Political patronage is not a business model

THE DEFEAT of Viktor Orbán on April 12th ended more than a political reign. It also pulled the plug on Hungary's largest enterprise subsidy programme. The companies that grew fat on state contracts, regulatory favours and political access are now discovering that patronage, however generous, is not a substitute for a business model. Some are adapting. Others, analysts warn, may simply not survive.

In the weeks before the April election, the Budapest Stock Exchange began pricing the obvious. 4iG... lost about half its value from its 2025 peak. Granit Bank... fell more than 20%. MBH Bank was down 12%, and Waberer's... slid over 10%. The broader market rallied: the BUX index hit an all-time high of 137,260 points on the day after Mr Orbán's defeat. The connected firms' shares bucked the recovery.

The reason is not hard to see. The new government of Péter Magyar, whose Tisza party won a two-thirds parliamentary majority, has pledged to tackle favouritism in public procurement and review contracts awarded under the previous administration. That changes the arithmetic for companies whose revenue streams ran through state contracts. Sandor Scheer, the founder of Market Epito, one of Hungary's largest construction firms and a company linked to a former Orbán ally, told Reuters: "We must and will adapt." Some firms are pivoting to smaller, more competitive projects. According to analysts who spoke to Reuters, some connected companies may not survive the transition at all.

To be sure, the disruption carries real risks. Much of Hungary's recent infrastructure spending was channelled through a narrow set of firms. Rewriting the rules mid-contract risks leaving projects unfinished and supply chains in disarray. The new government may find itself choosing between reform credibility and the messier option of keeping things running while it sorts out what is legitimate and what is not. That tension is inevitable in any system where the state is both the principal customer and the chief regulator.

The deeper problem is one of institutional durability. Mr Orbán's government from 2010 to 2026 systematically concentrated economic rents in the hands of loyalists. The Cato Institute, a libertarian think-tank, called it crony capitalism; a European Parliament report in 2022 described Hungary as an elected autocracy. The result was not merely political capture. It was the creation of a parallel economy in which success depended on proximity to power rather than competitive advantage. Companies that thrived in that environment did not necessarily fail at business. They succeeded at something else.

Mr Magyar's government has moved quickly. The state of emergency that had been in force under Mr Orbán was lifted on May 13th. On May 29th, a deal with the European Commission unlocked €16.4 billion in previously frozen EU funds, comprising €10.4 billion from the Recovery and Resilience Facility and €6.6 billion in cohesion funding. About 80 days into office, the government approved a new asset recovery body with access to bank accounts, contracts and state records. On August 2nd, Gyula Balasy... offered to hand over his businesses to the state.

That last development is revealing. Mr Balasy's offer suggests that some of the beneficiaries of the old system understand the writing on the wall. It also reveals the awkward position of the new government: accepting the surrender of private assets risks looking like confiscation; rejecting it risks appearing weak. Either way, the state is being asked to adjudicate the very relationships it is supposed to be reforming.

The real test will be whether Mr Magyar's government can build procurement rules that survive him. The European Commission's eagerness to unlock funds on the basis of initial commitments is a caution. The Commission made a similar move with Poland in 2024 and subsequently found itself questioning whether reforms were durable or merely performative. Hungary's €16.4 billion in unfrozen money creates a political incentive to move fast. Speed is not the same as sustainability.

The aim should be transparent tendering, independent oversight and a procurement system that no single politician can steer. The connected firms that survive the transition will do so because they found customers beyond the state. The ones that do not will have been exposed as what they always were: not businesses at all, but appendages of a political machine that has finally stopped running.