability and easier access to the European market for Hungary, he is concerned that being a member of it has also fostered a culture of learning to apply for grants - rather than spotting real opportunities on real markets.

"I am afraid that if we keep waiting for the EU or the state to save us, then that will lead to the same unmarketable sluggishness that we saw in the planned economy of the socialist state, when real competition was substituted by lobbying for money at different ministries," he says.

More Business stories


BBC Business Live

    PPI 11:03:
    FCA logo

    The news of the extra work for the banking industry comes in an update from the FCA (Financial Conduct Authority). It told the banks and others to re-open these rejected or underpaid cases. Martin Wheatley, chief executive of the FCA, said: "Making sure anybody previously mis-sold PPI is treated fairly now, and paid redress where its due, is an important step in rebuilding trust in financial institutions. In around two and a half million complaints this was not necessarily the case so, at our request, firms will be looking at these complaints again."

    PPI 10:58:

    The banking industry has just been landed with another massive task as part of its attempts to clean up the scandal of mis-sold payment protection insurance (PPI) policies. The FCA says that "banks, credit card providers and personal loan companies have agreed to reassess more than two and half million complaints from 2012 and 2013 which they may have either unfairly rejected or paid too little redress to." Wow.

    RBS PROFITS 10:43:
    RBS logo

    The results just published reveal the cumulative and horrific cost of mis-selling interest-rate hedging deals to business customers. This has cost it £1.4bn. That comprises £1.1m in compensation and £0.3bn in administrative costs.

    RBS PROFITS 10:34:

    The largely state owned bank RBS - which includes NatWest - has reported a 53% jump in its half-year profits to £2.17bn. The profits rose because the bank had to set aside much less money to cover bad debts. So-called "impairment losses" were just £282m in the first six months of the year, compared to a whopping £2.1bn a year ago.


    The FCA is scathing about Craig Cameron's dishonesty. "Cameron deliberately flouted regulatory requirements, which were designed to safeguard retail investors, in favour of selling high risk unregulated collective investment schemes (UCIS) for potentially lucrative gains," it said. "The UCIS have failed and the investors, many of whom should never have been exposed to these high risk investments in the first place, have paid a heavy price for his actions".


    Another dishonest financial salesman has been fined and banned by the Financial Conduct Authority (FCA). This one is Craig Cameron who has been fined £350,000. Via his firm Burlington Associates, he conned 800 people into "investing" £30m in three unregulated investments that failed. They were new property developments in Croatia, Bulgaria and Montenegro.

    WATER BILLS 09:53: BBC Radio 4

    Tony Smith, the chief executive of the Consumer Council for Water in England and Wales, has welcomed the price controls proposed by Ofwat. "We got customers pushing water companies to produce realistic plans in the first place, and we then wanted Ofwat to challenge the companies costs and particularly the cost of financing," he told the Today programme. "That's what they've done, they've come out with a much more realistic and less generous cost of financing and that's what reflected in this."


    Well done to David Herro of Harris Associates, which apparently owns 3% of Tesco's shares. Earlier this month he told the Sunday Times: "In general, dividends should be covered by free cash. This is not the case with Tesco . . . Either [the company needs to cut the dividend] or generate positive cashflow. It should be cut if it's paid for by borrowing."


    Don't panic. The wonderfully named Bardarbunga volcano is not posing problems as yet. This notice comes from the UK's National Air Traffic Control: "At present the UK Met Office advise that it is a lava eruption with no ash being emitted into the upper atmosphere. The Met Office further advise that current winds are such that if ash is emitted it is unlikely to affect UK airspace for the next couple of days."


    This morning, before the Tesco announcement, the Motley Fool website for private investors published this front page article, extolling the value of investing in Tesco shares for its "big fat dividends". The half-year dividend has just been cut by 75%. Whoops!


    Despite the heavy falls for supermarket shares, broadly speaking the market is positive and the FTSE 100 is up 22 at 6827. Frankfurt's Dax is up 50 at 9510 and Paris's Cac 40 is 26 higher at 4392. If you're planning a bit of a trip the pound is looking pretty good. Its at 1 euro 2603 and $1.6603. Bulk money market rates being quoted here of course - your tourist cash is generally lower.

    Malaysia Airlines plane

    The Malaysia Airlines plan in brief: 6,000 job cuts (a third of workforce); new chief executive; firm completely nationalised by state investment fund; long-haul routes slashed; return to profitability forecast by 2018.

    Tesco sign

    Tesco's profit warning and slashed dividend has knocked its rivals' shares for six. Sainsbury's is down 5%, Morrisons is down 4% and Marks and Spencer is down 3%. Waitrose is not listed, of course, being owned by the John Lewis Partnership. Asda is owned by US giant Wal-Mart, whose shares trade in US time.


