How Not to Implement: Hungarian Pension Reforms in an Institutionalist Perspective

Abstract

After 1989, Hungary inherited a pension system characterised by an unfair mix of social insurance and social assistance. Widespread public dissatisfaction and the near drift into a financial crisis cleared the path for the first paradigmatic multipillar reform in Central and Eastern Europe (CEE), thereby attracting major international attention. Implementation, however, did not live up to the high expectations. Ten years down the road, the Hungarian pension system stands indeed as a model, but of partial failures and unintended consequences. Applying a historical institutionalist framework, it is shown that Hungarian pensions underwent both agency based and structural institutional degeneration, caused by the system's poor and hasty institutional design. Actors' expectations failed to adapt, as policymakers indulge in extreme political budget cycles and private pension providers do not self-regulate, thereby distorting competition. Furthermore, institutional complementarities are not gainfully exploited, since unfortunate policy solutions rendered the funded pillar costly and inefficient. Consequently, Hungarian pensions require once again a structural overhaul. A coherent solution is, however, nowhere in sight and the weaknesses of PM Ferenc Gyurcsány's government do not bode well. Policymakers shall learn from the Hungarian experience that correct policy implementation may be every bit as problematic as a successful legislative phase.