State Tools for Adapting to an Ever-Changing Global Environment. The Case of Hungary

In the present study I show the significant changes in Hungary’s global adaptation, focusing on the state’s instruments targeted at establishing Hungary’s macroeconomic stability and at increasing the national-economic and regional competitiveness of multinational corporations. The principal achievement of the new Hungarian economic policy is that from one of the countries in European Union’s that was the most vulnerable to the interests of multinational companies, it became a nation that even the largest corporations consider to be a partner, and a country in which it is profitable to invest. The agreements made with the largest corporations are signed on a win-win basis after thorough preparations, thus in today’s developments not only the interests of multinational companies are represented, as they were before.


Introduction
One of the most important challenges of economic policy theories-after identifying and acknowledging the possibility of market failures and government failures-is to facilitate the formulation of such economic policy practices that enable the avoiding of negative consequences originating from market failures as well as government failures (Furton & Martin, 2019). The other important challenge facing theoretical experts is to provide effective instruments and possible countermeasures to national governments so they can solve the problems caused by the latest trends of globalization, particularly by global value chains, in an environment where the decision making spread in a considerably broader range and today involve substantially more countries than ever in the past. China has become the most important trade partner of the majority of OECD countries and its market share in exports targeted at OECD countries has significantly increased (OECD, 2010, pp. 65-57). In addition to this, China and the BRIICS countries (Brazil, Russia, India, Indonesia, South Africa) have become increasingly more significant players in the field of international investment, both as investment receiving countries and investing countries (OECD, 2010, p. 49). They also participate ever more actively in the establishment of global technological networks. The role of these emerging economies is growing rapidly in global value chains as a result of their constantly increasing capacity in the fields of Research & Development as well as their innovation activities (OECD, 2010, p. 117). In the emerging BRIICS countries substantially faster economic development was characteristic than in OECD countries. China and India, just as in previous years, achieved over 10% economic growth, in contrast with the 2-5% growth characteristic in OECD countries. At the same time great differences developed between specific OECD countries, one of the endpoints was represented by Slovakia that reached 10% economic growth in 2007, the other endpoint was Hungary where at the same time, even before the beginning of the financial crisis Gross Domestic Product increase was well below 2% (OECD, 2010, p. 23). As a result of the financial crisis that began in the United States, instead of the continued expansion of the global economy a considerable shrinking occurred, which was markedly illustrated, particularly in the trend of Gross Domestic Product (GDP) indicators. In almost every OECD country, with the exception of Australia and Poland, negative economic growth became typical in 2009. This economic downturn was particularly severe in Mexico, Ireland, Iceland, Finland, Hungary and Turkey where the extent of GDP decrease exceeded 6% (OECD, 2010, p. 23).
We find the greatest foreign presence in the case of the financial sector. Some Western-European banks have established firm positions primarily in Central-European countries such as Slovakia, the Czech Republic and Hungary, during their accession into the European Union, where the share of multinational financial institutions exceeded 70% of the total turnover (OECD, 2010, p. 165). At the same time the difference is conspicuous from this aspect between these three countries and the also Central-European Austria and Poland, specifically in the case of the latter countries the share of multinational financial institutions did not reach 30% of total financial and insurance product turnover.
The gross operational profit of companies controlled by foreigners is one of the indicators of the profitability of foreign owned enterprises in the receiving countries. From the aspect of foreign investments, profit yields were the highest in Slovenia, Hungary and the Czech Republic in comparison with other countries (OECD, 2010, p. 179). All of this shows that in the case of investments in these countries foreign companies are motivated not only by cheap labor but more decisively by the prospect of high profit.