    The market doesn't like what it's seen in the Tesco statement. Shares are down 8%.


    The job cuts - about 30% of the workforce - are part of a restructuring of the airline, which has seen a steep drop in passenger numbers following the two air disasters involving its planes.

    MALAYSIA AIRLINES 08:15: Breaking News

    Malaysia Airlines says it will cut 6,000 staff. More details to follow.

    WATER BILLS 08:12:

    Just to make it clear, the OFWAT announcement covers the 18 regulated water and sewerage companies in England and Wales.


    The Nationwide's chief economist, Robert Gardner, says the fact that the economy is picking up means the property market will probably continue to thrive. "Consumer sentiment remains buoyant thanks to declining inflation and sustained increases in employment. The first increase in interest rates still appears some way off - we expect the first increase in the first quarter of 2015."


    Tesco invents some new business jargon. "The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly. They are considered steps which enable us to retain a strong financial position and strategic optionality." Strategic optionality? Who writes that sort of thing?

    WATER BILLS 07:36:

    Average bills for water and sewerage customers may fall by around 5% in real terms between 2015 and 2020, says the water industry regulator OFWAT. It has published its draft proposals for the industry's prices. The regulated water companies put forward their price plans last December and OFWAT will deliver its final ruling this coming December.

    CAT BAIT 07:30:

    Russia's biggest lender, Sberbank, is looking to boost mortgage sales by offering a free cat to anyone willing to buy a property with money loaned from the bank.


    The lender says the outlook for the housing market remains highly uncertain: "The number of mortgage approvals fell by almost 20% between January and May, suggesting that activity was cooling. However, there was a modest rebound in June and it is unclear how much of the slowdown was due to the introduction of Mortgage Market Review rather than an underlying loss of momentum."


    Tesco is cutting its dividend payout to shareholders. It says it will set the interim dividend at 1.16p per share - a reduction of 75% from last year's interim dividend.


    Tesco's profits were previously expected to be £2.8bn for the year - now it says below £2.5bn.


    House prices are still going up says the Nationwide building society. In August they rose by another 0.8%, pushing the annual rate of inflation to 11%. It's the 16th monthly rise in a row.


    "We now expect trading profit for 2014/15 to be in the range of £2.4bn to £2.5bn. Trading profit for the six months ending 23 August 2014 is expected to be in the region of £1.1bn."


    Tesco has brought forward the start date for Philip Clarke's replacement David Lewis as boss. He now starts the job on Monday.

    TESCO PROFIT WARNING 07:05: Breaking News

    Tesco says its profits will be lower than expected. Dividends to be cut.

    Virgin planes

    Virgin Australia overnight announced losses of A$355.6m (£200.5m) for the year - more than three times its loss last time. It blamed "weak consumer sentiment" and too many planes - like its rival Qantas which reported its results yesterday.

    CO-OP VOTE 06:35: BBC Radio 4

    Big changes to the structure of the deeply troubled Co-op group will be put to a ballot of members tomorrow. Phil Dorrell, of consultants Retail Remedy, tells Today that even if the changes go through, a new leadership will have lot of work to do. "This will be a large step-change. My one concern would be that it probably shouldn't be the final change for the Co-op, they should consolidate, make sure they get their businesses back on track, and then have another look at it in a couple of years time."

    EUROZONE ECONOMY 06:22: Radio 5 live

    Wake Up to Money ponders whither the eurozone? This week France had to re-appoint its cabinet because of its failing economy. Italy re-entered recession earlier this month and even German GDP was down slightly in the latest quarter. Kathleen Brooks, from Forex.com tells the programme: "Some economies are falling at a faster rate than others but what we've really seen is the core economies Germany and France lagging behind Spain."

    HOUSE PRICES 06:14:
    For Sale signs

    The gap between house sellers' asking prices and actual selling prices is widening, says the property website Hometrack. It explains that the market is cooling down, at least in terms of prices. It says sellers in England and Wales typically got 96% of their asking price in August, falling back for the third month in a row. But it adds house prices only tend to start falling when the percentage of the asking price that sellers achieve falls below 94%.

    GOOGLE DRONE 06:03:
    Google drone

    Overnight, Google said it was developing drones to act as flying delivery vehicles. The company calls it Project Wing. But it said it would take many years to create a service with lots of drones making lots of deliveries every day. More here.

    06:00: Rebecca Marston Business reporter, BBC News

    All of that. Stay with us - we're here 'til 13:00.

    06:00: Ian Pollock Business reporter, BBC News

    Good morning, we are here again, to keep you informed, educated and possibly entertained.



From BBC Capital


  • ShanghaiThe Travel Show Watch

    From its high-speed trains trains to its luminescent skyscrapers - take a minute to discover Shanghai

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.