Overall, Hungary became outstandingly vulnerable to large multinational corporations even in international comparison in the past decades. This is mostly supported by the fact that the trade balance showed the largest deficit here, thus the extent of capital outflow was the highest in the case of www.scholink.org/ojs/index.php/uspa Urban Studies and Public Administration Vol. 3, No. 2, 2020 4 Published by SCHOLINK INC. Hungary when the crisis began. In addition to this, the profit realized by foreign companies was one of the highest here and the extent of import penetration was also outstanding, furthermore the influence of foreign companies in the financial sector was conspicuously high. The technological balance also became strongly negative and the domination of multinational corporations in the operation of Research and Development activity became characteristic. In the area of food product, beverage and tobacco product sales as well as in the wholesale and retail sectors foreign companies achieved an outstanding share in international comparison in Hungary. All of this considerably intensified numerous negative consequences of globalization and the financial economic crisis. Among other reasons, this is why the economic downturn was the most severe in Hungary at the beginning of the crisis.

Reduction of Hungary's National Debt Ratio, External Exposure and Vulnerability
In the beginning of October 2008 the Hungarian financial system experienced some critical days when the Hungarian state securities market completely froze. For a short period even price quoting was interrupted and there were multiple unsuccessful Treasury bond auctions. The fall of the stock exchange exceeded 40% in the months of September and October. Foreign entities withdrew a substantial amount of capital-HUF 1,300 billion-in this period. On the state securities market one sixth of the investments of foreign investors disappeared from the country within a few weeks.
Meanwhile access to foreign currency by banks was also severely impeded. On the interbank markets their access to the necessary foreign currency sources was increasingly difficult and expensive. This even shed doubt on the ability of banks to sustain their foreign currency lending activities. The financial crisis reached every significant segment of money and capital markets, and this culminated simultaneously with the nose diving of the Forint's exchange rate. The mood of these times is characterized well by the fact that many were sounding the alarm bells of government bankruptcy, while others began speculating on the collapse of banks or the Forint. Investors, analysts and credit rating organizations all considered the vulnerability of Hungary increasingly significant. Credit rating organizations successively downgraded Hungary's debt rating. In the structure of Hungary's national debt the share of foreign currency debt increased as a result of the credit market crisis and the USD 25 billion IMF-WB-ECB loan taken in 2008. As a result of exchange rate fluctuations the increase of foreign currency exposure represented a substantial risk. The excessive presence of foreign investors represented a grave risk to the stability of Hungary's state securities market, and as a result to the financing of the Hungarian budget. The reference yields of Hungarian Treasury bonds significantly increased, thereby the financing of the budget deficit and the national debt became increasingly expensive. Despite the rise in yields foreign presence on Hungary's state securities market did not grow but drastically dropped.
One of the principal sources of Hungary's vulnerability was its high national debt. The "Maastricht" national debt was HUF 21,750 billion in 2010, which equaled 81.3% of GDP. Since over one half of www.scholink.org/ojs/index.php/uspa Urban Studies and Public Administration Vol. 3, No. 2, 2020 5 Published by SCHOLINK INC. the debt was denominated in foreign currency, if the Forint's exchange rate weakened, the Forint value of the debt rose. The economic goal and principle of the Hungarian Constitution effective as of 01 January 2012 was a balanced, transparent and sustainable national budget, as well as a decreasing national debt trajectory, the rate of which it intends to reduce to 50% of GDP. The main rules set forth in relation to national debt reduction in the new Constitution were specified in detail in the cornerstone law on Hungary's financial-economic stability (Stability Act). Among other things, this law contains such guarantee elements according to which the Government is obligated to review the fulfillment of the national debt reduction rule semiannually. If an irregularity is detected, the Government must initiate an amendment of the current national budget to ensure that the national debt reduction rule is 1) According to the requirements specified in the Hungarian Constitution if the debt to GDP ratio is higher than 50 percent, only such budget can be approved, which leads to the reduction of the debt ratio year by year, meaning that fiscal policy shall support debt reduction. The primary objective of debt management is to support the debt reduction accordingly.
2) One of the main factors that led to the vulnerability of Hungary in recent years was that the higher part of the government debt had been financed by non-resident investors. Increasing domestic savings and the domestic financing of the debt reduce the risks of public debt and support macroeconomic stability in the long term. Thus the second objective of ÁKK is to develop further the domestic investor base, and especially to increase the retail debt program.
In the course of management the requirement is to finance an increasing share of the budget deficit by retail sale of treasury bonds to citizens.
3) Decreasing debt ratio and increasing domestic financing enable to significantly reduce the share of foreign currency debt within the total debt, which is the third objective of ÁKK.
The emphasized goal of Hungarian economic policy is to increase the share of domestic financing within the total national debt and to improve the structure of the national debt. Source: own edition based on the annual report of ÁKK (ÁKK, 2018).
In the summer of 2012, The Hungarian National Bank (MNB) started an interest rate reduction cycle, which was followed by two other such cycles. As a result of this by June 2016 the central bank's base interest rate was reduced by 610 basis points, to 0.9 percent. In addition to this, in the spring of 2014 MNB commenced a Self-Financing program (MNB, 2015). The ultimate goal of the program was the reduction of the Hungarian economy's external vulnerability. For the achievement of this, by transforming its central bank instruments the MNB incentivized banks to invest their excess liquidity into the securities market, which as a result of Hungary's characteristics primarily represented higher demand on the Treasury bond market. The Self-Financing program was not a series of centrally specified steps, it was rather implemented as a result of cooperation between the MNB, the Government Debt Management Agency and banks.
One of the most important pillars of the national debt management strategy has been the domestic financing of the national debt, and in recent years this has been the most emphasized in Hungary as well as internationally. This process was primarily started as a result of the recognition that foreign investors can react extraordinarily sensitively to various macroeconomic and financial shocks. Thereby, they may further increase the vulnerability of the country's economy. This exponentially affects highly indebted countries, such as Hungary, since their constant and large volume refinancing requirements necessitate a well-functioning government securities market that is preferably free of major disruptions.
ÁKK initiated a campaign aimed at the retail sale of treasury bonds to citizens, as a result of which in recent years it has achieved spectacular success in the retail sale of Treasury bonds intended directly for citizens. Consequently, since 2011 Hungarian households have taken an increasingly large role in the financing of the national debt. As a result of these actions the Hungarian state used Forints to pay back foreign currency debt in the value of EUR 9 billion, and the balance of the MNB has tightened accordingly. The share of foreign currency debt in the total debt has been reduced from 50 percent to below 30 percent, while the gross external debt has been reduced as well. Hungary's debt rate dropped from 81.3 percent of GDP in 2010 to 74.3 percent in the third quarter of 2016.
The previously very typical foreign currency exposure has been considerably reduced as a result of the above measures. A higher than planned portion of maturing foreign currency debt has been successfully refinanced by domestic Treasury bond issues and with the involvement of domestic investors, thus the share of foreign currency debt within the national debt dropped from 44% in 2010 to 22%.
The foreign currency loan exposure of the national budget and Hungarian citizens was successfully eliminated. In 2009 Hungary's total net financial assets reached a historic negative peak according to balance reports, with a negative HUF 31,961 billion. Subsequently to this, by the end of 2014, in a period of five years this number was reduced to a negative HUF 18,408 billion, in comparison with 2009 our foreign debt was reduced by HUF 13,500 billion (Novoszáth, 2017).
The further reduction of foreign debt is a difficult task for the next years. Hungary's external vulnerability was reduced. The London based financial analysis company, Capital Economics, first issued its publication presenting the vulnerability of specific countries in 2013. See the detailed methodology used for the compilation of the reports in the publication entitled "Emerging Markets

The Principal Priorities of the New Hungarian Foreign Economic Strategy
Hungary The country's fundamental foreign trade characteristics also unquestionably support its high level of dependence, and as a result its external vulnerability to primarily European multinational companies.
80% of Hungary's export is tied to these large corporations, while majority Hungarian owned small and medium size companies represent 11% of its total export. Three quarters of the direct foreign investment flowing into Hungary originated from EU member states, primarily Germany. From the aspect of GDP growth the reevaluation of the role of imports is also crucial, from the viewpoint of Hungary the increase of net exports is the desirable goal. The primary goal is for quick growth in export to facilitate placing Hungary on a faster economic growth trajectory even in the medium term, in the period until 2015. A highlighted component of Hungary's external economic strategy is to increase Hungarian export performance, and to make the structure of Hungarian export more balanced (Hungarian Government, 2012). Making the structure of Hungarian export more balanced includes two significant components, geographic and product structure diversification. The main goal of geographic diversification is to increase Hungary's export share towards countries with growing purchasing power worldwide, while retaining and further developing the traditional economic-trade relations primarily with Western European countries, in order to make the Hungarian external economy more resilient against a possible drastic drop in European demand. Therefore, the target regions of geographic diversification are the fast growing eastern countries (China, India, Russia), the V4 countries (Czech Republic, Hungary, Poland, Slovakia) and the states in the Carpathian Basin. In addition to this, the export activity of companies that are active on Hungary's traditional export markets must be "linked-in" mainly by increasing the role of Hungarian suppliers (policy of "Eastern Opening-Wester Opening").
Among others, this objective is served by the system of strategic cooperation agreements with significant international companies that are active in Hungary, which was initiated by the Orbán Cabinet. Hungary intends to become the production hub of Central-Europe, and for this the country provides favorable conditions for foreign investors. At the same time, linking Hungarian small and medium sized businesses into this system is an important part of the strategic agreements aimed at increasing export. According to the original plans they intended to sign a strategic agreement with 40 companies. However, the system of strategic agreements proved to be so successful that 81 such strategic cooperation agreements were signed from June 2002 to April 2019 (Note 2).
In order to achieve product structure diversification, in harmony with the directions of highlighted The goals of Hungary's external economic strategy include the further improvement of the trade balance in the next 5 years. This is an important factor in preserving the economy's external balance. In the case of the current account balance, income flow abroad originating from direct capital investments is a problem. This was successfully counterbalanced by the trade balance in recent years. Therefore, in the areas where there is a realistic opportunity for it, in order to improve the balance we must strive to increase the vertical integration of the economy and to replace imports with Hungarian products whenever that is rational (primarily in the case of agricultural and food industry products).
In Hungary's external economic strategy the implementation of the goals related to the foreign investments of Hungarian companies as well as the increasing of their capital gain, furthermore incentivizing the reinvestment of the profit realized by foreign investors may contribute to the rise of the GNI/GDP ratio. strategic sectors to be given highlighted attention, and to direct as high share of investment as possible into the lagging regions of the country (Hungarian Ministry for National Economy, 2011, pp. 19-20).

The New Hungarian National Investment Incentive Framework System (Note 3 Note 4)
In the past 15 years in Hungary, for the purpose of increasing its international competitiveness and the creation of new jobs, several targeted state subsidy systems have been created. Supplementing each other, these systems provide state subsidies to companies operating and settling in Hungary, along specific national economy interests. Hungary's European Union accession fundamentally changed the state subsidy system that was characteristic in the nineties. As a result of this, on the one hand, the state  projects that won subsidies. They were followed by companies involved in the manufacturing of computers, electronic or optical products (14%), outperforming companies involved in the manufacturing of rubber and plastic products (12%), as well as pharmaceutical manufacturers (8%). 7.7% of subsidies were received by businesses engaged in the areas classified among professional, scientific or technical activities, info-communication activities were granted 2.3%. At the same time, from the aspect of average subsidy amount per each job position, these two latter sectors were ranked behind (Pomogyi, 2017 (Novoszáth, 2018b).

Economy-Background Analysis
Competition that is ongoing in the economy occurs not only between participants of various characteristics and sizes, but also on different levels, which are the following: • between products and services; • between enterprises, companies and institutions; • between countries and nations; • between regions; • between regional alliances extending the multiple countries, integrational organizations.
A council in the United States of America dealing with industrial competitiveness defined the concept of competitiveness as follows: "The competitiveness of a nation is the measure of to what level it can produce products and services that can be sold on the world market under perfect competitive conditions, while the real income of the nation's citizens grows" (Rapkin et al., 1995, p. 2). According competitiveness is determined from the INPUT side, and is mostly affected by productivity, investment rate, research and development expenditures and the standard of education. According to other approaches competitiveness is determined from the OUTPUT side, and is mostly found in the trends of the trade balance and the world market share of the cutting-edge technology industries of the specific nation (Bakács, 2003).
In reality, there is no unified definition for the concept of competitiveness, economists, researchers and research institutions often interpret its essence divergently. Since the theoretical basis of competitiveness analyses differ from each other or are unclarified, this makes the comparison of their results more difficult. Ádám Török classifies macro-level competitiveness analyses into three groups: in supply (a) and demand side (b) approaches the main definers of competitiveness are the cost factors of external economic performance (Török, 2008): (a) or the value of the performance itself.
(b) while according to the third approach competitiveness is the economy's comprehensive general condition indicator.
(c) This latter is represented by institutions who regularly publish the competitiveness ranking of countries, such as the World Economic Forum (WEF) or the IMD World Competitiveness Center.
The competitiveness reports and comparisons of WEF and other globally operating international organizations are unquestionably useful and substantive, at the same time several legitimate doubts have arisen in their regard. On the one hand, they wish to reinstitute a type of capitalist system in the world and create one in the less developed countries of the world, which existed in developed capitalist nations before the appearance of welfare states and their social policies. On the other hand, they represent a neoliberal approach, according to which the state's only responsibility is to serve large corporations and to create the various conditions for their successful operations. Therefore, we would try in vain to find among their viewpoints such things as how the state takes care of the security of all members of society, what welfare functions the state provides, as well as how much the state's social policy counterbalances the socially unfavorable effects of functioning markets. Thirdly, in the evaluations of WEF today the approach is still prevalent, which in the past was dominant in development-economics but was later dismissed, that interpreted the development of nations as a unilateral process and accordingly divided it into uniform phases. Consequently, it explained the development of specific nations or their lagging condition exclusively with their internal endowments, capacities and efforts, or the absence thereof (Szentes, 2006). The EU Regional Competitiveness Index (RCI), a report analyzing the competitiveness of EU regions that was issued for the third time in 2016, represents another theoretical approach. This report formulates the ranking of the total of 263 territorial-statistical regions based on indicators that are classified into three main groups (fundamentals, efficiency, innovation). In this ranking the competitiveness indicator of every region in Hungary was downgraded compared to 2013: Northern-Hungary (RCI=20) had the greatest downturn, but the competitiveness of even the most developed region, Central-Hungary (RCI=49), failed to reach the EU average (RCI=55) (Annoni et al., 2017). A separate Commission document analyses the competitiveness situation of lagging (with low economic growth and low-income) regions (of the 47 regions 4 are in Hungary). It was established that the macro-environment is insufficient here. Low productivity and employment rate as well as the deficient education and skill level contribute to low competitiveness. Furthermore, low innovation level and the insufficiently operated institutional background undermine their potential development. This has a particularly negative effect on young people moving away from these regions (European Commission, 2017).
Eastern-Central-European market economies significantly differ from the European type market economy model, because the share of domestic ownership is low, while foreign ownership is high.
Therefore, the task of our research was not to designate the factors affecting Hungary's competitiveness in the rather sophisticated space described by various studies dealing with competitiveness and to evaluate it based on the different dimensions specified by those, rather to present the effect of a specific transnational company on the competitiveness of the regional and national economy. Thus, the study intends to formulate its own evaluation system, which assesses the effect of a transnational company on the competitiveness of the nation from the aspect of the receiving country. The study's subject ranges were the following: indicators, export, import as well as the expected future plans of the German company (Fekete, 2018). Audi AG is a member of the Volkswagen concern, the world's fourth largest automotive manufacturing company group. As a member of the Volkswagen concern, Audi produced about 1.9 million cars in 2016 with its worldwide network of subsidiaries stretching from Japan to Brazil and from Italy to Since its establishment in Győr in 1993, Audi Hungária Ltd has grown to become one of the largest exporters and most capital rich companies in Hungary. Audi Hungária Ltd has been the company achieving one of the highest revenues in Hungary and Central-Europe for years (Deloitte, 2016).
Hungary's economy and industry depends on the automotive industry to such extent that the summer vacation period at the Győr factory of Audi can be detected in national statistics, in measurable percentage points. Today Hungary would be unimaginable without Audi, just as the German automotive concern would be unimaginable without the activities performed in Győr. In one of the world's most successful car factories the overwhelming majority of the work is done by Hungarian employees, proving that Hungarian industry is capable of producing world standard products again. Hungária Motor Ltd originates from engine and car sales toward the members of Volkswagen concern.
The most significant buyer is Audi AG. billion employer's contributions after its employees (Novoszáth, 2018a).
According to the 2017 report of the Bisnode business information services company, AUDI was Hungary's fourth largest employer after Hungarian Post Ltd, TESCO Global and Spar Hungary (Stubnya, 2017 several state-of-the-art technological procedures, such as its aluminum plate production and processing.
According to the January 2017 announcement of the German Audi AG, the production of the company's smallest recreational vehicle, its model Q3, will be relocated from Martorell to Győr. In parallel with this a new engine factory will be built in Győr as well. This was announced by Peter Kössler, the company's CEO, on 19 October 2016. In Győr the preparations have commenced for the production of the future model Q3, where for this reason a new auto body factory will also be built.
The construction of the new auto body factory started in June 2017, which will be necessary for the mass production of the Q3 that will expectedly begin in 2018. Starting in the 2018 financial year they intend to produce electric engines in Győr, therefore the current engine selection will have to be expanded. A competence center has already been established for this purpose, and preparations have commenced for the start of mass production next year.
Recognizing the importance of knowledge centeredness, for the purpose of the development processes and in order to improve the competitiveness, the City of Győr established a Higher Education and Industry Cooperation Center (FIEK), the concept of which was developed jointly by Széchenyi István University of Győr, Audi Hungária Motor Ltd and the local government of Győr City with County Rank (Fekete, 2017).
In 2016, among Audi's subsidiaries the Győr subsidiary proved to be by far the most of profitable, with a profit of EUR 342 million 805 thousand. From this aspect the second place belonged to Audi

Conclusion
In recent years Hungary has achieved significant successes in the area of global adaptation. The country's vulnerability, its foreign currency exposure and national dent rate have been reduced, Hungary's trade balance and national budget balance have become positive in the long term. The Hungarian economy is much more resilient and less vulnerable than it was in the past, its macroeconomic stability has grown considerably. By today Hungary's ratio of foreign currency debt has diminished to a level that is favorable in the region. From the aspect of external vulnerability, among the region's countries Hungary's external position has improved to the highest extent. The increase in the weight of Hungarian actors within financing and as a result of this the significant reduction of vulnerability has contributed to the fact that in 2016 Hungary's credit rating was upgraded and is now in the recommended for investment category at all three primary international credit rating organizations. Government activity in Hungary that is capable of influencing global processes has considerably intensified. As a result of this the Hungarian economy has become by far more resilient against drastic downturns of market demand. All of this has facilitated the achievement of external balances. Hungary's trade balance and budget balance have been in positive territory for the long term, the country's foreign currency reserves and financial assets have substantially increased.
In the case of Hungary, direct foreign investments have considerably grown. As an effect of numerous job creating investments, the employment rate is near the level of full employment, thus today in Hungary labor shortage represents a much more common problem, rather than unemployment and inactivity as it was characteristic in the past. Wages as well as the savings of citizens and companies have significantly risen. In comparison to 2010 the deficit of the current account balance and the volume of capital outflow have been considerably reduced. At the same time, decision makers can hardly rest assured yet, since the volume of capital outflow is still substantial today and Hungary's dependence on foreign companies continues to be one of the highest in the European Union. Despite the dynamic increase of wages in recent years, Hungarian wages today are still far behind the level of developed European Union member states. There are still great differences in development between various regions of the country.
In any case, it is hope inspiring that in the post-financial crisis world the center of gravity of economic development within Europe may be relocated from the West to Central-Europe. In the course of this the Carpathian Basin region may be given a historic opportunity to become the intersection of the Asian region-dynamically developing based on labor-and the Norther-European and Western-European regions' development guided by innovation. However, another global crisis may easily evaporate these expectations.